2013 (5) TMI 411 - HC - Income Tax

Loss on sale of shares - whether can be set off against income from sale of shares exempted not forming part of income under Section 10(38) - Held that - Section 10 falling under Chapter III of the Act contemplates the income which are not included in the expression total income . Sub Clause 38 of Section 10 contemplates that any income arises from the transfer of Long Term Capital Assets is not an income. Therefore, the income from the sale of shares of the relevant year is not an income, which can be set off from the loss from sale of shares earned in the previous year - order of the Tribunal does not warrant any interference

Summary

Issues:
1. Whether loss on account of sale of shares can be set off against income from sale of shares exempted not forming part of income under Section 10(38) of the Income Tax Act, 1961.

Analysis:
The judgment pertains to an appeal under Section 260A of the Income Tax Act, 1961, challenging an order by the Income Tax Appellate Tribunal for the assessment year 2005-06. The main issue revolves around the permissibility of setting off a loss from the sale of shares against income from the sale of shares exempted under Section 10(38) of the Act. The appellant disclosed Long Term Capital Gain of Rs.6,17,14,300, while the Assessing Officer sought to adjust a brought forward loss of Rs.1,79,71,926 from sales of shares against the current year's profit from share sales.

The Commissioner of Income Tax(Appeals)-II Ludhiana upheld the Assessing Officer's decision, but the Tribunal ruled in favor of the assessee citing a precedent from the Mumbai Bench. The Tribunal held that the loss from the sale of shares cannot be set off against gains exempted under Section 10(38) of the Act. The Court analyzed Section 10 of the Act, specifically Sub Clause 38, which excludes income from the transfer of Long Term Capital Assets from the definition of 'total income'. Therefore, the income from the sale of shares in the relevant year, being exempt under Section 10(38), cannot be offset against the loss from share sales in the previous year.

Consequently, the Court found no grounds to interfere with the Tribunal's decision and dismissed the appeal. The judgment clarifies the interpretation of Section 10(38) regarding the treatment of income from the sale of shares and the permissibility of setting off losses in such scenarios.