TaxTMI 
TaxTMI 
2026 (5) TMI 950
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 144C (13) of the Income Tax Act, 1961 ("the Act") for the captioned Assessment Year ("AY") (impugned order) pursuant to the directions issued by Hon'ble Dispute Resolution Panel -1, Mumbai (hereinafter referred to as the That on the facts and in circumstances of the case and in law, the Id.AO based on directions of the Hon'ble DRP has erred in: General ground: 1. Assessing total income of the Appellant at INR 9,81,95,06,564 as against the returned income of INR 3,43,65,84,007; Grounds on merits -Assessing Capital gains/losses on sale of Investments in contravention of provisions of Section 90(2) of the Act. 2. Ignoring the provisions of Section 90(2) of the Act, which provides that the Assessee has an option of applying the provisions of the Actor the India - Singapore Tax Treaty ("Tax Treaty") whichever is more beneficial to the Assessee; 3. Assessing capital gains arising on sale of investments during the year under consideration at IN 9,76,90,82,624 as against INR 3,38,61,60,067 by taxing capital gains income for investment acquired by the assessee prior to April 1, 2017, thus disregarding the explicit provisions o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....4.2017 5,78,16,19,437 4 Long term capital gain on transfer of share of Bigbasket Acquired after 01.04.2017 11,62,64,13,511 Net taxable capital gain (2+3+4) offered 3,38,61,60,067 Bigbasket- Super Market Groceries Suppliers Private Limited PayTM- One97 Communications Limited Xpressbees- Busybees Logistics Solution Private Limited Snapdeal- 2.2. The Ld.AO observed from the above chart that the assessee purchased shares of Indian companies namely PayTM and Snapdeal prior to 01/04/2017. It was further observed that the assessee earned long term capital gain of INR 6,38,29,22,557/- on alienation of shares of PayTM and claimed the same as exempt from tax under the provisions of the Income-tax Act, 1961 in view of Article 13(4) of the India-Singapore DTAA. The Ld. AO further observed that the assessee incurred long term capital loss of INR 14,02,18,72,880/- on alienation of shares of Snapdeal, which was not set off against the capital gain arising from transfer of shares of PayTM, despite both the shares having been acquired prior to 01/04/2017. However, the assessee set off the said ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1,60,067 The proposed addition on account of non-disclosure of Capital Gains under Income Tax Act,1961(5-6) 14,02,18,72,880 Aggrieved by the variations proposed in the draft assessment order passed by the Ld. AO u/s 144C(1) of the Act, the assessee preferred objections before the Dispute Resolution Panel ("DRP"). 3. Before the DRP, the assessee objected to the denial of its option to apply the provisions of the India-Singapore DTAA, the clubbing of gains and losses arising from transfer of investments acquired prior to 01.04.2017 as a single source of income, the computation of taxable capital gains of the Act. 3.1. The DRP, after considering the objections raised by the assessee, held that the approach adopted by the assessee in segregating each capital gains transaction and selectively applying the provisions of the India-Singapore DTAA and the Income Tax Act at the transaction level was not in accordance with law. The Panel observed that the computation of capital gains for an assessment year has to be made in terms of the provisions of the Act and that the DTAA does not provide any independent computation mechanism. The DRP further held that once the net income i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounsel submitted that Article 24(1) provides for conditions in respect of non-taxability of exempt income. He further submitted that, since the capital gains are not taxable in India in view of the language provided under Article 13(4) of the DTAA, question of exemption of said income in India would not arise. It was submitted that, the provisions of Article 24(1) are not applicable for the following two reasons:- * Income earned outside Singapore are not taxable. However, since the income was considered for laxation at the time of filing the return of income on accrual basis, provisions of Article 24(1) which deals with taxation on remittance basis in Singapore would not apply. * Capital gains are not taxable in India and thus, the question of exemption does not arise. Consequently, Article 24(1) of the India-Singapore DTAA does not apply. 5.3. The Ld.Sr.Counsel submitted that Hon'ble Bombay High Court in case of CIT v. Citicorp Investment Bank (Singapore) Ltd., reported in [2023] 151 taxmann.com 501/457 ITR 203 and in the case of CIT v. APL. Co. Pte. Ltd reported in [2023] 156 taxmann.com 530 has upheld the order of the Tribunal on identical facts. 5.4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....benefits to the extent they are more beneficial to the assessee has been dealt with by various Benches of the Tribunal from time to time and we can gainfully refer to the latest decision of the Coordinate Bench in case of Matrix Partners India Investment Holdings, LLC (supra) where the matter has been examined at length and the relevant findings therein read as under: "6. The case of the assessee before us is to analyse whether assessee can be allowed to carry forward the loss without being set off against the capital gains in circumstances where both the situation aroses out of shares acquired prior to 01/04/2017 in the Indian Mauritius DTAA. It is also necessary to analyse if the DTAA between India Mauritius is interpreted in good faith as per Article 31 of Viena Convention 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 mad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....should be interpreted in good faith, in accordance with the ordinary meaning to be given to the terms of the treaties in their context, and in the light of the its object and purpose. It also states that the context for the purpose of interpretation of the treaty shall comprise in addition to the test, including its preamble and annexes. One of the most difficult areas of treaty interpretation is how to cope up with silence of absent terms, if the treaty dose not expressly make provision for the matter in issue, should it be assumed that it is not covered depends on the nature of the treaty and the interaction of the various elements of Viena rules. In the present facts of the case the double taxation avoidance agreements is based on the principle to provide tax relief by preventing double taxation. 6.4.3. As 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 ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., can the assessee be forced to go for taxation in accordance with the provisions of the treaty with the said PE State. The provisions of section 90(2) of the Indian Income-tax Act are quite unambiguous and categorical in this regard. Section 90(2), inter alia, provides that when the Government of India has entered into a double taxation avoidance agreement with Government of any other country, "in relation to an assessee to whom such agreement applies, the provisions of this Act shall apply to the extent these are more beneficial to that assessee". Section 90 only grants relief; it does not impose any liability. Even without such provisions, Courts in US and Germany, as indeed in other parts of the world, have held that a treaty cannot act to the disadvantage to the taxpayer. In other words, therefore, merely because India has entered 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ench also observed that, what is taxed by the Act is not different source of income, independently and that income from different source is clubbed under respective heads that are finally aggregated into the total income. The relevant extract of the observations of the Hon'ble Special Bench in this regard held as under:- "44. Therefore, it is very apparent that source of income does not mean head of income. The Assessing Officer has 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 gains/loss as well as long term capital gains/loss both are computed under the head "capital gains" for the aggregation of income culminating into total income which is taxable under the Income-tax Act. What is taxed by the Income-tax Act is not 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l Gains' and had sought to carry forward capital losses of the earlier years as the same could not be set off against capital gains for the relevant assessment year. The Assessing Officer and CIT(A) rejected assessee's claim of carry forward of capital losses on the pretext that since the assessee had claimed benefit of exemption under Article 13 of the DTAA on capital gains, capital losses are also exempt. When the issue reached before the Tribunal, the Coordinate Bench placing reliance on the decision in the case of CIT vs. Western India Oil Distributing Co. Ltd., 249 ITR 517 (SC) and CIT vs. Manmohan Das 59 ITR 699(SC) and also after considering CBDT Circular No.22 of 1944 dated 29/07/1944 held that the assessee is justified in claiming carry forward of brought forward losses of the earlier years to the subsequent years and at the same time upheld assessee'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 Investme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the IndiaMauritius tax treaty, therefore, the brought forward STCL of the previous years was rightly carried forward by the assessee to the subsequent years......... The Tribunal further held: ... Now coming to the claim of the revenue that as Sec. 45 of the Act, by virtue of India-Mauritius tax treaty was rendered unworkable in respect of "capital gains" derived by the assessee from transfer of securities in India, therefore, the "capital losses" would also not form part of the assessee's "total income", and thus, could not be computed under the Act. we are afraid does not find favour with us. Apropos the aforesaid observation of the A.O, we are of the considered view that the same had been arrived at by loosing sight of the fact that the "capital losses" in question had been brought forward from the earlier years and had been 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 inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and set off /carry forward of loss. 7.1. Hon'ble Bombay High Court in case of CIT vs. M. N. Raigi reported in (1949) 17 ITR 180 considered as to whether share income of a partner which does not form part of the total income, is to be added to the total income in order to determine the rate at which income tax was payable by the partner. Section 16 of Income tax Act 1922, corresponding to section 66 of the Income tax Act 1961 was subject matter for consideration in the aforesaid decision. Hon'ble Court after analysing the scheme of computation observed and held as under : Now, the scheme of the Indian Income-tax Act is that income, profits and gains of an assessee are liable to tax subject to certain exemptions and exceptions. Although certain sums may be exempted from taxation, still they may form part of the total income of an assessee 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncludes in the total income of an assessee only certain sums which are exempted from the payment of tax. Therefore, by implication, where the sums are not included in the total income by Section 16, those sums are not only exempted from the payment of tax, but they are also excluded from the total income. Now, when we look at Section 16, it does not include the sum covered by Section 25(4) as a sum which is to be included in the total income of the assessee. The scheme, therefore, of the Income-tax Act is clear and is very different from what Mr. Joshi suggests it is. The scheme is that wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion also operates for the purpose of computing the total income. Not only is the sum not liable to tax, but it is also not to form part of the total income for the purpose of determining 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 hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isted shares to subsequent years without setting off the same against the short term capital gains. The Assessing officer is directed accordingly to allow carry forward of short term capital losses amounting to Rs 53,13,457/- and in respect of gross short term capital gains, the Assessing officer is directed to allow the benefit of Article 13(4) of India- Singapore DTAA as we have discussed above. In the result, the additional ground of appeal is allowed." 6.1. Respectfully following the aforesaid judicial precedents, particularly the decision of the Coordinate Bench in the case of Prashant Kothari v. Int. Tax Ward 3(1)(1) (supra), which in turn relied upon the decisions in Matrix Partners India Investment Holdings LLC v. DCIT, Joint CIT v. Montgomery Emerging Markets Fund (supra) and various other decisions discussed hereinabove, we are of the considered opinion that each investment/transaction giving rise to capital gains or capital losses constitutes a separate source of income. The assessee, therefore, is entitled to avail the benefit of the provisions of the Act or the applicable DTAA, whichever is more beneficial, in terms of section 90(2) of the Act, qua each such source ....