Special tax regime for foreign institutional investors bars indexed capital gains computation and applies even to capital losses.

Section 115AD operates as a special, self-contained computation regime for Foreign Institutional Investors investing in securities, and no implied election allows resort to the general capital gains provisions under sections 48 and 112 with indexation. The provision excludes application of the first and second provisos to section 48 for this class, and the option available to a non-resident Indian under section 115-I cannot be read into it. The regime also applies where transfer of securities results in capital loss, because loss forms part of the computation in the same manner as profit. The treaty discrimination argument based on nationality was rejected because the classification turns on residential status.

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Issues: (i) Whether a Foreign Institutional Investor could opt out of section 115AD of the Income-tax Act, 1961 and apply the normal capital gains provisions with indexation under sections 48 and 112; (ii) whether section 115AD applies where the computation results in capital loss on transfer of securities.

Issue (i): Whether a Foreign Institutional Investor could opt out of section 115AD of the Income-tax Act, 1961 and apply the normal capital gains provisions with indexation under sections 48 and 112.

Analysis: Section 115AD is a special, self-contained provision governing income and capital gains of Foreign Institutional Investors. Its scheme excludes the first and second provisos to section 48 for the computation of capital gains on securities and does not confer any election to leave that regime and resort to the general provisions. The option available to a non-resident Indian under section 115-I cannot be read into section 115AD. The alleged discrimination under Article 26 of the treaty was also rejected because the classification is based on residential status and the special concessional treatment for FIIs is not on the ground of nationality.

Conclusion: The answer is in the negative. The Foreign Institutional Investor cannot opt out of section 115AD and cannot invoke sections 48 and 112 with indexation for computation of capital gains or losses from its investment activities in India.

Issue (ii): Whether section 115AD applies where the computation results in capital loss on transfer of securities.

Analysis: The provision applies to the computation of tax on income of Foreign Institutional Investors from securities and capital gains arising from their transfer, and its operation does not depend on whether the computation yields a gain or a loss. Loss is treated as negative profit and enters the computation in the same manner as profit. Therefore, the mere fact that the assessee suffered capital loss does not exclude the application of section 115AD.

Conclusion: The answer is in the affirmative. Section 115AD applies even when the transfer of securities results in capital loss.

Final Conclusion: The special regime under section 115AD governs the assessee's computation and taxation of income from securities, no election to shift to the general capital gains provisions was recognised, and the absence of taxable gain does not take the matter outside that regime.

Ratio Decidendi: A special taxing provision for a defined class of assessees operates as a complete code for that class and, absent an express statutory option, the assessee cannot invoke the general computation provisions to obtain a more favourable indexed result; the provision applies equally to gains and losses because loss is part of the taxable computation.

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