TaxTMI 
TaxTMI 
2023 (10) TMI 1013
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....ssee company is incorporated in Mauritius on 19.12.2008, as a public company limited by shares. The Assessee is a tax resident of Mauritius under the India - Mauritius Double Taxation Avoidance Agreement (DTAA). It invests in Indian securities directly under the Foreign Direct Investment (FDI) route or indirectly through its subsidiaries. The case was referred to the Transfer Pricing Officer (in short "TPO") u/s 92CA of the Act for determination of Arm's Length Price in relation to the international transaction. 4. Assessing Officer observed from the Computation of total income, that under the head "Capital Gains", Assessee had carried forward the long term capital loss on sale/redemption of Shares amounting to Rs..14,35,11,469/- but has claimed the Short Term Capital Gains on sale/redemption of Shares amounting to Rs..2,19,26,65,193/- as exempt under Article 13 of the India-Mauritius Tax Treaty. Thus, the Assessee had opted for the benefit of DTAA of India-Mauritius Treaty and at the same time the benefit under Income Tax Act, 1961. 5. The Assessing Officer observed that as per Article 13 of the DTAA between India and Mauritius, gains derived by a resident of a contracting S....
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....f short-term capital gains. * There is no bar on the Assessee to elect to be governed by the provisions of the Act or the DTAA. * It is not for the AO to speculate that there would be no taxable income for the Assessee, and hence there is no point in carrying forward losses." 7. After considering the detailed submissions of the assessee, Ld.DRP decided the issue against the assessee with the following observations: - "5.1 During the impugned assessment year, the assessee earned long term capital loss and short term capital gains. The assessee has claimed that short-term capital gains as exempt from tax in India in accordance with Article 13(4) of the India Mauritius DTAA. However, the assessee has sought to carry forward the long-term capital losses. As per the arguments advanced by the assessee, it is permissible to adopt either the provisions of the Income Tax Act or the Article of DTAA, depending on which is more beneficial to the assessee, even when both the streams are assessable under a single head of income. 5.2 We have carefully considered the submissions made by the assessee. During the financial year concerned, the assessee had sold Indian equities. While some of....
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....it has been held that, "From changing provisions of the Act, it is discernible that the words "income" or "profit and gains" should be understood as including loses also, so that, in one sense "profits and gains" represent plus income whereas loses represent "minus income". In other words, loss is negative profit. Both must enter into computation, whereas it becomes material, in the same mode of the taxable income of the assessee." As losses have not been specifically excluded in the Article 13, the word 'Gains' will also include Losses'. Further the Article makes no distinction between short term or long term nature of income. 5.5 Section 90(2) of the Income Tax Act provides that, where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub- section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. 5.6 Thus the assessee has a choice to be governed either by t....
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....he different royalty agreements. The issue was rates applicable under the Income Tax Act for agreements entered into before and after the cut off. This was not an issue of selective interpretation of treaty and domestic law. Hence, it has no applicability in the facts of the present case. 5.10 In the case of Foramer S.A. [1995] 52 ITD 115 (Delhi), the issue was of determining the profit of PE as per treaty and the dispute was as to how claim for depreciation was to be computed. Assessee wanted it to be computed as per applicable IT Depreciation rate. The Treaty does not specify and rate. The Treaty also mentions where any term is not defined the same can be as per the Domestic Tax Laws. This decision again is not on the issue before us and is not relevant. 5.11 In the case of British Airways Plc [2002] 80 ITD 90 (Delhi), the issue was taxability of income from ground/ engineering services which was held to be not forming part of Transportation of Goods and Persons and thus not covered by Article 8 of Treaty. This decision is clearly not relevant and does not support the case of assessee. 5.12 In view of the foregoing discussion, it is held that Article 13 of the India Mauriti....
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.... provisions of section 90(2) of the Act with respect to short-term capital gains, it cannot revert to the provisions of the Act only for the purpose of carry forward of long-term capital losses. 3. Erred in stating that the Assessee had not responded to the show cause notice dated 13 September 2021, without considering the request of the Assessee, dated 22 September 2021, seeking additional time in making the submission as the learned AO had served the notice on an e-mail id that was not in use. The correct e-mail id was communicated to the learned AO vide letter dated 19 April 2021." 9. At the time of hearing, Ld. AR of the assessee brought to our notice facts of this case that assessee has earned short term capital gain which is not taxable in India as per India-Mauritius Tax Treaty and assessee has incurred long term capital loss which assessee is applying/making the option of carrying forward losses u/s. 74 of the Act. He submitted that assessee has an option to apply the provisions of Income-tax Act, 1961 or treaty whichever is beneficial to the interest of the assessee, this is a settled proposition. Further, he brought to our notice Page No. 42 of the Paper Book which is ....
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....have been shown as depicted below. * Short-term capital gains of INR 2,192,665,193 have been claimed as not taxable in India taking recourse to Article 13(4) of the India Mauritius Tax Treaty (IM Treaty). The IM Treaty read with the Protocol dated 10 May 2016 amended Article 13 of the IM Treaty to inter alia provide for taxing gains earned from alienation of shares acquired on or after 1 April 2017 to be taxed as per the domestic tax laws of India where the shares sold are of an Indian company. Thus, gains earned on alienation of shares acquired prior to 1 April 2017 continue to not be taxable in India. * Net long-term capital loss (non-STT paid) of INR 143,511,469 was incurred during the year. Section 74(1) of the Income-tax Act. 1961 (Act) does not permit offsetting such long-term capital losses against short-term capital gains. Such long-term capital losses shall be available for set-off only against long-term capital gains. Thus, the said long-term capital losses have been carried forward in accordance with the provisions of section 74(2) of the Act. 5. The issue for adjudication by your Honours is the correctness of the Appellant's claim for treaty taxability for sho....
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....021) dated 7 October 2022 (Refer Pg. No. 60 to 71 of the Legal Paper book) (Refer Para 10); * Goldman Sachs Investments (Mauritius) Ltd. (ITA No. 2201/Mum/2017) dated 24 September 2020; and * Bluebay Mauritius Investment Limited (ITA No. 1369/Mum/2021 and ITA No. 1370/Mum/2021) dated 29 April 2022. 8. Thus, the claim made by the Assessee to carry forward the long-term capital losses to subsequent years should be allowed as the same is not eligible to be set-off against the short-term capital gains earned during the year under consideration which are not taxable in India by virtue of Article 13(4) of India Mauritius DTAA owing to the provisions of section 74(1) of the Act. 9. In light of the above, it is humbly submitted that: The denial of carry forward of forward of long-term capital losses amounting to INR 14,35,11,469, incurred during AY 2017-18, is incorrect and without basis because a Assessee has the option to apply the "provisions of the Act to the extent they are more beneficial than the "provisions of the DTAA. The use of the expression "provisions" means that each provision of the Act may be considered separately and the consequences of the application of each....
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.... India Finserve Advisors Private Limited (refer Exhibit 3) (51,016,842) long-term capital loss carried forward (A) (143,511,469) B Short-term capital gains / (losses) 1. On swap of shares of DishaMicrofin Private Limited for Fincare Business Services Private Limited (refer Exhibit 1) 15,963,444 2. On swap of shares of Future Financial Services Private Limited for Fincare Business Services Private Limited (refer Exhibit 2) 35,126,620 3. On sale of shares of India Finserve Advisors Private Limited (refer Exhibit 3) (12,387,266) 4. Sale of shares of Fincare Business Services Private Limited (refer Exhibit 4) 1,936,359,461 5. Sale of shares of DishaMicrofin Private Limited (refer Exhibit 5) 217,602,934 short-term capital gains (B) 2,192,665,193 The tax treatment adopted in respect of capital gains and losses from transfer/ alienation of Indian securities have been offered to tax as follows: - * Long-Term Capital Loss - carried forward under section 74(1) of the Act for set-off against long-term capital gains, if any, earned in eight subsequent....
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.... income. 70 (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than "Capital gains" is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head. (2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset (3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset." 18. From the above provisions, it is clear that the short term capital loss can be c....
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....aka High Court in case of IBM World Trade Corporation (Supra), the ITAT has held as under: - "......... are of the view that as per Section 90(2), the assessee is entitled to claim benefits of the Double Tax Avoidance Agreement to the extent the same are more "beneficial" as compared to the provisions of the Act. While doing so, in cases of multiple sources of income, an assessee is entitled to adopt the provisions of the Act for one source while applying the provisions of the DTA for the other ......" 21. Further, the Special Bench of the Mumbai ITAT in case of JCIT v. Montgomery Emerging Markets Fund [2006] 100 ITD 217 (Mumbai) (SB) has held that long term capital gains and short term capital gains are separate sources of income and merely because these are clubbed under the same head of income, their identity as separate sources does not get obliterated. The relevant extract is reproduced below: "44. Therefore, it is very apparent that source of income does not mean head of income. The Assessing Officer had proceeded on a hypothesis as if the source of income is the head of income itself. This is not a proper construction of law provided in section 70 Short-term capital gai....