ISHARES MSCI EMERGING MARKETS ETF (AS A SUCCESSOR TO ISHARES EMERGING MARKETS INDEX MAURITIUS CO ),MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-2(2)(2), MUMBAI

ITA 2150/MUM/2025Status: DisposedITAT Mumbai11 June 2025AY 2022-2358 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided on the issues as follows: Regarding the set-off of short-term capital losses (Issue 1), the Tribunal directed the AO to accept the methodology adopted by the assessee for the computation of capital gains. Grounds related to this issue were allowed. Concerning the applicability of the IM Treaty and set-off of long-term capital losses against exempt gains (Issue 2), the Tribunal directed the AO to allow the exemption of entire long-term capital gains from transactions covered under Article 13(4) of the India-Mauritius DTAA. The AO was also directed to allow 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 grounds were allowed. For arithmetical errors and short-grant of TDS credit (Issue 3), the Tribunal noted that rectification applications were pending. The AO was directed to correctly compute the income in accordance with the Tribunal's directions and to grant the TDS credit after necessary verification. These grounds were allowed for statistical purposes. Regarding the initiation of penalty proceedings under Section 270A (Issue 4), the Tribunal held that it was premature and dismissed this ground. The operative directions included setting aside the impugned order on specific issues and remitting them to the AO for recalculation as per the directions. The Tribunal expressly left undecided the grounds related to the initiation of penalty proceedings, which were dismissed as premature.

What were the facts?

The appeals were filed by various ETF assessees (Schwab Emerging Markets Equity ETF, iShares MSCI India UCITS ETF, iShares MSCI EM UCITS ETF, iShares Core MSCI EM IMI UCITS ETF, iShares India 50 ETF, iShares Core MSCI Total International Stock ETF, iShares MSCI Emerging Markets ETF, iShares Core MSCI Emerging Markets ETF, iShares MSCI India ETF, iShares MSCI All Country Asia Ex Japan 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, following directions from the Dispute Resolution Panel (DRP). The core dispute in these consolidated appeals revolves around the computation of capital gains, specifically the set-off of losses against gains, and the applicability of the India-Mauritius Double Taxation Avoidance Agreement (DTAA).

What were the issues?

1. (Question of Law) Whether the Assessing Officer (AO) and the Dispute Resolution Panel (DRP) erred in rejecting the hierarchy of set-off of short-term capital losses adopted by the assessees, thereby taxing gross short-term capital gains on shares not chargeable to Securities Transaction Tax (STT)? - Assessee's Contention: The assessees argued that Section 70 of the Act does not prescribe a hierarchy for set-off, and short-term capital losses from STT-paid shares can be set off against short-term capital gains from non-STT securities. They relied on jurisdictional tribunal decisions. They also contended that gains from STT and non-STT transactions are not different and satisfy the 'similar computation' condition in Section 70(2). - Revenue's Contention: Not recorded in the provided text. 2. (Question of Law) Whether the AO/DRP erred in holding that income under the head 'Capital Gains' should be computed as per the Act, with the India-Mauritius (IM) Treaty applied only to the 'net' capital gain, and in rejecting the exemption of grandfathered gains under Article 13(4) of the IM Treaty? - Assessee's Contention: The assessees argued that Section 90(2) requires considering provisions of the Act and the treaty separately, and whichever is more beneficial should be applied. They contended that grandfathered gains are not chargeable to tax in India as per Article 13(4) of the IM Treaty and thus do not form part of the total income, negating the need for set-off of brought forward losses against them. - Revenue's Contention: Not recorded in the provided text. 3. (Question of Fact/Law) Whether there were arithmetical errors in the computation of gross total income, business income, total income from capital gains, taxable income at special rates, and set-off of brought forward losses, as well as short-grant of TDS credit and levy of interest under Section 234C? - Assessee's Contention: The assessees pointed out specific discrepancies in the computation sheets and amounts determined in the impugned orders. They also mentioned filing rectification applications for some of these issues. - Revenue's Contention: Not recorded in the provided text. 4. (Question of Law) Whether the initiation of penalty proceedings under Section 270A was premature?

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 144C(5),Section 45,Section 55A,Section 111A,Section 115AD,Section 70(2),Section 70,Section 90(2),Section 4,Section 5,Section 13(4),Section 234A,Section 234B,Section 234C,Section 234D,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 v/s DCIT (International Taxation) – 2(2)(2), Room No.606, 6th Floor, Kautilya Bhavan, C-41 to C-43, G-Block, Bandra Kurla Complex, Bandra Mumbai - 400051 Respond

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