The total capital gains should be included without computing the benefits of indexation while computing the “book profits”
The ITAT, Mumbai Bench in the case of Dharmayug Investments Ltd., The Times of India Bldg., Dr D N Road, Fort Mumbai 400 001 (PAN AAACD1346D) vs. ACIT Range 1(1), Mumbai, ITA No.1284/Mum/2013 for the Assessment Year 2009 – 10, has held that the total capital gains should be included without computing the benefits of indexation while computing the “book profits”.
Shri B. R. Baskaran (Accountant Member) and Shri Amit Shukla (Judicial Member) passed the said judgment on 10.6.15.
Pleaders engaged in the case:
The Appellant was represented by Shri A. R. S. Venkatraman and the Respondent was represented by Shri Santosh Kumar.
Date of Hearing:
The hearing was concluded on 19.03.2015.
Backgrounds of the case:
The appeal was preferred by the assessee against the impugned order dated 09.11.2011 passed by the CIT(A) – 1, Mumbai, in connection with the amount of the assessment passed under section 143(3) for the Assessment Year 2009-10.
Before the CIT(A), the assessee contended that the Assessing Officer should have considered capital gain of Rs. 1,72,81,35,774/- at the time of computing the book profit under section 115JB instead of Rs.1,90,39,06,630/-.
It was argued that according to the proviso to section 10(38), the income through Long term capital gain should be considered at the time of computing the book profit and income tax payable under section 115JB and the Long term capital gain is Rs. 1,72,55,70,760/ as was admitted.
The learned CIT (A) did not accept the argument that the amount of capital gain should be calculated after considering the indexation provision as per section 48 of the Act. It was held that under section 115JB, book profit should be calculated as per the Profit and loss account of the assessee.
As the assessee has credited Rs. 1,90,39,06,630/- in the Profit and loss account as capital gain on account of sale of shares, the said amount only should be taken as Long term capital gain for the computing the book profit.
Thereafter the assessee preferred an appeal against order dated 09.11.2011 passed by the CIT (A) – 1, Mumbai, for the amount of the assessment passed for the A.Y. 2009-10 before the Tribunal.
Grounds of appeal raised by the assessee:
The assessee raised the following grounds of appeal amongst others against the impugned order:
1. That the Learned CIT (A) was wrong in holding that while computing the book profit under section 115JB of the Income Tax Act, 1961, the profit on sale of equity shares of Rs.1, 90, 39, 06,630 should have been taken and not the income through long term capital gain on sale of equity shares amounting to Rs.1, 72, 55, 70,760/- as provided in Section 10(38) of the Act.
2. That the proviso to section 10(38) of the Act is a charging section and as a result the long term capital gain on sale of equity shares of Rs.1, 72, 55, 70,760/- should be charged as book profit under section 115JB of the Act and not as a profit on sale of equity shares of Rs.1, 90, 39, 06,630 which has been held by the learned CIT (A).
Judgment relied upon:
The assessee in support of his contention, relied upon the decision of the Hon’ble Apex Court in the case of Apollo Tyres Ltd. (255 ITR 273).
Arguments of both the sides:
The learned counsel for the appellant, Shri A. R. S. Venkatraman, contended that the company had sold shares and had earned profit of Rs.1,90,78,63,394/-, which was credited to its Profit and loss account. As it was a Long term capital gain asset, according to the provisions of sections 45 to 55 of the Act, the Long term capital gain should be computed accordingly.
The Long term capital gain of Rs.1, 72, 55, 70,760/- was claimed for exemption under section 10(38). The definition of income was referred, which includes capital gain chargeable under section 45 according to which only profits or gains arising out of transfer of capital asset only should be taxed.
The learned counsel also submitted that the proviso to section 10(38) states that the income through Long term capital gain should be taken into account at the time of computing the book profit and income tax payable under section 115JB. The said proviso was inserted by the Finance Act 2006 with effect from 01.04.2007.
The learned counsel also submitted that the proviso to section 10 should be read as a part of the section as it qualifies the main enactment and should be read in harmony with the main enactment.
The counsel relied on the decision of Hon’ble Apex Court in CIT vs. Indo Mercantile Bank Ltd. [36 ITR 1] as well as that in the case of CCT vs. Ramkishan Shrikishan Jhaver and Ors [66 ITR 664].
As an alternative, it was submitted that the assessee has challenged that STT of Rs. 25, 65,015/- should be allowed as deduction at the time of computing book profit under section 115JB.
However, the learned DR, relied upon the order of the CIT (A) and contended that under section 115JB, it is an obligation of the assessee to prepare its Profit and loss account according to the Companies Act and the assessee has credited the net profit out of sale of shares in the Profit and loss account which only should be taken as income for the purpose of section 115JB.
The rival submissions of both the parties were considered and the relevant material placed on record was perused. It was observed by the Tribunal that the net amount on account of sale of shares of Rs.1,90,39,06,630/- only should be considered in computation of book profit and not the amount of Long term capital gain after indexation. The assessee’s ground on this point was dismissed.
It was held that the learned CIT(A) and the Assessing Officer was wrong in disallowing the STT of Rs.25,65,015/- as deduction at the time of computing the book profit under section 115JB.
It was agreed that the contention of the learned counsel was justified as the assessee in the Profit and loss account has credited the net profit after set off of STT. Thus, the STT amount will not be included in the computation of book profit but the net profit only shall be taken into account.
As a result, the appeal of the assessee was partly allowed. The order was pronounced in the open court.