2021 (5) TMI 9 - AT - Income Tax

Denying the carry forward of short-term capital loss - HELD THAT - While determining taxability of the income of an assessee, if provisions of the Act are more beneficial as compared to the tax treaty then the beneficial provisions of the Act will apply in determining the taxability of such income. Thus, having regard to the provisions of section 90(2) of the Act and given that the provisions of section 74 of the Act permit the Assessee to carry forward capital losses to subsequent assessment years, the provisions of the Act are more beneficial than the provisions of the IS treaty. For the year under consideration, the Assessee has filed its return of income in accordance with the provisions of the Act. Based on judicial jurisprudence, the provisions of the IS treaty cannot be trusted upon the Assessee simply because the Assessee is a tax resident of a country with which India has entered into a tax treaty or on account of the mere perception of the AO that the Assessee may claim benefits under the tax treaty in subsequent years. Accordingly, we are of the view that the capital losses incurred from transactions in the Indian capital markets should be construed as income accruing or arising from transactions undertaken in India falling within the scope of section 5 of the Act and therefore, the same should be eligible to be carried forward to subsequent years in accordance with the provisions of section 74 of the Act. We allow this issue of assessee.

Summary

Issues:
1. Denial of carry forward of short-term capital loss.
2. Interpretation of provisions of the Income Tax Act and Double Taxation Avoidance Agreement (DTAA).
3. Application of judicial jurisprudence in determining taxability of income.

Issue 1: Denial of carry forward of short-term capital loss:
The appellant's appeal arose from the order of the Dispute Resolution Panel and the Assessing Officer denying the carry forward of short-term capital loss for the assessment year 2012-13. The appellant contended that the Assessing Officer erred in denying the right to carry forward the losses based on the exemption of capital gains under the DTAA with Singapore. The appellant invoked Section 90(2) of the Income Tax Act, arguing that the provisions of the Act should apply to the extent more beneficial to the appellant. The appellant also highlighted the discretion of the assessee to determine the applicability of the Act or the DTAA. Additionally, the appellant pointed out the failure of the Assessing Officer to follow a previous tribunal decision in a similar case. The appellant sought to carry forward the short-term capital losses, emphasizing the provisions of Section 74 of the Act allowing for the carry forward of losses to subsequent assessment years.

Issue 2: Interpretation of provisions of the Income Tax Act and Double Taxation Avoidance Agreement (DTAA):
The appellant, a Singapore-based company, argued that being a tax resident of Singapore and holding a valid tax resident certificate, the provisions of Section 90(2) of the Act should apply, allowing for the more beneficial provisions of the Act to be considered. The Assessing Officer and the Dispute Resolution Panel upheld the denial of carry forward, prompting the appellant's appeal to the Tribunal. The Tribunal analyzed the provisions of the Act and the DTAA, emphasizing that the Act's provisions would prevail if more beneficial to the assessee. The Tribunal noted that the tax treaty cannot be imposed on the assessee, and the appellant's choice to follow the Act over the DTAA should be respected. The Tribunal referred to previous judgments supporting the appellant's position and directed the Assessing Officer to allow the carry forward of the short-term capital losses.

Issue 3: Application of judicial jurisprudence in determining taxability of income:
The Tribunal considered the judicial precedents and legal provisions to determine the taxability of the appellant's income. Emphasizing that the Act's provisions were more beneficial in this case, the Tribunal held that the short-term capital losses from transactions in the Indian capital markets should be carried forward to subsequent years as per Section 74 of the Act. The Tribunal rejected the Assessing Officer's denial of carry forward based on the exemption of capital gains under the DTAA. By applying judicial jurisprudence and statutory provisions, the Tribunal allowed the appellant's appeal, directing the carry forward of the short-term capital losses.

In conclusion, the Tribunal allowed the appellant's appeal, emphasizing the applicability of the provisions of the Income Tax Act over the Double Taxation Avoidance Agreement in determining the taxability of income and the eligibility to carry forward short-term capital losses.