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Wednesday, June 24

SEBI eases start-up listing norms, makes it easier to access markets

Start-ups have welcomed Sebi's decision to ease rules for listing on domestic exchanges saying it will provide them the much needed access to funds.

Sebi's move is mainly aimed at helping start-ups to raise money locally by tapping the capital market rather than going overseas.

While most of these new age companies are pleased with proposed regulations, some are expecting more relaxations including possible tax incentives for investors.

Under the new norms approved by Sebi's board today, stock exchanges would have a separate institutional trading platform for the purpose of listing start-ups while the minimum amount that needs to put in by an investor should be Rs 10 lakh.

"Sebi's proposed plans to implement e-IPO and start-up specific listings platform is a welcome move that will provide much needed access to funds for start-ups," leading e-retailer Snapdeal's spokesperson said in a statement.

"For us at Snapdeal, we are particularly pleased with this move considering that easing of listings norms will benefit India focused companies like ours in the long run," it added.

Echoing a similar view, Funtuse Founder and Business Development Manager Sidharth Dhingra termed the Sebi decision as a good initiative and a "small step in the right direction".

"But unless tax incentives are provided to investors of startups, most firms will still list outside of India for valuations concerns," he added. CEO Sujayath Ali said it would be good if the minimum investment amount can be reduced to Rs 5 lakh.

"We believe that this would be a great platform for start ups... to raise funds in a regulated yet stimulating environment and more importantly it is a great way for investors to invest in start-ups without substantially large risks,"'s co-founder Vikram Ramchand said.

The new start-up platform would ensure that Indian start-ups prefer to list on Indian exchanges instead of going to foreign boursse, BSE's MD and CEO Ashishkumar Chauhan said.


Tuesday, June 23

Case Law: Long Term Loss on sale of equity shares can be set off against Long Term gain on Sale of Land - ITAT Mum

Raptakos Brett & Co. Ltd. v. DCIT (ITAT Mumbai)

Verdict in Nutshell:
S. 10(38), 70(3): Though the LTCG on sale of equity shares (subject to STT) is exempt from tax u/s 10(38), the long-term capital loss on sale of such shares can be set-off against the taxable LTCG on sale of another asset.

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Issue Involved:The main issue is whether Long term capital loss on sale of equity shares can be set off against Long term capital gain arising on sale of land or not, as the income from Long term capital gain on sale of such shares are exempt u/s. 10(38). The nature of income here in this case is from sale of Long term capital asset, which are equity shares in a company and unit of an equity oriented fund which is chargeable to STT.

Points of Consideration for Judgement:
(i) First of all, Long term capital gain has been defined under section 2(39A), as capital gains arising from transfer of a Long term capital asset. Section 2(14) defines “Capital asset” and various exceptions and exclusions have been provided which are not treated as capital asset. Section 45 is the charging section for any profits or gain arising from a transfer of a capital asset in the previous year i.e. taxability of capital gains. Section 47 enlists various exceptions and transactions which are not treated as transfer for the purpose of capital gain u/s. 45. The mode of computation to arrive at capital gain or loss has been enumerated from sections 48 to 55. Further sub section (3) of section 70 and section 71 provides for set off of loss in respect of capital gain.

(ii) The whole genre of income under the head capital gain on transfer of shares is a source, which is taxable under the Act. If the entire source is exempt or is considered as not to be included while computing the total income then in such a case, the profit or loss resulting from such a source do not enter into the computation at all. However, if a part of the source is exempt by virtue of particular “provision” of the Act for providing benefit to the assessee, then in our considered view it cannot be held that the entire source will not enter into computation of total income. In our view, the concept of income including loss will apply only when the entire source is exempt and not in the cases where only one particular stream of income falling within a source is falling within exempt provisions.

(iii) Section 10(38) provides exemption of income only from transfer of Long term equity shares and equity oriented fund and not only that, there are certain conditions stipulated for exempting such income i.e. payment of security transaction tax and whether the transaction on sale of such equity share or unit is entered into on or after the date on which chapter VII of Finance (No.2) Act 2004 comes into force. If such conditions are not fulfilled then exemption is not given. Thus, the income contemplated in section 10(38) is only a part of the source of capital gain on shares and only a limited portion of source is treated as exempt and not the entire capital gain (on sale of shares). If an equity share is sold within the period of twelve months then it is chargeable to tax and only if it falls within the definition of Long term capital asset and, further fulfils the conditions mentioned in subsection (38) of section 10 then only such portion of income is treated as exempt. There are further instances like debt oriented securities and equity shares where STT is not paid, then gain or profit from such shares are taxable.

(iv) Section 10 provides that certain income are not to be included while computing the total income of the assessee and in such a case the profit or loss resulting from such a source of income do not enter into computation at all. However, a distinction has been drawn where the entire source of income is exempt or only a part of source is exempt. Here it needs to be seen whether section 10(38) is source of income which does not enter into computation at all or is a part of the source, the income in respect of which is excluded in the computation of total income. For instance, if the assessee has income from Short term capital gain on sale of shares; Long term capital gain on debt funds; and Long term capital gain from sale of equity shares, then while computing the taxable income, the whole of income would be computed in the total income and only the portion of Long term capital gain on sale of equity shares would be removed from the taxable income as the same is exempt u/s 10(38). This precise issue had come up for consideration before the Hon’ble Calcutta High Court inRoyal Calcutta Turf Club v. CIT (1983) 144 ITR 709 (Cal).

(v) Though in CIT vs. Hariprasad & Company Pvt. Ltd. (1975) 99 ITR 118 (SC), the Supreme Court opined that if loss was from the source or head of income not liable to tax or congenitally exempt from income tax, neither the assessee was required to show the same in the return nor was the Assessing Officer under any obligation to compute or assess it much less for the purpose of carry forward, the ratio and the principle laid down by the Apex Court would not apply here in this case, because the concept of income includes loss will apply only when entire source is exempt or is not liable to tax and not in the case where only one of the income falling within such source is treated as exempt. The Hon’ble Apex Court on the other hand, itself has stated that if loss from the source or head of income is not liable for tax or congenitally exempt from income tax, then it need not be computed or shown in the return and Assessing Officer also need not assess it. This distinction has to be kept in mind. Hon’ble Calcutta High Court in Royal Turf Club have discussed the aforesaid decision of the Hon’ble Supreme Court and held that the same will not apply in such cases.

section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against Long term capital gain on sale of land in accordance with section 70(3) (Schrader Duncan Ltd (2012) 50 SOT 68 distinguished;Kishorebhai Bhikhabhai Virani vs. Asst. CIT (2014) 367 ITR 261 (Guj) not followed).


Monday, June 22

Go Cashless: Tax benefits on Card Payments for Expenses

The Government on Monday proposed income tax benefits for people making payments through credit or debit cards and doing away with transaction charges on purchase of petrol, gas and rail tickets with plastic money.

In a draft paper for moving towards cashless economy and reduce tax avoidance, the Finance Ministry has also proposed to make it mandatory to settle high value transactions of more than Rs 1 lakh through electronic mode.


"Tax benefits in terms of income tax rebates to be considered to consumers for paying a certain proportion of their expenditure through electronic means," say draft proposals for facilitating electronic transactions on which the government has invited comments till June 29, on the government's online platform

The proposals are aimed at building a transactions history of an individual to enable improved credit access and financial inclusion, reduce tax avoidance and check counterfeiting of currency.

In order to incentivise shopkeepers, the draft proposes a tax rebate to them provided they accept a significant value of sales through debit or credit cards. "An appropriate tax rebate can be extended to a merchant if at least say 50 per cent value of the transactions is through electronic means. Alternatively, 1-2 per cent reduction in value added tax could be considered on all electronic transactions by the merchants."

Finance Minister Arun Jaitley in his budget speech had said that the government would "introduce soon several measures that will incentivise credit or debit card transactions and disincentivise cash transaction". The draft makes a case for removing different types of fees and charges on e-transactions by various entities and providing incentives for such payments.

In order to promote wider adoption of e-transactions, the proposal suggests rationalisation of the Merchant Discount Rate (MDR), which at present is 0.75 per cent on Debit Card transactions of up to Rs 2,000 and 1 per cent on all transactions above it.

"The existing inter-change fee on Debit/Credit Card transactions are not uniform and need to be standardised/ rationalised to encourage both issuing and acquiring banks to establish and utilise acceptance infrastructure," the draft says. A nominal cash handling charge on transactions greater than a specified level may be levied, it adds.

The draft also proposes to relax the norms for reporting credit card transactions of individuals by banks.

"At present, banks have to report the aggregate of all the payments made by a credit cardholder as one transaction, if such an amount is Rs 2 lakhs in a year. To facilitate high value transactions, the ceiling of Rs 2 lakhs could be increased to say Rs 5 lakhs or more."

Government departments, it said, should also consider introduction of appropriate acceptance infrastructure or adopt national E-payment gateway 'PayGov India' for collection of revenue, fee and penalties etc.

At present there are about 56.4 crore debit cards and 11.25 lakh point of sale (PoS) terminals in the country.

Source: NDTV