TaxTMI 
TaxTMI 
2023 (10) TMI 1013
X X X X Extracts X X X X
X X X X Extracts X X X X
....2020, 20.04.2021 and 26.05.2021. 3. The Assessee 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 Maurit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....neficial) and the provisions of the IMTreaty were claimed as regards taxability of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....head, the fourth head of income is 'Capital Gains. It is a settled law that income includes loses. In the case of CIT v. Harprasad& Co. (P.) Ltd. [1975] 99 ITR 118 (SC), 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 su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cation of DTAA to royalty arising from contracts on or after 01.06.2005, was accepted. Here the Royalties were treated separately under the Income Tax Act. Rates of applicable tax were claimed separately for the 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 Pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rry forward the long-term capital losses amounting to INR 143,511,469, incurred during AY 2017-18 considering loss and gains from different transaction as same source of income. 2. Erred in concluding that once the Assessee elected to apply the 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ale of shares of DishaMicrofin Private Limited (refer Exhibit 5) 217,602,934 Net short-term capital gains claimed exempt under Article 13 of IM Treaty (B) 2,192,665,193 3. All the purchase and sale transactions giving rise to these capital gains have been entered before 1 April 2017. 4. In the return of income for AY 2017-18, the gains/ losses 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-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ether to claim beneficial of Act vs treaty on different streams of income: * DCIT v. Patni Computer Systems Limited (2008) 114 ITD 159, (Refer Pg. No 84 to 89 of the Legal Paper book) (Refer para 8) * ACIT v J. P. Morgan India Investment Company Mauritius Ltd (ITA No. 2382/Mum/2021) dated 27 September 2022 (Refer Pg. No. 50 to 59 of the Legal Paper book); * Swiss Finance Corporation (Mauritius) Limited (ITA No. 1338/MUM/2021 and 2449/MUM/2021) 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 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... losses on the alienation of shares of Indian companies (not subject to security transaction tax) as under: - Sr.No Particulars Amount (in INR) Amount (in INR) A Long-term capital gains / (losses) 1. On swap of shares of DishaMicrofin Private Limited for Fincare Business Services Private Limited (refer Exhibit 1) 205,559,302 2. On swap of shares of Future Financial Services Limited for Fincare Business Services Private Limited (refer Exhibit 2) (298,053,929) 3. On sale of shares of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of capital assets between long and short term is determined depending on the period of holding. Further, taxation of STCG and LTCG is also governed under different sections being 111A of the Act in case of STCG and 112 / 112A of the Act in respect of LTCG. Accordingly, the scheme of the Act itself recognizes STCG/ STCL and LTCG / LTCL to be separate and distinct sources of income. 17. We further observe that this distinction is highlighted upon perusal of section 70 of the Act governing intra-head set-off of current year losses which is reproduced hereunder: - "Set off of loss from one source against income from another source under the same head of 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... different; and the provisions under which royalty income is taxable, are different and the assessee was, therefore justified in offering the royalty income arising under two different contracts at two rates - one under the Act and one under the Treaty, [Para 7.6] 20. The aforementioned decision in case of IBM World Trade Corporation (supra) has been upheld by the Hon'ble Karnataka High Court in the case of DIT (IT) v. IBM World Trade Corporation [2021] 436 ITR 641 (Karnataka). The above decision was relied by the coordinate bench in the case of Dimension Data Asia Pacific Pte. Ltd. v. DCIT (IT) [2018] 99 taxmann.com 270 (Mumbai) wherein placing reliance on the decision of Hon'ble Karnataka 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 DT....