ISHARES MSCI ALL COUNTRY ASIA EX JAPAN ETF,MUMBAI vs. DCIT (INT. TAX)-2(2)(2), MUMBAI

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1. Erred in issuing the order under section 143(3) r.w.s. 144C of the Act, without affixing digital signature in accordance with CBDT Instruction No. 8/2017 dated 29 September 2017, CBDT Instruction No. 1/2018 dated 12 February 2018 and dated 16 February 2018; thereby making it invalid and unenforceable. Ground of Appeal Nos. 3 - 7: Rejecting the hierarchy of set-off of Short-Term Capital losses adopted by the Appellant 2. erred in rejecting the hierarchy of set-off of short-term capital losses adopted by the Appellant and thereby, taxing the gross short-term capital gains (STCG) in respect of transactions on the sale of shares not chargeable to STT; 3. failed to appreciate that income under the head 'Capital Gains' is determined as per sections 45 to 55A of the Act whilst sections 111A and 115AD only provide for determination of tax in certain cases and therefore, gains arising on transactions subjected to STT and those not subjected to STT are no different and satisfy the 'similar computation' condition specified in section 70(2) of the Act;

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4. failed to appreciate that since section 70 of the Act does not provide any hierarchy for set-off, the short-term capital loss arising from sale of shares subjected to Securities Transaction Tax ('STT') can first be set-off against the STCG arising from sale of securities not subjected to STT instead of STCG arising from sale of shares subjected to STT; 5. erred in not following the binding decisions of the Jurisdictional Tribunal pronounced in favour of the Fund pertaining to AY 2021-22 and AY 2022-23 and rejecting the set-off merely because the Department has preferred an appeal before the Jurisdictional High Court against one of the orders of the Jurisdictional Tribunal; 6. Without prejudice to the above, erred in not setting- off the short-term capital gains arising from sale of share not subjected to STT against brought forward unabsorbed short-term capital loss subjected to STT, contrary to the provisions of section 74 of the Act. Grounds of Appeal Nos. 8 - 12: Failure to allow set-off of brought forward long-term capital 7. erred in setting off the long -term capital losses brought forward from earlier Assessment Years amounting to Rs. 26,506,339,311 against the current year's net long-term capital gains amounting to Rs. 7,181,923,425, claimed as not chargeable to tax under Article 13 of the India Mauritius (IM Treaty). 8. erred in holding that long term capital gains not chargeable to tax under the IM Treaty form part of the 'total income' of the Appellant as per section 2(24) of the Act read with section 4 and 5 of the Act. 9. erred in holding that mode of computation of capital gains should be as per the provisions of the Act and the provisions of IM treaty should be applied only to the 'net capital gain which forms part of total income; 10. failed to appreciate that as per section 90(2) of the Act, each provision of the Act should be considered separately and therefore for determining 'total income', the income under head "Capital gains" has to be first determined considering the provisions of the Act or the treaty, whichever is more beneficial and once it is determined that the grandfathered gains are not chargeable to tax in India as per Article 13(4) of the IM Treaty and do not form part of the total income, the question of set off of brought forward losses thereagainst does not arise;. 11. erred in not following the binding decisions of the Jurisdictional Tribunal pronounced in favour of the Fund for AY 2022-23 and rejecting the DTAA benefits merely on the ground that the same have not attained finality. Ground of Appeal Nos. 13 - 14: Arithmetical errors in the computation sheet 12. erred in computing total income from capital gains as Rs. 4,98,08,85,87,630 in the computation sheet as against Rs. 2,37,78,64, 12,411 determined in the impugned order; 13. erred in not allowing set-off of brought forward short-term and long-term capital loss amounting to Rs. 3,19,12,67,554 and Rs. 26,50,63,39,311

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 5 respectively in the computation sheet appended to the impugned order as against allowing the same in the impugned order; 14. erred in computing gross total income as Rs. 4,88,17,61,36,880 in the computation sheet as against Rs. 2,44,71,11,79,000 determined in the impugned order; 15. erred in computing the income chargeable to tax at special rates at Rs. 4,88,17,61,36,884 in the computation sheet as against an amount of Rs. 2,44,71,11,79,000 in the impugned order, and consequently computing a higher tax liability; 16. erred in levying surcharge, health and education cess on the additional tax liability (mentioned above at point no. 15) which is erroneous and bad in law; Ground of Appeal Nos. 17: Short grant of taxes deducted at source (TDS) 17. erred in computing TDS credit amounting to Rs. 1,49,02,70,231 as against TDS credit claimed in the return of income amounting to Rs. 1,49,05,83,737; Ground of Appeal No. 18: Levy of interest under section 234B of the Act - Rs. 8,315,107,780 18. erred in levying interest under Section 234B of the Act amounting to Rs. 8,31,51,07,780; Ground of Appeal No. 19: Levy of additional interest - Rs. 76,06,800 19. erred in levying additional interest amounting to Rs. 76,06,800 in the computation sheet without providing reference to the section of the Act under which such interest has been levied; Ground of Appeal No. 13: Initiation of penal proceedings under section 270A of the Act 20. erred in initiating penalty under section 270A of the Act alleging underreporting of income by the Appellant.”

4. Ground no.1 is general in nature. Therefore, the same needs no specific adjudication.

5. The next ground numbered as Ground no.1 raised in assessee’s appeal was not pressed during the hearing. Accordingly, the said ground is dismissed as not pressed.

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8. The Assessing Officer (“AO”), vide draft assessment order dated 26/03/2025 passed under section 144C(1) of the Act, disagreed with the submissions of the assessee and held that the computation of the net short- term capital gains by the assessee is not in order. The AO further held that the IT Rules have clearly defined separate columns for set-off and carry forward of gains of having differential tax rates. Accordingly, the short-term capital gain was computed by first setting off 15% loss against 15% gains, as follows: – Particulars Amount (INR) Amount (INR) (Taxable @ 15%) (Taxable @ 30%) Short-term capital gains 1746,90,89,129 62,90,458 Short-term capital loss other than NIL those covered under section 111A of the Act Short-term capital loss covered (796,57,16,860) under section 111A of the Act Net Short-term capital gains 950,33,72,269 62,90,458

9. Accordingly, the AO, vide draft assessment order, proposed to compute the net short-term capital gains amounting to Rs. 950,33,72,269 taxable at 15% under section 111A of the Act after allowing setting off of brought forward short-term capital loss taxable at 15% amounting to Rs. 796,57,16,860 and the net short-term capital gains amounting to Rs. 62,90,458 taxable at 30% under section 115AD of the Act.

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ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 9 in the present appeal is whether the short-term capital loss (on which STT was paid) can be set off against short-term capital gains (on which STT was not paid). Before proceeding further, it is relevant to note the provisions of section 70(2) of the Act, which deals with the set off of short-term capital loss, and the same reads as follows: -

"(2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset."

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 10 “016. This Leaves us with the only grounds relating to computation of short- term capital gain and set offof short-term capitalloss. The only issue in this appeal is that assessee has earned short-term capital gain of 7 791,221/- which is chargeable to tax at the rate of 30%. Assessee claims that it has short-term capital loss on which securities transaction taxes are paid, and therefore such loss should be set-off against the short-term capital gain irrespective of the tax bracket of such gain andlosses.

17. The only dispute between the assessee and revenue is as under:- Sr. Assessee’s version Revenue’s Version No.

18. Provisions of section 70 of the income tax act provides for the set off of losses from one source against income from another source under the same head of income. According to section 70 (1) where assessee suffers loss in respect of any source under any head of income other than capital gain, assessee is entitled to have the amount of such loss set of against his income from any other source under the same had. Therefore, these provisions speaks about inter head adjustment other than the head of capital gains. For capital gains provisions of section 70 (2) of the act provides that where assessee suffers short-term capital loss, assessee shall be entitled to set off such losses against capital gain computed in a similar manner as under section 48 to 55 of the act. According to section 70(3) of the act where assessee suffers long- term capital loss, assessee shall be entitled to set of such losses against long- term capital gains computed in similar manner as provided under section 48 to section 55 of the act. It is clear that section 48 to section 55 does not provide for rate of tax on capital gain. It specifically lays down the computation mechanism of capital gain and certainly not tax on such capital gains

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2. Vanguard Total International Stock Index Fund vs. ACIT (IT) – 4(3)(1), in order dated 13.12.2024.

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19. The issue arising in Grounds no.7-11, raised in assessee’s appeal, pertains to the set off of the taxable (non-grandfathered) brought forward long-term capital loss against the exempt (grandfathered) long-term capital gains.

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“6. We heard the rival submission and perused the documents available on record. There is no dispute that the assessee is entitled to get exemption under Article-13(4) of DTAA amount to Rs. 26,36,44,954/-. But the dispute between the parties is whether it will be adjusted with the brought forwarded loss or not. Considering the plain reading of the section that capital loss, after being carried forward, can be set off only against income under the head capital gains. Therefore, existence of a taxable income is a precondition for a set of ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 16 losses against such income. In this appeal, the gains of Rs. 26,36,44,954/- are admittedly exempt by virtue of article 13(4) of the treaty. The said gains, therefore, cannot be termed as income for the purpose of section 74 of the Act. We relied on the orders of the Coordinate Bench of ITAT-Mumbai in the cases of Swiss Finance Corporation (Mauritius) Ltd(supra) and J.P. Morgan India Investment Company Mauritius Ltd(supra). In our considered view the answer is against revenue. The exempted income is not a part of taxable Gross Total Income. The non-grandfathered LTCG will be adjusted with brought forwarded loss, following the order of Goldman Sachs Investments (Mauritius) Ltd.(supra). The orders which are relied on by the ld. DR are distinguishable. The impugned final assessment order is dismissed. The appeal of the assessee is succeeded.”

“6.4.2. It is noted that, Article 31 of Viena convention on the law of treaties states that, treaties should be interpreted in good faith, in accordance with the ordinary meaning to be given to the terms of the treaties in their context, and in the light of the its object and purpose. It also states that the context for the purpose of interpretation of the treaty shall comprise in addition to the test, including its preamble and annexes. One of the most difficult areas of treaty interpretation is how to cope up with silence of absent terms, if the treaty dose not expressly make provision for the matter in issue, should it be assumed that it is not covered depends on the nature of the treaty and the interaction of the various elements of Viena rules. In the present facts of the case the double taxation avoidance agreements is based on the principle to provide tax relief by preventing double taxation.

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6.4.3. As per India Mauritius DTAA read with section 90(2), capital gains are to be taxed based on the place of residence of the recipient, by granting relief of tax on such gains in India. Admittedly, the treaty is silent in respect of the loss if earned by an assessee and leaves it unclear whether, one has to deduce to interpret loss being included along with gain. This in our opinion can be possible subject to later negotiations and are not regulated by the treaty. The nature of the treaty in the present fact is key factor and therefore, what is not expressly granted is not permitted. 6.4.4. In so far as, applicability of good faith in interpreting the treaty provisions, we note that good faith differs from most of the other elements under the Viena rules. It applies to the whole process of interpreting for treaty rather than solely to the meaning of particular words or phrases within it. Although, it is difficult to give precise content to the concept generally, it does include one principle that applies to the interpretation of specific terms used in a treaty, commonly described as the principal “effectiveness”. The aspect of the principle of effectiveness is preferring an interpretation that fulfils the aims of the treaty and the intent of the contracting states as given in various Articles. 6.4.5. Applying the above rules to Article 13(4) of India Mauritius DTAA, it is clear that non taxability of the capital gains in India prior to 01/04/2017 cannot act to the disadvantage of the tax payer. This is because section 90(2) is clear to mean that Government of India entered into DTAA with the Government of Mauritius, according to which the capital gains is not taxable in India. However, the provisions of the act shall apply to the extent they are more beneficial to the tax payer. 6.4.6. The Ld.AR in support relied on following observations from the decision of Hon’ble Pune Bench in case of Patni Computers Systems Ltd., reported in (2008) 114 ITD 159 8. The law laid down by the Hon'ble Supreme Court in binding on us under Article 141 of the Constitution of India. The prevailing legal position, therefore, is that once an income is held to be taxable in a tax jurisdiction under a double taxation avoidance agreement, and unless there is a specific mention that it can also be taxed in the other tax jurisdiction, the other tax jurisdiction is denuded of its powers to tax the same. To that extent, the worldwide basis of taxation in the scheme of the Indian Income-tax Act is no longer applicable in a situation provisions of a double taxation avoidance agreement entered into under section 90 apply. The next question then arises whether in a loss situation in the PE State, as is the case before us, can the assessee be forced to go for taxation in accordance with the provisions of the treaty with the said PE State. The provisions of section 90(2) of the Indian Income-tax Act are quite unambiguous and categorical in this regard. Section 90(2), inter alia, provides that when the Government of India has entered into a double taxation avoidance agreement with Government of any other country, "in relation to an assessee to whom such agreement applies, the provisions of this Act shall apply to the extent these are more beneficial to that assessee". Section 90 only grants relief; it does not impose any liability. Even without such provisions, Courts in US and Germany, as indeed in other parts of the world, have held that a treaty cannot act to the disadvantage to the taxpayer. In other words, therefore, merely because India has entered into a double taxation avoidance agreement with a foreign country, the assessee cannot be denied the taxability under the scheme of the Indian Income-tax Act.

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The scheme of the double taxation avoidance agreement cannot, therefore, be thrust upon the assessee. In this particular case, it is obviously to the advantage of the assessee that he is taxed in India on the basis of his worldwide income, which includes losses incurred abroad, and not to invoke the provisions of the India- Japan tax treaty. The provisions of the Indian Income-tax Act must, therefore, apply to that extent. Then comes the objection of the revenue that in the event of the assessee not opting for treatment on the basis of India-Japan tax treaty this year, he will be shut out from availing the benefits of the said treaty in the subsequent years. We see no support for this proposition. Under the Income- tax Act, every year is an independent unit, and it is for the assessee to examine whether or not, in the light of the applicable legal provisions and in the light of the precise factual position, the provisions of the Income-tax Act are beneficial to him or that of the applicable double taxation avoidance agreement. There is no specific bar on such an approach of the assessee, and in the absence thereof, we cannot impose the same. In any event, this question is relevant only in the year in which the assessee claims the treaty benefits and not in this year in which the provisions of the Act are clearly more beneficial to the assessee, and, therefore, the assessee does not claim the treaty protection. Just because the assessee may, in Assessing Officer's perception, may claim treaty protection in a subsequent year, the treaty provisions cannot be thrust on the assessee this year as well. In this view of the matter, the assessee was indeed eligible to claim taxation on worldwide basis, disregard the scheme of taxability under the India-Japan tax treaty, and, in effect, claim deduction of loss incurred by the PE in Japan. The CIT(A) was thus justified in his conclusion to the effect that losses of assessee's PE in Japan are to be taken into account while computing assessee's total income liable to tax in India. Now coming to the contention whether each transaction can be considered as a separate source of income. 6.5. The Ld.AR placed reliance on the following observations by Hon’ble Mumbai Special Bench in case of Montgomery Emerging Market Fund reported in (2006) 100 ITD 217 in support of the above argument. Hon’ble Special bench observed the distinction between 'source of income' and 'head of income' and that there can be multiple source of income under the same head of income. Hon’ble Special Bench also observed that, what is taxed by the Act is not different source of income, independently and that income from different source is clubbed under respective heads that are finally aggregated into the total income. The relevant extract of the observations of the Hon’ble Special Bench in this regard held as under:- "44. Therefore, it is very apparent that source of income does not mean head of income. The Assessing Officer has proceeded on a hypothesis as if the source of income is the head of income itself. This is not a proper construction of law provided in section 70. Short term capital gains/loss as well as long term capital gains/loss both are computed under the head "capital gains" for the aggregation of income culminating into total income which is taxable under the Income-tax Act. What is taxed by the Income-tax Act is not different sources of income independently, but income from different sources clubbed under respective heads and finally aggregated into the total income. The classification of income under different heads for computing the total income does not interfere with the independent character of different sources of income available to an assessee. Both, short term capital gains/loss and long term capital gains/loss are different sources of income, falling under the same head "capital gains". Even under short term capital gains, different transactions will be different sources of income resulting in short term capital gains/loss. Likewise, different transactions of long term capital assets will be different sources of income for an assessee to arrive at long term capital gains/loss. This is reflected in the scheme of computation of ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 19 capital gains provided in section 48 where gains or loss is computed on the basis of individual asset and transaction and not on the basis of class of assets. Therefore, we have to agree with the argument of the learned senior counsel that every transaction of a property is a different source of income for the assessee. Head of income is not the source of income. Source of income is having the direct nexus with the stream or fountain out of which the income springs to the assessee. Head of income is provided for clubbing purpose of those like minded incomes derived from different sources for the purpose of aggregation and allowable deductions. (emphasis supplied) 6.5.1. From the above one can infer that there is no basis in grouping long term/short term capital assets. It can also be inferred that, long term and short term are different sources of income. Further, Hon’ble Special bench also observed that even the different short term assets and long term assets involved in the respective transactions are again different sources of income. In the present facts of the case, loss earned from sale of shares of Maharana and the gain earned from sale of shares of Maharana are therefore different sources of income. And further as per the observations of Hon’ble Special Bench, even under short term/long term computation, every transaction is a different source. 6.5.2. Further, the Co-ordinate Bench of this Tribunal in the case of Credit Suisse (Singapore) Co. (Mauritius) Ltd. In and 1108/Mum/2022, upheld the theory of the segregation of capital gain for drawing DTAA to the extent of more beneficial to the assessee. The relevant finding of the Tribunal is reproduced as under: “8. In the case of Flagship Indian Investment Co (Mauritius) Ltd.(supra), the assessee had claimed benefit of Article -13 of the DTAA in respect of 'Capital Gains' and had sought to carry forward capital losses of the earlier years as the same could not be set off against capital gains for the relevant assessment year. The Assessing Officer and CIT(A) rejected assessee's claim of carry forward of capital losses on the pretext that since the assessee had claimed benefit of exemption under Article 13 of the DTAA on capital gains, capital losses are also exempt. When the issue reached before the Tribunal, the Coordinate Bench placing reliance on the decision in the case of CIT vs. Western India Oil Distributing Co. Ltd., 249 ITR 517 (SC) and CIT vs. Manmohan Das 59 ITR 699(SC) and also after considering CBDT Circular No.22 of 1944 dated 29/07/1944 held that the assessee is justified in claiming carry forward of brought forward losses of the earlier years to the subsequent years and at the same time upheld assessee's claim of capital gains as exempt under the provisions of Article -13 of the DTAA. Thus, the Tribunal accepted the theory of segregation of capital gains and capital losses for drawing benefits of DTAA/the Act to the extent they are more beneficial to the assessee.

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 20 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) Lid. (supra). In the case of the assessee before the Tribunal that pertained to A. Y. 2005-06 the assessee had brought fonvard 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 set-off of the same against the capital gains for the relevaye assestment years. On benefit of carry forward of such capital losses of the earlier years, thus, declined the 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 vears 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……… The Tribunal further held: ……….. 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. 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 assesses. 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 Palm 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."

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 21 From the reading of above decisions, it is evident that there is no impedement in segregating capital losses and capital gains from different source of income under the head 'capital gains' for the purpose of claiming the benefit of DTAA/ provisions of the Act as the case may be, whichever is more beneficial to the assessee in terms of section 90(2) of the Act.”

7. It is relevant to understand the scheme of the act, to find out if the capital gains earned by the assessee from sale of shares that does not form part of total income of virtue of DTAA would enter the computation of total income. Section 4 of the act is the charging section that describes the rates on income charged for a particular assessment year. Section 2(45) defines the total income to be the amount of income referred to section 5 and computed in the manner laid down in the Act. Section 14 of the act categorises income under various heads of income like salaries, income from house property, profit and gains from business of profession, capital gains and income from other sources. Section 66 to 80 deals with the aggregation of income and set off /carry forward of loss. 7.1. Hon’ble Bombay High Court in case of CIT vs. M. N. Raigi reported in (1949) 17 ITR 180 considered as to whether share income of a partner which does not form part of the total income, is to be added to the total income in order to determine the rate at which income tax was payable by the partner. Section 16 of Income Tax Act 1922, corresponding to section 66 of the Income tax Act 1961 was subject matter for consideration in the aforesaid decision. Hon’ble Court after analysing the scheme of computation observed and held as under : Now, the scheme of the Indian Income-tax Act is that income, profits and gains of an assessee are liable to tax subject to certain exemptions and exceptions. Although certain sums may be exempted from taxation, still they may form part of the total income of an assessee in order to determine the rate at which income- tax is payable. Therefore it follows that the total income of an assessee is not necessarily wholly subject to tax. Portions of it may be exempt from taxation and yet may be computed for the purpose of determining the rate at which tax is payable. Mr. Joshi's contention is that all sums which are exempted from taxation must still be brought into the total income of the assessee for the purpose of determining the rate at which income-tax is payable, except where the statute in terms excludes these sums from the total income of the assessee. It is pointed out that in Section 4, sub-section (3), certain incomes, profits or gains falling within the classes mentioned in that sub-section are not to be included in the total income of the person receiving the income, and Mr. Joshi argues that except in these cases, in every other case, although the tax is not payable on certain sums, they must be included in the total income for the purpose of determining the rate. It is therefore argued that although under Section 25(4) an exemption is given to the assessee because there is a succession to the business carried on and no tax is payable by the assessee, the sum which is exempted under this sub-section does form part of the total income for the purpose of determining the rate. Total income is defined in Section 2(15) of the Act, and it means total amount of income, profits and gains computed in the manner laid down in this Act. Therefore, it would be erroneous to suggest that total income is to be determined only in the light of Section 4, sub-section (3), of the Act. How total income is to be computed and determined depends upon the various provisions contained in the Act as a whole. Then we might look at various sections which provide for exemptions from the payment of tax. There is Section 7 which contains various provisos which cover sums not liable to tax. Similarly Section 8. Section 14 also contains exemptions with regard to certain sums on which no tax is payable, and Section 15 contains

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 22 exemptions in cases of life insurance. It will be noticed that the language used in all these sections, to which I have referred, is similar, if not indentical, with the language used in Section 25(4), viz., that the tax is not payable on these different sums. Now, if Mr. Joshi's contention was sound, then with regard to these various exemptions which I have enumerated, although tax is not payable, they should all be included in the total income for the purpose of determining the rate payable in respect of income-tax. Now, the short and conclusive answer to that contention is Section 16 of the Indian Income-tax Act. It is that section which in terms includes in the total income of an assessee only certain sums which are exempted from the payment of tax. Therefore, by implication, where the sums are not included in the total income by Section 16, those sums are not only exempted from the payment of tax, but they are also excluded from the total income. Now, when we look at Section 16, it does not include the sum covered by Section 25(4) as a sum which is to be included in the total income of the assessee. The scheme, therefore, of the Income-tax Act is clear and is very different from what Mr. Joshi suggests it is. The scheme is that wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion also operates for the purpose of computing the total income. Not only is the sum not liable to tax, but it is also not to form part of the total income for the purpose of determining the rate. When the Legislature indends that certain sums, although not liable to tax, should be included in the total income, it expressly so provides, as it is done in Section 16, and therefore Prima facie, when we come to Section 25(4) and when we find that the assessee is not liable to pay tax on the sum received by him as his share of the partnership, that sum cannot and does not form part of his total income. Mr. Joshi has not succeeded in pointing out to us any provision in the Act whereby this particular sum covered by Section 25 (4) has been made a part of the total income of the assessee. Therefore, in my opinion, the share of the profit of the assessee in the firm of S.B. Billimoria & Co., in the accounting year 1942 cannot be included in the total income of the assessee for ascertaining the rate of income-tax. 7.2. It is thus clear from the above observation from the Hon’ble Bombay high court that, income does not form part of the total income do not enter the computation of the total income at all applying the above principle above ratio to the present facts of the case the capital gains that are already exempt under the DTAA which are binding on the parties being exempt in India, cannot enter the computation of total income of assessee in India. Therefore, setting off the loss suffered by the assessee from sale of shares of Maharana, against the gains earned from sale of shares of Maharana would tantamount to taxing the gain in India which is in violation of Article 13(3)(4) of DTAA as it stood prior to amendment.

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 23

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 24 that the assessee has filed a rectification application before the AO on 28/10/2025 in this regard, which is still pending consideration. Accordingly, we deem it appropriate to restore this issue to the file of the AO with the direction to grant the credit of taxes deducted at source, in accordance with the law, after conducting the necessary verification. We order accordingly. As a result, Ground no.17 raised in assessee’s appeal is allowed for statistical purposes.

./2025 iShares MSCI All Country Asia Ex Japan ETF - A.Y. 2022-23 33. In this appeal, the assessee has raised the following grounds: - “

On the facts and circumstances of the case, the Appellant craves leave to prefer an appeal against the order under section 143(3) read with section 144C(13) of the Act dated

31. July 2025, issued by the Deputy Commissioner of Income Tax (International Taxation) - 2(2)(2), Mumbai ['the learned AÖ] in pursuance of the directions under section 144C(5) of the Act issued by the Hon ble DRP - 1, Mumbai dated

18. June 2025 on the following grounds, each of which is without prejudice to and independent of the others: On the facts and in the circumstances of the case and in law, the learned AO/ Hon'ble DRP:

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 25

Ground of Appeal Nos. 1 - 4: Rejecting the hierarchy of set-off of Short-Term Capital losses adopted by the Appellant 1. erred in rejecting the hierarchy of set-off of short-term capital losses adopted by the Appellant and thereby, taxing the gross short-term capital gains (STCG) in respect of transactions on the sale of shares not chargeable to STT; 2. failed to appreciate that income under the head 'Capital Gains' is determined as per sections 45 to 55A of the Act whilst sections 111A and 115AD only provide for determination of tax in certain cases and therefore, gains arising on transactions subjected to STT and those not subjected to STT are no different and satisfy the 'similar computation' condition specified in section 70(2) of the Act; 3. failed to appreciate that since section 70 of the Act does not provide any hierarchy for set-off, the short-term capital loss arising from sale of shares subjected to Securities Transaction Tax ('STT") can first be set-off against the STCG arising from sale of securities not subjected to STT instead of STCG arising from sale of shares subjected to STT; 4. erred in not following the binding decision of the jurisdictional Appellate Tribunal in the appellant's sister Funds as well as the decision of the Hon'ble High Court of Kolkata, (which is the only decision by the Hon'ble High Court on the issue) and disallowed the set-off of short-term capital losses (which the Income-tax Appellate Tribunal has permitted) merely on the ground that the Tribunal's order has not attained its finality. Ground of Appeal No 5 - 6: Arithmetical errors in the computation sheet 5. erred in levying interest under Section 234C of the Act amounting to Rs.5,953. 6. erred in granting short TDS credit by Rs. 41,16,003. Ground of Appeal No. 7: Initiation of penal proceedings under section 270A of the Act 7. erred in initiating penalty under section 270A of the Act alleging underreporting of income by the Appellant.”

34. The issue arising in Grounds no.1 to 4, raised in assessee’s appeal, pertains to the manner of set off of short-term capital loss, which was incurred by the assessee from the transaction in shares on which STT was paid. Since we have already adjudicated a similar issue in the foregoing paragraphs, our findings/conclusions as rendered therein shall apply mutatis mutandis to this ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 26 appeal. Accordingly, we direct the AO to accept the methodology adopted by the assessee for the computation of the short-term capital gains. As a result, Grounds no.1 to 4 raised in assessee’s appeal are allowed.

35. The issue arising in Ground no.5, raised in assessee’s appeal, pertains to the levy of interest under section 234C of the Act, which is consequential in nature. Therefore, the same need no separate adjudication.

36. The issue arising in Ground no.6, raised in assessee’s appeal, pertains to the short grant of TDS credit. During the hearing, the learned AR submitted that the assessee has filed a rectification application before the AO on 28/10/2025 in this regard, which is still pending consideration. Accordingly, we deem it appropriate to restore this issue to the file of the AO with the direction to grant the credit of taxes deducted at source, in accordance with the law, after conducting the necessary verification. We order accordingly. As a result, Ground no.6 raised in assessee’s appeal is allowed for statistical purposes.

37. Ground no.7, raised in assessee’s appeal, pertains to the initiation of penalty proceedings under section 270A of the Act, which is premature in nature. Therefore, the said ground is dismissed.

./2025 iShares Core MSCI Total International Stock ETF - A.Y. 2023-24 39. In this appeal, the assessee has raised the following grounds: -

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 27

“On the facts and circumstances of the case, the Appellant craves leave to prefer an appeal against the order under section 143(3) read with section 144C(13) of the Act dated 28 August 2025, issued by the Deputy Commissioner of Income Tax (International Taxation) - 2(2)(2), Mumbai ['the learned AO'] in pursuance of the directions under section 144C(5) of the Act issued by the Hon'ble DRP - I, Mumbai dated 2 July 2025 on the following grounds, each of which is without prejudice to and independent of the others: On the facts and in the circumstances of the case and in law, the learned AO/ Hon'ble DRP: Ground of Appeal No. 1: General Erred in assessing the total income of the Appellant at Rs. 26,37,72,43,346 instead of the returned income of Rs. 26,06,59,74,320; Grounds of Appeal Nos.2-6: Failure to allow set-off of brought forward long-term capital losses 2. erred in setting off the long -term capital losses brought forward from earlier Assessment Years amounting to Rs. 31,12,69,026 against the current year's net long-term capital gains amounting to Rs. 1,12,27,50,838, claimed as not chargeable to tax under Article 13 of the India Mauritius (IM Treaty). 3. erred in holding that long term capital gains not chargeable to tax under the IM Treaty form part of the 'total income' of the Appellant as per section 2(24) of the Act read with section 4 and 5 4. erred in holding that mode of computation of capital gains should be as per the provisions of the Act and the provisions of IM treaty should be applied only to the 'net' capital gain which forms part of total income; 5. failed to appreciate that as per section 90(2) of the Act, each provision of the Act should be considered separately and therefore for determining 'total income', the income under head "Capital gains" has to be first determined considering the provisions of the Act or the treaty. whichever is more beneficial and once it is determined that the grandfathered gains are not chargeable to tax in India as per Article 13(4) of the IM Treaty and do not form part of the total income, the question of set off of brought forward losses thereagainst does not arise;. 6. erred in not following the binding decision of the Jurisdictional Tribunal pronounced in favour of the Fund for AY 2022-23 and rejecting the DTAA benefits merely on the ground that the same have not attained finality. Ground of Appeal Nos. 7-10: Arithmetical errors in the computation sheet 7. erred in computing total income from capital gains as Rs. 51,10,91,99,441 in the computation sheet as against Rs.26,32,60,85,696 determined in the impugned order;

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 28

8. erred in computing gross total income as Rs.77,20,20,54,329 in the computation sheet as against Rs. 26,37,72,43,346 determined in the impugned order; 9. erred in computing the income chargeable to tax at special rates at Rs. 77,48,64,42,787 in the computation sheet as against an amount of Rs. 26,37,72,43,346 in the impugned order, and consequently computing a higher tax liability: 10. erred in levying surcharge, health and education cess on the additional tax liability (mentioned above at point no. 9) which is erroneous and bad in law; Ground of Appeal No. 11 : Levy of interest under section 234B of the Act - Rs. 3,68,24,02,310 11. erred in levying interest under Section 234B of the Act amounting to Rs. 3,68,24,02,310 Ground of Appeal No. 12: Initiation of penal proceedings under section 270A of the Act 12. erred in initiating penalty under section 270A of the Act alleging underreporting of income by the Appellant.”

40. Ground no.1 is general in nature. Therefore, the same needs no specific adjudication.

41. The issue arising in Grounds no.2-6, raised in assessee’s appeal, pertains to the set off of the brought forward long-term capital loss (non- grandfathered) against the exempt (grandfathered) long-term capital gains. Since we have already adjudicated a similar issue in the foregoing paragraphs, our findings/conclusions as rendered therein shall apply mutatis mutandis to this appeal. Accordingly, the AO is directed to allow the exemption of the entire long-term capital gains earned by the assessee from the transactions which are covered under the provisions of Article 13(4) of the India-Mauritius DTAA. Further, the AO is directed to allow the set off of long-term capital loss brought forward from the previous years against the net long-term capital gains accrued during the year from the non-grandfathered sale of shares.

ITAs No.6050, 6051 & 6774/Mum/2025 (A.Y. 2022-23 & 2023-24) 29 Accordingly, the impugned order on this issue is set aside, and Grounds no.2- 6 raised in assessee’s appeal are allowed.