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TMI Blog2012 (4) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be filed by the Assessee in terms of Sec. 80HHC(4) - It is not in dispute that in Form No. 10CCAC while calculating the deduction u/s. 80HHC of the Act Excise Duty had been included as part of the total turnover - the tax liability has to be determined in accordance with law and the mistake made in the certificate of the Chartered Accountant in Form 10CCAC should not have been relied upon by the revenue for reducing a legitimate claim for deduction u/s. 80HHC of the Act made by the Assessee - Held that: the claim made by the assessee for deduction u/s. 80HHC at a sum of ₹ 1,14,844/- has to be accepted - Decided in favor of the assessee - IT APPEAL NO. 1010 (MUM.) OF 2009 - - - Dated:- 13-1-2012 - N. V. Vasudevan And R. K. Panda , JJ. S. E. Dastur, Madhur Agarwal and Haresh G. Buch for the Appellant. B. Jayakumar for the Respondent. ORDER N. V. Vasudevan, Judicial Member This is an appeal by the Assessee against the order dt.28.11.2008 of CIT(A)-X, Mumbai, relating to AY 04-05. Gr.No.I raised by the Assessee reads as follows: 1. The learned Commissioner of Income-tax (Appeals)-X ['the CIT (A)] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H, be chargeable to income-tax under the head Capital gains , and shall be deemed to be the income of the previous year in which the transfer took place. (2) to (5) . (6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in subsection (2) of section 80CCB and the capital value of such units shall be deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that section is terminated and shall be taxed accordingly. Explanation. -For the purposes of this sub-section, capital value of such units means any amount invested by the assessee in the units referred to in sub-section (2) of section 80CCB. 4. Thereafter the AO proceeded to compute short term capital loss as follows: 2.9 But, the claim of assessee is not tenable. First of all, the units have been repurchased by the UTI Investors Services Limited on certain rates as mentioned above and thereafter th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10/- per Unit as shown in the cases of other Units. The cost of these Units are taken at Rs. nil being the Bonus Units. Thus the total repurchase value of all the Units shown in the chart is computed at ₹ 5,80,03,760/-. The difference between the purchase price and sale (repurchase) price of these units amounting to ₹ 97,17,302/- is being allowed as Short Term Capital Loss. Penalty proceedings u/s. 271(1)(c) are hereby initiated separately for concealment of income / furnishing inaccurate particulars of income. 5. The conclusion of the AO can be summarised as follows: 1. Section 45(6) refers to 'units referred to in Section 80CCB (2)', i.e. units issued under a plan formulated under the Equity Linked Savings Scheme ( ELSS ) of any mutual fund. The subject units are such units formulated under an ELSS plan. 2. Accordingly, difference between cost of investment and the repurchase price is the capital gains of the assessee. 3. Further, no indexation of cost is allowable, since Section 45(6) does not mention the words for the purpose of Section 48 and consequently the cost of acquisition has to be taken at the cost invested by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such conversion was liable to tax. Profit derived on conversion of foreign currency balance held outside India into rupees upon its repatriation to India has been held to be chargeable as capital gains refer Kirloskar Asia Ltd. v. CIT (117 ITR 82) (Kar.). 5. Conversion in another sense is equivalent to redemption since the existing asset is redeemed by obtaining either cash equivalent of it or another asset. The units under US 64 scheme can be said to have been redeemed when they were surrendered to UTI and 6.75% bonds are obtained in lieu thereof. 6. Further, the Assessee relied on Supreme Court decision in the case of Anarkali Sarabhai (224 ITR 422) wherein it was held that redemption of preference shares by a company is sale and is also transfer by relinquishment of asset by shareholder for gain and that the transaction falls within the purview of capital gains. The assessee also submitted that consequently, the capital gains on the transfer of units should be computed after giving effect to the second proviso to section 48 ( i.e. cost indexation.). The assessee thus claimed that the long-term capital loss on said conversion be allowed as claimed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of US 64. In other words, it would lead to an enhancement as envisaged u/s. 251(2). In this regard the assessee has submitted as follows: ( a ) As per section 10 only positive income is exempt and not loss. ( b ) Capital loss is not included in total income and is carried forward. ( c ) Section 10(35) deals with positive income and therefore, section 10(33) is also confined to positive income. ( d ) That the intention of section 10(33) was to give relief to investors. Its intention was not to deprive. 1.14 I have examined the provisions of law in this case. Section 10 begins with the clause that in computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included. Now clause (33) specifically refers to income arising from transfer of capital assets, being units of US 64. Thus, section 10 is an exemption clause and not a deduction. Any income of the type defined in clause (1) to (36) of that section will not be included in the total income. Now it is a well accepted proposition that under the Income Tax Act, the word income includes loss any income/loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had powers to personally decide an investment upto a huge ₹ 40 crores. Small investor's funds were used in not so diligent manner. With knowledge that the UTI was in a state of collapse, some corporates knew that it was time to withdraw their funds. On July, 4th, 2001 UTI freezed purchase and sale of UTI shares including US 64 Scheme. Two month prior to the freezing of dealings in UTI shares, huge sums were redeemeded by corporate investors at re-purchase price of ₹ 14.20 per share (face value ₹ 10) when in fact its actual value (NAV - net asset value) was not more than ₹ 8. As a result UTI's small investors lost heavily. After freezing of purchase and sale of UTI shares, UTI declared a dividend of 7% (10% on face-value), which was even lower than the interests of the banks and post office saving schemes. Such freezing of legally held shares was unheard of. The Government finally announced a comprehensive bailout package for the beleaguered Unit Trust of India by promulgating. The Unit Trust of India (Transfer of Undertaking and Repeal) Ordinanace, 2002 (5 of 2002) in September, 2002. On 29th October, 2002, The Unit Trust of India (Transfer of Under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under clause (23D); or ( b ) income received in respect of units from the Administrator of the specified undertaking; or ( c ) income received in respect of units from the specified company: Provided that this clause shall not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case may be. Explanation.-For the purposes of this clause,- ( a ) Administrator means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); ( b ) specified company means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002); 16. Income which does not form part of the total income under Chapter-III of the Act, do not enter the computation of total income at all. Sec. 4 of the Act creates charge of income-tax and it provides that where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income-tax at that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the total amount of income, profits and gains. Secondly, it must be computed in the manner laid down in the Act . If either of these conditions fails, the income will not be a part of the total income that can be brought to charge. If income includes loss and if income on transfer of units of US 64 Scheme do not form part of the total income under the Act by virtue of provisions of Sec. 10(33) of the Act contained in Chapter III of the Act, then neither the gain nor loss on transfer would be considered for computation of total income. This position is accepted by the learned counsel for the Assessee but his endeavor was only to point out that the above proposition may not be applicable in all situations. The ld. Counsel for the assessee submitted that Section 10(33) of the Act excludes only income from the transfer of an a capital asset being the unit of US 64 and referred to Schedule-1 of the UTI (TUR) Act, where the transfer of such assets take place on or after the first day of April, 2002. It was submitted by him that the word Income no doubt includes loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act there is no bar to set off of loss on sale of unit of US 64. Similarly it was also submitted that had it been the intention of the legislature to exclude loss and carry forward and set off of loss on transfer of US 64 units, the definition of capital asset would have been amended and US 64 units would have been excluded from the definition of capital asset. Alternatively under section 47 the legislature could have excluded conversion of US 64 units into 6.75% tax free bonds as not amounting to a transfer. In this regard it was also pointed out that under section 47(x) of the Act conversion of bonds or debentures, stock or deposit certificate in any form of a company into shares or debentures of that company are excluded. In the absence of such provisions, according to the learned counsel for the Assessee loss arising on conversion of US64 units into 6.75% Tax free bonds will not fall within the purview of Sec. 10(33) of the Act. Pointing out to the history of US 64 it was submitted that the investors burnt their fingers and the revenue by not allowing the loss on conversion is seeking to burn their hands. It was submitted that under section 10(22B) of the Act the legislator ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll form part of the total income and therefore the question of loss also being excluded from the computation of total income will not arise for consideration. We have already seen the history of US 64 Scheme. On July, 4th, 2001 UTI freezed purchase and sale of UTI shares including US 64 Scheme. On 15th July, 2001 UTI announced repurchase by investors upto 3,000 units between August, 2001 and May, 2003. The repurchase price in August was fixed at ₹ 10 per unit to be increased by 10 paise every month. On 27th December, 2001 UTI announced that it would redeem 5,000 units as against 3,000 units announced earlier at either the repurchase price or the NAV whichever was higher. The Government finally announced a comprehensive bailout package for the beleaguered Unit Trust of India by promulgating The Unit Trust of India (Transfer of Undertaking and Repeal) Ordinance, 2002 (5 of 2002) in September, 2002. On 29th October, 2002, UTI (TUR) Act) was passed. By this Act UTI was to be split into two. Some of the schemes like US 64 were transferred to specified undertaking (later known as UTI Trustee Co. Pvt. Ltd.) and other Schemes were transferred to Specified Company (later known as UTI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in existence as they became 6.75% tax free bonds or were redeemed as early as 31.5.2003. 23. For the reasons given above, we hold that provisions of Sec. 10(33) of the Act would be the provision applicable to assess the claim of the Assessee for its claim for right to determine the loss on conversion of the units of US 1964 into 6.75% tax free bonds and the claim to carry forward such loss for set off in subsequent assessment years in accordance with law and not Sec. 10(35) of the Act. 24. There is another reason to hold that provisions of Sec. 10(35) of the Act do not apply to the facts of the present case. Sec. 10(35) came into effect from 1-4-2004. The transfer in the present case according to the Assessee took place on 31.5.2003 when units of US 64 Scheme were converted into 6.75% tax free bonds. As far as capital gains are concerned, the law as on the date of transfer would only apply. Capital gains are not income which accrues from day-to-day for a spell of period but arise at a fixed point of time, namely, the date of transfer. This is unlike the income arising or accruing as profits and gains of a business to be computed in terms of section 28 of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal income has been explained by s. 5 of the Act which provides that subject to the provisions of the Act, the total income of the previous year of a person who is a resident includes all income from whatever source it is derived. In computing the total income, certain incomes are not included under s. 10 of the Act. It depends on the particular case where certain income, in respect of which the Act is made inapplicable to the scheme of the Act, and in such a case, the profit and loss resulting from such a source do not enter into the computation at all. But there are other sources which for certain economic reasons are not included or excluded by the will of the Legislature. In such a case we must look to the specific exclusion that has been made. The question is in this case whether s. 10(27) is a source which does not enter into the computation at all or is a source the income in respect of which is excluded in the computation of total income. [Emphasis supplied] 27. The Hon'ble Calcutta High Court principally relied on the decision of the Hon'ble Supreme Court in the case of CIT v. Karamchand Premchand Ltd. [1960] 40 ITR 106. The facts of the case were t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Act. The Tribunal accepted the contention of the assessee and directed that the capital loss of ₹ 28,662 should be carried forward and set off against capital gains , if any, in future. On further appeal the Hon'ble Delhi High Court confirmed the order of the Tribunal. On further appeal by the Revenue, the following question was considered by the Hon'ble Supreme Court: Whether, on the facts and in the circumstances of the case, the capital loss of ₹ 28,662 could be determined and carried forward in accordance with the provisions of section 24 of the Indian Income-tax Act, 1922, when the provisions of section 12B of the Income-tax Act, 1922, itself were not applicable in the assessment year 1955-56. 30. Under the Income Tax Act, 1922 capital gain was not included as a head of income and therefore capital gain did not form part of the total income. Certain important amendments were effected in the Income-tax Act by Act XXII of 1947. A new definition of capital asset was inserted as Section 2(4A) and capital asset was defined as property of any kind held by an assessee, whether or not connected with his business, profession or voc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the purview of that definition must satisfy two conditions. Firstly, it must comprise the total amount of income, profits and gains referred to in section 4(1) . Secondly, it must be computed in the manner laid down in the Act . If either of these conditions fails, the income will not be a part of the total income that can be brought to charge. 32. The Hon'ble Supreme Court thereafter took note of the fact that any capital gains arising between April 1, 1948, and April 1, 1957 was not chargeable to tax. The Hon'ble Supreme Court therefore held that the second condition, namely, the manner of computation laid down in the Act which forms an integral part of the definition of ' total income' was not satisfied. Thus, in the relevant previous year and the assessment year, or even in the subsequent year, capital gains or capital losses did not form part of the total income of the assessee which could be brought to charge, and were, therefore, not required to be computed under the Act. The Hon'ble Supreme Court answered the question referred to it in favour of the revenue. 33. The Hon'ble Calcutta High Court referred to the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer of capital asset being units of US 64 itself that has been excluded by the will of the Legislature and not the capital gain alone. In that view of the matter we do not find any infirmity in the order of the CIT(A). We also clarify that the question whether conversion of Units of US 64 into 6.75% tax free bonds would amount to transfer or not does not arise in this case, since the AO after holding that there was no transfer, nevertheless computed capital loss at a sum less than what was claimed by the Assessee. For the reasons given above, Gr. No. I raised by the Assessee is dismissed. 35. Ground No. II raised by the assessee reads as follows: 1. The CIT(A) erred in upholding the action of the ACIT of allowing deduction under section 80HHC of the Act, considering total turnover inclusive of excise duty rather than exclusive of excise duty. 2. The CIT(A) further erred in not considering the fact that the note in the Audit Report in Form 10CCAC mentioning that the total turnover was inclusive of excise duty could not be ignored and therefore the total turnover had to be computed excluding excise duty as judicially settled. 36. The assessee had cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee reiterated the submissions as were made before the CIT(A) and further submitted that the decision of the Hon'ble Bombay High Court in the case of Sudarshan Chemicals Industries Ltd. ( supra ) has since been approved by the Hon'ble Supreme Court in the case of CIT v. Lakshmi Machine Works [2007] 290 ITR 667/160 Taxman 404. The ld. D.R relied on the order of the AO. 40. We are of the view that the deduction under section 80HHC has to be allowed as permissible in law. As laid down in the aforesaid judicial pronouncements Excise Duty and Sales Tax should not be included in total turnover while computing deduction u/s. 80HHC of the Act. It is not in dispute that in Form No. 10CCAC while calculating the deduction u/s. 80HHC of the Act Excise Duty had been included as part of the total turnover. The AO does not dispute this fact. The only reason for allowing the claim for deduction at a reduced sum is because of the mistake in Form 10CCAC. We are of the view that the tax liability has to be determined in accordance with law and the mistake made in the certificate of the Chartered Accountant in Form 10CCAC should not have been relied upon by the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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