ISHARES MSCI ALL COUNTRY ASIA EX JAPAN ETF(AS A SUCCESSOR TO ISHARES MSCI ALL COUNTRY ASIA EX JAPAN MAURITIUS CO),MUMBAI vs. DCIT (INT)-2(2)(2), MUMBAI

ITA 2154/MUM/2025Status: DisposedITAT Mumbai11 June 2025AY 2022-2358 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the methodology adopted by the assessee for the set-off of short-term capital losses was correct, directing the Assessing Officer (AO) to accept it. Regarding the set-off of brought-forward long-term capital losses against exempt 'grandfathered' long-term capital gains, the Tribunal directed the AO to allow exemption for gains covered under Article 13(4) of the India-Mauritius DTAA and to permit the set-off of long-term capital losses against net long-term capital gains from non-grandfathered sales. For arithmetical errors and short TDS credit, the AO was directed to recompute after considering the directions and verifying the claims, noting pending rectification applications. The levy of interest under Section 234C was deemed consequential. The ground concerning initiation of penalty proceedings under Section 270A was dismissed as premature. The appeals were partly allowed for statistical purposes.

What were the facts?

The appeals were filed by various ETF assessees (Schwab Emerging Markets Equity ETF, iShares MSCI India UCITS ETF, etc.) 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 revolved around the set-off of capital losses against capital gains, particularly concerning shares subjected to Securities Transaction Tax (STT) and those not, as well as the taxability of 'grandfathered' gains under the India-Mauritius Double Taxation Avoidance Agreement (DTAA). The assessees also raised grounds concerning arithmetical errors in computation, short grant of TDS credit, and initiation of penalty proceedings.

What were the issues?

1. Whether short-term capital losses from shares subjected to STT can be set off against short-term capital gains from shares not subjected to STT, or vice-versa, given that Section 70 of the Act does not prescribe a hierarchy for set-off. The assessee argued that gains from STT and non-STT transactions are similar for computation purposes under Section 70(2) and that the DTAA provisions should be applied first to determine taxability. The revenue contended that the computation of capital gains should follow the Act, with treaty provisions applied only to net gains. 2. Whether 'grandfathered' long-term capital gains, exempt under Article 13(4) of the India-Mauritius DTAA, can be used to set off brought-forward long-term capital losses. The assessee argued that these gains do not form part of the total income, thus losses cannot be set off against them. The revenue argued for a different computation methodology. 3. Whether arithmetical errors in the computation sheets, short grant of TDS credit, levy of interest under Section 234C, and initiation of penalty proceedings under Section 270A are valid. The assessee pointed to pending rectification applications for some of these issues and argued that penalty proceedings were premature.

Which sections of the Income-tax Act were involved?

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