LTCG can be set off across assets: Tribunal
Now, you can set off your losses from property sale against long-term capital gains (LTCG) from shares. It is now perfectly legal to set off tax liability across asset classes. A tribunal has now held that LTCG from one asset class could be set off against another and such tax planning undertaken to reduce the tax burden is legal. According to a report in the Economic Times the Income Tax Appellate Tribunal (ITAT) held that undertaking tax planning is "not illegal" and shouldn't be disregarded by tax authorities merely because it's beneficial to the taxpayers. The ruling said that not every tax planning can be construed as tax avoidance. According to the details of the case, an individual, who was also a director in a company, had sold some shares in an unlisted company. LTCG from share sales were then set off against long term capital loss (LTCL) arising in the sale of real estate. The ruling said that companies and individuals can set off LTCG on stock against real estate deals. According to the details of the case, Michael E Desa, a resident of the US, had set off LTCG incurred from sale of shares in a company against LTCL earned by the sale of property. The tax department had questioned the set off claiming that the sale of shares "prima facie appears to be fictitious and cannot be adjusted against any taxable income." "The assessing officer (tax official) has primarily questioned the timing of booking the loss and selling these shares, which, even according to the assessing officer, are 'worthless'. It is not for the assessing officer to take a call on how an assessee should organise his fiscal affairs so as to serve the interests of the revenue authorities," the Et report quoted the tax ruling as saying. In the last few years, several companies had got notices and tax demands and were not allowed to set off capital gains across assets. "The tax department in the past has questioned taxpayers when they set off long-term capital gains from one asset class to another. The ruling not only allows it but also says that tax planning shouldn't be frowned upon by the revenue authorities. The genuine and permissible tax planning cannot be considered to denigrate taxpayers," the financial publication quoted as saying Paras Savla, partner at KPB & Associates, a tax advisory firm. "The buyer was a director of the company in question and this is a sale of shares in a private limited company which was made only on a private basis and not by way of stock exchange," the Income Tax Appellate Tribunal (ITAT) said in a September 20 ruling. According to the publication, the tax officials had questioned this transaction and posed a question: Why should someone buy these dud shares and what he does after buying these shares? The tax officials in a way questioned the valuation of the transaction. "Those commercial decisions must be best left to the persons concerned. What the buyer of these shares does to the company is the business of the buyer of the shares, and it is not even necessary that he would do anything immediately. It is incorrect to say that these shares are completely worthless," the tax tribunal said in its order. Industry trackers say that in the past, the tax department has questioned several similar transactions. ITAT said that while tax evasion cannot be glorified, genuine tax planning within the framework of law cannot be disapproved.