BRICS SECURITIES LTD,MUMBAI vs. ASST CIT 4(1), MUMBAI
What did the Tribunal hold?
The Tribunal held that the AO's action in reducing the rebate claim under Section 88E was not justified. The average rate of income tax should be applied to the taxable income from share trading, not just the direct income.
What were the facts?
The assessee claimed rebate under Section 88E of the Income Tax Act on Securities Transaction Tax (STT) paid. The Assessing Officer (AO) and CIT(A) restricted this rebate by applying an average tax rate to the income from share trading.
What were the issues?
The primary issue was the correct calculation of the rebate under Section 88E, specifically how the average rate of tax should be applied to the income from share trading transactions.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM
O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A), Mumbai, for the assessment year 2008-09, in the matter of order passed u/s.143(3) of the I.T.Act.
In ground no.1, the assessee is aggrieved for the disallowance u/s.14A made in respect of expenditure incurred for earning exempt income amounting to Rs.28,97,483/-.
From the record, we found that the AO has correctly computed the disallowance as per rule 8D, insofar as relevant assessment year under consideration is assessment year 2008-09. Accordingly, we direct the AO to reduce the disallowance by the amount of Rs.14,03,562/- being 2 disallowance of expenses already offered by the assessee in the return of income. We direct accordingly.
Ground no.2 of the appeal is regarding reducing rebate u/s.88E to Rs.1,15,39,743/- from Rs.1,95,40,847/- was pressed by ld. AR.
Rival contentions have been heard and record perused. Facts in brief are that during the year under consideration the assessee has earned Rs.5,12,87,746/- as income from share trading activity. In order to earn this income, assessee has paid STT amounting to Rs.4,38,91,830/-. In computation of income, the assessee has computed tax liability against such income at Rs.1,95,40,847/- (as per 88E calculations in the return of income) and the same has been claimed as rebate u/s.88E of the Act. In course of assessment the AO observed that the average rate of tax in the case of assessee is 22.5% (188532671*100/838411184) while for calculating the rebate assessee has taken average rate of tax as 33.3%. The tax on share trading profit @22.5% comes to Rs.1,15,39,743/- (5,12,746*22.5/100). Hence, the rebate u/s.88E was restricted to Tax on share trading income at an average rate of tax i.e. Rs.1,15,39,743/-. By the impugned order, the CIT(A) confirmed the action of the AO, against which the assessee is in further appeal before us.
Ld. AR relied on the order of the coordinate bench of Kolkata Tribunal in the case of M/s Millennium Stock Broking (P) Ltd., ITA No.670/Kol/2011, order dated 29-9-2015, wherein it was observed as under :- “12.1. A bare perusal makes it clear that the Section has following ingredients (a) total income of assessee includes the income 3 chargeable under the head profit and gains of business (b) such income is arising from taxable securities transactions; (c) deduction under the section is allowable from the amount of income tax on such income arising from such transaction. Thus, the total income used in this section cannot be given a general meaning and has to be ascribed the meaning as contemplated in the context in which Section 88E has been inserted by the Finance Act 2004 with effect from 1.4.2005. The object of Section 88E clearly is to protect the assessee from double taxation. Firstly, by way of payment of STT and secondly by way of income tax on the income earned from STT transaction. The concept of total income as contemplated under Section 2 sub-section (45) cannot be imputed here. The opening words of section 2 dealing with the definition are that unless the context otherwise requires. Therefore, the total income as contemplated u/s 88E is not same as contemplated u/s 2(45). It has been considered in entirely different context in section 88E. The term "total income" as interpreted by various decisions relied upon by ld. Counsel cannot be made applicable to the facts of the case which is in context to Section 88E. Therefore, we do not find any reason to interfere with the order of Ld. CIT(A) in holding that business loss occurred on arbitrage and job which were STT paid transactions could not be adjusted against the non-STT transaction belonging to clients. It had to be deducted from STT paid transactions only on assessee's own account. There is one more reason. The rebate u/s. 88E is allowable from the tax paid. However, in case of arbitrage loss assessee had admittedly not paid any income tax. Therefore, if assessee's plea is accepted then it would lead to double relief to assessee - firstly, by allowing set off u/s 70 against STT income and then allowing rebate from income-tax. This is definitely not the intention of legislature.
We have considered rival contentions and found that during the year the assessee company has paid Securities Transaction Tax (STT) of Rs.4,38,91,830 in respect of purchase and sale of securities on recognized stock exchanges (hereinafter referred to as „taxable securities transaction/TST‟) in the course of its share trading business. In the computation of taxable income, this sum of Rs.4,38,91,830/- paid as STT has been added back while computing income under the head “profits and gains from business or profession”. Thus, the STT paid on taxable securities transactions is not allowable as a deduction from the business income of the assessee company. The assessee company has net 4 taxable income of Rs.5,74,89,989/- (after adding back STT to profits of Rs.5,12,87,746 from TST and reducing expenses in relation thereto. The same was provided from the TST which is chargeable to tax under the head “profits and gains from business or profession” at a rate of 33.99%. The income tax payable thereon is Rs.1,95,40,847 [5,74,89,989x33.99%). In the computation of income the assessee has restricted its claim of rebate u/s.88E in respect of STT to Rs.1,95,40,847/- as against actual payment of STT of Rs.4,38,91,830/-. However, the ACIT has applied the average rate of income tax to only direct income from TST of Rs.5,12,87,746/- instead of taxable income on TST under head “profits and gains from business or profession” which is Rs.5,74,89,989/-. Further, while computing average rate of tax, the ACIT has divided total income tax by gross total income whereas the assessee claims that for the purpose of 88E, the average rate of tax should be computed by dividing the tax on income under head “profits & gains from business or profession” by income under the head profits and gains from business or profession. We found that applying the same principle, average rate of income tax should be applied to Rs.5,74,89,989/- while computing maximum ceiling on the amount of rebate u/s.88E in respect of STT. It is also a matter of record that similar claim of assessee was accepted by the CIT(A) in the assessment year 2007-08, against which the revenue is not in appeal before us.
In view of the above, we do not find any merit in the action of lower authorities for reducing assessee‟s claim of deduction u/s.88E as done by the AO.
In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on this 27/04/2016.
Sd/- Sd/- (RAM LAL NEGI) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 27/04/2016 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. सत्मावऩत प्रनत //True Copy// आदेशाि सार/ BY ORDER,
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