TMI Blog2023 (10) TMI 1013X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 to Section 74, it can be seen that the Legislature itself has recognized LTCG/LTCL and STCG/ STCL to be two distinct sources owing to computational dissimilarities. Accordingly, the Assessee, by virtue of the provisions of section 90(2) of the Act is eligible to claim the beneficial provisions of the Treaty in respect of STCG and with regard to LTCL, the assessee has only option to apply the provisions of section 74 of the Act, accordingly chose to carry forward LTCL. In this regard, for the proposition that a taxpayer is able to choose the provisions of the Act or those of the Treaty for different sources of income, reliance is placed on decision of Bangalore ITAT in case of IBM World Trade Corpn. [ 2020 (10) TMI 367 - KARNATAKA HIGH COURT] - In this case, it is held that in case of multiple sources of income an Assessee is entitled to adopt provisions of the Act for one source of Income while applying the provisions of DTAA for the other source. It is clear that source of income has a direct nexus with the stream out of which the income springs to the assessee. The heads of income are provided to aggregate similar incomes derived from different sources for deduction and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blic company limited by shares. The Assessee is a tax resident of Mauritius under the India - Mauritius Double Taxation Avoidance Agreement (DTAA). It invests in Indian securities directly under the Foreign Direct Investment (FDI) route or indirectly through its subsidiaries. The case was referred to the Transfer Pricing Officer (in short TPO ) u/s 92CA of the Act for determination of Arm's Length Price in relation to the international transaction. 4. Assessing Officer observed from the Computation of total income, that under the head Capital Gains , Assessee had carried forward the long term capital loss on sale/redemption of Shares amounting to ₹.14,35,11,469/- but has claimed the Short Term Capital Gains on sale/redemption of Shares amounting to ₹.2,19,26,65,193/- as exempt under Article 13 of the India-Mauritius Tax Treaty. Thus, the Assessee had opted for the benefit of DTAA of India-Mauritius Treaty and at the same time the benefit under Income Tax Act, 1961. 5. The Assessing Officer observed that as per Article 13 of the DTAA between India and Mauritius, gains derived by a resident of a contracting State from the alienation of any property other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is no bar on the Assessee to elect to be governed by the provisions of the Act or the DTAA. It is not for the AO to speculate that there would be no taxable income for the Assessee, and hence there is no point in carrying forward losses. 7. After considering the detailed submissions of the assessee, Ld.DRP decided the issue against the assessee with the following observations: - 5.1 During the impugned assessment year, the assessee earned long term capital loss and short term capital gains. The assessee has claimed that short-term capital gains as exempt from tax in India in accordance with Article 13(4) of the India Mauritius DTAA. However, the assessee has sought to carry forward the long-term capital losses. As per the arguments advanced by the assessee, it is permissible to adopt either the provisions of the Income Tax Act or the Article of DTAA, depending on which is more beneficial to the assessee, even when both the streams are assessable under a single head of income. 5.2 We have carefully considered the submissions made by the assessee. During the financial year concerned, the assessee had sold Indian equities. While some of the transactions have re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it has been held that, From changing provisions of the Act, it is discernible that the words income or profit and gains should be understood as including loses also, so that, in one sense profits and gains represent plus income whereas loses represent minus income . In other words, loss is negative profit. Both must enter into computation, whereas it becomes material, in the same mode of the taxable income of the assessee. As losses have not been specifically excluded in the Article 13, the word 'Gains' will also include Losses'. Further the Article makes no distinction between short term or long term nature of income. 5.5 Section 90(2) of the Income Tax Act provides that, where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub- section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. 5.6 Thus the assessee has a choice to be governed eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... separately for the different royalty agreements. The issue was rates applicable under the Income Tax Act for agreements entered into before and after the cut off. This was not an issue of selective interpretation of treaty and domestic law. Hence, it has no applicability in the facts of the present case. 5.10 In the case of Foramer S.A. [1995] 52 ITD 115 (Delhi), the issue was of determining the profit of PE as per treaty and the dispute was as to how claim for depreciation was to be computed. Assessee wanted it to be computed as per applicable IT Depreciation rate. The Treaty does not specify and rate. The Treaty also mentions where any term is not defined the same can be as per the Domestic Tax Laws. This decision again is not on the issue before us and is not relevant. 5.11 In the case of British Airways Plc [2002] 80 ITD 90 (Delhi), the issue was taxability of income from ground/ engineering services which was held to be not forming part of Transportation of Goods and Persons and thus not covered by Article 8 of Treaty. This decision is clearly not relevant and does not support the case of assessee. 5.12 In view of the foregoing discussion, it is held that Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce the Assessee elected to apply the provisions of section 90(2) of the Act with respect to short-term capital gains, it cannot revert to the provisions of the Act only for the purpose of carry forward of long-term capital losses. 3. Erred in stating that the Assessee had not responded to the show cause notice dated 13 September 2021, without considering the request of the Assessee, dated 22 September 2021, seeking additional time in making the submission as the learned AO had served the notice on an e-mail id that was not in use. The correct e-mail id was communicated to the learned AO vide letter dated 19 April 2021. 9. At the time of hearing, Ld. AR of the assessee brought to our notice facts of this case that assessee has earned short term capital gain which is not taxable in India as per India-Mauritius Tax Treaty and assessee has incurred long term capital loss which assessee is applying/making the option of carrying forward losses u/s. 74 of the Act. He submitted that assessee has an option to apply the provisions of Income-tax Act, 1961 or treaty whichever is beneficial to the interest of the assessee, this is a settled proposition. Further, he brought to our not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,620 3. On sale of shares of India Finserve Advisors Private Limited (refer Exhibit 3) (12,387,266) 4. Sale of shares of Fincare Business Services Private Limited (refer Exhibit 4) 1,936,359,461 5. Sale of shares of DishaMicrofin Private Limited (refer Exhibit 5) 217,602,934 Net short-term capital gains claimed exempt under Article 13 of IM Treaty (B) 2,192,665,193 3. All the purchase and sale transactions giving rise to these capital gains have been entered before 1 April 2017. 4. In the return of income for AY 2017-18, the gains/ losses have been shown as depicted below. Short-term capital gains of INR 2,192,665,193 have been claimed as not taxable in India taking recourse to Article 13(4) of the India Mauritius Tax Treaty (IM Treaty). The IM Treaty read with the Protocol dated 10 May 2016 amended Article 13 of the IM Treaty to inter alia provide for taxing gains earned fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... option which is more favourable to it so that it could avail the benefit of concessional rate of tax on the long term capital gains 52. Therefore, the question is answered in favour of the assessee and against the Revenue. 7. Further, reliance in this regard is also placed on the following decisions, wherein it has been held that each stream of income has to be looked into separately and assessee can decide whether to claim beneficial of Act vs treaty on different streams of income: DCIT v. Patni Computer Systems Limited (2008) 114 ITD 159, (Refer Pg. No 84 to 89 of the Legal Paper book) (Refer para 8) ACIT v J. P. Morgan India Investment Company Mauritius Ltd (ITA No. 2382/Mum/2021) dated 27 September 2022 (Refer Pg. No. 50 to 59 of the Legal Paper book); Swiss Finance Corporation (Mauritius) Limited (ITA No. 1338/MUM/2021 and 2449/MUM/2021) dated 7 October 2022 (Refer Pg. No. 60 to 71 of the Legal Paper book) (Refer Para 10); Goldman Sachs Investments (Mauritius) Ltd. (ITA No. 2201/Mum/2017) dated 24 September 2020; and Bluebay Mauritius Investment Limited (ITA No. 1369/Mum/2021 and ITA No. 1370/Mum/2021) dated 29 April 2022. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the records that assessee is a company incorporated in and a tax resident of Mauritius engaged in investment activities in India through the Foreign Direct Investment Route or through subsidiaries. It holds a valid Tax Residency Certificate (TRC) issued by the Mauritian Tax Authorities. During the financial year ended 31st March 2017, the Assessee has earned gains/ incurred losses on the alienation of shares of Indian companies (not subject to security transaction tax) as under: - Sr.No Particulars Amount (in INR) Amount (in INR) A Long-term capital gains / (losses) 1. On swap of shares of DishaMicrofin Private Limited for Fincare Business Services Private Limited (refer Exhibit 1) 205,559,302 2. On swap of shares of Future Financial Services Limited for Fincare Business Services Private Limited (refer Exhibit 2) (298,053,929) 3. On sale of shares of India Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Act or Treaty Provisions is qua stream of income, in terms of section 90(2) of the Act, the assessee is eligible to apply the provisions of the Act or the Treaty, whichever is more beneficial to it. We observe that as per the Article 13 of the India-Mauritius Treaty, gains derived by a resident of Mauritius from the alienation of shares shall be taxable only in Mauritius. Unlike other Articles, such as Article 10 Dividend', Article 11 'Interest or Article 12- 'Royalty (which are specifically to be taxed on gross basis), Article 13 dealing with Capital Gains only allocates the taxing rights between India and Mauritius and does not regulate the quantification and computation of capital gains. This issue is left entirely to the sovereigns. 16. We observe that the charging provisions in respect of Capital Gains are contained in section 45 of the Act. The provisions of section 48 to 51 of the Act have laid down the computation mechanism. In respect of capital gains for, two classes of assets viz long term and short term assets. Classification of capital assets between long and short term is determined depending on the period of holding. Further, taxation of STCG and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Treaty in respect of STCG and with regard to LTCL, the assessee has only option to apply the provisions of section 74 of the Act, accordingly chose to carry forward LTCL. 19. In this regard, for the proposition that a taxpayer is able to choose the provisions of the Act or those of the Treaty for different sources of income, reliance is placed on decision of Bangalore ITAT in case of IBM World Trade Corpn. v. DDIT (IT) [2012] 20 taxmann.com 728 (Bangalore). In this case, it is held that in case of multiple sources of income an Assessee is entitled to adopt provisions of the Act for one source of Income while applying the provisions of DTAA for the other source. The assessee has invoked the benefit of the Treaty only in respect of royalty income arising from the agreements entered into before 1-6-2005. In respect of agreements entered into on or after 1-6-2005, the assessee has offered royalty income at the rate of 10 per cent as per the provision of section 115JA. The concerned contracts are different: the source of income is different; and the provisions under which royalty income is taxable, are different and the assessee was, therefore justified in offering the royalty i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/loss are different sources of income, falling under the same head 'Capital gains . 22. Therefore, it is clear that source of income has a direct nexus with the stream out of which the income springs to the assessee. The heads of income are provided to aggregate similar incomes derived from different sources for deduction and taxation purposes. In the head of income Capital Gains , the short-term and long-term assets are different sources of income, but each transaction constituting the short-term and long-term assets are different sources of income. Accordingly, gains / losses arising from different transactions are distinct transactions and a separate source of income; accordingly, STCG / STCL and LTCG / LTCL are distinct and separate streams of income arising to an assessee. Section 90(2) of the Act provides the provisions of the Act or the provisions of the Treaty, whichever are beneficial, shall apply to the assessee. As held by the Bangalore ITAT and affirmed by the Hon'ble Karnataka High Court in case of IBM World Trade Corporation (supra), the provisions of section 90(2) of the Act will apply to each stream of income and not the head of income. Respectf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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