Mrs. Neelu Analjit Singh Vs Addl. CIT (ITAT Delhi)
The issue under consideration is Unlisted shares sold after holding for 23 months considered as Long Term Capital Gains or Short Term Capital Gains?
In the present case, assessee purchased unlisted company’s shares in financial year 2012-13 and sold in the assessment year 2014-15, she computed the indexed cost of acquisition of those shares. AO reached at the conclusion that assessee had shown above shares as ‘long-term capital asset’ whereas they were held for less than 36 months and therefore they are ‘short-term capital assets’. Therefore, according to the provisions of section 2(42A) AO held that sale of shares of an unlisted company, if held for less than 36 months, the asset is not a ‘long-term capital asset’ but a ‘short-term capital asset’.
ITAT states that the CBDT circular clearly clinches the issue and clarifies that, firstly, the benefit of shorter period of holding of 12 months to qualify as long term capital asset to unlisted shares has been removed prospectively from A.Y. 2015-16 and not for the earlier years; and secondly, the benefit of short period for holding of unlisted shares would be available only when such shares are transferred during the period beginning on 01.04.2014 and ending on 10.07.2014. Post 11.07.2014 the benefits of shorter period of unlisted shares could not be applicable. In the present case, the shares have been transferred prior to 31.03.2014, therefore, the newly amended Act would not be applicable at all and the assessee will get the benefit of shorter period, i.e., period of less than 36 months as given in section 2(42A) read with proviso thereto as per the relevant provision existed for the A.Y. 2014-15. Thus, ITAT hold that the AO as well as Ld.CIT (A) are not justified in law in re-characterizing/re-classifying the ‘long term capital gain’ to ‘short term capital gain’ shown by the asessee. Accordingly, the gain on transfer of SBPL’s share would be taxable as ‘long term capital gains’ and not short term capital gains and resultantly, the appeal filed by assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
1. This is an appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-23, New Delhi [ The ld CIT A] dated 16.03.20 18 for the Assessment Year 20 14-15.
2. The assessee has raised the following grounds of appeal:-
“1. That the order of the Ld. CIT (A) is grossly bad in law and deserves to be set aside, to the extent prejudicial to the interest of the Appellant.
2. That the order of the Ld. CIT(A) is also bad in law since he failed to follow the norms of judicial propriety/discipline by not following the order of the Appellate Tribunal in the Appellant‟s husband‟s (Mr. Analjit Singh in ITA No. 4737/Del./2017 dated 1.12.2017) case, in respect of the same transaction.
3. That the CIT(A) also erred in resorting to cherry picking of the conclusions of the ITAT, which is not permissible and reflects a predetermined mind towards the conclusions drawn in the said order.
Long term Vs. Short term capital gains
4. That the CIT(A) grossly erred in not following the decision of the Appellate Tribunal in the Appellant‟s husband‟s case where the Tribunal had returned a finding of the said gains to be treated as long term capital gains, the transaction being the same.
5. That the CIT(A) erred on facts and in law in treating the gains arising from sale of unlisted shares of M/s. Scorpio Beverages Pvt. Ltd. as „short term capital gain‟, instead of long term capital gain returned by the Appellant.
6. That the CIT(A) erred in law in observing that for unlisted shares to qualify as a „long term capital asset‟, the period of holding was 36 months and not 12 months as per the first proviso to section 2(42A) of the Income Tax Act, 1961 (Act) (as applicable during the year under consideration), read with section 2(29A) of the Act.
7. That the CIT(A) grossly erred in law in holding that the shorter period of 12 months to qualify as „long term capital asset‟was only applicable to unlisted shares sold during the period 01.04.2014 to 10.07.2014, in terms of second proviso to Section 2(42A), which was inserted by the Finance (No.2) Act, 2014 with effect from 01.04.2015.
8. That the CIT(A) grossly erred in law and on facts in treating the gains as Short Term Capital Gains on the premise that these shares were a part of design to hold interest in Hutchison/Vodafone group and transferring them at their will and hence, they should not get the benefit of Long Term Capital gains (LTCG) before 36 months.
On share valuation
9. That the CIT(A) erred on facts and in law in re-computing the amount of capital gain arising from sale of shares of M/s Scorpio Beverages Pvt. („SBPL‟) by substituting actual sales consideration of INR 243,39,62,000 with an alleged/notional fair market value of shares by adopting the price per share at INR 131.86 as determined by the Tribunal in the Appellants husband‟s case.
10. That, without prejudice to the grounds on merits, the CIT(A) erred in law in rejecting the application under Rule 46A of the Income Tax Rules, 1962 („the Rules‟) for additional evidence while holding that there was no sufficient cause which prevented the Appellant from production of the said documents before the AO.
11. That the CIT(A) erred in confirming the action of the AO in substituting the actual sale price with a notional/alleged consideration based on a „fair market value‟ of such shares while following the ITAT order in the Appellant‟s husbands case.
12. That the CIT(A) grossly erred in law in not appreciating that the provisions of section 45 (in part .E of Chapter IV of the Act – taxation of capital gains) is the charging section and for the period under consideration the said provisions did not provide any mandate to the AO to replace/substitute the actual sale consideration with any alleged fair market value.
13. That the CIT(A) grossly erred in law in not appreciating that the provisions of subsection (1A) to (4) of section 45 itself provide for situations where the AO is permitted to adopt the fair market value for computation of capital gains under the said provisions and there being no statutory mandate the AO was precluded from substituting the actual sale consideration with any notional consideration.
14. That the CIT(A) failed to appreciate that the only provision which empowered the AO to adopt a fair market value was contained in section 52 of the Act which had since been repealed in 1988.
15. That the CIT(A) grossly erred in law in failing to appreciate that the term “accruing” as contained in section 48 of the Act, which is a computational provision, could not be relied upon to impose a tax liability when the charging section itself, being section 45 of the Act, did not impose such charge of tax.
16. That the CIT(A) also failed miserably to appreciate the legal position that the term “received or accruing” in section 48 of the Act was only to cover situations where only part of the sale consideration is received in the assessment year and had to be read in conjunction with the mandate of section 45 which provides that the “income shall be deemed to be the income of the previous year in which the transfer took place”.
17. That the CIT(A) also erred in not following the jurisdictional High Court judgments, violating the principal of judicial discipline, where the High Court has categorically held that the AO has no power to substitute the actual sale consideration with any notional consideration, there being no express mandate in the statute for the relevant period.
18. That the CIT(A) grossly erred in law following the valuation determined by the ITAT in the Appellant‟s husband‟s case, which was flawed since the ITAT had relied upon the provisions of Rule 11 UA of the Income Tax Rules, 1962, which rule is applicable only to section 56 of the Act and section 56 is not applicable to items covered in part A to .E in chapter 4 of the Act and as such excludes income in the nature of „capital gains‟covered in part .E of Chapter 4.
19. That, without prejudice, the CIT(A) also failed to appreciate/failed to consider that the alleged “fair market value” determined by the Tribunal on the basis of computation provided by the Revenue in the Appellant‟s husband‟s case was incorrect as the said computation did not capture correctly the assets and liabilities from the balance sheets of various intermediary Companies as required by Rule 11 UA of the
20. That, without prejudice, the CIT(A) also failed to appreciate/failed to consider that the alleged “fair market value” determined by the Tribunal on the basis of computation provided by the revenue in the Appellant‟s husband‟s case was flawed as the said computation did not conform to the provisions of Rule 11 UA of the Rules.
Capitalisation of interest costs
21. That the CIT(A) erred on facts and in law in not allowing the capitalisation of interest cost of INR 10,09,02,358/-, as part of the cost of acquisition/actual cost while calculating capital gains on sale of shares of SBPL.
22. That the CIT(A) erred on facts and in law in observing that there was no direct nexus between the interest bearing borrowed funds and investment in shares of SBPL.
Disallowance of brought forward long term capital loss
23. That the CIT(A) grossly erred in confirming the disallowance of INR 24,98,22,064 crores being a long term capital loss arising out of a mistake by the accountant when such actual loss was to be restricted to INR 2,49,82,206 brought forward from AY 201 1-12.
24. That CIT (A) grossly erred on facts and in law that the accountant while computing the capital gain/loss from the sale of shares of Mohair Investments and Boom Investments had on account of an inadvertent/clerical error added an extra „O‟ in both the purchase and sale considerations and which had the effect of enhancing the capital loss which was unintentional and immediately upon realising the error the Appellant brought it to the attention of the AO.
25. That the CIT(A) erred in concluding that the loss pertained to AY 2010- 11 and the AO could not have allowed such loss since that year was not before him.
26. That the order of the CIT(A) is also silent about the claim of brought forward long term capital loss of Rs. 1,53,36,932/- for AY 2011-12.
Business income
27. Without prejudice, the CIT(A) erred in dismissing the ground of the Appellant agitating the treatment of exempt income earned by the Appellant as partnership profits as “income from business or profession”.
Allowance of capital loss
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