Teacher Retirement System of Texas Vs ACIT (IT)-4(1)(2) (ITAT Mumbai)
Income Tax Appellate Tribunal (ITAT) Mumbai Bench has delivered a significant ruling, allowing the Teacher Retirement System of Texas, a United States-based Foreign Portfolio Investor (FPI), to set off short-term capital losses incurred on transactions subject to Securities Transaction Tax (STT) against short-term capital gains derived from transactions where STT was not paid. The decision, pronounced on May 23, 2025, for the assessment year 2022-23, effectively overturned the earlier stance of the Assessing Officer (AO) and the Dispute Resolution Panel (DRP).
The case originated from the assessee’s tax return for the assessment year 2022-23, filed on July 26, 2022, declaring a total income exceeding INR 1,392 crore. During the scrutiny assessment, it was observed that the assessee had computed its net short-term capital gains (STCG) by first adjusting short-term capital losses (STCL) arising from STT-paid transactions (taxable at 15% under Section 111A of the Income Tax Act, 1961) against STCG from non-STT transactions (taxable at 30% under Section 115AD). The remaining loss, if any, was then set off against STCG from STT-paid transactions. This methodology effectively prioritized setting off higher-taxed gains with losses first.
The tax authorities, however, took a different view. The AO, in a draft assessment order dated March 14, 2024, challenged the assessee’s approach. The AO argued that Section 111A and Section 115AD of the Act operate in distinct spheres due to their differing tax rates. It was contended that Section 115AD, being a special provision specifically for FPIs, overrides the general provision of Section 111A. Consequently, the AO asserted that STCL arising from STT-paid transactions (taxable at 15%) should primarily be set off against STCG also taxable at 15%. This re-computation by the AO resulted in a higher taxable STCG for the assessee.
