TaxTMI 
TaxTMI 
2026 (9) TMI 113
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....f brought forward long-term capital losses to be set-off against long-term capital gains 2.1. On the facts and circumstances of the case and in law, the Ld. AO, pursuant to the directions of the Ld. DRP, has erred in denying the Appellant its statutory right of election under section 90(2) of the Act to be governed by the provisions of the Act or applicable treaty, whichever is more beneficial. 2.2. On the facts and circumstances of the case and in law, the Ld. AO has erred in holding that gains arising on sale of shares acquired prior to 1 April 2017 constituted an 'exempt source' which cannot enter computation of total income under the Act. As a result, the Ld. AO erred in denying the set-off of current year long-term capital loss arising on transfer of shares acquired prior to 1 April 2017 against the long-term capital gains arising on transfer of shares acquired after 1 April 2017. 2.3. On the facts and in the circumstances of the case and in law, the Ld. AO pursuant to the directions of the Ld. DRP erred in denying utilisation of the brought forward long-term capital loss pertaining to Assessment Year 2018-19 relating to shares acquired prior....
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....ier proceedings and consistently reflected in return of income for years in appeal. On this aspect, ld. A.R. placed his reliance on the following decisions: (i) Matrix Partners India Investment Holdings, LLC v. Deputy Commissioner of Income-tax [2025] 173 taxmann.com 727 (Mumbai-Trib.) (ii) Goldman Sachs Investments (Mauritius) Ltd. v. Deputy Commissioner of Income-tax, (International Taxation)-2(3)(2), [2020] 120 taxmann.com 23 (Mumbai-Trib.) (iii) TVF Fund Ltd. v. Deputy Commissioner of Income-tax, International Taxation, [2025] 171 taxmann.com 349 (Mumbai-Trib.) (iv) Deputy Commissioner of Income-tax, Circle 4, Pune v. Patni Computer Systems Ltd., [2008] 114 ITD 159 (Pune) 5. Based on aforesaid submission it was submitted by ld. A.R. that the view has consistently been taken by the Tribunal in various cases that where assessee, tax resident of Mauritius claimed exemption on capital gain earned on shares and carry forward capital loss on another lot of shares, since capital gain that were already exempt under DTAA could not enter computation of total income of assessee in India, setting off of losses suffered from sale of shares against gain....
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....Mauritius, the provisions of Sections 70 and 74 of the Income Tax Act 1961 cannot be applied in respect of capital gains or losses pertaining to shares acquired before 01/04/2017, as the same will be governed only by the taxation laws of Mauritius, as mandated in Article 13 of the India Mauritius DTAA. Therefore, the tax treatment adopted by the assessee regarding the adjustment/setting-off of the LTCL incurred during AY 2023-24 as well brought forward LTCL of A.Y 2018-19, in respect of shares acquired before 01/04/2017, against LTCG earned during the year, in respect of shares acquired on/after 01/04/2017, is not in accordance with the provisions of Article 13(4) of India Mauritius DTAA. 4.2.2 In this regard, it is also pertinent to note that assessee has stated that it has not availed any benefits of India Mauritius DTAA and instead opted to offer its gains from sale of Indian securities as per provisions of the domestic laws i.e. Income Tax Act, 1961. However, perusal of the assessee's computation of income and scrip wise breakup of capital gains and losses provided in respect of the capital gains and losses will reveal that, by opting for taxation under Income tax ....
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....ng A.Y 2023-24 and (2) brought forward Long Term Capital Losses incurred in AY 2018-19, (both of which have been incurred on account of sale of shares acquired before 01/04/2017), against the Long Term Capital Gains earned during A.Y 2023-24(on shares acquired on/after 01/04/2017), and thereafter (3) carrying forward the balance amount of Long Term Capital Losses of A.Y 2018-19 to AY 2024-25, is not in accordance with the provisions of the law. 8.2 Therefore, the total taxable income of the assessee for A.Y 2023-24 will be computed by considering the following: (i) The capital gains (whether long term or short term) earned by the assessee during A.Y 2023¬24, in respect of sale of shares which were acquired on/after 01/04/2017, will be taxable in accordance with the relevant provisions of the Income tax Act, 1961. (ii) The Long Term Capital Losses incurred by the assessee during A.Y 2023-24 in respect of sale of shares acquired before 01/04/2017, will be governed only by the provisions of the taxation laws of Mauritius, in light of the express provisions of Article 13(4) of the India Mauritius DTAA. Since taxation of said capital losses will not fall within the ambit of....
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....income of AY 2023-24 Short Term Capital Gains 1,08,27,253 To be considered in the taxable income of A.Y. 2023-24 Since the long term capital losses of Rs. 30,41,672/- pertain to shares acquired before 01/04/2017, the same (along with the corresponding transfer expenses) will not be considered for taxation/adjustment as per provisions of the Income tax Act. Thus, the disallowance to be made to the returned income, in respect of additional claim of transfer expense by the assessee, will get restricted proportionately. 8.3 In light of the points discussed in paras 8.1 and 8.2, the disallowances to be made from the assessee's returned income of Rs. 1,08,01,175/- (rounded off to 10801180/-) are tabulated below: Particulars Amount (INR) Disallowance w.r.t additional transfer expenses erroneously claimed by assessee on sale of shares of Trackxn Technologies Limited [Amount pertaining to STCG of Trackxn shares) 26,078/- LTCL on sale of shares of TRACKXN TECHNOLOGIES LIMITED acquired on 25/02/2016- Revised figure 30,41,672/- LTCL on sale of shares of Grofers-Series C RPS acquired on 06/07/2015 14,651/- LTCL on sale of share....
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....same exempt source. Article 13 (Capital Gains) of DTAA (India-Mauritius) containing grandfathering Clause states that capital gains from shares acquired before 01/04/2017 are taxable only in the State of Residence (e.g., Mauritius). India (Source State) has no taxing rights with implication that any income from this source is effectively exempt from tax in India. Section 90(2) of the Income Tax Act provides that the provisions of the Act or the DTAA shall apply, whichever is more beneficial to the assessee. Sections 70 & 74 of the Income Tax Act govern the set-off of capital losses (Section 70) and carry-forward of capital losses (Section 74). It has been argued by the assessee that "Under Section 90(2), it can choose the Income Tax Act because it is more beneficial. Under the Act, capital loss is computed and allowed to be carried forward (Section 74). The fact that the DTAA allocates rights to Mauritius is irrelevant because it is opting for the Act." The Ld.TPO has made an argument that "The source of income (pre-2017 shares) is allocated to Mauritius by the Treaty. It is not part of the 'Total Income' in India. If the positive income (Gain) is not taxable in In....
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....e that exempt income acts as a wall. The Tribunal held that capital gains exempt under Article 13(4) (Pre-2017) do not enter the computation of "Total Income" at all. These findings cuts both ways. Exempt gains cannot be used to wipe out valid taxable losses (from post-2017 shares). Conversely, if the source is exempt, a loss from that source does not enter the computation of Total Income either. The Tribunal ruled that income which is exempt (in this case, capital gains on shares acquired prior to April 1, 2017, under Article 13(4) of the India-Mauritius Tax Treaty) does not enter the computation of "Total Income" at all. The Tribunal's reasoning relies on the definition of "Total Income" under Section 5 of the Act. It held that since the Treaty allocates the taxation rights of pre-2017 shares solely to Mauritius, India has no jurisdiction over this "stream" of income. Therefore, provisions for set-off (Section 70/71) which apply only to the "computation of total income" cannot be applied to mix exempt and taxable streams. The Tribunal relied on the Supreme Court's decision in CIT v. Harprasad& Co. (P.) Ltd., which established that "capital gain" includes "capital loss"6. ....
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....ncome or loss that is chargeable to tax". The judgment confirms that exempt income (such as gains from pre-2017 shares under Article 13(4)) constitutes a distinct stream that cannot be mixed with taxable streams. Therefore, the provisions of Section 70 (set-off of loss from one source against income from another source under the same head) do not apply to set off taxable losses against exempt gains. It confirms that Pre-2017 (Grandfathered) shares are effectively treated as a separate "exempt species." Consequently, the computational provisions of the Income Tax Act (like Section 70 and 74) cannot be invoked to mandatorily set off valid, taxable losses against this exempt income. Panel mandates that the Ld. AO calculate the chargeability of the capital gain keeping in mind the withdrawal of exemption u/s 10(38) & non availability of grand fathering under IM tax treaty." 10. Accordingly, the DRP directed as under: "9.1.3 Directions of the DRP: In view of the ratio laid down by the Hon. Supreme Court and Hon. ITAT as discussed above, this Panel approves the stand and actions of the Assessing Officer. Accordingly, the objections of the applicant are rejected on account of ....
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.... payable by the assessee, the sum which is exempted under this sub-section does form part of the total income for the purpose of determining the rate. Total income is defined in Section 2(15) of the Act, and it means total amount of income, profits and gains computed in the manner laid down in this Act. Therefore, it would be erroneous to suggest that total income is to be determined only in the light of Section 4, sub-section (3), of the Act. How total income is to be computed and determined depends upon the various provisions contained in the Act as a whole. Then we might look at various sections which provide for exemptions from the payment of tax. There is Section 7 which contains various provisos which cover sums not liable to tax. Similarly Section 8. Section 14 also contains exemptions with regard to certain sums on which no tax is payable, and Section 15 contains exemptions in cases of life insurance. It will be noticed that the language used in all these sections, to which I have referred, is similar, if not indentical, with the language used in Section 25(4), viz., that the tax is not payable on these different sums. Now, if Mr. Joshi's contention was sound, then with....
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....ing on the parties being exempt in India, cannot enter the computation of total income of assessee in India. Therefore, setting off the loss suffered by the assessee from sale of shares of Maharana, against the gains earned from sale of shares of Maharana would tantamount to taxing the gain in India which is in violation of Article 13(3)(4) of DTAA as it stood prior to amendment. 8. Now we shall examine the provision relating to carry forward of the loss suffered from sale of shares of Maharana the assessee in the present case as carry forwarded long-term capital loss as per section 74 of the Act. Reference is made to the CBDT Circular No. 22 of 1944 dated 29/07/1944 that states that: "If the total income is a loss it has to be carry forwarded subject to the provisions us. 24(2) of the Indian income tax act 1922 and cannot be set off against any income which does not form part of the total income." The circular also stated that, "the non resident otherwise would not get any relief in the Indian Taxation on account of loss incurred by in India." Accordingly, the Ld.AO is directed to grant the carry forward of the loss as claimed by the assessee." 12. In Goldman Sachs Inv....
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....rom transfer of securities during the year under consideration i.e A.Y. 2013-14, as exempt, under Article 13 of the India-Mauritius Tax Treaty. As regards the claim of the assessee that the capital gains on transfer of securities in India was not exigible to tax in India as per Article 13 of the India- Mauritius tax treaty, we find, that the same is not in dispute. On a careful perusal of the observations of the DRP, we find that a direction has been given by the panel for adjustment of the brought forward STCL against the short term and long term capital gains earned by the assessee during the year under consideration. We are thus confronted with a direction of the DRP, wherein despite accepting that the short term and long term capital gains earned by the assessee from transfer of securities during the year under consideration were exempt from tax in India under Article 13 of the India-Mauritius tax treaty, the panel had directed that the brought forward STCL be first adjusted against such exempt short term and long term capital gains, and only the balance amount of brought forward STCL be carried forward to the subsequent years. In our considered view the aforesaid direction of ....
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....eaty was rendered unworkable in respect of "capital gains" derived by the assessee from transfer transactions carried out in India, the "capital losses" would also not form part of its "total income", and thus, were not required to be computed under the Act, we are afraid the same does not find favour with us. Before adverting any further, we may herein reiterate that the DRP vide its order passed u/s 144C(5), dated 21-11-2016, had concluded, that now when the "capital loss" was allowed to be carried forward by the A.O, vide his order passed under sec. 143(3), dated 19-3-2015 for A.Y 2012-13, the same could not have thereafter been reviewed in the assessment proceedings of any subsequent year. As the said observation of the DRP has not been assailed any further by the revenue in appeal before us, the same thus had attained finality. 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....