Goldman Sachs Investments (Mauritius) Limited Vs DCIT (ITAT Mumbai)
On a perusal of the grounds of appeal, we find, that there are two facets on the basis of which the observations of the A.O/DRP as regards carry forward of the earlier years capital losses has been assailed by the assessee before us, viz. (i). that the A.O/DRP had erred in concluding that the Short term capital losses brought forward by the assessee from the preceding years were to be first “set off” against the short term and long term capital gains for the year under consideration i.e A.Y 2013-14, and only the balance amount of short term capital losses were to be carried forward to the subsequent years; AND (ii). that the A.O/DRP had erred in denying the assessee‟s right to carry forward the Long term capital losses brought forward from the preceding years, despite the fact, that the same were determined and permitted to be carried forward by the A.O vide his assessment order passed u/s 143(3), dated 19.03.2015 for A.Y 2012-13.
We shall first deal with the grievance of the assessee that as to whether the A.O/DRP were right in law and the facts of the case, in concluding, that the short term and long term capital gains earned by the assessee from transfer of securities in India during the year under consideration i.e A.Y. 2013-14, were to be adjusted against the STCL brought forward by the assessee from the earlier years, and thus, only the balance amount of STCL was to be carried forward to the subsequent years. At this stage, we may herein observe that the assessee had claimed the short term and long term capital gains arising in its hands from transfer of securities during the year under consideration i.e A.Y. 2013-14, as exempt, under Article 13 of the India-Mauritius Tax Treaty. As regards the claim of the assessee that the capital gains on transfer of securities in India was not exigible to tax in India as per Article 13 of the India-Mauritius tax treaty, we find, that the same is not in dispute. On a careful perusal of the observations of the DRP, we find that a direction has been given by the panel for adjustment of the brought forward STCL against the short term and long term capital gains earned by the assessee during the year under consideration. We are thus confronted with a direction of the DRP, wherein despite accepting that the short term and long term capital gains earned by the assessee from transfer of securities during the year under consideration were exempt from tax in India under Article 13 of the India-Mauritius tax treaty, the panel had directed that the brought forward STCL be first adjusted against such exempt short term and long term capital gains, and only the balance amount of brought forward STCL be carried forward to the subsequent years. In our considered view the aforesaid direction of the DRP is bereft of any reasoning and does not merit acceptance. We are unable to comprehend that now when admittedly the short term and long term capital gains earned by the assessee from transfer of securities during the year in question are exempt under Article 13 of the India-Mauritius Tax Treaty, where would there be any occasion for seeking adjustment of the brought forward STCL against such exempt income. Our aforesaid view is squarely covered by the order of the ITAT, Mumbai in the case of Flagship Indian Investment Company (Mauritius) Ltd. Vs. ADIT (I.T)-3(2), Mumbai (2010) 133 TTJ 792 (Mum). In the case of the assessee before the Tribunal that pertained to A.Y. 2005-06 the assessee had brought forward capital loss of Rs. 87,06,49,335/- from transfer of securities in A.Y. 2002-03. The aforesaid loss was determined in the hands of the assessee vide an intimation under Sec. 143(1) for A.Y 2002-03. Observing, that since the capital gains were not taxable in India as per Article 13 of the Indian-Mauritius Tax Treaty, the A.O being of the view that capital loss would also be exempted, and therefore, the assessee would not be entitled to claim the benefit of carry forward of such capital losses of the earlier years, thus, declined the set-off of the same against the capital gains for the relevant assessment years. On appeal, the CIT(A) upheld the order of the A.O. On further appeal, the Tribunal concluded that the assessee was fully justified in claiming the carry forward of the capital losses of the earlier years to the subsequent years, and both the A.O and the CIT(A) were in error in not allowing the same. Accordingly, the A.O was directed to allow the carry forward of the capital losses of the earlier years to the subsequent years, according to law. As in the aforesaid case, in the case of the present assessee before us, as the short term and long term capital gains earned by the assessee from transfer of securities during the year in question are admittedly exempt from tax under Article 13 of the India-Mauritius tax treaty, therefore, the brought forward STCL of the previous years was rightly carried forward by the assessee to the subsequent years. As regards the reliance placed by the ld. D.R on the observations of the lower authorities that as the words “income” or “profits and gains” were to include losses also, therefore, now when Sec. 45 of the Act, by virtue of the India-Mauritius tax treaty was rendered unworkable in respect of “capital gains” derived by the assessee from transfer transactions carried out in India, the “capital losses” would also not form part of its “total income”, and thus, were not required to be computed under the Act, we are afraid the same does not find favour with us. Before adverting any further, we may herein reiterate that the DRP vide its order passed u/s 144C(5), dated 21.11.2016, had concluded, that now when the “capital loss” was allowed to be carried forward by the A.O, vide his order passed under Sec. 143(3), dated 19.03.2015 for A.Y 2012-13, the same could not have thereafter been reviewed in the assessment proceedings of any subsequent year. As the said observation of the DRP has not been assailed any further by the revenue in appeal before us, the same thus had attained finality. Now coming to the claim of the revenue that as Sec. 45 of the Act, by virtue of India-Mauritius tax treaty was rendered unworkable in respect of “capital gains” derived by the assessee from transfer of securities in India, therefore, the “capital losses” would also not form part of the assessee‟s “total income”, and thus, could not be computed under the Act, we are afraid does not find favour with us. Apropos the aforesaid observation of the A.O, we are of the considered view that the same had been arrived at by loosing sight of the fact that the “capital losses” in question had been brought forward from the earlier years and had been determined and allowed to be carried forward by the A.O while framing the assessment for A.Y 2012-13, vide his order passed u/s 143(3), date 19.03.2015, and had not arisen during the year under consideration i.e A.Y 2013-14. Accordingly, the claim of the A.O that the “capital losses” b/forward from the earlier years, pertaining to a source of income that was exempt from tax was thus not to be carried forward to the subsequent years, being devoid of any merit, is thus rejected.
At this stage, we may herein observe that it is for the assessee to examine whether or not in the light of the applicable legal provisions and the precise factual position the provisions of the IT Act are beneficial to him or that of the applicable DTAA. In any case, the tax treaty cannot be thrust upon an assessee. In case the assessee during one year does not opt for the tax treaty, it would not be precluded from availing the benefits of the said treaty in the subsequent years.
Accordingly, we direct the A.O to allow carry forward of the b/forward STCL of Rs. 3926,36,70,910/- to the subsequent years.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal filed by the assessee is directed against the order passed by the A.O under Sec. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (for short „Act‟), dated 27.01.2017 for A.Y. 2013-14. The impugned order has been assailed by the assessee on the following grounds of appeal before us:
1. The learned AO erred in setting off the short term capital losses brought forward from earlier Assessment Years (AYs) against the current year’s short term capital gains, claimed as exempt under Article 13 of the IM treaty and has permitted to carry forward only the balance short term capital losses instead of entire brought forward short term capital losses.
2. In taking the aforesaid action, the learned AO while passing the final assessment order has erred in not appreciating the fact that the capital gains on transfer of securities of the current year are exempt in accordance with Article 13 of the India-Mauritius Double Taxation Avoidance Agreement (IM Treaty).
3. The learned AO has, on the facts and circumstances of the case and in law, erred in denying the Appellant’s right to carry forward the taxable long term capital losses (on which STT is not paid) brought forward from earlier assessment years though the same was assessed and permitted to be carried forward by the learned AO in the assessment order for AY 2012-13.
4. The learned AO has, on the facts and circumstances of the case, erred in inadvertently considering the taxable long-term capital gains (on which STT is not paid) amounting to Rs.56,311,783 earned by the Appellant which were claimed as exempt by the Appellant under Article 13 of the IM Treaty as long-term capital losses (on which STT is not paid) amounting to Rs. 56,311,782.
5. The learned AO has, on the facts and circumstances of the case, erred in inadvertently considering that the Appellant has earned short- term capital gains (on which STT is not paid) amounting to Rs 56,311,783 whereas in fact the Appellant has not earned any such income.
6. The learned AO has, on the facts and circumstances of the case and in law, erred in levying interest under section 234C of the Act amounting to Rs. 65,780 on the basis that Appellant has deferred the payment of advance tax.
The appellant craves leave to add, alter, vary, omit, substitute or amend any or all of the above grounds of appeal, at any time before or at the time of the appeal, so as to enable the Hon’ble Income-tax Appellate Tribunal to decide this appeal according to law.
2. Briefly stated, the assessee company which is a tax resident of Mauritius is registered with the Securities and Exchange Board of India (SEBI) as a Foreign Institutional Investor (FII) for carrying out portfolio investment activity in Indian capital market. The assessee had filed its return of income for A.Y. 2013-14 on 30.11.2013, declaring its total income at Rs.1,73,91,400/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
3. During the course of the assessment proceedings it was observed by the A.O that the assessee in the year under consideration had earned /suffered the following incomes/losses from transfer of securities in India:-
