The order of the Bench was delivered by
R. C. Sharma (Accountant Member)- This is an appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals), Mumbai, for the assessment year 2008-09, in the matter of order passed under section 143(3) of the Income-tax Act, 1961.
2. In ground No. 1, the assessee is aggrieved for the disallowance under section 14A made in respect of expenditure incurred for earning exempt income amounting to Rs. 28,97,483.
3. From the record, we found that the Assessing Officer has correctly computed the disallowance as per rule 8D, in so far as the relevant assessment year under consideration is the assessment year 2008-09. Accordingly, we direct the Assessing Officer to reduce the disallowance by the amount of Rs. 14,03,562 being disallowance of expenses already offered by the assessee in the return of income. We direct accordingly.
4. Ground No. 2 of the appeal is regarding reducing rebate under section88E to Rs. 1,15,39,743 from Rs. 1,95,40,847 was pressed by the learned authorised representative.
5. Rival contentions have been heard and record perused. The facts in brief are that during the year under consideration the assessee has earned Rs. 5,12,87,746 as income from share trading activity. In order to earn this income, the assessee has paid securities transaction tax amounting to Rs. 4,38,91,830. In the computation of income, the assessee has computed the tax liability against such income at Rs. 1,95,40,847 (as per section 88E calculations in the return of income) and the same has been claimed as rebate under section 88E of the Act. In course of assessment the Assessing Officer observed that the average rate of tax in the case of the assessee is 22.5 per cent. (18,85,32,671 x 100/83,84,11,184) while for calculating the rebate the assessee has taken the average rate of tax as 33.3 per cent. The tax on share trading profit at 22.5 per cent. comes to Rs. 1,15,39,743 (5,12,746 x 22.5/100). Hence, the rebate under section 88E was restricted to tax on share trading income at an average rate of tax, i.e., Rs. 1,15,39,743. By the impugned order, the Commissioner of Income-tax (Appeals) confirmed the action of the Assessing Officer, against which the assessee is in further appeal before us.
6. The learned authorised representative relied on the order of the co-ordinate Bench of the Kolkata Tribunal in thecase of Millennium Stock Broking P. Ltd. v. Deputy CIT (ITA No. 670/Kol/2011, order dated September 29, 2015) wherein it was observed as under :
"12.1. A bare perusal makes it clear that the section has the following ingredients (a) the total income of the assessee includes the income chargeable under the head 'Profits and gains of business' ; (b) such income is arising from taxable securities transactions ; (c) deduc tion under the section is allowable from the amount of Income-tax on such income arising from such transaction. Thus, the total income used in this section cannot be given a general meaning and has to be ascribed the meaning as contemplated in the context in which section 88E has been inserted by the Finance Act, 2004, with effect from April 1, 2005. The object of section 88E clearly is to protect the assessee from double taxation. Firstly, by way of payment of securities trans action tax and, secondly, by way of Income-tax on the income earned from the securities transaction tax transaction. The concept of total income as contemplated under section 2 sub-section (45) cannot be imputed here. The opening words of section 2 dealing with the def inition are that unless the context otherwise requires. Therefore, the total income as contemplated under section 88E is not the same as contemplated under section 2(45). It has been considered in entirely different context in section 88E. The term 'total income' as interpreted by various decisions relied upon by the learned counsel cannot be made applicable to the facts of the case which is in the context to section 88E. Therefore, we do not find any reason to interfere with the order of the learned Commissioner of Income-tax (Appeals) in holding that the business loss occurred on arbitrage and job which were securities transaction tax paid transactions could not be adjusted against the non-securities transaction tax transaction belonging to the clients. It had to be deducted from the securities transaction tax paid transactions only on the assessee's own account. There is one more reason. The rebate under section 88E is allowable from the tax paid. However, in the case of arbitrage loss the assessee had admittedly not paid any Income-tax. Therefore, if the assessee's plea is accepted then it would lead to double relief to the assessee firstly, by allowing the set off under section 70 against the securities transaction tax income and then allowing the rebate from Income-tax. This is definitely not the intention of the Legislature."
7. We have considered the rival contentions and found that during the year the assessee-company has paid the securities transaction tax (STT) of Rs. 4,38,91,830 in respect of purchase and sale of securities on recognised stock exchanges (hereinafter referred to as "taxable securities transaction (TST)") in the course of its share trading business. In the computation of taxable income, this sum of Rs. 4,38,91,830 paid as securities transaction tax has been added back while computing income under the head "Profits and gains from business or profession". Thus, the securities transaction tax paid on the taxable securities transactions is not allowable as a deduction from the business income of the assessee-company. The assessee-company has the net taxable income of Rs. 5,74,89,989 (after adding back the securities transaction tax to the profits of Rs. 5,12,87,746 from the taxable securities transaction and reducing the expenses in relation thereto. The same was provided from the taxable securities transaction which is chargeable to tax under the head "Profits and gains of business or profession" at a rate of 33.99 per cent. The Income-tax payable thereon is Rs. 1,95,40,847 (Rs. 5,74,89,989 x 33.99 per cent.). In the computation of income, the assessee has restricted its claim of rebate under section 88E in respect of the securities transaction tax to Rs. 1,95,40,847 as against the actual payment of the securities transaction tax of Rs. 4,38,91,830. However, the Assistant Commissioner of Income-tax has applied the average rate of Income-tax to only direct income from the taxable securities transaction of Rs. 5,12,87,746 instead of the taxable income on the taxable securities transaction under the head "Profits and gains of business or profession" which is Rs. 5,74,89,989. Further, while computing the average rate of tax, the Assistant Commissioner of Income-tax has divided the total income- tax by the gross total income whereas the assessee claims that for the purpose of section 88E, the average rate of tax should be computed by dividing the tax on income under head "Profits and gains of business or profession" by income under the head "Profits and gains of business or profession". We found that applying the same principle, the average rate of Income-tax should be applied to Rs. 5,74,89,989 while computing the maximum ceiling on the amount of rebate under section 88E in respect of the securities transaction tax. It is also a matter of record that a similar claim of the assessee was accepted by the Commissioner of Income-tax (Appeals) in the assessment year 2007-08, against which the Revenue is not in appeal before us.
8. In view of the above, we do not find any merit in the action of the lower authorities for reducing the assessee's claim of deduction under section 88E as done by the Assessing Officer.
9. In the result, the appeal of the assessee is allowed in part.
The order pronounced in the open court on April 27, 2016.