ASSTT. COMMISSIONER OF INCOME TAX IT 3.1.2, KAUTILYA BHAWAN, MUMBAI vs. KUWAIT INVESTMENT AUTHORITY, MUMBAI
Before: SHRI SAKTIJIT DEY, HONBLE & SHRI GIRISH AGRAWALAssessment Year: 2020-21
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal filed by the Revenue is against the order of Ld. CIT(A)- 57, Mumbai, vide order no. ITBA/APL/S/250/2025- 26/1075401143(1), dated 01.04.2025, passed against the assessment order by Assistant Commissioner of Income-tax (International Taxation), Circle-3(1)(2), Mumbai, u/s. 143(3) r.w.s.144C(3)of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 30.11.2022, for Assessment Year 2020-21. 2. Grounds taken by the Revenue are reproduced as under:
(i) Whether considering the facts and circumstances of the case, the Ld. CIT(A) is correct in holding that the set-off of Short-Term Capital Losses can be carried
2
Kuwait Investment Authority
Assessment Year 2020-21
out against income/gain not arrived from similar computation and which are taxable at different rates of taxes.
(ii) Whether on the facts and in the circumstances of case, and in law, the Ld.
CIT(A) was erred in treating the assessee as corporate entity instead of 'Non- corporate entity without appreciating the fact that the PAN of the assessee is obtained as a Trust' and not a 'Company?
(iii) Whether on the facts and in the circumstances of case, and in law, the Ld.
CIT(A) was erred in not appreciating the fact that the assessee itself has communicated that the assessee is a non-corporate entity due to which it do not hold DSC to file online Form 35?
(iv) Whether on the facts and in the circumstances of case, and in law, the Ld.
CIT(A) was erred in not appreciating the fact that incorporation document available on the website of Kuwait Investment Authority does not stipulate that the assessee is a corporate entity?
(v) Whether on the facts and in the circumstances of case, and in law, the Ld.
CIT(A) has failed to appreciate the fact that the assessee itself has obtained the PAN meant for non-corporate entities including "Trust' and the assessee is regularly filing return of income in the form ITR-5 stipulated for the entities other than Company"?
(vi) Whether on the facts and in the circumstances of case, and in law, the Ld.
CIT(A) was failed to appreciate that every year is a separate and independent for the purpose of income-tax proceedings and is not bound by doctrine of res- judicata?
(vii) Whether on the facts and in the circumstances of case, and in law, the Ld.
CIT(A) was erred in holding that the Assessing Officer was not in consistent with the stand taken in previous years without appreciating the fact that the impugned issue was never deliberated upon in any assessment proceedings and it is the assessee only who highlighted the issue in AY2008-09 by filing appeal before the ITAT pursuant to levy of higher tax due to change in surcharge rate for non-company entities which was higher in comparison to that of the company cases?
(viii) Whether on the facts and in the circumstances of case, and in law, the Ld
CIT(A) was erred in not appreciating fact that the Assessing Officer has passed rectification order ws. 154 treating the assessee as company merely to comply with the order of Hon'ble ITAT in the assessee's case on the impugned issue and said decision was not accepted in principle by the Department?.”
Essentially only two issues are involved in the present appeal filed by the revenue. Ground No.(i) deals with first issue relating to set off of Short Term Capital Loss (STCL) against income/gain not arrived from similar computation taxable at different rates of tax. Second
3
Kuwait Investment Authority
Assessment Year 2020-21
issue is dealt by Ground Nos. (ii) to (viii) whereby Assessee is treated as corporate entity instead of non-corporate entity.
Brief facts of the case are that assessee (KIA) was set up by a decree issued by the Amir of Kuwait (the head of the State) in the year 1982 and has been entrusted with the responsibility of managing the investment of General Reserve Fund and Future Generations Reserve Fund of the Government of Kuwait. Assessee and its sub-funds are registered as Category I Foreign Portfolio Investors (‘FPI’) with Citibank N.A., Mumbai, an approved Designated Depository Participant registered with Securities Exchange Board of India (‘SEBI’). The portfolio being multi managed accounts is eligible for concessional tax rates for FII as per Section 115AD of the Act. Assessee and its sub- funds invest in securities of Indian companies which were held on investment account. These sub-funds do not have any legal existence separate from that of KIA. Therefore, the gains/(losses) of each of these sub-funds, if any, are the gains/(losses) of the assessee. 4.1 Assessee filed its return of income on 06.01.2021, reporting total income at Rs.19,55,240/-. Assessee had shown net Long Term Capital Loss of Rs.209,90,78,548/-besides interest income and exempt dividend income. Assessee has Short Term Capital Gain of Rs.1019,76,71,709/- and loss of Rs.1178,60,80,410/- on STT paid shares, resulting in net loss on STT paid shares of Rs. 168,70,68,597/- taxable at 15% as per the Act. Ld. Assessing Officer noted that assessee also has STCG on account of sale of derivatives (non-STT) of Rs.3,33,47,986/- in the current year, which is taxable @30% under the Act. He pointed out that assessee has used STCG on non-STT securities to set-off balance STCL on STT securities and carried forward loss of Rs. 15,50,60,715/- after setting off current
4
Kuwait Investment Authority
Assessment Year 2020-21
year STCL, taxable at 15% against STCG non-STT taxable at 30%. Ld.
Assessing Officer disputed the action of the assessee in setting off the STCG @ 30% with STCL @15% as discussed in para 8 of the assessment order.
4.2. During the course of assessment proceedings, ld. Assessing
Officer issued a notice u/s.142(1) in response thereof, assessee claimed that as per the provisions of section 70(2) of the Act, any STCL can be adjusted / set-off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset, irrespective of the fact whether such STCG or STCL is subject to STT. Also, such STCL which is subjected to STT can be set-off against STCG (which is not subjected to STT) first before setting-off the same against the STCG (which is subject to STT). In this regard, assessee referred to the decision of Hon'ble Special Bench of ITAT Mumbai in the case of Montomery Emerging Markets Company
[2006] 100 ITD 217 (Mum) wherein it was held that Section 70(2) of the Act does not prescribe any order in which specific short-term capital loss can be set-off against specific short-term capital gains and in absence of such description, the interpretation of provision in favour of taxpayer should be adopted. Also, relied in the case of First
State Investment (Hong Kong) Ltd. [2009] 33 SOT 26 (Mum) and other decisions as mentioned in the assessment order. Ld. Assessing Officer not convinced with the stand of the assessee, disallowed the set-off of losses by mentioning that section 70(2) of the Act places emphasis on income, if any, arrived at under a similar computation. Accordingly, he held that STCG to be taxed at 30% and STCG to be taxed at 15%
should be set off against the losses arrived by way of similar computation. In other words, STCG computed u/s.111A of the Act can be set off only against the STCL computed u/s.111A of the Act and 5
Kuwait Investment Authority
Assessment Year 2020-21
similarly, other STCG (i.e. which are taxed at 30%) can be set off against other STCL.
4.3. Assessee claims that in the assessment order passed, ld.
Assessing Officer has erroneously considered the STCG (non-STT paid) arising on account of sale / physical settlement of derivatives instead of STCG (non-STT paid) arising on account of transfer of listed securities (on account of close out, fractional proceeds and renunciation of rights entitlement), whereas the correct claim of the assessee is that it has not entered into any derivative transactions, fact of which is verifiable from the statement of total income.
4. According to the assessee, as per the provisions of section 70(2) of the Act any STCL can be adjusted/set-off against gains arising on sale of any capital asset irrespective of the fact whether such STCG or STCL is subject to STT or otherwise; and also, such STCL which is subjected to STT can be set-off against STCG (which is not subjected to STT) first before setting-off the same against the STCG (which is subject to STT). Assessee thus, justified its action that STCL (STT) was first set-off against STCG (STT) and excess STCL (STT) was set off against STCG (non-STT). 4.5. Assessee further pointed out that following the judgement of Montgomery Emerging Markets Company (supra), Coordinate Bench in the recent judgement of J.P. Morgan Fund in ITA No. 2862/Mum/2022) held as under: "4.5. The Id. DR before us vehemently argued that Section 70(2) of the Act uses the word "computation". The tax computation is also part of it and it does not talk only about the computation of income. Per contra, the Id. AR stated that the computation of short term capital gain is similar irrespective of the fact whether it is chargeable to special rate of tax @15% or chargeable to tax normal rate of tax @30%. Hence, there is no difference in manner of computation of short term capital gains
6
Kuwait Investment Authority
Assessment Year 2020-21
irrespective of the variation of percentage of tax. We find that assessee in the instant case has duly complied with the provisions of Section 70(2) of the Act in as much as the computation of short term capital gain is similar and only the rate of tax is different. In fact the provisions of Section 70(2) of the Act uses the expression "similar computation". This goes directly in favour of the assessee. Hence, the decision of the special Bench of this Tribunal reported in 100 ITD 217 is squarely applicable to the case......"
4.6. In the case of First State Investments (Hongkong) Ltd. (supra), it was held that option lies with the taxpayer to decide the order of set off of short-term capital losses. The words used in section 70(2) of the Act are that "the assessee shall be entitled" represents that the option lies with the taxpayer to decide the manner in which STCL from the first transaction will be set off against the STCG from any other transactions. It was also held that if the intention of the legislature had been not to confer the choice on the taxpayer in the matter of setting off the STCG, it would have clearly set out such intention in the language of section 70(2) of the Act itself. In the absence of any such stipulation in this regard, the choice has been left over to the taxpayer in taking decision about the setting off of STCL from one transaction against any other STCG, whether within, or outside the cut-off date.
4.7. Other decisions referred by the assessee where similar view has been followed are:
5055/Mum/2010) ii.
DDIT(IT) vs. Central State South East & South Areas
Pension Fund (ITA No.3986/Mum/2010) iii.
Fund (ITA No. 3150/Mum/2009) iv.
ACIT vs. T. Rowe Price (ITA No. 7627/Mum/2011)
7
Kuwait Investment Authority
Assessment Year 2020-21
9034/2010) vi.
(ITA No. 8796/2010) vii.
ACIT vs. Mac Charles India Ltd. (ITA No. 586 &
481/Bang/2012, order dated 23.01.2015)
5. In the present case, as already stated, STCL (STT) was first set- off against STCG (STT) and excess STCL (STT) was set off against
STCG (non-STT) by the assessee. It is noted that the impugned issue is covered in its favour by favourable decisions as quoted above. It is further noted that in the case of J.P. Morgan Fund (supra) present issue before us has been decided and is covered in favour of the assessee. Accordingly, respectfully relying upon the said decision, ground no.(i) raised by the revenue is dismissed.
6. On the second issue raised vide Ground Nos. (ii) to (viii), learned
Counsel for the assessee pointed out that in assessee’s own case, this very issue has been elaborately dealt with by the Co-ordinate Bench of ITAT Mumbai in ITA no.478/Mum/2024 and 476/Mum/2024 for Assessment Years 2017-18 and 2021-22, respectively, vide order dated 14.08.2024. Issue relates to the treatment of assessee as a corporate entity instead of non-corporate entity which is based upon the fact that PAN of the assessee is obtained as a trust and not as a company.
6.1. Through these seven grounds, revenue has put forth its peripheral arguments on the issue which had been addressed by the co-ordinate bench in assessee’s own case (supra). For ready reference relevant extract of the said order is reproduced below:
“11. The second grievance relates to the treatment of the assessee as a corporate entity instead of non-corporate entity. The entire action of the AO is 8
Kuwait Investment Authority
Assessment Year 2020-21
based upon the fact that the PAN of the assessee is obtained as a trust and not a company.
12. The Id. D/R strongly supported the findings of the AO. The Id. Counsel for the assessee on other hand, vehemently stated that in all the earlier assessment years, whenever the assessment was framed u/s 143(3) of the Act, the status of the assessee has been accepted as a corporate entity. So much so that, a similar quarrel in AY 2008-09 travelled up to the Tribunal and the Tribunal in ITA No.
3081/Mum/2011; AY 2008-09, vide order dt. 20/09/2016, has decided the issue in favour of the assessee and against the revenue.
13. We have carefully perused the orders of the authorities below. Assessment for AY 2003-04 was framed u/s 143(3) r.w.s. 147 of the Act and the status of the assessee was non-resident company. Similarly, in AY 2005-06, 2007-08 and 2014-15, the assessments were framed u/s 143 of the Act and the status of the assessee was taken as non-resident company. This Tribunal in ITA No.
3081/Mum/2011; AY 2008-09, has held as under:-
"We have heard the rival submissions and perused the material before us.
We find that assessee is registered as FII with the SEBI, that the government of Kuwait had established the entity as a public authority. In the official Gazette, dated 20/06/1982, the Ministry of Information of government of Kuwait rectified the establishment of a public authority is an independent judicial person. As per the Article 3 of the Gazette the authority was to be managed by the board of directors consisting of Minister of Finance, Minister of Oil and other members to be appointed by government. This, clearly establishes the fact that assessee was part of the State of Kuwait
It is also a fact that in the earlier and subsequent years the AO has treated the assessee as a corporate entity. While completing the assessment or deciding the appeal, the AO/FAA has not mentioned as to how the facts of the case under consideration were different from the facts of the earlier assessment years, as far as the status of the assessee was concerned. It is not the case of the Department that in the earlier years the returns filed by the assessee were processed under section 143 (1) of the Act. There is no doubt that principles of the res judicata do not apply to the income tax proceedings. But, it is equally true that principles of consistency are applicable to proceedings carried out under the Act. Without assigning any reason and without distinguishing the facts of the earlier years, the AO/FAA cannot alter the status of an assessee as per their wishes. In the case of Galileo Nederland BV (367 ITR 319), the Hon'ble Delhi High Court has held as under:
"Decision on an issue or question taken in earlier years though not binding should be followed and not ignored unless there are good and sufficient reasons to take a different view. Said principle is based upon rules of certainty and that a decision taken after due application of mind should be followed consistently as this lead to certainty, unless there are valid and good reasons for deviating and not accepting earlier decision
The Hon'ble Bombay High Court in the matter of Aroni Commercials
Ltd.(362 ITR 403) has dealt the issue of consistency as follows:
Though the principle of res judicata is not applicable to tax matters as each year is separate and distinct, nevertheless where facts are 9
Kuwait Investment Authority
Assessment Year 2020-21
identical from year to year, there has to be uniformity and in treatment.
Principles of natural justice demands that a reason order has to be passed by the tax authorities, Just mentioning that decision taken about the status of the assessee in the earlier years would not be applicable for the year under consideration is not enough. Such an order is A non-speaking order having no reasoning and therefore. it cannot be endorsed."
14. It would not be out of place to refer to the Amiri Decree and the tax residency certificate which is as under:-
"Article 1
An independent public authority shall be established with juridical status to be named the "Public Investment Authority" and be attached to the Minister of Finance. The seat of the authority shall be in the State of Kuwait and it may set up offices outside the State of Kuwait.
Article 2
The objective of the Authority is to undertake, in the name and for the account of the Government of Kuwait, the management of the State's
Reserve Fund, the monies allocated for the Future Generations Fund, as well as such other monies that the Minister of Finance may entrust the Authority with its management.
Article 3
The Authority shall be managed by a Board of Directors which shall be composed of the Minister of Finance, as Chairman, the Minister of Oil, the under-Secretary of the Ministry of Finance and the Governor of the Central
Bank, as well as five other members from among those Kuwaitis specialized in various fields of investment, to be appointed by an Amiri
Decree for a four-year term, who may be re-appointed, provided that at least three of them do not hold any public office. The Board of Directors is the body responsible the affairs of the Authority and has all powers necessary for attaining its objectives, and in particular, the following:
a. Formulation of the general policy of the Authority and supervision of its implementation, preparation and follow-up of investment programs, and issue of decisions necessary thereto.
b. Adoption of financial and administrative regulations necessary for the authority and supervision of its implementation.
c. Undertaking of various transactions of assets investment whether directly or through other establishments.
d. Approval of the Authority's draft budget and its annual accounts, before their submission to the competent authorities.
Article 4
The Board of Directors shall be convened upon an invitation by its Chairman, and the meeting shall not be valid unless attended by the majority of members, provided the Chairman of the Board being among them. The resolutions of the Board of Directors shall be passed by an absolute majority of the members present, and in case of a draw, the 10
Kuwait Investment Authority
Assessment Year 2020-21
Chairman shall have the casting vote. The Board of Directors must be invited for meeting at least four times a year, by a notice of at least three days prior to the date set for the meeting.
Article 5
The Chairman of the Board of directors shall submit the draft budget of the Authority to the council of Ministers together with a detailed report on the activities of the Authority and the position of the invested assets, to include an evaluation of its performance on the basis of the established investment programs and in the light of the public policy for long-term development.
Article 6
The Chairman of the Board of Directors shall represent the Authority before the judiciary and in its relations with third parties. He will also supervise the management of its business, and in so doing he shall have the powers vested in him in accordance with the regulations of the Authority, and he may delegate some of these powers to the Managing Director of the Authority.
Article 7
The Board of directors shall, upon the nomination by the Chairman of the Board appoint a Managing Director for the Authority from among those members of the Board who are not ex-officio members, and shall determine his remunerations and conditions of service. The Managing Director shall be responsible before the Board for the business of the Authority, and he shall supervise the execution of the policy and decisions of the board in accordance with the regulations passed by the Board. The Board of Directors may, upon the nomination by the Chairman of the Board, appoint one or more Kuwaiti mangers to assist the Managing Director, and shall determine their remunerations and conditions of service. The Managing director and the managers shall work full-time for the Authority, and neither of them may, during his term of office, undertake any work, with or without pay, except for the Authority and may not carry on any commercial, industrial or professional work.
Article 8
The Authority shall have the body of personnel, in which the employees are appointed in accordance with the regulations adopted by the Board of Directors, but without prejudice to the provisions of Articles 5 and 38 of Decree Law No. 15 of 1979 Concerning Civil Service. The members of the Board of Directors, the employees of the Authority or any of those participating in any form in its activities, may not disclose data or information about their work or the position of the invested assets, without a written permission from the Chairman of the Board of Directors, and this prohibition remains in force even after cessation of the relation of the person with the business of the Authority.
Article 9
Without prejudice to any heavier punishment whoever divulges any of the secrets of the work of the Authority or data or information of which he became aware, by virtue of his work at the Authority, shall be punished with imprisonment for a period not exceeding three years.
11
Kuwait Investment Authority
Assessment Year 2020-21
Article 10
The Authority shall have a supplementary budget, the revenues of which shall consist of the sums allocated to it by the State in the Public Budget.
The fiscal year of the Authority shall correspond to the fiscal year of the State. However, the first fiscal year shall deemed to run from the effective date of this Law till the end of June of the fiscal year which follows.
Article 11
The Board of directors shall prescribe the annual accountancy rules and procedures. The advance audit regulations stipulated in the referenced
Law No. 30 of 1964, Shall not apply to the works of the Authority, but this is without prejudice to the powers of the Audit Bureau to examine the Authority's account without interference in the conduct of its functions or policy. The Authority shall have one or more auditor who shall be from the certified accountants and the Board of Directors shall appoint him, upon the nomination by the Minister of Finance, and determine his fees, and he is to audit the accounts of the fiscal year for which he is appointed.
Article 12
The Prime Minister and the Ministers shall, each within his capacity, execute the provisions of this Law which shall be published in the Official
Gazette, and shall take effect from the date of its publication.
AMIR OF KUWAIT JABER AL-AHMAD
Issued at Al-Seif palace on 21 Sha’ban, 1402 Hijra corresponding to 13
June, 1982 AD
Considering the facts in totality in the light of the history of the assessee, we do not find any reason to interfere with the findings of the Id. CIT(A). Thus, this ground is also dismissed.
12
Kuwait Investment Authority
Assessment Year 2020-21
Accordingly, ITA No. 478/Mum/2024 for AY 2017-18, is dismissed. 17. As regards, ITA No. 476/Mum/2024 for AY 2021-22, the sum and substance of the grievance of the revenue is that the Id. CIT(A) erred in treating the assessee as a corporate entity instead of non-corporate entity without appreciating the fact that the PAN of the assessee is obtained as a Trust and not a company. This issue has been elaborately discussed by us in ITA No. 478/Mum/2024. For our detailed discussion therein, this Ground is dismissed.” 7. Learned CIT(A) in the present case had dealt with the issue by placing reliance on the order of Co-ordinate Bench in assessee’s own case (supra). Finding arrived by the learned CIT(A) on this issue are extracted below. “6.5. In Ground No. 5 of appeal, the appellant has disputed the action of the AO in treating the appellant as a non-corporate entity instead of treating it as corporate entity. 6.5.1 The submissions filed by the appellant in this regard have been quoted above. This issue has not been explicitly discussed in the assessment order. The appellant, in its above quoted submissions claimed that in the assessment order, the status of the appellant has been taken as Trust instead of Corporate entity. The appellant has submitted that the Appellant Company is a Government Corporate Body established by Law No.47 of 1982 of the Government of Kuwait for the purpose of managing investment of Government of the State of Kuwait. It has been claimed that the Tax Residency Certificate (TRC) issued by Ministry of Finance, Kuwait, has also certified that the appellant company is a resident of the State of Kuwait and Government Corporate Body is subject to taxation in Kuwait. The appellant has also claimed that for AY. 2021-22, in the assessment order u/s.143(3), the status of the appellant company was stated as non-resident non corporate entity. On rectification application made by the appellant, the AO passed order u/s.154 of the Act on 25.03.2023 and has rectified the status of the appellant as corporate entity. Thus, it is submitted that the status of the appellant should be considered as non-resident corporate entity. In this regard, the appellant has submitted the copy of the same. On perusal of this rectification order dated 25/03/2023 for AY.2021-22 as filed by the appellant, the AO has mentioned in para 3 of this order that as per the PAN database, the status of PAN is Trust and hence the assessee is required to get the necessary correction done at the appropriate forum. However, in the instant case, following the order of ITAT, the status of PAN of the assessee is treated as company for AY.2021-22. The appellant during the course of hearing has claimed that similar issue for AYs.2008-09, 2017-18 and 2021-22 was decided in favour of the Assessee by the Hon'ble ITAT Mumbai and for AYs.2017-18 and 2021-22, Ld.CIT(A) has also decided the issue in favour of the appellant. The relevant orders passed were submitted during the course of hearing. 6.5.2 It is noted that for AYs.2017-18 and 2021-22, Hon'ble ITAT vide order in ITA Nos. 478/Mum/2024 & 476/Mum/2024 dated 14/8/2024 have decided this issue in favour of the appellant. Therefore, respectfully relying
13
Kuwait Investment Authority
Assessment Year 2020-21
upon the decision of the juri ictional Hon'ble Mumbai ITAT in the case of the appellant on this issue, the fifth ground of appeal is Allowed.”
8. Considering the facts on record, decision of Co-ordinate Bench in assessee’s own case for the preceding years, there being no change in the factual matrix of the case and in the applicable law and nothing brought on record by the ld. CIT DR to controvert the same, we do not find any reason to interfere with the findings arrived at by the learned
CIT(A). Accordingly, ground nos. (ii) to (viii) raised by the Revenue are dismissed.
9. In the result, appeal of the Revenue is dismissed.
Order is pronounced in the open court on 26 August, 2025 (Saktijit Dey)
Accountant Member
Dated: 26 August, 2025
Milan, LDC.
Copy to :
1 The Appellant
2 The Respondent
3 DR, ITAT, Mumbai
4
5
Guard File
CIT
BY ORDER,
(Dy./Asstt.