GS STRATEGIC INVESTMENTS LIMITED,MUMBAI vs. ACIT, INTERNATIONAL TAX CIRCLE-2(3)(2), MUMBAI

question of adjustment of the same brought forward loss of the preceding years does not arise. 7. The learned AO/DRP have erred in law in holding that the operation of the DTAA will exclude the application of the domestic Act and its provisions including the application of section 74 the Act. 8. The learned AO has erred in law in holding that the Appellant on one side was coming from tax in India as per the DTAA and on other side, the case of losses the same nature, was carrying the same forward to subsequent A.Y.s for set-off, without appreciating the fact that in the previous AY, the Appellant had elected to be the provisions of the Act as against the DTAA. 9. The learned AO / DRP have erred in law in falling to appreciate that an assessee is allowed to apply the provisions of the Act or the DTAA, whichever is beneficial to it, in every year and that there is no compulsion that if taxability under the Act is chosen for a year, the same needs to be followed every year.

The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided.” 3. Ground No. 1 and 2 raised by the Appellant are dismissed as being not pressed in view of letter, dated 29/07/2024, filed by the Appellant.

3 Assessment Year 2021-22

up together hereinafter. The solitary issue raise in the aforesaid grounds is that the Assessing Officer has set off long-term capital losses brought forward from the earlier assessment years against the current year long-term capital gains. The contention of the Appellant is that long-term capital gains earned by the Appellant during the relevant previous year are exempt from tax in India in view of Article 13 of the Double Taxation Avoidance Agreement between India and Mauritius [for short ‘DTAA’]. Since there is no taxable income during the current year, the provisions of Section 74 of the act are not triggered.

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to the file of the Assessing Officer in case the Appellants contention is accepted in the present appeal.

“11. On a perusal of the grounds of appeal, we find, that there are two facets on the basis of which the observations of the A.O/DRP as regards carry forward of the earlier years capital losses has been assailed by the assessee before us, viz. (i). that the A.O/DRP had erred in concluding that the Short term capital losses brought forward by the assessee from the preceding years were to be first "set off" against the short term and long term capital gains for the year under consideration i.e A.Y 2013-14, and only the balance amount of short term capital losses were to be carried forward to the subsequent years; AND (ii). that the A.O/DRP had erred in denying the assessee's right to carry forward the Long term capital losses brought forward from the preceding years, despite the fact, that the same were determined and permitted to be carried forward by the A.O vide his assessment order passed u/s 143(3), dated 19-3-2015 for A.Y 2012-13. 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

5 Assessment Year 2021-22

brought forward by the assessee from the earlier years, and thus, only the balance amount of STCL was to be carried forward to 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 6 Assessment Year 2021-22

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 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 7 Assessment Year 2021-22

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 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 8 Assessment Year 2021-22

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.” (Emphasis Supplied)

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Year: 2015-16) & ITA No. 2449/MUM/2021 (Assessment Year: 2017-18), Common Order dated 07/10/2022].

“10. In the present case, there was no dispute that the Assessee was entitled to claim the benefit of exemption from tax in India granted by Article 13(4) of the DTAA in respect of Short/Long Term Capital Gains arising during the relevant previous year. The contention of the Revenue was that the aforesaid benefit of Article 13(4) of DTAA could only be claimed in respect of net/balance Short/Long Term Capital Gains in terms of Section 74 of the Act. The Tribunal had, in the case of Goldman Sachs Investments (Mauritius) Ltd. (supra), rejected the aforesaid contention of the Revenue holding that the Assessee was entitled to claim benefit of Article 13(4) of DTAA in respect of entire current year Short/Long Term Capital Gains (without setting of the Brought Forward Short/Long Term Capital Gains). The Tribunal also permitted carry forward of the Brought Forward Short/Long Term Capital Gains to the subsequent assessment years holding that the Short/Long Term Capital Loss permitted to be carried forward in a previous assessment could not be reviewed in the assessment proceedings of a subsequent assessment year. In view of the aforesaid, we find merit in the contention of the Ld. Authorised Representative for the Assessee that all the issues raised by the Revenue in the present appeal stand decided in favour of the Assessee by the decision of the Tribunal in the case of Goldman Sachs Investments (Mauritius) Ltd. (supra). Accordingly, we do not find any infirmity in the order passed by the CIT(A). Ground No.1, 2 and 3 raised by the Revenue are dismissed.”

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capital gains against the brought forward long-term capital gains would not arise.

Order pronounced on 22.10.2024. (Shri Narendra Kumar Billaiya) Judicial Member मुंबई Mumbai; िदनांक Dated : 22.10.2024 Milan, LDC

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आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant 2. ""थ" / The Respondent. 3. आयकर आयु"/ The CIT 4. "धान आयकर आयु" / Pr.CIT 5. िवभागीय "ितिनिध ,आयकर अपीलीय अिधकरण ,मुंबई / DR, ITAT, Mumbai 6. गाड" फाईल / Guard file.

आदेशानुसार/ BY ORDER, स"ािपत "ित //// उप/सहायक पंजीकार /(Dy./Asstt.