Carry forward of quantified capital losses cannot be denied to a non-resident merely because treaty gains are exempt from Indian tax.

A quantified capital loss of a non-resident taxpayer may be carried forward to later assessment years even where the related capital gains in the year under review are exempt from Indian tax under the India-Mauritius treaty. The entitlement to carry forward and set off is determined in the year the loss is sought to be used, and the earlier assessment of the loss amount does not conclude the later year's tax treatment. A properly quantified and notified loss may attain finality as to amount, but not as to the right to carry it forward. The position is supported by the CBDT's guidance on non-resident losses.

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Issues: Whether the assessee, a non-resident tax resident of Mauritius, was entitled to carry forward capital losses from earlier assessment years to subsequent years when the capital gains earned in the relevant year were exempt from tax in India under the India-Mauritius tax treaty.

Analysis: The return for the earlier year had already shown the capital losses, and there was no dispute about the quantified amount. The question was whether the Revenue could deny carry forward merely because the assessee had no taxable capital gains in the year under consideration and the treaty income was exempt in India. The statutory scheme and the settled law on carry forward and set-off show that the entitlement to carry forward loss is to be examined for the assessment year in which the loss is sought to be set off, and a prior determination of the loss year does not conclude the later year's treatment. The Tribunal relied on the principle that quantified loss, if properly notified, may attain finality as to amount, but not as to the right to carry it forward and set it off in a subsequent year. The CBDT circular on non-resident loss also supported the view that Indian loss is to be carried forward and not denied merely because foreign income is outside Indian taxation.

Conclusion: The assessee was entitled to carry forward the brought forward capital losses to subsequent assessment years, and the denial by the lower authorities was ?

Final Conclusion: The appeal succeeded and the assessee obtained recognition of its right to carry forward the earlier years' capital losses in accordance with law.

Ratio Decidendi: A quantified loss of an assessee, including a non-resident, cannot be denied carry forward to subsequent years merely because the related capital gains in the year under consideration are exempt from Indian tax under a treaty; the right to carry forward and set off is determined in the subsequent assessment year.

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