TMI Blog2020 (9) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... rm 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. Levying interest u/s 234C - HELD THAT:- 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. The interest income 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, 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 u/s 234C - See NGC NETWORK ASIA LLC [ 2009 (1) TMI 174 - BOMBAY HIGH COURT] We are in agreement with the claim of the ld. A.R that the tax deductible at source on the aforesaid interest inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, erred in inadvertently considering that the Appellant has earned short- term capital gains (on which STT is not paid) amounting to ₹ 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 ₹ 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 ₹ 1,73,91,400/-. Subsequently, the case of the assessee was selected for scrutiny assessment under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ₹ 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 ₹ 7,63,95,386/- [A.Y 2009-10 : ₹ 1,09,800/- (+) ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 ₹ 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 D.R ) relied on the orders of the lower authorities. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quent 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 secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 IndiaITA 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 ₹ 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 ₹ 7,63,95,386/- [B/forward LTCL from A.Y 2009-10: ₹ 1,09,800/- (+) B/forward LTCL from A.Y 2012-13 : ₹ 7,62,85,586/-]. Admittedly, the aforesaid Long term capital loss of ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the same would be first set off against the b/forward Long term capital losses of ₹ 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 ₹ 5,63,11,782/- as against the b/forward STCL of ₹ 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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