Tribunal ruling holds tax rate of 25.17% applies even to long term capital gains

 In a recent significant ruling, the Tribunal has held that once a company opts for the Concessional corporate tax regime (Section 115BAA) the uniform rate of 22% applies to all types of income, including capital gains. As a result, the separate concessional tax rates (@12.5% effective 23^rd July 2024) for capital gains will not apply once the company opts for the new regime.

In the present case, the assessee, a domestic company, filed its return for A.Y. 2021-22 declaring Long-term Capital Gain (LTCG) arising from sale of land. For the year under consideration, the assessee had opted for the concessional corporate tax regime under Section 115BAA. While computing its tax liability, the assessee applied the rate of 20% on LTCG. The AO, however, recomputed the tax at 22% under Section 115BAA and raised an additional demand.

The assessee contended that LTCG should be taxed at 20% (now taxable @12.5% effective 23^rd July 2024) as per the specific provisions applicable to capital gains. The Tribunal, however, held that since the assessee had opted for the concessional tax regime under Section 115BAA, the applicable rate of tax on its total income, including LTCG, would be 22%. Accordingly, the order of the CIT(A) was upheld, and the appeal filed by the assessee was dismissed.

This ruling could have wide implications given the increasing adoption of the concessional regime. Interestingly, the Tribunal did not address the phrase “subject to the provisions of this Chapter”, which arguably requires long term capital gains to continue being taxed at their specific concessional rates. It will be interesting to follow how higher appellate forums interpret this issue.