Matrix Partners India Investment Holdings Vs DCIT (ITAT Mumbai)
The ITAT Mumbai held that a Mauritius tax resident is entitled to claim exemption on long-term capital gains (LTCG) under Article 13(4) of the India–Mauritius DTAA while simultaneously carrying forward long-term capital losses (LTCL) under the Income-tax Act if such treatment is more beneficial under Section 90(2). The assessee earned substantial LTCG from the sale of shares acquired before 1 April 2017 and claimed treaty exemption, while seeking carry forward of LTCL arising from other share transactions. The Assessing Officer adjusted the LTCL against the exempt LTCG and restricted the carry-forward loss. The Tribunal rejected this approach, holding that exempt capital gains under the DTAA do not form part of total income and therefore cannot enter the computation mechanism for set-off of losses. Relying on earlier judicial precedents, the Tribunal observed that each capital asset transaction constitutes a separate source of income and that treaty benefits cannot be applied in a manner detrimental to the taxpayer. Accordingly, the assessee’s full claim for carry forward of LTCL was allowed.
Core Issue: Whether long-term capital loss (LTCL) arising from sale of shares can be adjusted against long-term capital gains (LTCG) which are exempt in India under Article 13(4) of the India-Mauritius DTAA, and whether a Mauritius tax resident can simultaneously claim treaty exemption for capital gains while availing the benefit of carry forward of capital losses under the Income-tax Act by virtue of section 90(2).
