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TMI Blog2012 (8) TMI 284X X X X Extracts X X X X X X X X Extracts X X X X ..... short term capital loss from sale of shares of Rs. 348,207,4000/-. ♦ Net short term capital loss from sale of shares underlying FCCBs: Rs. 111,660,628/-. ♦ Gains from exchange traded derivative contracts Rs. 472,664,0493/-; The above net resultant gains of Rs. 1,132,905,865/- are claimed as exempt under Article 13(4) of the India-Singapore tax treaty by the assessee. Further the dividend income of Rs. 104,531,125/- is also claimed to be exempt u/s 10(34) of the Act." The A.O. further observed that in the notes to the computation of income, the assessee has claimed that gains of Rs. 304,847,277/- on cancellation of foreign exchange forward contracts is on capital account and not chargeable to tax in India. Without prejudice to this claim, the assessee has claimed that if the income is treated as capital gains, it is not taxable as per Article 13(4) of the India-Singapore tax treaty. If such income is treated as business income, it is not taxable as per Article 7 of the India-Singapore tax treaty as the assessee does not have a permanent establishment in India as defined in Article 5 of the India-Singapore tax treaty. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia-Singapore tax treaty or, at best, qualify as 'business profits' under Article 7 of the India-Singapore tax treaty. Since such gains would fall within one of the Articles expressly covering a specific type of income (i.e. either capital gains or business profits), the gains cannot be classified as 'income from other sources' taxable under Article 23 of the India-Singapore tax treaty." The A.O., however, did not accept the assessee's explanation. According to the A.O. the transaction in forward purchase of foreign exchange and settlement thereby cannot be said to be resulting in capital gains as the same was never held by the assessee as capital asset but meant to be settled by price difference. He further observed that since the assessee is not eligible to carry on business in India as per SEBI regulations the income arising from settlement of forward contracts cannot be treated as business income. He further observed that the income of the assessee from cancellation of foreign exchange forward contracts is neither capital gains income nor business income but 'income from other sources' under Article - 23 of the India-Singapore tax treaty. The A.O. after relying on the appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overs is taxable as 'Income from other Sources' under Article 23 of the treaty. 5. In disregarding the provisions of section 209 of the Act and levying interest under section 234B of the Act. 6. Notwithstanding ground 5 above, in not following the decision of the Bombay High Court (ie jurisdictional High Court) issued in the case of NGC Networks Asia LLC v. DIT (313 ITR 187) and levying interest under section 234B of the Act." 4. At the time of hearing the ld. counsel for the assessee, at the outset, submits that in this case the A.O. while treating the gains as income from other sources has followed the order of the ld. CIT(A) dtd. 28-11-2008 in the case of Citicorp Investment Bank (Singapore) Ltd. for the A.Y. 2005-06 which has been reversed by the Tribunal in the case of Citicorp Investment Bank (Singapore) Ltd. v. Dy. Director of Income Tax (Intl. Taxation) in ITA No. 2877/Mum/2003 & 910/Mum/2009 for assessment years 1998-99 & 2005-06 order dtd. 8-6-2011 wherein the Tribunal after following the order of the Tribunal in the case of Citicorp Banking Corporation, Behrain v. Addl. Director of Income Tax (International Taxation) in ITA No. 6525 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, the gains earned on cancellation of the foreign exchange forward contract are capital receipt or revenue receipt? If it is capital receipt, whether the same should be reduced from the cost of plant and machinery in connection with which the forward contract was entered into?". He further submits that at page 747 of the report the Special Bench has considered the above question as under:- "(i) Whether the gains earned on cancellation of the foreign exchange forward contracts are capital receipt or revenue receipt; and (ii) If gains are capital receipt, whether the same should reduce the actual cost of plant and machinery by virtue of Expln. 3 to s. 43A." The question No. 1 has been answered by the Special Bench vide para 17 appearing at page 755 of the report as under:- "17. Viewed in the backdrop of the aforesaid facts and circumstances, we are inclined to accept the contention of learned counsel for the assessee that the entire activity of entering into and cancellation of forward contracts, which are directly connected with the repayment of foreign currency loans fall in the capital field and gains arising therefrom would, therefore, be capital receipts." He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by both the authorities below. In our opinion, the loss accrued/arose on account of cancellation of foreign exchange forward contract is capital loss having direct nexus with the investment of the assessee and hence the assessee is entitled to set off the same. So far as the reference u/s. 115AD is concerned, in our opinion, the said section decide the quantum of the tax payable by the FIIS on the income from securities or capital gains and it has nothing to do with the determination of the nature of gain or loss, whether same is on account of capital or revenue account. Accordingly, grounds taken by the assessee are allowed." 10. In All India Tea & Trading Co. Ltd. (supra) relied on by the ld. D.R., it has been held (Headnote): "Held, that the assessee used the lands for agricultural purposes and derived agricultural income from the lands at the time of their requisition in 1949. The lands were being used by the landless people, after requisition, for agricultural purposes and were also deriving agricultural income from the lands at the time of their acquisition in 1959. Therefore, at all material times, the lands were agricultural lands and they were held by the assessee as ow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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