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TMI Blog2024 (6) TMI 1459X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed as not eligible for tax under the Tax Treaty of INR 26,36,44,954 and then considering balance long term capital gains of INR 7,40,25,496 as not chargeable to tax under the Tax Treaty. 2. The Assessing Officer/DRP ought to have accepted the position that the Appellant had adopted in its tax return viz, if the long term capital gains on sale of equity shares acquired prior to April 1, 2017 as not chargeable to tax in terms of Article 13 and set off of Rs 4,60,73,065 being the long term capital loss for the AY 2019-20 and AY 2020- 21 against the long term capital gains that were eligible to tax in terms of Article 13. 3. The tax effect due to the above results in additional tax on account of addition of INR 4,60,73,065 as long-term capital gains and disallowance of carried forward loss of INR 14,35,46,393 and the refund has reduced by that effect. 4. The Appellant does not agree with the adjustment by the Assessing Officer and DRP, that the brought forward long-term losses should be first set-off against exempt long term capital gains under the Tax Treaty and only balance capital gains should be claimed as exempt under the Tax Treaty. 5. Without prejudice to the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP is accepted and levied the tax accordingly. Being aggrieved on final assessment order the assessee filed an appeal before us. 4. The Ld.AR argued and placed that the assessee claimed as exempt grandfathered LTCG amount toRs.26,36,44,954/- in pursuance of DTAA. The extract of the Article 13(4) of the India Mauritius Treaty is reproduced as under: - "4. Gains derived by the resident of a Contracting State from the alienation of any property other than those mentioned in paragraphs (1), (2) and (3)of this article shall be taxable only in that State." The Ld.AO wrongly adjusted this exempted income with the brought forward losses. The exempted income is earned from the grandfathered capital gain. The rest of the amount of non-grandfathered capital gain amount to Rs.4,60,73,065/which is taxable in India. Further rest of the non-grandfathered short term capital gain amount of Rs.8,15,63,722/- is also treated as taxable income and tax @15% after adjusting with brought forwarded loss. 4.1. The Ld.AR respectfully relied on the order of the co-ordinate bench of ITAT, Mumbai Tribunal in the case of DCIT (International Taxation) vs Swiss Finance Corporation (Mauritius) Ltd. [2023] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 19-3-2015 for A.Y 201213, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 : 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 19-3-2015. 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 21-112016. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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." (Emphasis Supplied). 10. In the present case, there was no dispute that the Assessee was entitled to claim the benefit of exemption from tax in India granted by Article 13(4) of the DTAA in respect of Short/Long Term Capital Gains arising during the relevant previous year. The contention of the Revenue was that the aforesaid benefit of Article 13(4) of DTAA could only be claimed in respect of net/balance Short/Long Term Capital Gains after setting off Brought Forward Short/Long Term Capital Gains in terms of Section 74 of the Act. The Tribunal had, in the case of Goldman Sachs Investments (Mauritius) Ltd. (supra), rejected the aforesaid contention of the Revenue holding that the Assessee was entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement. Thus, these losses were therefore computed under the provisions of the Act, as in those earlier years, the Assessee chose not to be governed by provisions of the treaty for those years but by the provisions of the Act. These provisions included the provisions of section 74 of the Act which deal with carry forward and set off of these losses. 29. In so far as reliance placed by Ld. DR in the case of R. M. Muthaiah (supra), the Hon'ble Court has clearly held as under:- "When a power is specifically recognized as vesting in one, exercise of such a power by others, is to be read, as not available; such a recognition of power with the Malays/an Government, would take away the said power, from the Indian Government; the Agreement thus operates as a bar on the power of the Indian Government in the instant case. This bar would operate on ss. 4 and 5 of the IT Act, 1961." 4.3. Reliance is also placed in the case of Goldman Sachs Investments (Mauritius) Ltd. Vs DCIT (international Taxation)-2(3)(2) [2020] 120 taxmann.com 23 (Mumbai-Trib). The relevant paragraphs are as follows: - "12. We shall first deal with the grievance of the assessee that as to whether the A.O/DRP were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtained 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 setoff 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B.M. Kamdar, In re [1946] 14 ITR 10 (Bombay), it is imperative to emphasize that "Capital Gains" as part of "Total Income" for an A.Y. is to be computed as per provisions of the Domestic Act and the during that process, the question of Treaty benefit does not arise, since Treaty does not lay down any computation mechanism. The option of provisions of Treaty v. Domestic Income Tax Act application is subsequent to the determination of the net "Capital Gains" which forms the "Total Income". Further, in this case, the Approach of the applicant endeavors to take benefit of Domestic Income Tax Act and DTAA simultaneously, not permissible. In light of the above decision of the Hon'ble Apex Court and High Court, with due respect to the decision of the Hon'ble ITAT and bowing before it with reverence; a distinction is prayed from the cases relied upon by the Applicant." 6. We heard the rival submission and perused the documents available on record. There is no dispute that the assessee is entitled to get exemption under Article13(4) of DTAA amount to Rs. 26,36,44,954/-. But the dispute between the parties is whether it will be adjusted with the brought forwarded loss or not. Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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