2016 (6) TMI 941 - AT - Income Tax

Short Term Capital Gains (STCG) on sale of equity shares on which STT was paid - amount taxed twice as the assessee has wrongly showed the income from business by wrongly including the STCG in the profit and loss account and also showing it under the head capital gains (others) instead of under the head short term capital gain u/s 111A - Held that - We find that the assessee has income from business of ₹ 2,93,474/- and the income from STCG from sale of equity shares which are covered under the provisions of section 111A amounting to ₹ 22,61,528/-. However, at the time of filing the return, the amount of capital gains of ₹ 22,61,528/- was wrongly included in the business income and thus the business income was showed at ₹ 25,55,002/- instead of ₹ 2,93,474/- thereby wrongly returned the income from STCG under the head income from the business and thus business income was overstated by ₹ 22,61,528/-. Secondly, we also find that short tax gain on sale of shares on which STT was paid which was liable for tax at the rate of 10% was wrongly shown under the head STCG (others), thereby offering the tax at the rate of 30%. Since the assessee has wrongly returned the income under the wrong heads and also at wrong rate of tax it is an apparent mistake on the face of record which should have been rectified by the authorities below upon being pointed out by the assessee. However, the submissions of the assessee did not find favour with the Income Tax Authorities and hence the matter is in appeal before us. It is a trite law that any income cannot be taxed twice and this amounts to double taxation of the same income which is not permissible under the Income Tax Act. We, therefore finding merits in the submissions of the ld.AR, set aside the order of ld.CIT(A) and direct the AO to assess the income from business at ₹ 2,93,474/- and also the income from STCG on sale of shares of ₹ 22,61,528/- under the head STCG under section 111A. We direct the AO to assess the STT at the rate of 10% as the STT was paid on the sale of shares. - Decided in favour of assessee

Summary

Issues:
- Taxation of Short Term Capital Gains (STCG) on sale of equity shares at the wrong rate.
- Incorrect inclusion of STCG in business income.
- Disagreement on rectification of mistakes in tax assessment.

Issue 1: Taxation of Short Term Capital Gains (STCG) on sale of equity shares at the wrong rate:
The appeal concerns the incorrect taxation of Short Term Capital Gains (STCG) on the sale of equity shares at a higher rate. The assessee mistakenly showed the STCG under the head "Income from business" and "STCG (others)" instead of categorizing it correctly under the provisions of section 111A of the Income Tax Act, which mandates a lower tax rate of 10%. The authorities taxed the STCG at a higher rate of 30%, resulting in double taxation of the same income. The contention was that the mistake was apparent on the face of the record and should have been rectified by the authorities. The Appellate Tribunal found merit in this argument and directed the Assessing Officer (AO) to assess the STCG on the sale of shares at the correct rate of 10%.

Issue 2: Incorrect inclusion of STCG in business income:
The assessee erroneously included the STCG on the sale of equity shares in the business income, overstating the business income. This mistake led to the incorrect assessment of income under the wrong heads and at the wrong tax rates. The Appellate Tribunal acknowledged that such errors amounted to double taxation, which is impermissible under the Income Tax Act. Consequently, the Tribunal set aside the order of the Commissioner of Income Tax (Appeals) and directed the AO to assess the business income correctly at ?2,93,474 and the STCG on the sale of shares at ?22,61,528 under the appropriate head of STCG under section 111A.

Issue 3: Disagreement on rectification of mistakes in tax assessment:
The assessee sought rectification of the mistakes in the tax assessment, emphasizing that the errors were apparent on the face of the record. However, the lower authorities did not rectify the mistakes despite being pointed out by the assessee. The disagreement arose regarding whether the benefit of rectification should be allowed to the assessee. The Appellate Tribunal sided with the assessee, highlighting the principle that income cannot be taxed twice, leading to double taxation. As a result, the Tribunal allowed the appeal, directing the AO to rectify the tax assessment errors and ensure correct taxation of the income from business and STCG on the sale of shares.

In conclusion, the Appellate Tribunal ruled in favor of the assessee, rectifying the tax assessment errors related to the taxation of Short Term Capital Gains on the sale of equity shares and the incorrect inclusion of STCG in business income, thereby preventing double taxation and ensuring compliance with the provisions of the Income Tax Act.