FIDELITY RUTLAND SQUARE TRUST II STRATEGIC ADVISERS FID EMG MARKETS FUND ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION )2(3)(1), MUMBAI

ITA 2125/MUM/2025Status: DisposedITAT Mumbai13 June 2025AY 2022-2329 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the Assessee's ground regarding the rejection of the hierarchy of set-off of short-term capital losses was valid. The Tribunal found that Section 70 of the Income Tax Act, 1961, deals with the set-off of losses, and it does not prescribe a specific hierarchy for setting off short-term capital losses against short-term capital gains, particularly when dealing with transactions subjected to Securities Transaction Tax (STT) and those not subjected to STT. The Tribunal noted that the Assessee's approach of setting off STCL (STT paid) against STCG (non-STT) first, and then against STCG (STT paid), was a permissible method. The Tribunal disagreed with the Assessing Officer's view that separate computations were mandatory, stating that the 'similar computation' condition in Section 70(2) was met. The Tribunal also observed that the Assessee's method did not result in STCG of INR 2,67,46,584 being taxed at a lower rate than it should have been, but rather it was a consequence of the set-off mechanism. The Tribunal directed the AO to re-examine the set-off of losses in light of its observations. The issue of jurisdiction was not explicitly decided as the matter was decided on merits.

What were the facts?

The appeals concern Assessment Year 2022-2023 and involve four assessees, all foreign portfolio investors registered with SEBI. The assessees challenged final assessment orders passed by the Assessing Officer (AO) under Section 143(3) read with Section 144C(13) and 144B of the Income Tax Act, 1961, pursuant to directions from the Dispute Resolution Panel (DRP). The core dispute arises from the assessees' method of setting off short-term capital losses (STCL) against short-term capital gains (STCG). The assessees, in their returns, declared net STCG of INR 3,70,83,534, offering it to tax at 15% under Section 111A. The AO, however, disagreed with the hierarchy of set-off adopted by the assessees, leading to a demand of INR 57,39,370 in one of the appeals.

What were the issues?

1. Whether the Tribunal has jurisdiction to decide the appeal when the Department has preferred an appeal before the jurisdictional High Court against an order of the jurisdictional Tribunal, concerning the set-off of short-term capital losses (mixed law and fact, Section 70 of the Act). 2. Whether the Assessee erred in rejecting the hierarchy of set-off of short-term capital losses adopted by the Appellant, thereby taxing gross short-term capital gains in respect of transactions on the sale of shares not chargeable to Security Transaction Tax (STT) (mixed law and fact, Section 70(2), Section 111A, and Section 115AD of the Act). Assessee's Contentions: - The Assessee argued that Section 70 of the Act does not provide any hierarchy for set-off of losses, and STCL from STT-paid shares can be set off against STCG from non-STT securities before setting off against STCG from STT-paid shares. - They contended that gains on transactions subjected to STT and those not subjected to STT are not different and satisfy the 'similar computation' condition in Section 70(2). - The Assessee asserted that the AO erred in not following binding decisions of the jurisdictional Tribunal and rejecting the set-off merely because the Department appealed to the High Court. Revenue's Contentions: - The Revenue contended that STT-paid transactions and non-STT transactions are subject to different tax rates (15% under Section 111A and 30% under Section 115AD respectively) and thus require separate computation and set-off of losses. - The AO's view was that the Assessee's hierarchy resulted in STCG of INR 2,67,46,584 being taxed at the lower rate of 15% instead of 30%.

Which sections of the Income-tax Act were involved?

Section 70,Section 111A,Section 115AD,Section 143(3),Section 144B,Section 144C(5),Section 144C(13),Section 270A,Section 234C

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Heard together (3 matters)

ITA No.2125/MUM/2025
ITA No.2126/MUM/2025
ITA No.2127/MUM/2025

Read from the judgment's own cause title. This page is filed under one of them.

IN THE INCOME TAX APPELLATE TRIBUNAL "I" BENCH, MUMBAI SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER Assessment Year: 2022-2023

Fidelity Rutland Square Trust II Strategic Advisers FID EMG Markets Fund C/o. Ernst & Young LLP, 14th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai-400028, Maharashtra [PAN:AAATF7270P] ...... .... Appellant Vs. Deputy/Assistant Commissioner of Income Tax (International Tax) 2(3)(1), Mumbai Kautilya Bhavan, G Block, Bandra Kurla Complex Mumbai - 400051, Maharashtra. Respondent & Assessment Year: 2022-2023

Fidelity Salem Street Trust Fidelity Sai Emerging Markets Index Fund C/o. Ernst & Young LLP, 14th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai-400028, Maharashtra [PAN:AAATF5228P] ............. Appellant Vs. Deputy/Assistant Commissioner of Income Tax (International Tax) 2(3)(1), Mumbai Kautilya Bhavan, G Block, Bandra Kurla Complex Mumbai - 400051, Maharashtra. ...... Respondent

&

ITA No. 2125, 2126, 2127 & 2155/Mum/2025

Assessment Year 2022-2023 Assessment Year: 2022-2023

Fidelity Rutland Square Trust II: S

The order continues below.

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