TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 1049
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.... 2. In taking the aforesaid action, the learned AO while passing the final assessment order has erred in not appreciating the fact that the capital gains on transfer of securities of the current year are exempt in accordance with Article 13 of the India-Mauritius Double Taxation Avoidance Agreement (IM Treaty). 3. The learned AO has, on the facts and circumstances of the case and in law, erred in denying the Appellant's right to carry forward the taxable long term capital losses (on which STT is not paid) brought forward from earlier assessment years though the same was assessed and permitted to be carried forward by the learned AO in the assessment order for AY 2012-13. 4. The learned AO has, on the facts and circumstances of the case, erred in inadvertently considering the taxable long-term capital gains (on which STT is not paid) amounting to Rs. 56,311,783 earned by the Appellant which were claimed as exempt by the Appellant under Article 13 of the IM Treaty as long-term capital losses (on which STT is not paid) amounting to Rs. 56,311,782. 5. The learned AO has, on the facts and circumstances of the case, erred in inadvertently considering that the Appellant has earn....
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....the preceding years which were carried forward for being "set-off" against the income of the subsequent assessment years: Sr. No. Particulars A.Y. Amount in Rs. 1. B/f Short Term Capital Loss 2009-10 -36,94,17,35,053 2. B/f Short Term Capital Loss 2012-13 -2,32,19,35,857 3. Total Short Term Capital Loss sought to be carried forward -39,26,36,70,910 4. B/f Long Term Capital Loss 2009-10 -1,09,800 5. B/f Long Term Capital Loss 2012-13 -7,62,85,586 6. Total Long Term Capital Loss sought to be carried forward -7,63,95,386 4. Apropos the capital gains earned on transfer of securities in India, the assessee being a tax resident of Mauritius had as per Article 13 of the India-Mauritius Tax Treaty (for short 'DTAA') claimed the same as exempt from tax in India. It was observed by the A.O that on the one hand as per Article 13 of the India-Mauritius tax treaty capital gains derived by a tax resident of Mauritius from trading in securities in India was taxable only in Mauritius, while for on the other hand as per the local tax laws of Mauritius no tax was imposed on capital gains except for those arising from transactions in land and....
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....case where set-off was not permissible or possible owing to income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be "carried forward". Also, it was observed by the A.O that as the claim of non-taxability of the capital gains derived by the assessee (a tax resident of Mauritius) from the transfer transactions carried out in India was pursuant to Sec. 90(2) of the Act, which allowed it to be governed by the provisions of the India-Mauritius tax treaty, therefore, it would not be permissible on its part to revert back to the provisions of the I.T Act, 1961 for the loss incurring capital gain transactions. Accordingly, in the backdrop of her aforesaid deliberations the A.O vide her draft assessment order passed under Sec. 143(3) r.w.s. 144C(1), dated 01.03.2016 declined the assessee's claim for carry forward of capital losses from transactions of transfer of securities in India, as under: Sr. No. Particulars A.Y Amount (Rs.) 1. B/f Short Term Capital Loss 2009-10 -36,94,17,35,053 2. B/f Short Term Capital Loss 2012-13 -2,32,19,35,857 3. B/f Long Term Capital Loss 2009-10 -1,09,800 4. B/f Long Term ....
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....ew that the assessee was in error in not first 'setting off' the capital losses that were brought forward from the preceding years against its income under the head capital gains for the year under consideration. In sum and substance, the DRP was of the view that as per sub-clauses (a) and (b) of sub-section (1) of Sec.74, the capital losses that were brought forward by the assessee from the preceding years were required to be first set-off against the capital gains for the year under consideration, and only the balance amount of capital loss i.e short term or long term could thereafter be carried forward to the subsequent years. Backed by his aforesaid conviction, the DRP was of the view that the STCL of Rs. 3926,36,70,910/- that was allowed to be carried forward by the A.O in the assessment order passed by him under Sec. 143(3), dated 19.03.2015 for A.Y.2012-13, was required to be first adjusted 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 loss would be available for being carried forward to the subsequent years. Further observing, that now when as per Article 13 of the India....
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....(STT Paid) A.Y 2013-14. Losses to be carry forward 1. B/F Short Term Capital Loss 2009-10 -36,94,17,35,053 3,92,43,87,502 33,01,73,47,551 2. B/F Short Term Capital Loss 2012-13 -2,32,19,35,857 2,32,19,35,857 7. For the sake of completeness of facts, it would be relevant to point out, that as the order passed by the DRP u/s 144C(5), dated 21.11.2016, did not contain any directions as regards the assessee's entitlement for carry forward of the brought forward Long term capital loss of Rs. 7,63,95,386/- [A.Y 2009-10 : Rs. 1,09,800/- (+) Rs. 7,62,85,586/-] of the earlier years, therefore, the assessee filed with the DRP an application for rectification u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009 r.w Sec. 144C(5) of the Act, dated 11.01.2007. DRP vide its order passed u/rule 13 of the Income-tax (Dispute Resolution Panel) Rules, 2009, dated 01.12.2007 modified its order, and taking cognizance of the fact that the A.O vide his assessment order passed u/s 143(3) for A.Y 2012-13, dated 19.03.2015 had determined and allowed carry forward of the Long term capital losses of Rs. 7,63,95,836/- to the subsequent years concluded, that the rationale of i....
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....that once the STCL was allowed to be carried forward by the A.O, vide his order passed under Sec. 143(3) in a particular assessment year, the same could not thereafter be reviewed in the assessment proceedings of any subsequent year. As such, it was submitted by the ld. A.R that the DRP had vacated the declining of the assessee's claim for carry forward of the capital losses. However, as submitted by the ld. A.R, the DRP after so concluding, had observed, that the brought forward losses were to be 'set off' against the capital gain shown by the assessee during the year under consideration i.e A.Y 2013-14, and thus, only the balance amount of capital loss would be available for being carried forward to the subsequent years. In the backdrop of the aforesaid facts, it was submitted by the ld. A.R that the issue involved in the present appeal boiled down to the sustainability of the order of the DRP, wherein he had directed that brought forward capital losses were to be adjusted against the capital gains earned by the assessee during the year under consideration i.e A.Y 2013-14, and only the balance amount of such losses were to be carried forward to the subsequent years. It was averre....
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..... 234C the interest liability was to be computed after reducing from the amount of the tax due on the returned income, the amount of tax deductible at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction and is taken into account in computing such total income. As claimed by the ld. A.R, that as the assessee had received interest income from Indian Oil Corporation without deduction of tax at source which though was statutorily liable to be deducted, therefore, the A.O had erred in not reducing such amount of tax deductible at source while computing the assessee's liability u/s 234C of the Act. 9. Per Contra, the ld. Departmental Representative (for short 'D.R') relied on the orders of the lower authorities. It was submitted by the ld. D.R that as 'profits' includes 'losses', therefore, now when the capital gain from the transfer of securities was exempt in the hands of the assessee in terms of Article 13 of the India-Mauritius Tax Treaty, a similar treatment was to be given for construing the 'capital losses', which too would thus be exempt. In sum and substance, it was the claim of the ld. D.R that once the assessee had claimed....
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....P 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 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 d....
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....s, 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 IndiaITA 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 19.03.2015 for A.Y 2012-13, the same ....
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.... 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 19.03.2015. 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 subse....
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....ns, 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. 14. As the ld. A.R has not pressed the Grounds of appeal Nos. 4 & 5, the same as per the concession of the ld. A.R are thus dismissed as not pressed. 15. We shall now deal with the contention of the assessee that t....