TaxTMI 
TaxTMI 
2005 (2) TMI 20
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....). The applicant, the Universities Superannuation Scheme Limited (USSL), was established to undertake and discharge the office of the trustee of USS. The applicant is thus the legal owner of the assets of USS and operates to meet the existing and prospective entitlement of the beneficiaries of USS. The applicant was incorporated in the UK as a company limited not by shares but by guarantee. For the assessment years 1999-2000 to 2003-2004, the applicant filed returns of its income from investment in India as a FII by applying provisions of section 115AD of the Act. In the accounting year relevant to the assessment year 2003-2004, the applicant incurred long-term capital losses of INR 12,94,46,340/-. The case of the applicant is that had it the option of computation under the second proviso to section 48 as against Section 115AD(3) of the Act, the capital loss would have worked out to INR 17,38,75,450/- and thus the loss would have been more by INR 4,44,29,110/-. On these facts, the applicant is seeking advance ruling of the Authority on the following questions:- • Whether on the facts and in the circumstances of the case, the Applicant, i.e. the Universities SuperAnnuation Schem....
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....ld not apply since the constitutional validity of that provision is neither in issue nor can it be questioned before the Authority. Section 115AD applies to all FIIs and there is no cogent reason as to why the applicant should be treated differently in the assessment year in question. Where the Parliament so intended it provided, as in section 115-I, an option to be exercised by the assessee. Absence of such a provision in the scheme of 115AD indicates that no option is available to FIIs. For the reason that the applicant suffered capital loss in an assessment year, it cannot claim the option to opt out of section 115AD of the Act. If an option as in section 115-I, is read into section 115AD, it would result in applying such provisions of the Act which the Parliament did not intend to apply to FIIs. It is well settled position in law that income includes both profit and loss. In any event section 115AD does not cause any discrimination and article 26 of the Treaty is not attracted. 3. Mr. P.J. Pardiwalla, the learned counsel for the applicant, has argued that sections 48 and 112 of the Act deal with capital gains and are applicable to all the assesses whereas section 115AD of the ....
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....(i) deemed to be the income of the previous year in which the transfer took place and (ii) chargeable to income-tax under the head 'capital gains'. Section 48 outlines the mode of computation of capital gains and is germane to the issue. It is in the following terms: • The income chargeable under the head "capital gains" shall be computed , by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amount namely:- • expenditure incurred wholly and exclusively in connection with such transfer; • the cost of acquisition of the asset and the cost of any improvement thereto: Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilized in the purchase of shares or debentures, and the capi....
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....e capital asset referred to in the first proviso) shall be computed by substituting "indexed cost of acquisition" for the expression "cost of acquisition" and "indexed cost of any improvement" for the expression "cost of improvement" in clause (ii) of the main section. It will be apposite to highlight here that having regard to sub-section (3) of section 115AD, in respect of a FII, while computing capital gains arising from the transfer of short-term or long term capital assets, being securities other than unit referred to in section 115AB of the Act, the operation of the first and the second proviso, referred to above, has to be excluded. We shall delve into this aspect presently. Now, we may advert to section 112 of the Act which incorporates the method of computation of tax and the rates of tax payable by an assessee whose total income includes capital gains arising from the transfer of long term capital assets. It needs to be mentioned here that the proviso to sub-section (1) of section 112 (inserted by the Finance Act 1999 w.e.f. 1.4.2000), extends the benefits of limiting the rate of tax to 10% in respect of any income arising from the transfer of a long-term capital assets (....
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....een chargeable had its total income been reduced by the amount of income referred to in clause (a) and clause (b). (2) Where the gross total income of the Foreign Institutional Investor - (a) consists only of income in respect of securities referred to in clause (a) of sub-section (1), no deduction shall be allowed to it under sections 28 to 44C or clause (i) or clause (iii) of section 57 or under Chapter VI-A; (b) includes any income referred to in clause (a) or clause (b) of sub-section (1), the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced, were the gross total income of the Foreign Institutional Investor. (3) Nothing contained in the first and second provisos to section 48 shall apply for computation of capital gains arising out of the transfer of securities referred to in clause (b) of sub-section (1). Explanation - For the purposes of this section, - • the expression "Foreign Institutional Investor" means such investor as the Central Government may, by notification in the Official Gazette, specify in this behalf; • the expression "securities" shall ha....
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....r Foreign company From this table the concessional rates of tax applicable to FIIs under section 115AD in comparison with the rates of tax applicable under section 112, are evident. The position which emerges on the basis of the proviso to sub-section (1) of section 112, is not indicated in this table. Sub-section (2) thereof provides that where gross total income of a FII consists only of income falling under clause (a) of sub-section (1) no deduction shall be allowed under sections 28 to 44C or clause (i) or clause (iii) of section 57 or under Chapter VIA and where such total income includes income referred to in clause (a) or (b) of sub-section(1), then it (such gross total income) shall be reduced by the amount of such income and the amount of deduction under chapter VIA. The resultant amount thus arrived at shall be treated as the gross total income of a FII. 5. The guidelines for computation of capital gains arising to FIIs from the transfer of securities, dealt with in sub-section (1), is embodied in sub-section (3) of section 115AD which in effect applies section 48 with the modification of excluding the first and second provisos thereof. It may be apt to recapitu....
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.... in the assessment year 2003-2004, the applicant suffered capital losses and in view of non application of indexation provision under section 115AD(3), it cannot boost up the loss it will be pointless to contend that the object of legislature is getting defeated or an inequitable situation is being created. There is no merit in the contention of the applicant that section 115AD is applicable when computation results in capital gain and not when it results in capital loss to a FII on transfer of securities. Section 115AD is an inclusive provision containing, inter alia, mode of computation of tax and concessional rate of tax. Its application does not depend upon the result of computation. Gain and loss are but two sides of the same coin and indeed a loss is nothing but a negative profit. It will be useful to refer to the following observation of the Hon'ble Supreme Court of India in Commissioner of Income-tax (Central), Delhi v. Harprasad & Co. P. Ltd. which is apposite here. "From the charging provisions of the Act, it is discernible that the words "income" or "profits and gains" should be understood as including losses also, so that, in one sense "profits and gains" represent "p....
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....connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. Para 1 of article 26 of the treaty provides discrimination of nationals of a Contracting State either in regard to taxation or any requirement connected therewith. The aforementioned para provides that nationals of a Contracting State cannot be subjected to any taxation or any requirement connected therewith in the other Contracting States, which are different or more burdensome than the taxation and connected requirements to which nationals of that other State are subjected to, in the same circumstances. It is important to note here that article 26 of the treaty forbids discrimination on the ground of nationality and not different tax treatment on the basis of residential status. The applicant is a national of U.K. ; it is stated that under this para, it cannot be subjected to any taxation or any requirement which is more burdensome than the taxation and connected requirements to which national of India are subjected to in the same circumstances. The grievance of the applicant is that the Indi....