PRASHANT KOTHARI,SINGAPORE vs. CIT A (57) MUMBAI, OFFICE OF COMMISSIONER OF APPEALS MUMBAI

ITA 5391/MUM/2024Status: DisposedITAT Mumbai29 May 2025AY 2016-1728 pages
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What did the Tribunal hold?

The Tribunal held that capital gains exempt under the DTAA cannot enter the computation of total income in India, citing the Bombay High Court decision in the context of Section 25(4) of the Act. Setting off losses against gains that are exempt under the DTAA would tantamount to taxing gains in India, violating Article 13(3)(4) of the DTAA as it stood prior to amendment. The Tribunal also referred to CBDT Circular No. 22 of 1944, stating that if total income is a loss, it has to be carried forward and cannot be set off against income that does not form part of total income. Accordingly, the Tribunal directed the AO to allow the carry forward of short-term capital losses amounting to Rs. 53,13,457/-. In respect of gross short-term capital gains, the AO was directed to allow the benefit of Article 13(4) of the India-Singapore DTAA. The additional grounds of appeal were allowed, and the appeal of the assessee was allowed.

What were the facts?

The assessee, Prashant Kothari, a tax resident of Singapore, appealed against the order of the CIT(A) for Assessment Year 2016-17. The appeal was filed with a delay of 21 days, which was condoned. The assessee sought to raise additional grounds of appeal concerning the taxability of capital gains under the India-Singapore DTAA and the set-off of capital losses. The Assessing Officer (AO) had treated gains on unlisted shares held for less than 36 months as short-term capital gains and disallowed set-off of a long-term capital loss on shares of Adception Infotech Pvt. Ltd. against short-term capital gains. The AO held that capital gains were taxable in India, citing the amended Article 13 of the DTAA and the fact that no capital gains were remitted to Singapore. The AO computed net short-term capital gains on listed shares and short-term capital gains on unlisted shares as taxable.

What were the issues?

1. Whether the learned Assessing Officer erred in taxing capital gains on a net basis after setting off the short-term capital loss of Rs. 53,13,457/-. 2. Whether the learned Assessing Officer shall be directed to allow the Appellant the benefit of Article 13(4) of the India-Singapore Double Taxation Avoidance Agreement (DTAA) in respect of capital gains and allow the capital loss to be carried forward. Assessee's Contentions: - The assessee argued that capital gains arising in India are not taxable under Article 13(4) of the India-Singapore DTAA. The assessee relied on the decision in M/s. Citicorp Investment Bank Pvt. Ltd. and a CBDT Circular No. 22 of 1944 regarding the carry forward of losses. The assessee also contended that if the assessee wishes not to claim treaty benefits, they should be allowed to carry forward short-term capital losses without setting them off against short-term capital gains. Revenue's Contentions: - The Revenue did not raise specific objections to the admission of additional grounds of appeal. The AO's position, as detailed in the facts, was that the facts and circumstances of the assessee's case were different from M/s. Citicorp Investment Bank Pvt. Ltd., particularly regarding the nature of the capital asset (debt instrument vs. equity shares) and the assessee's status (individual vs. registered foreign institutional investor). The AO also referred to the amended Article 13 of the DTAA, distinguishing between equity shares and other instruments.

Which sections of the Income-tax Act were involved?

Section 250,Section 70(3),Section 74,Section 2(15),Section 4(3),Section 16,Section 25(4),Section 24(2)

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Income Tax Appellate Tribunal, ‘I’ BENCH MUMBAI

Before: SHRI AMIT SHUKLA & SHRI VIKRAM SINGH YADAV

For Appellant: Shri. Gunjan Kakkad
For Respondent: Shri. Krishna Kumar
Hearing: 03/03/2025Pronounced: 29/05/2025

PER VIKRAM SINGH YADAV (A.M):

The present appeal has been preferred by the assessee against the impugned order dated 26.07.2024 passed in Appeal no. CIT(A) 57, Mumbai/10266/2018-19 by the Ld. Commissioner of Income-tax(Appeals)/ National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “CIT(A)”] u/s.250 of the Income-Tax Act, 1961 [hereinafter referred to as "Act"] for the Assessment year [A.Y.] 2016-17 wherein the assessee has raised the following ground of appeal:

“The Learned CIT(A) has erred in not allowing the benefit of A

The order continues below.

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