2024 (12) TMI 1104 - AT - Income Tax

Capital gain computation - Indexed cost of shares of foreign company deduction while computing the long term capital gain - HELD THAT - We noticed that the second proviso to section 48 of the Act, which grants indexation benefit, does not distinguish assets into assets held in India and in foreign countries. Accordingly, assessee cannot be denied benefit of cost inflation index in respect of assets held in foreign countries. Accordingly, we are of the view that the AO was not justified in not granting indexation benefit to the assessee in respect of sale of shares of foreign company. Accordingly, we affirm the order passed by the CIT(A) on this issue. Appeal filed by the Revenue is dismissed.

Summary

Issues:
Whether the assessee is entitled to deduct indexed cost of shares of a foreign company while computing long term capital gain.

Analysis:
The judgment pertains to an appeal filed by the Revenue challenging the order of the Ld. CIT(A) regarding the deduction of indexed cost of shares of a foreign company for computing long term capital gain. The assessee, engaged in the business of fragrance compounds, sold shares of a foreign subsidiary under a buy-back scheme resulting in a long term capital loss. The AO denied the benefit of cost inflation index for foreign assets, reducing the capital loss. The Ld. CIT(A) allowed the indexation benefit, leading to the Revenue's appeal.

The Tribunal analyzed the provisions of section 48 of the Income Tax Act, emphasizing the second proviso allowing the benefit of cost inflation index without distinguishing between assets held in India or abroad. The Tribunal held that since the Act imposes tax on the assessee, its provisions should be strictly applied without room for equity considerations. Referring to the Principles of interpretation, the Tribunal emphasized that clarity in the section negates the need for internal or external aids for interpretation.

The Revenue relied on a previous decision to argue against granting indexation benefit for foreign assets. However, the Tribunal noted discrepancies in the facts of the cited case, highlighting the ambiguity regarding the currency used for the investments. Consequently, the Tribunal rejected the Revenue's reliance on the prior decision due to lack of factual parity.

Ultimately, the Tribunal affirmed the Ld. CIT(A)'s decision, ruling in favor of the assessee and dismissing the Revenue's appeal. The Tribunal held that the assessee cannot be denied the benefit of cost inflation index for foreign assets, as the second proviso to section 48 does not differentiate between assets held in India and abroad.

In conclusion, the Tribunal upheld the order allowing the indexation benefit for the assessee's sale of shares of a foreign company, emphasizing the clear provisions of the Income Tax Act and rejecting the Revenue's arguments against granting the benefit.