Legatum Ventures Limited Vs ACIT (ITAT Mumbai)
ITAT held that capital gains arising on the sale of unlisted shares by a non-resident has to be computed only by reference to the provisions of Section 112(1)(c)(iii) of the Income Tax Act, 1961 without cognizance to the provisions under Section 48 of the Act.
From the perusal of section 112 of the Act, forming part of Chapter XII – Determination of Tax in Certain Special Cases, we find that though the said section deals with the determination of tax payable by the assessee on the total income which includes any income arising from the transfer of a long term capital asset chargeable under the head “capital gains”.
However, in the case of a non-resident (not being a company) or a foreign company, sub-clause (iii) of clause (c) to sub-section (1) also provides the mode of computation of capital gains. As per section 112(1)(c)(iii) of the Act, in case of a non-resident, capital gains arising from the transfer of a long-term capital asset, being unlisted securities or shares of a company in which public are not substantially interested, shall be computed without giving effect to 1st and 2nd proviso to section 48 of the Act. The aforesaid section further provides a tax rate of 10% on the capital gains so computed. Therefore, we are of the considered opinion that section 112(1)(c)(iii) is a special provision for the computation of capital gains, in case of a non-resident, arising from the transfer of unlisted shares and securities.
While, on the other hand, section 48 of the Act is a general provision, which deals with the mode of computation of capital gains in all the cases of transfer of capital assets. Further, section 112(1)(c)(iii) of the Act does not provide for „re-computation‟ of capital gains for levying tax rate of 10%. Since section 112(1)(c)(iii) is the specific provision, therefore, in case the ingredients of the said section, i.e. (i) in case of non-resident or foreign company; (ii) long-term capital gains arise; (iii) from the transfer of unlisted shares or securities of a company not being a company in which public are substantially interested, are fulfilled, capital gains is required to be computed as per the manner provided under the said section.
It is a well-settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim “Generallia specialibus non derogant”. Further, it is also a well-settled rule of construction that when, in an enactment, two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, the effect should be given to both. Therefore, if the submission of the assessee that in the present case the income chargeable under the head “capital gains” is to be computed only as per section 48 of the Act is accepted, then the same would render the computation mechanism provided in section 112(1)(c)(iii) of the Act completely otiose and redundant.
In view of the above, ITAT find no merits in the assessee’s submission that if the case of the assessee is governed under two provisions of the Act, then it has the right to choose to be taxed under the provision which leaves him with a lesser tax burden. In the present case, the capital gains has to be computed only by reference to provisions of section 112(1)(c)(iii) of the Act. As a result, grounds raised by the assessee are dismissed.
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