VFTC INSTITUTIONAL TOTAL INTERNATIONAL STOCK MARKET INDEX TRUST II,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-4(3)(1), MUMBAI

ITA 1278/MUM/2025Status: DisposedITAT Mumbai23 May 2025AY 2022-2324 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the STCG on the sale of rights entitlement is exempt under Article 13(6) of the India-Ireland DTAA. The Tribunal relied on a co-ordinate bench decision in the assessee's own case for AY 2021-22, which held that rights entitlement are different from shares and gains on their transfer fall under Article 13(6). The Tribunal directed the AO to delete the addition made in this regard. Regarding the set-off of losses, the Tribunal found no prohibition under Section 70 of the Act for setting off STCL of STT-paid shares against STCG of non-STT paid shares. It held that in the absence of specific chronology or prohibition, the assessee is entitled to choose the set-off that is most beneficial. The Tribunal directed the AO to accept the assessee's computation and delete the addition made on this count. For other assessees, the issues were identical, and the AO was directed to delete additions. Legal grounds regarding notice issuance were deemed academic. TDS credit and refund issues were directed to be considered by the AO upon rectification petitions.

What were the facts?

These appeals by various Vanguard entities (assessees) are against the final orders of assessment for Assessment Year 2022-23, passed by the Assistant Commissioner of Income Tax (AO). The assessees are Irish companies registered as Foreign Portfolio Investors (FPIs) in India. The primary dispute in ITA No. 1277/Mum/2025 concerns the taxability of Short Term Capital Gain (STCG) of Rs. 5,88,31,056/- on the sale of rights entitlement of Bharti Airtel Limited shares. The assessee claimed exemption under Article 13(6) of the India-Ireland DTAA, while the AO treated it as taxable under Article 13(5). Another key issue involves the set-off of STCG on non-STT paid shares against STCL on STT paid shares. The DRP upheld the AO's additions. Similar issues were raised by other assessees in connected appeals.

What were the issues?

1. Whether the Short Term Capital Gain (STCG) on the sale of rights entitlement is exempt under Article 13(6) of the India-Ireland DTAA, or taxable as sale of shares under Article 13(5) of the same DTAA, as per Section 45 of the Income Tax Act, 1961? - Assessee's contention: The gain on the transfer of rights entitlement is exempt under Article 13(6) of the India-Ireland DTAA, as rights entitlement are distinct from shares, citing a co-ordinate bench decision in their own case for AY 2021-22. - Revenue's contention: Supported the AO's order and DRP's directions, treating the gain as taxable under Article 13(5). 2. Whether Short Term Capital Loss (STCL) on STT-paid shares can be set off against Short Term Capital Gain (STCG) on non-STT paid shares, as per Section 70 of the Income Tax Act, 1961? - Assessee's contention: The assessee is entitled to set off STCL of STT-paid shares against STCG of non-STT paid shares, as there is no prohibition in the Act and the assessee can choose the most beneficial set-off chronology, relying on Calcutta High Court and Board Circulars. - Revenue's contention: The AO held that STCG of non-STT paid shares cannot be set off against STCL of STT paid shares, implying a restriction on set-off between different categories.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 45,Section 70,Section 234A,Section 234B

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Cases cited in this judgment(2)Show list

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Heard together (4 matters)

I.T.A. No. 1277/Mum/2025
I.T.A. No. 1278/Mum/2025
I.T.A. No. 1279/Mum/2025
I.T.A. No. 1280/Mum/2025

Read from the judgment's own cause title. This page is filed under one of them.

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI

BEFORE MS PADMAVATHY S, AM & SHRI RAHUL CHAUDHARY, JM Vanguard Emerging Markets Stock Index Fund A Series of VISPLC, C/o Ernst & Young LLP, 14th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai-400028. PAN: AACCV3136B Appellant) Vs. ACIT (IT)-4(3)(1), Kautilya Bhavan, G Block, Bandra Kurla Complex, Maharashtra-400051. : Respondent) VFTC- Institutional Total International Stock Market Index Trust II, C/o Ernst & Young LLP, 14th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai-400028. PAN: AADTV1640C Vs. ACIT (IT)-4(3)(1), Kautilya Bhavan, G Block, Bandra Kurla Complex, Maharashtra-400051. Appellant) : Respondent) Vanguard Emerging Markets Stock Index Fund A Series of VIEIF, C/o Ernst & Young LLP, 14th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar (West), Mumbai-400028. Vs. ACIT (IT)-4(3)(1), Kautilya Bhavan, G Block, Bandra Kurla Complex, Maharashtra-400051. PAN: AAATY0918K Appellant) : Respondent) (Assessment Year:

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