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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 ..... the jurisdictional High Court at Calcutta rendered on 23rd August, 2016, in the case of Principal Commissioner of Income Tax vs M/s. Tirupati Construction in ITAT No. 287 of 2016." 3. Briefly stated facts as noted by the AO are that the assessee company had incurred 'horse expenses' of Rs. 23,70,600/- against the income derived from horse racing, which was entirely paid to Royal Calcutta Turf Club. The appellant contended that the payment made to M/s Royal Calcutta Turf Club was in the nature of reimbursement of the expenses incurred by the club on their behalf and hence it was not required to withhold tax on these payments. After making enquiry u/s 133(6), the AO observed that the appellant had entered into a works agreement with M/s Royal Calcutta Turf Club for rendering of several services and therefore the payment of Rs. 23,70,600/- was made in lieu of the agreement with M/s Royal Calcutta Turf Club. The AO thus held that the appellant was required to withhold tax u/s 194C on the expenditure of Rs. 23,70,600/- which it had failed to do so. The AO accordingly disallowed the entire expenditure of Rs. 23,70,600/- u/s 40(a)(ia) of the Act. On appeal, the CIT(A), after examining t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved on sale of listed shares fulfilled the conditions prescribed in Section 10(38) and therefore held it to be exempt from income-tax. With regard to claim of long term capital loss of Rs. 6,04,425/-; the Ld. CIT(A) held that since the gain derived from sale of long term listed shares was exempt then any loss incurred there from was to be ignored. He accordingly denied the appellant's claim for carry forward of long term capital loss of Rs. 6,04,425/-u/s 74 of the Act. Being aggrieved by Ld. CIT(A)'s order, the assessee is now in appeal before us. 6. We have heard the rival submissions of both the parties. Assailing the order of the Ld. CIT(A), the Ld. AR appearing on behalf of the appellant submitted that the lower authorities erred on facts and in law in treating the long term capital loss incurred on sale of listed shares on the same footing as that of long term capital gain and thereby denying the carry forward of long term capital loss since long term capital gain was exempt u/s 10(38) of the Act. According to Ld. AR what is contemplated in section 10(38) is exemption of positive income and losses will not come within the purview of the said section. Inviting our attention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... empt u/s 10(38) of the Act, then as a corollary even the loss arising from such source also cannot be set off against any other income which is chargeable to tax. The Ld. DR accordingly pleaded that the orders of the lower authorities be confirmed. 7. After giving a thoughtful consideration to the facts of the case and the provisions of law; we find that the main issue to be decided in this ground is whether the long term capital loss arising on sale of long term listed shares can be assessed in terms of Section 45 of the Act and thereafter be permitted to be carried forward to be set off. It is the contention of the lower authorities that when the gain arising sale of long term listed shares is exempt from tax u/s 10(38) of the Act then by equal measure any loss arising in the hands of the assessee from transfer of listed securities sold on payment of STT should also remain outside the ambit of charging provisions of the Act. It is true that the judicial authorities including the Hon'ble Supreme Court in the case of CIT Vs J.H. Gotla (156 ITR 323) held that the expression 'income' shall include loss because the loss is nothing but negative income. It is cardinal principle of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. Accordingly in a case where the source of income is otherwise chargeable to tax but only a specific specie of income derived from such source is granted exemption, then in such case the proposition that the term 'income' includes loss will not be applicable. It is only when the source which produces 'income' is outside the ambit of taxing provisions of the Act, in such case alone the 'income' including negative income can be said to be outside the ambit of taxing provisions and therefore the negative income is also required to be ignored for taxation purposes. As a corollary therefore where only one of the streams of income from the 'source' is granted exemption by the Legislature upon fulfillment of specified conditions, then the concept of 'income' includes 'loss' will not apply. In this background it is necessary to examine now as to whether the 'source' of long term capital gain i.e. long term capital asset being equity shares is completely outside the charging provisions or not. On reference to Section 2(14) of the Act which defines the term 'capital asset', it is noted that there is no specific exception carved on in respect of equity shares or securities like in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pective effect from 1-4-2001. Circular No. 7/2003, dated 5-9-2003 explains the amendments brought by Finance Act, 2003. The relevant paragraph is reproduced below: "20. Providing for carry forward of business losses and unabsorbed depreciation to units in Special Economic Zones and 100% Export Oriented Units. 20.1 Under the existing provisions of sections 10A and 10B, the undertakings operating in a Special Economic Zone (under section 10A) and 100% Export Oriented Units (EOU's) (under section 10B) are not permitted to carry forward their business losses and unabsorbed depreciation. 20.2 With a view to rationalize the existing tax incentives in respect of such units, sub-section (6) in sections 10A and 10B has been amended to do away with the restrictions on the carry forward of business losses and unabsorbed depreciation. 20.3 The amendments have been brought into effect retrospectively from 1-4-2001 and have been made applicable to business losses or unabsorbed depreciation arising in the assessment year 2001-02 and subsequent years." 5. From the above it is evident that irrespective of their continued placement in Chapter III, sections 10A and 10B as substitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neligible unit as the case may be, in accordance with the provisions of section 72 of the Act.[Emphasis given by us] 10. The perusal of the above Circular makes it clear that the exemption under Section 10A is allowable only where the resultant income of the undertaking was positive. The Circular specifically clarifies that in the event the eligible undertaking incurs a loss, then such loss is not to be ignored on matching principle, but it can be set off and/or carried forward in terms of Section 72 of the Act. We therefore find that in analogous situation arising under Section 10A which is also part of Chapter III, the Board has accepted the legal proposition that even though the income is exempt but the loss arising from the same source is liable to be assessed and granted set off as per law. In view of the foregoing we find merit in the Ld. AR's contention that the exemption u/s 10(38) has been carved out in respect of a specific instance and that too where there is a positive income and upon fulfillment of conditions set out therein. We therefore find force in Ld. AR's submissions that merely because the capital gain arising on sale of long term listed shares upon payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal 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 assessee was entitled to get its loss assessed & was also entitled to get such loss set off. The relevant extracts of the decision is as follows: 7. We have heard rival submissions and perused the relevant findings given in the impugned orders. The main issue before us is, whether Long term capital loss on sale of equity shares can be set off against Long term capital gain arising on sale of land or not, as the income from Long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT. First of all, Long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a Long term capital asset. Section 2(14) defines "Capital asset" and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption of income only from transfer of Long term equity shares and equity oriented fund and not only that, there are certain conditions stipulated for exempting such income i.e. payment of security transaction tax and whether the transaction on sale of such equity share or unit is entered into on or after the date on which chapter VII of Finance (No.2) Act, 2004 comes into force. If such conditions are not fulfilled then exemption is not given. Thus, the income contemplated in section 10(38) is only a part of the source of capital gain on shares and only a limited portion of source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of Long term capital asset and, further fulfils the conditions mentioned in sub-section (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable. Section 10 provides that certain income are not to be included while computing the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. We have noticed that in the instant case the exclusion has been conceded in computing the business income or the source of income from the head of business and in computing that business income, the loss from one particular source, that is, broodmares account and the pig account, had been excluded contrary to the submission of the assessee. The assessee wanted these losses to be set off. The Revenue contends that as the sources of the income are not to be included in view of the provisions of Clause (27) of s. 10 of the 1961 Act, the loss suffered from this source could also not merit the exclusion. Under the I.T. Act, there are certain incomes which do not enter into the computation of the total income at all. In this connection we have to bear in mind the scheme of the charging section which provides that the incomes shall be charged and s. 4 of the Act provides that the Central Act enacts that the incomes shall be charged for any assessment year and in accordance with and subject to the provisions of the 1961 Act in respect of the total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer under any obligation to compute or assess it much less for the purpose of carry forward. Further, the Hon'ble Supreme Court observed that "From the charging provisions of the Act, it is discernible that the words ' income ' or ' profits and gains' should be understood as including losses also, so that, in one sense 'profits and gains' represent ' plus income ' whereas losses represent 'minus income'. In other words, loss is negative profit. Both positive and negative profits are of a revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Although Section 6 classifies income under six heads, the main charging provision is Section 3 which levies income-tax, as only one tax, on the 'total income ' of the assessee as defined in Section 2(15). An 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 referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against Long term capital gain on sale of land in accordance with section 70(3). 10. Coming to the decision of the ITAT Mumbai Bench in the case of Schrader Duncan Ltd. (supra), the issue involved there was, whether the loss on transfer of capital asset being units US 64 Scheme of Unit Trust of India can be allowed and entitled to carry forward the same for set off of in subsequent assessment years, when the income arising from such transfer of unit is exempt u/s. 10(33). The Tribunal held that the source both capital gain and capital loss on sale of units of US64 is itself excluded and not only the income arising out of capital gain. The Hon'ble Tribunal have noted the history of US64 Scheme and the purpose for which such scheme was launched. In this context of transfer of US64 scheme the Tribunal held that the provisions were not meant to enable the assessee to claim loss by indexation for set off against other capital gain chargeable to tax. This decision is slightly distinguishable and secondly, we have already discussed the issue at length and have held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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