Goldman Sachs Investments (Mauritius) Ltd. v. Dy. CIT [ITA No. 2201/Mum/2017, dt. 24-9-2020] : 2020 TaxPub(DT) 3872 (Mum-Trib)

Income if excluded under DTAA would it cover losses as well thus question of allowability of carry forward losses of Capital gains there in

Facts:

Assessee a Foreign institutional investor (FII) based out of Mauritius had the following incomes during the assessment year 2013-14 --

Assessee claimed the exemption of Article 13 of Indo-Mauritius DTAA whereby capital gains can be taxed only in Mauritius for serial numbers (1) and (3) of the above table and claimed carry forward of the losses of the earlier years as under.

Their brought forward Capital losses of previous years was as under --

(a) It was the case of the revenue that when the incomes were not within the ambit of Article 13 of DTAA read with section 90(2) of Income Tax Act, 1961 then the losses would also not be in the scope of the Article 13 and thus there cannot be any carry forward of losses further also allowed as the income of the current year is added with the brought forward losses and it is only matter this the carry forward of further losses is to be done as per the act else section 45 becomes unworkable.

(b) On long-term capital losses assessee was allowed only after setting off (12.08) minus 5.63 and the balance was allowed to be carried forward as per the AO-DRP did not give any directions on this effect remaining silent on its verdict. A rectification request by assessee fell deaf before the DRP.

(c) As for short-term capital gains STT paid the assessee claimed exemption of DTAA which was negated and it was set off against the short-term b/f losses and then the net amount was allowed as carry forward for adjustment in future assessment years -- (39,26.36) minus 3,92.43 and the balance was allowed to be carried forward as per the assessing officer and upheld by the DRP.

Assessee's plea was --

1. The benefit under Article 13 of DTAA is applicable for income under capital gains and it cannot act as a barrier to claim carry forward of losses brought forward for short-term Capital losses and thus they be allowed to carry forward the entire short term capital losses of (39,26,36,70,910) to further assessment years.

2. The long-term Capital losses brought forward cannot be curtailed citing DTAA provisions thus they were eligible for the full carry forward of losses of (7,63,95,386) as well.

Aggrieved by the DRP order assessee went in higher appeal --

Held in favour of the assessee that they were entitled to the carry forward of the losses without offsetting the gains/losses of the current year as the provisions of the DTAA cannot be thrust upon on the assessee and the same cannot be given a unilateral reading denying assessee of the benefit of carry forward of losses.

Applied: Flagship Indian Investment Co. (Mauritius) Ltd. v. ACIT (2010) 133 TTJ 792 (Mum) : 2010 TaxPub(DT) 1710 (Mum-Trib)

"Now coming to the claim of the revenue that as section 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 assessing officer, 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 assessing officer while framing the assessment for assessment year 2012-13, vide his order passed under section 143(3), dated 19-3-2015, and had not arisen during the year under consideration, i.e., assessment year 2013-14. Accordingly, the claim of the assessing officer 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 actual position the provisions of the IT Act are beneficial to 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. Our aforesaid view is fortified by the order of the ITAT, Pune in DCIT v. Patni Computer Systems Ltd. (2008) 114 ITD 159 (Pune) : 2008 TaxPub(DT) 2400 (Pune-Trib). We thus in terms of our aforesaid observations, not being able to persuade ourselves to subscribe to the view taken by the A.O./DRP, who as noticed by us hereinabove had sought adjustment of the b/forward STCL against the exempt short term and long term capital gains earned by the assessee during the year in question, thus "set aside" the order of the assessing officer in context of the issue under consideration."