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TMI Blog2019 (9) TMI 366X X X X Extracts X X X X X X X X Extracts X X X X ..... or statistical purposes. Carry forward of long term capital loss incurred on sale of listed securities - HELD THAT:- As decided in case of Raptakos Brett Co. Ltd [ 2015 (6) TMI 529 - ITAT MUMBAI ] assessee had incurred loss on sale of shares after paying STT these shares were held on investment a/c for period more than 12 months. The assessee claimed that the loss incurred was to be assessed under the head capital gains and its set off was permissible against capital gain earned on transfer of other capital assets. The AO however disallowed the assessee s claim for assessment of long term capital loss on the ground that income earned in similar transactions was not chargeable to tax in view of exemption granted by S. 10(38) of the I.T. Act. In the AO s opinion Sec. 10(38) was applicable equally to all transactions of sale of investment shares involving STT payment irrespective whether the resultant effect was profit/income or loss. On further appeal this Tribunal relying on the judgment of the Hon ble Calcutta High Court (supra) held that same considerations did not apply to the income exempt u/s 10 and the loss incurred in similar transactions. The ITAT therefore held that assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 23,70,600/- u/s 40(a)(ia) of the Act. On appeal, the CIT(A), after examining the details of expenses paid to M/s Royal Calcutta Turf Club, noted that expenditure to the tune of ₹ 19,21,824/- were not in the nature of works and therefore the provisions of Section 194C was held to be not applicable to such payments. The Ld. CIT(A) accordingly deleted disallowance to the extent of ₹ 19,21,824/- and confirmed the balance addition of ₹ 4,48,776/-. Aggrieved the appellant is now in appeal before us. 4. We have heard rival submissions and gone through the order of the lower authorities. We find that the primary argument of the Ld AR is that the payee i.e. M/s Royal Calcutta Turf Club has duly included the subject mentioned receipts in their return of income and had paid taxes thereon which may be verified by the AO. The Ld DR also fairly agreed for the same. In view of the amendment to second proviso to section 40(a)(ia) read with section 201(1) of the Act, if the payees have included the subject mentioned receipts in their returns and paid taxes thereon, if any, then the disallowance u/s 40(a)(ia) of the Act would not operate in the hands of the payer. Hence in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positive income and losses will not come within the purview of the said section. Inviting our attention to the provisions of Section 70 71 wherein the Legislature has laid down the manner in which the Long term capital loss is to be set-off and carried forward to subsequent years, the Ld. AR submitted that the Legislature has not put any embargo to exclude Long term capital loss from sale of shares to be set off against Long term capital gain arising on account of sale of other capital asset. The Ld. AR submitted that it is not a case where the source of income itself is exempt from tax and therefore any gain/loss derived in any manner there from is to be ignored for tax purposes. He submitted that capital asset is defined in Section 2(14) which inter alia includes shares securities. The levy of income-tax on capital gain arising upon transfer of a capital asset has been provided in Section 45 and mode of computation has been elaborated in section 48. Certain exceptions have been provided in section 47 to those transactions which are not regarded as transfer. It is only if upon sale of shares which are listed on stock exchange, the assesse derives a positive income and fulfill the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include loss because the loss is nothing but negative income. It is cardinal principle of interpretation of statutes that the observations and findings of the Court must be understood in the context of the facts involved in the case decided by the Court. It is not proper to divorce the observation of the Court from the facts involved in the case. It is well laid down that the text of the statute must be understood in the context in which it is used and therefore any particular observation of the Court in the judgment cannot be considered or applied in its isolation or divorced from the context in which it was rendered. In the case of CIT Vs J.H. Gotla (supra), the issue before the Apex Court was assessee s claim in the context of aggregation of income. Section 64 of the Act requires clubbing of income of the minor children or of the spouse and accordingly in the given circumstances the tax is required to be paid on aggregate income after clubbing. In this instant case it was the assessee s case that if the income accruing to the minor child or spouse was liable to be taxed on aggregate basis in the hands of the assessee then by equal measure the loss incurred by the minor and whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic exception carved on in respect of equity shares or securities like in the case of agricultural land or personal effect. Further Section 45 which lays down the charge of tax on gain arising on transfer of capital asset covers the long term capital gain derived on sale of equity shares whether or not they are listed on stock exchange and whether or not they are transferred on payment of STT. The manner and mode of computation of long term capital gain on sale of shares is uniformly laid down in Section 48 of the Act. In case the resultant figure is a long term capital loss, the manner for claiming its set off / carry forward has been set out in Section 74 of the Act. Therefore, on conjoint reading of all the applicable Sections, we find that nowhere any exception has been made with regard to long-term capital gain/loss arising on sale of equity shares and it is liable to income-tax like any other item of capital asset. In our considered view therefore it cannot be said that the source viz., transfer of long term capital asset being equity shares by itself is exempt from tax so as to say that any income from such source shall include loss as well. 9. We find that the exemption in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pter III, sections 10A and 10B as substituted by Finance Act, 2000 provide for deduction of the profits and gains derived from the export of articles or things or computer software for a period of 10 consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such article or thing or computer software. The deduction is to be allowed from the total income of the assessee. The term 'total income' has been defined in section 2 (45) of the IT Act and it means the total amount of income referred to in section 5, computed in the manner laid down in the Incometax Act. 5.1 All income for the purposes of computation of total income is to be classified under the following heads of income and computed in accordance with the provisions of Chapter IV of the Act- Salaries Income from house property Profits and gains of business and profession Capital gains Income from other sources 5.2 The income computed under various heads of income in accordance with the provisions of Chapter IV of the IT Act shall be aggregated in accordance with the provisions of Chapter VI of the IT Act, 1961. This means tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of STT was exempt, for such reason alone the loss incurred on long term listed shares upon payment of STT will also be outside the charging provisions of the Act. 11. In this regard we find the Ld. AR s reliance on the judgment of the jurisdictional Calcutta High Court in the case of Royal Calcutta Turf Club Vs CIT (supra) to be relevant. In the decided case the assessee had incurred loss in its broodmares account and in pig a/c which was set off against its income from other sources under the head Business . The AO disallowed assessee s claim for set off on the ground that the income if derived from these 2 heads; were exempt u/s 10(27) of the Act and therefore correspondingly the loss incurred from the same activity also did not enter the computational provisions of the Act. The AO s action of disallowing the claim for set off was upheld by the successive appellate authorities. On reference u/s 256(1) the Hon ble High Court however held that Sec. 10(27) of the Act excluded in express term only the income derived from a business of livestock breeding or poultry or dairy farming. The said section did not exclude the business of livestock breeding or poultry or dairy farming ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been enumerated from sections 48 to 55. Further sub-section (3) of section 70 and section 71 provides for set off of loss in respect of capital gain. 8. From the conjoint reading and plain understanding of all these sections it can be seen that, firstly, shares in the company are treated as capital asset and no exception has been carved out in section 2(14), for excluding the equity shares and unit of equity oriented funds that they are not treated as capital asset. Secondly, any gains arising from transfer of Long term capital asset is treated as capital gain which is chargeable u/s. 45; thirdly, section 47 does not enlist any such exception that transfer of long term equity shares/funds are not treated as transfer for the purpose of section 45 and section 48 provides for computation of capital gain, which is arrived at after deducting cost of acquisition i.e. cost of any impro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a case the profit or loss resulting from such a source of income do not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, the income in respect of which is excluded in the computation of total income. For instance, if the assessee has income from Short term capital gain on sale of shares; Long term capital gain on debt funds; and Long term capital gain from sale of equity shares, then while computing the taxable income, the whole of income would be computed in the total income and only the portion of Long term capital gain on sale of equity shares would be removed from the taxable income as the same is exempt u/s 10(38). This precise issue had come up for consideration before the Hon'ble Calcutta High Court in Royal Calcutta Turf Club's case (supra), wherein the Hon'ble High Court observed that under the Income tax Act, 1961 there are certain incomes which do not enter into the computation of the total income at all. In computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case may be. The scheme of total 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. How this question will have to be viewed, has been looked into by the Supreme Court in several decisions to some of which our attention was drawn. After discussing the various decisions of the Hon'ble Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. While concluding the issue their Lordships observed that it may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set- off. Its sole purpose is to set off the loss against the profits of a subsequent year. It pre-supposes the permissibility and possibility of the carried-forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such set-off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be carried forward . Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable source. The ratio and the principle laid down by the Hon'ble Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. Lastly, coming to the decision of Hon'ble Gujarat High Court in the case of Kishorebhai Bhikhabhai Virani (supra), we find that the issue involved in the present case was almost the same, wherein the Hon'ble High Court after following the decision of Hon'ble Supreme Court in the case of Hariprasad Company (P.) Ltd. (supra), had decided the issue against the assessee. Since we have already noted down the ratio of Hon'ble Calcutta High Court, wherein the Hon'ble High Court has discussed this issue in detail after relying upon series of decisions of Hon'ble Supreme Court and have reached to a conclusion as discussed above, and, therefore, we are respectfully following the ratio of the decision of the Calcutta High Court. Further the said decision have not been referred or distinguished by the Hon'ble Gujarat High Court. Accordingly, we allow the assessee's ground no.1 and direct the Assessing Officer to allow the claim of set off of Long term capital loss on sale of shares against the Long term capital gain arising on sale of land. 13. For the reasons set out above and following the decisions discussed above, we direct the AO to assess the long term ..... X X X X Extracts X X X X X X X X Extracts X X X X
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