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TMI Blog2021 (5) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... greement which states this agreement shall not be assigned by the apartment allottee without prior permission of the Company and came to the conclusion that the assessee never vested with the right to the property and hence the assessee could not have sold the rights - HELD THAT:- We find that what the assessee has sold is the right and the right arises when the assessee enters into an agreement with the builder in the year 2004-05. Since, such right accrued in the year 2004-05 and the sale took place on 01.05.2012, it attains the nature of sale of Long Term Capital asset and the gains will have to be treated as Long Term Capital Gains . The AO is directed to compute the LTCG after taking into consideration, the amount received on account of sale as per the documents - AO shall also verify and consider the deduction paid to the broker. Income from other sources - HELD THAT:- AO is hereby directed to verify from the records whether the amount was offered to tax income from other sources or not and examined whether the correct figure and recomputed the taxable income. - ITA No. 7256/Del/2019, ITA No. 241/Del/2019 - - - Dated:- 26-4-2021 - Sh. Bhavnesh Saini, Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incomes not included in total income and argued that when X income derived from source Y is not taxable, the loss incurred under the similar transactions of Y is not allowable. The arguments of the ld. Sr. DR are summarized as under: 1. The main issue in this appeal is whether loss from sale of long term capital share on which security transaction tax has been paid should be allowed to be carried forward for set off even though the income from such transfer of long term capital asset is exempt u/ s 10 (38). In this context the attention of the Hon ble Bench is drawn to the scheme of computation of income and envisaged under the I.T. Act, 1961. 2. Under the scheme of the Income Tax Act, 1961, all the receipt by assessee are to be first considered from the angle of whether they carry an obligation to be returned to the payer or not. If they entail the obligation to be returned, genuine receipt from explained sources does not partake the nature of income and is normally not taxable as such. If it has no obligation to be returned, the receipts are normally to be considered as income. In this background, kind attention of the Bench is drawn to Section 2 (24) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter: [Provided that the income by way of long- term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB.] Explanation. - For the purposes of this clause, equity oriented fund means a fund- (i) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than - [sixty- five] per cent of the total proceeds of such fund; and (ii) which has been set up under a scheme of a Mutual Fund specified under clause (23D): Provided that the percentage of equity shareholding of the fund shall be computed with reference to the annual average of the monthly averages of the opening and closing figures. 5. Thus it may be appreciated that what is envisaged to be exempt u/s 10 (38) is not gain from sale of long term asset but income from transfer of long term asset , the nature of the asset being equity share in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, if the contention of the assessee is agreed to, it will amount to rendering the provisions of Section 14 A infructuous, since expenditure incurred by assessee in relation to income not forming part of his total income will stand to be allowed against taxable income of the assessee. Further, the judicial precedence so set, will also pave way for claiming the expenditure against other exempt income to be claimed against taxable income and will make the section 14A completely infructuous. Such interpretation is clearly not in line with the established procedure of Harmonious Interpretation as laid down by the Hon ble SC in the landmark cases of: 1) Sri Sankari Prasad Singh Deo vs Union Of India [1951 AIR 458, 1952 SCR 89] wherein the Honourable Supreme Court enunciated the Doctrine of Harmonious Construction. 2) CIT VS Hindustan Bulk Carriers in case no. Appeal (Civil) 7966-67 of 1996 wherein the Honourable Supreme Court as held as follows: A construction which reduces the statute to a futility has to be avoided. A statute or any enacting provision therein must be so construed as to make it effective and operative on the principle expressed in maxim ut res magis v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atute cannot be used to defeat those of another unless it is impossible to effect reconciliation between them. Thus construction that reduces one of the provisions to a useless lumber' or 'dead letter is not a harmonized construction. To harmonize is not to destroy. 7. The intention of the legislature is that every provision should remain operative. But where two provisions are contradictory, it may not be possible to effectuate both of them and in result, one shall be reduced to futility as against the settled basic principle of ut res mcigis valeat qauam pereat. Therefore, such a construction should be allowed to prevail by which the existing inconsistency is removed and both the provisions remain in force, in harmony with each other. Thus it is prayed that the order of the Assessing Officer and the CIT(Appeals) may kindly be upheld. 7. Heard the arguments of both the parties and perused the material available on record. 8. Provisions of Section 2(14), Section 10(38), Section 71 and Section 74 are examined. Section 2 (14) : As per S. 2(24) of the Income Tax Act, 1961, unless the context otherwise requires, the term income includes- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eable to income- tax under clauses (ii) and (iii) of section 28 or section 41 or section 59 ; (va) any sum section 28 ; chargeable to income- tax under clause (iiia) of (vb) any sum chargeable to income- tax under clause (iiib) of section 28 ; (vc) any sum chargeable to income- tax under clause (iiic) of section 28 ; (vd) the value of any benefit or perquisite taxable under clause (iv) of section 28; (ve) any sum chargeable to income- tax under clause (v) of section 28 ; (vi) any capital gains chargeable under section 45 ; (vii) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with section 44 or any surplus taken to be such profits and gains by virtue of provisions contained in the First Schedule; (viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a co- operative society with its members; (viii) Omitted (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 10 to clause (1) of section 43 ; or (b) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, as the case may be; Income tax is a charge on Income , so its important to understand the meaning of the term Income under S. 2(24) of the Income Tax Act. There are various important case- laws on interpretation of the term Income , which also needs to be reviewed. Section 10(38): 10(38) any income arising from the transfer of a long- term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter : Provided that the income by way of long- term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB : Provided also that nothing contained in sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Where in respect of any assessment year, the net result of the computation under any head of income, other than Capital gains , is a loss and the assessee has income assessable under the head Capital gains , such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head Capital gains (whether relating to short- term capital assets or any other capital assets). [(2 A) Notwithstanding anything contained in sub- section (1) or sub- section (2), where in respect of any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss and the assessee has income assessable under the head Salaries , the assessee shall not be entitled to have such loss set off against such income.] (3) Where in respect of any assessment year, the net result of the computation under the head Capital gains is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.] [(3 A) Notwithstanding anything ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Act and hence cannot be sustained. ITA No. 241/ Del/2019 A. Y. 2013-14 10. The relevant facts are as under: Date of agreement with the builder 01.09.2004 Date of sale 01.05.2012 The last installment paid by the assessee 18.05.2009 11. The Assessing Officer held that since the assessee has paid last installment on 18.05.2009, he acquired the right on the property only on 18.05.2009 and since the property was sold on 01.05.2012, the gains are treated as short term capital gain and taxed accordingly. 12. The ld. CIT (A) held that the assessee has not created any right in the property by making periodic payments from 2004 to 2009 to the developer. The right of the assessee would be created in the any property only after signing of the conveyance deed. To be a long term capital asset, the asset has to be held by the assessee for more than 36 months immediately preceding the date of transfer. It was also held the agreement between the assessee and the builder 13. Heard the arguments of both the parties and perused the material available on record. 14. We find that as per the definition of capital asset under section 2 (14), any k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the remaining amount of ₹ 2,82,326 /- to the builder subsequently. The AO held that as per the clause in the purchase agreement which states this agreement shall not be assigned by the apartment allottee without prior permission of the Company and came to the conclusion that the assessee never vested with the right to the property and hence the assessee could not have sold the rights. On going through the facts of the case, we find that what the assessee has sold is the right and the right arises when the assessee enters into an agreement with the builder in the year 2004-05. Since, such right accrued in the year 2004-05 and the sale took place on 01.05.2012, it attains the nature of sale of Long Term Capital asset and the gains will have to be treated as Long Term Capital Gains . The AO is directed to compute the LTCG after taking into consideration, the amount received on account of sale as per the documents (to verify the figure of ₹ 1,17,18,792/- or ₹ 1,20,01,118/-). The AO shall also verify and consider the deduction of ₹ 1,80,000 /- paid to the broker. With regard to income from other sources of ₹ 1, 47,142/-, the AO is hereby directed to v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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