Income Tax Appellate Tribunal - Mumbai
Dcit(It) - 4(2)(2), Mumbai vs Stichting Pensioenfonds Rail & ... on 30 March, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
"I" BENCH, MUMBAI
BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER)
&
SHRI BIJAYANANDA PRUSETH (ACCOUNTANT MEMBER)
I.T.A. No. 795/Mum/2026
Assessment Year: 2021-22
DCIT(IT)-4(2)(2) Vs. Stichting Pensioenfonds Rail &
Openbaar Vervoer
C/o Walker Chandiok & Co. LLP
16th Floor, Tower III
One International Center
S.B. Marg
Prabhadevi (W)
Mumbai - 400051
[PAN: AAJCS3620C]
(Appellant) (Respondent)
Assessee by Shri Jitendra Singh, Adv.
Ms. Shivali Mhatre
Shri Rajesh Gaikwad
Revenue by Shri Krishna Kumar, Sr DR
Date of Hearing 17.03.2026
Date of Pronouncement 30.03.2026
ORDER
Per Smt. Beena Pillai, JM:
Present appeal filed by revenue arises out of the order dated 28/11/2025 passed by NFAC, Delhi [hereinafter referred to as "Ld.CIT(A)"] for Assessment Year 2021-22, on the following grounds:-
"1. Whether on the facts and circumstances of the case, the Ld. CIT(A) is correct in relying on the CBDT Circular No. 22 of 1944, wherein it was clearly mentioned that the income not forming part of total income cannot be set off against the current year or brought forward losses, whereas the assessee has Long Term Capital Gain and Short Term Capital Gain, which are forming part of the total income?2
I.T.A. No. 795/Mum/2026
2. Whether, on the facts and circumstances of the case, the Ld. CIT(A) erred in allowing the benefit of Article 13 of the India- Netherland TAA on the entire current year LTCG/STCG without setting off the b/f LTCL/STCLand also permitting carry forward of the b/f LTCL/STCLassuch to the subsequent years without giving effect to the provisions of section 74(1)(a) and section 74(1)(b) of the Act?"
3. Whether on the facts and circumstances of the case, the Ld. CIT(A) is justified in relying on the decisions of Honorable ITAT, on the issue that whether capital losses brought forward, should be first adjusted against the capital gain of the current year and then the provisions of DAA is applicable to the assessee, when the decision has not attained finality, as Revenue has filed appeal against the order of ITAT in the case of DCIT V. Finance Corporation (Mauritius) Ltd. (ITXAL No 11590/2023 and 83/2024), before the Honorable Bombay High Court.
The appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
2. The assessee filed the return of income through e-filing on 22.02.2022 declaring total income at Rs. 10,23,20,090/-. The case of the assessee was selected for scrutiny under CASS and notice u/s 143(2) of the I.T. Act, 1961 was issued on 27/06/2022 and duly served. Thereafter, notices u/s 142(1) of the Act along with detailed questionnaires were issued from time to time. In response, the assessee furnished the requisite details, which were placed on record after verification.
3. The assessee is a fund resident of the Netherlands and is registered as a Foreign Portfolio Investor (FPI) in India with SEBI. The assessee is engaged in investment activities in the Indian capital market. The assessee also earned dividend income and claimed treaty benefit under Article 10 of the India-Netherlands DTAA in respect of such income. During the course of assessment proceedings, it was observed that the assessee had brought forward losses under the 3 I.T.A. No. 795/Mum/2026 head short-term capital loss (STCL) and long-term capital loss (LTCL) from earlier years without setting off such losses against the income earned during the year under the same head.
During the year, the assessee earned:
Short-term capital gains (STCG): Rs. 49,42,78,811/-
Long-term capital gains (LTCG): Rs. 1,63,93,58,237/-
The brought forward losses were as under:
Brought forward STCL: Rs. 14,89,60,691/-
Brought forward LTCL: Rs. 4,28,02,080/-
4. While filing the return of income, the assessee claimed that the capital gains earned from the Indian capital market were exempt in terms of Article 13 of the India-Netherlands DTAA read with Section 90 of the Act. Accordingly, the brought forward losses under STCL and LTCL were carried forward for set-off in subsequent years.
4.1. In support of this position, the assessee placed reliance on the following decisions of the coordinate bench of the Tribunal:
Matrix Partners India Investment Holdings, LLC vs. Deputy Commissioner of Income Tax (Mumbai Tribunal) (29.01.2025) TVF Fund Ltd vs. Deputy Commissioner of Income tax (IT), Circle 4(1)(2), Mumbai (Mumbai Tribunal) (23.01.2025) Morgan Stanley Mauritius Company Ltd vs. Dy. Commissioner of Income Tax (IT)-3(2)(2), Mumbai (Mumbai Tribunal) (28.10.2024) Dy. Commissioner of Income Tax (IT)-4(2)(2), Mumbai vs. Swiss Finance Corporation (Mauritius) Ltd (Mumbai Tribunal) (07.01.2022) 4 I.T.A. No. 795/Mum/2026 Assistant Commissioner of Income Tax-3(1)(1), Mumbai vs. J. P. Morgan India Investment Company Mauritius Ltd (Mumbai Tribunal 27.09.2022) Dy. Commissioner of Income Tax (IT)-1(2)(2), Mumbai vs. Bluebay Mauritius Investment Ltd (Mumbai Tribunal 29.04.2022) 4.2. The Ld. AO, however, did not accept the method of computation adopted by the assessee and observed as under:
"5.4 The submission of the assessee and the decisions of the Hon'ble ITAT quoted by the assessee were carefully considered. Though the Hon'ble ITAT has decided the issue of carry forward of losses in favour of assessee, the decision of Hon'ble ITAT is not acceptable to the department and further appeals to the Hon'ble High Court have been preferred by the department on fact of the case and also on law point. The claim of carry forward losses without setting off against the income under same head of the year under consideration by the assessee is not acceptable due to following reasons:-
(i) In the Income Tax Act, the provisions of section 74 for carry forward and set off of losses is placed under separate chapters i.e. "in Chapter-VI", which deals in "Aggregation of income & set off of carry forward of losses" whereas the provisions for "computation of total income" is placed under "Chapter-IV" of the Income Income Tax Act.
(ii) The relief is available to (a non-resident) assessee under section 90(2) which is in respect of relief specified in section 90(1)(a) of the I.T. Act. The assesse has opted for relief and the relief of tax available to assessee u/s 90(2) has been calculated in Para-3 of this order and the relief has been provided to the assessee in preceding Para no-4 of this order.
A DTAA is an agreement between the Govt. of two countries to provide the relief to the resident assessee of the other country in respect of taxation on income under specific heads as agreed mutually between the two countries. The article & Provisions of DTAA is applicable for those incomes only which have been specified in that DTAA. In this case, India- Netherland DTAA is applicable and in the DTAA, the taxability of receipts under different heads/type of income in other than resident country has been specified under different article of the DTAA. The assessee has claimed the relief available in DTAA for taxation of income as per the convention.
(iv) As stated earlier, the convention of DTAA is applicable for relief in "Taxation of Income & Taxation on capital" as per Articles placed under chapter III & chapter IV of the convention and in view of section 90(2) r.w.s 90(1)(a) of the I.T.Act, the assessee is eligible for relief in tax by choosing beneficial position out of the computation of tax as per Income tax Act or as per DTAA. Section 90(2) grants option to the assessee to choose beneficial tax computation (out of computation of tax as per Income Tax Act and as per DTAA) on different heads/types of income as specified under chapter-III of the DTAA.
5I.T.A. No. 795/Mum/2026 In Para-3 of this order, computation of Income and Tax as per Income Tax Act & as per DTAA has been made separately and relief as per section 90(2) has been granted in Para-4 of the order by charging tax as per the beneficial computation (head-wise) of tax computed as per DTAA or as per Income Tax Act on various receipts/income of the assessee earned in India.
(v) In Income Tax Act 'computation of Income' is placed in "Chapter IV", whereas set off and carry forward of loss is placed under "Chapter -VI" of the Income Tax Act. In the Income Tax Act, the provisions of section 74 for carry forward and set off of losses is placed under " Chapter-VI", which deals in "Aggregation of income & set off of carry forward of losses". It is clear that both the chapters are having its own distinct provisions. As far as section 90(2) is concerned, it is for relief to assessee for taxation. For granting relief to assessee u/s 90(2), tax position on the income earned by assessee is computed as per Income Tax Act and as per DTAA separately and if the assessee has opted for relief u/s 90(2), the beneficial provisions (As computed under Income Tax or DTAA) is allowed to the assessee.
(vi) It is pertinent to mention here that the provisions of set off and carry forward of losses are placed under chapter -VI of the Income Tax Act however, no any provision for set off and carry forward of losses is there in India-Netherlands DTAA. It is well settled position that where DTAA is silent on any issue, the provisions of Income Tax Act prevail.
In the instant case, for computation of allowable carry forward of losses, provisions of Income Tax Act will prevail as there is no article for set off and carry forward of losses in DTAA. It is well settled propositions that whenever, the provisions of Income Tax Act is to be applied, we have to compute entire computation as per provisions of Income Tax Act only.
Since, the provisions of set off and carry forward of losses are entirely distinct from the computation of Income (Chapter-IV of I.T. Act), for computation of carry forward of losses, we will have to follow the procedure specified in the Act u/s 74 of the Income Tax Act only in assessee's case. Section 74 of the IT Act states that -
"Losses under the head "Capital gains".
74. (1) Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and--
1. In so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset;
2. In so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short-term capital asset;
3. if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.
(2) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed."
6I.T.A. No. 795/Mum/2026 As evident from section 74 of the IT Act, the legislature has prescribed the method for computation of carry forward of losses. As per section, for carry forward of brought forward losses under the head Capital Gain, the brought forward losses under respective heads of STCL & LTCL have to be adjusted against the income under same hand for the year and the unabsorbed loss which could not be set off, should be carried forward for set off in following assessment years. Since, there is no provision in India- Netherlands DTAA for computation of Carry Forward of losses, there could not be any role of DTAA in determining the amount of Carry Forward of losses of the resident of other country and the provisions of Income Tax Act shall be applicable in all aspect of the computation of Carry forward of losses starting from the computation of Capital Gains as per Income Tax for the year to adjustment of brought forward losses in current year's income under the same head and final computation of balance losses available to carry forward for set off in following assessment years.
(viii) It is pertinent to mention here that the legislature has used word 'Shall' in section 74(1) of the IT Act which indicates that the binding nature of the provision for computation of Carry Forward of losses and there is no option other than what is mentioned in section74(1) to compute the amount of carry forward of losses for set off in following assessment years. At the same time, there is no role of DTAA there in the issue of set off and carry forward of losses, only the provisions of Income Tax Act shall prevail in computation of Carry Forward of losses as stated in section 74 of the It Act.
(ix) The reference of circular No-22 of 1944 dated 29-07-1944 is out of context as it clarifies the set off of Indian losses against foreign income stating that:-
"Indian loss of a Non-resident should not be set off against foreign Income. In this case, no such situation has arisen at any stage."
6.Keeping in view of above discussions, the amount of carry forward of losses of the assessee for set off against the Income under same head in following assessment years is computed as under:-
Brought Forward Short Term Capital Loss - Rs. 14,89,60,691/- Brought Forward Long Term Capital Loss- Rs. 4,28,02,080/-
A Computation of carry forward of STCL-
STCG for the year (As per IT Act as computed in Para-3):-Rs. 49,42,78,811/-
Less: Brought Forward Short Term Capital Loss:- (-)Rs. 14,89,60,691/-
Balance STCL allowed to be carried forward-NIL (As no loss remains) B Computation of carry forward of LTCL-
LTCG for the year (As per IT Act as computed in Para-3):-Rs. 1,63,93,58,237/-
Less: Brought Forward Short Term Capital Loss:- (-)Rs. 4,28,02,080/-7
I.T.A. No. 795/Mum/2026 Balance LTCL allowed to be carried forward- NIL (As no loss remains)"
4.3. The Ld. AO computed the net loss to be carried forward after setting off the brought forward losses against the current year's gains. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A).
4.4. The Ld. CIT(A), after considering the submissions of the assessee and the judicial precedents relied upon, observed and held as under:
"7.4.2 In the aforementioned submission, the Appellant has relied on section 90(2) of the Act for determining the income for the purposes of set-off and how the income which is claimed as exempt under the Tax Treaty cannot be included within the ambit of income that has to be set-off against brought forward losses.
7.4.3 Further, the Appellant has also relied upon various judicial precedents including orders passed by the Hon'ble ITAT, Mumbai which are on similar facts as the Appellant's case. Relevant parts of the judicial precedents relied upon by the Appellant are reproduced below:
It is also relevant to note that in the case of Flagship Indian Investment Co. (Mauritius) Ltd v. ADIT (IT) [2010] 38 SOT 426 (Mumbai ITAT), the Hon'ble Mumbai ITAT held that where income is not assessable to tax for a particular assessment year under the provisions of the Treaty, the losses incurred in an earlier assessment year, carried forwarded to the assessment year in question, would be available for set-off against taxable income earned in subsequent assessment years and the same were not required to be adjusted against the income not chargeable to tax of the current assessment year.
Reliance is also placed in the case of Goldman Sachs Investments (Mauritius) Limited [TS-496-ITAT-2020(Mum)], wherein the Hon'ble Mumbai ITAT states that when admittedly the short and long term capital gains earned by the Appellant during the year are exempt under Article 13 of the DTAA, there would be no occasion for seeking adjustment of the brought forward STCL against such exempt income, relies on coordinate bench ruling in case of Flagship Indian Investment Company (Mauritius) Ltd.8
I.T.A. No. 795/Mum/2026 Further, in the case of Morgan Stanley Mauritius Company Ltd [TS-807- ITAT- 2024(Mum)] the Hon'ble Mumbai ITAT has held as under:-
"The Appellant is eligible for choosing the beneficial provision of the India Mauritius DTAA as far as long term capital gain earned during the year under consideration. As far as short term capital loss brought forward is concerned the Appellant is eligible for choosing the beneficial provisions provided under the domestic law and carry forward the same without setting off against the long-term capital gain for subsequent years."
(emphasis supplied) Additionally, in the case of Matrix Partners India Investments Holdings, LLC [TS-85-ITAT-2025(Mum)], the Hon'ble Mumbai ITAT has held as under:
"Capital gains that are already exempt under the DTAA which are binding on the parties being exempt in India, cannot enter the computation of total income of Appellant in India. Therefore, setting off the loss suffered by the Appellant 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" (emphasis supplied) Reliance can also be placed on the below-mentioned coordinate bench rulings wherein the above-mentioned decisions of the Tribunal were also considered and relied upon.
1. Goldman Sachs India Investments (Singapore) PTE Limited [TS-294-ITAT 2021(Mum)]
2.Bluebay Mauritius Investment Ltd [TS-386-ITAT-2022(Mum)]
3.Swiss Finance Corporation (Mauritius), Ltd [TS-832-ITAT-2022(Mum)]
4.J. P. Morgan India Investment Company Mauritius Limited [TS-759-ITAT- 2022(Mum)]
5. TVF Fund Ltd [TS-46-ITAT-2025(Mum)] Further, the Appellant has placed reliance on the CBDT Circular No. 22 of 1944 dated 29 July 1944 which is reproduced as under:
Total income is defined as the total amount of income, profits and gains referred to in sub- section (l) of section 4 of the Indian Income-tax Act, 1922 computed in the manner laid down in the Act. In the case of a non-resident, his foreign income is not included in his 'total income' which is to be computed subject to the provisions of section 24 of the Indian Income-tax Act, 1922. If the 'total income' is a loss, it has to be carried forward subject to the provisions of section 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 9 I.T.A. No. 795/Mum/2026 income'. Otherwise, a non-resident would not get any relief in Indian taxation on account of the loss incurred by him in India.
From the above, the Appellant submits that it is quite obvious that the income exempt under the provisions of DTAA has to be excluded at source itself before arriving at the gross total income and therefore, the loss of earlier years cannot be set off against the income which is exempt under the provisions of DTAA. Further, if the particular income is not to be taxed at all, the question of including the same under the total income and determining the taxability on the same will not arise.Accordingly, based on the rulings discussed above, it is up to the Appellant to decide whether to report the income earned in a particular year as per the provisions of the Act or the DTAA in the light of the applicable legal provisions and in light of the precise factual position.
7.4.4 Accordingly, based on the judicial precedents and the submissions made by the Appellant, the AO is directed to delete the set-off of capital loss against capital gains made in the assessment order and allow carry forward of entire losses without setting off against the gains of the current year claimed as exempt under the DTAA. Ground no. 2 is accordingly allowed."
Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before this Tribunal.
5. At the outset, it is submitted that the issue has been considered in a plethora of decisions of this Tribunal referred to hereinabove. The Ld. AR placed reliance on the view taken by the Ld. CIT(A).
5.1. On the contrary, the Ld. DR relied upon the order of the Ld. AO.
We have considered the submissions advanced by both sides and perused the material available on record.
6. Before analysing the ratio laid down in the judicial precedents, it is necessary to refer to Article 13 of the India-Netherlands DTAA, which reads as under:
10I.T.A. No. 795/Mum/2026 "Article 13 - Capital Gains 1. Gains derived by a resident of a Contracting State from the alienation of immovable property, as defined in Article 6, and situated in the other Contracting State, may be taxed in that other State. 2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State, or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such fixed base, may be taxed in that other State. 3. Gains from the alienation of ships or aircraft operated in international traffic, or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated. 4. Gains derived by a resident of a Contracting State from the alienation of shares (other than shares quoted on a recognised stock exchange) deriving their value principally from immovable property situated in the other Contracting State may be taxed in that other State. 5. Gains from the alienation of any property other than those referred to in paragraphs 1, 2, 3 and 4 shall be taxable only in the Contracting State of which the alienator is a resident."
7. Admittedly, the assessee is a resident of the Netherlands. There is no dispute that the STCG/LTCG earned by the assessee arises from the sale of securities in India. It is also not the case of the Revenue that such gains arise from shares deriving their value principally from immovable property situated in India. Therefore, paragraph 5 of Article 13 is applicable to the present case. As per paragraph 5, gains from the alienation of any property other than those referred to in paragraphs 1 to 4 shall be taxable only in the Contracting State of which the alienator is a resident. Thus, the capital gains earned by the assessee are not taxable in India in terms of the India-Netherlands DTAA. Insofar as the brought forward losses are concerned, since the gains are not chargeable to tax in India, such losses cannot be set off against exempt income. CBDT Circular No. 22 of 1944 dated 29/07/1944 supports this proposition:
"Total income is defined as the total amount of income, profits and gains referred to in sub- section (1) of section4 of the Indian Income-tax Act, 1922 computed in the manner laid down in the Act. In the case of a non-resident, his foreign income is not included in his 'total income' which is to be computed subject to the provisions of section 24 of the Indian Income-tax 11 I.T.A. No. 795/Mum/2026 Act, 1922. If the 'total income' is a loss, it has to be carried forward subject to the provisions of section 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'. Otherwise, a non-resident would not get any relief in Indian taxation on account of the loss incurred by him in India."
7.1. When Article 13 is read with Section 90(2) of the Act, capital gains are taxable in the country of residence of the alienator, and relief is available in India. The treaty is silent regarding the treatment of losses. In our view, what is not expressly provided in the treaty cannot be inferred, and such aspects may require renegotiation between the contracting states. We further refer to the decision of the coordinate bench of this Tribunal in the case of Metrix Partners India Investment Holdings, LLC vs. DCIT (2025) 173 taxmann.com 727, wherein, under similar circumstances in the context of the India-Mauritius DTAA, the Tribunal interpreted treaty provisions based on the Vienna Convention principles and allowed carry forward of losses.
8. Based on the above discussion, we find no merit in the grounds raised by the Revenue and uphold the order of the Ld. CIT(A). Accordingly, the grounds raised by the Revenue stand dismissed. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 30/03/2026
Sd/- Sd/-
(BIJAYANANDA PRUSETH) (BEENA PILLAI)
Accountant Member Judicial Member
12
I.T.A. No. 795/Mum/2026
Mumbai
Dated: 30/03/2026
SC Sr. P.S.
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.
//True Copy//
By order
(Asstt. Registrar)
ITAT, Mumbai