Case Law Details
DCIT Vs Swiss Finance Corporation (ITAT Mumbai)
ITAT Mumbai held that assessee is entitled to claim benefit of Article 13(4) of DTAA in respect of entire current year Short/Long Term Capital Gains, without setting of the Brought Forward Short/Long Term Capital Gains.
Facts-
The Assessee is a non-resident Foreign Institutional Investor (FII) registered as a company in Mauritius. During the assessment proceeding, AO noted that the Assessee was claiming carry forward of Short Term Capital Losses pertaining to Assessment Years 2009-10, 2012-13 and 2014-15 and Long Term Capital Losses pertaining to Assessment Years 2012-13. He also noted that the Assessee had earned Short Term Capital Gains and Long Term Capital Gains during the current year which have been claimed to be exempt from tax in terms of Article 13(4) of Agreement for Avoidable of Double Taxation and Prevention of Fiscal Evasion between India and Mauritius.
According to AO, the Assessee should have first set off the Brought Forward Short/Long Term Capital Gains with the current year Short/Long Term Capital Gains before claiming benefit of Article 13(4) of the DTAA. Accordingly, AO completed assessment Under Section 143(3) read with Section 144C(3) of the Act at ‘Nil’ income after setting off entire brought forward Short Term Capital Loss and brought forward Long Term Capital Loss.
Being aggrieved, the Assessee preferred appeal before CIT(A) who allowed the appeal. Being aggrieved, the revenue has preferred the present appeal.
Conclusion-
The Tribunal, in the case of Goldman Sachs Investments (Mauritius) Ltd., has held that the assessee was entitled to claim benefit of Article 13(4) of DTAA in respect of the entire current year Short/Long Term Capital Gains (without setting of the Brought Forward Short/Long Term Capital Gains). The Tribunal also permitted carry forward of the Brought Forward Short/Long Term Capital Gains to the subsequent assessment years holding that the Short/Long Term Capital Loss permitted to be carried forward in a previous assessment could not be reviewed in the assessment proceedings of a subsequent assessment year.
In view of the aforesaid, we find merit in the contention of the Ld. Authorised Representative for the Assessee that all the issues raised by the Revenue in the present appeal stand decided in favour of the Assessee by the decision of Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd. Accordingly, we do not find any infirmity in the order passed by the CIT(A).
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. These are two appeals filed by the Revenue for the Assessment Years 2015-16 and 2017-18. Since the appeals involve identical issue arising from similar factual matrix, the same were heard together and are being disposed by way of a common order. The appeals are treated as having been filed within limitation in view of the order, dated 10.01.2022, passed by the Hon‟ble Supreme Court in Suo Motu Writ Petition (C) No. 3 of 2020.
ITA No. 1338/MUM/2021 (Assessment Year 2015-16)
2. By way of the present appeal the Revenue has challenged the order, dated 05.03.2021, passed by the Ld. Commissioner of Income Tax (Appeals)- 58, Mumbai, [hereinafter referred to as „the CIT(A)’] for the Assessment Years 2015-16, whereby the CIT(A) had partly allowed the appeal filed by the Assessee against the Assessment Order, dated 20.02.2019, passed under section 143(3) read with Section 144C(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act’).
3. The Revenue has raised the following grounds of appeal read as under:
“1. In the facts & circumstances of the case, Ld. CIT(A) has erred in holding that since the capital gains are exempted as per India Mauritius DTAA, they don’t form part of the assessable income, therefore brought forward LTCL/STCL Losses cannot be set off against the LTCG & STCG of the AY under consideration. Assessable income is required to be computed as per provisions of the 1.T. Act. Benefit if any of the relevant Articles of the DTAA has to be taken on the net taxable income calculated after giving effect to all the provisions of the IT Act including Section 74 of the Act.
2. In the facts & circumstances of the case, Ld. CITIA) has grossly erred in directing the A O. to allow carry forward of brought forward Short-term & Long term losses to the subsequent years ignoring provisions of Section 74 of the Act as per which any brought forward long term & short term losses have to be set off against current year Long term/Short term gains which are assessable for that AY as per the IT Act.
3. Without prejudice to the above two grounds of appeal & in the alternate Ld. CIT (A) has erred in not appreciating that if an income (Capital gain) itself is exempted from taxation in the source country, then as per decision o f Hon’ble SC in case of Harprasad & Co. Pvt Ltd (1975) 99 ITR 118, losses (or capital gains) should be given similar treatment (treated as exempt) & should not be allowed to be carried forward”.
4. Brief facts of the case are that the Assessee is a non-resident Foreign Institutional Investor (FII) registered as a company in Mauritius. The Assessee filed its original return of income for the Assessment Year 2015-16 on 30.09.2015 which was revised on 30.10.2015 declaring „Nil’ income and claiming refund of INR.30,000/-. The return was selected for scrutiny. During the assessment proceeding, the Assessing Officer noted that the Assessee was claiming carry forward of Short Term Capital Losses (INR 1564,45,73,787/-) pertaining to Assessment Years 2009-10, 2012-13 and 2014-15 and Long Term Capital Losses (INR 1,78,94,380/-) pertaining to Assessment Years 2012-13. He also noted that the Assessee had earned Short Term Capital Gains of INR 2358,83,17,621/- and Long Term Capital Gains of INR 790,74,11,573/- during the current year which have been claimed to be exempt from tax in terms of Article 13(4) of Agreement for Avoidable of Double Taxation and Prevention of Fiscal Evasion between India and Mauritius (hereinafter referred to as „the DTAA’). According to the Assessing Officer, the Assessee should have first set off the Brought Forward Short/Long Term Capital Gains with the current year Short/Long Term Capital Gains before claiming benefit of Article 13(4) of the DTAA. Accordingly, the Assessing Officer completed assessment Under Section 143(3) read with Section 144C(3) of the Act at „Nil’ income after setting off entire brought forward Short Term Capital Loss of INR 1564,45,73,787/- and brought forward Long Term Capital Loss of INR 1,78,94,380/-.
5. Being aggrieved, the Assessee preferred appeal before CIT(A) who allowed the appeal following the decisions of the Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd. Vs. DCIT (International Taxation) – 2(3)(2): [2021] 187 ITD 184 (Mumbai – Trib.)[24-09-2020].
6. Being aggrieved by the relief granted by the CIT(A), the Revenue has preferred the present appeal raising grounds specified in paragraph 3 above which are taken up in seriatim hereinafter.
7. The Ld. Departmental Representative appearing before us submitted that the Assessing Officer was justified in setting off the brought forward Short/Long Term Capital Losses with the current year Short/Long Term Capital Gains as per Section 74 of the Act. He submitted that the CIT(A) erred in holding that since the Long/Short Term Capital Gains were exempt as per Article 13(4) of the DTAA, the same do not formed part of the assessable income of the current year and therefore, cannot be set off with the Brought Forward Short/Long Term Capital Gains. The Ld. Departmental Representative submitted that the benefit of the relevant Article of DTAA has to be given in respect of net taxable income computed as per the provisions of the Act (including Section 74 of the Act). He relied upon the assessment order in support of his contentions.
8. Per contra, the Ld. Authorised Representative for the Assessee submitted that the present appeal is without any merit as the issues raised stands decided in favour of the Assessee by the decision of the Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd. (supra) which has been followed by the CIT(A). He relied upon the submission made before the CIT(A) reproduced in the order impugned to counter the submissions made by the Ld. Departmental Representative.
9. We have considered the rival submissions and perused the material on record. We note that the Assessee had made detailed submission before the CIT(A) which have been reproduced by the CIT(A) in paragraph 5 of the order impugned. The Assessee had placed reliance of the decision of the Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd. (supra), DCIT vs. Patni Computers Systems Ltd.: (2008) 114 ITD 159 and Flagship Indian Investment Co. (Mauritius) Ltd. Vs. ACIT [2010] 133 TTJ 792 (Mum). The CIT(A) allowed the appeal filed by the Assessee by following the decision of the Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd. (supra), wherein the other two decisions of the Tribunal were also considered and relied upon. The relevant extract of the aforesaid decision of the Tribunal reads as under:
“11. 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 19-32015 for A.Y 2012-13.
12. 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 o f 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. (supra). 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 o f “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 19-3-2015 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 19-3-2015, 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. Our aforesaid view is fortified by the order of the ITAT, Pune in Patni Computer Systems Ltd. (supra). We thus in terms o f our aforesaid observations, not being able to persuade ourselves to subscribe to the view taken by the A.O/DRP, who as noticed by us hereinabove had sought adjustment of the b/forward STCL against the exempt short term and long term capital gains earned by the assessee during the year in question, thus ‘set aside’ the order of the A.O in context of the issue under consideration. 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. The Grounds o f appeal Nos. 1 and 2 are allowed in terms of our aforesaid observations.
13. We shall now advert to the second limb of the grievance o f the assessee. As is discernible from the records, the assessee had brought forward from the preceding years Long term capital losses aggregating to Rs. 7,63,95,386/- [B/forward LTCL from A.Y 2009-10: Rs. 1,09,800/- (+) B/forward LTCL from A.Y 2012-13 : Rs. 7,62,85,586/-]. Admittedly, the aforesaid Long term capital loss of Rs. 7,63,95,386/- was determined and allowed to be carried forward by the A.O while framing the assessment in the case of the assessee for A.Y 201213, vide his order passed u/s 143(3), dated 19-3-2015. In fact, the aforesaid factual position had duly been taken cognizance of by the DRP at Para 2.3 of its order passed u/s 144C(5), dated 21-11-2016. As observed by us hereinabove, the DRP had observed that once the STCL was allowed to be carried forward by the A.O in a scrutiny assessment order passed u/s 143(3) for a particular assessment year, the same cannot be reviewed in the assessment proceedings of any subsequent assessment year. In our considered view, now when the DRP had directed the A.O to allow carry forward of the STCL brought forward from the preceding years, there can be no justification for denial o f carry forward of similarly placed Long term capital losses brought forward by the assessee from the preceding years. We thus are of the considered view that as Long term capital losses of Rs. 7,63,95,386/- were determined and permitted to be carried forward by the A.O while framing the assessment in the case of the assessee for A.Y 2012-13, vide his order passed u/s 143(3), dated 19-3-2015, the assessee therefore would be duly entitled to carry forward the same to the subsequent years. As observed by us hereinabove, the assessee had also moved with the DRP a rectification application u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009 r.w sec. 144C(5) of the Act, dated 11-1-2017, seeking a direction for carry forward o f the b/forward Long term capital losses. After considering the issue, the DRP vide its order passed u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009, dated 01-12-2017, had concluded, that following the rationale adopted for allowing the carry forward of brought forward STCL, the Long term capital losses amounting to Rs. 7,63,95,386/- that were brought forward from the preceding years were also to be allowed to be carried forward to the subsequent years. At the same time, the DRP observed that as the assessee during the year in question i.e A.Y 2013-14 had shown short term and long term capital gains, therefore, the b/forward losses would be first ‘set off ‘ against such income, and the remaining losses would be allowed to be carried forward to the subsequent years. Accordingly, it was observed by the DRP that as the assessee had during the year in question i.e A.Y 2013-14 shown Long term capital gains of Rs. 5,63,11,782/-, therefore, the same would be first set off against the b/forward Long term capital losses of Rs. 7,63,95,386/-, and the balance amount would be allowed to be carried forward to the subsequent years. However, as the DRP in its order u/s 144C(5), dated 21-11-2016 at Page 8 – Para 2.10 had directed adjustment of the Long term capital gains of Rs. 5,63,11,782/- as against the b/forward STCL of Rs. 3926,36,70,910/-, as per sec. 74(1)(a) of the Act, therefore, pursuant to its aforesaid directions, it had therein directed that its observations recorded in Para 2.9 to Para 2.12 would also stand modified. We have given a thoughtful consideration to the aforesaid issue before us, and on the basis of our observations recorded hereinabove, we herein conclude that the assessee is duly entitled for carry forward of its brought forward Long term capital losses of Rs. 7,63,95,386/- to the subsequent years. Further, in terms of our observations and reasoning adopted for concluding that the brought forward STCL of the earlier years are not to be adjusted against the Short term capital gain earned by the assessee during the year in question, we herein direct that on the same basis the brought forward Long term capital losses of the earlier years shall not be set off against the Long term capital gain earned by the assessee from transfer of securities during the year in question i.e A.Y 2013-14. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations.” (Emphasis Supplied)
10. In the present case, there was no dispute that the Assessee was entitled to claim the benefit of exemption from tax in India granted by Article 13(4) of the DTAA in respect of Short/Long Term Capital Gains arising during the relevant previous year. The contention of the Revenue was that the aforesaid benefit of Article 13(4) of DTAA could only be claimed in respect of net/balance Short/Long Term Capital Gains after setting off Brought Forward Short/Long Term Capital Gains in terms of Section 74 of the Act. The Tribunal had, in the case of Goldman Sachs Investments (Mauritius) Ltd. (supra), rejected the aforesaid contention of the Revenue holding that the Assessee was entitled to claim benefit of Article 13(4) of DTAA in respect of the entire current year Short/Long Term Capital Gains (without setting of the Brought Forward Short/Long Term Capital Gains). The Tribunal also permitted carry forward of the Brought Forward Short/Long Term Capital Gains to the subsequent assessment years holding that the Short/Long Term Capital Loss permitted to be carried forward in a previous assessment could not be reviewed in the assessment proceedings of a subsequent assessment year. In view of the aforesaid, we find merit in the contention of the Ld. Authorised Representative for the Assessee that all the issues raised by the Revenue in the present appeal stand decided in favour of the Assessee by the decision of Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd. (supra). Accordingly, we do not find any infirmity in the order passed by the CIT(A). Ground No. 1, 2 and 3 raised by the Revenue are dismissed.
11. In result, the present appeal preferred by the Revenue is dismissed.
ITA No. 2449/MUM/2021 (Assessment Year 2017-18)
12. By way of the present appeal the Revenue has challenged the order, dated 05.03.2021, passed by the CIT(A) for the Assessment Years 2017-18, whereby the CIT(A) had partly allowed the appeal filed by the Assessee against the Assessment Order, dated 20.02.2019, passed under Section 143(3) read with Section 144C(3) of the Act.
13. Both the sides agreed that the issues raised in the present appeal for the Assessment Year 2017-18 were identical to those raised in appeal for the Assessment Year 2015-16. Accordingly, our findings in relation to issues raised in appeal for the Assessment Year 2015-16 shall apply mutatis mutandis to the issue raised in the present appeal. Therefore, in view of paragraphs 9 and 10 above, Ground No. 1, 2 and 3 raised by the Revenue are dismissed.
14. In result, the appeal for the Assessment Year 2017-18 preferred by the Revenue is dismissed.
Order pronounced on 07.10.2022.
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