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TMI Blog2016 (10) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. CIT(A) erred in allowing to adjust the STCL amounting to Rs. 27,19,888/- with the STCG where STT was not paid." 4. "That is the facts and in law of the case the ld. CIT(A) erred in allowing to adjust STCL where STT was paid with the STCG where STT was not paid in violation of Sec. 111A of the IT Act." 5. "That is the facts and in law of the case the ld. CIT(A) erred in deleting the addition made the AO u/s 14A read with rule 8D amounting Rs. 8,31,749/- for earning exempted income." 6. "That is the facts and in law of the case the ld. CIT(A) erred in restricting the disallowance u/s. 14A to Rs. 3,41,720/- in violation of Rule 8D of the IT Act." Shri P.R. Kothari, Ld. Authorized Representative appeared on behalf of assessee and Shri Sallong Yaden, Ld. Departmental Representative appeared on behalf of Revenue 3. First common issue raised by Revenue in Ground No. 1 and 2 is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for Rs.55,00,010/- on account of capital loss. 3.1 The facts as have been brought on record are that assessee is a Limited Company and for the year under consideration has filed its return of income on 24.09.2009 declaring total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of "transfer", transfer includes relinquishment. Of the asset or extinguishment of any rights thereon. As the terms "relinquishment" and "extinguishment" are not denied under the Act, one has to depend upon the decided case law for understanding their ordinary meaning. According to the Shorter Oxford English Dictionary, while the word "relinquish" means: to withdraw from, desert, abandon; to cease to hold, adhere to, the word "extinguish" means to put a total end to, blot out of existence. In other words, in a transaction of relinquishment, the interest of a person in a property is either given up, abandoned, or surrendered; but the property in which interest is relinquished continues to exist and the property continues to be owned by some person or persons after the transaction of relinquishment - CIT v (HUF) [1974] 95 ITR 656 (Bom). A relinquishment takes place when the owner withdraws himself from the property and abandon his rights thereto. It presumes that the property continues to exist after the relinquishment - CIT v. Rasiklal Maenklal (HUF) [1980] 177 ITR 198 (SC) On the other hand, extinguishment refers not to extinguishment of asset itself but to extinguishment of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.09.2007 and assessee did not exercise its option to convert the share warrant into equity share. The assessee surrendered the share warrants within the specified time and as a result right attached to the share warrant of the assessee came to an end which has resulted into STCL which was disallowed by AO on the ground that share warrant is not a property as per the provisions of Sec. 2(14) of the Act. However, in appellate stage, Ld. CIT(A) dismissed the action taken by AO. Now the question before us arise so as to whether the share warrant which is optional convertible into shares are capital asset as per Sec. 2(14) of the Act. We find that several courts have held this issue in favour of assessee, which are reproduced below:- 1) Dynamic Foundation (P) Ltd. vs. CIT (2015) 57 taxmann.com 139 (Cal) 2) DCIT vs. BPL Sanyo Finance Ltd. (2009) 312 ITR 63 (Kar) 3) CIT vs. Chand Ratan Bagri (2010) 329 ITR 356 From the above judgments, we find that there was a binding contract between assessee and WCPM with the option to the assessee to acquire the equity share. The assessee, in the instant case, has paid only 10% of the total consideration and the balance was to be paid by assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas assessee submitted that Sec. 70(2) of the Act clearly provides for set off of any STCL of current year without making any distinction between STT paid and non STT paid transactions. It was also submitted that the provision of Sec. 111A comes into effect only after computation of total income under various heads of income. Accordingly, considering the submission, Ld. CIT(A) allowed the set off of STCL on which STT was paid by observing as under:- "I have considered the submission. For the correct appreciation of the provisions of law, the relevant sections may be reproduced below: Section 70(2): "where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset." Section 111A: "where the total income of an assessee includes any income chargeable under the head "Capital gains", arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the same head. He is hereby directed to allow such set off instead of allowing the same to be carried forward. This ground of appeal is allowed." Being aggrieved by this order of Ld. CIT(A) Revenue is in appeal before us. 8. Before us Ld. DR vehemently relied on the order of Assessing Officer whereas Ld. AR relied on the order of Ld. CIT(A). Ld. AR submitted that AO has ignored the fact that Sec. 111A of the Act comes into play only after completion of computation of total income under various head of income, whereas Sec. 70(2) of the Act comes into play before computation of total income. Hence, the interpretation of Sec. 111A of the Act adopted by AO to deny inter head set off was misplaced and untenable. 9. We have heard the rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that assessee in the instant case has incurred loss from STCL on the sale-purchase of share on which STT was paid but AO observed that there is a special rate of tax u/s 111A of the Act for charging tax in case of sale-purchase of share on which STT has been paid. Therefore, such loss was disallowed by AO to adjust the income u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Rules, 1962 @ .5% of average investment of Rs.17,37,72,408/- which is coming to Rs.8,68,862/- The assessee at his own disallowed a sum of Rs.37,113/- as per Sec. 14A of the Act. Accordingly, AO disallowed a sum of Rs.8,31,749/- and added to the total income of assessee. 12. Aggrieved, assessee preferred an appeal before Ld CIT(A) who gave relief partly to assessee by observing as under:- ´I have considered the facts of the case and the submissions put forth on behalf of the appellant. In this case, the expenses incurred by the appellant are claimed for other business activities and not for the earning of dividend income. From the working as given by the Assessing Officer himself would show that the appellant had not incurred any expenditure on interest or other expenses relating to the investment for earning the dividend income during the year. The appellant has shown to have incurred demat expenses of Rs. 18,208/-, portfolio management expenses of Rs. 2,22,680/- and STT Rs. 34,762/- aggregating to Rs. 2,75,650/-, which are directly relatable to the share transactions, and which have been added back by the appellant itself in the computation of total income. However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income needs to be excluded and accordingly several courts have decided this issue in favour of assessee. The Hon'ble High Court of Delhi in the case of ACB Iindia Ltd. vs. ACIT (2015) 374 ITR 108 (Del) has decided the issue in favour of assessee. "Income-Expenditure incurred in relation to exempt income-Disallowance- Validity-Assessee reported a tax exempt income-AO made addition u/s 14A r.w. rule 8D by taking into consideration total quantum of interest other than that invested u/s 14A in terms of Rule 8D and arrived at the said figure after multiplying it with result of average value of investments and over average value of assets derived by him-CIT(Appeals) observed that that amount of investment attributable to dividend constituted less than 1% of total scheduled funds-CIT(A) accepted basis of calculation applied by AO and directed a disallowance of .05% of amount determined to be average investment-Tribunal restored AO's determination holding it to be a true calculation in terms of Rule 8D-Held, AO, instead of adopting average value of investment of income which was not part of total income i.e. value of tax exempt investment, chose to factor in total investment itself-Even ..... 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