Calcutta High Court
Commissioner Of Income Tax vs Rungamatee Trexim (Pvt) Ltd on 19 December, 2008
Author: Pinaki Chandra Ghose
Bench: Pinaki Chandra Ghose
1
ITA No. 812 of 2008
G.A.No.3795 of 2008
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction(Income Tax)
ORIGINAL SIDE
COMMISSIONER OF INCOME TAX, KOL-II Plaintiff/Petitioner/Applicant
Versus
RUNGAMATEE TREXIM (PVT) LTD Defendant/Respondent
BEFORE:
The Hon'ble JUSTICE PINAKI CHANDRA GHOSE The Hon'ble JUSTICE SANKAR PRASAD MITRA Date : 19th December, 2008.
The Court : After hearing the learned Advocate for the appellant and perusing the application for condonation of delay, we are satisfied with the grounds stated in the petition. Accordingly, the delay is condoned. The application under section 5 of the Limitation Act is allowed and disposed of.
We have perused the order passed by the Commissioner of Income Tax (Appeals) and the order passed by the learned Tribunal. It appears that the question arose in respect of notional interest on loan when the assessee had advance interest-free loan to one Hindustan National Glass & Industries Ltd.. It further appears that the assessee was one of the promoter of the said company. The Commissioner of Income Tax (Appeals) in his order held as follows :
" I have carefully considered the facts of the case and the findings of the Assessing Officer from the audited accounts. I find that as of 31st March, 2005 the assessee's net owned funds was Rs.6.88 crores which were far in excess of the interest free advance given to M/s. Hindustan National Glass & Industries Ltd. a company of which the assessee was a promoter. The assessee did not have any borrowed funds on 31st March, 2005 and as such it was not a case where borrowed funds were diverted for granting interest free loans. The assessee had 2 applied its own funds in granting interest free advance to a body corporate of which the assessee was a promoter. On these facts, I fully agree with the A/R's submissions that the Assessing Officer has brought to tax notional or hypothetical income. The Supreme Court in catena of cases has held that the subject matter of tax is always income which should be real income and not hypothetical income. The Income Tax Act does not permit taxation of hypothetical or opportunity income and what is subject matter of tax is read income, irrespective of the fact whether an entry is made in the books of accounts or not. This is the ratio laid down in the case of Godhra Electricity Co. Ltd. vs. CIT (225 ITR 746). The Income Tax Act does not compel an assessee to earn maximum income but brings to tax only the income which is actually earned by an assessee. It is a settled proposition of law that in what manner the assessee should conduct his business is best left to the discretion of the assessee and the Assessing Officer cannot sit in the arm chair of the businessman to decide, what should have been the income earned. If an assessee does not bargain to earn income then an Assessing Officer cannot compel him to earn such income and cannot resume accrual of income, based entirely on his subjective notions as what constitutes fare return on investment. In business there cannot be certainly about earning of income and therefore business income cannot be assessed entirely on notional basis. In any opinion, none of the provisions of Chapter-IV of the Income Tax Act authorized the Assessing Officer to assess notional of hypothetical income. The addition of the notional interest of Rs.10 Lacs as business income of the assessee is therefore deleted.
In Ground Nos.5 and 6 the assessee has objected to the mode of set off adopted by the Assessing Officer in assessing income from short term capital cases. During the year under consideration the assessee earned short term capital gain of Rs.7,29,584/- in transaction in shares where security transaction tax was not paid and income was subject to tax at normal rate. The assessee also earned short term capital gain of Rs.2,27,564/- in transaction in 3 shares where security transaction tax was paid and income was eligible for concessional rate of tax under section 111A. Rangamatee order pr.6 The assessee also suffered short term capital loss of Rs.7,17,660/- in transactions in shares involving payment of security transaction tax. In the impugned order the A.O. computed the capital gain in the following manner without discussing any reasons for adopting such mode of computation.
Calculation of income/loss from capital gain Short term capital loss with STT (-) 7.17,660/- Short term capital gain with STT 2,27,564/- Net Short Term capital loss with STT (-) 4,90,096/- Short term capital gain without STT 7,29,584/- Net Short term capital gain 2,39,488/- Less Brokerage 5,914/- Taxable short term capital gain of normal 2,33,574/- rate Long term capital gain at 10% rate (as per 1,49,431/- computation)
I have perused the assessment order and have considered submissions of the A/R. In the impugned order the A.O. has not given any reasons for first sitting off short term capital gain with STT against short term capital STT and then allow ofset off of remaining loss of Rs.4,90,096/- against short term capital gain without STT. The mode ofset off adopted by the A.O. shown that be accepted in principle that short term capital loss with STT can be legally set off against short term capital gain without STT. According to the assessee, the chronology for the set off by the A.O. was contrary to chronology adopted by the assessee, only because the assessee's mode resulted in concessional rate of the tax being applied to higher amount of short term capital gain which resulted more tax benefit to an assessee.4
On perusal of the provision of section 70, I find that there is no prohibition nor the Act compels the assessee to first set off short term capital gain with STT against short term capital loss with STT and then allows set off against short term capital gain without STT. In absence of any specific mode of set off provided in the Act and in absence of any prohibition and in absence of any specific chronology for set off prescribed in the Act, the assessee was entitled to exercise his option with regard to the chronology of set off which was most beneficial to the assessee. It is settled proposition of law that when a provision of the Act gives option to the assessee, such option should be exercised which will favour the assessee and not the revenue. The A/R for the assessee was well justified in relying on the decision of the Calcutta High Court and the Circular of the Board dated 7.7.1955 since the principles laid down therein appeared to be fully applicable."
The Commissioner of Income Tax (Appeals) therefore came to the conclusion in favour of the asessee. He further came to the conclusion that the disallowance has been made on presumption.
In these circumstances, the order passed by the Commissioner of Income Tax and subsequent thereto, the Commissioner of Income Tax (Appeals) had already considered the case of the department and upheld the order passed by it. We have carefully considered the said question and in our considered opinion, there is no illegality or irregularity in respect of the order so passed by the learned Tribunal. We, accordingly, find that there is no reason to interfere with the order so passed by the learned Tribunal and further the order so passed by the learned Tribunal does not suffer from any illegality or irregularity and we find that no substantial question of law is involved in this appeal. Hence, we dismiss the appeal.
All parties concerned are to act on a xerox signed copy of the minutes of this order on the usual undertakings.
5
Urgent xerox certified copy of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.
(PINAKI CHANDRA GHOSE, J.) (SANKAR PRASAD MITRA, J.) km