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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI B.R BASKARAN & SHRI AMARJIT SINGH
Date of Hearing-10.04.2019 Date of Order -10.04.2019 PER B.R. Baskaran, AM O R D E R The appeal of the revenue is directed against the order dated 29/07/2016 passed by Ld CIT(A)-57, Mumbai and it relates to the ./2016 M/s Merril Lynch Capital Market Espana SASV assessment year 2011-12. The revenue has raised following grounds of appeal:-
“1. Whether on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in not appreciating the fact that the Assessing Officer has rightly held that right to occupy immovable properly is nowhere mentioned in article 14(4) and India is not signatory to the UN Model.
Whether on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in not appreciating the fact that it is not required to consider the commentary on Article 13(4) of the UN model when the Article 14(4) is very clear in itself and the commentary on the article comes in picture only when there is any ambiguity on the issue.
3. Whether on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in not appreciating the fact that UN Model treaty on capital gain and India- Spain treaty are not same and have different provisions and carved outs for capital gain and thus cannot be applied to explain India-Spain treaty.
4. Whether on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in not appreciating the fact that the Assessing Officer's decision in this case that the transfer of shares in attracted by Article 14(4) of the India-Spain DTAA which is very clear on this issue.”
Though the revenue has raised many grounds, all of them are directed against a solitary issue, viz., whether the capital gains arising on sale of shares is exempt under Article 14(6) of India- Spain Double Taxation Avoidance Agreement.
At the time of hearing, both the parties agreed that this issue has been decided in favour of the assessee by the co-ordinate bench in the assessee’s own case in dated 15.02.2019 relating to AY 2010-11. For the sake of convenience, we extract below the order passed by the co-ordinate bench in AY 2010-11:- ./2016 M/s Merril Lynch Capital Market Espana SASV “3. Brief facts are, the assessee a tax resident of Spain is licensed to purchase and sell securities in India as a Foreign Institutional Investor (FII). The assessee is also registered with SEBI. For the assessment year under dispute, the assessee filed its return of income on 22nd September 2010, declaring total income of ` 2,31,150. The return of income filed by the assessee was initially processed under section 143(1) of the Income–tax Act, 1961 (for short "the Act"). Subsequently, the Assessing Officer re–opened the assessment under section 147 of the Act by issuing notice under section 148 of the Act on 26th March 2014. While framing draft assessment order, the Assessing Officer noticed that the assessee has declared a loss of ` 50,53,55,685, on account of its transaction in foreign exchange and has treated the same as short term capital loss. Further, the assessee claimed gain / loss on account of transaction in foreign exchange as exempt under Article–14 of the India–Spain DTAA. Though, the Assessing Officer made no adjustment since there was a loss on foreign exchange transaction, however, he called upon the assessee to explain why the capital gains arising from sale of shares of companies dealing in real estate in India and deriving their value from immovable property should not be covered under Article–14(4) of the DTAA and charged to tax in India. In response, though, the assessee submitted that there is no direct transfer of immovable properties through sale of shares of real estate companies and further submitted that under Article–14(6) of the tax treaty gain / loss on sale of shares are not liable to tax in India, however, the Assessing Officer did not accept the contention of the assessee. Relying upon the assessment order passed for the assessment year 2007–08, 2008–09 and 2009–10, the Assessing Officer ultimately computed short term capital gain of ` 94,71,36,713. Being aggrieved with the aforesaid decision of the Assessing Officer, the assessee preferred appeal before the first appellate authority.
4. The learned Commissioner (Appeals) after considering the submissions of the assessee and noticing that identical issue arising in assessee’s own case for assessment year 2007–08, 2008–09 and 2009–10, was decided by him in favour of the assessee which was also confirmed by the Tribunal, deleted the addition made by the Assessing Officer.
The learned Departmental Representative, though, agreed that the issue is decided in favour of the assessee by the Tribunal in preceding assessment years, however, he also submitted that the Department has not accepted such decision and has preferred appeal before the Hon'ble Jurisdictional High Court. Learned Departmental Representative submitted, when as per Article–14(4) of the India– Spain tax treaty, the assessee is liable to tax on capital gain, there is no need to refer to U.N. Model Convention.
6. The learned Authorised Representative strongly supporting the decision of the learned Commissioner (Appeals) submitted, there is no scope for the Department to assail the order of the first appellate ./2016 M/s Merril Lynch Capital Market Espana SASV authority as the issue has been decided by the Tribunal in favour of the assessee in its own case for preceding assessment years. In this context, he drew our attention to the order passed by the Tribunal in ITA no.2824/Mum./2012 &Ors., dated 11th September 2017, for assessment years 2007–08, 2008–09 and 2009–10 and in Mum./2017, dated 8th November 2013, for the assessment year 2012– 13. He submitted, merely because the decision of the Tribunal is not acceptable to the Department, it cannot be said that the assessee is not entitled to exemption under Article 14(6) of the India– Spain tax treaty. Without prejudice to the aforesaid submission, the learned Authorised Representative submitted, shareholding of the assessee in the Indian Companies constitute a mere 0.11% to 6.45%. Therefore, it cannot be said that the assessee enjoys any right over the immovable properties of the real estate companies.
We have considered rival submissions and perused material on record. Undisputedly, the Assessing Officer relying upon the assessment order passed for the assessment years 2007–08, 2008–09 and 2009–10 on identical issue has held that the assessee is liable to be taxed on capital gain on sale of shares held by it in real estate companies as per Article–14(4) of India–Spain DTAA. However, it is a fact on record that when identical issue arising in assessment year 2007–08 to 2009–10 came up for consideration before the Tribunal in ITA no.2824/Mum./ 2012 &Ors., dated 11th September 2017, the Tribunal upheld the decision of the first appellate authority in allowing assessee’s claim of exemption on capital gain under Article 14(6) of the India–Spain DTAA. The same view was expressed again by the Tribunal while deciding Department’s appeal in assessee’s own case for the assessment year 2012–13, in ITA no.1831/Mum./2017, dated 9th November 2018. For better appreciation, the relevant observations of the Tribunal in this regard is reproduced here under:– “5. We have considered rival submissions and perused materials on record. At the outset, learned Authorised Representative submitted, the issue in dispute is now covered by the decision of the Tribunal in assessee’s own case for the assessment year 2007–08 to 2009–10. The learned Authorised Representative submitted, while deciding the issue the Tribunal has upheld the decision of the learned Commissioner (Appeals) that the assessee is entitled to avail exemption of capital gain under Article–14(6) of India–Spain DTAA. In this context, he drew our attention to the relevant observation of the Tribunal as contained in Para–7 of the order passed in ITA no.2824/Mum./ 2012 and Ors., dated 11th September 2017. The learned Departmental Representative submitted, assessee’s case is covered under Article–14(4) of the India– Spain tax treaty, therefore, capital gain / loss is taxable in India. He tried to distinguish the decision of the Tribunal in assessee’s own case for preceding assessment year by submitting that the Tribunal has decided the issue keeping in view the Article–14(5) of the India–Spain tax treaty. In rejoinder, the learned Authorised Representative submitted, reference to Article–14(5) of the India–Spain DTAA in the order of the Tribunal is a typographical error which has been wrongly mentioned in place of Article– 14(4). To demonstrate such fact, the ./2016 M/s Merril Lynch Capital Market Espana SASV learned Authorised Representative drew our attention to the assessment order and first appeal order passed for assessment year 2009–10.
6. Having considered rival submissions we are of the view that the issue is covered by the decision of the Tribunal in assessee’s own case for assessment years 2007–08 to 2009–10. As could be seen, the issue in dispute between the parties is with regard to applicability of Article– 14(4) of India–Spain tax treaty. The learned Commissioner (Appeals) while deciding the issue in preceding assessment years referring to Article–14(4) of India– Spain tax treaty qua Article–13(4) of U.N. Model Convention has held that capital gain arising out sale of shares is not taxable in India. The aforesaid decision of the learned Commissioner (Appeals) in assessment year 2007–08 to 2009–10 has been upheld by the Tribunal in the decision referred to above. No doubt, in the impugned assessment year, the learned Commissioner (Appeals) has followed his orders passed for the earlier assessment years. Moreover, as could be seen from the facts on record, the assessee had incurred huge loss in assessment year 2009–10 as well as in the impugned assessment year. Admittedly, if the capital gain is held to be taxable in India, then the loss suffered by the assessee and carry forward of such loss is allowable to the assessee. However, no such benefit has been given to the assessee by the Assessing Officer on the reasoning that assessee has not claimed it in the return of income. Thus, the assessee has been put to double jeopardy which, in our view, is unjust and improper. In view of the aforesaid, we do not find any reason to interfere with the decision of the learned Commissioner (Appeals) on the issue. Grounds raised
are dismissed.”
8. There being no material difference in facts involved in the impugned assessment year, respectfully following the consistent view of the Tribunal on the disputed issue, as referred to above, we uphold the order of the learned Commissioner (Appeals) on the issue. Grounds raised are dismissed.
9. In the result, Revenue’s appeal is dismissed.”
5. Consistent with the view taken by the co-ordinate bench, we also hold that the capital gains earned by the assessee on sale of shares is exempt under Article 14(6) of India-Spain DTAA. It was further submitted that the Ld CIT(A) has followed the decision rendered by the co-ordinate bench in the assessee’s own case in the earlier years in granting relief to the assessee. Since the Ld CIT(A) has followed the decision rendered by the co-ordinate bench on an ./2016 M/s Merril Lynch Capital Market Espana SASV identical issue, we do not find any reason to interfere with the order passed by him.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the Open Court on 10.04.2019