2018 (12) TMI 1256 - AT - Income Tax

Income / loss on account of foreign exchange transaction - assessed under the head capital gain or is exempt under Article 14(6) of India Spain Double Taxation Avoidance Agreement (DTAA) - assessee company, is a tax resident of Spain - Held that - Commissioner (Appeals) while deciding the issue in preceding assessment years referring to Article 14(4) of India Spain tax treaty qua Article 13(4) of U.N. Model Convention has held that capital gain arising out sale of shares is not taxable in India. No doubt, in the impugned assessment year, the learned Commissioner (Appeals) has followed his orders passed for the earlier assessment years. Moreover, as could be seen from the facts on record, the assessee had incurred huge loss in assessment year 2009 10 as well as in the impugned assessment year. Admittedly, if the capital gain is held to be taxable in India, then the loss suffered by the assessee and carry forward of such loss is allowable to the assessee. However, no such benefit has been given to the assessee by the AO on the reasoning that assessee has not claimed it in the return of income. Thus, the assessee has been put to double jeopardy which, in our view, is unjust and improper. No reason to interfere with the decision of the learned Commissioner (Appeals) on the issue. - decided in favour of assessee.

Summary

Issues:
1. Whether income/loss on foreign exchange transactions should be assessed under capital gain or exempt under India-Spain DTAA Article-14(6).

Analysis:
The appeal was filed by the Revenue challenging an order for the assessment year 2012-13 regarding the treatment of income/loss from foreign exchange transactions. The dispute revolved around whether such income/loss should be assessed as capital gain or be exempt under Article-14(6) of the India-Spain Double Taxation Avoidance Agreement (DTAA). The assessee, a Spanish tax resident, claimed exemption under the relevant tax treaty for a loss of ?7,05,150 on foreign exchange transactions. The Assessing Officer contended that the capital gain on shares of companies in real estate development is taxable under Article-14(4) of the India-Spain tax treaty. The assessee argued that since they were not occupying any immovable property through shares, the capital gain/loss should be exempt under Article-14(6) of the treaty. The Assessing Officer disallowed the carry forward of the loss since it was not claimed in the return of income. The first appellate authority ruled in favor of the assessee, allowing the exemption under Article-14(6) based on previous decisions.

The Tribunal considered the arguments and upheld the decision of the first appellate authority. It noted that the issue was covered by previous decisions for assessment years 2007-08 to 2009-10, where it was held that capital gain arising from the sale of shares is not taxable in India under Article-14(4) of the India-Spain tax treaty. The Tribunal found that the assessee had incurred losses in previous years as well as in the impugned assessment year. It emphasized that if capital gain is taxable, the loss suffered by the assessee and its carry forward should be allowed. The Tribunal criticized the Assessing Officer for not granting this benefit to the assessee, stating that it put the assessee in a double jeopardy situation. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the decision of the first appellate authority.

In conclusion, the Tribunal upheld the exemption of the assessee under Article-14(6) of the India-Spain DTAA for the assessment year 2012-13, based on the applicability of Article-14(4) regarding the taxation of capital gain from share sales. The Tribunal emphasized the need to allow the carry forward of losses if capital gains were to be taxed, criticizing the Assessing Officer's denial of this benefit to the assessee.