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TMI Blog2015 (6) TMI 528X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income Tax Act, 1961 (the Act), the profit on sale of equity shares of Rs. 1,90,39,06,630 ought to be taken and not the income by way of long term capital gain on sale of equity shares amounting to Rs. 1,72,55,70,760/- as prescribed by the proviso to Section 10(38) of the Act. 2. The assessee submits that the proviso to section 10(38) of the Act is a charging section and consequently the long term capital gain on sale of equity shares of Rs. 1,72,55,70,760/- is chargeable as book profit under section 115JB of the Act and not the profit on sale of equity shares of Rs. 1,90,39,06,630 as held by the learned CIT(A) 3. The Learned CIT(A) erred in not allowing the securities transaction tax of Rs. 25,65,015/- as a deduction in computing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,72,55,70,760/- on the following reason: "It is our submission that the book profit u/s. 115JB of the Act is to be computed by reducing the surplus on sale of investments of Rs. 1,90,78,63,394/- and adding the long term capital gain of Rs. 172,55,80,760/- on sale of investments as computed in terms of section 45 to section 55 of the Act. This is line with the Proviso to section 10(38) of the Act which requires that "Income by way of Long Term Capital Gain" shall be taken into account in computing the book profit and the income tax payable u/s. 115JB of the Act." The AO held that the Long term capital gain after indexation and the deduction of STT paid cannot be accepted for the purpose of computing book profit u/s. 115JB but the entire s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Bank Ltd. and had thereby earned surplus of Rs. 1,90,78,63,394/-, which was credited to the Profit & loss account. Since it was a Long term capital gain asset therefore, in view of the provisions of sections 45 to 55, the said Long term capital gain has to be computed accordingly. Admittedly, the Long term capital gain that works out to Rs. 1,72,55,70,760/- was claimed as exempt u/s. 10(38). He drew out attention to the definition of income, which includes capital gain which is chargeable u/s. 45. U/s. 45 only profits or gains arising from the transfer of capital asset alone can be taxed. Such a computation of profits and gains arising out of transfer of a capital asset has been given in section 48, which includes indexed cost of acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om sale of shares has deducted the said amount i.e. Rs. 1,90,39,06,630/-, which was credited to the Profit & loss account was net of STT. 6. On the other hand, the learned DR, strongly relied upon the order of the CIT(A) and submitted that u/s. 115JB, it is mandatory for the assessee to prepare its Profit & loss account as per the Companies Act and the assessee has credited the net gain on sale of shares at Rs. 1,90,39,06,630/- in the Profit & loss account, which alone should be taken as income for the purpose of section 115JB. 7. We have heard the rival submissions and have also perused the relevant material placed on record. During the year ending on 31.03.2009, the assessee company had sold shares and thereby earned a surplus of Rs. 1, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Profit & loss account prepared under the relevant provisions of the Companies Act. The relevant Schedule under the Companies Act for the preparation of statement of Profit & loss account provides that in case of sale of investments, net gain/loss should be disclosed. The net gain/loss means sale minus purchase and other cost. The Companies Act does not speak about Long term/ Short term capital gain. In accordance with the requirements of the Companies Act, the assessee has credited the net profit on sale of investment i.e. net gain on shares of HDFC Bank at Rs. 1,90,78,63,394/-,. Accordingly, this amount has been credited in the Profit & loss account. 'Explanation' to subsection (2) of section 115JB provides that, book profit means the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said section, which envisages that for the purpose of computing the book profit the income by way of Long term capital gain shall be taken into account on which tax is payable u/s. 115JB. This is in consonance with the amendment brought in section 115JB. From the harmonious reading of the relevant provision as discussed above, it is evident that firstly, the book profit shall be reduced by the amount of income to which provision of section 10 applies. However, income under the provisions contained in section 10(38) will not be reduced. Thus, the income arising from transfer of long term capital asset is to be included in the book profit. The book profits as contemplated in section 115JB means the net profit, which has been shown/credited in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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