No section 115E benefit on short-term capital gain from sale of foreign exchange asset as it isn't an investment income

CIT V. SHAM L. CHELLARAM (2015) 54 taxmann.com 348 (Bombay High Court)

Issue:

Whether short-term capital gain arising on sale of shares of an Indian company purchased in foreign currency would be deemed as investment income so as to entitle for concessional rate of tax of 20% under Section 115E?

The High Court held in favour of revenue as under:

• Section 115E which is part of Chapter XII-A of the Income-tax Act grants benefit of concessional rate of tax to the extent the income of the Non-resident Indian consists of 'Investment Income' or 'Income by way of long term capital gains' arising out of specified asset, inter-alia, shares of an Indian Company purchased in convertible foreign exchange.
• Section 115E of the Act specifically indicates income by way of long term capital gains to be entitled to the benefit of Section 115E of the Act as it is not considered to be an income derived from an investment. 
• So, Chapter XIIA of the Act itself makes a distinction between income derived from an asset and an income arising on sale of assets, leading to long term capital gains. The latter is a case of income being attributable to sale of assets. 
• Therefore, income arising on sale of assets leading to short term capital gains could not be considered as income derived from foreign exchange asset so as to qualify as investment income within the meaning of section 115E of the Act.

Note:
The short-term capital gain derived from sale of listed shares chargeable to STT is taxable at 15%. Thus, the issue of availability of concessional tax rate would not arise in the instant case if the sale of such shares were chargeable to STT.