2024 (10) TMI 1151 - HC - Income Tax

Computation of STCG - manner in which the short-term capital gains that are chargeable u/s 45(4) - HELD THAT - A reading of the provisions of Section 45(4) would indicate that the computation has to be in the manner prescribed u/s 48, as modified by Section 50(1) of the Act. Consequence of an application of the said provisions of the IT Act to the income assessed in respect of the appellant firm, has not been discussed by the Tribunal in the impugned order. We are of the view that the Tribunal ought to have considered the said aspect also while disposing the appeal preferred by the revenue, especially because the order of the First Appellate Authority, that was impugned by the revenue before it, was in favour of the appellant herein. Thus, while we uphold the finding of the Tribunal that the charge of Short Term Capital Gains, in the instant case, has to be as mandated in Section 45(4) we remand the matter back to the Tribunal for computing the extent of short-term capital gains, if any, that would be brought to tax in relation to the appellant herein. The Appellate Tribunal would have to do the said exercise by taking into account the totality of transactions effected during the previous year relevant to the assessment year in question.Decided against revenue. Thus in the light of the discussions in this judgment and the remand necessitated to the Tribunal for a specific finding on the extent of short term capital gains, if any, that would accrue to the appellant firm during the assessment year in question. The Appellate Tribunal shall examine the provisions of Section 48, as modified by Section 50(1) of the Income Tax Act, and determine whether or not any short-term gains had accrued to the appellant firm for the assessment year in question.

Summary

Issues:
1. Allowance of additional ground by the Income Tax Appellate Tribunal.
2. Taxability of transfer of depreciable capital assets under Sec.45(4) of the Income Tax Act.
3. Conclusion reached by the CIT (Appeals) under Sec.50 of the Act.
4. Applicability of Sections 50A and 45(4) of the Act to the case.

Analysis:

Issue 1:
The appellant challenged the Income Tax Appellate Tribunal's decision to allow an additional ground raised by the Revenue, which was not considered by the Assessing Officer or the Commissioner of Income Tax (appeals). The Tribunal upheld the charge of Short Term Capital Gains under Section 45(4) of the Income Tax Act. However, it did not discuss the computation methodology for the capital gains. The High Court found that the Tribunal should have considered this aspect and remanded the matter back to the Tribunal for computing the extent of short-term capital gains.

Issue 2:
Regarding the taxability of the transfer of depreciable capital assets, the Tribunal held that the charge of short-term capital gains must be in accordance with Section 45(4) of the Income Tax Act. The High Court concurred with this finding but directed the Tribunal to determine the specific amount of short-term capital gains that would be taxable for the appellant firm during the relevant assessment year.

Issue 3:
The CIT (Appeals) concluded that under Sec.50 of the Act, the transfer in question was not subject to capital gains tax. However, the Tribunal overturned this conclusion and applied the provisions of Section 45(4) for charging short-term capital gains. The High Court upheld the Tribunal's decision but emphasized the need for a detailed computation of the taxable amount.

Issue 4:
The appellant argued that Sections 50A and 45(4) of the Act were not applicable to the case, and Sec.50 was the correct provision for the transfer of the depreciable asset. The High Court did not directly address this argument but directed the Tribunal to examine the provisions of Section 48, as modified by Section 50(1) of the Income Tax Act, to determine the actual short-term gains accrued to the appellant firm.

In conclusion, the High Court allowed the appeal in part, directing the Tribunal to compute the short-term capital gains accurately within a specified timeframe. The judgment clarified the application of Section 45(4) for taxing capital gains and highlighted the necessity for a thorough assessment of the taxable amount based on the transactions during the relevant assessment year.