2010 (3) TMI 880 - AT - Income Tax

Losses - Carry forward and set-off of business losses - Facts of the case, the assessee is a non-resident company and not subjected to tax on capital gains in this year in India. It is also not in dispute that the assessee has shown capital losses amounting to Rs. 87,06,49,335 in the return for the assessment year 2002-03 and has claimed the same to be carried forward to the subsequent assessment years. HELD THAT - Applying the ratio of the law laid down by the Their Lordships in CIT v. Western India Oil Distributing Co. Ltd. 1997 (4) TMI 16 - SC ORDER , to the facts of the present case and keeping in view the CBDT Circular, we find that it is not the case of the revenue that the assessee has not brought forward losses to be carried forward to the subsequent year or the same have already been adjusted. In this view of the matter we are of the view that the assessee was fully justified in claiming the carried forward of brought forward losses of the earlier years to the subsequent years and the AO and the ld. CIT(A) have erred in not allowing the same. The AO is directed to allow the carry forward of brought forward loss of earlier years to the subsequent years according to law. The ground taken by the assessee is, therefore, allowed. In the result, assessee s appeal stands allowed.

Summary

Issues:
Disallowance of carry forward losses from earlier assessment years for a non-resident company under the India-Mauritius Tax Treaty.

Detailed Analysis:

1. Issue of Disallowance of Carry Forward Losses:
The appeal was against an order disallowing the carry forward of capital losses for the assessment year 2005-06. The assessee, a non-resident company from Mauritius, had claimed carry forward of capital losses from the assessment year 2002-03. The Assessing Officer disallowed the claim based on the belief that since capital gains are not taxable in India under the India-Mauritius Tax Treaty, capital losses should also be exempt. The ld. CIT(A) upheld this view, stating that income from transfer of securities can only be taxed in the state where the assessee is a tax resident. The appellant's claim was denied, leading to the appeal.

2. Arguments and Submissions:
The appellant argued that even though capital gains were exempt in the assessment year 2005-06, they were entitled to carry forward the losses from earlier years. The appellant cited legal precedents, including the decision in CIT v. Manmohan Das, to support their claim that losses can be carried forward and set off against future profits. The appellant contended that the Assessing Officer's decision on the previous year's loss should not bind the assessment of subsequent years.

3. Judicial Precedents and CBDT Circular:
The Tribunal referred to the decision in Manmohan Das's case and CIT v. Western India Oil Distributing Co. Ltd., emphasizing the principle that losses can be carried forward and set off against future profits. Additionally, the Tribunal highlighted a CBDT Circular stating that a non-resident's loss in India should be carried forward and not set off against foreign income.

4. Tribunal's Decision:
The Tribunal found that the appellant, being a non-resident company, was not subject to tax on capital gains in India for the relevant year. It was established that the appellant had shown capital losses in the previous year and had claimed them to be carried forward. The Tribunal held that the appellant was justified in claiming the carry forward of losses from earlier years to subsequent years. The Assessing Officer and the ld. CIT(A) were deemed to have erred in disallowing this claim. Consequently, the Tribunal directed the Assessing Officer to allow the carry forward of losses according to law.

In conclusion, the Tribunal allowed the appellant's appeal, emphasizing the right to carry forward losses for a non-resident company under the India-Mauritius Tax Treaty and established legal principles regarding the treatment of losses for taxation purposes.