2024 (12) TMI 1281 - HC - Income Tax

Exemption of LTCG claimed u/s. 10 (38) - computation of book profits for the purpose of determination of MAT under Section 115JB - HELD THAT - Section 10 (38) of the Act was added by virtue of the Finance Act, 2006 to abundantly clarify that the income from capital gains on certain assets, which are excluded from the income under Section 10 (38) of the Act, would nonetheless, be included in computing book profits for the purposes of Section 115JB of the Act. Proviso to Section 10 (38) of the Act cannot be read in the reverse to mean that if the gains are not included as book profits under Section 115JB of the Act, the same are liable to be included as income for the purposes of assessment to tax under the normal provisions, notwithstanding that the gains are required to be excluded from income chargeable to tax under Section 10 (38) of the Act. No fault with the decision of the CIT(A) as well as the ITAT in rejecting the Revenue s contention.

Issues Involved:

1. Whether the Long Term Capital Gains (LTCG) claimed as exempt under Section 10(38) of the Income Tax Act should be included in the Assessee's income chargeable under the normal provisions of the Act.
2. Whether the LTCG should be included in the book profits for the purpose of computing Minimum Alternate Tax (MAT) under Section 115JB of the Act.

Detailed Analysis:

1. Exemption of LTCG under Section 10(38):

The primary issue in this case was whether the Assessee was justified in claiming an exemption for LTCG under Section 10(38) of the Income Tax Act, which the Assessing Officer (AO) had disallowed. The Revenue argued that the LTCG, amounting to Rs. 2,47,52,73,951/-, should have been included in the Assessee's income chargeable to tax under the normal provisions of the Act. The Assessee contended that these gains were exempt under Section 10(38), as they arose from the sale of equity shares in a company where the transactions were chargeable to securities transaction tax.

The CIT(A) and the ITAT both upheld the Assessee's claim for exemption, stating that the entire amount of LTCG was not liable to be included as income chargeable to tax by virtue of Section 10(38). The court observed that the conditions stipulated in clauses (a) and (b) of Section 10(38) were fully satisfied, and the Revenue's contention that the proviso to Section 10(38) disallowed the exemption was not supported by the plain language of the statute. The proviso was intended to ensure that LTCG, although exempt from total income, should be considered for computing book profits under Section 115JB, but it did not negate the exemption under the normal provisions of the Act.

2. Inclusion of LTCG in Book Profits for MAT:

The second issue concerned whether the LTCG should be included in the book profits for the purpose of MAT under Section 115JB. The AO had included the LTCG in the computation of book profits, which the Assessee had contested. However, the CIT(A) did not interfere with the AO's decision regarding the computation of book profits for MAT purposes. The court noted that the issue of including LTCG in book profits for MAT was not part of the Revenue's appeal before the ITAT and was not the subject of the present appeal. The court clarified that the proviso to Section 10(38) was meant to ensure that LTCG, although exempt from total income, should be included in book profits for MAT computation, but this did not affect the exemption under the normal provisions.

Conclusion:

The court concluded that the Revenue's appeal was confined to the question of exemption under the normal provisions, and not the computation of book profits under Section 115JB. The court found no fault with the decisions of the CIT(A) and the ITAT in rejecting the Revenue's contention and upheld that no substantial question of law arose in the present appeal. Consequently, the appeal was dismissed, affirming the Assessee's entitlement to the exemption under Section 10(38) for the LTCG in question.

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