VANGUARD EMERGING MARKETS STOCK INDEX FUND A SERIES OF VIEIF,MUMBAI vs. ASSISATNT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-4(3)(1), MUMBAI

The assessee raised objections before the Dispute Resolution Panel (DRP) and the DRP upheld the computation done by the AO. The assessee is in appeal against the final order of assessment passed by the AO pursuant to the directions of the DRP.

The assessee through Ground No. 1 to 4 raised legal contentions against the final order of assessment passed by the AO. During the course of hearing the ld. AR submitted that if the impugned issue is considered on merits and allowed the legal contentions would become academic and may be left open. Accordingly we will Vanguard Emerging Markets Stock Index Fund A Series of VIEIF first consider Ground No.5 raised by the assessee contending the impugned issue on merits.

We heard the parties and perused the material on record. During the course of hearing the ld. AR submitted that the Co-ordinate Bench in the case of the assessee's group companies has considered a similar issue and held that the AO is not correct in denying the benefit of set off of STCG arising out of non STT paid shares to the assessee against the STCL of STT paid shares. The ld. AR further submitted that the issue in the present appeal being identical the above decision of the Co-ordinate Bench is applicable in assessee's case also. In this regard we noticed that the Co- ordinate Bench while considering a similar issue in the case of Vanguard Emerging Markets Stock Index Fund A Series of VISPLC (ITA No. 1277/Mum/2025 dated 23.05.2025) has held that 9. Ground No.3 to 6 is with regard to rejecting the set off of STCG of non- STT paid shares against the STCL of STT paid shares on the ground that as per section 70 of the Act only those income and losses arrived at under similar computation only should be allowed to be set off. In this regard we notice that the Co-ordinate Bench in the case of one of the group companies of the assessee Vanguard Total International Stock Index Fund Vs. ACIT (ITA No. 4656/Mum/2023 dated 13.12.2024) has considered a similar issue where it has been held that “9. We have given a thoughtful consideration to the orders of the authorities below. It is true that different rates of taxes have been provided u/s 115AD and 111A of the Act in respect of gains on non STT paid shares and STT paid shares but it is also a fact that u/s 70 of the Act, no chronology has been mentioned in respect of set off of losses nor there is any provision in the Act that losses of non-STT paid shares cannot be set off against the gains on STT paid shares. The decision of the Hon’ble High Court of Calcutta, is on this issue in of 2008; judgment dated 19/12/2008, wherein the Hon’ble High Court held as under:- “In Ground Nos.5 and 6 the assessee has objected to the mode of set off adopted by the Assessing Officer in assessing income from short term capital cases. During the year under consideration the assessee earned short term capital gain of Rs.7,29,584/- in transaction in shares where security transaction tax was not paid and income was subject to tax at normal rate. The assessee also earned short term capital gain of Vanguard Emerging Markets Stock Index Fund A Series of VIEIF Rs.2,27,564/- in transaction in shares where security transaction tax was paid and income was eligible for concessional rate of tax under section 111A. The assessee also suffered short term capital loss of Rs.7,17,660/- in transactions in shares involving payment of security transaction tax. In the impugned order the A.O. computed the capital gain in the following manner without discussing any reasons for adopting such mode of computation. Calculation of income/loss from capital gain Short term capital loss with STT (-) 7.17,660/- Short term capital gain with STT 2,27,564/- Net Short Term capital loss with STT (-) 4,90,096/- Short term capital gain without STT 7,29,584/- Net Short term capital gain 2,39,488/- Less Brokerage 5,914/- Taxable short term capital gain of normal rate 2,33,574/- Long term capital gain at 10% rate (as per computation) 1,49,431/- I have perused the assessment order and have considered submissions of the A/R. In the impugned order the A.O. has not given any reasons for first sitting off short term capital gain with STT against short term capital STT and then allow ofset off of remaining loss of Rs.4,90,096/- against short term capital gain without STT. The mode ofset off adopted by the A.O. shown that be accepted in principle that short term capital loss with STT can be legally set off against short term capital gain without STT. According to the assessee, the chronology for the set off by the A.O. was contrary to chronology adopted by the assessee, only because the assessee's mode resulted in concessional rate of the tax being applied to higher amount of short term capital gain which resulted more tax benefit to an assessee. On perusal of the provision of section 70, I find that there is no prohibition nor the Act compels the assessee to first set off short term capital gain with STT against short term capital loss with STT and then allows set off against short term capital gain without STT. In absence of any specific mode of set off provided in the Act and in absence of any prohibition and in absence of any specific chronology for set off prescribed in the Act, the assessee was entitled to exercise his option with regard to the chronology of set off which was most beneficial to the assessee. It is settled proposition of law that when a provision of the Act gives option to the assessee, such option should be exercised which will favour the assessee and not the revenue. The A/R for the assessee was well justified in relying on the decision of the Calcutta High Court and Vanguard Emerging Markets Stock Index Fund A Series of VIEIF the Circular of the Board dated 7.7.1955 since the principles laid down therein appeared to be fully applicable." The Commissioner of Income Tax (Appeals) therefore came to the conclusion in favour of the asessee. He further came to the conclusion that the disallowance has been made on presumption. In these circumstances, the order passed by the Commissioner of Income Tax and subsequent thereto, the Commissioner of Income Tax (Appeals) had already considered the case of the department and upheld the order passed by it. We have carefully considered the said question and in our considered opinion, there is no illegality or irregularity in respect of the order so passed by the learned Tribunal. We, accordingly, find that there is no reason to interfere with the order so passed by the learned Tribunal and further the order so passed by the learned Tribunal does not suffer from any illegality or irregularity and we find that no substantial question of law is involved in this appeal. Hence, we dismiss the appeal.

Considering the facts of the case in totality, in light of the decisions of the Hon’ble Calcutta High Court (supra), we do not find any merits in the computation done by the AO. We accordingly direct the AO to accept the computation of the assessee. Ground No. 5 is allowed.”

The ratio as laid down in the above decision is that there is no prohibition under the Act with regard to the hierarchy of set off of STCL arising out of STT paid shares against the STCG arising out of non-STT paid shares. In absence of any prohibition or any specific chronology for set off prescribed under the Act, the assessee is entitled to choose the chronology of set off that is most beneficial to the assessee. In assessee's case, the AO rejected the hierarchy of set off done by the assessee for the reason that as per section 70 of the Act only those income and losses arrived at under similar computation only should be allowed to be set off. Therefore respectfully applying the ratio laid down by the coordinate bench we hold that the AO is not correct in denying the benefit of set off of STCG arising out of non-STT paid shares to the assessee against the STCL of STT paid shared. Accordingly, we direct the AO to delete the addition made in this regard.

From the perusal of records we notice that the revenue has denied the benefit of set off to the assessee for similar reasons and therefore in our considered view the ratio laid down in the above decision is applicable to assessee's case also.

In result appeal of the assessee is allowed.