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Facts
The revenue has filed two appeals against separate orders of the CIT(A) concerning Assessment Years 2017-18 and 2021-22. The appeals primarily concern the classification of capital gains as short-term vs. long-term and the status of the assessee as a corporate vs. non-corporate entity.
Held
The Tribunal considered the facts in light of the Delhi High Court's decision in Bharti Gupta Ramola and CBDT circulars, finding no error in the CIT(A)'s decision regarding the classification of capital gains. Regarding the assessee's status, the Tribunal relied on the principle of consistency and past orders, noting that the AO/FAA had not provided reasons for changing the assessee's status from corporate to non-corporate.
Key Issues
Whether capital gains on sale of shares held for exactly 12 months are short-term or long-term capital gains, and whether the assessee should be treated as a corporate or non-corporate entity, consistent with past assessments.
Sections Cited
2(42A), 111A, 143(3), 147, 154, 45(2A)
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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI RAHUL CHAUDHARY, HON’BLE
| आयकर अपीलीय अिधकरण "ायपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER & SHRI RAHUL CHAUDHARY, HON’BLE JUDICIAL MEMBER I.T.A. No. 478/Mum/2024 Assessment Year: 2017-18 & I.T.A. No. 476/Mum/2024 Assessment Year: 2021-22 Commissioner of Income Tax M/s. Kuwait Investment (International Taxation -3), Mumbai Authority Vs C/o KPMG, Lodha Excelus 2nd Floor, Apollo Mills Compound N.M. Joshi Marg, Mahalakshmi Mumbai - 400011 [PAN: AAATK3858Q] अपीलाथ"/ (Appellant) "" यथ"/ (Respondent)
Assessee by : Shri Farrokh Irani, A/R Revenue by : Shri Anil Sant, Addl. CIT, D/R सुनवाई की तारीख/Date of Hearing : 07/08/2024 घोषणा की तारीख/Date of Pronouncement : 14/08/2024 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM :
I.T.A. No. 478/Mum/2024 & I.T.A. No. 476/Mum/2024, are two separate appeals by the revenue preferred against the two separate orders of the ld. CIT(A)-57, Mumbai, even dt. 29/11/2023 pertaining to AYs 2017-18 and 2021-22. 2. Both these appeals were heard together and are disposed off by this common order for the sake of convenience and brevity.
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We first take up the revenue’s appeal in I.T.A. No. 478/Mum/2024 for AY 2017-18. The grievance of the revenue reads as under:- “1. Whether on the facts of the case and in circumstances of the case and in law, the Id. CIT (Appeals) has erred in deleting the additions made by the assessing officer, by treating the capital gains under consideration as long term capital gain, not considering the fact that in the assessee's case, the period of holding of capital assets (ie listed shares) as on the date immediately preceding the date of transfer is exactly 12 months and hence the capital gain arising therefrom is liable to be treated as short term capital gain as per the provisions of section 2(42A) of the I. T. Act, 1961?
Whether on the facts of the case and in circumstances of the case and in law, the Id. CIT (Appeals) was right in placing reliance on judgment of non-jurisdictional High Court in the case of Bharti Gupta Ramola vs. CIT (20 taxmann.com 762(Del)) which has no binding precedence in view of judgment of Hon'ble jurisdictional High Court in the case of CIT Vs Thana Electricity Co Ltd [(1994) 206 ITR 727 (Bom)]?
Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has erred in treating the assessee as corporate entity instead of 'Non-corporate entity without appreciating the fact that the PAN of the assessee is obtained as a 'Trust' and not a 'Company'?
Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has erred in not appreciating the fact that the assessee itself has communicated that the assessee is a non-corporate entity due to which it does not hold DSC to file online Form 35?
Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has erred in not appreciating the fact that incorporation document available on the website of Kuwait Investment Authority does not stipulate that the assessee is a corporate entity?
Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has failed to appreciate the fact that the assessee itself has obtained the PAN meant for non-corporate entities including 'Trust' and the assessee is regularly filing return of income in the form ITR-5 stipulated for the entities other than 'Company'?
Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has failed to appreciate that every year is a separate and independent for the purpose of income-tax proceedings and is not bound by doctrine of res-judicata?
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Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has erred in holding that the Assessing Officer was not in consistent with the stand taken in previous years without appreciating the fact that the impugned issue was never deliberated upon in any assessment proceedings and it is the assessee only who highlighted the issue in AY2008-09 by filing appeal before the ITAT pursuant to levy of higher tax due to change in surcharge rate for non-company entities which was higher in comparison to that of the company cases?
Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has erred in not appreciating the fact that the Assessing Officer has passed rectification order u/s.154 treating the assessee as company merely to comply with the order of Hon'ble ITAT in the assessee's case on the impugned issue and said decision was not accepted in principle by the Department?
Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has erred in not appreciating the fact that in context of filing of physical appeal for A.Y.2018-19 the assessee itself has communicated to the CIT(A) vide email dated 26.08.2021 that the assessee does not hold digital signature (DSC) as it is a non- corporate, non-resident taxpayer?
Whether on the facts and in the circumstances of case, and in law, the Ld. CIT(A) has erred in holding the status of assessee as non-resident corporate entity in contrary to the assessee's admission that it is non-corporate, non-resident taxpayer and that too when no cogent documentary evidence was produced by the assessee?
The Appellant prays that the order of the ld. CIT(A) on the above ground(s) be set aside and that of Assessing Officer be restored.
The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.” 4. The first grievance relates to the treatment of gains on sale of shares amounting to Rs.12,19,93,396/- as short term capital gain (STCG) instead of long term capital gain (LTCG). The underlying facts qua this issue are that during the course of scrutiny assessment proceedings, the AO noticed that the assessee has offered LTCG of Rs.12,19,93,396/- on sale of certain equity shares sold exactly after one year from purchase
I.T.A. No. 478/Mum/2024 I.T.A. No. 476/Mum/2024 4 of such shares. The AO issued a showcause notice asking the assessee to explain as to why the LTCG should not be treated as STCG as the shares were held exactly for a period of 12 months. 4.1. The assessee filed a detailed reply explaining that Section 2(42A) of the Act is silent on inclusion of date of purchase and date of sale in computing the period of 12 months for the purpose of STCG. Strong reliance was placed upon the CBDT Circular No. 704 dated 28/04/1995 and 768 dated 24/06/1998. Reliance was placed on the decision of the Hon’ble Delhi high Court in the case of Bharti Gupta Ramole vs. CIT reported in [2012] 20 taxmann.com 762 (Delhi) and claimed that the impugned gain is LTCG. 4.1.1. The reply of the assessee, though considered by the AO but did not find any favour, who completed the assessment by computing the gains as STCG taxable @15% as per Section 111A of the Act. 4.2. Before the ld. First Appellate Authority, the assessee reiterated what has been contended before the AO. After considering the facts and submissions and referring to the CBDT Circular No. 704 dated 28/04/1995 and 768 dated 24/06/1998 and drawing support from the decision of the Hon’ble Delhi High Court in the case of Bharti Gupta Ramole (supra), the ld. CIT(A) directed the AO to consider the capital gain from sale of shares as LTCG. 5. Before us, the ld. D/R strongly supported the findings of the AO. Per Contra, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities.
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We have given a thoughtful consideration to the orders of the authorities below. The entire quarrel revolves around the computation of capital gains which is as under:-
Fund Scrip Name Date of purchase Date of Sale Period of 12 No. months ends on 225 Hindustan Petroleum 17/08/2015 17/08/2016 16/08/2015 Corporation Ltd. 225 Hindustan Petroleum 18/08/2015 18/08/2016 17/08/2015 Corporation Ltd. 225 Hindustan Petroleum 19/08/2015 19/08/2016 18/08/2015 Corporation Ltd. 225 Maruti Suzuki Ltd. 30/03/2016 30/03/2017 29/03/2016 225 Mothersons Sumi 29/03/2016 29/03/2017 28/03/2016 System Ltd. 225 NTPC Limited 23/02/2016 23/02/2017 22/02/2016
The Hon’ble Delhi High Court in the case of Bharti Gupta Ramole (supra), had the occasion to consider the identical grievance relevant to computation of holding period of asset and held as under:- “A careful examination of section 2(42A) would reveal that the transfer or sale is treated as a cut off point, to apply the test. The expression 'immediately preceding the date of transfer' is a cut off point for determining and deciding the period during which the asset was held by an assessee. The said expression does not and should not be interpreted to mean that the date of transfer itself should be added or excluded. [Para 8] The first part of section 2(42A) stipulates that if an asset is held for 36/12 months, it will be long-term capital asset. The term 'month' has not been defined in the Act and, therefore, one can rely upon the word 'calendar month' as defined in the General Clauses Act, 1897. Section 3(35) of the said Act defines a 'month' to mean a month reckoned according to the British calendar. In normal course, therefore, period of 12 calendar months would begin on the specified day when the asset was transferred and the assessee became the holder of the asset and would end one day before in the relevant calendar month, next year. Thus, if an assessee acquires an asset on 2nd January in a preceding year, the period of 12 months would be complete on 1st
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January, next year and not on 2nd January. This position is true and will apply to all cases, except when an asset is transferred/purchased on 1st January. In such cases, the period of one year or 12 months would expire and would be complete on 31st December in the same year. The expression used in section 2(42A) is 'for not more than 12 months'. In other words, to qualify as a short-term capital asset, the capital asset should be held by the assessee for 12 or 36 months, but the moment the said time-limit is crossed or is exceeded and the assessee continues to be the holder/owner of the said asset, the same is to be treated as long-term capital asset. [Para 9] In the instant case, what is noticeable from the language of the legislation is that the requirement prescribed is that the assessee should not hold the asset for more than 36 or 12 months. The moment an assessee exceeds this period and the holding continues beyond 36/12 months, the asset is treated as a long-term asset and, accordingly, the gains are computed. The clause, therefore, refers to the holding period. It will not be appropriate to exclude or include any day of the holding for computing the said period. The date on which the asset is acquired is not to be excluded because the holding starts from the said date. Neither is the date of sale/transfer to be excluded. The period of 12/36 months accordingly will have to be computed. Thus, if an asset is held for 12 months/36 months and is sold the very next day after the period of 12/36 months is over, the asset would be treated as a long-term capital asset. There is nothing in the said section to show and hold that the time period would not include fraction of a day. The expression 'not more than' clearly in this case would refer and include the date on which the asset is first held or acquired. Thus, an asset acquired on 1st of January would complete 12 months at the end of the said year, i.e., on 31st of December and if it is sold next year and if the proviso to section 2(42A) applies, it would be treated as a long-term capital gains. [Para 15] In view of the aforesaid reasoning, the Tribunal was not right in holding that the assessee had not held the shares/mutual fund instruments for more than 12 months preceding the date of transfer. [Para 16]
The CBDT Circular No. 704 dated 28/04/1995, reads as under:- “22. Instructions regarding determination of the ‘date of transfer’ and holding period for purposes of capital gains qua transactions in securities 1. Under the provisions of clause (42A) of section 2 of the Income-tax Act, 1961, the shares held in a company or any other security listed in a recognised stock exchange in India or units of the Unit Trust of India or units of a mutual fund specified under section 10(23D) shall be regarded as short-term capital assets if they are held by an assessee for not more than 12 months immediately preceding the date of its transfer. Clarifications have been sought as to which date should be regarded as the date of transfer and also about the date from which the holding period of the securities should be reckoned. Clarifications have also been sought as to how the holding periods will be computed for the purposes of capital gains when the securities, purchased in I.T.A. No. 478/Mum/2024 I.T.A. No. 476/Mum/2024 7
several lots at different points of time and which are taken delivery of in one lot, are subsequently sold in parts and no correlation of the dates of purchase and sale is available. 2. When the securities are transacted through stock exchanges, it is the established procedure that the brokers first enter into contracts for purchase/sale of securities and thereafter, follow it up with delivery of shares, accompanied by transfer deeds duly signed by the registered holders. The seller is entitled to receive the consideration agreed to as on the date of contract. The Board are of the opinion that it is the date of brokers note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the brokers note for purchase on behalf of the investors. In case the transactions take place directly between the parties and not through stock exchanges the date of contract of sale as declared by the parties shall be treated as the date of transfer provided it is followed up by actual delivery of shares and the transfer deeds. 3. As regards the second issue, where securities are acquired in several lots at different points of time, the First-in-first-out (FIFO) method shall be adopted to reckon the period of the holding of the security, in cases where the dates of purchase and sale could not be correlated through specific numbers of the scrips. In other words, the assets acquired last will be taken to be remaining with the assessee while assets acquired first will be treated as sold. Indexation, wherever applicable, for long- term assets will be regulated on the basis of the holding period determined in this manner.
The CBDT Circular No. 768 dated 24/06/1998, reads as under:- “420. Determination of “date of transfer” and the “period of holding of securities” held in dematerialised form under section 45(2A) qua transactions in securities 1. At present trading in securities is done through the physical movement of the scrips. Transactions are settled through the endorsement and delivery of the certificates which are also the proof of ownership of the security mentioned therein. This system is fought with many difficulties caused due to bad deliveries and loss of share certificates. In order to remove these difficulties faced by the investors, a system of holding securities in the electronic mode at the option of an investor has now been introduced in India. The object of this system is to eliminate problems which are normally associated with settlement through physical certificates, like tearing/mutilation of share certificates due to careless handling, loss of certificates by postal authorities or