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Dy. Commissioner of Income Tax (TDS) Circle8(2), Aayakar Bhavan 101, M.K. Road, Mumbai 400 020 Vs. M/s. Malhar Traders Pvt. Ltd.B7, 4rd Floor, New Paradise Society Behind Shoppers Stop Mumbai 400 058
October, 29th 2014
                    , 
                          `
                            '  

                 IN THE INCOME TAX APPELLATE TRIBUNAL
                              "G"BENCH, MUMBAI

    . .   ,   ,    , 
                        

         BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND
                   SHRI AMIT SHUKLA, JUDICIAL MEMBER

                         . / ITA no. 707/Mum./2011
                     (   / Assessment Year : 2007­08)

Dy. Commissioner of Income Tax (TDS)
                                                                    .................   /
Circle­8(2), Aayakar Bhavan
101, M.K. Road, Mumbai 400 020                                                     Appellant

                                        v/s
                                        

M/s. Malhar Traders Pvt. Ltd.
B­7, 4rd Floor, New Paradise Society
                                                                    ...................   /
                                                                                          
Behind Shoppers Stop
S.V. Road, Andheri (W)                                                         Respondent
Mumbai 400 058
    .
      / Permanent Account Number ­AAACL2683D


                    / Assessee by :                 Smt. Rachana Kanoi
                  
                   / Revenue by                :               souza
                                                    Shri R.N. D'


    /                                                    
                                                          /
Date of Hearing ­13.10.2014                           Date of Order ­21.10.2014


                                  / ORDER
                                 


   , 
        /
        
PER AMIT SHUKLA, J.M.


      The   present    appeal    has    been       preferred   by      the        Revenue,

challenging the impugned        order dated 29th October 2010, passed by

the learned Commissioner (Appeals)­XVII, Mumbai, for the quantum of
                                                    M/s. Malhar Traders Pvt. Ltd.

                                                                               2
assessment passed under section 143(3), for the assessment year

2007­08, vide which, following grounds have been raised:­


     1. On the facts and in the circumstances of the case and in
     law, the ld CIT (A) erred in directing to exclude short term
     capital gains for the purpose of calculating "average rage of
     tax" for determining rebate u/s. 88E of the I.T.Act, without
     appreciating the fact that such method of computation is
     contrary to legislative intent as in such a situation, the tax
     rate would always be the rate applicable to the business
     profit only. i.e. maximum marginal rate of taxation" not
     appreciating the fact that for the purpose of Clause(iii) of
     Explanation 1 to Section 115JB, eligibility for deduction is to
     be considered on year to year basis"

     2. On the facts and in the circumstances of the case and in
     law, the CIT(A) erred in not appreciating that the A.O. had
     rightly computed the rebate u/s. 88E at Rs.1,42,462/-
     instead of Rs.8,42,413/- as claimed into return of income."


2.   In the assessment order under section 143(3) dated 18th
December 2009, the rebate under section 88E has been worked out as
under:­




          Income from business          75,06,488
          STCG                          32,99,567
          Total Income                                 1,08,06,015
          Tax on total income
          On STCG                        3,29,957
          On Income from other than                     25,81,891
                                        22,51,934
          STCG
          Average rate of tax                            23.89%
          (25,81,891*100/1,08,06,020)

          Tax Rebate u/s 88E             8,42,413
          STT paid
          Income from securities         1,42,462
          transactions subject to STT
          (5,96,325,@ 23.89%

          Lower of Two                                   1,42,462
                                                         M/s. Malhar Traders Pvt. Ltd.

                                                                                    3
3.   Before the learned Commissioner (Appeals), the assessee had

contended that the short term capital gain should be excluded for the

purpose    of   calculation    of   average    rate   of    tax.    The     learned

                                            s contention and
Commissioner (Appeals) accepted the assessee'

directed the Assessing Officer to exclude the short term capital gain

from the computation of average rate of tax. Accordingly, the rebate

under section 88E has been revised as under:­(In Rs.)


          Gross Total Income              1,05,06,771
          Less: STCG                      32,99,567
          Income Other than STCG
          Tax on income from other                           72,07,204
          than STCG
          Average Rate of Tax                                24,25,944
          (2425944*100/7207204
          Tax Rebate u/s 88E                                  33.65%
          STT paid                            8,42,413
          Income from securities              2,00,663
          transactions subject to STT
          (596325/­@ 33.65%)
          Lower of Two                                       2,00,663



4.   The learned Departmental Representative submitted that, if short

term capital gain is to be excluded for the purpose of average rate of

tax, then the tax rate would always be the rate applicable to the

business profit only, i.e., maximum marginal rate of taxation. He thus
                                                   M/s. Malhar Traders Pvt. Ltd.

                                                                              4
submitted that the short term capital gain cannot be excluded for the

purpose of calculation of average rate of tax as given in section 88E.


5.     Before us, the learned counsel submitted that the security

transaction tax is a method of tax collection at the point of transaction.

The purpose of providing rebate under section 88E is to give credit of

such taxes which has already been paid on the income declared under

the head business income. Hence, if the company is liable to pay higher

taxes at maximum marginal rate on such income, then it should be

entitled for credit of taxes paid at the maximum marginal rate only.

Thus, the learned Commissioner (Appeals) has rightly directed the

Assessing Officer to exclude the short term capital gain for the purpose

of calculating average tax rate for determining the rebate under section

88E.


6.     We have heard the rival contentions and perused the material

available on record. Section 88E provides rebate in respect of security

transaction tax paid, which envisages that where the total income of

the assessee in a previous year includes any income chargeable under

the head profit and gains of business or profession arising from taxable

security transactions, he shall be entitled to deduction from the amount

of income tax on such income arising from such transactions which is

computed in the manner provided in sub­section (2). Sub Sections (1)

and (2) reads as under:-
                                                   M/s. Malhar Traders Pvt. Ltd.

                                                                              5

     "88E. Rebate in respect of securities transaction tax.--(1)
     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 securities
     transaction tax paid by him in respect of the taxable
     securities transactions entered into in the course of his
     business during that previous year :

     Provided that no deduction under this sub-section shall be
     allowed unless the assessee furnishes along with the return
     of income, evidence of payment of securities transaction tax
     in the prescribed form :

     Provided further that the amount of deduction under this
     sub-section shall not exceed the amount of income-tax on
     such income computed in the manner provided in sub-
     section (2).

     (2) For the purposes of sub-section (1), the amount of
     income-tax on the income arising from the taxable
     securities transactions, referred to in that sub-section, shall
     be equal to the amount calculated by applying the average
     rate of income-tax on such income.

     (3) No deduction under this section shall be allowed in, or
     after, the assessment year beginning on the first day of
     April, 2009. "


7.   Sub­section (1) clearly provides that the deduction of security

transaction paid would be entitled, if the total income of the assessee

                                          profits and gains of
includes income chargeable under the head "

                      . The second proviso provides that the amount
business or profession"

of deduction shall not exceed the amount of income tax on such

income. Sub­section (2) provides that the amount of income tax on the
                                                M/s. Malhar Traders Pvt. Ltd.




                                                                           6
income arising from taxable security transaction shall be equal to the

amount of calculation by applying the average rate of income tax on

such income. Thus, the average rate of income tax is to be applied on

the income which is computed under the head profits and gains of

business or profession. Such income has to be referred only in the

context of meaning given in sub­section (1). If the business income of

the assessee company is taxed at maximum marginal rate, then rebate

is to be allowed for the security transaction tax paid on such income

only under section 88E. The short term capital gain is taxed at lower

rate under section 111A, but at the same time, no security transaction

tax credit is allowed against the same. The tax rate of business income

is governed by altogether different provisions of the Act which could

                                                     amount
not be imported or read into section 88E. The phrase "

calculated by applying the average rate of income tax"as used in sub­

section (2) has to be reckoned as average rate of income tax on

business income only. Thus, we do not find any merit in the ground

raised by the Department as the directions given by the learned

Commissioner (Appeals) is in accordance with the provisions of the law.

Thus, the grounds raised by the Revenue are dismissed.




8.        
            
                

8.                         s appeal is dismissed.
     In the result, Revenue'
                                                  M/s. Malhar Traders Pvt. Ltd.

                                                                             7
       
            
                                                    
                                             st
      Order pronounced in the open Court on 21 October, 2014.



        Sd/- Sd/-                                        Sd/-     Sd/-
      . 
        .                                                   
                                                           
     B.R. BASKARAN                                     AMIT SHUKLA
  ACCOUNTANT MEMBER                                  JUDICIAL MEMBER


 MUMBAI,          DATED: 21.10.2014.
                 


             / Copy of the order forwarded to:
            

(1)      / The Assessee;
(2)     / The Revenue;
      
(3)    ( ) / The CIT(A);
         
(4)     / The CIT, Mumbai City concerned;
       
(5)        , 
                   ,   / The DR, ITAT, Mumbai;
(6)     / Guard file.
       
                                         
                                         / True Copy
                                           / By Order

  . 
      / Pradeep J. Chowdhury
     / Sr. Private Secretary
    

                               / 
                                     / (Dy./Asstt. Registrar)
                                     
                                   ,  / ITAT, Mumbai

 
 
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