ISHARES INDIA 50 ETF (AS A SUCCESSOR TO ISHARES INDIA MAURITIUS CO ),MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-2(2)(2), MUMBAI

ITA 2149/MUM/2025Status: DisposedITAT Mumbai11 June 2025AY 2022-2358 pages
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What did the Tribunal hold?

The Tribunal held that the AO should accept the methodology adopted by the assessee for the computation of capital gains regarding the set-off of short-term capital losses. Consequently, grounds related to this issue were allowed. Regarding the set-off of taxable brought forward long-term capital loss against exempt (grandfathered) long-term capital gains, the Tribunal directed the AO to allow the exemption under the India-Mauritius DTAA and to permit the set-off of long-term capital loss brought forward against net long-term capital gains from non-grandfathered sales. The impugned order on this issue was set aside, and the related grounds were allowed. For arithmetical errors in computation sheets and short grant of TDS credit, the Tribunal directed the AO to correct the computations and grant credit after verification, allowing these grounds for statistical purposes. The issue of interest under Section 234C was deemed consequential and not requiring separate adjudication. The initiation of penalty proceedings under Section 270A was dismissed as premature. The overall result was that the appeals were partly allowed for statistical purposes.

What were the facts?

The appeals were filed by various ETF assessees against final assessment orders for AY 2022-23, passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961, following directions from the Dispute Resolution Panel (DRP). The assessees are entities like Schwab Emerging Markets Equity ETF, iShares MSCI India UCITS ETF, and others, represented by Ernst & Young LLP. The respondent is the Deputy Commissioner of Income Tax (International Taxation). The core dispute revolves around the set-off of capital losses and the applicability of the India-Mauritius Double Taxation Avoidance Agreement (DTAA). The Tribunal consolidated these appeals due to similar 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 shares not chargeable to Securities Transaction Tax (STT), and whether gains from STT and non-STT transactions are similar for set-off under Section 70(2) of the Act? (Question of law and fact, concerning Section 70(2), 111A, 115AD). 2. Whether the Tribunal erred in rejecting the set-off of losses by not following previous jurisdictional tribunal decisions, merely because the Revenue appealed one such order? 3. Whether the Tribunal erred in computing capital gains by not appreciating that the India-Mauritius DTAA should be applied to determine 'total income' first, and that grandfathered gains are not chargeable to tax in India under Article 13(4) of the treaty, thus negating the need for set-off against brought forward losses? (Question of law, concerning Section 90(2), Article 13(4) of IM Treaty). Assessee's Contentions: - Argued that Section 70 of the Act does not prescribe a hierarchy for set-off, allowing STT-paid capital losses to be set off against non-STT capital gains. - Contended that gains from STT and non-STT transactions are similar for set-off purposes. - Argued that previous jurisdictional tribunal decisions should be followed. - Asserted that the India-Mauritius DTAA should be applied first to determine if gains are taxable in India, and if grandfathered gains are exempt, set-off of losses is not applicable. Revenue's Contentions: - The judgment does not record specific contentions for the revenue on these issues.

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 90(2),Section 234C,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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