MR. NIKHIL SAWHNEY,NEW DELHI vs. ACIT, NOIDA

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ―E‖: NEW DELHI [THROUGH VIDEO CONFERENCING] BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 1248/Del/2017 (Assessment Year: 2012-13) Mr. Nikhil Sawhney ACIT, 17 – Sunder Nagar, Central Circle, Vs. New Delhi – 110 003. Noida. PAN: AAUPS0222Q (Appellant) (Respondent)

Assessee by : Shri Rohit Jain, Adv.; Ms. Tejasvi Jain, C.A.; & Ms. Somya Jain, C.A. Revenue by: Ms. Rakhi Vimal, Sr. DR Date of Hearing 13/08/2020 Date of pronouncement /08/2020

O R D E R PER PRASHANT MAHARISHI, A. M. 01. This appeal is filed by Mr. Nikhil Sawhney, individual (The Appellant) against the order of The Commissioner Of Income Tax (Appeals) – 1, Noida, for Assessment Year 2012 – 13 passed on 29 November 2016 dismissing appeal of the assessee against the order passed by The Assistant Commissioner Of Income Tax, Central Circle, Noida (The Learned AO) u/s 143 (3) of The Income Tax Act (The Act) passed on 31st of March 2014. 02. The assessee has raised following grounds of appeal ―1. That the Commissioner of Income Tax (Appeals) [―CIT(A)‖] erred on facts and circumstances of the 1 | P a g e

case and in law in confirming the action of the assessing officer in not allowing carry forward of long term capital loss of Rs. 90,80,571/- claimed by the appellant; 1.1 That the CIT(A) erred on facts and circumstances of the case and in law in holding that since the ―income‖ includes ―loss‖, hence section 10(38) of the Income Tax Act, 1961 (―the Act‖) will not only apply to STT paid transactions generating positive income but also similar transactions generating negative income (loss); 1.2 That the CIT(A) erred on facts and in law in not appreciating that since source of income arising from transfer of shares held as long term capital asset is not exempt from tax, the appellant is entitled to set off and/or carry forward long term capital loss of Rs. 90,80,571/- on transfer of shares. ―

to the notice that the order of the learned CIT – A was received by the assessee on 14 December 2016 and the limitation for which expired on 12 February 2017. Thus, there was a delay of 18 days. 04. Applicant says that delay in filing of the appeal is neither willful nor deliberate and if the delay is not condoned it will carry the substantial injustice, therefore, it was prayed that the delay in filing the present appeal may be kindly condoned. Several judicial precedents were also noted supporting the application. 05. The learned authorised representative at the time of commencement of the hearing also pleaded for condonation of delay stating the same facts as mentioned in that application. 06. The learned departmental representative vehemently objected and stated that the delay may not be condoned. 07. We have carefully considered the contentions and find that the delay is small. It is also supported by justifiable reasons. The honourable Supreme Court in The Collector of Land Acquisition versus MST Khatiji 167 ITR 471 also held that there should be justifiably liberal approach in matters instituted in the court where sufficient cause is shown while condoning delay. In fact, no benefit could have been derived by the assessee by filing the appeal belated. Therefore, we find that the reasons given by the assessee are justifiable and sufficient for causing the delay in filing of the appeal. Even otherwise, the issue should always be decided on the merits of the case instead of taking a pedantic approach when there is a delay in filing of the appeal, which is unintentional, bona fide and not willful. In the present case, we do find all these characteristics in this appeal. Therefore, in the interest of the justice; we condone the delay admitting the appeal of the assessee and proceed to decide the issue on merits. 08. Facts of case in a narrow compass shows that assessee filed his return of income on 31 August 2012 declaring total income of Rs. 167,09,146 which was subsequently revised on 25th of March 2014 declaring same 3 | P a g e

taxable income. Case of assessee was selected for scrutiny through computer assisted scrutiny system [CASS] and notice u/s 143 (2) was issued on 8/8/2013 by the Asst Commissioner, circle – 2, Noida, who was having PAN jurisdiction of the assessee. Subsequently as per order passed u/s 127 of The Income Tax Act, dated 1 July 2010 the case was transferred to the Asst Commissioner of Income Tax, Central Circle, Noida, and the learned AO. 09. During the course of assessment proceedings, AO found that reasons for the revision in return of income shown by assessee is that he has incurred a long-term capital loss of Rs. 1,25,36,949/- which was claimed in the original return. The above loss included a loss of ₹ 9,080,571/- pertaining to the transfer of equity shares and equity oriented mutual funds subject to levy of security transaction tax i.e. u/s 10 (38) of the Act. The balance loss of ₹ 3,456,378 was incurred on transactions other than security transaction tax paid securities. The learned assessing officer found that loss of ₹ 90,80,571/– is a long term capital loss on security transaction tax paid securities, the income from which is exempt u/s 10 (38) of The Income Tax Act, such long-term capital loss is also not allowed to be claimed. Accordingly, the assessee also did not claim the long-term capital loss of ₹ 9,080,571/- in the revised return of income. 10. However, during the course of assessment proceedings the assessee submitted that though the long-term capital loss incurred by the assessee as stated above has not been claimed by the assessee for set of out of a matter of abundant caution, however, such loss is still allowable. The assessee submitted that he has obtained legal advice that long-term capital loss on sale of STT paid transactions are still allowable, even though the income from transactions referred to in Section 10 (38) of the act is exempt from tax. Such losses if they are not set off against the income of the current year against any other long- term gain, those losses should be allowed to be carried forward to 4 | P a g e

subsequent year. The assessee relied upon the decision of the Honourable Calcutta High Court in Royal Calcutta Turf club 144 ITR 709. The main contentions of the assessee was that capital gain is a ‗source‘ of income is not exempt from tax but long-term capital gain on sale of equity shares is exempt, therefore not all transactions of long- term capital gain on shares or units are exempt from tax. Accordingly, the source of income being capital gains on transfer of security is not exempt under the tax completely, it is only the certain specific income arising from such ‗source‘ is exempt u/s 10 (38) and not the ‗source‘ itself. It was further claimed that just because the assessee has entered into such transaction in a stock exchange and paid security transaction tax due thereon it cannot be a reason for denying such losses in computing his income. Assessee further stated that there is no complete exemption envisaged u/s 10 (38) of the act, but it is chargeable to tax u/s 115JB of the act. Thus according to him, the long-term capital gain on transactions as are referred to in Section 10 (38) shall not be reduced from the book profit of the company and therefore such as ‗source‘ is also not contemplated to be exempt from tax under the act. 11. The learned assessing officer rejected the contention of the assessee and held that word ‗income‘ includes loss, therefore not only be positive income, but also any negative income i.e. loss, is not to be considered to be the part of total income of the assessee. Therefore exemptions provided u/s 10 (38) will not apply to the transactions generating positive income from transfer of security transaction tax paid securities but also similarly apply to the nature of transactions resulting in negative income or losses. Accordingly, he held that long-term capital loss of ₹ 9,080,571/– is not allowable to the assessee. He also supported his contention stating that since assessee has not claimed such loss in revised return of income furnished by him, no separate addition is required to be made on this account. Accordingly the returned income of

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the assessee of Rs 1,67,09,146 was assessed at by order u/s 143 (3) of the act dated 31st of March 2014. 12. Aggrieved by the above assessment order, assessee preferred an appeal before the learned CIT – A. On challenge that whether assessee can make a claim by way of a letter but not revising the return of income, the learned CIT – A held that the appellant cannot stake claim for carry forward of the long-term capital loss in course of assessment proceedings, if same are not claimed in the return of income or claimed initially but later excluded in the revised return of income. Thus, he rejected the claim of the assessee on this ground. 13. He also decided the issue on the merit stating that ‗income‘ includes loss and once an income is exempt from tax, it is exempt from tax in all its incarnations, the losses being merely a negative income. He further held that the law does not differentiate or discriminate between the negative and positive income and the mandate of the legislature has to apply to both in similar manner. The assessee supported his contention before him relying on the decision of the honourable Supreme Court in case of CIT versus Karamchand Premchand Ltd (1960) 40 ITR 106 and of the honourable Calcutta High Court in case of Royal Calcutta Turf club versus CIT (1983) 144 ITR 709. The learned CIT – A held that both these decisions are not applicable to the facts of the case. Accordingly, appeal of the assessee was dismissed. Thus, assessee is in appeal before us. 14. Assessee has raised three sub grounds in only one ground of appeal. Those relate to claim and allowability of such loss on sale of long-term capital assets of shares on which securities Transaction taxes are paid. 15. Shri Rohit Jain, Advocate, learned authorised representative argued the matter meticulously by reading the law and judicial precedents line by line and submitted a written note. He also argued on following lines :- ―Long-term capital loss allowable – legal position

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1.19 It is respectfully submitted that when the source of income, per se, is not exempt from tax, loss arising from such source cannot be denied, simply on the ground that income from such source is, in certain specified circumstances, exempt from tax.

1.20 It will kindly be appreciated that source of income by way of capital gain arising on transfer of equity shares and equity oriented mutual fund is, per se, not exempt; on the other hand, such capital gain is fundamentally liable to tax under the head ―capital gains‖ under section 45 of the Act.

1.21 It will further kindly be appreciated that while capital gain, per se, on transfer of shares and equity oriented mutual fund, as a source, is liable to tax in the hands of every resident individual, it is only in certain specified circumstance that such income is exempt from tax.

1.22 In terms of section 10(38) of the Act, long-term capital gains arising on transfer of equity share and equity oriented mutual fund is, it will be noticed, not includable in the total income of the assessee in certain specified circumstances. The said section is reproduced hereunder for ready reference: ―10. Incomes not included in total income. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- ………………………. 7 | P a g e

(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 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.

6 Explanation.-For the purposes of this clause,- (a)―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; ……….. …………………‖

1.23 On perusal of the aforesaid, it will kindly be appreciated that capital gain arising on transfer of 8 | P a g e

equity shares and equity oriented mutual fund is exempt only if: (a) the share is in the nature of long- term capital asset; (b) such shares are transferred on the stock exchange; and (c) the transaction of sale of shares is subjected to levy of STT. 1.24 It will thus kindly be appreciated that source of income by way of capital gain on transfer of shares and equity oriented mutual fund, is as such not exempt from tax. In fact in the following circumstances, capital gain on transfer of shares and equity oriented mutual fund are subjected to tax under the provisions of the Act: a) Long-term capital gains, which are not subject to levy of STT; b) Short-term capital gain, irrespective of the fact whether such transaction is subjected to levy of STT or not; c) In case of a company, even long-term capital gains subjected to levy of STT and exempt under section 10(38), is subjected to tax under section 115JB of the Act. 1.25 What is therefore sought to be emphasized by the appellant is that the source of income under consideration, i.e., capital gains on transfer of shares, is as such not exempt from tax under the provisions of the Act. Section 10(38) of the Act, it is respectfully submitted, only exempts from tax, income earned from limited transaction of transfer of equity shares and equity oriented mutual fund, which are subject to STT. 1.26 In the aforesaid circumstances when the source of income, per se, is not exempt from tax, in such circumstances loss arising from such source cannot, it is respectfully submitted, be held to be denied, 9 | P a g e

simply on the ground that income from such source is, in certain specified circumstances, exempt from tax. XXXXXXX 1.28 The Hon‘ble Supreme Court in the case of CIT vs. Karamchand Premchand Ltd: 40 ITR 106 (SC) considered identical legal issue. In that case, the assessee-company had certain income from managing agency business in British India and had a pharmaceutical business in the Baroda State, which was then an independent state. In respect of the pharmaceutical business, the assessee suffered loss and claimed the same to be set off against business income in British India. The said claim was denied by the assessing officer on the ground that provisions of the then applicable Business Profits Tax Act, 1947 (in short ‗BPT Act‘) did not apply to the business carried on in a State outside British India unless the profits of the business in an Indian state were received or deemed to have been received in or brought into India. On further appeal, the first appellate authority decided the issue in favour of assessee. On appeal filed by the Revenue, the order of the assessing officer was restored by the Tribunal. In the aforesaid facts, the question referred before the High Court was whether loss suffered by the assessee in the business at Baroda is allowable to be deducted while computing business income. The said question was answered in favour of the assessee. Considering the aforesaid correctness of the aforesaid decision at the instance of the Revenue, Their 10 | P a g e

Lordships of the Supreme Court took note of the fact that source of income, being Baroda business, is as such not exempt from tax; on the contrary, income from Baroda business is taxable if the profit of such business are received in or brought into India. The Court therefore, held that since the source of income, i.e. Baroda business, is not exempt from tax, loss from Baroda business cannot be denied. The pertinent observations of the Hon‘ble Court are reproduced hereunder: ―……. On behalf of the appellant, it has been pointed out that the expression used in the third proviso to section 5 is— "Provided further that the Act shall not apply to any income, profits or gains of a business etc." It is argued that this language, (namely, that the Act shall not apply) is apt to exclude from the purview of the Act business the profits of which accrue or arise in an Indian State, except in so far as such profits are brought into the taxable territories. In support of this argument, a reference has been made to section 4(3) of the Indian Income-tax Act as it stood prior to 1939 and reliance is placed on the decisions in Commissioner of Income tax v. Somasundaram Chettiar AIR 1928 Mad. 487; and Provident Investment Co. 8 Ltd. In re [1932] 2 Comp. Cas. 312. It is true that section 4(3) of the

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Indian Income tax Act, as it stood prior to 1939, said that "this Act (meaning the Indian Income tax Act, 1922) shall not apply to certain classes of income", and in the two decisions cited it was held that the word "business" meant a business whose profits were being assessed in the year under consideration and there was no justification for deduction of the expenses of a foreign business. We do not, however, think that the use of the expression, "the Act shall not apply", is decisive in this case. We have to read the third proviso as a whole and in the context in which it occurs, in order to find out what it means. So read it is difficult to hold that it has the effect of excluding the Baroda business except in so far as the profits thereof are brought into the taxable territories. What it says in express terms is that the Act shall not apply to any income, profits or gains of business accruing or arising in an Indian State etc. It does not say that the business itself is excluded from the purview of the Act. We have to read and construe the third proviso in the context of the substantive part of section 5 which takes in the Baroda business and the phraseology of the first and second provisos thereto, which clearly uses the language of excluding the business 12 | P a g e

referred to therein. The third proviso does not use that language and what learned counsel for the appellant is seeking to do is to alter the language of the proviso to make it read as though it excluded business the income, profits or gains of which accrue or arise in an Indian State. The difficulty is that the third proviso does not say so; on the contrary, it uses language, which merely exempts from tax the income, profits or gains unless such income, profits or gains are received in or brought into India. Next, we have to consider what the expression "income, profits or gains" means. In the context of the third proviso, it cannot include losses because the latter part of the proviso says, "Unless such income, profits or gains are received etc. into the taxable territories". Obviously, losses cannot be brought into the taxable territories except in an accounting sense, and the expression "income, profits or gains" in the context cannot include losses. The expression must have the same meaning throughout the proviso, and cannot have one meaning in the first part and a different meaning in the latter part of the proviso. The appellant cannot therefore say that the third proviso excludes the business altogether, because it takes away from the 13 | P a g e

ambit of the Act not only income, profits or gains but also losses of the business referred to therein. ………….. The argument merely takes us back to the question—does the third proviso to section 5 of the Act merely exempt the income, profits or gains or does it exclude the business ? If it excludes the business, the appellant is right in saying that the position under the proviso is not the same as under section 14(2)(c) of the Indian Income-tax Act. If on the contrary the proviso merely exempts the income, profits or gains of the business to which the Act otherwise applies, then the position is the same as under section 14(2)(c). It is perhaps repetition, but we may emphasize again that exclusion, if any, must be done with reference to business, which is the unit of taxation. The first and second provisos to section 5 do that, but the third proviso does not. ……………… …………… The appellant relies on the third proviso to section 5 of the Act in support of the contention that it excludes the Baroda business of the assessee and the losses of that business cannot be set off against the profits of the business in India, and the appellant can succeed only on establishing that the proviso clearly and without any ambiguity excludes the Baroda business. 14 | P a g e

We agree with the High Court that if there is any ambiguity of language, the benefit of that ambiguity must be given to the assessee. However, the conclusion at which we have arrived is that on the language of the proviso as it stands, it does not exclude the Baroda business of the assessee but exempts only the income, profits or gains thereof unless they are received or deemed to be received in or brought into India. Accordingly, the High Court correctly answered the question of law referred to it. The appeal fails and is dismissed with costs.‖ (Emphasis supplied) 1.29 On perusal of the aforesaid, it will kindly be appreciated that in the aforesaid decision, even though income from business in Baroda was as such outside the purview of the BPT Act but was taxable under certain circumstances, the Court held that the source of income per se is not exempt. The Court held that since business income from Baroda business, being the source is not outside the ambit of the BPT Act, loss from such source cannot be denied to the assessee. 1.30 Following the aforesaid decision, the Calcutta High Court in the case of Royal Calcutta Turf Club v. CIT: 144 ITR 709 (Cal) held that loss on account of breeding of horses and pigs can be set off, despite the fact that income from these two sources was 15 | P a g e

exempt under section 10(27) of the Act. The pertinent observations of the Court are reproduced hereunder: ―……… 6. In this connection, it may not be wholly inappropriate to refer to the provisions of section 24 of the 1922 Act, which provided for set off of loss in computing the aggregate income. Sub-section (1) of section 24 of the 1922 Act stipulates that where any assessee sustained a loss or profits or gains in any year under any of the heads mentioned in section 6, he should not be entitled to have the amount of loss set off against his income, profits or gains under any other head in that year. We are not concerned with the several provisions under the head. Section 71 of the 1961 Act provides for set off of loss from one head against income of another head. Section 72 of the 1961 Act provides for carry forward and set off of business losses on certain conditions. In this case it is important to bear in mind that set off is being claimed under section 70 which permits set off of any income falling under any head of income other than the 'Capital gains' which loss of the assessee shall be entitled to set off under another source against his income from 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 'Business' and in computing that business

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income the loss from one particular source, that is, Broodmares accounts, 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 10 of the provisions of clause (27) of section 10 the loss suffered from this source could also not merit the exclusion. Under the 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 income shall be charged and section 4 of the Act provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income of the previous year or previous years, as the case may be, of every person. The scheme of the total income has been explained by section 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 incomes from whatever source derived. In computing the total income, certain incomes are not included under section 10 of the Act. It depends on the particular case where certain income in respect of which the Act is 17 | P a g e

made inapplicable 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 in this case is whether section 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. We may first refer to a decision upon which reliance was placed on behalf of the revenue. Before we do so, we must also notice the definition of the 'total income' as provided in section 2(45) of the Act which stipulates that 'total income' means total income referred to on section 5, computed in the manner laid down in the Act. Section 5 defines scheme of the total income as we have set out hereinbefore. …… 13. In our opinion, in the context of our present expression the aforesaid observations of the Supreme Court are relevant to the provisions with which we are faced. It appears to us that clause (27) of section 10 excludes only "any income derived from business of livestock

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breeding or poultry or dairy farming". It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. …… ……………………… In that view of the matter, it appears to us that the Tribunal was in error in coming to its conclusion that the losses on account of breeding of horses and pigs amounting to Rs. 74,065 and Rs. 19,918, respectively, were not entitled to set off, in the facts and circumstances of the case which we have set out hereinbefore. In the premises, the question is answered in the negative and in favour of the assessee.‖ (Emphasis supplied)

1.31 On perusal of the aforesaid, it will thus kindly be appreciated that despite the fact that income from business of breeding of horses and pigs was exempt from tax under section 10(27) of the Act, their Lordships of the Calcutta High Court, following the decision of the apex Court held that since source of income per se was not exempt from tax, loss from such source is available for set off under the provisions of the Act.

1.32 Reliance in this regard is placed on the following decisions rendered by various Benches of the Tribunal wherein long-term capital loss on sales of STT paid shares/ mutual funds has been allowed to be carried forward:

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1.33 In the case of Raptakos Brett & Co Ltd v. DCIT: 69 SOT 383 (Mum) the issue before the Mumbai Bench of the Tribunal was whether long-term capital loss arising on transfer of mutual fund is available for set off, despite the fact that income from such sale is exempt under section 10(38) of the Act. The Tribunal held that since the entire source of income from capital gains arising from transfer of share is not exempt from tax, loss on transfer of equity share and mutual fund is available for set off under the provisions of the Act. The pertinent observations of the Tribunal are reproduced hereunder: ―……… 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 20 | P a g e

treated as capital asset. Section 45 is the charging section for any 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 improvement and expenditure incurred in connection with transfer of capital asset, even for arriving of gain in transfer of equity shares; lastly, sections 70 & 71 elaborates the mechanism for set off of 21 | P a g e

capital gain. Nowhere, any exception has been made/ carved out with regard to Long-term capital gain arising on sale of equity shares. The whole genre of income under the head 'capital gain' on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting 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 22 | P a g e

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 profits from such shares are taxable. Section 10 provides that certain income are not to be included while computing the total income of the assessee and in 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 23 | P a g e

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. …………. ……………… Thus, the ratio laid down by the Hon'ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case.‖ In view of the aforesaid, it is respectfully submitted that since source, per se, i.e. capital gains on transfer of share and mutual fund is not exempt from tax, long term capital loss suffered by the appellant is eligible for carry forward and set off, notwithstanding the fact that long-term capital gains is exempt under section 10(38) of the Act.‖ (Emphasis supplied) Appeal filed by the department against the aforesaid order of the Tribunal before the Hon‘ble Bombay High Court was dismissed for non-prosecution vide order dated 09.10.2018. 1.34 In the case of Netesoft India Ltd vs. DCIT: 5359/Mum/2017, the Mumbai Bench of the Tribunal, following the decision in the case of Raptakos Brett (supra), held that long term capital loss incurred on sale of quoted equity shares shall be allowed to be set 24 | P a g e

off against long term capital gain on sale of property and the assessee shall be entitled to carry forward the unutilized loss. 1.35 Similarly, the Kolkata Bench of the Tribunal in the case of United Investments vs. ACIT: 511/Kol/2017 allowed the claim of set off and carry forward of long term capital loss incurred on sale of listed securities holding that merely because the capital gain on sale of STT paid shares was exempt, for such reasons alone, the long term capital loss incurred on sale of STT paid shares cannot be disallowed. 1.36 To this effect are the following cases:  Nomura India Investment Fund Mother Fund vs. Addl. DIT: 203 TTJ 660 (Mum Trib.)  Rare Investment vs. CIT: ITA No. 3409/Mum/2018 (Mum Trib.)  Shri Somnath Vaijanath Sakre vs. ACIT: ITA 2605/Pun/2016 (Pune Trib.)

1.37 In view of the aforesaid, it is respectfully reiterated that since source of income by way of capital gain arising on transfer of equity shares and equity oriented mutual fund are fundamentally liable to and not exempt from tax, loss on such transaction could not have been denied to the appellant merely on the ground that long-term capital gain is exempt under section 10(38) of the Act. 1.38 In that view of the matter, it is submitted that the action of the CIT (A)/assessing officer in not allowing 25 | P a g e

carry forward of long-term capital loss of Rs. 90,80,571 is erroneous and calls for being deleted. 16. Mrs Rakhi Vimal, Senior Departmental Representative also submitted a written synopsis of her argument as under:- A) In addition to the arguments/reasoning as held in the Assessment Order and Order of The CIT (A) following arguments/points may kindly be considered- (i) Section 2(14),45,47,70,74 needs to be read together with section 10(38) of the IT Act. Section 2(45) defines ―total income‖ means the total amount of income referred to in section 5, computed in the manner laid down in this Act. As per the charging section 4, income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and [subject to the provisions (including provisions for the levy of additional income-tax) of, this Act 45] in respect of the total income of the previous year of every person. As total income is to be charged and computed in accordance with provisions of the Act, if particular income is excluded from total income, then such income will not be part of computation of income and so is the loss. Further section 74 ―‘loss under the capital gain‖ stipulates that where in respect of any assessment year, the net result of the computation under the head ―Capital gains‖ is a loss to the assessee, the whole loss shall, subject to the other provisions of this chapter, be carried forward to the following assessment year. Therefore to carry forward the capital loss, it is to be

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computed as net result of computation under the head capital gain .If particular income is not part of total income as per particular and specific provision of the Act, then such income will not be part of computation of income and same reasoning will apply for loss also. (ii) The principal of ‗‘ Income includes loss‘‘ should be applied without filters. If source of income or even a stream of the source of income is excluded from total income by virtue of specific section/clause, then corresponding loss pertaining to that same source or the stream of source, which is nothing but negative income, should also be excluded from total income. (iii) As the particular source of the income is not to be included in total income in view of the provisions of Clause (38) of section 10 of the 1961 Act, the loss suffered from this source could also not merit the inclusion. 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 .Section 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 income of the previous year or years or whatever the case may be. The scheme of " total income " has been explained by section 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 27 | P a g e

resident includes all income from whatever source it is derived. In computing the total income, certain incomes are not included under section 10 of the Act. In 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. (iv) Loss is only negative income, and that the definition of 'income' under section 2(24) of the Act includes 'loss'. In other words, it bears the same character and quality as does the positive income. Accordingly, if a particular income is exempt from tax, so that it does not enter the computation process (for and toward determination of total income u/s. 2(45)), it would be so for such income whether positive or negative, i.e., loss. In fact, in the case of Harprasad & Co. (P.) Ltd. (as cited below), the apex court clarified that the assessee is not obliged to disclose loss from such a source of income.

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55 taxmann.com 333 , which are against the proposition raised by the assessee. And they are required to be met. 19. The bench also raised the query that a. when a loss incurred by the assessee in its agricultural operation which is exempt u/s 10 (1), can it be claimed by assessee as set- off against the regular business income of the assessee. b. Whether a share of loss of a partnership firm, profit of which is exempt u/s 10 (2A) of the act, can be set-off against the other business income of a partner. c. when a losses incurred by a business u/s 10A of the income tax act, whether during the holiday period such losses incurred by the assessee can be set-off against other income of the assessee or not. 20. To this proposition the learned authorised representative referred Section 10A (6) (ii) of the act. The answer of the learned authorised representative was that it depends upon the character of the income, the exemption to the source of the income. But, for the other queries, the learned authorised representative wanted some time to respond. 21. On the next date of hearing, the learned authorised representative submitted that those decisions cited by the bench are not applicable on the facts of the above case and they have been considered by bench in the decision of the Bombay bench in case of Raptakose Bret & co Limited ( Supra). The ld AR submitted as under :- i. During the course of hearing, the decision of the Supreme Court in the case of CIT V. Harprasad & Co. (P) Ltd.: [1975] 99 ITR 118 (SC) was also elaborately explained. It was explained that the Court, while holding that the words ―income‖ or ―profits‖ include ―losses‖ reiterated the principle that ―if the loss is from a source or head of income not liable to tax or congenitally exempt from income-tax‖ the assessee is neither required to show the same in the return nor is the 29 | P a g e

assessing officer required to determine. Before referring to the relevant observations of the Court, it may be pertinent to highlight the facts of that case. In that case, the capital loss related to assessment year 1955-56. The Court noticed [refer page 14/ CL PB], ―The position that emerges is that ―capital gains‖ arising between April 1, 1948, and March 31, 1956, were not taxable. The capital loss in question relates to this period‖. ii. Meaning thereby, the Court noticed the fundamental fact that the capital loss related to the period when the source/ head of income, viz. ―capital gains‖ is, per se, not liable to tax at all. In the aforesaid facts, the argument on behalf of the assessee was that even though the source was not taxable, the relevant section continued to be part of the statute and consequently, the assessee is entitled to claim carry forward of capital loss. Rejecting this contention of the assessee, the Court observed as under [refer @pg.17/ CL-PB]: ―Now, capital gains would be covered by the definition of "income" in sub-section (6C) of section 2, only if they were chargeable under section 12B. As noticed already, section 12B as modified by the Finance Act, 1949, did not charge any "capital gains" arising between April 1,1948, and April 1, 1957. Indeed section 12B was not operative in these years (1948— 57). During this period, "capital gains", whether on the positive or the negative side, could not be computed and charged under section 12B or any other provisions of the Act. In the instant case, the second condition, namely, "the manner of computation laid down in the

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Act" which— to use the words of Stone C.J. In re B.M. Kamdar [1946] 14 3 ITR 10 (Bom)[FB]— "forms an integral part of the definition of 'total income'" was not satisfied. Thus, in the relevant previous year and the assessment year, or even in the subsequent year, capital gains or "capital losses" did not form part of the "total income" of the assessee which could be brought to charge, and were, therefore, not required to be computed under the Act. Before the insertion of sub- section (2A) in section 22 by the amendment of April 1, 1952, an assessee was entitled to carry forward a loss even if he had submitted no return for the year in which the loss was sustained. After the enactment of sub-section (2A), it is a condition precedent to the carry- forward and set-off of the loss that the assessee must file a return either in response to a general notice under sub-section (1) of section 22 or voluntarily, without any individual notice under sub-section (2) of that section. If he does not file the return for the year in which the loss was incurred and get the loss computed by the Income-tax Officer, the right to carry forward the loss will also be lost. But if the loss is from a source or head of income not liable to tax or congenitally exempt from income-tax, neither the assessee is required to show the same in the return nor is the Income-tax Officer under any

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obligation to compute or assess it, much less for the purpose of "carry forward". It is noteworthy that, in the instant case, the assessee in his return had not shown any "capital losses". He had claimed this loss as a revenue loss. The Income-tax Officer could, therefore, reject the assessee's claim to carry forward the loss merely on the ground that it was not a "revenue loss". His further finding that it was a "capital loss" was only incidental and, in fact, was not necessary. ……………. ………………… 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

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subsequent year from a taxable source.‖ (Emphasis supplied) iii. On perusal of the aforesaid, particularly the highlighted portions, it will kindly be appreciated that the Court repeatedly emphasized the fact that the source/ head of income itself, i.e., capital gains, being not chargeable to tax, the assessee was not entitled to carry forward of loss. In coming to that conclusion, the Court, in fact, took note of the decision in the case of Karamchand Premchand (supra) and applied the same [refer @pg.16 - last para/ CL-PB]. iv. The aforesaid decisions of the apex Court, thus, lays down a fundamental law of the land, binding on all, be it the High Courts and the Tribunal, that if the source/ head of income itself is not excluded from taxation of the provisions of the Act, loss from the said source is available/ allowable to the assessee. v. There cannot, therefore, it is submitted, be a binding precedent, unless the law laid down in the aforesaid decisions are applied/ considered by any Court/ Tribunal; any decision not considering the said decisions shall clearly be rendered per-incuriam and hence not binding. vi. The Calcutta High Court in the case of Royal Calcutta Turf (supra) [pg.19-27@20,22/ CLPB] applied the aforesaid decisions of the apex Court and held that since section 10(27) of the Act does not exclude the source of income, loss from the said source is allowable. The Court observed as under [refer pg.25/ CL-PB]: ―13. In our opinion, in the context of our present expression the aforesaid observations of the Supreme Court are relevant to the provisions with which we are 33 | P a g e

faced. It appears to us that clause (27) of section 10 excludes only "any income derived from business of livestock breeding or poultry or dairy farming". vii. It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. 14. Great reliance was, however, placed on behalf of the assessee on certain observations of the Supreme Court in the case of CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118. There during the accounting period ending 30-4-1954, relevant to the assessment year 1955-56, the assessee sold certain shares at a loss of Rs. 28,662, which it claimed as revenue loss. Both the ITO and the AAC rejected the claim on the ground that the loss was capital loss. On appeal, the Tribunal accepted the contention of the assessee raised for the first time that the capital loss of Rs. 28,662 should be carried forward and set off against capital gains, if any, in the future, even though tax was not chargeable under section 12B of the 1922 Act, on capital gains derived during 1-4-1948 to 31-3-1956. On a reference, the High Court held that if capital loss was incurred in a year in which capital gains did not attract tax under section 12B, such loss would still be loss under the head 'Capital gains' and it could be carried forward and set off against capital gains in a subsequent year. On appeal to the Supreme Court by the Commissioner, the Supreme Court held, reversing the decision of the High Court, that the capital loss could not be determined and the assessee was not entitled to the carry forward of the loss of Rs. 28,662. The Supreme Court further held that if the loss was from a source or head of income not liable to tax or congenitally exempt from income-tax, neither

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the assessee was required to show the same in the return, nor was the ITO under any 5 obligation to compute or assess it much less for the purpose of 'carry forward'. The Supreme Court noted that during the long period section 12B did not make income under the head 'Capital gains' chargeable, an assessee was neither required to show income under that head in his return, nor entitled to file return showing 'capital losses' merely for the purpose of getting the same computed and carried forward. Sub-section (2A) of section 22 would not give him such right because the operation of that subsection is, in terms, confined to (i) a loss which is sustained under the head 'Profits and gains of business, profession or vocation' and would ordinarily have been carried forward under sub-section (2) of section 24, and (ii) to income which falls within the definition of 'total income'. The Supreme Court observed as follows: "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 35 | P a g e

comprise the 'total amount of income, profits and gains referred to in section 4(1)'. Secondly, it must be 'computed in the manner laid down in the Act'. If either of these conditions fails, the income will not be part of the total income that can be brought to charge." (p. 124) This passage must be understood in the context in which the aforesaid observations were made in view of the facts as pointed out by the Supreme Court that 'capital gains' were neither intrinsically nor congenitally of income character.‖ (Emphasis supplied) viii. The Mumbai Bench of the Tribunal in the case of Raptakos Brett & Co (supra), elaborately considered and applied the decisions of the apex Court and the Calcutta High Court to conclude that long-term capital loss on transfer of shares is allowable. Decision in Kishorebhai [earlier decisions not considered – per-incuriam/ sub-silentio] . It may also be pertinent to note that the Tribunal in Raptakos (supra) also considered the decision of the Gujarat High Court in the case of Kishorebhai Bhikhabhai Virani: [2015] 367 ITR 261 (Guj.) [Placed at pages 165-167 of Case Laws PB-2] wherein the Court held that since income arising from transfer of equity shares/ units is exempt under section 10(38) of the Act, loss on sale of shares is not available for set off. It is respectfully submitted that the decision in Kisorebhai (supra) cannot be applied in preference to the other binding decisions referred above, since the decision is sub-silentio and per-incuriam, for the following reasons: (a) First and foremost, the decision of the apex Court in the case of Karamchand Premchand (supra) was not even referred to nor considered; 36 | P a g e

(b) Secondly, the decision of the Calcutta High Court in Royal Calcutta (supra), which considered the decisions in Karamchand and Harprasad (supra), was not referred nor considered; (c) Thirdly, the decision in the case of Harprasad (supra) was relied upon and referred to only for the proposition that income includes loss. The fundamental facts and the legal proposition laid down (as elaborately discussed supra) that during the relevant period capital loss, per se, was not liable to tax and hence loss was held to be not allowable by the apex Court, was not even brought to the notice of the Court. (d) In para 4, the Court noted that the assessee‘s primary reliance was only on section 74; (e) The fundamental legal position that unless the source, per se, is exempt/ excluded, the loss cannot be ignored, was not even argued nor considered. ix. Having regard to the aforesaid, it will kindly be appreciated that the decision in Kishorebhai (supra) cannot be given preference over the decisions of apex Court in the cases of Karamchand Premchand (supra) and Harprasad (supra) and also the Calcutta High Court in the case of Royal Turf (supra). x. It is in the aforesaid background, the Tribunal in Raptakos (supra) dealt with the decision in Kishorebhai (supra), in the following words [refer para 10 on pg.35 of CLPB]: ―10. ……... 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, 37 | P a g e

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.‖ (Emphasis supplied) xi. Pertinently, the decision in Kishorebhai (supra) was also considered by the Pune Bench of the Tribunal in the case of Shri Somnath Vaijanath Sakre vs. ACIT: ITA 2605/Pun/2016 (Pune Trib.) [pg.89-102 @93/ CL PB] wherein the Tribunal held as under: (a) The Tribunal held that the decision has been considered by the Mumbai Bench in the case of Raptakos (supra) [refer pg.97]; (b) The Tribunal also followed the decision of the Supreme Court in the case of CIT V. Vegetable Products Ltd: [1972] 88 ITR 192 (SC) wherein the Court held that if two views are possible, then, the view favourable to the assessee must be adopted. 15. 38 | P a g e

The Mumbai Bench of the Tribunal in the case of DDIT v. Asia Pacific Performance SICAV: 30 ITR (T) 333 (Mum. Trib.) [refer pages 168-176@ 172 of case law PB-2], held that loss on transfer of long-term capital assets specified under section 10(38), on which securities transaction tax is paid, cannot be set off against the income under the head 'Longterm capital gains', on which no securities transaction tax is paid and accordingly, confirmed levy of penalty under section 271(1)(c) of the Act. In that case, the assessee, a non-resident, was a company incorporated in and a tax resident of Luxembourg, carrying on investment activity in Indian securities market. In return of income, the assessee claimed set off of STT paid long-term capital loss, which was denied. Most importantly, the assessee did not prefer any appeal. The appeal before the Tribunal was against imposition of penalty under section 271(1)(c) of the Act. xii. The aforesaid decision of the Tribunal in the case of Asia Pacific (supra), cannot, it is submitted, be applied in preference to the other binding decisions referred above, more so, since the decision is sub-silentio and per-incuriam, for the following reasons: (a) The entire thrust of the decision of the Tribunal was on the concept that ―income‖ includes ―loss‖ and therefore, since income is exempt, loss cannot be allowed; (b) The decision of the Supreme Court in Karamchand Premchand (supra) was not even referred to nor has been considered by the Tribunal; (c) The decision in Harprasad (supra) was only referred to for concept at (a) above and the other fundamental 39 | P a g e

aspect that unless the source, per se, is exempt, loss cannot be denied, was not argued nor considered; (d) The decision of the Calcutta High Court in the case of Royal Turf (supra) has not been followed by the Tribunal in the light of the following observations: ―The income by way of capital gains in the Instant case is, by virtue of being exempt under section 10(38), not chargeable under section 45 and, consequently, outside the scope of the total income. Accordingly, it may be seen that, firstly, the relevant capital assets, income from which is not chargeable under section 45, constitutes a separate source of income and, two, being so, i.e., tax exempt under section 10(38), would thus not go to form part of the total income. Both conditions as stated by the apex court in CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC) fail. The observations made by the hon'ble high court qua capital gains while distinguishing the said decision by the apex court, i.e., of the income under reference being intrinsically not income, would thus apply with equal force in the instant case, as it did in the case of Harprasad & Co. (P.) Ltd. It is this that led us to state of the reliance by the assessee on the decision in the case of Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709 (Cal.) as completely misplaced.‖ (emphasis supplied) The aforesaid observations clearly demonstrate that the Calcutta High Court has hardly been dealt with by 40 | P a g e

the Tribunal and the same has clearly been bypassed. In fact, the observation, ―capital assets, income from which is not chargeable under section 45, constitutes a separate source of income and, two, being so, i.e., tax exempt under section 10(38), would thus not go to form part of the total income‖ quoted itself shows that the Tribunal proceeded on absolutely erroneous basis/ premise. It will be appreciated that section 45 prescribes that any profits/gains on transfer of a capital asset shall be chargeable to tax as capital gains. Income from transfer of shares, be it short-term or long-term, is, per se, liable for taxation. It is only exempt from tax if long term gain on equity shares is liable to STT and not otherwise. Even in that case, such shares, per se, are not excluded from the definition of a ‗capital asset‘. There cannot be a dispute that income from transfer of shares, per se, is not excluded from capital gains taxation and therefore, the aforesaid observations that source is exempt, is not correct. (e) The Tribunal has not considered the fundamental proposition of law that when the source of income, per se, is not exempt from tax, loss arising from such source cannot be denied. (f) The Tribunal has not at all applied and analyzed the principle and ratio laid down by the Courts in judgments rendered in the case of Karamchand Premchand Ltd (supra) and Royal Calcutta Turf Club (supra). (g) Lastly, the issue before the Tribunal was that of penalty and not the merits of the loss being allowable. 41 | P a g e

Doctrine of per-incuriam/ sub-silentio judicial precedents. xiii. It is respectfully submitted that it is trite law that a judgment loses its binding force, if it was rendered without consideration of the earlier binding judgment (per incuriam) or has not been fully argued (sub-silentio). xiv. Kind attention, in this regard is invited to the following extracts from Salmond on Jurisprudence, 12th Edition by P.J. Fitzgerald, wherein at pages 148-158 various circumstances destroying or weakening the binding force of precedents were analyzed. The relevant extracts from page 151 are reproduced hereunder: ―(4) Inconsistency with earlier decision of higher court. It is clear law that a precedent loses its binding force if the court that decided it overlooked an inconsistent decision of a higher court. If, for example, the Court of Appel decided a case in ignorance of a decision of the House of Lords which went the other way, the decision of the Court of Appeal is per incuriam, and is not binding either on itself (b) or on lower courts (c); on the contrary, it is the decision of the House of Lords that is binding. The same rule applies to precedents in other courts, such as the Divisional Court (d)‖. Reliance is also placed on the commentary ―The Law and Practice of Income Tax by Kanga and Palkhivala‖, Vol 1, Tenth edition, page 36, which reads as under: ―43. Circumstances that Destroy or Weaken the Binding Force of Precedent. A precedent losses all or some of its binding force in the following circumstances:

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(i) if it is reversed or overruled by a higher court - reversal occurs when the same decision is taken on appeal and is reversed by the higher court, while overruling occurs when the higher court declares in another case that the earlier case was wrong decided; (ii) when it is affirmed or reversed on a different ground, depending on the circumstances of such affirmation or reversal; (iii) when the legislature enacts a state that is inconsistent with the precedent; (iv) when it is inconsistent with the earlier decisions of a higher court or a court of the same rank; (v) if it is a precedent sub silentio or not fully argued; (vi) when it is rendered per incuriam, i.e., in ignorance of a statutory provision or binding precedent - however, the rule of per incuriam is of limited application, and if the provision of the Act was noticed and considered, then the judgment cannot be ignored as being per incuriam merely on the ground that it has erroneously reached the conclusion; and (vii) when it is an erroneous decision, i.e, a decision conflicting with the fundamental principles of law.‖ (emphasis supplied). (vii) The Supreme Court in the case of Sandeep Kumar Bafna v. State of Maharashtra: (2014) 16 SCC 623 [refer pages 117-2017 @ 196

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of Case Laws PB-2] explained the principle of per-incuriam in the following words: ―19. It cannot be overemphasized that the discipline demanded by a precedent or the disqualification or diminution of a decision on the application of the per incuriam rule is of great importance, since without it, certainty of law, inconsistency of rulings and comity of courts would become a costly casualty. A decision or judgment can be per incuriam any provision in a statute, rule or regulation, 11 which was not brought to the notice of the court. A decision or judgment can be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a co-equal or larger Bench; or if the decision of a High Court is not in consonance with the views of this Court. It must immediately be clarified that the per incuriam rule is strictly and correctly applicable to the ratio decidendi and not to obiter dicta. It is often encountered in High Courts that two or more mutually irreconcilable decisions of the Supreme Court are cited at the Bar. We think that the inviolable recourse is to apply the earliest view as the succeeding ones would fall in the category of per incuriam.‖ (emphasis supplied) xv. The Supreme Court in the case of Bharat Sanchar Nigam Ltd vs. Union of India (SC): 282 ITR 273 @ 286 has even gone to the extent of holding that in tax cases relating to a subsequent year of the same assessee 44 | P a g e

involving the same issue as in the earlier year, the Court can differ from the view expressed if the case is distinguishable or is per incuriam. In that case, the jurisdiction of the Court to reconsider its earlier decision was challenged on the ground that the issue already stands decided and hence reconsideration is barred by principle of res judicata. Dismissing the said contention, the Court observed as under: ―The decisions cited have uniformly held that res judicata does not apply in matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision or where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed 45 | P a g e

and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction.‖ (emphasis supplied) xvi. Applying the aforesaid decisions, for the reasons discussed supra, the decision of the Gujarat High Court in Kishorebhai (supra) and the Tribunal in Asia Pacific (supra) are rendered perincuriam and sub- silentio, and cannot, therefore, be preferred over the binding decisions of the Supreme Court in Karamchand Premchand (supra) and Harprasad (supra) and also the decision of the Gujarat High Court in Royal Turf (supra). xvii. Most importantly, it is trite law that even in case of ambiguity, the view favourable to the assessee must be adopted as has been held in the following decisions: - CIT V. Vegetable Products: [ 1972] 88 ITR 192 (SC) - ACIT V. Vireet Investment (P) Ltd: [2017] 165 ITD 27 (Del) (SB) xviii. Most importantly, the Supreme Court in Karamchand Premchand (supra), apart from deciding the issue on merit in favour of the assessee that loss of Baroda business are allowable since source of income is not outside the purview of taxation, also held the aforesaid principle to be equally applicable in case of ambiguity. The pertinent observations are as under [refer pg.10/ CL-PB]: ―The appellant relies on the third proviso to section 5 of the Act in support of the contention that it excludes the Baroda business of the assessee and the losses of that business cannot be set off against the profits of the business in India, and the 46 | P a g e

appellant can succeed only on establishing that the proviso clearly and without any ambiguity excludes the Baroda business. We agree with the High Court that if there is any ambiguity of language, the benefit of that ambiguity must be given to the assessee. However, the conclusion at which we have arrived is that on the language of the proviso as it stands, it does not exclude the Baroda business of the assessee but exempts only the income, profits or gains thereof unless they are received or deemed to be received in or brought into India. Accordingly, the High Court correctly answered the question of law referred to it. The appeal fails and is dismissed with costs.‖ (Emphasis supplied) xix. For the aforesaid reasons, it is respectfully submitted that looked at from whatever angle, the decision in the case of Raptakos Brett (supra), has correctly applied the law taking into consideration the binding decisions of the higher courts and must be followed. xx. In that view of the matter, it is submitted that the action of the CIT(A)/assessing officer in not allowing carry forward of long-term capital loss of Rs.90,80,571 is erroneous and calls for being reversed. 22. Though the ld AR did not argue on the issue that if there are divergent opinion on an issue, the view favourable to the assessee should be taken. However, at the time of making this order we found that same has been put in to written submission which we have incorporated above. Assessee has the right to do so. Therefore, we will consider the same when the occasion to deal with arises.

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In this case Hon‘ble High court held that Loss arising on sale of capital asset covered under section 10(38) would not be includible in computation of assessee's income and therefore would not be available for set off against capital gain. Hon‘ble High Court has further held that the term ‗income' under section 10(38) of the Act would also include the loss. Extract from the order is reproduced as under-

‘’7. The fact that the capital asset in question, namely, the shares of Suashish Diamond Ltd. was covered under section 10(38) of the Act was not in dispute. That being the position, by virtue of section 10(38) of the Act, in computing the total income of the previous year, any income covered under such clause shall not be included. If that be so, the loss also arising out of such an asset and covered by 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 48 | P a g e

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 vacuo. It involves the notion of set off It postulates permissibility and possibility of the carried forward loss 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 of the subsequent year being from a non-taxable source, there would be no point in allowing 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.‘‘

b) Deputy Director of Income-tax, (International Taxation Vs Asia Pacific Performance SICAV (2015) 55 Taxmann.333 (Mumbai Tribunal) In this case ITAT Mumbai held that; Loss on transactions (of transfer) of long-term capital assets specified under section 10(38), on which securities transaction tax is paid, cannot be set off against income under head 'Long-term capital gain', on which no securities transaction tax is paid [In favour of revenue]. 49 | P a g e

While adjudicating the issue ITAT has distinguished the case of Royal Calcutta Turf Club Vs CIT] 144 ITR 709 (Cal); and and relied upon the decision of Apex CourtCIT vs. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC) ‗‘3.3…. The income by way of capital gains in the instant case is, by virtue of being exempt u/s. 10(38), not chargeable u/s.45 and, consequently, outside the scope of the total income. Accordingly, it may be seen that, firstly, the relevant capital assets, income from which is not chargeable u/s.45, constitutes a separate source of income and, two, being so, i.e., tax exempt u/s. 10(38), would thus not go to form part of the total income. Both the conditions as stated by the apex court in Harprasad & Co. (P.) Ltd. (supra) fail. The observations made by the hon'ble high court qua capital gains while distinguishing the said decision by the apex court, i.e., of the income under reference being intrinsically not income, would thus apply with equal force in the instant case, as it did in the case of Harprasad & Co. (P.) Ltd. (supra). It is this that led us to state of the reliance by the assessee on the decision in the case of Royal Calcutta Turf Club (supra) as completely misplaced.‘‘ ‗‘3.4 We next consider the assessee's argument, made with reference to the decisions in the case of CIT v. Naga Hills Tea Co. Ltd . [1973] 89 ITR 236 (SC)and Navnitlal Ambalal v. CIT [1976] 105 ITR 735 (Bom.) of the benefit of doubt being available to it, inasmuch as if two views are reasonably possible, one in favour of the subject ought to be adopted. 50 | P a g e

Toward this, as aforenoted, it stands abundantly clarified by the apex court time and again that both the positive and negative incomes have the same character. Both must, therefore, either enter the computation (of income) or not. It cannot but be otherwise, unless of course specifically provided otherwise. The same also accords with the common notion of the term as well as equity. In the instant case, while the positive income from specified assets is admittedly exempt under section 10(38), the negative income therefrom is taken to form part of the total income under Chapter IV(E), i.e., chargeable under the head "Capital gains". What could be a more patent and blatant misreading or, rather, misapplication of the law, which stands explained by the apex court over a series of decisions, so as to be considered as a part of the settled law in the matter, in view whereof, the said argument is consider false and, in any case, fails.‘‘ c) CIT vs. Harprasad& Co. (P.) Ltd. [1975] 99 ITR 118 (SC), In this case Hon‘ble Apex Court held that; Whether if loss arising in previous year was under head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in subsequent year from taxable source - Held, yes - Assessee incurred loss in transaction of purchase and sale of shares which was held to be capital loss - He claimed capital loss to be carried forward and set off against future capital gains - At relevant time capital gains was not taxable and assessee was not obliged to show capital gains in his return - Whether loss incurred by assessee could be absorbed or set off against capital gains of subsequent years - Held, no . The Apex Court discussed as under- 51 | P a g e

‗‘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 (of the 1922 Act) 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 to in section 4(1). Secondly, it must be "computed in the manner 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." (Page 6/8) ―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 presupposes 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

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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.‖(Page 8/8) d) Schrader Duncan Ltd. Vs Additional Commissioner of Income-tax, Spl. Rg. 10(300, 18 Taxmann.com287(Mumbai Tribunal)- As per provisions of section 10(33), source viz., transfer of capital asset being units of US 64 Scheme itself has been excluded and not capital gain arising on said transfer alone; as held by the ITAT in the above quoted decision. While discussing the issue ITAT held that- ‗’Income which does not form part of the total income under Chapter-III of the Act, do not enter the computation of total income at all. Sec. 4 of the Act creates charge of income-tax and it provides that where any Central Act enacts that income tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of this Act in respect of the total income of the previous year of every person. The charge of tax is thus on total income. Sec. 2 (45) defines total income to mean total amount of income referred to in Sec. 5,

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computed in the manner laid down in this Act. Chapter-II of the Act, from section 4 to 9 deal with Basis of Charge. Chapter-III of the Act, deals with income which do not form part of total income and are contained in Sect. 10 to 13-B of the Act. Chapter IV deals with the computation of total income. Firstly, income is categorized under various heads of income. This is laid down in Section 14 of the Act, which lays down that save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income - Salaries, income from house property, profits and gains of business or profession, capital gains, income from other sources. Chapter V then brings income of other persons, which are to be included in the total income of an Assessee and this is contained in section 60 to 65 of the Act. Chapter-VI (containing sec. 66 to 80) then lays down provisions regarding aggregation of income and set off or carry forward of loss. Section 66 reads as under: - "Total income - in computing the total income of an assessee, there shall be included all income on which no income-tax is payable under Chapter VII." The provisions of section 66 are not applicable to incomes which are absolutely exempt from tax as per Section 10, Section 11 etc., falling under Chapter III. This position is made clear by s. 66 itself as it speaks only of "incomes on which tax is not payable" and similar words are used in Chapter VII only thus leaving out by implication incomes which do not form part of total income at all as per Chapter III from the scope of s. 66.(Para 16) ‘’ 54 | P a g e

‘’From the charging provisions of the Act, it is clear that both profit as well as loss which is negative profit must enter into computation, wherever it becomes material. The charge is on total income of the assessee. Section 2(45) defines total income to mean total amount of income referred to in section 5, computed in the manner laid down in the Act. 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'. Secondly, it must be 'computed in the manner 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. If income includes loss and if income on transfer of units of US 64 Scheme does not form part of the total income under the Act by virtue of provisions of section 10(33) contained in Chapter III of the Act, then neither the gain nor loss on transfer would be considered for computation of total income. ‘’[Para 17] ‗‘34. We are of the view that the aforesaid decision of the Hon'ble Calcutta High Court and the reasoning contained therein would not be applicable to the facts of the Assessee's case. The Hon'ble Calcutta High Court distinguished the decision of the Hon'ble Supreme Court in the case of Harprasad & Co. (P.) Ltd.'s case (supra) because that case related to AY 55-56 and as per the law applicable for that AY, capital gain was not regarded as income at all. It is no doubt true that in AY 04-05, the Assessment year with which we are concerned in this appeal, capital gain is income as per Sec. 2(24)(vi) of the 55 | P a g e

Act. It is by virtue of Sec. 10(33) of the Act that any income arising from the transfer of a capital asset, being a unit of the unit scheme, 1964 referred in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002, (58 of 2002) on or after the 1st day of April, 2002 that is not included while computing total income of an Assessee. We are of the view that the source (both capital gain and capital loss) viz., sale of units of US 64 is itself excluded and not only income (capital gain) arising on sale of units of US 64 alone that is excluded by Sec. 10(33) of the Act. In this regard we also notice from the history of US 64 scheme that the Government wanted to bail out small investors and came out with the scheme whereby they are allowed to exit from the scheme without much loss. The provisions of Sec. 10(33) of the Act were inserted only with a view to ensure that those who gained on capital by transfer of US 64 Scheme do not pay tax on such gain. The provisions are not meant to enable an Assessee to claim loss by indexation for set off against other capital gain chargeable to tax. The intention of the legislature was only to restore status quo ante and not to confer any benefit of carry forward of capital loss for set off against capital gain chargeable to tax in the subsequent Assessment years. The economic reasons for insertion of Sec. 10(33) of the Act clearly shows that the source viz., transfer of capital asset being units of US 64 itself that has been excluded by the will of the Legislature and not the capital gain alone. In that view of the matter we do not find any infirmity in the order of the CIT(A). We also clarify that the question whether conversion of Units of US 64 into 6.75% tax free bonds would amount to transfer or not does not arise in 56 | P a g e

this case, since the AO after holding that there was no transfer, nevertheless computed capital loss at a sum less than what was claimed by the Assessee. For the reasons given above, Gr. No. I raised by the Assessee is dismissed.‖ (Para 34) e) Commissioner of Income tax Vs S.S. Thiagaraja, [1981] 129 ITR 115 (Madras High Court)

In this case Hon‘ble Court held the ratio that if income from a source is altogether exempt from tax, loss from that source cannot be set-off against income from a different source or income under a different head.

“The provisions of ss. 70 and 71 relating to set off of loss from one head against income from another contemplate loss from a source, the income from which is liable to tax. If income from a source is altogether exempt from tax, loss from that source cannot be set off against income from a different source or income under a different head. The result of our foregoing discussion is that the receipt of income referable to the activity of racing and betting would be income from "other sources" but it is of a casual and non- recurring nature and, therefore, exempt under s. 10(3). Since the income is not taxable the loss incurred in such activity also could not be set off against income from other heads of income.’’ f) Commissioner of Income-tax, Ahmedabad Vs. Gold Coin Health Food (P.) Ltd ,304 ITR 308 (SC)(2008)

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In this case The Apex Court held that - Section 2(24) defines 'income' which is an inclusive definition and includes losses, i.e., negative profit. The position has been elaborately dealt with by the Supreme Court in CIT v. Harprasad & Co. Ltd. [1975] 99 ITR118. The Court held with reference to the charging provisions of the statute that the expression 'income' should be understood to include losses. The expression 'profits and gains' refers to positive income whereas losses represent negative profit or in other words minus income. This aspect does not appear to have been noticed by the Bench in Virtual Soft Systems Ltd.'s case (supra). The view of the Court in Harprasad & Co. (P.) Ltd.'s case (supra) leads to the irresistible conclusion that income also includes losses. The Explanation 4(a) to section 271(1)(c) as it stood during the period 1-4-1976 to 1-4-2003, has to be considered in the background. [Para 7] 24. The ld DR submitted that now the issue is squarely covered in favour of the revenue on account of the decision of hon. Guj HC which is a good law. 25. The ld AR submitted that no decision cited by the ld DR applies to the facts of the case and therefore reliance on them by revenue is devoid of any merit. 26. We have carefully considered rival contention and perused the orders of lower authorities. According to the provisions of Section 10 (38) of the income tax act, any ‗income‘ arising from the transfer of a long-term capital asset , being an equity shares in the company or unit of an equity oriented fund, shall not be included in the total income of the previous year of any person, provided the transaction of the sale of such shares or equity are subject to securities transaction tax, if the same transaction is entered into after chapter VII is enacted. There is no dispute between the assessee and the revenue that if the ‗income‘

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arising on the sale of such shares is positive i.e. profit/gain , it would be exempt under this Section. But dispute is that when assessee incurs ‗loss‘ on transfer of such long term capital assets , whether same shall be ignored for the purpose of computation of the income of the assessee or shall be considered part of the income computation mechanism and should be allowed to be set-off in accordance with other provisions of the act and shall also be carried forward. 27. This issue has arise in because in this year assessee has incurred long- term capital loss on sale of shares which was subject to securities transaction tax. The assessee wants that this loss should be allowed to enter into the computation of total income of the assessee and if is not set-off against any other capital gain in that year, then it should be allowed to be carried forward in future years. In nutshell, the controversy is exemption provisions u/s 10 (38) that ―income‘ arising from transfer of a long-term capital asset shall only include positive i.e. Gain or the negative i.e. Losses also. 28. Precisely the provisions of the section speaks like this:-

CHAPTER III

INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Incomes not included in total income.

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(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 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 force3; and (b) such transaction is chargeable to securities transaction tax under that Chapter : 4[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 5[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;]

―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 improvement and expenditure incurred in 60 | P a g e

connection with transfer of capital asset, even for arriving of gain in transfer of equity shares; lastly, sections 70 & 71 elaborates the mechanism for set off of capital gain. Nowhere, any exception has been made/ carved out with regard to Long term capital gain arising on sale of equity shares. The whole genre of income under the head 'capital gain' on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting 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 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 income of the assessee and in 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 61 | P a g e

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 the total income of a resident assessee, certain incomes are not included under s.10 of the Act. It depends on the particular case; where the Act is made inapplicable to income from a certain source under the scheme of the Act, the profit and loss resulting from such a source will 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, one must look to the specific exclusion that has been made." The Hon'ble High Court was besieged with the following question "Whether 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 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 62 | P a g e

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 income of the previous year or years or whatever the 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 Supreme Court specifically the decision of in the case of Karamchand Premchand Ltd. (supra), the Hon'ble High Court came to the following conclusion: "cl.(27) of s.10 excludes in express terms only "any income derived from a business of live-stock breeding or poultry or dairy farming. It does not exclude the business of livestock breeding or poultry or dairy farming from the operation of the Act. Therefore, the losses suffered by the assessee in the broodmares account and in the pig account were admissible deductions in computing its total income" Thus, the ratio laid down by the Hon'ble Calcutta High Court is clearly applicable and accordingly we follow the same in the present case.

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ratio and the principle laid down by the Hon'ble Apex Court would not apply here in this case, because the concept of income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon'ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon'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 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 that the ratio of Hon'ble Calcutta High Court is applicable in the present case. 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 65 | P a g e

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.‖ [Highlight and underline supplied by us] Based on the above decision of the coordinate bench, subsequently some benches followed this decision. Therefore, we do not find any necessity of reproducing either the citation of those decisions or the content thereof because they do not lay down any new principles or did not consider any new arguments but those specifically relies on this tribunal decision. 30. Whereas one of the decision of Coordinate Bench, of course while deciding the levy of penalty u/s 271 (1) ( c) of the income tax act , but dealing with the controversy and also referring to the decision of the coordinate bench referred to above , in Deputy Director of Income-tax, (International Taxation V Asia Pacific Performance SICAV [2015] 55 taxmann.com 333 (Mumbai - Trib.)/[2014] 30 ITR(T) 333 (Mumbai - Trib.) Dated 27 December 2013 held as under :- We shall first discuss the assessee's explanation on the merits. The issue, as would be apparent from the foregoing, is the validity in law of the set off of loss on transactions (of transfer) of long-term capital assets specified under section 10(38), on which securities transaction tax is paid, against the income under the head "Long- term capital gains", on which no securities transaction tax being paid in its respect. The assessee's case is along the following lines :

(a) the only condition in law (per section 70(3)) is that long- term capital loss (LTCL) is to be set off against

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the long-term capital gain and not short-term capital gain ;

(b) there has been no amendment in law, i.e., post section 10(38), according exemption to income arising on transfer of long-term capital assets (LTCAs), being equity shares, etc., on or after October 1, 2004, on which securities transaction tax is chargeable in law, either under section 70 or under any other section. That is, the exemption provided by section 10(38) is absolute. Accordingly, long-term capital loss could be set off against the long- term capital gain, irrespective of whether security transaction tax in its respect has paid or not, so that the assessee can at its option choose the course which is more beneficial to it. In fact, the Board has also vide its Circular No. 26 (LXXVI-3) [F No. 4(53)-IT/54] dated July 7, 1955 recognised the assessee's right in choosing the method for setting off which is more beneficial to the assessee;

(c) the exemption under section 10(38) relates to a class of transactions, and not the source or the head of income itself. A distinction is to be made with reference to the source which does not enter the computation of income at all, and a source, income from which is excluded in the computation of income. Reliance in this context

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is placed on the decision in the case of Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709 (Cal.); and

(d) in any case, any ambiguity in law is to be interpreted in favour of the subject (refer: CIT v. Naga Hills Tea Co. Ltd. [1973] 89 ITR 236 (SC).

We have given our careful consideration to the matter. We find the assessee's case is wholly unmaintainable in view of the law as explained by the hon'ble apex court over a series of decisions, viz. CIT v. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308 (SC); CIT v. J.H. Gotla [1985] 156 ITR 323 (SC) and CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC), to cite some. We begin by reproducing/enlisting the observations by the apex court from the said decisions. In CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC), also relied upon by the Assessing Officer, which decision was also in context of capital gains, and under the Indian Income-tax Act, 1922 (pages 124, 125) : "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 * CIT v. Karamchand Premchand Ltd. [1960] 40 ITR 106; [1960] 3 SCR 727 (SC) and CIT v. Elphinstone Spg. and Wvg. Mills Co. Ltd. [1960] 40 ITR 142; [1960] 3 SCR 953 (SC). 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 to in section 4(1)'. Secondly, it must be 'computed in the manner 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." (Emphasis Supplied)

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In CIT v. J.H. Gotla [1985] 156 ITR 323 (SC), the apex court, after examining the scheme of the Act, including as to the carry forward of loss, held that in computing the assessee's income, the income of his wife or minor children, which is liable to be added under section 16(3) (of the 1922 Act), would include profit or loss from the business of the assessee's spouse or minor children and, accordingly, upheld the set off of brought forward business loss from such business. The premise on which the said decision rests is again that income includes loss. In CIT v. Gold Coin Health Food (P.) Ltd. [2008] 304 ITR 308 (SC), the issue before the hon'ble apex court was whether the penalty under section 271(l)(c) could be levied if the return of income is at a loss, i.e., in view of the amendment by the Finance Act, 2002 with effect from April 1, 2003 in Explanation 4 to the section. In deciding the matter, the hon'ble court referred to various precedents. The following section of the judgment is relevant for our purposes wherein the apex court, adverting to the decision in the case of CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC), clarifies that income by definition also includes losses : (pages 312, 313) "7. In Reliance Jute and Industries Ltd. v. CIT [1979] 120 ITR 921, it was observed by this court that the law to be applied in income-tax assessments is the law in force in the assessment year unless otherwise provided expressly or by necessary implication. Before proceeding further, it will be necessary to focus on the definition of the expression 'income' in the statute. Section 2(24) defines 'income' which is an inclusive definition, and includes losses, i.e., negative profit. The position has been elaborately dealt with by this court in CIT v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118. This court held with reference to the charging provisions of the statute that the expression 'income' should be understood to include losses. The expression 'profits and gains' refers to positive income whereas losses represent negative profit or in other words minus income. This aspect does not appear to have been noticed by the Bench in Virtual Soft Systems Ltd.'s case [2007] 289 ITR 83 (SC); [2007] 9 SCC 665. Reference to the order by this court dismissing the Revenue's Civil Appeal No. 7961 of 1996 in CIT v. Prithipal Singh and Co. [2001] 249 ITR 670 (SC) is also not very important because that was in relation to the assessment year 1970-71 when Explanation 4 to section 271(l)(c) was not in existence. The view of this court in Harprasad's case [1975] 99 ITR 118 (SC) leads to the irresistible conclusion that income also includes losses." (Emphasis Supplied)

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In sum and substance all these decisions having been rendered in different contexts and fact-settings, is that loss is only negative income and that the definition of "income" under section 2(24) of the Act includes "loss". In other words, it bears the same character and quality as does the positive income. Accordingly, if a particular income is exempt from tax, so that it does not enter the computation process (for and toward determination of total income under section 2(45)), it would be so for such income whether positive or negative, i.e., loss. In fact, in the case of CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC), the apex court clarified that the assessee is not obliged to disclose loss from a source of income in its return where the income from that source is tax exempt, nor the Income-tax Officer under an obligation to compute or assess the same. Even ignoring for a moment the defining or machinery provisions of the Act, and looking fairly at the concept or notion of "income" from a common perception/standpoint, what, one may ask, is loss, if not negative income? How could it (loss) have a character other than that of income, being only the result of the same computation process which yields a positive income? Further, if construed to bear a character or nature different from income, how could the same be adjusted or set off against income? In fact, it is only its computation that yields or reveals a loss. In fact, as we have seen the same (computation) becomes applicable or would need to be applied only for computing income which forms part of the total (or taxable) income. That is, an income exempt under Chapter III of the Act, not forming part of the total income, would not enter the computation process to determine the quantum of income (which only determines either positive or negative income) under the relevant heads of income, each of which has its own computation provisions. Needless to add, the assessee did not prefer any appeal against the non-acceptance of its so-called legal claim. Rather, as aforenoted, the apex court has clarified that the assessee is not obliged to disclose loss from a source of income in its return where the income from that source is tax exempt, nor the Income-tax Officer under an obligation to compute or assess the same. The fallacy, to our mind, lies in reading the word "income" occurring in section 10(38) to mean only positive income, and for which there is no warrant in law or in any provision of the Act. That would be reading the said provision de hors the scheme of the Act as well as the law as explained and settled by the apex court. Section 2(24), which defines the term "income" under the Act inclusively, per sub- clause (vi) defines income to include capital gains chargeable under section 45 of the Act. In as much as therefore "capital gains" is not

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chargeable under section 45, the same stand excluded at the very threshold, i.e., is not income by definition. Coming to the facts of the case proper, we begin by reproducing section 10(38) of the Act, which reads as under: "Chapter III. Incomes which do not form part of total income 10. Incomes not included in total income.-In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-..... (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 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. Explanation. - For the purposes of this clause, 'equity oriented fund' means a fund-...... " Now, if securities transaction tax paid long-term capital gain is exempt under section 10(38), so is the loss from the same class of assets, i.e., long-term capital assets, being equity shares, etc., specified under section 10(38), where securities transaction tax paid. The same, as clarified during the hearing itself, is thus considered as a separate source of income, and the quantum of income therefrom being exempt becomes irrelevant for the purposes of the Act. In fact, one only needs to consider the proposition as to the exact status of income, if so, arising on the on-market transactions, i.e., instead of loss. If the income, were it to be so, falls under section 10(38), how could the loss, which is distinguishable only by the arithmetical result, be of a different nature. The same is, therefore, to be ignored. Rather, the assessee 71 | P a g e

having income from the said source, i.e., the assets specified in section 10(38) (at Rs. 1,660.41 lakhs), the loss (Rs. 106.49 lakhs) would stand to be reduced therefrom, to arrive at the income under section 10(38). The two cannot be treated differently, as has been done by the assessee. The "controversy" under reference dissolves immediately upon the word "income" occurring in section 10(38) being, as is required to be, and as clarified time and again by the apex court, construed as inclusive of loss. One is in fact not required to go into the mechanics of section 70 (intra-head adjustment for aggregation of income towards determining the income under each head of income for the current year) for the purpose ; the income being exempt, so that it would not enter the computation process for determination of the total income under section 2(45). That is, the moment there is a transfer of an asset specified in section 10(38), any income or loss arising therefrom is irrelevant for the purpose of computation of total income, where the transaction attracts securities transaction tax, being a precondition for the application of the said provision. The assessee's case, therefore, only needs to be stated to be rejected. Coming to the decision in the case of Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709 (Cal.), the assessee's reliance on the same is wholly misplaced. The said decision is premised on the argument that a source of income is different from the income therefrom. What would, therefore, be required to be seen is whether the income from a certain source that is exempt, so that it would enter the computation of the taxable income, or it is the source of income itself that stands excluded. Reproducing the observations by the apex court in the case of CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC) as extracted hereinabove (at paragraph 3.1 of this order), the hon'ble court distinguished the said decision by the apex court by observing that in that case the capital gains were neither intrinsically nor congenitally of income character (paragraph 14 of the decision). Section 2(24) of the Act which defines income under the Act inclusively, in its relevant part, reads as under: "2. Definitions. - In this Act, unless the context otherwise requires, - (24) 'income' includes-...... (vi) any capital gains chargeable under section 45." (Emphasis Supplied)

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Clearly, therefore, any capital gain, i.e., any profit or gain arising on the transfer of a capital asset, is "income" under the Act only if and to the extent it is chargeable under section 45 of the Act. As such, the Act classifies all capital gains arising as from two sources, one which bears the character of the income for the purposes of the Act and the other which does not. "Section 2(45), which defines the term 'total income' under the Act, reads as under : '2. Definitions.-In this Act, unless the context otherwise requires,- (45) "total income" means the total amount of income referred to in section 5, computed in the manner laid down in this Act;" The income by way of capital gains in the instant case is, by virtue of being exempt under section 10(38), not chargeable under section 45 and, consequently, outside the scope of the total income. Accordingly, it may be seen that, firstly, the relevant capital assets, income from which is not chargeable under section 45, constitutes a separate source of income and, two, being so, i.e., tax exempt under section 10(38), would thus not go to form part of the total income. Both conditions as stated by the apex court in CIT (Central) v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC) fail. The observations made by the hon'ble high court qua capital gains while distinguishing the said decision by the apex court, i.e., of the income under reference being intrinsically not income, would thus apply with equal force in the instant case, as it did in the case of Harprasad & Co. (P.) Ltd. It is this that led us to state of the reliance by the assessee on the decision in the case of Royal Calcutta Turf Club v. CIT [1983] 144 ITR 709 (Cal.) as completely misplaced.‖ Therefore, it is apparent that when the decision in the case of Raptakose Brett & co Ltd was rendered on 10 June 2015, the decision of the coordinate bench in case of Asia Pacific Performance SICAV dated 27 December 2013 was neither cited nor considered. 31. Now coming to the decision of Raptakose Brett & co Limited , decision of the honourable Gujarat High Court in case of Kishorebhai Bhikhabhai Virani versus the Asst Commissioner of income tax [2015] 55 taxmann.com 91 (Gujarat)/[2014] 367 ITR 261 (Gujarat)/[2015] 275 CTR 572 (Gujarat) was cited. The coordinate bench in para number 10 held that

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―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. 32. Now coming to the decision of the honourable Gujarat High Court in Kishorbhai Bhikhabhi Virani ( Supra) which decided the identical issue wherein following three main issues were raised

A. Whether, in the facts and in the circumstances of the case, the Tribunal was justified in law in corifirming the disallowance of the appellant's claim regarding set off and carried forward of long-term capital loss of Rs. 1,44,73,463 against the long-term capital gain of Rs. 1,03,00,809 for the same assessment year ?

B. Whether, on the facts and in the circumstances of the case, the appellant's claim with regard to set off and carried forward of long-term capital loss of Rs. 1,44,73,463 can be disallowed on the basis of the decisions of the horible apex court in the case of CIT v. Harprasad and Co. P. Ltd. [1975]

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99 ITR 118 (SC) and the Madras High Court in the case of CIT v. S.S. Thiagarajan[1981] 129 ITR 115 (Mad.), especially when neither the facts nor the provisions of law discussed in the said decisions are comparable to the facts of the appellant's case and the provisions of law applicable to the appellant's case ?

C. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in invoking the provisions of section 10(38) of the Act, especially when the appellant's case is governed by the provisions contained in section 74(1)(b) of the Act ?

―2. Briefly stated the facts are that for the assessment year 2006-07 the assessee had filed the return of income declaring a total income of Rs. 8.67 lakhs (rounded off). The return of the assessee was taken under scrutiny. During the assessment, it was noticed that the assessee had sold the shares of one Suashish Diamond Ltd. and incurred capital loss of Rs. 1.44 crores (rounded off) during the year under consideration. During the same period, the assessee also earned long-term capital gain of Rs. 1.03 crores (rounded off) on sale of shares of one Karp Diamond Ltd. Such long-term capital gain was charged under section 45 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). In the return that the assessee filed, it had claimed set off of the capital loss of Rs.1.44 crores against the capital gain of Rs. 1.03 crores. The Assessing Officer disputed such claim and after hearing the assessee disallowed the same holding that the loss from exempt source can neither be allowed as set off nor can be allowed to be carried forward and absorbed against income in subsequent years from the taxable source.

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(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." 7. The fact that the capital asset in question, namely, the shares of Suashish Diamond Ltd. was covered under section 10(38) of the Act was not in dispute. That being the position, by virtue of section 10(38) of the Act, in computing the total income of the previous year, any income covered under such clause shall not

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be included. If that be so, the loss also arising out of such an asset and covered by 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 vacuo. It involves the notion of set off It postulates permissibility and possibility of the carried forward loss 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 of the subsequent year being from a non-taxable source, there would be no point in allowing 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.‖

before the honourable Gujarat High Court, we are inclined to follow the decision of the honourable Gujarat High Court instead of the decision of the coordinate benches placed before us. It is a trite principle of judicial discipline that binds us to follow the decision of higher judicial forum, then of parallel judicial forum. 36. The learned authorised representative has submitted that the decision of the honourable Gujarat High Court should not be followed by us but we must follow the decision of the coordinate benches, as the decision of the honourable Gujarat High Court is ‗sub silentio‘ and ‗per incuriam‘ for the reasons given by the learned authorised representative. 37. Firstly, we as tribunal are not authorised to state that any decision of the honourable High Court is ‗sub silentio‘ or ‗per incuriam‘. It is neither in our domain nor do we have any authority because we are subordinate to the honourable High Court. However, the argument of the learned authorised representative that we should follow the decision of the coordinate bench in Raptakose Brett & co Ltd (supra) and not the decision of the honourable Gujarat High Court are required to be dealt with on merits because other wise our order would not be complete. So, We deal with each of the argument of the learned authorised representative as Under.

(a) First and foremost, the decision of the apex Court in the case of Karamchand Premchand (supra) was not even referred to nor considered by Honourable Gujarat High court; (i) we come to the first argument of the learned authorised representative that the Hon. Gujarat High Court should have dealt with the decision of the honourable supreme court in case of 40 ITR 18 and non consideration of that decision forces us to not to follow it. The decision of the honourable Supreme Court in case of Karamchand Premchand Ltd was first dealt with by the

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honourable Supreme Court itself in CIT V Chunilal Mongaram (1961) 43 ITR 01 wherein it has held as Under:-

―We consider that these contentions are correct. As to the first ground, it seems clear to us that under the third proviso to section 5 of the Excess Profits Tax Act, 1940, where the profits etc., of a part of the firm's business accrued or arose at Bhatinda, that part of the business shall for the purpose of the said section be deemed to be a separate business. If that is so the losses which arose art Bhatinda must also be the losses of a separate business. We may here read section 5 and the third proviso thereto: "5. This Act shall apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax by virtue of the provisions of sub- clause (i) or sub-clause (ii) of clause (b) of sub-section (1) of section 4 of the Indian Income-tax Act, 1922, or of clause (c) of that sub-section:.. Provided further that thus Act shall not apply to any business the whole of the profits of which accrue or arise in an Indian State; and where the profits of a part of a business accrue or arise in an Indian State such part shall, for the purposes of this provision, be deemed to be a separate business the whole of the profits of which accrue or arisen in an Indian State, and the other part of the business shall, for all the purposes of this Act, be deemed to be a separate business." In Commissioner of Income-tax v. Karamchand Premchand Ltd.** this court considered section 5 of the Business Profits Tax Act, 1947, and pointed out the distinction between the third proviso thereto and the third proviso to section 5 of the Excess Profits Tax Act, 1940. This *[1958] 33 I.T.R. 170, 175 (Punj.). **[1960] 40 I.T.R. 106 (S.C.). Page No : 0007 court quoted with approval the decision in Commissioner of Excess Profits Tax v. Bhogilal H. Patel* and held that the language used in the third proviso to section 5 of the Excess Profits Tax Act, 1940, was one of exclusion and that Act did not apply to profits etc., of that part of the business which arose in an Indian State. If that part of the business has to be 80 | P a g e

treated as a separate business for the purposes of the Excess Profits Tax Act, it is difficult to see how the losses incurred in an Indian State can be taken into consideration for the same purposes. We think that the High Court was in error in thinking that the third proviso to section 5 of the Excess Profits Tax Act did not touch the question which the High Court had to answer. On the contrary, we think that the proviso answers the question against the assessee.‖ (ii) The second occasion that honourable Supreme Court had of considering the decision of the Karamchand Premchand Ltd was in case of CIT versus Harprasada and Co private limited in 99 ITR 118 at page number 124 wherein it considered the charging provisions of the act and held that the words ―Income‖ or ‗profit or gain‖ should be understood as it includes ―losses‖ also. The honourable Supreme Court held as Under:-

―Section 2(6C) provides that "income" includes (among other things)— "(vi) any capital gain chargeable under section 12B. " 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" CIT v. Karamchand Prem Chand Ltd. [1960] 40 ITR 106 ; [1960] 3 SCR 72. 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.‖

(iii) Honourable Supreme Court also considered the above decision in case of Karamchand Premchand (supra) and CIT versus Hari Prassad (supra) in IPCA laboratories Ltd versus Deputy Commissioner of income tax (2004) 266 ITR 521 in para number 16 as Under:-

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―16. Faced with this situation, it was submitted that even a loss is a negative profit. In support of the submission, reliance was placed upon the authority of this Court in the case of CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118. In this case the meaning of loss was being considered in the context of capital gains made from sale of shares. The question was whether the loss could be carried forward and set off against capital gains in a subsequent year. While considering this question, it was held as follows : "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. . . ."

(iv) And lately, honourable Supreme Court had an occasion to consider the above decision in CIT versus sati Udyog Ltd [2015] 56 taxmann.com 285 (SC)/[2015] 230 Taxman 521 (SC)/[2015] 372 ITR 746 (SC)/[2015] 276 CTR 14 (SC) in para number 10 and 11 as Under:-

―10. Mr. Kaul, learned Additional Solicitor General is right in referring to the definition of "income" in Section 2(24) of the Income Tax Act, 1995 and drawing our attention to the fact that the said definition is an inclusive one. Further, it is settled law at least since 1975 that the word "income" would include within it both profits as well as losses. This is clear from CIT v. Harprasad & Co. (P.) Ltd. [1975] 99 ITR 118 (SC) paragraph 17 of which lays down the law as follows: '17. 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" [CIT v. Karamchand Prem Chand, (1960) 3 SCR 727 : 40 ITR 106 (SC) : CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd. (1960) 3 SCR 953 : 40 ITR 142 (SC)] . In other words, loss is negative profit. Both 82 | P a g e

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 to in Section 4(1)". Secondly, it must be "computed in the manner 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.' 11. This judgment has subsequently been followed in several judgments. The fairly recent judgment of this Court in Jt. CIT v. Saheli Leasing & Industries Ltd. [2010] 324 ITR 170/191 Taxman 165 (SC) referred to the aforesaid judgment and held as follows:— '23. In the aforesaid decision in Gold Coin case [(2008) 9 SCC 622 : (2008) 304 ITR 308] , the expression "income" in the statute appearing in Section 2(24) of the Act has been clarified to mean that it is an inclusive definition and includes losses, that is, negative profit. This has been held so on the strength of earlier judgments of this Court in CIT v. Harprasad and Co. (P.) Ltd. [(1975) 3 SCC 868 : 1975 SCC (Tax) 158 : (1975) 99 ITR 118] and followed in Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980 SCC (Tax) 67 : (1979) 120 ITR 921] . After an elaborate and detailed discussion, this Court held with reference to the charging provisions of the statute that the expression "income" should be understood to include losses. The expression "profits and gains" refers to positive income whereas "losses" represents negative profit or in other words minus income. Considering this aspect of the matter in greater detail, Gold Coin [(2008) 9 SCC 622: (2008) 304 ITR 308] overruled the view expressed by the two learned Judges in Virtual Soft Systems [(2007) 9 SCC 665 : (2007) 289 ITR 83] . 24. Relevant ITR paras 11 and 12 of Gold Coin [(2008) 9 SCC 622 : (2008) 304 ITR 308] dealing with income and losses are reproduced hereinbelow: (SCC p. 628, paras 15-16)

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"15. When the word 'income' is read to include losses as held in Harprasad case [(1975) 3 SCC 868 : 1975 SCC (Tax) 158 : (1975) 99 ITR 118] it becomes crystal clear that even in a case where on account of addition of concealed income the returned loss stands reduced and even if the final assessed income is a loss, still penalty was leviable thereon even during the period 1-4-1976 to 1-4-2003. Even in the Circular dated 24-7-1976, referred to above, the position was clarified by the Central Board of Direct Taxes (in short 'CBDT'). It is stated that in a case where on setting of the concealed income against any loss incurred by the assessee under any other head of income or brought forward from earlier years, the total income is reduced to a figure lower than the concealed income or even to a minus figure the penalty would be imposable because in such a case 'the tax sought to be evaded' will be tax chargeable on concealed income as if it is 'total income'. 16. The law is well settled that the applicable provision would be the law as it existed on the date of the filing of the return. It is of relevance to note that when any loss is returned in any return it need not necessarily be the loss of the previous year concerned. It may also include carried-forward loss which is required to be set up against future income under Section 72 of the Act. Therefore, the applicable law on the date of filing of the return cannot be confined only to the losses of the previous accounting years." 25. The necessary consequence thereof would be that even if the assessee has disclosed nil income and on verification of the record, it is found that certain income has been concealed or has wrongly been shown, in that case, penalty can still be levied. The aforesaid position is no more res integra and according to us, it stands answered in favour of the Revenue and against the assessee.'

(v) Therefore, from all the above decision of the honourable Supreme Court which considered the decision of Hariprasad & co (supra) as well as Karamchand Premchand and Co private limited (supra) and has held that the word ‗income‖ includes loss also as the word income is comprising of positive income as well as negative income. In view of this according to us the controversy before us is not

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whether any source is excluded or included. But the controversy is whether the provisions of Section 10 (38) starts with ―any income‖ would include both positive income/surpluses or negative income/losses. According to us, all the decisions of the honourable Supreme Court also held that the word income also includes losses. Therefore both the decision of Honourable supreme court in case of Karamchand Premchand and Haripsad & co P ltd ( supra) lay down the same law as held by Honorable Supreme court in series of its decisions. Thus, to say that Honourable Gujarat High court should have considered Karamchand Premchand ( supra) and not Harisprasad & co P Ltd (supra) is not correct. (b) Secondly, the decision of the Calcutta High Court in Royal Calcutta (supra), which considered the decisions in Karamchand and also Harprasad (supra), was not referred nor consideredby Hon Gujarat High court; (i) Honourable Gujarat High Court considered CIT v. Harprasad and Co. (P.) Ltd. [1975] 99 ITR 118 (SC) and CIT v. S.S. Thiagarajan [1981] 129 ITR 115 (Mad), it followed followed and relied upon. This is apparent that honourable Gujarat High Court wherein it dealt with the whole controversy and considered the decision of the honourable Supreme Court in para number three and seven of its decision. The decision in the case of Karamchand Premchand is not required to be discussed as it also lays down the same thing which was laid down by the Hariprasad & Co private limited by honourable Supreme Court. Therefore, this reason given by the learned authorised representative does not appeal to us and hence rejected.

(ii) further with respect to the argument of the learned authorised representative that the honourable Gujarat High Court did not 85 | P a g e

considered the decision of the honourable Calcutta High Court in case of Royal Calcutta Turf club Ltd. (144 ITR 709) (1983) where the issue of business income was considered. According to us, with respect to the exempt income the expenditures are now ( From 1/4/1962) disallowed Under the provisions of Section 14 A of the income tax act, therefore there cannot be losses in case of an exempt income in the business. In view of this, even before us, if for a second we presume that the honourable Gujarat High Court did not consider the decision of the honourable Calcutta High Court, it does not have any significance on the merits before us. In view of this, we reject this contention of the learned authorised representative. (c) Thirdly, the decision in the case of Harprasad (supra) was relied upon and referred to only for the proposition that income includes loss. The fundamental facts and the legal proposition laid down (as elaborately discussed supra) that during the relevant period capital loss, per se, was not liable to tax and hence loss was held to be not allowable by the apex Court, was not even brought to the notice of the Court. This argument has been adequately dealt with earlier wherein we have held that honourable Supreme Court in series of decision has held that ‗income‘ includes losses. Therefore, this ground/argument of the learned authorised representative is also rejected.

(d) In para 4, the Court noted that the assessee‘s primary reliance was only on section 74; we find that this is an unnecessary argument advanced by the assessee whether the issue is covered u/s 74 or u/s 70 of the income tax act as we have held that u/s 10 (38), even the losses are to be thrown out from the computation itself at the threshold and therefore this argument does not survive.

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(e) The fundamental legal position that unless the source, per se, is exempt/ excluded, the loss cannot be ignored, was not even argued nor considered In view of our finding while interpreting the provisions of Section 10 (38) of the income tax act we do not find that if the source is excluded or included it will give any other result. Therefore, this argument of the learned authorised representative is rejected. 38. Now we come to the authoritative commentary of Kanga & Palkhivala’s The law and Practice of Income tax – 11 Th Edition at page no 531-532 of Vol –I which deals with the issue of losses of income u/s 10 as under :- ―2. Losses from Incomes covered under Section 10.— A thorny issue that arises under s 10 is the question of what happens if the assessee has a loss under a particular clause. For instance, s 10(38) deals with income from sale of certain equity shares and mutual funds on which securities transaction tax is paid. Now, if there is a loss, will the loss also not form part of the total income? Or will the assessee, subject to the other provisions of the Act, be able to set off these losses against capital gains for that year? Section 10 states that 'income' falling within any of its clauses shall not be included in the computation of 'total income' of the assessee. The question is, does income include a loss? In the case of an insurance company making a loss under the scheme covered under s 10(23AAB), the Bombay High Court skirted this question – it held that since insurance companies' assessments are covered under s 44, the question of disallowing this loss did not arise. This is the correct decision in that context, since insurance companies are treated differently under the Act. In certain judgments under s 271(1)(c) dealing with penalty, the Courts have held 87 | P a g e

that income does not include loss. These judgments were overturned by the introduction of an Explanation in that section. This Explanation was held to be retrospective as it was clarificatory, effectively overruling all the previous judgments holding that income does not include loss. For this, the Supreme Court relied on the judgments in CIT v Harprasad and Co. P. Ltd. and CIT v J.H. Gotla, which were rendered in the context of clubbing of income. Recently, the Supreme Court, while upholding the constitutional validity of the retrospective amendment to s 143(1A), held that it was 'settled law at least since 1975 that the word "income" would include within it both profits as well as losses'.5. The upshot of this discussion is that the law is now fairly settled that "income" includes "loss". It is submitted, however, that when applying this proposition to s 10, a distinction must be made between business income and incomes that fall under the head of capital gains. In the case of business income, the question of a 'loss' under a clause falling within s 10 will not arise at all because the expenditure towards earning this business income is anyway disallowed under s 14A. But when it comes to incomes covered under 'capital gains', like those covered under s 10(38),6. where s 14A does not apply, the judgments discussed above will now imply that any losses will also not be included in the computation of total income.” [Bold and underline supplied by us] 39. In view of the above facts, judicial precedents as well as the authoritative commentary on The Income Tax Law And Practice, we are of the view that the lower authorities have not committed any error in ignoring the loss incurred by the assessee on sale of shares and securities, on which assessee has paid securities transaction tax, 88 | P a g e

holding that when the income is exempt, then both positive income as well as the negative loss , both, do not enter into the regular computation of the assessee. Accordingly, the orders of the lower authorities are upheld wherein the assessee has been denied the set of and or carry forward of long-term capital loss of ₹ 9 080 571/– on transfer of shares on which the assessee has paid securities transaction tax and are covered by the provisions of Section 10 (38) of the Act 40. Assessee has also slipped in its written submission that when there are two views on an issue, the opinion which is favourable to the assessee should be adopted. We have given our thoughtful consideration to this issue and find that when honourable Supreme Court has decided on issue that income includes losss also, it decides from the day one when the law is enacted. Therefore, now there are no two views on the issue so, we are constrained to take a view in favour of the revenue and against the assessee on this issue. 41. In view of the above facts and circumstances and respectfully following the decision of the honourable Gujarat High Court as well as the authoritative commentary on law and practice of income tax supported by the decisions of the honourable Supreme Court , we dismiss ground number [1] of the appeal of the assessee which is the solitary ground in this appeal. 42. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on 17, August 2020. -Sd/- -Sd/- ( BHAVNESH SAINI ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 17/08/2020 *MEHTA* Copy forwarded to

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