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TMI Blog2019 (12) TMI 1038X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of software development was assessed for year under consideration u/s 143(3) on 09/02/2016 wherein the income of the assessee was determined at Rs. 162.39 Lacs after certain adjustments as against returned income of Rs. 34.72 Lacs e-filed by the assessee on 27/11/2013. 2.2 During assessment proceedings, it transpired that the assessee earned long-term capital gains (LTCG) of Rs. 127.67 Lacs on sale of certain properties. The Assessee had also reflected LTCG on sale of quoted equity shares for Rs. 48.94 Lacs which was claimed exempt u/s 10(38) since the sale transactions were charged to Securities Transaction Tax (STT). At the same time, it was noted that the assessee suffered long-term capital loss (LTCL) of Rs. 311.80 Lacs on similar sale of quoted equity shares transactions which were also subjected to payment of STT. The assessee, in its computation of income, claimed set-off of this loss against LTCG aggregating to Rs. 176.62 Lacs earned on properties & equity shares. The balance amount of Rs. 135.18 Lacs was carried forward to subsequent year. The Ld. AO denied the set-off and carry forward of stated losses on the ground that since long-term capital gains were exempt fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides that the income earned by way of long term capital gains on sale of equity shares on the stock exchange subject to payment of securities transaction tax [STT) shall not be included in the total income. This Section is placed in Chapter 111- "Income which do not form part of total income" which does provides the list of incomes that does not form part of total income i.e. not includible in the total income. 1.3 It is a trite law that income includes loses. In the case of CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC), it has been held as under :- "From changing provisions of the Act, it is discernible that the words "income" or "profit and gains"should be understood as including loses also, so that, in one sense "profits and gains" represent plus income whereas loses represent "minus income". In other words, toss is negative profit. Both must enter into computation, whereas it becomes material, in the same mode of the taxable income of the assessee. Although section 6 classifies income under s/jv heads, the main charging provision in 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought into the taxable territories which are quite unambiguously clarifies that the loses i.e. the negative income shall not form part of 'income' in the context of the provision. In this regard, the Hon'ble Supreme Court in the case of Karamchand Premchand (supra) had noted in the context of third proviso that, income cannot include losses here because the latter part of the proviso says. 'unless such income, profits or gains are received, etc.. into the taxable territories'. This shows, that obviously losses cannot be brought into the taxable territories except in an accounting sense and the expression 'income, profits or gains' in the context therefore cannot include losses. It is this vital reasoning which needs to be appreciated that the Hon'ble Supreme Court in the said case did not apply the principle of income includes losses or negative incomes as the language of the third proviso did not permit. Further, the question of exclusion of business altogether, comes only when the well settled principle of expression 'income includes loss" fails. Moreover the genre of the source of long term capital loss incurred in present facts of the _ case is sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the said clause would likewise be not includable in computation of the income of the assessee for the year under consideration The contention of the learned counsel for the assessee that for the purpose of section 10(38) of the Act the term "income" would not include "loss", cannot be accepted and rightly rejected by the Tribunal. If this is the conclusion, it can immediately be seen that any loss in respect of any such capital asset would not be available for set off The Tribunal rightly relied on the decision in the case of Harprasad & Co. (P.) Ltd. (supra) to come to a conclusion that the term "income" under section 10(38) of the Act would also include the loss. In the said decision, the apex court observed that the concept of carry forward of loss does not stand in vaccum. It involves the notion of set off. It postulates permissibility and possibility of the carried forward toss being absorbed or set off against the profits and gains 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 was held that if such set off is not permissible or possible owing to the income or profits o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be collected by the stock exchange from the purchaser of such securities and paid to the exchequer. The above provisions relating to the proposed tax were contained in Chapter VII of the Finance (No. 2) Bill, 2004, and took effect from 1-10-2004. Further, it was proposed to insert clause (38) in section 10 of the Income-tax Act, so as to provide exemption from long-term capital gains arising out of securities sold on the stock exchange. Thus section 10(38) has been inserted with a particular object to grant exemption to such income as tax has already been levied on some different footings. If we accept the contention of the revenue to adjust long term capital loss against exempt income (long-term capital gain) that will be contrary to law and contrary to the intention, object and purpose of the Legislature in introducing clause (38) to section 10 of the Act. Further, on acceptance of revenue's view on the issue, there is absurd outcome of interpretation if the facts are reversed, then, longterm capital loss from taxable assets will have to be adjusted against the longterm capital gains exempt under section 10(38) of the Act. Suppose in the case on hand if there is taxable long- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. Here again the principle of equality applies. The essential difference between an exemption and a deduction provision thus lies in the fact that whereas income (both positive and negative) from an exemption provision does not enter into computation of income at all and is totally ignored, income (both positive and negative) from a deduction provision enters into computation of income and is first chargeable to tax and then deductible to the extent provided. The Hon'ble Bombay High Court in Hindustan Unilever Ltd. v. Dy. CIT [2010] 325 ITR 102/191 Taxman 119 quashed the reopening of an assessment on the ground that the loss of eligible unit was wrongly set off against the normal business income of the assessee by noticing that section 10B, as it now stands, is not a provision in the nature of an exemption but provides for a deduction and the loss sustained by the unit eligible for deduction under section 10B could be set off against the normal business income. 12. Coming back to our context, we find that section 10(38) is an exemption provision. This exemption provision states that any income arising from transfer of equity shares etc., held as long-term capital asset on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee by observing as under:- 5. Before us the learned senior counsel, Shri Soli Dastur, submitted that what is contemplated in section 10(38) is exemption of positive income and losses will not come within the purview of the said section. The set off of Long term capital loss has been clearly provided in sections 70 and 71. The Legislation 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. Even in the definition of capital asset u/s. 2(14), no exception or exclusion has been provided to equity shares the profit/gain of which are treated as exempt u/s. 10(38). Capital gain is chargeable on transfer of a capital asset u/s. 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. Nothing has been mentioned in sections 45 to 48 that capital gain or loss on sale of shares are to be excluded as section 10(38) exempts the income arising from the transfer of long term capital asset being an equity share or unit. Legislature has given exemption to inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. However, he distinguished the said decision and highlighted the points as to why said decision cannot be followed. 6. On the other hand, the learned DR strongly relied upon the order of the AO and CIT(A) and submitted that, firstly, if the income from the Long term capital gain on sale of shares is exempt, then the loss from such sale of shares will also not form part of the total income and therefore, there is no question of set off against other income or Long term capital gain on different capital asset. Secondly, the decisions of Hon'ble Gujarat High Court and ITAT Mumbai Tribunal should be followed. He further submitted that it is quite a settled law that income includes loss also and, therefore, if the income from sale of shares does not form part of the total income, then the losses from such shares also will not form part of the total income. Thus, the order of the CIT(A) should be confirmed. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular "provision" of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions. Section 10(38) provides 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under s.10(27) read with s.70 of the I.T. Act, 1961, was the assessee entitled to set off the loss on the two heads, namely, Broodmares Account and the Pig Account, against its income of other sources under the head "Business"" Their Lordships after analysing the provisions of section 70 and section 10(27) observed in the following manner: "In this case it is important to bear in mind that set-off is being claimed under Section 70 of the 1961 Act which permits set off of any income falling under any head of income other than the capital gain which is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Hon'ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case. 9. Now coming to the argument of the learned DR and learned CIT(A) that income includes loss and if income is exempt then loss will also not be taken into computation of the income, and such an argument is with reference to the decision of Hon'ble Supreme Court in the case of Hariprasad & Co. (P.) Ltd. [1975] 99 ITR 118. The Hon'ble Supreme Court, opined that, if loss was from the source or head of income not liable to tax or 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 neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon'ble Supreme Court and held that the same will not apply in such cases. Thus, in our conclusion, we hold that section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short 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 capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 357 of 2016, however, the same was dismissed by Hon'ble Court for want of non-prosecution vide order dated 09/08/2018 with following observations: - 1. When this appeal was called out earlier, none appeared in support of the appeal. Therefore, the appeal was kept back. On being called the second time also none appeared in support of the appeal. 2. It appears that the appellant is not interested in prosecuting the present appeal. 3. Accordingly, the appeal is dismissed for non-prosecution. 6. The aforesaid order of the Tribunal has subsequently been followed by Pune Tribunal in ACIT V/s Shri Somnath Vaijanath Sakre (ITA No.2986/Pun/2016 & ors. order dated 08/03/2019) drawing analogy from the decision of Hon'ble Supreme Court rendered in CIT V/s Vegetable products Ltd. (1972 88 ITR 192). Similar favorable view has recently been taken by Kolkata Tribunal in M/s United Investments V/s ACIT (ITA No.511/Kol/2017 order dated 01/07/2019). 7. In the above background, we find that various coordinate benches of Tribunal has chosen to take a view favorable to the assessee and therefore, respectfully following the same, we prefer to take similar view. Accordingly, we hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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