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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the Revenue challenging the impugned order dated 15.07.2019, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax–4, Mumbai, (“learned CIT(A)”) for the assessment year 2014–15.
In this appeal, the Revenue has raised following grounds:–
“Whether on the facts and in the circumstances of the case and in Yogiraj Jaichand Maker ITA No.6268/Mum./2019 law, the learned CIT(A) erred in allowing short term capital loss arising from STT paid transactions against short term capita gain arising from non–STT paid transactions?
The brief facts of the case pertaining to the only issue arising in present appeal, as emanating from the record are: The assessee Late Shri Yogiraj Jaichand Makar during his lifetime filed his return of income, for the year under consideration, on 30.07.2014 declaring total income of Rs. 83,93,526. The assessee died on or about 10.01.2016. Mr Puneet Yogiraj Makar, the son of the deceased assessee, is the legal heir and accordingly was taken on record and assessment was completed in the name of the legal representative. For the year under consideration, the deceased assessee earned income from rendering professional services as management consultant and also on capital gain as well as income from other sources.
During the course of assessment proceedings, it was observed that assessee has set off Short Term Capital Loss amounting to Rs. 1,85,69,138 which is taxable at the rate of 15% against the Short Term Capital Gain of Rs. 2,46,87,281, which is taxable at normal rates. The assessee was asked to show cause as to why the setting off be not disallowed as the same is against the provisions of section 70(3) of the Act. In reply, assessee filed detailed submissions justifying the claim of set off by placing reliance on various judicial precedents. The Assessing Officer vide order dated 21.12.2016 passed under section 143(3) of the Act held that the set off as claimed by the assessee is against the provisions of section 70(3) of the Yogiraj Jaichand Maker ITA No.6268/Mum./2019 Act and accordingly, disallowed the claim of the assessee of adjustment of Short Term Capital Loss which is taxable at the rate of 15% against the Short Term Capital Gain which is taxable at normal rate.
In appeal before the learned CIT(A), assessee submitted that the Assessing Officer has wrongly referred to section 70(3) of the Act which deals with Long Term Capital Loss and not Short Term Capital Loss. It was further submitted that section 70(2) of the Act is applicable in the case of assessee. Further, reliance was placed on various judicial precedents wherein Short Term Capital Loss, on which Securities Transaction Tax (“STT”) was paid, was allowed to be set off against Short Term Capital Gain, on which STT was not paid.
The learned CIT (A) vide impugned order dated 15.07.2019 allowed the appeal filed by the assessee following judicial precedents on similar issue. Being aggrieved, the revenue is in appeal before us.
During the course of hearing, learned Departmental Representative (“learned D.R.”) vehemently relied upon the order passed by the Assessing Officer.
On the other hand, learned Authorised Representative (“learned A.R.”) appearing for the assessee submitted that the issue is covered in favour of the assessee by various decisions passed by the Co-ordinate Bench of Tribunal.
Yogiraj Jaichand Maker ITA No.6268/Mum./2019
We have considered the rival submissions and perused the material available on record. In the present case, the assessee was holding 19,646 shares of M/s Mahindra Forge Ltd (“MPL”) as on 1 April 2013 and the cost of such investment to the assessee was Rs. 59,273.41. In the month of September 2013, the assessee purchased 24,04,536 shares of MFL at a cost of Rs. 15,75,34,065. Subsequently, in the month of October 2013, M/s CIE Automotive SA (“CIE”) had made an offer to the shareholders of MFL to acquire the shares of MFL at a price of Rs. 81 per share. The assessee had surrendered the whole shareholding of MFL, i.e. 24,24,182 shares (19,646+24,04,536). CIE accepted only 65% of the total shareholding, i.e. 15,78,417 shares (12,792+15,65,625). Accordingly, the assessee received Rs. 10,36,152 (12,792 X Rs. 81) and Rs. 12,68,15,625 (15,65,625 X Rs. 81). Thus, the assessee earned Long Term Capital Gain of Rs. 9,97,558 on sale of 12,792 shares, which was chargeable to tax at the rate of 10%, on which STT was not paid. Similarly, the assessee earned Short Term Capital Gain of Rs. 2,46,87,281 on sale of 15,65,625 shares, which was chargeable to tax under normal rate as the assessee had not paid STT on sale of the said shares.
Thereafter, on 28 October 2013, the assessee sold 6854 shares remaining out of the original holding that the Stock Exchange at the prevailing market price, whereby the assessee earned Long Term Capital Gain of Rs. 2,80,280. This Long Term Capital Gain was exempted under the Act as the assessee had paid STT on sale of the said shares at the Stock
Yogiraj Jaichand Maker ITA No.6268/Mum./2019 Exchange. The assessee further sold 8,38,911 shares at the Stock Exchange at the prevailing market price, for a consideration of Rs. 3,68,36,582. The cost to the assessee was Rs. 5,54,05,721. Thus, the assessee incurred Short Term Capital Loss of Rs. 1,85,69,139. The assessee also paid STT on sale of the said shares at the Stock Exchange.
The assessee adjusted the aforesaid Short Term Capital Loss of Rs. 1,85,69,139 which was chargeable to tax under section 111A @ 15% against Short Term Capital Gain of Rs. 2,46,87,281 which was chargeable to tax at the normal rate. The issue which arises for our consideration is whether the Short Term Capital Loss (on which STT was paid) can be set off against the Short Term Capital Gain (on which STT is not paid).
Section 70 (2) of the Act deals with set off of Short Term Capital Loss and the same reads as under: “(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.” Thus, as per the aforesaid provision the Short Term Capital Loss can be set off against gain from any other capital asset. Section 70(2) of the Act does not make any further classification between the transactions where STT was paid and the transactions where STT was not paid. The emphasis of the Assessing Officer on the term “similar computation” also only refers to the computation as provided under section 48 to 55 of the Act.
Yogiraj Jaichand Maker ITA No.6268/Mum./2019
We find that on similar issue the Co-ordinate Bench of Tribunal in ACIT v/s M/s Mac Charles India Ltd., in & 481/Bang/2012 vide order dated 23.01.2015, while allowing set off of Short Term Capital Loss (taxable at concessional rate) against the Short Term Capital Gain (taxable at normal rate), observed as under: “13. We have considered his submissions and are of the view that the same are not acceptable. A perusal of the provisions of section 70(2) clearly shows that if there a short term capital loss, the assessee is entitled to have the said capital loss set off against any other short term capital gain. This right given to the assessee is unqualified and therefore the assessee is free to choose as to how the set of short term capital loss has to be claimed. The assessee has claimed the set off in such a manner that it results in payment of low taxes. That cannot be a ground to deny a legitimate right which the assessee has in law. This is the principle adopted by the CIT(A) in allowing relief to the assessee. We are of the view that the reasoning adopted by the CIT(A) is just and proper and calls for no interference. In view of the above conclusions on a plain reading of the relevant provisions of section 70(2) and section 111A of the Act, we do not wish to refer to the case laws to which a reference has been made by the CIT(A) in his order. For the reasons given above, we confirm the order of the CIT(A) and dismiss ground No.2 raised by the Revenue.”
Similarly, another Co-ordinate Bench of Tribunal in ACIT v/s Ashok K. Shah, in vide order dated 08.08.2014, dismissed the appeal filed by the Revenue following judicial precedents on this issue, on the following ground of appeal: “(1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing set off the Short term Capital Loss (transactions with STT paid) against the Short term capital gain (transactions without STT paid) ignoring the fact that section 70(2) of the I.T. Act states that set off of short term capital loss can be done only against similar computation of Short term capital gain, however, the assessee has set off the short term capital loss (transactions with STT paid) with the short term capital gain (transactions without STT paid) which is definitely not a similar computation of short term capital gain/loss as the tax rates are different for both the transaction in view of section 111A of the I.T. Act”.
Yogiraj Jaichand Maker ITA No.6268/Mum./2019
We further find that in the following decisions rendered by Co- ordinate Bench of Tribunal, similar issue was decided in favour of the taxpayer: (a) Capital International Emerging Markets Fund v. DCIT: [2013] 145 ITD 491 (Mumbai-Trib.) (b) Dy.DIT v. M/s DWS India Equity Fund: dated 11.04.2012 (c) DCIT v. M/s Housing Development Finance Corporation Ltd.: ITA No. 6397/Mum/2016 dated 19.06.2018
The learned DR could not show us any cogent reason to deviate from the aforesaid judicial precedents. Thus, in view of the aforesaid decisions, we find no infirmity in the impugned order passed by the learned CIT(A) allowing set off of Short Term Capital Loss (on which STT was paid) against Short Term Capital Gain (on which STT was not paid). Accordingly, only ground raised by the Revenue in present appeal is dismissed.
In the result, appeal by the Revenue is dismissed. Order pronounced in the open court on 21/04/2022