Case Law Details

Case Name : Goldman Sachs Investments (Mauritius) Limited Vs DCIT (ITAT Mumbai)
Appeal Number : ITA No. 2201/Mum/2017
Date of Judgement/Order : 24/09/2020
Related Assessment Year : 2013-14
Courts : All ITAT (7309) ITAT Mumbai (2108)

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:-

Sr. No. Particulars Amount in Rs.
1. Net Short Term Capital Gain (STT paid) 3,92,43,87,502
*2. Net Short Term Capital gain (STT not paid) 5,63,11,783
3. Net Long Term Capital Loss (STT Paid) -12,08,15,903
*4. Net Long Term Capital Loss (STT not paid) -5,63,11,782

*Note: As claimed by the assessee it had during the year in question i.e A.Y 2013-14 earned Long term capital gains (STT paid) of Rs. 5,63,11,783/-(wrongly mentioned by A.O/DRP in their order as “Short Term Capital Gain”), and had not incurred/suffered any Long term capital loss (STT paid) of Rs. 5,63,11,782/-. Application for rectification dated 11.01.2007 filed by the assessee was thereafter disposed off by the DRP, vide his order dated 01.12.2007, wherein referring to Para 2.12 of its order passed u/s 144C(5), dated 28.12.2006, it had rejected the assessee’s claim for rectification, for the reason, that it had already directed the A.O to verify the said claim of the assessee.

Also, the assessee had brought forward the following capital losses from the preceding years which were carried forward for being “set-off” against the income of the subsequent assessment years:

Sr. No. Particulars A.Y. Amount in Rs.
1. B/f Short Term Capital Loss 2009-10 -36,94,17,35,053
2. B/f Short Term Capital Loss 2012-13 -2,32,19,35,857
3. Total Short Term Capital Loss sought to be carried forward -39,26,36,70,910
4. B/f Long Term Capital Loss 2009-10 -1,09,800
5. B/f Long Term Capital Loss 2012-13 -7,62,85,586
6. Total Long Term Capital Loss sought to be carried forward -7,63,95,386

4. Apropos the capital gains earned on transfer of securities in India, the assessee being a tax resident of Mauritius had as per Article 13 of the India-Mauritius Tax Treaty (for short DTAA‟) claimed the same as exempt from tax in India. It was observed by the A.O that on the one hand as per Article 13 of the India-Mauritius tax treaty capital gains derived by a tax resident of Mauritius from trading in securities in India was taxable only in Mauritius, while for on the other hand as per the local tax laws of Mauritius no tax was imposed on capital gains except for those arising from transactions in land and immovable property. As observed by the A.O, the assessee had claimed the benefit of sub-section (1) of Sec.74 of the Act for carrying forward the capital losses pertaining to the same type and nature of income for set-off against future capital gains in subsequent assessment years. Also, it was noticed by the A.O that the assessee had not set-off the brought forward capital losses against the capital gain earned during the year under consideration, which she was of the view violated the very purpose for which the capital losses were being brought forward and carried forward. Observing, that now when the capital gain derived by the assessee being a tax resident of Mauritius was exempt in India, the A.O was of the view that the question of carry forward of capital losses from such transactions would not arise at all either in India or Mauritius. Having held so, the A.O was of the view that as the words “income” or “profits and gains” were to include losses also, therefore, now when Sec. 45 by virtue of the India-Mauritius tax treaty was rendered unworkable in respect of “capital gains” derived by a tax resident of Mauritius from transfer transactions carried out in India, the “capital losses” on a similar footing would also not form part of the “total income” of the assessee, and were thus not required to be computed under the Act. In other words, the A.O was of the view that now when pursuant to the India-Mauritius tax treaty the “capital gains” arising to the assessee, a resident of Mauritius, was not chargeable to tax in India, therefore, the assessee was neither required to show income under that head in its return, nor entitled to file a return showing “capital losses” merely for the purpose of getting the same computed and carried forward to the subsequent years. Excluding the applicability of sub­section (1) of Sec. 74 to the case of the assessee before her, the A.O was of the view that the operation of the said statutory provision was confined to, viz. (i). a loss which arises as the net result of computation under the head “Capital Gains”; and (ii). to “income” which falls within the definition of “total income”. However, as observed by the A.O, as both of the aforesaid conditions in the case of the assessee before her were absent, the provisions of Sec. 74 were thus rendered unworkable in its case. Apart from that, the A.O was of the view that in a case where set-off was not permissible or possible owing to income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be “carried forward”. Also, it was observed by the A.O that as the claim of non-taxability of the capital gains derived by the assessee (a tax resident of Mauritius) from the transfer transactions carried out in India was pursuant to Sec. 90(2) of the Act, which allowed it to be governed by the provisions of the India-Mauritius tax treaty, therefore, it would not be permissible on its part to revert back to the provisions of the I.T Act, 1961 for the loss incurring capital gain transactions. Accordingly, in the backdrop of her aforesaid deliberations the A.O vide her draft assessment order passed under Sec. 143(3) r.w.s. 144C(1), dated 01.03.2016 declined the assessee‟s claim for carry forward of capital losses from transactions of transfer of securities in India, as under:

Sr. No. Particulars A.Y Amount (Rs.)
1. B/f Short Term Capital Loss 2009-10 -36,94,17,35,053
2. B/f Short Term Capital Loss 2012-13 -2,32,19,35,857
3. B/f Long Term Capital Loss 2009-10 -1,09,800
4. B/f Long Term Capital Loss 2012-13 -7,62,85,586
5. Current Long Term Capital Loss (STT Paid) 2013-14 -12,08,15,903
6. Current Long Term Capital Loss (STT Not paid) 2013-14 -5,63,11,782

5. Aggrieved, the assessee objected to the proposed declining of its claim for carry forward of the brought forward capital losses by the A.O, vide his draft assessment order passed under Sec.143(3) r.w.s 144C(1), dated 01.03.2016, before the Dispute Resolution Panel-1, Mumbai (for short DRP‟). After perusing the assessment order passed in the case of the assessee for A.Y. 2012-13, dated 19.03.2015, it was observed by the DRP that the A.O vide his assessment order for A.Y 2012-13 passed u/s 143(3), dated 19.03.2015 had computed the amount of the Short Term Capital Loss (for short STCL‟) to be carried forward by the assessee at Rs.3926,36,70,910/-[Rs.3694,17,35,053/-(STCL b/forward from A.Y 2009-10) Plus  Rs.232,19,35,857/- (STCL of A.Y 2012-13)]. In the backdrop of the aforesaid facts, the DRP was of the view that once the STCL was determined and allowed to be carried forward by the A.O, vide his order passed under Sec. 143(3) in a particular assessment year, the same could not thereafter be reviewed in the assessment proceeding of any subsequent year. In fact, it was observed by the DRP that if the decision of the A.O was to be reviewed, it could be done only under the relevant provisions of the Act, viz. Sec. 263 or any other appropriate provision. Accordingly, in the backdrop of its aforesaid deliberations, it was observed by the DRP that the denial of the carry forward of capital losses or any part of such losses in question (which had already been computed and allowed to be carried forward to subsequent years by the A.O in his order passed under Sec. 143(3), dated 19.03.2015 for A.Y 2012-13) was beyond the jurisdiction of the A.O. As such, the DRP set aside‟ the order of the A.O to the extent he had rejected the assessee‟s claim for carry forward of the losses which were brought forward from the earlier years. At the same time, it was observed by the DRP that the A.O or the authority vested with the requisite jurisdiction would be at a liberty to take recourse to appropriate proceedings for A.Y. 2012-13, if he/she was of the opinion that the losses in question were wrongly allowed to be carried forward in the said year. After so observing, the DRP was of the view that the assessee was in error in not first setting off‟ the capital losses that were brought forward from the preceding years against its income under the head capital gains for the year under consideration. In sum and substance, the DRP was of the view that as per sub-clauses (a) and (b) of sub-section (1) of Sec.74, the capital losses that were brought forward by the assessee from the preceding years were required to be first set-off against the capital gains for the year under consideration, and only the balance amount of capital loss i.e short term or long term could thereafter be carried forward to the subsequent years. Backed by his aforesaid conviction, the DRP was of the view that the STCL of Rs. 3926,36,70,910/- that was allowed to be carried forward by the A.O in the assessment order passed by him under Sec. 143(3), dated 19.03.2015 for A.Y.2012-13, was required to be first adjusted 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 loss would be available for being carried forward to the subsequent years. Further observing, that now when as per Article 13 of the India-Mauritius Tax Treaty the long term capital gain in the hands of the assessee, a tax resident of Mauritius, was exempt from tax in India, the DRP was of the view that the long term capital loss would also be exempt, as income and loss were two sides of the same coin and were similar to each other. Further, the DRP drawing support from certain judicial pronouncements observed that loss from an exempt source can neither be allowed to be set-off nor can be allowed to be carried forward and absorbed against income from taxable source in the subsequent years. In the backdrop of its aforesaid observations the DRP was of the view that Long Term Capital Loss from share transactions in the case of the assessee could not be treated differently from Long Term Capital Gain from similar share transactions, and thus, both had to be treated similarly. Backed by his aforesaid observations, the DRP was of the view that Long Term Capital Losses incurred/suffered by the assessee during the year under consideration i.e A.Y 2013-14 could not have been allowed to be carried forward as claimed by the assessee. In the backdrop of its aforesaid deliberations the DRP upheld the view taken by the A.O as regards declining of the impugned claim of the assessee for carry forward of the Long Term Capital Losses incurred/suffered by it during the year in question i.e A.Y 2013-14. To sum up, the DRP concluded that the assessee was not entitled to carry forward the Long Term Capital Losses for the year under consideration i.e A.Y 2013-14 to the subsequent years. On the other hand, the DRP restricted the carry forward of the STCL brought forward from the earlier years after setting off the same against the short term and long term capital gains for the year under consideration i.e A.Y 2013-14. As regards the objection of the assessee pertaining to levy of interest under Sec. 234C of Rs.65,780/-, the DRP observed that as no variation of the assessee’s income was therein involved, dismissed the same.

6. The A.O after receiving the order passed by the DRP under Sec. 144C(5) of the Act, dated 21.11.2016 therein framed the assessment vide his order passed under Sec.143(3) r.w.s.144C(13), dated 27.01.2017. After giving effect to the DRPs direction the A.O restricted the assessee’s entitlement towards carry forward of the STCL, as under:

Sr. No. Particular A.Y. Amount Short Term Capital Gain (STT Paid) A.Y 2013-14. Losses to be carry forward
1. B/F Short Term Capital Loss 2009-10 -36,94,17,35,053 3,92,43,87,502 33,01,73,47,551
2. B/F Short Term Capital Loss 2012-13 -2,32,19,35,857 2,32,19,35,857

7. For the sake of completeness of facts, it would be relevant to point out, that as the order passed by the DRP u/s 144C(5), dated 21.11.2016, did not contain any directions as regards the assessee’s entitlement for carry forward of the brought forward Long term capital loss of Rs. 7,63,95,386/- [A.Y 2009­10 : Rs. 1,09,800/- (+) Rs. 7,62,85,586/-] of the earlier years, therefore, the assessee filed with the DRP an application for rectification u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009 r.w Sec. 144C(5) of the Act, dated 11.01.2007. DRP vide its order passed u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009, dated 01.12.2007 modified its order, and taking cognizance of the fact that the A.O vide his assessment order passed u/s 143(3) for A.Y 2012-13, dated 19.03.2015 had determined and allowed carry forward of the Long term capital losses of Rs. 7,63,95,836/- to the subsequent years concluded, that the rationale of its finding recorded in the order passed u/s 144C(5), dated 21.11.2016, therein allowing carry forward of STCL of the earlier years would equally apply for carry forward of the Long term Capital losses brought forward by the assessee from the preceding years. At the same time, observing, that the assessee during the year under consideration i.e A.Y 2013-14 had earned Long term capital gain of Rs. 5,63,11,783/-, the DRP directed that the same would be adjusted against the brought forward Long term capital losses of Rs. 7,63,95,386/-, and only the balance Long term capital loss would be carried forward to the subsequent years.

8. The assessee being aggrieved with the order passed by the A.O under Sec. 143(3) r.w.s. 144C(13), dated 27.01.2017 has carried the matter in appeal before us. The ld. Authorized Representative (for short A.R’) for the assessee took us through the facts of the case. As submitted by the ld. A.R, the controversy involved in the present appeal pertains to the assessee’s claim for carry forward of the STCL brought forward from the earlier years, without setting off any part of the same against the capital gain on transfer of securities in India, which admittedly was exempt under Article 13 of the India-Mauritius tax treaty. Also, as submitted by the ld. A.R, the A.O/DRP had erred in declining the assessee’s claim for carry forward of the brought forward Long term capital losses (on which STT was not paid), despite the fact that the same was determined and allowed to be carried forward by the A.O while framing the assessment u/s 143(3) for A.Y 2012-13. It was submitted by the ld. A.R that as per Se. 90(2) of the Act, the assessee as per the beneficial provisions of Article 13 of the India-Mauritius tax treaty had claimed the capital gain arising on transfer of securities in India as exempt from tax. As submitted by the ld. A.R, the A.O had vide his draft assessment order disallowed the assessee‟s claim for carry forward of the capital losses, for the reason, that she was of the view that now when the capital gain was claimed by the assessee as exempt under the India-Mauritius tax treaty, it would thus not be permissible on its part to revert back to the provisions of the I.T Act, 1961 for the loss incurring capital gain transactions. However, as submitted by the ld. A.R, the DRP vide its order passed u/s 144C(5), dated 21.11.2016 observed, that once the STCL was allowed to be carried forward by the A.O, vide his order passed under Sec. 143(3) in a particular assessment year, the same could not thereafter be reviewed in the assessment proceedings of any subsequent year. As such, it was submitted by the ld. A.R that the DRP had vacated the declining of the assessee‟s claim for carry forward of the capital losses. However, as submitted by the ld. A.R, the DRP after so concluding, had observed, that the brought forward losses were to be set off‟ against the capital gain shown by the assessee during the year under consideration i.e A.Y 2013-14, and thus, only the balance amount of capital loss would be available for being carried forward to the subsequent years. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that the issue involved in the present appeal boiled down to the sustainability of the order of the DRP, wherein he had directed that brought forward capital losses were to be adjusted against the capital gains earned by the assessee during the year under consideration i.e A.Y 2013-14, and only the balance amount of such losses were to be carried forward to the subsequent years. It was averred by the ld. A.R, that now when pursuant to Sec. 90(2) of the Act the assessee had claimed the capital gains arising from transfer of securities as exempt under Article 13 of the India-Mauritius tax treaty, there remained no occasion for the DRP to have directed that the brought forward losses of the preceding year be adjusted against such exempt capital gains for the year under consideration. In order to support its claim that the assessee was duly entitled to avail the beneficial provisions of the India-Mauritius tax treaty, the ld. A.R relied on the judgment of the Hon‟ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan (2003) 263 ITR 706 (SC). In order to fortify his aforesaid contention that the assessee‟s claim for carry forward of capital loses brought forward from the earlier years could not have been rejected, on the ground, that the capital gains earned by it during the year under consideration were not exigible to tax under Article 13 of the India-Mauritius tax treaty, the ld. A.R relied on the order of the ITAT, Mumbai in the case of Flagship Indian Investment Co. (Mauritius) Ltd. vs. ACIT (2010) 133 TTJ 792 (Mum). Also, support was drawn by the ld. A.R from the order of the ITAT, Pune in the case of DCIT Vs. Patni Computer Systems Ltd. (2008) 114 ITD 159 (Pune). In the said case, it was observed by the Tribunal that though under the DTAA between India and Japan the assessee‟s income from PE in Japan was taxable in Japan, but by virtue of Sec. 90(2) the assessee could go for taxation of its worldwide income and rightfully claim “set off” of losses from PE in Japan against its income in India. In the backdrop of its aforesaid contentions, it was submitted by the ld. A.R that the assessee was duly entitled to carry forward the capital losses of the earlier years to the subsequent years without adjusting any part of such brought forward losses against the exempt capital gains earned during the year under consideration i.e A.Y 2013-14. Further, our attention was drawn by the ld. A.R to the order of the ITAT, Bangalore in the case of IBM World Trade Corpn. Vs. DDIT 148 TTJ 496 (Bangalore). As regards Grounds of appeal Nos. 4 & 5, the same as stated by the ld. A.R were not being pressed. Further, the ld. A.R assailed the levy of interest u/s 234C of Rs. 65,780/-. It was submitted by the ld. A.R that as per the Explanation‟ to Sec. 234C the interest liability was to be computed after reducing from the amount of the tax due on the returned income, the amount of tax deductible at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction and is taken into account in computing such total income. As claimed by the ld. A.R, that as the assessee had received interest income from Indian Oil Corporation without deduction of tax at source which though was statutorily liable to be deducted, therefore, the A.O had erred in not reducing such amount of tax deductible at source while computing the assessee‟s liability u/s 234C of the Act.

9. Per Contra, the ld. Departmental Representative (for short R‟) relied on the orders of the lower authorities. It was submitted by the ld. D.R that as profits‟ includes losses‟, therefore, now when the capital gain from the transfer of securities was exempt in the hands of the assessee in terms of Article 13 of the India-Mauritius Tax Treaty, a similar treatment was to be given for construing the capital losses‟, which too would thus be exempt. In sum and substance, it was the claim of the ld. D.R that once the assessee had claimed the capital gain on transfer of securities as exempt as per the India-Mauritius Tax Treaty, it could not be thereafter permitted to revert back to the Income-Tax Act, 1961 for the purpose of computing the losses arising from similar transaction in securities. It was submitted by the ld. D.R that no infirmity did emerge from the order of the DRP which had rightly directed that the current year capital gains were liable to be adjusted against the brought forward capital losses, and thus, only the balance amount of the capital losses were to be carried forward to the subsequent years.

10. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements pressed into service by them. Apropos the observation recorded by the A.O in his draft assessment order, that the assessee was not entitled to carry forward the capital losses of the earlier years to the subsequent years, we find that the same has been vacated by the DRP vide its order passed under Sec. 144C(5) of the Act, dated 21.11.2016 w. the order passed u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009, dated 01.12.2007. As the aforesaid observation of the DRP has not been assailed any further by the revenue, the same thus had attained finality.

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 19.03.2015 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 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. Our aforesaid view is fortified by the order of the ITAT, Pune in DCIT Vs. Patni Computer Systems Ltd. (2008) 114 ITD 159 (Pune). We thus in terms of 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 of 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 of 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 2012-13, vide his order passed u/s 143(3), dated 19.03.2015. 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 of 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 19.03.2015, 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 11.01.2017, seeking a direction for carry forward of 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 8Para 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.

14. As the ld. A.R has not pressed the Grounds of appeal Nos. 4 & 5, the same as per the concession of the ld. A.R are thus dismissed as not pressed.

15. We shall now deal with the contention of the assessee that the A.O had erred in law and facts of the case in levying interest under Sec. 234C of Rs.65,780/-. As is discernible from the orders of the lower authorities, the assessee had on 24.09.2012 received interest income amounting to Rs.1,73,91,400/- from Indian Oil Corporation Ltd on which tax was liable to be deducted at source. However, as submitted by the ld. A.R, the payer failed to deduct tax at source on the aforesaid interest income. Accordingly, the assessee on its own computed the tax liability on the interest income @ 21.012% i.e as per the provisions of Sec. 115AD of the Act, and on 12.10.2012 deposited tax amounting to Rs.36,54,281/-. In the backdrop of the aforesaid factual matrix, it was submitted by the ld. A.R that as the aforesaid interest income was liable to be subjected to deduction of tax at source, therefore, the assessee could not have been made liable for interest under Sec. 234C insofar the tax pertaining to said amount of income was concerned. In order to support his aforesaid contention the ld. A.R had drawn our attention to Explanation‟ to Sec. 234C of the Act. Further, reliance was placed by him on the order of the Hon‟ble High Court of Bombay in the case of DIT (International Taxation) Vs. NGC Network Asia LLC (2009) 313 ITR 187 (Bom).

16. We have deliberated at length on the aforesaid issue under consideration and find substantial force in the claim of the ld. A.R. As per the Explanation‟ to Sec. 234C, for the purpose of computing the interest liability therein contemplated, the tax due on the returned income has to be reduced by any tax deductible at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction and is taken into account in computing the total income of the assessee. As observed by us hereinabove, the interest income of Rs.1,73,91,400/- received by the assessee from Indian Oil Corporation Ltd. was liable for deduction of tax at source, which however, was not done by the payer. Accordingly, in our considered view the tax deductible at source on the aforesaid amount of interest income, as stated by the ld. A.R, and rightly so, had to be excluded from the tax due on the returned income for the purpose of computing the interest liability under Sec. 234C of the Act. Our aforesaid view is supported by the judgment of the Hon’ble High Court of Bombay in the case of DIT (International Taxation) Vs. NGC Network LLC (2009) 313 ITR 187 (Bom). In its aforesaid order, it was observed by the Hon‟ble High Court that when a duty is cast on a payer to deduct and pay the tax at source, then on the payers failure to do so interest under Sec. 234B cannot be imposed on the payee assessee. Accordingly, in terms of our aforesaid observations, we are in agreement with the claim of the ld. A.R that the tax deductible at source on the aforesaid interest income received by the assessee from Indian Oil Corporation Ltd. was liable to be excluded at the time of working out the assessee‟s liability towards interest under Sec. 234C. We thus direct the A.O to recompute the interest liability under Sec. 234C in terms of our aforesaid observations. The Ground of appeal No. 6 is allowed as above.

17. The appeal filed by the assessee is allowed in terms of our aforesaid observations.

Order pronounced in the open court on 24.09.2020

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