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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
सुनवाई क" तार"ख /Date of Hearing : 24-2-2016 घोषणा क" तार"ख /Date of Pronouncement : 6-5-2016 आदेश / O R D E R
PER RAMIT KOCHAR, Accountant Member
1. This appeal, filed by the assessee, being 23.07.2013 passed by learned Commissioner of Income Tax (Appeals)- 35, Mumbai (hereinafter called “the CIT(A)” ), for the assessment year 2010-11, the appellate proceedings before the CIT(A) arising from the assessment order dated 30.11.2012 passed by the learned Assessing Officer u/s 143(3) of the Income Tax Act,1961(Hereinafter called “the Act”).
2. The grounds raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) reads as under:-
ITA 5977/Mum/2013 2 “ I Denial of Indexation benefit by the CIT(A) on Long Term Capital Gains.
The learned C.I.T. in her order dated 19th July, 2013 has erred in denying the benefit of indexation on Long Term Capital Gains accruing on sale of mutual fund units of HSBC Fixed Term Series 59.
The learned C.I.T. has failed to appreciate that the option of exercising indexed cost and paying tax on long term capital gains @ 20% or not exercising the option of indexed cost and paying tax @ 10% is the prerogative of the assessee and that this right cannot be denied by the revenue authorities.
3. The appellant prays that the benefit of indexation should be allowed while computing Long Term Capital gains.”
The brief facts of the case are that the assessee is an individual and has declared income from salary in the return of income filed with the Revenue.
During the course of assessment proceedings u/s 143(3) r.w.s. 143(2) of the Act, it was observed by the A.O. that the despite being asked , the assessee was not able to offer , inter-alia, any explanation for the following credit entries appearing in the bank statement:-
(i) Rs. 1,44,84,120/- on 17/07/2009 (ii) except for stating that the amount of Rs. 1,44,84,120/- was received from M/s HSBC, M.F. , D.N. Road, Fort, Mumbai .
The A.O. called information from HSBC, Mutual Fund whereby the HSBC, M.F. intimated that the amount of Rs. 1,44,84,120/- represented redemption of HSBC Global Asset Management in which the assessee invested Rs. 1,29,00,000/- on 15.7.2008. The assessee submitted that it did not dispute that the said income of Rs. 15,84,120/- arose out of the redemption of the HSBC M.F. , whereby investment made by the assessee in HSBC MF was Rs. 1,29,00,000/- . The assessee offered to pay long term capital gain tax on the ITA 5977/Mum/2013 3 income being long term capital gains of Rs. 15,84,120/- as per the provisions of the Act.
The A.O. added the same to the total income of the assessee and brought it to tax at special rate of 20% without giving the benefit of cost inflation indexation, vide assessment orders dated 30.11.2012 passed u/s. 143(3) of the Act .
Aggrieved by the assessment order dated 30.11.2012 passed by the A.O. u/s 143(3) of the Act, the assesssee filed an first appeal before the CIT(A).
Before the CIT(A), the assessee submitted that benefit of cost inflation indexation should be granted to the assessee and submitted the working as under:-
The capital gains working post indexation is as under: Capital gains on redemption of HSBC MF funds Units: Full value of sale consideration – 16.07.2009 Rs. 1,44,84,120/- Less indexed cost of acquisition purchase date- 15.07.2008 (12,900,000*632/582) Rs. 1,40,08,247/- Long Term Capital Gains Rs. 4,75,873/- ============== The assessee submitted that Rs. 4,75,873/- be charged to tax as long term capital gains as computed above. The assessee submitted copy of mutual fund statement before the CIT(A).
The CIT(A) upheld the addition of Rs. 15,84,120/- made by the AO on the redemption of Mutual Fund of the HSBC , but the CIT(A) held that the assessee has not disclosed the said income in the return of income filed with the Revenue and has not availed of the option of choosing of the method of calculation of the capital gains tax, the A.O. is free to adopt either method with or without applying cost inflation index. Thus, the CIT(A) directed the ITA 5977/Mum/2013 4 A.O. to calculate tax on the long term capital gain tax rate at 10% without indexation or 20% with indexation whichever is favorable to the Revenue, vide orders dated 23.07.2013.
Aggrieved by the orders dated 23.07.2013 of the CIT(A), the assesse filed second appeal with the Tribunal.
The ld. Counsel for the assessee submitted that the long term capital gain is to be computed after allowing the benefit of cost inflation index as per second proviso to Section 48 of the Act and rate of tax should be 20% on long term capital gains arrived at after adjusting for cost inflation index, or at the tax rate of 10% without claiming the benefit of cost inflation index at the choice of the assessee. The CIT(A) rejected the contention of the assessee on the ground that the said long term capital gains are not declared in the return of income filed by the assessee with the Revenue. The ld. Counsel for the assessee submitted that as per Section 112 of the Act read with the first proviso to Section 112(1) of the Act, the afore-stated benefit of option of paying tax on long term capital gains @20% after indexation or 10% without availing the benefit of indexation has to be granted to the assessee and merely because the gains are not declared in return of income filed with the Revenue, the benefit of choosing option of paying tax at the rate of 20% or 10% as the case may be cannot be denied to the assessee. The ld. Counsel relied upon the decision of Hon’ble Bombay High Court in the case of CIT v. Pruthvi Brokers and Shareholders Private Limited reported in (2012)349 ITR 336(Bom. HC) and submitted that the long term capital gain is to be charged to tax @ 10% without adjusting for cost inflation indexation or 20% after allowing for cost inflation indexation at the choice of the assessee, whichever is beneficial to the assessee.
ITA 5977/Mum/2013 5
The ld. D.R., on the other hand, submitted that to avail option u/s 112 of the Act, the assessee has to opt that option in the return of income filed with the Revenue. The assessee has not taken/availed the said option as the long term capital gains arising from transfer of HSBC MF were not declared in the return of income filed with the Revenue and the same cannot be now allowed to the assessee.
We have considered the rival contentions and also perused the material available on record. We have observed that the assessee being an individual has earned long term capital gain on redemption of HSBC M.F. which is chargeable to tax u/s 112(1)(a) read with the first proviso to Section 112(1) of the Act. The assessee has not declared the said long term capital gain in the return of income filed with the Revenue. However, as per the provisions of section 112(1)(a) of the Act, any income arising to an resident individual from transfer of long term capital asset which is chargeable to tax under the head capital gain is chargeable to tax @ 20% after allowing the benefit of the cost inflation indexation as provided in the second proviso to Section 48 of the Act. However, with respect to the income arising from the transfer of long term capital asset being listed securities or units or zero coupon bonds for the instant assessment year under appeal shall be chargeable to tax @ 10% of the amount of capital gain before giving effect to the second proviso to Section 48 of the Act i.e. without applying cost inflation index to the cost of acquisition or cost of improvement of the said capital assets being listed securities or units or zero coupon bonds . The above stated chargeability to tax of long term capital gains with or without the benefit of indexation u/s 112 of the Act read with second proviso to Section 48 of the Act, is to be availed at the option of the tax-payer whichever is more beneficial to the tax- payer as is contemplated by the wordings used by the legislature in the afore- stated relevant provisions of the Act The relevant provisions of the Act as are ITA 5977/Mum/2013 6 applicable for the instant assessment year under appeal are reproduced hereunder :
“ [Tax on long-term capital gains. 112. (1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head “Capital gains”, the tax payable by the assessee on the total income shall be the aggregate of,— (a) in the case of an individual or a Hindu undivided family, 1[being a resident,]— (i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been his total income ; and (ii) the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent : Provided that where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate of twenty per cent ; ******* ******* 9[Provided that where the tax payable in respect of any income arising from the transfer of a long-term capital asset, being listed securities 10[or unit] 11[or zero coupon bond], exceeds ten per cent of the amount of ITA 5977/Mum/2013 7 capital gains before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee. 12[Explanation.—For the purposes of this sub-section,— (a) “listed securities” means the securities— (i) as defined in clause (h) of section 213 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956); and (ii) listed in any recognised stock exchange in India; (b) “unit” shall have the meaning assigned to it in clause (b) of Explanation to section 115AB.]] ****** ******”
The taxes are to be collected by the authority of law as per the mandate of the Act. Merely because the assessee has not filed the details of long term capital gain in the return of income filed with the Revenue , the assessee cannot be denied the benefit of provisions of Section 112(1)(a) of the Act read with the first proviso to Section 112(1) of the Act. The assessee being an individual is entitled to choose the option whichever is more beneficial to the assessee as are available u/s 112(1)(a) read with first proviso to Section 112(1) of the Act , provided other conditions are fulfilled. The assessee has right to choose to be taxed on long term capital gains arising from the transfer of HSBC MF either @ 20% after claiming the benefit of cost inflation indexation as provided in Section 112(1)(a) of the Act read with second proviso to Section 48 of the Act , to compute indexed cost of acquisition or indexed cost of improvement of the capital asset , or to be chargeable to tax @ 10% without adjusting the cost of acquisition or improvement with cost ITA 5977/Mum/2013 8 inflation index as per provisions of Section 112(1)(a) of the Act read with first proviso to Section 112(1) of the Act in the case of long term capital gain arising on transfer of listed securities or units or zero coupon bonds as applicable for the instant assessment year,provided other conditions are fulfilled. Thus, the A.O. is directed to allow the benefit of choosing the option to the assessee in accordance with the provisions of section 112(1)(a) of the Act read with first proviso to Section 112(1) of the Act , after verifying that all other conditions as stipulated under the Act for claiming the afore-stated benefits are duly fulfilled by the assessee. The appeal of the assessee is allowed as indicated above. We order accordingly.
In the result, the appeal filed by the assessee in ITA N0. 5977/Mum/2013 for the assessment year 2010-11 is allowed as indicated above.