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2021 (5) TMI 145 - AT - Income TaxTreatment of long-term capital loss arising from transfer of shares - denial of carry forward for set-off against Long Term Capital Gain - whether where income from a particular source is exempt from tax (i.e. incomes exempt under section 10), the gain or loss from transactions such source des not enter into the computation of income as the same gets excluded at the threshold itself, therefore, loss from such source is not available for set off or for carry forward for set- off against income chargeable to tax - HELD THAT - We find that the Section 74 has not been made and cannot be made otiose. The provisions of Section 10(38) and Section 74 have to be read harmoniously but not antagonistically. We hold that the decision of the ld. CIT (A) is on incorrect interpretation of the provisions of the Act and hence cannot be sustained. LTCG v/s STCG - As the assessee having paid partial sum to the builder has transferred the buying right to the seller. The seller has paid the remaining amount to the builder subsequently - AO held that as per the clause in the purchase agreement which states this agreement shall not be assigned by the apartment allottee without prior permission of the Company and came to the conclusion that the assessee never vested with the right to the property and hence the assessee could not have sold the rights - HELD THAT - We find that what the assessee has sold is the right and the right arises when the assessee enters into an agreement with the builder in the year 2004-05. Since, such right accrued in the year 2004-05 and the sale took place on 01.05.2012, it attains the nature of sale of Long Term Capital asset and the gains will have to be treated as Long Term Capital Gains . The AO is directed to compute the LTCG after taking into consideration, the amount received on account of sale as per the documents - AO shall also verify and consider the deduction paid to the broker. Income from other sources - HELD THAT - AO is hereby directed to verify from the records whether the amount was offered to tax income from other sources or not and examined whether the correct figure and recomputed the taxable income.
Issues Involved:
1. Carry Forward of Long-Term Capital Loss 2. Nature of Capital Gains on Sale of Property Comprehensive, Issue-Wise Detailed Analysis: 1. Carry Forward of Long-Term Capital Loss The primary issue revolves around whether the long-term capital loss from the sale of shares, on which Securities Transaction Tax (STT) has been paid, can be carried forward for set-off against future gains, despite the income from such transactions being exempt under Section 10(38) of the Income Tax Act, 1961. Arguments by Revenue: - The Revenue argued that under the scheme of the Income Tax Act, 1961, income is broadly defined under Section 2(24) and includes any gains from the transfer of capital assets. - Section 10(38) exempts income arising from the transfer of long-term capital assets (equity shares) from tax if STT has been paid. Therefore, any loss from such transactions should not be allowed to be carried forward as it does not form part of the total income. - The Revenue emphasized that allowing the carry forward of such losses would render Section 14A, which disallows deductions for expenses incurred in relation to exempt income, ineffective. - The doctrine of Harmonious Construction was invoked, arguing that the provisions of the Act should be interpreted in a manner that makes all sections operative and effective. Tribunal’s Analysis: - The Tribunal examined the provisions of Section 2(14), Section 10(38), Section 71, and Section 74 of the Income Tax Act. - It was noted that Section 74 allows for the carry forward of losses under the head "Capital Gains," and this provision has not been made otiose by Section 10(38). - The Tribunal held that the provisions of Section 10(38) and Section 74 must be read harmoniously, not antagonistically. - The Tribunal concluded that the decision of the CIT(A) was based on an incorrect interpretation of the Act and could not be sustained. Therefore, the assessee's appeal was allowed, permitting the carry forward of the long-term capital loss. 2. Nature of Capital Gains on Sale of Property The second issue pertains to whether the gains from the sale of a property should be treated as long-term or short-term capital gains. Facts: - The assessee entered into an agreement with a builder on 01.09.2004 and paid the last installment on 18.05.2009. The property was sold on 01.05.2012. - The Assessing Officer (AO) held that the assessee acquired the right to the property only on 18.05.2009, thus treating the gains as short-term capital gains. - The CIT(A) supported this view, stating that the right in the property would be created only after the signing of the conveyance deed. Tribunal’s Analysis: - The Tribunal referred to the definition of "capital asset" under Section 2(14) and noted that any right which could be called property would be included in this definition. - It was highlighted that property is a bundle of rights, and one of these rights is the ability to transfer such property. - The Tribunal cited the Punjab & Haryana High Court ruling in Vinod Kumar Jain v. Commissioner of Income-tax, which stated that the right to acquire property through an agreement for sale is an actionable claim and a capital asset under Section 2(14). - The Tribunal concluded that the assessee's right to the property accrued in 2004-05 when the agreement was signed, and the sale in 2012 should be treated as a long-term capital gain. - The AO was directed to compute the long-term capital gains accordingly and verify the amounts involved in the transaction. Other Considerations: - The AO was also directed to verify the income from other sources and recompute the taxable income based on the correct figures. Conclusion: The appeals filed by the assessee were allowed, with the Tribunal ruling in favor of the carry forward of long-term capital loss and the treatment of the gains from the sale of property as long-term capital gains. The AO was instructed to recompute the taxable income after verifying the relevant figures.
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