Income Tax Appellate Tribunal - MumbaiGsb Capital Markets Ltd, Mumbai vs Assessee on 16 December, 2015आयकर अपील
य अ धकरण "G"  यायपीठ मंब
                                                  ु ई म ।

IN THE INCOME TAX APPELLATE TRIBUNAL "G"                        BENCH,     MUMBAI
       BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND
          SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER

               आयकर अपील सं./I.T.A. No. 307 /Mum/2014
               (  नधा रण   वष  /   Assessment Year : 2010-11)

GSB Capital Markets Ltd.,       बनाम/              DCIT- Range 4(1),
78/80 Ali Chambers,                                Mumbai
                                  v.
Tamarind Lane, Fort,
Mumbai - 400 001
  थायी ले खा सं . /PAN :AABCG7866N
     (अपीलाथ  /Appellant)      ..                      (  यथ  / Respondent)

      Assessee by                         Shri Ajay R. Singh
      Revenue by :                        Shri Rajesh Ojha
      ु वाई क  तार ख / Date of Hearing
     सन                                                   :   04-11-2015
     घोषणा क  तार ख /Date of Pronouncement :                  16-12-2015


                                   आदे श / O R D E R

PER RAMIT KOCHAR, ACCOUNTANT MEMBER:This   appeal,      filed    by   the   assessee       company,   being   ITA   No.
307/Mum/2014, is directed against the orders dated 22-10-2013 passed by
the learned Commissioner of Income Tax(Appeals)- 8, Mumbai (Hereinafter
called "the CIT(A)"), for the assessment year 2010-11.2.     Although the assessee company has raised five grounds of appeal in
this appeal filed with the Tribunal but the effective issue involved in this
appeal is regarding not allowing the set off of brought forward loss arising
from transfer of short-term capital asset incurred during the previous year
relevant to the assessment year 2009-10 of Rs. 19,21,095/- against gains
                                       2       ITA 307/M/14




arising from transfer of long-term capital asset earned during the previous
year relevant to the assessment year 2010-11 of Rs. 39,89,235/-.3.    The Brief facts of the case are that the assessee company is a member
of the Bombay Stock Exchange and engaged in the business of share broking,
trading and dealing in shares and securities.4.During the course of assessment proceedings u/s 143(3) read withSection
143(2)of the Income Tax Act,1961(hereinafter called "the Act") , it was seen
by the learned assessing officer( Hereinafter called "the AO")               that the
assessee company has claimed set off of brought forward loss arisen from
transfer of short-term capital asset Rs. 19,21,095/- during the previous year
relevant to the assessment year 2009-10 against the gains arising from
transfer of long-term capital asset of Rs. 39,89,236/- earned by the assessee
company during the previous year relevant to the assessment year 2010-11
which, in the opinion of A.O. is not allowable due to difference in the tax rate.
The assessee company submitted that the said set off of loss be allowedu/s
74(1)of the Act which reads as under:-Losses under the head "Capital gains" ,Section 74(1)(a)"74(1) where in respect of any assessment year, the net result of the
            computation under the head "capital gains" is a loss to the assessee,
            the whole loss shall subject to the other provisions of this chapter, be
            carried forward to the following assessment year, and -(a)     insofar as such loss relates to a short term capital asset, it shall
            be set off against income, if any, under the head "capital gains"assessable for that assessment year in respect of any other capital
            asset."3      ITA 307/M/14




While the A.O. disallowed the loss in view ofsection 70(3)of the Act which
reads as under:-"Set off of loss from one source against income from another
              source under the same head of income.701. Save as otherwise provided in this Act, where the net result for any
              assessment year in respect of any source falling under any head of
              income, other than "Capital gains", is a loss, the assessee shall be
              entitled to have the amount of such loss set off against his income from
              any other source under the same head."(2) Where the result of the computation made for any assessment
              year undersection 48to in respect of any short-term capital
              asset is a loss, the assessee shall be entitled to have the amount
              of such loss set off against the income, if any, as arrived at under
              a similar computation made for the assessment year in respect of
              any other capital asset.(3) where the result of the computation made for any assessment year
              undersection 48to55in respect of any capital asset (other than a
              short term capital asset) is a loss, the assessee shall be entitled to have
              the amount of such loss set off against the income, if any, as arrived at
              under a similar computation made for the assessment year in respect of
              any other capital asset not being a short term capital asset."In the opinion of A.O., loss arising from transfer of short-term capital assets
(on which STT is paid) is assessed at 15% tax rate while the gain arising from
transfer of long-term capital assets (on which STT is not paid) is assessed at
20% tax rate and hence the AO held that it cannot be set off in view ofsection
70(3)of the Act vide assessment orders dated 23-02-2013 passedu/s 143(3)of the Act.5.Aggrieved by the assessment orders dated 23-02-2013 passedu/s 143(3)of
the Act, the assessee company carried the matter before the CIT(A) and made
submissions that thesection 70(3)of the Act is not applicable to this issue
and the A.O. has erred in invoking the provisions ofsection 70(3)of the Act.4      ITA 307/M/14




The   assessee company , inter-alia submitted      before the CIT(A) that the
assessee company has rightly claimed set off of brought forward loss arisen
from transfer of short-term capital asset during the previous year relevant to
the assessment year 2009-10 against the gains arisen from transfer of long-
term capital assets     earned during the previous year relevant to the
assessment year 2010-11in view ofSection 74(1)(a)of the Act and the AO has
wrongly invoked provisions ofSection 70(3)of the Act whereas set off of the
said loss is governed bySection 74(1)(a)of the Act . The assessee company ,
inter-alia , submitted as under:"Section 74was amended by theFinance Act, 2002made
            effective from 1-4-2003 and accordingly, it is being made
            applicable from A.Y. 2003-04 onwards. Memorandum explaining
            relevant Clause no. 28 of the Finance Bill of 2002 in respect of
            Amendment proposed and carried out in Sec: 74 is enclosed
            herewith. The object of the said amendment was to rectify the
            anomaly by amending the said Section to provide that "where in
            respect of any A. Y., the net result of computation under the head
            'capital gain' is a loss to the assessee, in so far as such loss
            relates. to a short term assets, it shall be carried forward and set
            off against the income, if any under the head 'capital gain'
            assessable for the following A. Y. in respect of any other capital
            assets and in so far as such loss relates to a Long term capital
            assets, it shall be carried forward and set off against the income,
            if any, under the head 'capital gains' assessable for the following
            A.Y. in respect of any other capital assets not being a short term
            capital assets." The above amendment have made the situation
            abundantly clear that b/f STCL available for set off against LTCG
            earned in the subsequent A.Y. made effective from 1.4.2003 end
            accordingly, it is being made applicable from A. Y. 2003-04
            onwards. Memorandum explaining relevant clause no. 28 of the
            Finance Bill of 2002 in respect of Amendment proposed and
            carried out inSec. 74is enclosed herewith."The assessee company also submitted thatSection 70of the Act is not
applicable because it deals with intra-head set off of capital losses incurred
during the same year against gains of the same year and does not deal with
the set off of brought forward capital losses.       The CIT(A) rejected the
                                     5     ITA 307/M/14




contentions of the assessee company and held that loss arising from the
transfer of short-term capital asset (on which STT is paid) of Rs. 19,21,095/-
and gains arising from transfer of long-term capital assets (on which STT is
not paid) of Rs. 26,46,573/- are different heads and do not come under
similar computation as gain arising from transfer of short-term capital asset
in the present case is assessed @ 15% tax rate and gain arising from transfer
of long-term capital asset is assessed at 20% tax rate and hence appeal of the
assessee company was rejected and the assessment order of the A.O. was
upheld whereby the CIT(A) held that brought forward loss incurred on
transfer of short-term capital asset(on which STT was paid ) of Rs.
19,21,095/- is not allowed to be set off against gain arising from sale of long-
term capital asset (on which STT was not paid) . Thus, the CIT(A) dismissed
the appeal of the assessee company vide orders dated 22.10.20136.Aggrieved by the order dated 22.10.2013 of the CIT(A), the assessee
company is in further appeal before the Tribunal.7.    The ld. Counsel for the assessee company reiterated the submission as
has been made before the lower authorities and submitted thatSection
74(1)(a)of the Act is applicable andsection 70of the Act is not applicable to
the issue in appeal as it deals with intra-head adjustment of losses incurred
during the year whilesection 74(1)(a)deals with set off of brought forward
loss incurred on transfer of short-term capital asset against the capital gain's
earned during the year. The Ld. Counsel of the assessee company relied upon
the decision of the Tribunal in the case of Capital International Emerging
Market Fund v. DDIT(IT) (2013) 145 ITD 491(Mum. Trib.) to contend that
merely because two set of transaction are liable for different rate of tax, it
does not mean that these transaction does not arise from similar computation
as contended by the authorities below. The Ld. Counsel also drew our
attention to circular no 8 of 2002, dated 27-08-2002 issued by CBDT which
                                        6      ITA 307/M/14




is explanatory notes on provisions relating to direct taxes to contend that the
amendment were made byFinance Act, 2002to rectify the anomaly and now
loss arising from transfer of short-term capital asset can be set off against
any capital gains while loss arising from transfer of long-term capital asset
can be set off only against long-term capital gains.8.      The ld. D.R., on the other hand, relied on the orders of authorities
below and submitted that capital losses can be set off against the income if
any arrived at under the 'similar computation' made for the assessment year
in respect of any other capital asset. He submitted thatsection 70(3)of the
Act is applicable andSection 74of the Act is not applicable in the instant
case.6.      We have considered the rival contentions and perused the material on
record. Before we proceed, it is important to reproduce the relevant section:-"Losses under the head 'Capital gains"Section 74(1)(a)"74(1) where in respect of any assessment year, the net result of the
             computation under the head "capital gains" is a loss to the assessee,
             the whole loss shall subject to the other provisions of this chapter, be
             carried forward to the following assessment year, and -(a)    insofar as such loss relates to a short term capital asset, it shall
             be set off against income, if any, under the head "Capital gains"assessable for that assessment year in respect of any other capital
             assets."While the A.O. disallowed the loss by referring tosection 70(3)of the Act
which reads as under:-" Set off of loss from one source against income from another
             source under the same head of income7      ITA 307/M/14Section 70(3)70(3)where the result of the computation made for any assessment
             year undersection 48to55in respect of any capital asset (other than
             a short term capital asset) is a loss, the assessee shall be entitled to
             have the amount of such loss set off against the income, if any, as
             arrived at under a similar computation made for the assessment year in
             respect of any other capital asset not being a short term capital asset."It could be seen thatsection 70of the Act deals with the set off losses from
one source against the income from another source under the same head of
income and deals with intra-head adjustment of losses during the same
assessment year under the same head of income. Whilesection 74of the Act
deals with the losses under the head 'Capital gains' and deals with the carry
forward of capital losses and set off against the income of the subsequent
financial year andsection 74(1)(a)of the Act clearly stipulates that loss
arising from transfer of short-term capital asset which are brought forward
from earlier years can be set off against the capital gain assessable for the
assessment year in respect of any other capital asset which could be either
long-term capital gain and short-term capital gain. The amendment made byFinance Act, 2002has rectified the anomaly as existed which was explained
by circular no 8 of 2002, dated 27-08-2002 issued by CBDT which is
explanatory notes on provisions relating to direct taxes referring to the
amendment made byFinance Act, 2002to rectify the anomaly as under:" 40. Modifications of provisions relating to set off of long term capital
      loss
      40.1 The existing provision contained insection 70of the Income-tax Act
      provides that where the net result for any assessment year in respect of
      any source falling under any head of income is a loss, the assessee shall
      be entitled to have the amount of such loss set off against his income
      from any other source under the same head. Further, section 74 of the8      ITA 307/M/14Income-tax Actprovides that a loss under the head "Capital gains" can
      be carried forward and set off against capital gain in the following eight
      assessment years.40.2 Since long-term capital gains are subject to lower incidence of tax,
      theFinance Act, 2002has rectified the anomaly by amending the said
      sections to provide that while losses from transfer of short-term capital
      assets can be set off against any capital gains, whether short-term or
      long-term , losses arising from transfer of long-term capital assets, will be
      allowed to be set off only against long-term capital gains. It is further
      provided that a long term capital loss shall be carried forward separately
      for eight years to be set off only against long-term capital gains.
      However, a short-term capital loss , may be carried forward and set off
      against any income under the head "Capital gains".Thus, as could be seen above from the explanatory notes toFinance Act,
2002, the loss arising from transfer of short-term capital asset can be set off
against any capital gains, whether       short-term capital gains or long-term
capital gains . It further stipulated that the anomaly existing due to long-term
capital gains being subject to lower rate of tax, are hence-forth allowed to be
set off only against long-term capital gains. Hence, the contentions of
Revenue in this respect as advanced in this appeal cannot be accepted.Similarly , the contention of the revenue that short-term capital loss can not
be set off against long-term capital gains due to difference in tax rate can also
not be accepted because of the provisions of Section 74(1)(a) of the Act which
clearly stipulates that carried forward losses arising from transfer of short-
term capital asset can be set off against income from capital gains assessable
for the assessment year in respect of any other capital asset and the decision
of the Tribunal in the case of Capital International Emerging Markets Fund v.9     ITA 307/M/14




DDIT (2013) 145 ITD 491(Mum.-Trib.) supports the contention of the assessee
company , whereby the Tribunal held as under:"3.2. We have heard the rival submissions and perused the material. We
     find that identical issue was decided in the favour of the assessee by the
     Tribunal in the case of DWS India Equity Fund (supra) in following
     manner :"5. We have perused the records and considered the rival
           contentions carefully. The dispute is regarding set off of short term
           capital loss arising from STT paid share transactions against short
           term capital gain arising from non STT transactions. The assessee
           had earned short term capital gain of Rs.40,25,93,717/- from non
           STT transactions and it had incurred short term capital loss of
           Rs.1,26,45,10,006/- from STT paid transactions. The issue is
           whether short term capital loss can be set off against short term
           capital gain mentioned above. Under the provisions ofsection
           70(2), short term capital loss arising from any asset can be set off
           against Short term capital gain arising from any other asset under
           a similar computation made. The AO held that since gain was from
           shares on which no STT was paid and loss from STT paid
           transactions, these fell in different categories and could not be set
           off against each other. We find that this aspect has already been
           examined by the Mumbai bench of the Tribunal in the case of First
           State Investments (Hong Kong) Ltd. v. ADIT(supra), in which it has
           been held that the phrase "under similar computation made" refers
           to computation of income, the provisions for which are contained
           undersections 45to55Aof the Act. The Tribunal also held that the
           matter of computation of income was a subject which came anterior
           to the application of rate of tax which are contained insection 11010     ITA 307/M/14




            to 115BBC. Therefore, merely because the two set of transactions
            are liable for different rate of tax, it cannot be said that income
            from these transactions does not arise from similar computation
            made as computation in both the cases has to be made in similar
            manner under the same provisions. The Tribunal therefore, held
            that short term capital loss arising from STT paid transactions can
            be set off against short term capital gain arising from non SIT
            transactions. The case of the assessee is identical. Therefore,
            respectfully following the decision of the Tribunal, we see no
            infirmity in the order of CIT(A) and the same is, therefore, upheld.6. In the result, appeal of the revenue is dismissed."Respectfully, following the above mentioned order of the Tribunal, we
      decide ground no. 7 in favour of the assessee."Thus in view of our above discussions and reasoning, we hold that assessee
company has rightly claimed the set off of brought forward loss arisen from
the transfer of short-term capital asset of Rs.19,21,095/- incurred during the
assessment year 2009-10 to be set off against the gains arising from transfer
of long-term capital asset earned    during the previous year relevant to the
assessment year 2010-11 which has been wrongly denied by the A.O. and
confirmed/sustained by the CIT(A).        Hence, we set aside the orders of
authorities below and direct for allowing the set off of brought forward loss
arising from transfer of short-term capital asset of Rs.19,21,095/- incurred
during the assessment year 2009-10 against the gains arising from transfer of
long-term capital assets    earned during the previous year relevant to the
assessment year 2010-11.7.    In the result, the appeal filed by the assessee company is allowed
                                                          11       ITA 307/M/14




               Order pronounced in the open court on 16th December, 2015.
               आदे श क  घोषणा खुले #यायालय म% &दनांकः 16-12-2015 को क  गई ।Sd/-                                                               sd/-

            (AMIT SHUKLA)                                                     (RAMIT KOCHAR)
         JUDICIAL MEMBER                                                 ACCOUNTANT MEMBER
       मुंबई Mumbai;         &दनांक Dated 16-12-2015
                                                          [
        व.9न.स./ R.K., Ex. Sr. PSआदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :1.   अपीलाथ  / The Appellant2.     यथ  / The Respondent.3.   आयकर आय:ु त(अपील) / The CIT(A)- concerned, Mumbai4.   आयकर आयु:त / CIT- Concerned, Mumbai5.   =वभागीय  9त9न?ध, आयकर अपील य अ?धकरण, मुंबई / DR, ITAT, Mumbai H Bench6.   गाडC फाईल / Guard file.आदे शानुसार/ BY ORDER,

               स या=पत  9त //True Copy//
                                                                             उप/सहायक पंजीकार (Dy./Asstt.   Registrar)
                                                                             आयकर अपील
य अ धकरण, मुंबई / ITAT, Mumbai