Gs Strategic Investments ... vs Acit, International Tax ... on 22 October, 2024
12. We shall first deal with the grievance of the assessee that as to
whether the A.O/DRP were right in law and the facts of the case, in
concluding, that the short term and long term capital gains earned by
the assessee from transfer of securities in India during the year under
consideration i.e A.Y. 2013-14, were to be adjusted against the STCL
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brought forward by the assessee from the earlier years, and thus,
only the balance amount of STCL was to be carried forward to the
subsequent years. At this stage, we may herein observe that the
assessee had claimed the short term and long term capital gains
arising in its hands from 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
the DRP is bereft of any reasoning and does not merit acceptance. 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 order of the
ITAT, Mumbai in the case of Flagship Indian Investment Company
(Mauritius) Ltd. (supra). In the case of the assessee before the
Tribunal that pertained to A.Y. 2005-06 the assessee had brought
forward capital loss of Rs. 87,06,49,335/- from transfer of securities
in A.Y. 2002-03. The aforesaid loss was determined in the hands of
the assessee vide an intimation under Sec. 143(1) for A.Y 2002-03.
Observing, that since the capital gains were not taxable in India as
per Article 13 of the Indian-Mauritius Tax Treaty, the A.O being of the
view that capital loss would also be exempted, and therefore, the
assessee would not be entitled to claim the benefit of carry forward of
such capital losses of the earlier years, thus, declined the set-off of
the same against the capital gains for the relevant assessment years.
On appeal, the CIT(A) upheld the order of the A.O. On further appeal,
the Tribunal concluded that the assessee was fully justified in claiming
the carry forward of the capital losses of the earlier years to the
subsequent years, and both the A.O and the CIT(A) were in error in
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Assessment Year 2021-22
not allowing the same. Accordingly, the A.O was directed to allow the
carry forward of the capital losses of the earlier years to the
subsequent years, according to law. As in the aforesaid case, in the
case of the present assessee before us, as the short term and long
term capital gains earned by the assessee from transfer of securities
during the year in question are admittedly exempt from tax under
Article 13 of the India-Mauritius tax treaty, therefore, the brought
forward STCL of the previous years was rightly carried forward by the
assessee to the subsequent years. As regards the reliance placed by
the ld. D.R on the observations of the lower authorities that as the
words "income" or "profits and gains" were to include losses also,
therefore, now when Sec. 45 of the Act, by virtue of the India-
Mauritius tax treaty 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 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.O 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
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him or that of the applicable DTAA. In any case, the tax treaty cannot
be thrust upon an assessee. 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.