TaxTMI 
TaxTMI 
2026 (6) TMI 43
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....rporated in Mauritius and is a tax resident of Mauritius. Hence, the assessee is covered under India- Mauritius Double Taxation Avoidance Agreement ('DTAA' for short). As stated by the Assessing Officer ('A.O.' for short), the assessee is an investment company and in course of such business, it has invested in shares of unlisted companies in India. In course of such investment activity, the assessee had invested in shares of ANI Technologies Pvt. Ltd. and OFB Tech Pvt. Ltd. These investments were made by the assessee during the period September, 2015 and August, 2016. In the previous year, relevant to the assessment year under dispute, the assessee sold the shares and derived LTCG as under: a) ANI Technologies Pvt. Ltd. Rs. 5,49,24,95,600/- b) OFB Tech Pvt. Ltd. Rs. 2,26,47,54,114/- 4. Likewise, the assessee sold shares of some other Indian companies and suffered LTCL as under: a) Techmed Health Centre and Diagnostic Private Limited Rs. 21,56,44,086/- b) DataEmo Technologies Private Limited Rs. 4,73,79,861/- c) Sarvaloka Services On Call Private Limited Rs. 72,56,89,761/- d) Twist Mobile India Private Limited Rs. 56,832/- ....
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....of shares, the provisions of DTAA being more beneficial, the assessee has claimed relief under the DTAA. Whereas, in respect of shares sold resulting in LTCL, the assessee has opted to be covered under the provisions of the Act for claiming carry forward of loss. He submitted, though the LTCG and LTCL come under the head of 'income from capital gain', however, each transaction of sale has to be treated as a separate source of income with reference to the specific circumstances for which application of DTAA and the provisions of Act need to be considered independently. He submitted, shares of each company sold during the year are transferred at different dates and statute recognizes such time differentiation and, hence, provides a separate computation mechanism u/s. 48 of the Act for each such stream as per the date of sale. Drawing our attention to first proviso to section 48 read with Rule 115A, he submitted, the said provision considers exchange rate as on date of sale for converting the full value of consideration received or accruing as a result of the transfer of the capital asset. He submitted, applying the same analogy, each scrip/share, therefore, is a capital asset and a s....
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....ra): 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 31of 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 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 ....
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....ost 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 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 mos....
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....tered 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 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....
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....n 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. 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. Like....
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....see'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 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 Art....
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............... 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 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 asses....
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....ch 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 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....
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....y 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 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 particula....