Assessee is entitled to claim deduction of the amount equal to the STT

[pawansingla]

2010-TIOL-605-ITAT-BANG

(Also see analysis of the Order )

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'A' BANGALORE

ITA No.592(BNG)/2010
Assessment Year: 2005-06

M/s HORIZON CAPITAL LIMITED
11/10, HAYS ROAD CROSS, RICHMOND TOWN
BANGALORE-25

Vs

INCOME TAX OFFICER
WARD 11(2), BANGALORE

P Madhavi Devi, JM and A Mohan Alankamony, AM

Dated: July 16, 2010

Appellant Rep by: Shri K S Ravishankar, Adv.
Respondent Rep by: Smt Preethi Garg, CIT

Income Tax - Section 115JB – Whether  section 115JB is a self-contained code - Whether assessee is entitled to claim deduction of the amount equal to the STT paid by him in respect of the taxable Securities Transactions entered into in the course of business during the previous year.

The assessee is a company which is engaged in the business of purchase and sale of shares. It filed its return of income for the A.Y 2005-06 declaring taxable income as NIL. The assessee had also made a payment of STT for the A.Y 2005-06. The AO thereafter issued a notice u/s 148 stating that certain income in respect of the A.Y 2005-06 had escaped assessment. The assessee filed its reply stating that the assessee had returned income of Rs.1,04,81,991 and after set off of the carry forward losses from the previous years to the extent of the profit in the year, the taxable profit was NIL and therefore although the credit for the amount paid as STT was available u/s 88E, no rebate has been claimed in view of the total taxable income returned being NIL. The assessee submitted its reply emphasising that the payment of tax of both TDS and STT put together exceeded the tax liability not only u/s 115JB but even the liability under regular tax, even if there were no carried forward loss to be set off. The assessee again received a notice u/s 154 to which assessee has submitted its reply along with the statement of total income and also MAT computation and therefrom the assessee claimed a rebate u/s 88E for the STT paid by it. The AO, however, rejected the claim of the assessee for rebate of STT paid and computed the tax liability against the income computed u/s 115JB CIT(A) and  confirmed the order of the AO.

Appeal was filed before the Tribunal where counsel for the assessee submitted that the term income tax has not been defined under the Act but the term tax has been defined under Clause 43 of Section 2 to mean income tax chargeable under the provisions of the Act and also super tax chargeable under the provisions of this Act and in relation to the A.Y commencing from 1.4.2006 and any subsequent A.Y includes the fringe benefit tax payable u/s 115WA and drew attention to section 87,88E, sub section (5) of section 115JB. According to him, the total income is to be computed under the regular provisions and also under the Companies Act and if the income tax payable is less than 7 ½% of its book profit then the book profit shall be deemed to be the total income of the assessee and the tax payable by it on such total income shall be the income tax @ 7 ½%.. Thus according to him as provided u/s 87, the assessee is entitled to rebate of the STT paid by him u/s 88E and drew attention to the Form 6 i.e. the format of the income tax return provided by the Department of Income Tax wherein the rebate u/s 88E is provided for after computation of the income tax under the regular provisions of the Act and also u/s 115JB. The DR submitted that section 115JB is a self-contained section and as long as it is not provided therein to give rebate to STT paid under the Act, it is not permissible to give such rebate. She submitted that the STT is not the mode of recovery of tax like advance tax or TDS but it is a special type of tax such as fringe benefit tax and therefore the rebate for payment of such tax cannot be given when IT is computed u/s 115JB.

Having heard the parties the Tribunal has held that,

++ the rebate is to be granted from the amount of income tax chargeable on the total income of the assessee. The income tax is computed after arriving at the total income of the assessee and section 87 does not differentiate between the total income computed under the regular provisions of the Act or u/s 115JB. Even though the sub section (1) of section 115JB starts with the non-abstante clause, it is only for the computation of the total income and the sub section (5) of section 115JB provides for a saving clause that the rest of the provisions of the Act relating to deductions, rebate, etc the other provisions of the IT Act shall apply;

++ the provision of sections 87 and 88A to 88E also apply after the total income is computed u/s 115JB and since the assessee's total income includes the income from the taxable Securities Transactions, the assessee is entitled to a deduction of the amount equal to the STT paid by him in respect of the taxable Securities Transactions entered into in the course of business during the previous year.

Assessee's Appeal allowed.

ORDER

Per: P Madhavi Devi:

The assessee filed this appeal for the Assessment Year 2005-06. In this appeal, though the assessee has raised voluminous grounds of appeal, the crux of the issue is non-granting of the rebate under section 88E of the Income Tax Act, 1961 with regard to the Securities Transaction Tax (STT) paid by the assessee from the income tax on the income computed under section 115JB of the Income Tax Act, 1961.

2. The brief facts of the case are that the assessee is a company which is engaged in the business of purchase and sale of shares for more than a decade. It filed its return of income for the Assessment Year 2005-06 on 31.10.2005 declaring taxable income as NIL. The assessee had also made a payment of STT for the Assessment Year 2005-06 of Rs.35,05,443. The Assessing Officer thereafter issued a notice under section 148 Dt.5.2.2008 stating that certain income in respect of the assessment year 2005-06 had escaped assessment. The assessee filed its reply stating that the assessee had returned income of Rs.1,04,81,991 and after set off of the carry forward losses from the previous years to the extent of the profit in the year, the taxable profit was NIL and therefore although the credit for the amount paid as STT was available under section 88E, no rebate has been claimed in view of the total taxable income returned being NIL. The assessee received a notice under section 143(2) Dt.28.4.2008 seeking details, relevant documents and other proofs. The assessee submitted its reply dt.18.6.2008 emphasising that the payment of tax of both TDS and STT put together exceeded the tax liability not only under section 115JB but even the liability under regular tax, even if there were no carried forward loss to be set off.

3. Thereafter, the assessee again received a notice under section 154 Dt.18.6.2009 to which assessee has submitted its reply along with the statement of total income and also MAT computation and therefrom the assessee claimed a rebate under section 88E of the Income Tax Act, 1961 for the STT paid by it. The Assessing Officer, however, rejected the claim of the assessee for rebate of STT paid and computed the tax liability against the income computed under section 115JB of the Income Tax Act, 1961. Aggrieved The assessee appealed before the first appellate authority i.e. CIT(A) who confirmed the order of the Assessing Officer and the assessee is in second appeal before us.

4. The learned counsel for the assessee reiterated the submissions made by the assessee before the authorities below and also took us through the legal provisions relating to the issue. He submitted that the term 'income tax' has not been defined under the Income Tax Act but the term 'tax' has been defined under Clause 43 of Section 2 of the Income Tax Act, 1961 to mean "income tax chargeable under the provisions of the Act and also super tax chargeable under the provisions of this Act and in relation to the assessment year commencing from 1.4.2006 and any subsequent assessment year includes the fringe benefit tax payable under section 115WA of the Income Tax Act, 1961." He also drew our attention to section 87 of the Income Tax Act, 1961 wherein it is provided that in computing the amount of income tax on the total income of an assessee with which he is chargeable for any assessment year, there shall be allowed from the amount of income tax (as computed before allowing the deductions under the Chapter VIII), in accordance with and subject to the provisions of [sections 88, 88A, 88B, 88C, 88D and 88E], the deductions specified in those sections." He also drew our attention to section 88E of the Income Tax Act, 1961 wherein it is provided that " where the total income of an assessee in a previous year includes any income, chargeable under the head "Profits and gains of business or profession", arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of income tax on such income arising from such transactions, computed in the manner provided in sub-section (2), of an amount equal to the STT paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year. He also drew our attention to the sub section (5) of section 115JB of the Income Tax Act, 1961 which provides that "save or otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section. Thus according to him, the total income is to be computed under the regular provisions of the Income Tax Act, 1961 and also under the Companies Act and if the income tax payable is less than 7 ½% of its book profit then the book profit shall be deemed to be the total income of the assessee and the tax payable by it on such total income shall be the income tax @ 7 ½%. He submitted that sub section (5) of section 115JB provides that save or otherwise provided in this section, all other provisions shall apply after computing the income under section 115JB of the Income Tax Act, 1961. Thus according to him as provided under section 87 of the Income Tax Act, 1961, the assessee is entitled to rebate of the STT paid by him under section 88E of the Income Tax Act, 1961. He also drew our attention to the Form 6 i.e. the format of the income tax return provided by the Department of Income Tax wherein the rebate under section 88E is provided for after computation of the income tax under the regular provisions of the Act and also under section 115JB of the Act. Thus according to him, the Assessing Officer and CIT(A) have erred in refusing to give a rebate of the STT paid by the assessee from the computation of income tax under section 115JB of the Act.

5. The learned Departmental Representative, on the other hand, supported the order of the authorities below and submitted that section 115JB is a self-contained section and as long as it is not provided therein to give rebate to STT paid under the Act, it is not permissible to give such rebate. She submitted that the STT is not the mode of recovery of tax like advance tax or TDS but it is a special type of tax such as fringe benefit tax and therefore the rebate for payment of such tax cannot be given when income tax is computed under section 115JB of the Act.

6. Having heard both the parties and having considered the rival contentions, we find that the only dispute is whether the rebate of STT paid by the assessee is allowable from the income tax computed against the total income computed under section 115JB of the Income Tax Act, 1961. The term 'total income' has been defined under the Income Tax Act, 1961 as "the total amount of income referred to in section 5, computed in the manner laid down in this Act." Section 5 of the Income Tax Act, 1961 defines the scope of the total income of a resident or a non-resident person. The total income of the assessee has to be computed under the regular provisions of the Income Tax Act, 1961 and in the case of a company it can be arrived at both under the regular provisions of the Income Tax Act and under the deeming provision under section 115JB of the Act. It has been provided that where the income tax payable by the assessee on the total income computed under regular provisions of the Act is less than 7 ½% of the book profit prepared in accordance with the Companies Act, the higher of the tax i.e. the book profit shall be deemed to be the total income of the assessee and tax payable by the assessee shall be the amount of income tax at the specified rate. When we look at the provisions of section 87 of the Income Tax Act, 1961, we find that the rebate is to be granted from the amount of income tax chargeable on the total income of the assessee. The income tax is computed after arriving at the total income of the assessee and section 87 of the Income Tax Act, 1961 does not differentiate between the total income computed under the regular provisions of the Act or under section 115JB of the Income Tax Act, 1961. Even though the sub section (1) of section 115JB starts with the non-abstante clause, "Not withstanding anything contained in any other provision of this Act", we find that it is only for the computation of the total income and the sub section (5) of section 115JB provides for a saving clause that the rest of the provisions of the income tax Act relating to deductions, rebate, etc the other provisions of the Income Tax Act shall apply. Therefore it is clear that the provision of sections 87 and 88A to 88E also apply after the total income is computed under section 115JB of the Income Tax Act, 1961 and since the assessee's total income includes the income from the taxable Securities Transactions, the assessee is entitled to a deduction of the amount equal to the STT paid by him in respect of the taxable Securities Transactions entered into in the course of business during the previous year. The assessee's appeal is thus allowed and the Assessing Officer is directed to give rebate under section 88E for the STT paid by the assessee.

In the result the assessee's appeal is allowed.

(Pronounced in the open court on 16.7.2010.)