Income From Capital Gains On Certain Assets Which Are Excluded U/S 10(38) Of IT Act Must Be Included While Computing Book Profits: Delhi HC
Pankaj Bajpai
28 Dec 2024 8:00 AM
The Delhi High Court held that proviso to Sec 10(38) cannot be read in reverse to mean that if gains are not included as book profits u/s 115JB, the same are liable to be included as income for purposes of assessment to tax under the normal provisions.Even though, the gains are required to be excluded from income chargeable to tax u/s 10(38), added the Court. As per Section 10(38) of Income...
The Delhi High Court held that proviso to Sec 10(38) cannot be read in reverse to mean that if gains are not included as book profits u/s 115JB, the same are liable to be included as income for purposes of assessment to tax under the normal provisions.
Even though, the gains are required to be excluded from income chargeable to tax u/s 10(38), added the Court.
As per Section 10(38) of Income tax Act, in computing the total income of a previous year of any person, any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity-oriented fund or a unit of a business trust, shall not be included.
The Division Bench of Acting Chief Justice Vibhu Bakhru and Justice Swarana Kanta Sharma observed that the income from capital gains on certain assets, which are excluded from income u/s 10(38), would nonetheless, be included in computing book profits for the purposes of Sec 115JB.
The Bench observed so, while referring to the proviso to Sec 10(38) added by virtue of the Finance Act, 2006.
Facts of the case:
The Appellant/ AO approached the ITAT challenging an order, whereby the CIT(A) had held that the Respondent/ Assessee was entitled to exemption of an amount of Rs.2,47,52,73,951/- u/s 10(38), which was denied by AO during original assessment.
According to appellant, the Long-Term capital gains (LTCG), which assessee claimed as exempted u/s 10(38), were not included in assessee's P&L A/c, and hence, said gains were excluded from calculations of book profits u/s 115JB.
Observations of High Court:
The Bench observed that import of proviso to Sec 10(38) is that notwithstanding that LTCG are excluded from the total income of an assessee u/s 10(38), the same are required to be taken into account in computing book profit and income tax payable u/s 115JB.
By virtue of the Finance Act, 2006, the Explanation to Sec 115JB was amended and expenditure incurred in respect of the income exempt u/s 10 was excluded for purposes of calculation of book profits and MAT u/s 115JB, added the Bench.
Thus, the Bench pointed that the expenditure incurred for earning such income as was exempt from taxation by virtue of Sec 10(38), was required to be accounted for as expenditure for determining the book profits.
Correspondingly, income u/s 10(38) was also included as a part of the book profits but other incomes covered u/s 10 were excluded, added the Bench.
Thus, the High Court dismissed the Revenue's appeal.
Counsel for Appellant/ Revenue: Advocates Shlok Chandra, Naincy Jain, Madhavi Shukla, and Sushant Pandey
Counsel for Respondent/ Assessee: Advocates Rohit Jain, Aniket D. Agarwal and Abhishek Singhvi
Case Title: Principal CIT vs. M/s Hespera Reality Pvt Ltd
Citation: 2024 LiveLaw (Del) 1393
Case Number: ITA 468/2024
Click here to read/ download the Judgment