2015 (12) TMI 141 - AT - Income Tax

Rebate of claim u/s 88E - whether section 88E is a specific provision and, therefore, it has to be given preference over other provisions and the computation had to be made as contemplated under that section? - set off being claimed u/s 70 of the Act in regard to loss incurred by assessee on account of arbitrage and jobbing transactions on which admittedly STT was paid - Held that - The object of Section 88E clearly is to protect the assessee from double taxation. Firstly, by way of payment of STT and secondly by way of income tax on the income earned from STT transaction. The concept of total income as contemplated under Section 2 sub-section (45) cannot be imputed here. The opening words of section 2 dealing with the definition are that unless the context otherwise requires. Therefore, the total income as contemplated u/s 88E is not same as contemplated u/s 2(45). It has been considered in entirely different context in section 88E. The term total income as interpreted by various decisions relied upon by ld. Counsel cannot be made applicable to the facts of the case which is in context to Section 88E. Therefore, we do not find any reason to interfere with the order of Ld. CIT(A) in holding that business loss occurred on arbitrage and job which were STT paid transactions could not be adjusted against the non-STT transaction belonging to clients. It had to be deducted from STT paid transactions only on assessee s own account. There is one more reason. The rebate u/s. 88E is allowable from the tax paid. However, in case of arbitrage loss assessee had admittedly not paid any income tax. Therefore, if assessee s plea is accepted then it would lead to double relief to assessee firstly, by allowing set off u/s 70 against STT income and then allowing rebate from income-tax. This is definitely not the intention of legislature. We accordingly do not find any reason to interfere with the order of Ld. CIT(A) and ground taken by assessee is dismissed.

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 147 of the Income Tax Act.
2. Allocation of establishment expenses between STT and non-STT income.
3. Set-off of arbitrage/jobbing loss against non-STT income.
4. Correct computation of rebate under Section 88E.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 147:
The assessee challenged the initiation of proceedings under Section 147, arguing that there was no escapement of income but only an excess rebate. The Tribunal upheld the reassessment proceedings, stating that excessive relief under the Act is deemed as escapement of income as per Explanation to Section 147. The original assessment did not examine the allocation of expenses between STT and non-STT income. The Tribunal concluded that the reassessment aimed to correct the legal application regarding the rebate under Section 88E, thus not constituting a change of opinion.

2. Allocation of Establishment Expenses:
The assessee argued that establishment expenses were primarily for client transactions, thus should be allocated towards non-STT income. The CIT(A) allocated 83% of expenses to STT transactions based on the turnover ratio. The Tribunal, considering the volume of transactions and the necessity of infrastructure, decided that 25% of establishment expenses should be allocated to STT transactions and 75% to non-STT transactions.

3. Set-off of Arbitrage/Jobbing Loss:
The assessee claimed the right to set off arbitrage/jobbing losses against non-STT income. The CIT(A) disagreed, stating that these transactions involved STT, thus the loss should be considered in STT-related transactions. The Tribunal upheld this view, emphasizing that Section 88E aims to prevent double taxation. Allowing the set-off against non-STT income would result in double relief, which is not the legislative intent.

4. Correct Computation of Rebate under Section 88E:
The Revenue appealed against the CIT(A)'s computation of rebate under Section 88E, which allowed an excess rebate of Rs. 12,86,352. The CIT(A) corrected the AO's calculation by including the value of closing stock and allocating common expenses based on transaction volumes. The Tribunal found no error in the CIT(A)'s computation and dismissed the Revenue's appeal.

Conclusion:
Both the assessee's and the Revenue's appeals were dismissed. The Tribunal upheld the reassessment proceedings under Section 147, revised the allocation of establishment expenses, denied the set-off of arbitrage/jobbing losses against non-STT income, and confirmed the CIT(A)'s corrected computation of rebate under Section 88E.