VANGUARD TOTAL WORLD STOCK INDEX FUND ,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-4(3)(1), MUMBAI

ITA 1281/MUM/2025Status: DisposedITAT Mumbai23 May 2025AY 2022-2324 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the short-term capital gain (STCG) on the sale of rights entitlement is exempt under Article 13(6) of the India-Ireland DTAA, following the decision of a coordinate bench in the assessee's own case for AY 2021-22 (ITA No. 4657/Mum/2023). The Tribunal reasoned that rights entitlement is distinct from shares, and thus the gain falls under the residual provision of Article 13(6), not Article 13(5). Regarding the set-off of losses, the Tribunal ruled that there is no prohibition in Section 70 of the Income Tax Act, 1961, or any specific chronology prescribed for setting off STCL against STCG. Therefore, the assessee is entitled to choose the most beneficial set-off, which was against STCG from non-STT paid shares. The AO's denial of this set-off was incorrect. The Tribunal directed the AO to delete the additions made on this count. For issues concerning TDS credit and refund, the Tribunal directed the AO to consider the rectification petitions filed by the assessee and decide them in accordance with the law, granting a reasonable opportunity of being heard. Grounds related to interest and penalty were considered consequential and not separately adjudicated. For other assessees, the decision was applied mutatis mutandis, with additions to be deleted. The legal ground regarding the notice under Section 143(2) was rendered academic.

What were the facts?

The appeals were filed by various Vanguard entities, registered as Foreign Portfolio Investors (FPIs) in India, against the final orders of assessment for AY 2022-23 passed by the Assistant Commissioner of Income Tax (ACIT). The core dispute revolved around the taxability of short-term capital gains (STCG) on the sale of rights entitlement and the hierarchy of setting off short-term capital losses (STCL) against STCG. The assessee claimed exemption for STCG on rights entitlement under Article 13(6) of the India-Ireland DTAA, but the AO treated it as taxable under Article 13(5). The AO also disallowed the assessee's preferred method of setting off STCG from non-STT paid shares against STCL from STT paid shares. The Dispute Resolution Panel (DRP) upheld the AO's additions. The assessee also raised grounds related to TDS credit and interest levies.

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 Double Taxation Avoidance Agreement (DTAA) or taxable under Article 13(5) as sale of shares, as per Section 45 of the Income Tax Act, 1961. 2. Whether the assessee is entitled to set off short-term capital loss (STCL) from STT-paid shares against short-term capital gain (STCG) from non-STT paid shares, or if a specific hierarchy of set-off is mandated by Section 70 of the Income Tax Act, 1961. 3. Whether there were errors in the grant of TDS credit and the levy of interest under Sections 234A to 234B. Assessee's Contentions: - The STCG on rights entitlement is exempt under Article 13(6) of the India-Ireland DTAA, as held by a coordinate bench in the assessee's own case for AY 2021-22, where rights entitlement was considered distinct from shares. Reliance was placed on the decision in ITA No. 4657/Mum/2023. - The assessee has the option to choose the most beneficial chronology for setting off STCL against STCG, as there is no prohibition or specific hierarchy prescribed in Section 70 of the Act. Reliance was placed on the decision of the Calcutta High Court and CBDT Circular dated 07.07.1955. - Rectification petitions were filed regarding TDS credit and refund issues. Revenue's Contentions: - The revenue supported the order of the AO and the directions of the DRP, implying that the STCG on rights entitlement is taxable and the set-off hierarchy adopted by the AO was correct.

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 ACIT (IT)-4(3)(1), Kautilya Bhavan, G Block, Bandra Kurla Complex, Vs. 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. ACIT (IT)-4(3)(1), Maharashtra-400051. PAN: AAATY0918K : Respondent)

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