2013 (7) TMI 650 - AT - Income Tax

Rate of tax on LTCG - Section 112 of the Income Tax Act,1961 read with Section 48 of the Act - Long-term capital gains be worked out each transaction wise and tax should be charged at 10 percent or 20 percent (without indexation/with indexation respectively) whichever is beneficial to the assessee/at the option of the assessee, ignoring that the law with respect to taxation of long-term capital gain on sale of shares had undergone a change with effect from 2000-01 wherein long-term capital gain on sale of shares could be offered to tax at 10 percent plus surcharge instead of 20 percent plus surcharge, if the cost is not modified by adopting the cost inflation index Held that - Legislature intended to tax the capital gains with indexation at 20 percent and to limit the tax on capital gains on transfer of listed securities or units or zero coupon bonds computed without indexation to 10 per cent thereof Appeal dismissed Decided against the Revenue. Decision in Mohanlal N. Shah (HUF) v. Asst. CIT 2008 (9) TMI 614 - ITAT MUMBAI followed.

Summary

Issues:
1. Correctness of the Commissioner of Income-tax (Appeals)'s order regarding the taxation of long-term capital gains on the sale of shares.
2. Application of the provisions of section 112 of the Income-tax Act for long-term capital gains arising from the transfer of listed securities/units.

Analysis:
1. The Assessing Officer disputed the correctness of the Commissioner of Income-tax (Appeals)'s order concerning the taxation of long-term capital gains on the sale of shares for the assessment year 2001-02. The dispute revolved around whether long-term capital gains should be calculated transaction-wise and taxed at either 10 percent or 20 percent, based on the option beneficial to the assessee, considering the change in taxation laws from 2000-01. The Assessing Officer argued that the assessee incorrectly adopted the cost inflation index instead of the actual cost of acquisition, leading to a lower tax rate. The Tribunal referred to relevant sections and upheld the Commissioner's decision, emphasizing the aggregation of capital gains from each asset and the application of tax rates specified under section 112 for listed securities or units.

2. The second issue pertained to the application of section 112 of the Income-tax Act for long-term capital gains arising from the transfer of listed securities/units. The Assessing Officer contended that the tax rate should be 10 percent without indexation, while the assessee argued for indexation at 20 percent. The Tribunal relied on a previous decision involving similar circumstances and reiterated the legislative intent to tax capital gains with indexation at 20 percent, while limiting the tax on transfers of listed securities or units without indexation to 10 percent. Consequently, the Tribunal dismissed the appeal, highlighting the consistent application of relevant provisions and decisions in similar cases.

In conclusion, the Tribunal upheld the Commissioner of Income-tax (Appeals)'s order, emphasizing the correct computation of long-term capital gains and the application of tax rates as per the Income-tax Act provisions. The decision underscored the importance of adhering to statutory requirements and judicial precedents in determining tax liabilities related to capital gains on the sale of shares and listed securities/units.