2013 (7) TMI 1109 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the interpretation of Double Taxation Avoidance Agreement (DTAA) between India and Singapore regarding the tax treatment of gains on cancellation of Forward Foreign Exchange Contracts.

Issue 1: Interpretation of DTAA provisions

The Department filed an appeal against the order of the CIT(A) granting relief under Article 13 of India-Singapore DTAA to the assessee for gains on cancellation of Forward Foreign Exchange Contracts as 'Capital Gains'. The Department argued that the relief should be restricted to income remitted to Singapore, which was not shown to have been complied with in this case.

Comprehensive Details:

1. The assessee, an Investment Company incorporated in Singapore, claimed exemption under section 10(38) for capital gains on shares, stating they were not taxable in India under the DTAA.
2. The assessee also declared a loss on foreign exchange contracts, seeking to carry it forward as a capital loss for future years, consistent with treatment in preceding years.
3. The Assessing Officer disagreed, classifying the loss under 'other sources' due to a challenge by the department in the ITAT regarding the treatment in the preceding year.
4. The CIT(A) relied on previous orders and held the loss on foreign exchange contracts to be on a capital account, following the Mumbai Tribunal's judgment in a similar case.
5. The Department appealed to the ITAT, arguing against the capital treatment of the loss.
6. The Senior Counsel for the assessee highlighted that previous ITAT orders supported treating income from forward exchange contracts as capital gains, maintaining consistency in the treatment of such transactions.
7. The ITAT, considering the consistency in treatment and lack of contrary precedents, upheld the CIT(A)'s decision, rejecting the Department's appeal.
8. The ITAT dismissed the appeal filed by the Department, affirming the capital gains treatment for the loss on foreign exchange contracts.

This judgment clarifies the application of DTAA provisions in determining the tax treatment of specific types of income, emphasizing the importance of consistency in interpreting tax laws and judicial precedents.