2022 (4) TMI 1502 - AT - Income Tax

Treaty benefit prior to computation of total income - short term and long term capital gains earned by the assessee from transfer of securities in India during the year under consideration - exemption as per Article 13 of India Mauritius treaty - setting off the short-term capital losses brought forward from earlier AYs against the net short-term capital gains earned in the current AY 2014-15 which were claimed as not chargeable to tax under the provisions of the Treat - HELD THAT - We find that the issue in dispute is no longer res integra in view of the decision of this Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd 2020 (9) TMI 1049 - ITAT MUMBAI as not being able to persuade ourselves to subscribe to the view taken by the A.O/DRP, who as noticed by us hereinabove had sought adjustment of the b/forward STCL against the exempt short term and long term capital gains earned by the assessee during the year in question, thus 'set aside' the order of the A.O in context of the issue under consideration. Accordingly, we direct the A.O to allow carry forward of the b/forward STCL to the subsequent years. Assessee is duly entitled for carry forward of its brought forward Long term capital losses to the subsequent years. Further, in terms of our observations and reasoning adopted for concluding that the brought forward STCL of the earlier years are not to be adjusted against the Short term capital gain earned by the assessee during the year in question, we herein direct that on the same basis the brought forward Long term capital losses of the earlier years shall not be set off against the Long term capital gain earned by the assessee from transfer of securities during the year in question i.e A.Y 2013-14. Appeal of revenue dismissed.

Issues Involved:
1. Treaty benefit application prior to computation of total income.
2. Computation of total income as per the Act vs. Treaty.
3. Setting off short-term capital losses against exempt short-term capital gains.
4. Treatment of income and loss in a similar manner.
5. Validity of CIT(A) order and restoration of AO order.

Detailed Analysis:

Issue 1: Treaty Benefit Application Prior to Computation of Total Income
The Revenue contended that the aggregation of income and set-off of losses should be determined as per sections 66 to 80 of the Income Tax Act before applying the DTAA benefit as per section 90(2). The Tribunal upheld the CIT(A)’s decision that the assessee's view of taking the Treaty benefit prior to the computation of total income is correct. This was based on the Tribunal's earlier decision in the case of Goldman Sachs Investments (Mauritius) Ltd., which held that capital gains exempt under the India-Mauritius tax treaty should not be adjusted against brought forward capital losses before carrying them forward.

Issue 2: Computation of Total Income as per the Act vs. Treaty
The Tribunal confirmed that the computation of total income should be as per the provisions of the Act, specifically section 74(1), and not solely based on the Treaty. The Tribunal reiterated that the short-term capital gains, which are exempt under the India-Mauritius treaty, do not need to be adjusted against brought forward losses before carrying them forward. This aligns with the Tribunal's previous ruling in the Goldman Sachs case.

Issue 3: Setting Off Short-Term Capital Losses Against Exempt Short-Term Capital Gains
The Revenue argued that the short-term capital losses brought forward should be set off against the net short-term capital gains, which were claimed as exempt under the Treaty. The Tribunal found that the CIT(A) was correct in allowing the carry forward of short-term capital losses without setting them off against the exempt gains. This decision was supported by the Tribunal’s earlier judgment in the case of Flagship Indian Investment Company (Mauritius) Ltd., where it was held that exempt capital gains should not affect the carry forward of capital losses.

Issue 4: Treatment of Income and Loss in a Similar Manner
The Tribunal addressed the Revenue’s argument that income includes loss, and both should be treated similarly as per the Supreme Court decision in Hariprasad & Co. Pvt. Ltd. vs. CIT. The Tribunal rejected this argument, stating that since the capital gains are exempt under the Treaty, there is no occasion to adjust the brought forward losses against such exempt income. The Tribunal emphasized that the tax treaty benefits cannot be imposed on the assessee and that the assessee can choose the applicable provisions that are more beneficial.

Issue 5: Validity of CIT(A) Order and Restoration of AO Order
The Tribunal found no infirmity in the CIT(A)’s order granting relief to the assessee and thus dismissed the Revenue's appeal. The Tribunal confirmed that the CIT(A) correctly applied the Tribunal's earlier decisions and upheld the assessee's right to carry forward capital losses without adjusting them against exempt capital gains.

Additional Considerations for A.Y. 2014-15
For A.Y. 2014-15, the Tribunal noted that the AO initially accepted the assessee's contentions but later sought to adjust the brought forward losses during rectification proceedings under section 154 of the Act. The Tribunal found that the merits of the case had already been decided in favor of the assessee, making further consideration of the rectification proceedings unnecessary. The decision for A.Y. 2013-14 was applied mutatis mutandis to A.Y. 2014-15.

Conclusion
The Tribunal dismissed both appeals of the Revenue, upholding the CIT(A)’s decisions and confirming the assessee's right to carry forward capital losses without adjusting them against exempt capital gains under the India-Mauritius tax treaty. The Tribunal's rulings were consistent with previous decisions in similar cases.

← Previous Next →