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TMI Blog1990 (8) TMI 196X X X X Extracts X X X X X X X X Extracts X X X X ..... t term capital gains on sale of equity shares of M/s Oswal Agro Mills does not relate to its computation but to the rate of tax and manner of assessment. Assessees claim that concessional rate of tax at 20% is applicable under Chapter XII-A of the Income-tax Act, 1961. The Assessing officer has rejected the claim of the assessee in this regard and has imposed the tax at normal rates as applicable under the Finance Act of 1987. The CIT(A),Faridabad, has dismissed the appeals filed by the assessees and the order of the Inspecting Assistant Commissioner of Income-tax (Assessment)Faridabad, have been confirmed in respect of all the six assessees. 3. The learned counsel for the assessee Shri Mohan Lal contended that concessional rate of tax at 20% is applicable on the income from short term capital gains u/s 115E in respect of all the six assessees and that the assessing officer has unjustifiably rejected the claim of the assessee. Our attention was drawn to Section 115E which provides for the levy of tax @ 20% in respect of Non-resident Indians on investment income or income by way of long term capital gains or both. The learned counsel contended that investment income is defined u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the Legislature intended to grant the benefit of concessional rate of tax on short term capital gains then the words 'short term capital gains' would have been separately included in Section 115E along with the words 'long term capital gains'. Since long term capital gains has specifically been included in Section 115E, by necessary implication short term capital gains is excluded learned Departmental Representative contended. It was further argued that if the interpretation canvassed on behalf of the assessee regarding the meaning of investment income is accepted the use of words 'long term capital gains' would become redundant. Such an interpretation is not possible according to the Departmental Representative. Referring to the Bombay High Court decision in the case of Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87 where it was held that gains on sale of agricultural land constitutes agricultural income and accordingly not liable to tax, learned Departmental Representative contended that in the below mentioned cases, High Courts of Karnataka, Kerala and Gujarat have taken contrary view : (i) CIT v. B.S. Rajendrappa [1986] 162 ITR 666/27 Taxman 460 (Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C defines "convertible foreign exchange", "foreign exchange asset" and "investment income" as under : " 'Convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any rules made thereunder. 'Foreign Exchange Asset' means any specified asset which the assessee has acquired or purchased, with, or subscribed to in convertible foreign exchange. 'Investment income' means any income derived from a foreign exchange asset." There is no dispute with regard to the nature of the asset as being that of a foreign exchange asset as the equity shares had been purchased in convertible foreign exchange. There is also no dispute with regard to the income, earned from this foreign exchange asset till its sale, to be that of an investment income. The dispute is with regard to the nature of income derived on the sale of the said equity shares. The claim of the assessee is that the income has been derived from the foreign exchange asset and accordingly it is investment income qualifying for concessional rate of tax of 20% u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asset equity shares purchased by the assessees from Oswal Agro Mills Ltd. As already stated, there is no dispute that the equity shares held by the assessees prior to its sale were purchased in convertible foreign exchange and were specified foreign exchange assets. Thus the short term capital gains derived from foreign exchange assets would fall within the definition of investment income as defined in Section 115C(c) of the Income-tax Act, 1961. That being so, assessee would be entitled to the levy of concessional rate of tax @ 20% u/s 115E. The decision regarding agricultural income relied upon by the assessee as well as by the revenue are, in our view, irrelevant to the issue involved in this case. We would like to point out that the Delhi High Court which is the jurisdictional High Court in this case has decided the issue regarding the levy of tax on sale of agricultural land on the basis of definition of capital asset u/s 2(14) of the Income-tax Act, 1961. It has been held in D.L.F. United Ltd.'s case that the agricultural land is not included in the definition of capital asset and accordingly there is no question of any income being assessable to tax by virtue of Section 2( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are entitled to concessional rate of tax @ 20% on short term capital gains being investment income within the meaning of Section 115E read with Section 115C. 10. The next ground of appeal relates to assessment of interest income on debentures. The assessees have disclosed the interest on receipt basis whereas the assessing officer has assessed the income on accrual basis. The CIT(A) has confirmed the decision of the assessing officer in assessing the income from interest on debentures on the basis of accrual by relying on the decision of Madras High Court in the case of CIT v. Standard Triumph Motor Co. Ltd. [1979] 119 ITR 573. 11. The learned counsel for the assessee contended that assessee has shown interest for the preceding year received during this year on receipt basis. The assessing officer has not only assessed the income in respect of the preceding year but has also assessed the interest on accrual basis which is uncalled for. The learned counsel contended that the interest on debentures can be assessed on accrual basis or on receipt basis. In this case, the assessee has disclosed the interest on receipt basis. The assessing officer was wrong in assessing the income on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f all the six assessees. 14. Coming to the contention of the learned counsel for the assessee that in such eventuality the income disclosed on cash basis has got to be excluded, we find merit in it. Since we do not have the details of calculation of accrued interest, we remit this issue to the file of the assessing officer with the direction that the interest from debentures may be assessed in the hands of assessee on accrual basis only. The interest disclosed by the assessee on receipt basis shall be excluded. The assessing officer should also consider the claim of the assessee regarding the sale of shares during the year in appeal. It was contended before us that the interest on debentures accrued, biannually. The interest for the period ending June 1986 had admittedly accrued during the year in appeal. However, since some of the shares have been sold on19th November, 1986, the interest due on30th December, 1986, according to the learned counsel for the assessee would not accrue during the year as the assessee had sold the shares before the right to receive the interest accrued. The assessing officer is directed to consider the claim of the assessee while determining the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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