AI Drafter 
TaxTMI 
TaxTMI 
2025 (2) TMI 330
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....ce of income as adopted by the Appellant. The Appellant prays that the learned AO be directed to allow the carry forward of the LTCL amounting to INR 75,20,89,749 as claimed in income tax return during the year under consideration without setting-off the long-term capital gains of INR 31,59,01,013, being a different source and claimed as exempt under Article 13(4) of the India-Mauritius Double Tax Avoidance Agreement ('DTAA'). 2. Erroneous initiation of penalty under section 270A of the Act - On the facts and circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings under Section 274 read with Section 270A of the Act. The Appellant prays that the learned AO be directed to drop the penal proceedings under section 270A of the Act since the Appellant has made all disclosures in the income tax return, supported by legal arguments and judicial precedents at the time of assessment. 3. Levy of tax under section 115JB of the Act (Minimum Alternate Tax ('MAT') provision) - On the facts and in circumstances of the case and in law, the learned AO has erred in stating that tax on total income is levied as per Book profit ....
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.... approach computed by the assessee. The Ld.AO thus reduced the long-term capital loss of Rs. 75,20,89,749/- originally claimed by the assessee to Rs. 43,61,88,736/- after netting off against the gains. Aggrieved by the proposed adjustment, the assessee filed objection before the DRP. 3. Before the DRP the Ld.AR submitted that, Long-term capital loss amounting to Rs. 75,20,89,749/- has to be allowed to be carried forward without setting off against the Long-term capital gain of Rs. 31,59,01,013/-. In support the assessee relied on following decisions: * decision of Hon'ble Supreme Court in case of CIT vs. P.K.K Kochammu Amma Peroke reported in (1980)125 ITR 624 * decision of coordinate bench of this Tribunal in case of GK Rammurti vs. JCIT reported in (2010) 37 SOT 345 * decision of Hon'ble Bangalore Tribunal in case of IBM World Trade Corporation vs DIT reported in (2012) 54 SOT 39 3.1. The assessee contended that, it can apply beneficial provisions qua each transaction, though flowing under the same source. It was submitted that, these decisions also support the contention of the assessee that, capital loss arising from a taxable source cannot b....
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....ncome. Such is not the case in relevant capital gains section 45 of the Income Tax Act, 1961. 9. In the case in hand, the Applicant has one species of "income" - capital gains, that too, "Long Term Capital Gains", being uniform across all transactions under the Statute. The Statute does not provide for any sub-species of Long Term Capital Gains under any provision. The ratio of IBM World Trade Corpn. case that pertains to the different varieties of Royalty, is not at all applicable. 10. In the instant case, no matter whether the Applicant opts for Domestic Income Tax Act or DTAA, the subject "capital gains" are a loss of Rs. 43,61,88,736/- for the relevant A.Y. Abiding with subsection 90(2), the Ld. A.O. has granted the beneficial option to the applicant at the preference of the Applicant itself. 11. Treaty Provisions are applicable in re/ qua "Income" and not "sources". In this case, there has been one single species of Income, "capital gains" that too, Long Term Capital Gains. 7. To sum up, as per facts of the case, the assessee is tax resident of Mauritius. During the year under consideration the assessee has earned MauritiLTCL from transfer o....
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....y the Hon'ble SC (supra). Thus, in view of the above authentic meaning of 'capital gains', the assessee cannot be allowed to split gains and losses from transfer of equity shares during the relevant previous year, and treat them separately, i.e., claiming gains as exempt under the DTAA and claiming losses to be carried forward under the provisions of the Act." 4. On receipt of the DRP directions, the Ld.AO passed the impugned assessment order by reducing the Long-term capital loss against the long term capital gains, thereby allowed to be carry forward the loss of Rs. 43,61,88,736/-. Aggrieved by the impugned order the assessee is in appeal before this Tribunal. 5. In the present facts of the case, the Ld.AR submitted that assessee entered into share subscription agreement on 14/10/2010, agreeing to subscribe 2,77,993 compulsory convertible series of A preference shares of CFS. Reliance was placed on the agreement at page 183 -236 of the paper book being the Share Subscription agreement of the said company. It is submitted that vide board resolution dated 06/11/2015 the assessee was issued bonus shares in the ratio of 1:6 of compulsory convertible series of A p....
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....essy Court, Pope Hennessy street, Port-Louis, Mauritius PAN : AAECM8473E Previous Year ended : 31 March 2020 Assessment year : 2020-21 Computation of Total Income Particulars Amt in INR Amt in INR Dividend Income Less: Exempt u/s 10(34) of the Income-tax Act, 1961 CAPITAL GAINS/LOSS (As per Annexure 1) Long Term Capital Gain/(Loss) on sale of shares of New Delhi Centre For Sight Limited 283,835,763 Less: Exempt under India-Mauritius Treaty (283,835,763) Long Term Capital Gain/(Loss) on sale of shares of Maharana infrastructure and Professional services Limited (Tranche 1) (752,089,749) (752,089,749) Long Term Capital Gain/(Loss) on sale of shares of Maharana Infrastructure and Professional services Limited (Tranche 2) 32,065,250 Exempt under India-Mauritius Treaty (32,065,250) GROSS TOTAL INCOME (752,089,749) ....
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....f income earned from different streams. He further submitted that, the concept of source of income is also well recognized under provisions of section 70 of the Act, wherein loss from one source is eligible for set off against the other source within the same head of income. (E) He submitted that, the expression 'to the extent' in section 90(2) of the Act, reinforces the principle that, the provisions of the Act or treaty whichever is beneficial is applicable to the assessee for each source. It is argued that, on the conjoint reading of section 90 of the Act and applying the principles emerging from the above judicial precedents, in the context of capital gains/ (loss) arising from sale of shares, each scrip and tranche should be treated as a separate source of income with reference to the specific circumstances for which application of tax treaty and provisions of the Act need to be considered independently. (F) The Ld.AR thus submitted that the sale of shares of each tranche on different dates therefore, requires a separate computation mechanism as per section 48 of the act. He submitted that, each script/shares is a separate capital asset being transacted at differ....
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....onvention on the Law of Treaties in the present facts of the case. 6.1. Admittedly, the assessee is registered under the laws of Mauritius and is engaged in investing in unlisted companies to achieve long term capital appreciation through multi-stage and multi-sector investments. It is involved in investing activity as per the objects of the DTAA which encouraged mutual trade and investment. It has made several investments over the years and earned profits as well as losses from these investments. 6.2. It cannot be ignored that, a prudent businessman makes investments for earning profits but also incurs losses, as it is part and parcel of making investments. The provisions of section 90(2) of the Act itself provides that, the provisions of the Act shall apply to the extent they are more beneficial to the assessee. Accordingly, the Appellant has claimed the exemption on capital gains earned on some shares and carried forward the capital loss on some shares under the Act. This is not in contravention of the object but is only a beneficial position opted by the assessee which is provided under law. 6.3. As far as the capital gain earned by the assessee from sale of shares of ....
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....s per India Mauritius DTAA read with section 90(2), capital gains are to be taxed based on the place of residence of the recipient, by granting relief of tax on such gains in India. Admittedly, the treaty is silent in respect of the loss if earned by an assessee and leaves it unclear whether, one has to deduce to interpret loss being included along with gain. This in our opinion can be possible subject to later negotiations and are not regulated by the treaty. The nature of the treaty in the present fact is key factor and therefore, what is not expressly granted is not permitted. 6.4.4. In so far as, applicability of good faith in interpreting the treaty provisions, we note that good faith differs from most of the other elements under the Viena rules. It applies to the whole process of interpreting for treaty rather than solely to the meaning of particular words or phrases within it. Although, it is difficult to give precise content to the concept generally, it does include one principle that applies to the interpretation of specific terms used in a treaty, commonly described as the principal "effectiveness". The aspect of the principle of effectiveness is preferring an interpre....
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.... into a double taxation avoidance agreement with a foreign country, the assessee cannot be denied the taxability under the scheme of the Indian Income-tax Act. The scheme of the double taxation avoidance agreement cannot, therefore, be thrust upon the assessee. In this particular case, it is obviously to the advantage of the assessee that he is taxed in India on the basis of his worldwide income, which includes losses incurred abroad, and not to invoke the provisions of the India- Japan tax treaty. The provisions of the Indian Income-tax Act must, therefore, apply to that extent. Then comes the objection of the revenue that in the event of the assessee not opting for treatment on the basis of India-Japan tax treaty this year, he will be shut out from availing the benefits of the said treaty in the subsequent years. We see no support for this proposition. Under the Income-tax Act, every year is an independent unit, and it is for the assessee to examine whether or not, in the light of the applicable legal provisions and in the light of the precise factual position, the provisions of the Income-tax Act are beneficial to him or that of the applicable double taxation avoidance agreement....
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....t different sources of income independently, but income from different sources clubbed under respective heads and finally aggregated into the total income. The classification of income under different heads for computing the total income does not interfere with the independent character of different sources of income available to an assessee. Both, short term capital gains/loss and long term capital gains/loss are different sources of income, falling under the same head "capital gains". Even under short term capital gains, different transactions will be different sources of income resulting in short term capital gains/loss. Likewise, different transactions of long term capital assets will be different sources of income for an assessee to arrive at long term capital gains/loss. This is reflected in the scheme of computation of capital gains provided in section 48 where gains or loss is computed on the basis of individual asset and transaction and not on the basis of class of assets. Therefore, we have to agree with the argument of the learned senior counsel that every transaction of a property is a different source of income for the assessee. Head of income is not the source of inco....
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....ssee's claim of capital gains as exempt under the provisions of Article -13 of the DTAA. Thus, the Tribunal accepted the theory of segregation of capital gains and capital losses for drawing benefits of DTAA/the Act to the extent they are more beneficial to the assessee. 9. In the case of Goldman Sachs Investments (Mauritius) Ltd. (supra), the Co-ordinate Bench placing reliance on the decision of Flagship Indian Investment Co (Mauritius) Ltd.(supra) reiterated the position that the assessee is entitled to the benefit of Article-13 of DTAA in respect of capital gains and allowed carry forward of capital loss under the provisions of the Act. For the sake of completeness relevant extracts of the findings of the Coordinate Bench are reproduced herein under:- "12. ..........We are unable to comprehend that now when admittedly the short term and long term capital gains earned by the assessee from transfer of securities during the year in question are exempt under Article 13 of the India-Mauritius Tax Treaty, where would there be any occasion for seeking adjustment of the brought forward STCL against such exempt income. Our aforesaid view is squarely covered by the o....
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.... determined and allowed to be carried forward by the A. while framing the assessment for A.Y 2012-13, vide his order passed u/s 143(3), date 19-3-2015 and had not arisen during the year under consideration i.e A.Y 2013-14. Accordingly, the claim of the A.O that the "capital losses" b/forward from the earlier years, pertaining to a source of income that was exempt from tax was thus not to be carried forward to the subsequent years, being devoid of any merit, is thus rejected. At this stage, we may herein observe that it is for the assessee to examine whether or not in the light of the applicable legal provisions and the precise factual position the provisions of the IT Act are beneficial to him or that of the applicable DTAA. In any case, the tax treaty cannot be thrust upon an assesses. In case the assessee during one year does not opt for the tax treaty, it would not be precluded from availing the benefits of the said treaty in the subsequent years. Our aforesaid view is fortified by the order of the ITAT, Pune in Palm Computer Systems Ltd. (supra). We thus in terms of our aforesaid observations, not being able to persuade ourselves to subscribe to the view taken by the A.O/DRP, w....
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.... in order to determine the rate at which income-tax is payable. Therefore it follows that the total income of an assessee is not necessarily wholly subject to tax. Portions of it may be exempt from taxation and yet may be computed for the purpose of determining the rate at which tax is payable. Mr. Joshi's contention is that all sums which are exempted from taxation must still be brought into the total income of the assessee for the purpose of determining the rate at which income-tax is payable, except where the statute in terms excludes these sums from the total income of the assessee. It is pointed out that in Section 4, sub-section (3), certain incomes, profits or gains falling within the classes mentioned in that sub-section are not to be included in the total income of the person receiving the income, and Mr. Joshi argues that except in these cases, in every other case, although the tax is not payable on certain sums, they must be included in the total income for the purpose of determining the rate. It is therefore argued that although under Section 25(4) an exemption is given to the assessee because there is a succession to the business carried on and no tax is payable by....
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....ining the rate. When the Legislature indends that certain sums, although not liable to tax, should be included in the total income, it expressly so provides, as it is done in Section 16, and therefore Prima facie, when we come to Section 25(4) and when we find that the assessee is not liable to pay tax on the sum received by him as his share of the partnership, that sum cannot and does not form part of his total income. Mr. Joshi has not succeeded in pointing out to us any provision in the Act whereby this particular sum covered by Section 25 (4) has been made a part of the total income of the assessee. Therefore, in my opinion, the share of the profit of the assessee in the firm of S.B. Billimoria & Co., in the accounting year 1942 cannot be included in the total income of the assessee for ascertaining the rate of income-tax. 7.2. It is thus clear from the above observation from the Hon'ble Bombay high court that, income does not form part of the total income do not enter the computation of the total income at all applying the above principle above ratio to the present facts of the case the capital gains that are already exempt under the DTAA which are binding on the parties be....