G S STRATEGIC INVESTMENTS LIMITED ,MUMBAI vs. ACIT INTERNATIONAL TAX CIRCLE 2(3)(2), MUMBAI

During the financial year ended 31 March 2023, relevant to the assessment year 2023-24, the assessee earned (i) long- term capital gains from sale of shares of an Indian company, National Stock Exchange of India Limited, amounting to ₹442,23,11,492, and (ii) dividend income from NSE Limited amounting to ₹8,29,50,000. The assessee filed its return of income electronically declaring total income of ₹8,29,50,000 (representing dividend income) and discharged tax thereon. As regards the long-term capital gains of ₹442,23,11,492, the assessee claimed the same as not chargeable to tax in India under Article 13(4) of the India–Mauritius DTAA as amended, on the premise that gains from alienation of shares acquired prior to 1 April 2017 in a company resident in India are taxable only in Mauritius.

The factual foundation for invoking Article 13(4) is also not in dispute. The assessee had acquired a total of 22,50,000 shares in NSE Limited by way of purchase from various sellers on 30 March 2007, i.e., much prior to 1 April 2017. Subsequently, NSE Limited undertook subdivision of shares in November 2016, whereby equity shares of face value ₹10 each were sub-divided into equity shares of face value ₹1 each, resulting in the assessee holding 2,25,00,000 shares post-split. Out of these holdings, the assessee sold 19,75,000 shares during the previous year relevant to the year under appeal. The assessee‟s case, as consistently maintained, is GS Strategic Investments Limited that the shares sold during the year are from the pool of shares acquired on 30 March 2007, and therefore the gains fall within the grandfathering protection of Article 13(4) and are not chargeable to tax in India.

The assessee also had brought forward long-term capital losses aggregating to ₹344,47,12,905, pertaining to assessment years 2017-18 and 2018-19. These losses were computed under section 112 (no STT paid), were carried forward as per section 74, and it is specifically asserted that in those years the assessee had opted to be governed by the provisions of the Act and not the India–Mauritius DTAA; the returns for AY 2017-18 and AY 2018-19 were accepted without any additions. Since, according to the assessee, the net taxable capital gains for AY 2023-24 were nil (the gains being not chargeable under the Treaty), the entire brought forward long-term capital losses were carried forward without set-off.

The assessment was concluded by passing a draft assessment order dated 13 March 2025 under section 144C, whereby the Assessing Officer proposed to adjust/set-off brought forward capital losses of ₹156,47,32,628 against the long-term capital gains of ₹442,23,11,492 which the assessee claimed as not chargeable under Article 13(4) of the India– Mauritius DTAA. Against the proposed variation, the assessee filed objections before the Dispute Resolution Panel. The DRP noted that the issue is recurring in nature and that the Tribunal has ruled in favour of the assessee on the question

Pursuant to the DRP directions, the Assessing Officer passed the final assessment order dated 14 July 2025 under section 143(3) read with section 144C(13), wherein the exempt/not chargeable long-term capital gains from sale of NSE shares for AY 2023-24 were adjusted/set off against the

Before us, the assessee‟s submissions, in substance, are that section 74 contemplates set-off of brought forward long- term capital losses only against “income, if any, under the head „Capital gains‟ assessable for that assessment year” and therefore the existence of taxable/assessable capital gains is a jurisdictional precondition for set-off; where the capital gains are not chargeable to tax in India by virtue of treaty allocation of taxing rights, there is no “assessable” income under the head “Capital gains” in India, and consequently, there can be no occasion to adjust brought forward losses against such non-chargeable gains. It is further urged that DTAA provisions prevail over domestic law by virtue of section 90(2), and that the treaty cannot be thrust upon an assessee; equally, the assessee is entitled to choose, year-wise, between the Act and the DTAA, whichever is more beneficial, and the choice exercised in earlier years does not estop the assessee from invoking treaty protection in a subsequent year. In support, reliance is placed on the jurisdictional Mumbai Tribunal decision in Goldman Sachs Investments (Mauritius) Ltd. v. DCIT, International Tax [2020] 120 taxmann.com 23 (Mumbai - Trib.) and the line of consistent coordinate bench decisions following the same, including: Goldman Sachs (Singapore) Pte. Ltd., & 2063/Mum/2025 (order dated 10.10.2025); J.P. Morgan India Investment Company (Mauritius) Ltd. [2022] 143 taxmann.com 82 (Mumbai - Trib.); Atyant Capital India Fund - I, ITA No.

The Assessing Officer‟s reasoning, as emanating from the final assessment order, proceeds on the premise that the determination of income/loss has to be made for an assessment year in full; that total income is first to be computed under the Act by aggregating and netting gains and losses (including brought forward losses) and thereafter treaty benefit is to be applied; that an assessee cannot, on one hand, claim income as exempt/not chargeable under DTAA and, on the other, carry forward losses of the same nature under domestic law; and that section 74 requires the assessee to first set off long-term capital losses against long-term capital gains and carry forward only the balance. It is also noted by the Assessing Officer that appeals have been preferred by the Department before the Hon‟ble Bombay High Court in group cases. Reliance has also been placed on certain decisions including Harprasad & Co. Pvt. Ltd. [99 ITR 118 (SC)] and Kishorebhai Bikhabhai Virani, Tax Appeal No. 440 of 2013 (Gujarat High Court).

We have carefully considered the rival submissions, perused the record, and examined the statutory scheme and binding precedents. In our considered view, the controversy is to be resolved by first principles governing (i) chargeability

Section 90(2) embodies, in clear legislative language, the principle that where India has entered into an agreement with a foreign country for avoidance of double taxation, then, in relation to an assessee to whom such agreement applies, the provisions of the Act shall apply only to the extent they are more beneficial to that assessee. The consequence is not merely a remedial right akin to a post-computation rebate; rather, the treaty may operate at the plane of chargeability itself, by allocating taxing rights between contracting states. Where the treaty allocates exclusive taxing rights to the state of residence, the source state‟s domestic charging provisions cannot be pressed into service to tax that income, for the taxing jurisdiction itself is curtailed by the international obligation, as statutorily incorporated by section 90.

Article 13(4) of the India–Mauritius DTAA, as amended by the 2016 Protocol, provides, in substance, that gains from alienation of shares acquired prior to 1 April 2017 in a company resident in India shall be taxable only in Mauritius. In the present case, it is undisputed that the shares of NSE Limited were acquired by the assessee on 30 March 2007, i.e., well before 1 April 2017, and the gains in the year under consideration arise from the alienation of such shares. The Revenue has not disputed the date of acquisition, the GS Strategic Investments Limited applicability of the grandfathering clause, or the assessee‟s entitlement to treaty protection on this aspect. Thus, the gains of ₹442,23,11,492 are not chargeable to tax in India.

Once this premise is accepted, the next question is whether, notwithstanding non-chargeability of such gains, the Assessing Officer can still “compute” capital gains under the Act as if taxable, and then forcibly adjust brought forward losses against it, thereby reducing the quantum of carry forward losses. In our view, such a course is impermissible, for it seeks to deploy a non-chargeable treaty-protected income as a notional base to absorb otherwise valid carried forward losses, effectively neutralising a part of the treaty benefit by indirection.

The statutory language of section 74 is of great significance. Section 74 provides that where, in respect of any assessment year, the net result of computation under the head “Capital gains” is a loss, the whole loss shall, subject to other provisions, be carried forward, and in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head “Capital gains” assessable for that assessment year in respect of any other capital asset not being a short-term capital asset. The phrase “income, if any, … assessable for that assessment year” is not ornamental; it is the statutory condition which triggers the set-off mechanism. The legislative intent is plain: set-off is

In the present year, by reason of Article 13(4) read with section 90(2), the long-term capital gains in question are not chargeable to tax in India and, in that sense, are not assessable income under the head “Capital gains” in India for the purpose of section 74. If the income itself is outside the charge, the machinery for set-off against that income cannot be activated, because there is nothing “assessable” against which the set-off can operate. A contrary interpretation would mean that the statute compels set-off even against non- taxable or non-assessable income, which would be an impermissible expansion of the set-off machinery beyond its textual boundary.

The Assessing Officer‟s approach that total income must first be computed under the Act by netting gains and losses and thereafter DTAA benefit is to be granted, proceeds on an inverted understanding of the treaty‟s role. A treaty, where applicable, is not merely a final stage relief; it can define the very chargeability of an item of income in the source state. If the item is not chargeable in India by virtue of the treaty, it cannot be brought into the computation as a taxable base for the limited purpose of absorbing losses, because that would, in effect, achieve through computation what the treaty prohibits through chargeability.

This precise issue is no longer res integra at the Tribunal level, particularly in the jurisdictional Mumbai

The principle laid down in Goldman Sachs Investments (Mauritius) Ltd. (supra) has been consistently followed in subsequent decisions cited by the assessee, inter alia: Goldman Sachs (Singapore) Pte. Ltd., & 2063/Mum/2025 (order dated 10.10.2025); J.P. Morgan India Investment Company (Mauritius) Ltd. [2022] 143 taxmann.com 82 (Mumbai - Trib.); Atyant Capital India Fund - I, (order dated 28.08.2025); and Flagship Indian Investment Co. (Mauritius) Ltd. v. ACIT

The Revenue‟s submission regarding pendency of appeals before the Hon‟ble Bombay High Court does not dilute the binding character of the coordinate bench decisions so long as there is no stay of operation and no reversal by a higher forum. Judicial discipline requires that a coordinate bench follow the view consistently taken by other coordinate benches, particularly when the decisions are jurisdictional and cover the issue squarely on facts and law.

As regards the Assessing Officer‟s argument that the assessee is taking inconsistent positions claiming exemption for gains under DTAA in the current year and yet seeking to carry forward losses computed under the Act in earlier years this objection, though rhetorically attractive, is legally unsustainable. The Act itself, through section 90(2), confers a year-wise option to apply the Act or the DTAA, whichever is more beneficial, and there is no statutory compulsion that once the domestic law is chosen in one year, the treaty must be abandoned forever, or vice versa. Taxation under the Act is inherently year-specific; rights and liabilities are determined on an assessment-year basis. If, in earlier years, the losses were computed under domestic law, accepted, and quantified, they become eligible losses for carry forward under section GS Strategic Investments Limited 74. The subsequent year‟s choice to invoke treaty protection for gains cannot retrospectively re-characterise or extinguish the already quantified losses, nor can it justify a forced set-off against non-chargeable gains in the treaty year.

The reliance placed by the Assessing Officer on Harprasad & Co. Pvt. Ltd. [99 ITR 118 (SC)] is, in fact, of no assistance to the Revenue; on the contrary, the underlying proposition supports the assessee‟s case. The Supreme Court, while dealing with the scheme of capital gains, explained that set-off and carry forward provisions operate within the domain of taxable income and cannot be pressed into service to adjust against gains that are not taxable. The illustrative reasoning in Harprasad underscores that if capital gains are not taxable in subsequent years, a prior year‟s capital loss cannot be compelled to be absorbed against such non-taxable gains; the answer, as the Court observed, would be in the negative. Thus, the Supreme Court‟s exposition reinforces the principle that the set-off machinery does not run against non- taxable or non-assessable gains.

The reliance on Kishorebhai Bikhabhai Virani (Tax Appeal No. 440 of 2013, Gujarat High Court) has been specifically distinguished by the assessee on facts, and we find merit in such distinction. In that case, the context related to losses connected with section 10(38) regime; whereas, in the present case, the brought forward losses are computed under section 112 (no STT paid) and carried forward under section 74, and the gains in the current year are not

We also find the DRP‟s approach of affirming the addition “to keep the issue alive” to be legally untenable. An addition cannot be sustained merely to preserve a point for further litigation when binding precedent at the Tribunal level covers the matter; the adjudicatory duty is to decide according to law as it stands, and not to maintain an addition as a procedural placeholder. Respect for higher judicial fora does not translate into sustaining an adjustment contrary to binding coordinate bench decisions in the absence of a contrary ruling of a superior court.

In view of the aforesaid discussion, and respectfully following the consistent view of the jurisdictional Mumbai Benches, particularly Goldman Sachs Investments (Mauritius) Ltd. v. DCIT, International Tax [2020] 120 taxmann.com 23 (Mumbai - Trib.), and the subsequent decisions including Goldman Sachs (Singapore) Pte. Ltd., & 2063/Mum/2025 (order dated 10.10.2025), J.P. Morgan India Investment Company (Mauritius) Ltd. [2022] 143 taxmann.com 82 (Mumbai - Trib.), Atyant Capital India Fund - I, (order dated 28.08.2025), and Flagship Indian Investment Co. (Mauritius) Ltd. v. ACIT [2010] 133 TTJ 792 (Mumbai), we hold that the long-term capital gains of ₹442,23,11,492 arising to the assessee from sale of shares of NSE Limited acquired prior to 1 April 2017 are not chargeable to tax in India under Article 13(4) of the GS Strategic Investments Limited India–Mauritius DTAA; consequently, there is no occasion, in law, to adjust or set off brought forward long-term capital losses against such non-chargeable gains; and the assessee is entitled to carry forward the entire brought forward long-term capital losses in accordance with section 74 of the Act.

Accordingly, the impugned adjustment of ₹156,47,32,628 made by the Assessing Officer by setting off the brought forward long-term capital losses against the treaty-protected capital gains is deleted. The Assessing Officer is directed to allow carry forward of the entire eligible brought forward long-term capital losses, as claimed, in accordance with law.

In the result, the appeal of the assessee is allowed.