Shri Ashok Kumar Agarwal, New Delhi v. ADIT, New Delhi

ITA 150/DEL/2011 | 2006-2007
Pronouncement Date: 08-11-2011 | Result: Dismissed

Appeal Details

RSA Number 15020114 RSA 2011
Assessee PAN ADFPA0653F
Bench Delhi
Appeal Number ITA 150/DEL/2011
Duration Of Justice 9 month(s) 27 day(s)
Appellant Shri Ashok Kumar Agarwal, New Delhi
Respondent ADIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 08-11-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 08-11-2011
Date Of Final Hearing 11-07-2011
Next Hearing Date 11-07-2011
Assessment Year 2006-2007
Appeal Filed On 11-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH DELHI BENCH DELHI BENCH DELHI BENCH A AA A : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA BEFORE SHRI G.E.VEERABHADRAPPA BEFORE SHRI G.E.VEERABHADRAPPA BEFORE SHRI G.E.VEERABHADRAPPA HONBLE HONBLE HONBLE HONBLE PRESIDENT AND PRESIDENT AND PRESIDENT AND PRESIDENT AND SHRI A.D.JAIN SHRI A.D.JAIN SHRI A.D.JAIN SHRI A.D.JAIN HONBLE HONBLE HONBLE HONBLE JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.80/DEL/2011 80/DEL/2011 80/DEL/2011 80/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2006 2006 2006 2006- -- -07 0707 07 SMT. SMT. SMT. SMT. ALKA AGARWAL ALKA AGARWAL ALKA AGARWAL ALKA AGARWAL C/O O.P.SAPRA & ASSOCIATES C/O O.P.SAPRA & ASSOCIATES C/O O.P.SAPRA & ASSOCIATES C/O O.P.SAPRA & ASSOCIATES ADVOCATES ADVOCATES ADVOCATES ADVOCATES C CC C- -- -763 NEW FRIENDS COLONY 763 NEW FRIENDS COLONY 763 NEW FRIENDS COLONY 763 NEW FRIENDS COLONY NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 025. 110 025. 110 025. 110 025. PAN : ADFPA0653F. PAN : ADFPA0653F. PAN : ADFPA0653F. PAN : ADFPA0653F. VS. VS. VS. VS. ASSISTANT DIRECTOR OF INCOME TAX ASSISTANT DIRECTOR OF INCOME TAX ASSISTANT DIRECTOR OF INCOME TAX ASSISTANT DIRECTOR OF INCOME TAX CIRCLE CIRCLE CIRCLE CIRCLE- -- -1(1) 1(1) 1(1) 1(1) INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. ITA NO. ITA NO. ITA NO.150/DEL/2011 150/DEL/2011 150/DEL/2011 150/DEL/2011 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2006 2006 2006 2006- -- -07 0707 07 SHRI ASHOK KUMAR AGARWAL SHRI ASHOK KUMAR AGARWAL SHRI ASHOK KUMAR AGARWAL SHRI ASHOK KUMAR AGARWAL C/O O.P.SAPRA & ASSOCIATES C/O O.P.SAPRA & ASSOCIATES C/O O.P.SAPRA & ASSOCIATES C/O O.P.SAPRA & ASSOCIATES ADVOCATES ADVOCATES ADVOCATES ADVOCATES C CC C- -- -763 NEW FRIENDS COLONY 763 NEW FRIENDS COLONY 763 NEW FRIENDS COLONY 763 NEW FRIENDS COLONY NEW DELHI NEW DELHI NEW DELHI NEW DELHI 110 025. 110 025. 110 025. 110 025. PAN : ADFPA0653F. PAN : ADFPA0653F. PAN : ADFPA0653F. PAN : ADFPA0653F. VS. VS. VS. VS. ASSISTANT DIRECTOR OF INCOME TAX ASSISTANT DIRECTOR OF INCOME TAX ASSISTANT DIRECTOR OF INCOME TAX ASSISTANT DIRECTOR OF INCOME TAX CIRCLE CIRCLE CIRCLE CIRCLE- -- -1(1) 1(1) 1(1) 1(1) INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION INTERNATIONAL TAXATION NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANTS BY : SHRI SANDEEP SAPRA AND SHRI O.P.SAPRA ADVOCATES. RESPONDENT BY : SHRI SUDESH GARG SR.DR ORDER ORDER ORDER ORDER PER G.E.VEERABHADRAPPA PER G.E.VEERABHADRAPPA PER G.E.VEERABHADRAPPA PER G.E.VEERABHADRAPPA : :: : THESE APPEALS ARE FILED BY TWO DIFFERENT ASSESSEES ARISING OUT OF IDENTICAL ORDERS OF LEARNED CIT(A) FOR THE ASSESSME NT YEAR 2006-07. ITA NOS.80 & 150/DEL/2011 2 2. AS THE FACTS AND THE ISSUES IN THESE APPEALS ARE IDENTICAL WE HAVE HEARD THEM TOGETHER AND ARE NOW DISPOSING THE SAME BY THIS COMMON ORDER. 3. THE MAIN ISSUE IN BOTH THESE APPEALS RELATES TO THE ACTION OF THE ASSESSING OFFICER IN DENYING THE BENEFIT UNDER SECT ION 10(38) OF THE INCOME-TAX ACT 1961 WHICH HAS RESULTED IN THE ADDI TION TO THE TOTAL INCOME OF THE ASSESSEE AS A LONG TERM CAPITAL GAIN LIABLE TO ASSESSMENT. WE ARE DISCUSSING THE FACTS IN THE CAS E OF SMT.ALKA AGARWAL IN DETAIL AND DISPOSE BOTH THE APPEALS. 4. SMT.ALKA AGARWAL IS AN INDIVIDUAL AND HER STATUS IS NON-RESIDENT. IN THE WORDS OF THE ASSESSING OFFICER :- (I) THE ASSESSEE HAS CONVERTED PERSONAL INVESTMENT IN S HARES INTO STOCK IN TRADE OF BUSINESS ON 1 ST APRIL 2005. (II) THERE HAS BEEN A TRANSFER OF SHARES AS PER SECTION 45(2) OF THE INCOME-TAX ACT 1961. (III) THE ASSESSEE HAS EARNED CAPITAL GAINS ON SUCH TRANSFER/CONVERSION INTO STOCK IN TRADE. (IV) THE CAPITAL GAINS ARE LONG TERM CAPITAL GAINS. 5. THE ASSESSEE HAS CLAIMED THE CAPITAL GAINS EARNE D DURING THE YEAR AS EXEMPT FROM TAX UNDER SECTION 10(38) OF THE ACT. THE AO WAS OF THE OPINION THAT THE TRANSFER HAS TAKEN PLACE WH EN THE ASSESSEE HAS CONVERTED PERSONAL INVESTMENT INTO STOCK IN TRADE O F THE BUSINESS ON 1 ST APRIL 2005. THESE SHARES WERE ACTUALLY SOLD DURI NG THE FINANCIAL YEAR 2005-06 THROUGH A STOCK EXCHANGE AND SECURITIE S TRANSACTION TAX (STT) WAS PAID AT THE TIME OF ACTUAL SALE OF SHARES . ON THIS BASIS THE ASSESSEE INVOKED THE PROVISIONS OF SECTION 10(38) T O CLAIM THE BENEFIT OF EXEMPTION. ACCORDING TO THE ASSESSING OFFICER THE TRANSFER HAS TAKEN PLACE WHEN THE ASSESSEE CONVERTED PERSONAL IN VESTMENTS IN ITA NOS.80 & 150/DEL/2011 3 SHARES INTO STOCK IN TRADE OF THE BUSINESS. HE HAS REPRODUCED THE PROVISIONS OF SECTION 10(38) AND CONCLUDED THAT CON VERSION OF SHARES INVESTMENT OF INDIVIDUAL INTO STOCK IN TRADE OF BUS INESS IS A TRANSACTION. HE QUOTED CIRCULAR NO.397 DATED 16.10.1984 AND ALSO THE DECISION OF THE CALCUTTA BENCH OF THE TRIBUNAL IN G.D. AGGARWAL A VS. DCIT 59 ITD 230 AND CONCLUDED THAT THE ASSESSEE IS LIABLE FOR T AX ON LONG TERM CAPITAL GAINS ON THE TRANSFER OF SHARES. THE AO DI SCUSSED THE LEGISLATIVE INTENTION BEING THE INTRODUCTION OF SEC URITIES TRANSACTION TAX TO SUPPORT HIS STAND. THE ASSESSEE WAS UNSUCCESSFU L BEFORE THE LEARNED CIT(A). 6. THE GROUNDS TAKEN BY THE ASSESSEE BEFORE US ARE AS UNDER:- 1. THAT THE AUTHORITIES BELOW HAD ERRED ON FACTS A ND UNDER THE LAW IN DENYING BENEFIT U/S 10(38) OF I.T. ACT THOUGH STT HAD ADMITTEDLY BEEN PAID ON THE TRANSACT ION OF SALE OF SHARES. THE APPELLANT IS ENTITLED TO BENEF IT U/S 10(38) OF THE I.T.ACT. 2. THAT THE AUTHORITIES BELOW WERE NOT AT ALL JUSTI FIED IN DENYING CLAIM OF THE APPELLANT FOR REDUCTION IN THE SHORT TERM CAPITAL GAIN ON THE BASIS OF REVISED COMPUTATI ON OF INCOME FILED BY THE APPELLANT BEFORE THE AO IN THE COURSE OF ASSESSMENT PROCEEDINGS EVEN THOUGH ON THE BASIS OF SAME COMPUTATION INCOME HAD BEEN INCREASED UNDER T HE OTHER HEADS OF INCOME. SUCH AN ACTION ON THE PART OF THE AO AND CONFIRMED BY THE LD.CIT(A) IS WHOLLY UNJUST AND UNCALLED FOR. 3. THAT AUTHORITIES BELOW HAD ERRED ON FACTS AND UN DER THE LAW IN TAXING THE LONG TERM CAPITAL GAIN @ 20%. ACCORDING TO THE APPELLANT THE SAME WAS TAXABLE @ 10% ONLY. VARIOUS OBSERVATIONS MADE BY THE AUTHORITIES BELOW WITH REGARD TO THE ABOVE ISSUE IN THEIR RESPECTIVE ORDER S ARE EITHER INCORRECT OR ARE UNTENABLE. 4. THAT THE LEVY OF INTEREST U/S 234B WAS WHOLLY IL LEGAL AND AT ANY RATE WITHOUT PREJUDICE THE SAME IS EXC ESSIVE. ITA NOS.80 & 150/DEL/2011 4 5. THAT THERE WAS NO JUSTIFICATION TO WITHDRAW INTE REST U/S 244A OF I.T.ACT. 6. THAT THE TOTAL INCOME ASSESSED BY THE AO AND CONFIRMED BY THE CIT(A) IS ARBITRARY UNJUST AND VE RY EXCESSIVE. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED A PAPER BOOK CONTAINING 108 PAGES WHEREIN THE STAND TAKEN BEFORE THE LEARNED CIT(A) AS WELL AS BEFORE THE AO IS EXPLAINED IN REL ATION TO THE ISSUES IN DISPUTE. 8. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE CONTENTIONS THAT WERE TAKEN BY THE ASSESSEE BEFORE THE LEARNED CIT(A) AND ARGUED BEFORE US ON THE SAME LINES. HE HAS ALSO EXPLAINED AT LENGTH THE PROVISIONS OF SECTION 2(14) 2(47) 45(1) 45(2) AN D 10(38). THE MAIN ARGUMENT OF THE ASSESSEE IS THAT AS LONG AS THERE I S NO DISPUTE THAT THE ASSESSEE HAS CONVERTED SHARES PURCHASED IN THE EARL IER YEARS WHICH WERE HELD AS INVESTMENT INTO STOCK IN TRADE AS ON 1 .4.2005 AND OUT OF SUCH SHARES HAD SOLD SOME SHARES DURING THE YEAR UN DER CONSIDERATION ITSELF THROUGH THE RECOGNIZED STOCK EXCHANGE ON WHI CH SECURITIES TRANSACTION TAX (STT) HAD DULY BEEN PAID THEREFORE LONG TERM CAPITAL GAIN ON SALE OF SUCH SHARES WAS EXEMPT FROM TAX IN TERMS OF SECTION 10(38)(A) AND 10(38)(B) READ WITH SECTION 45(2) OF THE ACT BECAUSE ALL THESE PROVISIONS TALK OF ONLY SALE OF SHARES. A SP ECIFIC RELIANCE WAS PLACED ON CIRCULAR NO.791 DATED 2.6.2000 WHICH IS A NNEXED AS ANNEXURE-A IN WHICH ALSO CBDT HAD CLARIFIED THAT S ECTION 45(2) OF THE ACT POSTPONES THE ASSESSMENT OF SUCH CAPITAL GAINS TO THE YEAR IN WHICH THE STOCK-IN-TRADE IS ACTUALLY SOLD OR OTHERW ISE TRANSFERRED BY THE ASSESSEE. IN OTHER WORDS CBDT HAD CLARIFIED THAT THE DATE OF SALE/TRANSFER AS PER SECTION 45(2) IS TO BE TAKEN F OR INVOKING OTHER PROVISIONS/SECTIONS OF THE ACT. SUCH INTERPRETATIO N OF THE CBDT EQUALLY APPLIES TO THE CASE OF THE ASSESSEE AS STT HAD DULY BEEN PAID ON THE DATE OF SALE OF SHARES WHICH HAD EARLIER BEEN CONVE RTED FROM ITA NOS.80 & 150/DEL/2011 5 INVESTMENT INTO STOCK-IN-TRADE. IN OTHER WORDS SE CTION 10(38) THE LEARNED COUNSEL SUBMITTED COULD NOT IGNORED. RATHE R THE SAME HAS TO BE READ ALONGWITH SECTION 45(2) OF THE ACT. THEREF ORE IT WAS ARGUED THAT THE LONG TERM CAPITAL GAINS ON THE IMPUGNED TR ANSACTION WAS EXEMPT FROM TAX. IT WAS ALSO ARGUED THAT EVEN IF I T WERE TO BE TAKEN AS TWO VIEWS ARE POSSIBLE ON THE INTERPRETATION OF THE SE PROVISIONS THEN ONE WHICH IS IN FAVOUR OF THE ASSESSEE MUST BE ADOP TED AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. ONKAR S.KANWAR 258 ITR 761 AND ALSO THE DECISION IN THE CASE OF CIT VS. PODDAR CEMENT PVT.LTD. AND ORS. 226 ITR 625. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT WITHOUT PREJUDICE TO T HIS MAIN CONTENTION THE AUTHORITIES BELOW HAD ERRED ON FACTS AND LAW IN TAXING THE LONG TERM CAPITAL GAINS AT THE RATE OF 20%. ACCORDING T O THE ASSESSEE IT IS ONLY TAXABLE AT THE RATE OF 10%. IN TERMS OF SECTI ON 112(1)(C) READ WITH THE PROVISO OF THE ACT THE LONG TERM CAPITAL GAIN IN THE CASE OF NON-RESIDENT INDIAN IS TAXABLE AT 10% ONLY. 9. THE LEARNED DR ON THE OTHER HAND POINTED OUT T HAT BUT FOR THE PURPOSE OF PROVISIONS OF SECTION 45(2) THE ASSESSE E WOULD HAVE BEEN LIABLE TO CAPITAL GAINS THE MOMENT THERE WAS A CONV ERSION OF SUCH SHARES INTO STOCK IN TRADE ON THE DATE OF CONVERSI ON ITSELF WITHOUT ANY NECESSITY OF ANY ACTUAL SALE. HOWEVER AS SALE HAS NOT TAKEN PLACE AND ASSESSEE HAS NOT RECEIVED MONEY IN REAL SENSE THE PROVISIONS OF SECTION 45(2) COME TO HER AID TO MITIGATE THE TAX P AYMENT LIABILITY. ACCORDING TO THE LEARNED DR SECTION 45(2) MERELY P OSTPONES THE TIME OF PAYMENT OF CAPITAL GAINS TAX. ACCORDING TO HIM THROUGH THE FICTION OF SECTION 45(2) THE LIABILITY GETS COMPUTED AND R EMAINS FROZEN IN THE YEAR OF CONVERSION AND GETS TRIGGERED IN THE YEAR O F ACTUAL SALE. SECTION 45(2) ACCORDING TO HIM MERELY ENVISAGES T HAT CAPITAL GAINS LIABILITY WHICH HAS ACCRUED AT THE TIME OF CONVERSI ON GETS POSTPONED AND THIS BECOMES OPERATIONAL IN THE YEAR OF SALE OF THE STOCK SO CONVERTED. SO IN THE PRESENT CASE THE COMPUTATIO N OF INCOME WILL ITA NOS.80 & 150/DEL/2011 6 HAVE TWO COMPONENTS. PART ONE WILL BE FOR THE CAPI TAL GAINS WHICH WILL BE COMPUTED ON THE BASIS OF FAIR MARKET VALUE ON TH E DATE OF CONVERSION AS A SALE PRICE AS REDUCED BY THE ORIGIN AL COST OF ACQUISITION. IN THE SECOND PART THE ASSESSEE WILL BE LIABLE FOR TAX ON THAT BUSINESS PROFIT OR WILL BE ELIGIBLE FOR BUSINE SS LOSS DEPENDING UPON THE DIFFERENCE BETWEEN THE ULTIMATE SELLING PRICE A ND THE PRICE AT WHICH CAPITAL ASSET WAS CONVERTED INTO STOCK IN TRADE. A S FAR AS BENEFIT UNDER SECTION 10(38) IS CONCERNED THE ASSESSEE SHALL NOT BE ELIGIBLE FOR THIS BENEFIT AT THE FIRST STAGE OF CHARGEABILITY OF CAPI TAL GAINS BECAUSE THE DEEMED SALE AT THE POINT OF CONVERSION INTO STOCK D ID NOT SUFFER SECURITIES TRANSACTION TAX. FURTHER WITH REGARD T O THE SECOND PART OF THE TRANSACTION THE ASSESSEE IS NOT ELIGIBLE FOR A NY BENEFIT UNDER SECTION 10(38) BECAUSE THE SECOND PART OF THE TRANS ACTION IS PURELY A BUSINESS TRANSACTION AND SECTION 10(38) IS APPLICAB LE ONLY TO LONG TERM CAPITAL ASSETS. CONSIDERING THE AFORESAID FACTS T HE ASSESSEES CLAIM FOR CAPITAL GAINS NOT BEING CHARGEABLE TO TAX WHICH ACCORDING TO HIM IS CLEARLY UNTENABLE IN LAW THE LEARNED DR VEHEMEN TLY ARGUED IN THE LIGHT OF THE PROVISIONS IN THIS REGARD AS ALSO THE VARIOUS CIRCULARS ISSUED BY THE CBDT EXPLAINING THE AMENDED PROVISIONS. HE DREW OUR ATTENTION TO THE DISCUSSIONS MADE IN THE ASSESSMENT ORDER WITH REGARD TO THESE DETAILS. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND GONE THROUGH THE RECORDS. THE PROVISIONS OF SECTION 10( 38) READ AS UNDER:- 10. 10. 10. 10. IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEA R OF ANY PERSON ANY INCOME FALLING WITHIN ANY OF THE FO LLOWING CLAUSES SHALL NOT BE INCLUDED (38) (38) (38) (38) ANY INCOME ARISING FROM THE TRANSFER OF A LONG -TERM CAPITAL ASSET BEING AN EQUITY SHARE IN A COMPANY O R A UNIT OF AN EQUITY ORIENTED FUND WHERE - ITA NOS.80 & 150/DEL/2011 7 (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 PROVIDED PROVIDED PROVIDED THAT THE INCOME BY WAY OF LONG-TERM CAPITA L GAIN OF A COMPANY SHALL BE TAKEN INTO ACCOUNT IN COMPUTI NG THE BOOK PROFIT AND INCOME-TAX PAYABLE UNDER SECTION 11 5JB.] EXPLANATION. EXPLANATION. EXPLANATION. EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE EQ UITY ORIENTED FUND MEANS A FUND (I) WHERE THE INVESTIBLE FUNDS ARE INVESTED BY WAY OF EQUITY SHARES IN DOMESTIC COMPANIES TO THE EXTENT O F 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 MUTU AL FUND SPECIFIED UNDER CLAUSE (23D) : PROVIDED PROVIDED PROVIDED 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;]. 11. THESE PROVISIONS APPLY ONLY TO TRANSFER OF LONG TERM CAPITAL ASSETS IN THE FORM OF EQUITY SHARES OF A COMPANY OR UNITS SPECIFIED THEREIN. THE CIRCULAR NO.5/2005 DATED 15.7.2005 IS SUED BY THE BOARD HAS EXPLAINED THE PROVISIONS OF EXEMPTION OF LONG T ERM CAPITAL GAIN CONSEQUENT UPON THE LEVY OF SECURITIES TRANSACTION TAX. IT IS CLEARLY EXPLAINED THAT THE SAID PROVISIONS HAVE BEEN INSERT ED PROVIDING FOR EXEMPTION FROM INCOME FROM LONG TERM CAPITAL GAINS ARISING OUT OF TRANSFER OF ANY EQUITY SHARE IN THE COMPANY OR UNI T OF AN EQUITY ORIENTED FUND WHERE SUCH TRANSFER TAKES PLACE ON O R AFTER THE SPECIFIED DATE. THE BOARD HAS EXPLAINED THE PROVISIONS OF TA XATION CONSEQUENT UPON THE LEVY OF SECURITIES TRANSACTION TAX IN CIRC ULAR NO.5/2005 DATED 15.7.2005 AS UNDER:- ITA NOS.80 & 150/DEL/2011 8 CONSEQUENT UPON THE LEVY OF SECURITIES TRANSACTION TAX THE FOLLOWING AMENDMENTS HAVE BEEN BROUGHT IN THE INCOME-TAX ACT. (I) A NEW CLAUSE (38) HAS BEEN INSERTED IN SECTION 10 PROVIDING FOR EXEMPTION FOR INCOME FROM THE LONG TE RM CAPITAL GAINS ARISING OUT OF TRANSFER OF AN EQUITY SHARE IN COMPANY OR UNIT OF AN EQUITY ORIENTED FUND WHERE SUCH TRANSFER TAKES PLACE ON OR AFTER THE DATE ON WHICH CHAPTER VII OF THE FINANCE (NO.2) ACT 2004 COMES INTO FORC E AND SUCH TRANSACTION IS CHARGEABLE TO SECURITIES TRANSA CTION TAX UNDER THE SAID CHAPTER. (II) A NEW SECTION 111A HAS BEEN INSERTED SO AS TO PROVIDE THAT SHORT TERM CAPITAL GAINS ARISING OUT O F TRANSFER OF AN EQUITY SHARE IN A COMPANY OR UNIT OF AN EQUI TY ORIENTED FUND WHERE SUCH TRANSFER TAKES PLACE ON O R AFTER THE DATE ON WHICH CHAPTER VII OF THE FINANCE (NO.2) ACT 2004 COMES INTO FORCE AND SUCH TRANSACTION IS CHARG EABLE TO SECURITIES TRANSACTION TAX UNDER THE SAID CHAPTE R SHALL BE CHARGED AT THE RATE OF 10%. (V) A NEW SECTION 88E HAS BEEN INSERTED PROVIDING T HAT WHERE THE TOTAL INCOME OF THE ASSESSEE IN A PREVIOU S YEAR INCLUDES ANY INCOME CHARGEABLE UNDER THE HEAD PROF ITS AND GAINS OF BUSINESS OR PROFESSION ARISING FROM TRANSACTIONS CHARGEABLE TO SECURITIES TRANSACTION T AX HE SHALL BE ALLOWED A DEDUCTION OF AN AMOUNT EQUAL TO THE SECURITIES TRANSACTION TAX PAID BY HIM IN RESPECT O F TRANSACTIONS CHARGEABLE TO SECURITIES TRANSACTION T AX ENTERED INTO IN THE COURSE OF HIS BUSINESS DURING T HAT PREVIOUS YEAR FROM THE AMOUNT OF INCOME-TAX ON SUC H INCOME ARISING FROM SUCH TRANSACTIONS. 12. IN THE LIGHT OF THE ABOVE THE LEGISLATIVE INTE NTION IS VERY CLEAR THAT EITHER ONE PAYS SECURITIES TRANSACTION TAX OT HERWISE ONE PAYS CAPITAL GAINS TAX ON GAINS ARISING ON TRANSFER. 13. THE OTHER PROVISION RELEVANT IN THIS REGARD IS SECTION 2(47)(IV) WHICH READS AS UNDER:- 2. IN THIS ACT UNLESS THE CONTEXT OTHERWISE REQUI RES - ITA NOS.80 & 150/DEL/2011 9 (47) [TRANSFER IN RELATION TO A CAPITAL ASSET INC LUDES - (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO OR IS TREATED BY HIM AS STOCK-IN-TRA DE OF A BUSINESS CARRIED ON BY HIM SUCH CONVERSION OR TREATMENT;]. 14. THE AFORESAID PROVISION MAKES IT VERY CLEAR THA T IN RELATION TO A CAPITAL ASSET THERE IS A TRANSFER IN CASE WHERE TH E CAPITAL ASSET IS CONVERTED INTO STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM. ON CONVERSION ON 1.4.2005 THEREFORE THERE WAS A VALI D TRANSFER UNDER THE ACT. NOW THE PROVISIONS OF SECTION 45(1) & 45(2) READ AS UNDER:- 45. [(1)] ANY PROFITS OR GAINS ARISING FROM THE TR ANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL SAVE AS OTHERWISE PROVIDED IN SECTIONS [***] [54 54B [*** ] [[54D [54E [54EA 54EB ] 54F [54G AND 54H]]]]] BE CHARG EABLE TO INCOME-TAX UNDER THE HEAD CAPITAL GAINS AND S HALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHI CH THE TRANSFER TOOK PLACE. [(2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1) THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO OR ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS CA RRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS INC OME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS S OLD OR OTHERWISE TRANSFERRED BY HIM AND FOR THE PURPOSES OF SECTION 48 THE FAIR MARKET VALUE OF THE ASSET ON T HE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUIN G AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET.]. 15. AS PER THE AFORESAID PROVISIONS WHEN ONCE THE ASSESSEE HAS CONVERTED A CAPITAL ASSET INTO STOCK-IN-TRADE THE CAPITAL GAIN ARISING ON SUCH TRANSACTION OF TRANSFER SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH TRANSFER TOOK EFFECT. THAT WAS THE ORDINARY POSITION WHERE THE CAPITAL GAIN WOULD HAVE BEEN LIA BLE TO TAX IN THE AY 2005-06 ITSELF. NOW THE PROVISIONS OF SECTION 45( 2) MAKE AN EXCEPTION TO THE GENERALITY OF PROVISIONS OF SECTION 45(1). WHERE IT IS A CASE OF ITA NOS.80 & 150/DEL/2011 10 CONVERSION OF STOCK-IN-TRADE THE PROFIT ARISING ON TRANSFER BY WAY OF CONVERSION SHALL BE CHARGEABLE TO INCOME TAX AS ITS INCOME IN THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS ACTUA LLY SOLD OR OTHERWISE TRANSFERRED BY HIM AND FOR THE PURPOSE OF COMPUTATI ON OF CAPITAL GAIN THE FAIR MARKET VALUE OF THE ASSET ON THE DATE OF S UCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE FULL VALUE OF C ONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF SUCH CONVERSION MEANING THEREBY THE YEAR OF ASSESSABILITY OF INCOME TO TAX IS POSTP ONED TO DATE ON WHICH ACTUAL SALE OF THIS STOCK-IN-TRADE TAKES PLAC E. THERE CAN BE NO CONFUSION OR A DEBATE OR TWO OPINIONS AS REGARDS TH E AFORESAID PROVISIONS. 16. A CUMULATIVE READING OF THE AFORESAID PROVISION S IN OUR MIND MAKES IT CLEAR THAT AS FAR AS THE BENEFIT OF SECTIO N 10(38) IS CONCERNED THE ASSESSEE SHALL NOT BE ELIGIBLE FOR THIS BENEFIT AT THE FIRST STAGE OF CHARGEABILITY OF CAPITAL GAINS BECAUSE THE DEEMED S ALE IS THE POINT OF CONVERSION INTO STOCK-IN-TRADE WHICH HAD NOT SUFFER ED STT. FURTHER WITH REGARDS TO THE SECOND PART OF THE TRANSACTION THE ASSESSEE IS NOT ELIGIBLE FOR BENEFIT UNDER SECTION 10(38) BECAUSE T HE SECOND PART OF THE TRANSACTION IS PURELY A BUSINESS TRANSACTION AN D PROVISIONS OF SECTION 10(38) ARE APPLICABLE ONLY IN TERMS OF LONG TERM CAPITAL ASSETS. IN OUR VIEW THESE PROVISIONS SHOULD BE READ IN THI S MANNER AND THERE CAN BE NO CONFUSION OR TWO OPINIONS ABOUT THE SCHEM E OF THE PROVISIONS OF CONVERSION OF CAPITAL ASSET INTO STOC K-IN-TRADE AS ALSO THE LIABILITY TOWARDS THE CAPITAL GAINS TAX ON SALE OF SHARES HELD AS CAPITAL ASSET WHICH HAS SUFFERED STT. NOWHERE ON THE DATE OF ACTUAL SALE THE ASSESSEE WAS HOLDING THE IMPUGNED SECURITIES AS A P ART OF CAPITAL ASSET. THEY HAVE ALREADY BECOME THE STOCK-IN-TRADE OF THE BUSINESS. SO WE DO NOT AGREE WITH THE ASSESSEE AS REGARDS TH E TOTAL EXEMPTION FROM CAPITAL GAINS TAX IN RESPECT OF THE CAPITAL AS SETS WHICH WERE CONVERTED INTO STOCK-IN-TRADE AS ON 1 ST APRIL 2005 MERELY BECAUSE ON THE DATE OF SALE SUCH STOCK-IN-TRADE THE ASSESSEE W AS REQUIRED TO PAY ITA NOS.80 & 150/DEL/2011 11 STT ON THEM. WE AGREE WITH THE DEPARTMENTAL STAND IN RESPECT OF THIS ISSUE AS WE DO NOT FIND ANY MERIT IN SUCH CONTENTIO NS OF THE ASSESSEE. 17. HAVING HELD THE MAIN ISSUE AGAINST THE ASSESSEE THE ALTERNATIVE CLAIM OF THE ASSESSEE IS NOW EXAMINED. THE PROVISI ONS OF SECTION 112(1)(C) READ AS UNDER:- 112. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE INC LUDES ANY INCOME ARISING FROM THE TRANSFER OF A LONG-TER M 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 - [(C) IN THE CASE OF A A A A NON NON NON NON- -- -RESIDENT RESIDENT RESIDENT RESIDENT (NOT BEING A COMPANY) OR A FOREIGN COMPANY - (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 B EEN ITS TOTAL INCOME; AND (II) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LO NG- TERM CAPITAL GAINS AT THE RATE OF TWENTY PER CENT;] . 18. NOW THE ASSESSEE HAS CLAIMED THAT IN TERMS OF THE FOLLOWING PROVISO THE TAX SHOULD BE LEVIED AT 10%:- 112. (1) WHERE THE TOTAL INCOME OF AN ASSESSEE INC LUDES ANY INCOME ARISING FROM THE TRANSFER OF A LONG-TER M 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 - (D) IN ANY OTHER CASE [OF A RESIDENT] - (I) THE AMOUNT OF INCOME-TAX PAYABLE ON THE TOTAL INCOME AS REDUCED BY THE AMOUNT OF LONG-TERM CAPITA L GAINS HAD THE TOTAL INCOME AS SO REDUCED BEEN ITS TOTAL INCOME; AND (II) THE AMOUNT OF INCOME-TAX CALCULATED ON SUCH LO NG- TERM CAPITAL GAINS AT THE RATE OF [TWENTY] PER CENT . ITA NOS.80 & 150/DEL/2011 12 [PROVIDED PROVIDED PROVIDED PROVIDED THAT WHERE THE TAX PAYABLE IN RESPECT OF A NY INCOME ARISING FROM THE TRANSFER OF A LONG-TERM CAP ITAL ASSET BEING LISTED SECURITIES [OR UNIT] [OR ZERO C OUPON BOND] EXCEEDS TEN PER CENT OF THE AMOUNT OF CAPITA L GAINS BEFORE GIVING EFFECT TO THE PROVISIONS OF THE SECON D PROVISO TO SECTION 48 THEN SUCH EXCESS SHALL BE IGNORED F OR THE PURPOSE OF COMPUTING THE TAX PAYABLE BY THE ASSESSE E. 19. WE MAY MENTION THAT THIS PROVISO IS UNDER SECTI ON 112(1)(D) WHICH IS APPLICABLE TO THE CASE OF THE RESIDENTS. THE ASSESSEE BEING A NON-RESIDENT THIS PROVISO IS NOT APPLICABLE MEANI NG THEREBY THE DEPARTMENT IS JUSTIFIED IN COMPUTING THE INCOME TAX ON SUCH LONG TERM CAPITAL GAIN AT THE RATE OF 20% IN TERMS OF SECTION 112(1)(C) WHICH ARE THE PROVISIONS OF THE ACT APPLICABLE TO THE CASE OF THE ASSESSEE THE ASSESSEE BEING A NON-RESIDENT. WE THEREFORE DO N OT FIND ANY SCOPE FOR ANY RELIEF EVEN ON THIS ALTERNATIVE CONTENTION. 20. THE OTHER COMMON GROUNDS IN BOTH THE APPEALS RE LATE TO LEVY OF INTEREST UNDER SECTION234B AND 244A OF THE ACT. TH ESE GROUNDS AND ALSO ONE GROUND RELATING TO THE COMPUTATION OF RELI EF UNDER SECTION 80C OF THE ACT IN THE CASE OF ASHOK KUMAR AGARWAL DOES NOT ARISE FROM THE IMPUGNED ORDER. WE THEREFORE DECLINE TO GO INTO THESE GROUNDS. THE ORDER OF THE LEARNED CIT(A) STANDS. 21. IN THE RESULT THE APPEALS OF THE ASSESSEES ARE DISMISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 8 TH NOVEMBER 2011. SD/- SD/- (A.D.JAIN (A.D.JAIN (A.D.JAIN (A.D.JAIN) )) ) (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA (G.E.VEERABHADRAPPA) )) ) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER PRESIDENT PRESIDENT PRESIDENT PRESIDENT DATED : 08.11.2011 VK. ITA NOS.80 & 150/DEL/2011 13 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT ASSISTANT REGISTRAR