SCHWAB EMERGING MARKETS EQUITY ETF ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION -4(2)(1), MUMBAI

ITA 2134/MUM/2025Status: DisposedITAT Mumbai11 June 2025AY 2022-2358 pages
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What did the Tribunal hold?

The Tribunal directed the Assessing Officer (AO) to correctly compute the income in accordance with law after considering the Tribunal's directions, particularly concerning arithmetical errors in the computation sheet and the set-off of brought forward losses. Grounds related to these arithmetical errors were allowed for statistical purposes. Regarding the short-grant of TDS credit, the issue was restored to the AO with directions to grant credit after verification, and the related ground was also allowed for statistical purposes. The ground pertaining to the initiation of penalty proceedings under Section 270A was dismissed as premature. The Tribunal did not explicitly decide on the core legal arguments regarding the hierarchy of set-off or the treatment of treaty-exempt gains, instead remanding the computation aspects back to the AO.

What were the facts?

The appeals were filed by various iShares ETFs and Schwab Emerging Markets Equity ETF against final assessment orders for Assessment Year 2022-23. These orders were passed under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961, pursuant to directions from the Dispute Resolution Panel (DRP). The core dispute revolves around the set-off of capital losses against capital gains, particularly concerning gains from shares subjected to Securities Transaction Tax (STT) and those not, and the treatment of long-term capital gains under the India-Mauritius Double Taxation Avoidance Agreement (IM Treaty). Procedural issues regarding arithmetical errors in computation sheets and short-grant of TDS credit were also raised. The appeals were heard together due to common issues.

What were the issues?

1. Whether the Tribunal erred in rejecting the hierarchy of set-off of short-term capital losses adopted by the assessee, thereby taxing gross short-term capital gains on sale of shares not chargeable to Securities Transaction Tax (STT), contrary to Section 70(2) of the Act? The assessee argued that Section 70 does not provide a hierarchy for set-off, and losses from STT-subjected shares can be set off against gains from non-STT shares. The revenue contended that gains from STT and non-STT transactions are different and should be treated accordingly. 2. Whether the Tribunal erred in holding that long-term capital gains not chargeable to tax under the India-Mauritius Treaty form part of the 'total income' of the assessee as per Section 2(24) read with Sections 4 and 5 of the Act, and that the treaty provisions should only apply to 'net' capital gains? The assessee argued that as per Section 90(2), treaty provisions should be applied first, and if gains are not chargeable under the treaty, they do not form part of total income, negating the need for loss set-off. The revenue's position was not explicitly recorded on this point. 3. Whether there were arithmetical errors in the computation sheets and short-grant of TDS credit, and if rectification applications filed by the assessee should be considered?

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144C(5),Section 70(2),Section 111A,Section 115AD,Section 45,Section 55A,Section 70,Section 2(24),Section 4,Section 5,Section 90(2),Section 234B,Section 270A

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Cases cited in this judgment(4)Show list

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Heard together (3 matters)

ITA No.2134/MUM/2025
ITA No.2147/MUM/2025
ITA No.2148/MUM/2025

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IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER Schwab Emerging Markets Equity ETF, C/o Ernst & Young LLP, 14th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai, Maharashtra – 400025 PAN : AAITS7338F Appellant v/s DCIT (International Taxation) – 4(2)(1), Kautilya Bhavan, Bandra Kurla Complex, Mumbai - 400051 Respondent iShares MSCI India UCITS ETF, C/o Ernst & Young LLP, 17th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai, Maharashtra – 400028 PAN: AAECI8727K Appellant v/s DCIT (International Taxation) – 2(2)(2), Kautilya Bhavan, Bandra Kurla Complex, Mumbai - 400051 Respondent iShares MSCI EM UCITS ETF, U DIST C/o Ernst & Young LLP, 17th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai, Maharashtra – 400028 PAN : AADCI3487K Appellant ITAs No. 2085, 2134, 2147, 2148, 2149, 2150, 2151, 2152, 2153, 2154/Mum/2025 v/s DCIT (International Taxation) – 2(2)(2), Room No.606, 6th Floor, Kautilya Bhavan

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