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TMI Blog2025 (1) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... 017 is liable to be taxed on full rate under the provisions of the Income Tax Act. Admittedly, the losses in the present facts of the case suffered by the assessee arises out of sale of shares of Indian company acquired post 01/04/2017. AO while computing the exemption under Article 13(3)/(4) netted off the losses against the gains, thereby taxing the gains which, otherwise is exempt as per the pre-amended Article 13(3)/(4) of India Mauritius DTAA. Computation of capital gains earned will have to be as per the provisions of DTAA prior to amendment and will be taxable as per the residency of the assessee as India had given up its right to tax such gains prior to 01/04/2017. As there is no dispute that assessee is resident of Mauritius, the question of taxing capital gains earned on sale of share/derivatives acquired prior to 01/04/2017, cannot arise to be in India, as they do not enter into the computation of income as per the Income Tax Act. Brought forward losses from A.Y. 2020-21 are concerned, these are from the sale of share/derivatives acquired post 01/04/2017 and can only be set of against any gains that would arise from sale of share /derivatives acquired after 01/04/2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried forward as per the provisions of section 74 of the Act. 3. (a) Without prejudice to what is stated in 1 above the Assessing Officer erred in law in setting off the carried forward Long term capital losses incurred during the Assessment Year 2020-21 amounting to Rs. 45,67,23,162/- (which as per DTAA is loss arising from sale of shares acquired post 1.4.2017 and from taxable source as per the provisions of the Act) against the long term capital gains earned during the previous year relevant to assessment year under appeal which was claimed as not chargeable to tax under the provisions DTAA instead of allowing the same to be carried forward as per the provisions of section 74 of the Act. (b) The Assessing Officer erred in law in setting off the Long term capital loss of incurred during the previous year relevant to assessment under appeal amounting to Rs. 11,29,28,448/- (which as per Article 13(3B) of the DTAA is taxable as per the provisions of the Act) against the short term and long term capital gains earned during the year under appeal which was claimed as not chargeable to tax under the provisions of the DTAA instead of allowing the same to be carried forward as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts of the case and are distinguishable. 7. Without prejudice to what is stated above the Assessing Officer erred in computing the total income and setting off of losses in the Computation Sheet (issued alongwith the Assessment order) to a sum of Rs. 35,61,18,070/- as against a sum of Rs. 20,55,13,620/- as determined in Assessment order and consequently arriving at an incorrect demand of Rs. 2,33,75,696/-- 8. The Assessing officer erred in reflecting an amount of Rs 2,73,054/- as refund already issued in the computation sheet when no refund is in fact received by the Appellant 9. The appellant submits that the Assessing Officer be directed: a) to not set off the losses carried forward and as well as incurred during the year from taxable sources against the income earned during the year under appeal and not chargeable to tax as per the provisions of DTAA: b) to allow carry forward of short term capital loss and long term capital losses from taxable sources to the subsequent years c) Without prejudice to what is stated above to correctly compute the total income in the computation sheet and cancel the demand raised. and to modify the assessment in accordance wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be set off against the long-term and short-term capital gains during the year under consideration. In response to the said notice, vide reply dated 28/12/2022 the assessee submitted that, taxable profits or loss construe separate species of income or loss and such exempt species of income or loss cannot be set off against the income or loss that is chargeable to tax. The assessee thus submitted that the losses in the present facts cannot be set off against the capital gains whether, short-term or long-term, that is exempt in the hands of the assessee by virtue of India Mauritius DTAA. In support of this contention the assessee placed reliance on CBDT Circular No. 22 of 1944 dated 29/07/1944. He also placed reliance on following decisions in support of the claim: 1. Decision of Hon'ble Supreme Court in case of Hariprasad Co.(P.) Limited reported in 199 ITR 118 2. Decision of Hon'ble Gujarat High Court in case of Kishore Bhai Bhikha Bhai Virani reported in (2014) 367 ITR 261 3. Flagship Indian Investment Co (Mauritius) Ltd (2010) 38 SOT 426 (Mum). 4. J.P.Morgan India Investment Company Mauritius Limited [ITA No.2382/Mum/2021] 5. Swiss Finance Corporation (Mauritius), Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that Grounds No. 2-6 & 9 are on the aspect of the manner in which the exemption available to the assessee under Article 13 of India Mauritius DTAA has been computed by the Ld.AO. 4.1 The Ld.AR submitted that, there is no dispute between the parties that the long-term/short-term capital gains earned by the assessee are out of the shares/derivatives that were acquire prior to 01/04/2017. He submitted that, as per Article 13(3)/(4) of India Mauritius DTAA, any gains arising out of sale of assets acquired prior to 01/04/2017 are to be taxed, based on the residency of recipient. He submitted that, India Mauritius DTAA prior to the gave exclusive right to tax the gains as per the state of residence of the recipient. 4.2 The Ld. AR thus submitted that, the brought forward short-term / long-term capital loss were to be carry forwarded to the subsequent years, as per the Income Tax Act u/s. 74(1) of the Act. It is submitted that, the losses suffered by the assessee on sale of the shares acquired post 01/04/2017 and therefore, in any event these cannot be set off against capital gains earned on shares acquired prior to 01/04/2017. The Ld. AR submitted that the amendment introduced vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to make the provisions thereof in consonance with section 90(2) of the domestic law is that If there is an express provision made in the convention giving benefit to the assessee which is contrary to the domestic law, then the provisions of treaty can be relied upon which shall override and prevail over the provisions of the domestic law to give any benefit expressly given to the assessee under the treaty. The decision of Hon'ble Supreme Court in the case of Azadi Bachao Andolan (supra) fully supports this view" 4.4 He thus submitted that, there is no evasion of Income Tax or profit shifting, that could be attributable in the hands of the assessee by availing benefits under both DTAA of gains as well as carry forward of loss as per Indian Income tax Act. He also relied on the decision of Coordinate bench of the Tribunal in case of Goldman Sachs India Investments (Singapore) PTE Ltd., [ITA No. 6619/Mum/2016] vide order dated 09/04/2024 in support of this contention, wherein this coordinate bench of this Tribunal observed as under : "6. From the above, we noted that it is very clear that while determining taxability of the income of an assessee, if provisions of the Act ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, we hold that the losses which have been brought forward from earlier years will be carried forward to the subsequent years without setting off the same against the gains of the previous year relevant to the assessment year in question for the reason that once the assessee has chosen the benefit of DTAA, then the capital gain is not at all taxable in India and therefore, there is no question of setting off of loss from the earlier years. Accordingly, the Cross Objection raised by the assessee is allowed." 4.6 On the contrary, the Ld.DR placed reliance on computation of capital gains by the Ld. AO and submitted that, the tax liability in the hands of the assessee has to be calculated first as per the Income Tax Act, as there is no specific provision under India Mauritius DTAA for computation of Income under the head capital gains. He submitted that once the capital gains are determine as per Income Tax Act, benefit under DTAA is to be granted, if there is a gain in the net result. He also submitted that, before giving effect to the provisions of DTAA as per section 90(2) of the Act, the taxable income has to be calculated as per various provisions of the act which includes provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to 01/04/2017, cannot arise to be in India, as they do not enter into the computation of income as per the Income Tax Act. 5.4 In so far as brought forward losses from A.Y. 2020-21 are concerned, these are from the sale of share/derivatives acquired post 01/04/2017 and can only be set of against any gains that would arise from sale of share /derivatives acquired after 01/04/2017. Under such circumstances assessee will have to be allowed the carry forward losses and cannot be set off against the foreign income. Accordingly, as the gain is not chargeable to tax, no loss can be set off against such exempt income. CBDT circular No. 22 of 1944 dated 1944 is clear on this aspect and reads as under : "Total income is defined as the total amount of income, profits and gains referred to in sub- section (1) of section4 of the Indian Income-tax Act, 1922 computed in the manner laid down in the Act. In the case of a non-resident, his foreign income is not included in his 'total income' which is to be computed subject to the provisions of section 24 of the Indian Income-tax Act, 1922. If the 'total income' is a loss, it has to be carried forward subject to the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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