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Income Tax Appellate Tribunal, ‘I‘ BENCH
Before: SHRI M.BALAGANESH & SHRI KULDIP SINGH&
आदेश / O R D E R PER M. BALAGANESH (A.M):
These appeals in ITA Nos.1370/Mum/2021 & 1369/Mum/2021 for A.Yrs.2014-15 & 2013-14 respectively arise out of the order by the ld. Commissioner of Income Tax (Appeals)-55, Mumbai in appeal No.CIT(A)- 55, Mumbai/10164/2018-19 & CIT(A)-55, Mumbai/10228/2016-17 dated 09/02/2021 & 08/02/2021 respectively (ld. CIT(A) in short) against the
2 ITA Nos. 1370 & 1369/Mum/2021 M/s. Bluebay Mauritius Investment Ltd.,
order of assessment passed u/s.143(3) r.w.s.144C(3) & 143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 21/12/2017 & 23/02/2017 by the ld. Dy. Commissioner of Income Tax (International Taxation)-1(2)(2) (hereinafter referred to as ld. AO).
1.1. Identical issues are involved in both these appeals and they are taken up together and disposed of by this common order for the sake of convenience.
1.2. The appeal of the Revenue for the A.Y.2013-14 is taken as the lead case with the consent of both the parties.
The grounds raised by the Revenue for A.Y.2013-14 are as under:-
Whether in the facts and circumstances of the case and in law, Ld CIT (A) erred in holding that the Appellant's view of taking the Treaty benefit prior to computation of total income is correct and not considering that the aggregation of the Income and set off of losses has to be determined as per the provisions of section 66 to section 80 of the income Tax Act. Thereafter DTAA benefit has to be granted as per section 90(2) on the Total Income so arrived. 2. Whether in the facts and circumstances of the case and in law, Ld. CIT(A) erred in taking a view that the computation of total income has to be solely determined as per the provisions of the Act as per section 74(1) and not on treaty. Wherein loss is to be ascertained to be carried forwarded the subsequent assessment year on the base of net result of computation for which setting off of carried forward losses against the capital gains is required to be done. 3. Whether in the facts and circumstances of the case and in law, Ld CIT(A) erred in allowing setting off the short-term capital losses brought forward from earlier AYs against the net short-term capital gains earned in the current AY 2014-15 which were claimed as not chargeable to tax under the provisions of the Treaty. 4. Whether on the facts and circumstances of the case the Ld, CIT(A) erred in not considering that income includes loss and the treatment of both has to be considered in the similar manner as laid in the Supreme Court decision Hariprasad & Co. Pvt. Ltd. Vs ClT(Central) Delhi.
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The Appellant prays that the order of the CIT(A) be Set Aside on the above grounds and that of the Assessing Officer be restored. 6. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
We have heard rival submissions and perused the materials available on record. We find that assessee is a tax resident of Mauritius registered with Securities and Exchange Board of India (SEBI) as a Foreign Institutional Investor (FII) for carrying out investment activity in Indian capital markets. The return of income for the A.Y.2013-14 was filed by the assessee on 29/11/2013 declaring ‘Nil’ income. During the year under consideration, the assessee earned a net short term capital gain of Rs.6,33,62,195/- on sale of securities. The gains earned by assessee were claimed as exempt from tax under Article 13 of India Mauritius treaty. The assessee also had brought forward capital losses amounting to Rs.32,17,33,024/- incurred in previous year. This loss was sought to be carried forward to subsequent year for set off against taxable capital gains that could be earned in subsequent years. The assessee also received dividend income of Rs.91,00,000/- which was claimed as exempt u/s.10(34) of the Act. The ld. AO observed that, no doubt that assessee’s short term capital gains of Rs.6,33,62,195/- on sale of securities would be exempt as per Article 13 of the India Mauritius treaty. But he held that to the extent of Rs.6,33,62,195/-, the brought forward capital loss figure of earlier year should be reduced and only the remaining sum should be allowed to be carried forward to subsequent years. According to the ld. AO, the assessee should first set off the brought forward short term capital loss of Rs.32,17,33,024/- against the short term capital gains income of the current year under the head ‘capital gains’ and then should claim the treaty benefit of total income under the head ‘capital gains’.
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3.1. Before the ld. CIT(A), the assessee stated that the very same issue was decided by the Co-ordinate Bench of this Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd., vs. DCIT reported in 187 ITD 184 dated 24/09/2020. The ld. CIT(A) relied on the said Tribunal decision and granted relief to the assessee. Aggrieved, the Revenue is in appeal before us.
3.2. We find that the issue in dispute is no longer res integra in view of the decision of this Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd., referred to supra. The facts prevailing in Goldman Sachs Investments (Mauritius) Ltd., and the action of the ld. AO in that case are as under:-
Sl.No. Particular A.Y Amount Short Term Losses to be Capital Gain carry forward (STT Paid A.Y.2013-14. 1. B/F Short 2009-10 -36,94,17,35,053 3,92,43,87,502 33,01,73,47,551 Term Capital Loss 2. B/F Short 2012-13 -2,32,19,35,857 2,32,19,35,857 Term Capital Loss
3.3. The findings of the Tribunal are as under:-
“12. We shall first deal with the grievance of the assessee that as to whether the A.O/DRP were right in law and the facts of the case, in concluding, that the short term and long term capital gains earned by the assessee from transfer of securities in India during the year under consideration i.e A.Y. 2013-14, were to be adjusted against the STCL brought forward by the assessee from the earlier years, and thus, only the balance amount of STCL was to be carried forward to
5 ITA Nos. 1370 & 1369/Mum/2021 M/s. Bluebay Mauritius Investment Ltd.,
the subsequent years. At this stage, we may herein observe that the assessee had claimed the short term and long term capital gains arising in its hands from transfer of securities during the year under consideration i.e A.Y. 2013-14, as exempt, under Article 13 of the India-Mauritius Tax Treaty. As regards the claim of the assessee that the capital gains on transfer of securities in India was not exigible to tax in India as per Article 13 of the India-Mauritius tax treaty, we find, that the same is not in dispute. On a careful perusal of the observations of the DRP, we find that a direction has been given by the panel for adjustment of the brought forward STCL against the short term and long term capital gains earned by the assessee during the year under consideration. We are thus confronted with a direction of the DRP, wherein despite accepting that the short term and long term capital gains earned by the assessee from transfer of securities during the year under consideration were exempt from tax in India under Article 13 of the India-Mauritius tax treaty, the panel had directed that the brought forward STCL be first adjusted against such exempt short term and long term capital gains, and only the balance amount of brought forward STCL be carried forward to the subsequent years. In our considered view the aforesaid direction of the DRP is bereft of any reasoning and does not merit acceptance. We are unable to comprehend that now when admittedly the short term and long term capital gains earned by the assessee from transfer of securities during the year in question are exempt under Article 13 of the India-Mauritius Tax Treaty, where would there be any occasion for seeking adjustment of the brought forward STCL against such exempt income. Our aforesaid view is squarely covered by the order of the ITAT, Mumbai in the case of Flagship Indian Investment Company (Mauritius) Ltd. (supra). In the case of the assessee before the Tribunal that pertained to A.Y. 2005-06 the assessee had brought forward capital loss of Rs. 87,06,49,335/- from transfer of securities in A.Y. 2002-03. The aforesaid loss was determined in the hands of the assessee vide an intimation under Sec. 143(1) for A.Y 2002-03. Observing, that since the capital gains were not taxable in India as per Article 13 of the Indian-Mauritius Tax Treaty, the A.O being of the view that capital loss would also be exempted, and therefore, the assessee would not be entitled to claim the benefit of carry forward of such capital losses of the earlier years, thus, declined the set-off of the same against the capital gains for the relevant assessment years. On appeal, the CIT(A) upheld the order of the A.O. On further appeal, the Tribunal concluded that the assessee was fully justified in claiming the carry forward of the capital losses of the earlier years to the subsequent years, and both the A.O and the CIT(A) were in error in not allowing the same. Accordingly, the A.O was directed to allow the carry forward of the capital losses of the earlier years to the subsequent years, according to law. As in the aforesaid case, in the case of the present assessee before us, as the short term and long term capital gains earned by the assessee from transfer of securities during the year in question are admittedly exempt from tax under Article 13 of the India-Mauritius tax treaty, therefore, the brought forward STCL of the previous years was rightly carried forward by the assessee to the subsequent years. As regards the reliance placed by the ld. D.R on the observations of the lower authorities that as the words "income" or "profits and gains" were to include losses also, therefore, now when Sec. 45 of the Act, by virtue of the India-Mauritius tax treaty was rendered unworkable in respect of "capital gains" derived by the assessee from transfer transactions carried out in India, the "capital losses" would also not form part of its "total income", and thus, were not required to be computed under the Act, we
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are afraid the same does not find favour with us. Before adverting any further, we may herein reiterate that the DRP vide its order passed u/s 144C(5), dated 21-11- 2016, had concluded, that now when the "capital loss" was allowed to be carried forward by the A.O, vide his order passed under sec. 143(3), dated 19-3-2015 for A.Y 2012-13, the same could not have thereafter been reviewed in the assessment proceedings of any subsequent year. As the said observation of the DRP has not been assailed any further by the revenue in appeal before us, the same thus had attained finality. Now coming to the claim of the revenue that as Sec. 45 of the Act, by virtue of India-Mauritius tax treaty was rendered unworkable in respect of "capital gains" derived by the assessee from transfer of securities in India, therefore, the "capital losses" would also not form part of the assessee's "total income", and thus, could not be computed under the Act, we are afraid does not find favour with us. Apropos the aforesaid observation of the A.O, we are of the considered view that the same had been arrived at by loosing sight of the fact that the "capital losses" in question had been brought forward from the earlier years and had been determined and allowed to be carried forward by the A.O while framing the assessment for A.Y 2012-13, vide his order passed u/s 143(3), date 19-3-2015, and had not arisen during the year under consideration i.e A.Y 2013- 14. Accordingly, the claim of the A.O that the "capital losses" b/forward from the earlier years, pertaining to a source of income that was exempt from tax was thus not to be carried forward to the subsequent years, being devoid of any merit, is thus rejected. At this stage, we may herein observe that it is for the assessee to examine whether or not in the light of the applicable legal provisions and the precise factual position the provisions of the IT Act are beneficial to him or that of the applicable DTAA. In any case, the tax treaty cannot be thrust upon an assessee. In case the assessee during one year does not opt for the tax treaty, it would not be precluded from availing the benefits of the said treaty in the subsequent years. Our aforesaid view is fortified by the order of the ITAT, Pune in Patni Computer Systems Ltd. (supra). We thus in terms of our aforesaid observations, not being able to persuade ourselves to subscribe to the view taken by the A.O/DRP, who as noticed by us hereinabove had sought adjustment of the b/forward STCL against the exempt short term and long term capital gains earned by the assessee during the year in question, thus 'set aside' the order of the A.O in context of the issue under consideration. Accordingly, we direct the A.O to allow carry forward of the b/forward STCL of Rs. 3926,36,70,910/- to the subsequent years. The Grounds of appeal Nos. 1 and 2 are allowed in terms of our aforesaid observations. 13. We shall now advert to the second limb of the grievance of the assessee. As is discernible from the records, the assessee had brought forward from the preceding years Long term capital losses aggregating to Rs. 7,63,95,386/- [B/forward LTCL from A.Y 2009-10: Rs. 1,09,800/- (+) B/forward LTCL from A.Y 2012-13 : Rs. 7,62,85,586/-]. Admittedly, the aforesaid Long term capital loss of Rs. 7,63,95,386/- was determined and allowed to be carried forward by the A.O while framing the assessment in the case of the assessee for A.Y 2012- 13, vide his order passed u/s 143(3), dated 19-3-2015. In fact, the aforesaid factual position had duly been taken cognizance of by the DRP at Para 2.3 of its order passed u/s 144C(5), dated 21-11-2016. As observed by us hereinabove, the DRP had observed that once the STCL was allowed to be carried forward by the A.O in a scrutiny assessment order passed u/s 143(3) for a particular assessment
7 ITA Nos. 1370 & 1369/Mum/2021 M/s. Bluebay Mauritius Investment Ltd.,
year, the same cannot be reviewed in the assessment proceedings of any subsequent assessment year. In our considered view, now when the DRP had directed the A.O to allow carry forward of the STCL brought forward from the preceding years, there can be no justification for denial of carry forward of similarly placed Long term capital losses brought forward by the assessee from the preceding years. We thus are of the considered view that as Long term capital losses of Rs. 7,63,95,386/- were determined and permitted to be carried forward by the A.O while framing the assessment in the case of the assessee for A.Y 2012- 13, vide his order passed u/s 143(3), dated 19-3-2015, the assessee therefore would be duly entitled to carry forward the same to the subsequent years. As observed by us hereinabove, the assessee had also moved with the DRP a rectification application u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009 r.w sec. 144C(5) of the Act, dated 11-1-2017, seeking a direction for carry forward of the b/forward Long term capital losses. After considering the issue, the DRP vide its order passed u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009, dated 01-12-2017, had concluded, that following the rationale adopted for allowing the carry forward of brought forward STCL, the Long term capital losses amounting to Rs. 7,63,95,386/- that were brought forward from the preceding years were also to be allowed to be carried forward to the subsequent years. At the same time, the DRP observed that as the assessee during the year in question i.e A.Y 2013-14 had shown short term and long term capital gains, therefore, the b/forward losses would be first 'set off' against such income, and the remaining losses would be allowed to be carried forward to the subsequent years. Accordingly, it was observed by the DRP that as the assessee had during the year in question i.e A.Y 2013-14 shown Long term capital gains of Rs. 5,63,11,782/-, therefore, the same would be first set off against the b/forward Long term capital losses of Rs. 7,63,95,386/-, and the balance amount would be allowed to be carried forward to the subsequent years. However, as the DRP in its order u/s 144C(5), dated 21-11-2016 at Page 8 - Para 2.10 had directed adjustment of the Long term capital gains of Rs. 5,63,11,782/- as against the b/forward STCL of Rs. 3926,36,70,910/-, as per sec. 74(1)(a) of the Act, therefore, pursuant to its aforesaid directions, it had therein directed that its observations recorded in Para 2.9 to Para 2.12 would also stand modified. We have given a thoughtful consideration to the aforesaid issue before us, and on the basis of our observations recorded hereinabove, we herein conclude that the assessee is duly entitled for carry forward of its brought forward Long term capital losses of Rs. 7,63,95,386/- to the subsequent years. Further, in terms of our observations and reasoning adopted for concluding that the brought forward STCL of the earlier years are not to be adjusted against the Short term capital gain earned by the assessee during the year in question, we herein direct that on the same basis the brought forward Long term capital losses of the earlier years shall not be set off against the Long term capital gain earned by the assessee from transfer of securities during the year in question i.e A.Y 2013-14. The Ground of appeal No. 3 is allowed in terms of our aforesaid observations.
3.4. Respectfully following the aforesaid decision, we do not find any infirmity in the order of ld. CIT(A) granting relief to the assessee.
8 ITA Nos. 1370 & 1369/Mum/2021 M/s. Bluebay Mauritius Investment Ltd.,
Accordingly, the grounds raised by the Revenue are dismissed for A.Y.2013-14.
We find that the Revenue has raised similar grounds before us for A.Y.2014-15. We find there is a small change in the facts in A.Y.2014-15 when compared to A.Y.2013-14. In A.Y.2014-15, the ld. AO in the order passed u/s.143(3) of the Act had indeed accepted to the entire contentions of the assessee by not disturbing the figure of brought forward losses. But later in the proceedings u/s.154 of the Act, the ld. AO had sought to reduce the figure of brought forward losses to the extent of taxable short term gains which is exempt as per Article 13 of India Mauritius treaty. We find that on merits, the case is decided already in favour of the assessee. Hence, this aspect of whether at all this adjustment could be carried out in the rectification proceedings u/s.154 of the Act need not be gone into as they would be academic in nature. The decision rendered by us hereinabove for A.Y.2013-14 shall apply mutatis mutandis to A.Y.2014-15 also except with variance in figures.
In the result, both the appeals of the Revenue are dismissed.
Order pronounced on 29/04/2022 by way of proper mentioning in the notice board.
Sd/- Sd/- (KULDIP SINGH) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 29/ 04/2022 KARUNA, sr.ps
9 ITA Nos. 1370 & 1369/Mum/2021 M/s. Bluebay Mauritius Investment Ltd.,
Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. 6. Guard file. //True Copy//
BY ORDER,
(Asstt. Registrar) ITAT, Mumbai