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TMI Blog2016 (4) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... essee who had purchased shares in Indian currency would be entitled to benefit of second proviso to Sec. 48 on sale of equity shares in question. No merit in the action of the lower authorities declining the benefit of second proviso to Sec. 48. AO is accordingly directed to re-compute the capital gains. - ITA No. 8513/MUM/2010 - - - Dated:- 6-4-2016 - Shri R. C. Sharma, Accountant Member And Shri Amarjit Singh, Judicial Member For the Petitioner : Shri Arvind Sonde For the Respondent : Dr. S. Pandian (DR) ORDER Per R. C. Sharma, AM This is an appeal filed by the assessee against the order of CIT(A)-10, Mumbai dt. 5.10.2010 for the A.Y 2004-05, in the matter of order passed u/s. 143(3) of the Income Tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of second proviso to Sec. 48 which was declined by the AO. The AO noted that the assessee has earned long term capital gains on sales of shares of M/s. Tenet Technologies Pvt. Ltd. while incurred long term capital loss in shares of M/s. Kumaran System Pvt. Ltd. and M/s. Signe Software Pvt. Ltd. for which documentary evidence and RBI permission of sale of shares filed. On perusal of computation of total income submitted with return of income, the AO found that the assessee has adopted index cost of acquisition with regard to the determination of capital gains/loss. The AO observed that since the assessee is a non-resident company, the benefit of indexation is not available to it. The assessee quoted the first and second proviso to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of indexation while computing long-term capital gains. Thus the second proviso to section 48 has object of neutralizing the effect of inflation. Proviso to section 112(1) is certainly not applicable in case where an assessee is entitled to benefit of indexation under the second proviso to section 48. If an assessee does not take benefit of indexation under the second proviso of section 48, they are eligible for the lower rate of tax @10%. Otherwise, an assessee is liable to pay tax @ 20% after taking benefit of indexation. If an assessee covered by the first proviso to Section 48 is allowed benefit of the proviso to section 112(1), two consequences flow: (i) a non-resident becomes entitled to double deductions. Firstly, under the first pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian rupee. It stipulates that on transfer or sale of the said share or debenture the consideration received in Indian rupee should be reconverted into the same foreign currency. Sale and purchase of shares has to be in Indian rupee, the legal tender in India, but the foreign investor had brought in foreign currency and, therefore, logically and naturally for him, the gain should be computed in foreign currency. The said investor would like to convert the sale consideration received in Indian rupee into foreign currency. This would reflect the true gain or income earned. For a non-resident who has utilized/brought in foreign currency for purchase of shares or debentures in Indian rupee, inflation in India is immaterial and inconsequential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en relatively high but there have been occasions when Indian rupee has appreciated against foreign currencies for varied and diverse reasons. Indian rupee had earlier appreciated, before the present day depreciation, in spite of the fact that India had relatively higher rate of inflation as compared to several countries. It is difficult to determine which factors are the most relevant for determining exchange rate fluctuation. There are several important causes or factors, which are opaque in principle and difficult to decipher and pin-point in practice. [Para 30] The first proviso to section 48 ensures that a non-resident, who utilized his foreign currency, is taxed after taking into consideration the fluctuation in exchange rate. Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set being bond, debenture other than the capital index bond. Zero coupon bonds are, however, specific made eligible for benefit under the proviso to section 112(1). [Para 33] It is clear from the aforesaid discussion that it is not possible to decipher and clearly elucidate the exact legislative purpose and object behind the proviso to section 112(1) in a categorical and unambiguous manner. The purpose and object behind the proviso to sec 112(1) itself is somewhat debatable, except that the legislative intention was to tax long-term capital gain on listed shares, bonds and units @ 10%, without benefit of indexation under second proviso to section 48. Legislative policy and object is nothing more, and it is impermissible to read into th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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