UBS AG, MUMBAI V. ASST DIT (IT) 2(2), MUMBAI

CO 69/MUM/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0586 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-04-2015
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 19-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 02-04-2014
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Assessee Lawyers: A V SONDE
• Keywords: Capital asset; Business income; Double taxation relief; Permanent establishment; Advance ruling
• Section: 5(2); 234B; 43(5)

Judgement Text

. , , IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA NO. 1207 / MUM/20 1 3 ( / ASSESSMENT YEAR : 200 8 - 09 ) ADIT(IT) - 2(2), MUMBAI - 400038 VS. M/S UBS AG. LEVEL 3, 2 NORTH AVENUE MAKER MAXITY, BANDRA KURLA COMPLEX, BANDRA(E), MUMBAI - 400051 ./ ./ PAN/GIR NO. : A A ACU 5003 G ( / APPELLANT ) .. ( / RESPONDENT ) AND CROSS OBJECTION NO. 69 / MUM/20 1 4 (ARISING OUT OF ITA NO. 1207/MUM/201 3 ) ( / ASSESSMENT YEAR :2008 - 09 ) M/S UBS AG. LEVEL 3, 2 NORTH AVENUE MAKER MAXITY, BANDRA KURLA COMPLEX, BANDRA(E), MUMB AI - 400051 VS. ADIT(IT) - 2(2), MUMBAI - 400038 ./ ./ PAN/GIR NO. : A AACU 5003 G ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI S.D.SRIVASTAVA /ASSESSEE BY : SHRI A.V. SONDE / DATE OF HEARING : 19/01 /2015 / DATE OF PRONOUNCEMENT 17/04 /2015 / O R D E R PER R.C.SHARMA (A.M) : THE REVENUE HAS FILED AN APPEAL, WHEREAS THE ASSESSEE HAS FILED CROSS OBJECTION AGAINST THE ORDER OF CIT(A) DATED 12 - 11 - 2012 , FOR THE ITA NO. 1207/13 & CO NO. 69/2014 2 A.Y.200 8 - 09 IN THE MATTER OF ORDER PASSED U/S.14 4C(3) R.W.S.143 (3) OF THE I.T.ACT. 2. THE REVENUE IN ITS APPEAL HAS TAKEN FOLLOWING GROUNDS : - 1. 'ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT( A) ERRED IN HOLDING THAT THE APPELLANT DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA UNDER ARTICLE 5 OF THE DTAA BETWEEN INDIA AND SWITZERLAND ( THE TREATY).' 2. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN HOLDING THE GAIN ON TRANSFER OF DEBT SECURITIES AMOUNTING TO RS.18,86,80,359/ - IS ASSESSABLE AS CAPITAL GAIN AND NOT TAXABLE AS BUSINESS INCOME.' 3. ON THE FACT AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD CIT(A) WAS CORRECT IN HOLDING THAT WHEN DUTY IS CAST ON THE PAYER TO PAY TAX AT SOURCE, NO INTEREST U/S 234B AND 234C CAN BE IMPOSED ON THE PAYEE ASSESSEE IGNORING THE FACT THAT IT IS THE LIABILITY OF THE PAYEE TO PAY ADVANCE TAX EVEN ON THE AMOUNT ON WHICH NO TAX AT SOURCE HAD BEEN DEDUCTED UNDER SE CTION 195 OF THE INCOME TAX ACT, 1961.' 4. THE APPELLANT PRAYS THAT THE ORDER OF THE ID. CIT (APPEALS) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT T HE ASSESSEE IS A SWISS CO MPANY . THROUGH ITS HONGKONG BRANCH, DURING FINANCIAL YEAR 2007 - 08, THE ASSESSEE HAD ENTERED INTO AN UNDERWRITING AGREEMENT WITH HDFC BANK. LTD IN CONNECTION WITH AN ISSUE OF AMERICAN DEPOSITORY SHARES (' ADS'). THE ADS WE RE LISTED ON NEW YORK STOCK EXCHANGE AND THE ASSESSEE WAS APPOINTED AS ONE OF THE UNDERWRITERS TO THE ADS ISSUE. IN THIS CONNECTION, THE ASSESSEE EARNED AN UNDERWRITING FEE OF USD 4,000,000 (EQUIVALENT TO RS.158,080,000) FROM HDFC BANK LIMITED. THE AO HAS HELD THE SUM TO BE TAXABLE ON THE GROUND THAT THE APPELLANT HAS A PE IN INDIA. THE ASSESSEE ALONGWITH SIX OTHER COMPANIES ENTERED INTO UNDERWRITING AGREEMENT WITH HDFC BANK. ITA NO. 1207/13 & CO NO. 69/2014 3 LTD. ON 17TH JULY, 2007 FOR THE ISSUE OF CAPITAL BY HDFC BANK. IN USA. THE SCOPE O F THE AGREEMENT, AS PROVIDED IN ARTICLE 2, ARTICLE 3, ARTICLE 4 & ARTICLE 5 OF THE AGREEMENT, HAS BEEN REPRODUCED BY THE CIT(A) IN ITS ORDER AT PARA 3.1. 4. THE AO EXAMINED THE CASE LAWS INCLUDING IT AT, MUMBAI'S CASES I.E. RAYMOND LIMITED [86 LID 791], MAH INDRA AND MAHINDRA LTD. [122 TTJ 577], TATA IRON AND STEEL CO. [132 TTJ 566] AND GUJARAT AMBUJA CEMENTS LTD. [2 SOT 784]. THE AO SOUGHT THE DETAILS OF EMPLOYEES OF THE APPELLANT OR OTHER PERSONNEL DURING A.Y.2008 - 09 BUT THE SAME WAS NOT SUBMITTED ON THE GR OUND THAT SUCH DATABASE IS NOT MAINTAINED. THE APPELLANT HAS SUBMITTED BEFORE THE AO THAT M/S. UBS SECURITIES (INDIAN SUBSIDIARY OF THE APPELLANT) WAS ALSO WORKING FOR HDFC BANK MANDATE AND REMUNERATION OF US$ 0.73 MN WAS PAID TO M/S. UBS SECURITIES ON BEH ALF OF THE APPELLANT. HOWEVER, THE PAYMENT WAS MADE AT ARM'S LENGTH. THE AO APPLIED THE CLAUSE (1) OF ARTICLE 5(2) OF THE TREATY AND HAS HELD THAT EMPLOYEES OR OTHER PERSONNEL OF THE ENTERPRISE WERE PRESENT IN INDIA FOR MORE THAN 90 DAYS IN THE 12 MONTHS P ERIOD AND HENCE THE APPELLANT HAD A SERVICE PE DURING THE PERIOD AND SINCE THE DETAILS OF EMPLOYEES HAS NOT BEEN FURNISHED, IT HAS BEEN HELD AGAINST THE ASSESSEE REGARDING EXISTENCE OF PE. THE AO FURTHER NOTED THAT REPRESENTATIVE OFFICE OF ASSESSEE HAS BEE N UPGRADED TO BRANCH OFFICE ON 28.02.2007 AND THE ASSESSEE HAS FAILED TO SUBMIT A SINGLE EVIDENCE REGARDING WORK CARRIED OUT BY THE REPRESENTATIVE OFFICE. THEREFORE, THE AO HAS HELD THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE THAT THE REPRESENTATIVE OFFIC E WAS NOT CONNECTED TO THE ITA NO. 1207/13 & CO NO. 69/2014 4 ACTIVITIES OF THE ASSESSEE AND ROLE OF THE REPRESENTATIVE OFFICE HAS NOT BEEN ESTABLISHED AND SINCE IT WAS UPGRADED TO BRANCH OFFICE ON 28 - 2 - 2007, IT CONSTITUTED A FIXED BASE PE OF THE ASSESSEE. THE AO FURTHER HELD THAT THE ASSES SEE COMPANY HAS A PERMANENT ESTABLISHMENT IN INDIA SINCE THE ASSESSEE COMPANY HAS FAILED TO FURNISH THE DETAILS OF EMPLOYEES IN INDIA WHO HAVE RENDERED SERVICES IN CONNECTION WITH ADS ISSUE. THE A O HAS HELD THAT THE ASSESSEE COMPANY HAS A SERVICE PE IN IND IA AS PER CLAUSE (1) OF ARTICLE 5(2) OF THE TREATY. THE A O HAS FURTHER NOTED THAT THE ASSESSEE COMPANY HAS REPRESENTATIVE OFFICE IN INDIA SINCE 24.11.1994 AND REPRESENTATIVE OFFICE WAS UPGRADED TO BRANCH OFFICE ON 28.02.2007 AND ASSESSEE COMPANY DID NOT FI LE ANY SUPPORTING DOCUMENTS REGARDING ACTIVITIES OF REPRESENTATIVE OFFICE. THEREFORE, THE A O HAS HELD THAT THE ASSESSEE COMPANY HAS A FIXED PLACE PE ALSO IN INDIA AND, HENCE, THE GROSS RECEIPT ON UNDERWRITING THE ADS ISSUE IS TAXABLE AS BUSINESS INCOME IN INDIA AS WELL. 5. BY THE IMPUGNED ORDER THE CIT(A) ALLOWED THE GROUND NO.1 AFTER HAVING FOLLOWING OBSERVATIONS : - 3.26 FROM THE EXAMINATION OF THE JUDGEMENT OF IT AT, MUMBAI IN CASE OF RAYMOND LIMITED (SUPRA), IT IS EVIDENT THAT UNDERWRITING SERVICES ARE M ANAGERIAL OR CONSULTANCY SERVICES AS DEFINED IN THE TREATY AS WELL AS IN THE ACT. FURTHER, FROM THE LANGUAGE OF SUB - CLAUSE (1) OF ARTICLE 5 OF THE TREATY, IT IS EVIDENT THAT THE SAID CLAUSE IS APPLICABLE ONLY IF THE SERVICES RENDERED ARE NOT COVERED UNDER ARTICLE 12 OF THE TREATY. MEANING THEREBY THE ISSUE OF DETERMINATION OF SERVICE PE IS NOT RELEVANT IN CASE THE SERVICE CHARGES RECEIVED IS TAXABLE UNDER ARTICLE 12 OF THE TREATY. 3.27 THEREFORE, IT IS ALREADY HELD THAT THE APPELLANT DOES NOT HAVE A FIXED BASED PE IN INDIA IN A.Y.2008 - 09. IT IS ALREADY HELD THAT UNDERWRITING COMMISSION OF RS.15,80,80,000/ - IS TAXABLE AS FTS UNDER ARTICLE 12 OF THE TREATY. THEREFORE, IT IS NOT RELEVANT TO DECIDE WHETHER IT HAS A PE UNDER ARTICLE 5(2)(1) OF THE TREATY, SINCE ITA NO. 1207/13 & CO NO. 69/2014 5 UNDERWRITING FEES CANNOT BE TAXED UNDER ARTICLE 7 READ WITH ARTICLE 5(2)(1) OF THE TREATY SINCE IT IS HELD TO BE TAXABLE UNDER ARTICLE 12. HENCE, THE AO IS DIRECTED TO TAX THE UNDERWRITING COMMISSION ON GROSS BASIS AS PER ARTICLE 12 OF THE TREATY AND U/S 9(1) (VII) OF THE ACT AS FTS. THUS, 1 ST GROUND OF APPEAL IS ALLOWED AND 2ND GROUND OF APPEAL IS PARTLY ALLOWED . IN GROUND NO.2, THE REVENUE HAS RAISED THE GRIEVANCE IN REGARD TO HOLDING THE GAIN ON TRANSFER OF DEBT SECURITIES AMOUNTING TO RS.18,86,80,3 59/ - IS ASSESSABLE AS CAPITAL GAIN AND NOT TAXABLE AS BUSINESS INCOME. THE CIT(A) AFTER RECORDING A DETAILED FINDING AND RELYING VARIOUS JUDICIAL PRONOUNCEMENTS ALLOWED THIS GROUND AFTER HAVING THE FOLLOWING OBSERVATIONS : - 4.1 DURING THE YEAR UNDER CONSI DERATION, THE APPELLANT HAD EARNED GAINS FROM TRANSFER OF INDIAN DEBT SECURITIES AND SHARES OF RS. 188,680,359, WHICH THE APPELLANT VIDE ITS RETURN OF INCOME OFFERED TO TAX AS 'CAPITAL GAINS'. DURING THE FINANCIAL YEAR 2007 - 2008, THE APPELLANT HAD 28 PURCH ASE TRANSACTIONS AND 15 SALE TRANSACTIONS IN INDIAN SECURITIES. DETAILS OF ALL TRANSACTIONS IN DEBT SECURITIES RESULTING INTO INCOME OF RS.18,86,80,359/ - HAS BEEN FURNISHED. THE ASSESSING OFFICER HELD THAT GAINS FROM SECURITIES SHOULD BE CHARACTERIZED AS ' BUSINESS INCOME' IN HAND OF THE APPELLANT SINCE IT IS DEALING IN SECURITIES REGULARLY FOR THE LAST SEVERAL YEARS IN INDIA, THERE EXISTS HIGH FREQUENCY OF TRANSACTIONS, THERE IS A SYSTEMATIC AND REGULAR TRADING ACTIVITY BEING DONE WITH THE INTENTION OF EARN ING PROFITS AND THE SCALE OF ACTIVITY OF THE APPELLANT IS SUBSTANTIAL AND TRANSACTIONS ARE ENTERED CONTINUOUSLY AND REGULARLY. FOR THE ABOVE REASONS, THE ASSESSING OFFICER HELD THAT THE GAINS ON TRANSFER OF DEBT SECURITIES ARE TAXABLE UNDER ARTICLE 7 (BUSI NESS INCOME) AND NOT COVERED BY ARTICLE 13 (CAPITAL GAINS). 4.2 DURING APPEAL, THE APPELLANT HAS SUBMITTED THAT IT HAD OFFERED TO TAX THE GAINS FROM TRANSFER OF INDIAN DEBT SECURITIES AS 'CAPITAL GAINS' SINCE THE BEGINNING OF ITS ACTIVITIES IN INDIA AS F IT AND CLAIMED THE SAME AS EXEMPT UNDER ARTICLE 13(6) OF THE DTAA. THE APPELLANT SUBMITTED THAT ABOVE POSITION WAS ACCEPTED BY THE DEPARTMENT IN ALL THE EARLIER YEARS. IT IS SUBMITTED THAT FOR ASSESSMENT YEAR 2001 - 02 AND ASSESSMENT YEAR 2002 - 03, THE ASSESS ING OFFICER HAD SOUGHT TO TAX THE GAIN ON DEBT SECURITIES AS 'INTEREST INCOME' UNDER ARTICLE 11 OF THE DT AA. HOWEVER, THE COMMISSIONER OF INCOME - TAX (APPEALS) AND THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI BOTH DECIDED THE MATTER IN FAVOUR OF THE APPELLANT AND HELD THAT THE GAINS FROM TRANSFER OF DEBT SECURITIES OUGHT TO BE TAXED UNDER ARTICLE 13 OF THE DTAA DEALING WITH CAPITAL ITA NO. 1207/13 & CO NO. 69/2014 6 GAINS. FURTHER, THE TAX DEPARTMENT HAS NOT APPEALED BEFORE THE HIGH COURT AGAINST THE ORDER OF THE HON'BLE ITAT AND ACCORDINGLY, T HE ASSESSMENTS HAVE ATTAINED FINALITY. COPIES OF CIT(A) AND IT AT ORDERS HAVE BEEN FILED. 4.3 FURTHER, THE APPELLANT ALSO SUBMITTED THAT THERE IS NO CHANGE IN THE FACTS OF THE. APPELLANT IN THE YEAR UNDER CONSIDERATION AND THUS, THE GAINS FROM TRANSFER O F DEBT SECURITIES OUGHT TO BE CHARACTERIZED AS CAPITAL GAINS. IT IS HIGHLIGHTED THAT EVEN THE ASSESSING OFFICER HAD NOT HIGHLIGHTED ANY CHANGE IN FACTS .OF THE APPELLANT IN THE IMPUGNED ASSESSMENT ORDER AND MERELY HELD THAT THE GAINS FROM TRANSFER OF DEBT SECURITIES SHOULD BE ASSESSED AS 'BUSINESS INCOME'. THE APPELLANT SUBMITTED THAT THE STAND ADOPTED BY THE ASSESSING OFFICER IS NOT CONSISTENT AND THEREFORE , BAD IN LAW. OTHERWISE ALSO ORDER OF ITAT IN EARLIER YEARS IS A BINDING PRECEDENT. 4.4 IN SUPPORT OF THE ABOVE, THE APPELLANT HAD DRAWN ATTENTION TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT {193 ITR 321 (1992) (SC)} WHEREIN IT WAS OBSERVED THAT WHERE FUNDAMENTAL ASPECT PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY OR THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN SUBSEQUENT YEAR. 4.5 THE APPELLANT ALSO SUBMITTED THAT THE CHARACTERIZATION OF INCOME ON SALE OF DEBT SECURITIES AS CAPITAL GAINS IS WITHIN THE LEGAL FRAMEWORK GOVERNING F I I. VARIOUS LEGAL PROVISIONS UNDER VARIOUS ACTS. AND REGULATIONS, PRESS N OTES ETC WHICH WERE RELIED AND SUBMITTED BY THE APPELLANT ARE AS FO LLOWS: SPECIAL PROVISION IN THE IT ACT UNDER SECTION 115 AD FOR TAXING INCOME OF F I IS IN RESPECT OF TRANSFER OF SECURITIES BY WAY OF LONG TERM CAPITAL GAINS OR SHORT TERM CAPITAL GAINS PRESS NOTE DATED 14 SEPTEMBER 1992 BY DEPARTMENT OF ECONOMIC AF FAIRS (INVESTMENT DIVISION), MINISTRY OF FINANCE FOR GUIDELINES ISSUED FOR FIIS TO MAKE INVESTMENTS IN INDIA. EXTRACTS FROM THE SEBI (FOREIGN INSTITUTIONAL INVESTOR) REGULATIONS, 1995 SUBJECT TO WHICH A FII IS ALLOWED TO MAKE INVESTMENTS IN INDIA. 4 .6 THE APPELLANT ALSO RELIED ON THE DECISIONS OF AUTHORITY FOR ADVANCE RULING IN THE CASE OF FIDELITY NORTHSTAR FUND, IN RE. AND OTHERS {288 ITR 641 (2007) (AAR)} AND HON'BLE MUMBAI TRIBUNAL IN THE CASE OF LG ASIAN PLUS LTD. V. ADIT TII - 85 - - ITAT - MUM - INTL (2011)} IN WHICH IT HAS BEEN HELD THAT GAINS FROM TRANSFER OF SECURITIES IS TAXABLE AS CAPITAL GAINS FOR A FII. 4.7 THE APPELLANT ALSO SUBMITTED THAT IT IS AN FII REGISTERED WITH SEBI FOR THE PURPOSE OF MAKING INVESTMENTS IN INDIAN SECURITIES. ITA NO. 1207/13 & CO NO. 69/2014 7 4.8 BASED ON HON'BLE MUMBAI TRIBUNAL'S ORDER IN CASE OF LG ASIAN (SUPRA), GAINS ON SALE OF DEBT SECURITIES, SHOULD ALSO BE CHARACTERIZED AS CAPITAL GAINS. THIS ALSO DERIVES SUPPORT FROM THE FACT THAT THE APPELLANT HAS CHARACTERIZED GAINS FROM TRANSFER OF INDIAN SEC URITIES AS 'CAPITAL GAINS' SINCE THE BEGINNING OF ITS FII ACTIVITIES IN INDIA AND CLAIMED THE SAME AS EXEMPT UNDER ARTICLE 13(6) OF THE DTAA.' 4.9 IN SUPPORT, THE AR HAS ALSO FILED ORDER OF CIT(A) IN ITS OWN CASE FOR A.Y.2001 - 02 WHEREIN THE ISSUE INVOLVE D IS TAXING THE GAINS ARISING ON SALE OF GOVERNMENT SECURITIES AMOUNTING TO RS.47,343,249/ - AND THE CIT(A), VIDE ORDER NO. CIT(A) XXXI/ADIT(IT) 2(2)/IT - 341/03 - 04/ 04 - 05 DATED 04.11.2004 HAS HELD AS UNDER: '4.8 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE CONTENTIONS OF BOTH THE ASSESSING OFFICER AND THE APPELLANT. I SEE SUBSTANTIAL MERIT IN THE APPELLANT'S ARGUMENT THAT CAPITAL GAINS DERIVED BY THE APPELLANT FROM TRANSFER OF GOVERNMENT SECURITIES SHOULD NOT BE TAXED AS 'INTEREST' UNDER ARTICL E 11 OF THE TREATY BUT SHOULD BE EXEMPTED FROM TAX UNDER ARTICLE 13(6) OF THE TREATY. UNDER THE GENERAL PRINCIPLES OF TAXATION, CAPITAL GAINS ON ALLENATION OF A CAPITAL ASSET SHOULD BE TAXED ONLY UNDER THE ARTICLE RELATING TO 'CAPITAL GAINS' AND NOT UNDER THE ARTICLE RELATING TO 'INTEREST'. THE EXPRESSION 'INCOME FROM GOVERNMENT SECURITIES' IN THE DEFINITION OF THE TERM 'INTEREST' CANNOT BE INTERPRETED TO INCLUDE CAPITAL GAINS, BY APPLYING ARTICLE 3(2), SINCE THIS WOULD RESULT INTO ABSURDITY. SUCH INTERPRET ATION WOULD MAKE ARTICLE 13 RELATING TO CAPITAL GAINS REDUNDANT. THE UN AND OECD MODEL COMMENTARIES CLEARLY STATE THAT CAPITAL GAINS SHOULD NOT BE TAXED UNDER THE ARTICLE RELATING TO INTEREST BUT UNDER ARTICLE RELATING TO CAPITAL GAINS. EVEN CERTAIN PROVIS IONS OF THE ACT SUGGEST THAT THE TERM INCOME DOES NOT ALWAYS INCLUDE CAPITAL GAINS AND IN EACH CASE INTERPRETATION SHOULD BE BASED ON THE RELEVANT CONTEXT. THE DELHI TRIBUNAL JUDGEMENT IN THE CASE OF SMT. TRISHLA J AIN VS. DCIT, WHICH HAS BEEN EXTENSIVELY R ELIED UPON BY THE LEARNED ASSESSING OFFICER HAS BEEN DISSENTED BY THE MUMBAI RIBUNAL (WHICH IS THE JURISDICTIONAL TRIBUNAL) IN THE CASE OF SUNDERDAS HARIDAS VS. ACIT (SUPRA). ACCORDINGLY, I HOLD THAT THE TERM 'INCOME FROM GOVERNMENT SECURITIES' UNDER ARTIC LE 11(5) OF THE TREATY DOES NOT INCLUDE 'CAPITAL GAINS ON TRANSFER OF GOVERNMENT SECURITIES'. TAXABILITY OF CAPITAL GAINS ON SALE OF GOVERNMENT SECURITIES WOULD BE GOVERNED BY ARTICLE 13 OF THE TREATY. ARTICLES 13(1) TO 13(5) OF THE TREATY DEAL WITH TAXABI LITY OF CAPITAL GAINS ON TRANSFER OF SPECIFIED PROPERTIES, WHICH DO NOT COVER GOVERNMENT SECURITIES. ACCORDING TO ARTICLE 13(6) OF THE TREATY, GAINS FROM ALLENATION OF ANY PROPERTY OTHER THAN THAT REFERRED TO IN ARTICLES 13(1) TO 13(5) SHALL BE TAXABLE ONL Y IN THE CONTRACTING STATE OF WHICH ALLENAIOR IS RESIDENT. THEREFORE, I HOLD THAT APPELLANT'S INCOME BY WAY OF CAPITAL GAINS ON ITA NO. 1207/13 & CO NO. 69/2014 8 TRANSFER OF GOVERNMENT SECURITIES WOULD BE EXEMPT FOR TAX IN INDIA UNDER ARTICLE 13(6) OF THE TREATY. 4.10 SUBSEQUENTLY, THIS ORDER OF CIT(A) HAS BEEN UPHELD BY ITAT, MUMBAI IN ITA NO. 960/MUM/2005, DATED 31.10.2006. THEREFORE, FOLLOWING THE ABOVE ORDER OF CIT(A) TOGETHER WITH THAT OF ITAT, IT IS. HEREBY HELD THAT THE GAIN RESULTING FROM TRANSACTIONS IN DEBT SECURITIES IS ASSESS ABLE AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. THIS GROUND IS ALLOWED. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FOUND THAT THE CIT(A) HAS DISTINGUISHED THE CASE LAW CITED BY THE LD. AR ON THE BASIS OF WHICH IT IS HELD THAT SA LE OF DEBT SECURITIES, SHOULD ALSO BE CHARACTERIZED AS CAPITAL GAINS. THE ASSESSEE HAS CHARACTERIZED THE GAIN FROM TRANSFER OF INDIAN SECURITIES AS CAPITAL GAINS SINCE THE BEGINNING OF ITS FII ACTIVITIES IN INDIA AND CLAIMED THE SAME AS EXEMPT UNDER ARTICL E 13(6) OF THE DTAA. WE HAVE GONE THROUGH THE ORDER OF THE LOWER AUTHORITIES AS WELL AS THE ORDER OF THE TRIBUNAL IN THE CASE OF LG ASIAN PLUS LTD., 140 TTJ 668. WE HAVE ALSO GONE THROUGH THE ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL PLACED BY THE LD. AR ON RECORD, WHEREIN THE TRIBUNAL RELYING ON THE DECISION IN THE CASE OF LG ASIAN PLUS LTD. (SUPRA) HAS DECIDED THE VERY SAME ISSUE WHILE DECIDING THE CASE OF PLATINUM INVESTMENT MANAGEMENT LTD., ITA NO.3598/MUM/2010, DATED 5 - 12 - 2012 AND HELD AS UNDER : - 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AS WELL AS RELEVANT MATERIAL ON RECORD. AS REGARDS THE OBSERVATION OF THE ASSESSING OFFICER THAT THE DERIVATIVE WERE SOLD ON SAME DAY, WE FIND THAT THERE IS A FACTUAL ERROR ON THIS POINT BECAUSE THE DERIVATIVE WERE SETTLED/CLOSED ON VARIOUS DATES, EITHER BY SUBSEQUENT PURCHASES OR ON THE EXPIRY OF PERIOD WITHIN THE MONTH. THIS FACT IS CLEAR FROM THE DETAILS OF PAGE NOS.49 AND 65 - 69 OF PAPER BOOK. ON THE ISSUE OF CAPITAL GAIN OR BUSINESS INCOME, WE NOT E THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF LG ASIAN PLUS LTD. (SUPRA), ONE OF US THE JUDICIAL MEMBER IS PARTY TO THE DECISION. THOUGH THE RULING OF THE ITA NO. 1207/13 & CO NO. 69/2014 9 AUTHORITY FOR ADVANCE RULING HAS A PERSUASIVE VALUE, HOWEVER, WHEN A DIRECT DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IS ON THE IDENTICAL ISSUE THEN AS PER THE RULE OF UNIFORMITY, THE SAME IS BINDING ON US IN THE ABSENCE OF ANY CONTRARY DECISION OF TRIBUNAL OR THE HIGH COURT. THE COORDINATE B ENCH OF THIS TRIBUNAL HAS CONSIDERED AND DECIDED THE ISSUE AFTER A DETAIL AND ELABORATE DISCUSSION OF THE RELEVANT PROVISIONS AND ASPECT RELATING TO THE TRANSACTIONS OF DERIVATIVES BY FII. THE RELEVANT CONCLUDING PART OF THE ORDER FROM PARA 8.12 TO 11 IS A S UNDER : - 8.11. FROM THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, IT IS PALPABLE THAT THE FOREIGN INSTITUTIONAL INVESTORS SHALL BE ALLOWED TO INVEST IN THE COUNTR YS CAPITAL MARKET. INCOME IN RESPECT OF SECURITIES AND INCOME FROM TRANSFER OF SECURITIES HAS BEEN MADE THE SUBJECT MATTER OF SEC. 115AD. AS PER THIS PROVISION, THE INCOME ARISING FROM THE TRANSFER OF SUCH SECURITIES IS TO BE CONSIDERED AS SHORT - TERM OR L ONG - TERM CAPITAL GAIN . 8.12. THUS, ON A CLOSE SCRUTINY OF THE SEBI (FII) REGULATIONS, 1995 TOGETHER WITH SECTION 115AD SEEN IN THE LIGHT OF THE MEMORANDUM EXPLAINING THIS PROVISIONS OF THE FINANCE BILL, 1993, IT IS VISIBLE THAT A FII IS ALLOWED TO INVEST ONLY IN THE `SECURITIES AND FURTHER THE INCOME FROM SECURITIES, EITHER FROM THEIR RETENTION OR FROM THEIR TRANSFER, IS TO BE TAXED AS PER THIS SECTION ALONE. COMING TO INCOME ARISING FROM THE TRANSFER OF SECURITIES, IT HAS BEEN PROVIDED IN SECTION 115AD T HAT IT SHALL BE CHARGED AS SHORT - TERM OR LONG - TERM CAPITAL GAIN, WHICH DEPENDS UPON THE PERIOD OF HOLDING OF SUCH SECURITIES. A FII IS NOT ALLOWED BY THE CENTRAL GOVERNMENT TO DO `BUSINESS IN THE `SECURITIES. ONCE IT IS NOTICED THAT A FII CAN ONLY `INVES T IN `SECURITIES AND TAX ON THE INCOME FROM THE TRANSFER OF SUCH SECURITIES IS COVERED BY A SPECIAL PROVISION CONTAINED IN SECTION 115AD, THE NATURAL COROLLARY WHICH FOLLOWS IS THAT TAX SHOULD BE CHARGED ON INCOME ARISING FROM TRANSFER OF SUCH SECURITIES AS PER THE PRESCRIPTION OF THIS SECTION ALONE, WHICH REFERS TO INCOME BY WAY OF SHORT TERM OR LONG TERM CAPITAL GAINS. 8.13. THE LD. D.R. HAS RELIED ON SUB - SECTION (2) OF SEC. 115AD FOR CONTENDING THAT THE EXISTENCE OF `BUSINESS INCOME FROM DEALING IN SECURITIES IS ALSO ENVISAGED. WE FIND THAT SUB - SEC. (2) OF SEC. 115AD HAS TWO CLAUSES. CLAUSE (A) PROVIDES THAT WHERE THE GROSS TOTAL INCOME OF A FII CONSISTS ONLY OF INCOME IN RESPECT OF SECURITY REFERRED TO IN CLAUSE (A) OF SUB - SEC. (1) (I.E. INCOME RECE IVED IN RESPECT OF SECURITIES, OTHERWISE THAN FROM THEIR TRANSFER ), THEN NO DEDUCTION SHALL BE ALLOWED TO IT UNDER SECTIONS 28 TO 44C OR SECTION 57 OR CHAPTER VI - A OF THE ACT. IT IS BUT NATURAL THAT WHEN A LOWER RATE OF TAX HAS BEEN PROVIDED IN RESPECT OF INCOME EARNED BY A FII FROM SECURITIES, THEN THAT RATE OF TAX IS FINAL AND THE ASSESSEE CANNOT CLAIM DOUBLE BENEFIT, FIRSTLY BY BEING TAXED AT LOWER RATE AND SECONDLY BY CLAIMING NORMAL DEDUCTIONS ETC. AGAINST THIS INCOME. AS SEC. ITA NO. 1207/13 & CO NO. 69/2014 10 115AD(2)(A) REFERS TO IN COME RECEIVED IN RESPECT OF SECURITIES AND NOT FROM THEIR TRANSFER, THE SAME WOULD HAVE NO APPLICATION TO THE INSTANT CASE. ACCORDING TO CLAUSE (B) OF SUB - SEC. (2) OF SEC. 115AD, WHERE THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN CLAUSE (A) OR CLAUSE (B) OF SUB - SEC. (1) (I.E. INCOME RECEIVED IN RESPECT OF SECURITIES BY EITHER RETAINING THEM OR FROM THEIR TRANSFER), THEN THE GROSS TOTAL INCOME SHALL BE REDUCED BY THE AMOUNT OF SUCH INCOME AND THE DEDUCTION UNDER CHAPTER VI - A SHALL BE ALLOWED AS IF THE GROSS TOTAL INCOME SO REDUCED IS THE GROSS TOTAL INCOME OF THE FII. A PLAIN READING OF SUB - SEC. (2) MAKES IT MANIFEST THAT THE GROSS TOTAL INCOME OF A FII MAY INCLUDE INCOME OTHER THAN THAT RECEIVED IN RESPECT OF SECURITIES OR FROM THE TRANSFER OF S UCH SECURITIES. THE EMPHASIS OF THE LD. DR IS ON THIS PART OF THE PROVISION TO BRING HOME THE POINT THAT A FII MAY ALSO HAVE `BUSINESS INCOME ARISING FROM THE TRANSFER OF SECURITIES. THE ARGUMENT IS THAT A FII MAY HAVE INCOME FROM SECURITIES AS FALLING UN DER THE HEAD `CAPITAL GAINS, WHICH IS COVERED UNDER SECTION 115AD(1)(B) AND ALSO BUSINESS INCOME, AS COMES OUT FROM SEC. 115AD(2)(B). THIS ARGUMENT THOUGH LOOKS ATTRACTIVE AT FIRST FLUSH, BUT DOES NOT STAND SCRUTINY IN DEPTH. THE RATIONALE BEHIND SECTION 115AD(2)(B) IS THAT THE INCOME OF A FII, OTHER THAN THAT ARISING FROM THE HOLDING OR TRANSFER OF SECURITIES, SHOULD FIND ITS PLACE IN THE TOTAL INCOME AND THE DEDUCTIONS UNDER CHAPTER VI - A BE ALLOWED BY CONSIDERING GROSS TOTAL INCOME NET OF INCOME RECEIVED IN RESPECT OF SECURITIES OR ARISING FROM THE TRANSFER OF SUCH SECURITIES. IT IS QUITE POSSIBLE THAT A FII MAY DEPOSIT ITS SURPLUS FUNDS IN BANKS RESULTING INTO INTEREST INCOME. SUCH INTEREST INCOME, WHICH SHALL NOT FALL UNDER SUB - SEC. (1) OF SEC. 115AD, S HALL CONSTITUTE PART OF THE GROSS TOTAL INCOME. IT IS A SIMPLE AND PLAIN INTERPRETATION OF SUB - SECTIONS (1) AND (2) OF SEC. 115AD. WE WANT TO MAKE IT CLEAR THAT THE QUESTION BEFORE US IS NOT TO DETERMINE WHETHER A FII CAN HAVE ANY BUSINESS INCOME OR NOT. W E ARE CONFINED TO DETERMINING WHETHER THE INCOME FROM THE TRANSFER OF SECURITIES WOULD FALL UNDER SUB - SECTION (1) OR (2). IF IT IS PRESUMED AS A HYPOTHETICAL CASE THAT A FII MAY ALSO HAVE ANY BUSINESS ACTIVITY, WHETHER LEGAL OR ILLEGAL, THEN THE INCOME FRO M SUCH ACTIVITY SHALL BE CONSIDERED AS `BUSINESS INCOME COVERED UNDER SUBSECTION (2)(B). THE ONLY EMBARGO AGAINST THE ABOVE PRESUMPTION IS THAT THE BUSINESS SHOULD NOT BE THAT OF DEALING IN `SECURITIES. ONCE THERE IS A SPECIAL PROVISION SLICING AWAY THE INCOME TO A FII FROM THE TRANSFER OF `SECURITIES FROM THE OTHER INCOME, IT HAS TO FIND ITS HOME ONLY UNDER SUB - SECTION (1)(B), IRRESPECTIVE OF THE FACT THAT THE SECURITIES ARE VIEWED AS `INVESTMENT OR `STOCK IN TRADE. IF THE REVENUE VENTURES TO MAKE A D ISTINCTION BETWEEN SUCH SECURITIES AS CONSTITUTING CAPITAL ASSET OR STOCK IN TRADE, WHICH IS NOT CONTEMPLATED BY THE CENTRAL GOVERNMENT AS IS EVIDENT FROM SEBI(FII) REGULATIONS AND THE DEFINITION OF FII IN EXPLANATION (A) TO SEC. 115AD, THEN THIS PROVISION WILL BECOME OTIOSE. IN OUR CONSIDERED OPINION IF A FII RECEIVES ANY INCOME IN RESPECT OF SECURITIES OR FROM THE ITA NO. 1207/13 & CO NO. 69/2014 11 TRANSFER OF SUCH SECURITIES, THE SAME CAN BE CONSIDERED UNDER SUB - SEC. (1) ALONE AND SUB - SEC. (2)(B) CANNOT BE INVOKED TO CONSTRUE IT AS `BUSIN ESS INCOME . 8.14. THE POSITION HAS BEEN CLARIFIED BY WAY OF A PRESS NOTE : F NO. 5(13)SE/91 - FIV DATED 24.03.1994 ISSUED BY THE MINISTRY OF FINANCE, DEPARTMENT OF ECONOMIC AFFAIRS (INVESTMENT DIVISION) , NEW DELHI, THE RELEVANT PART OF WHICH IS AS UNDER : THE TAXATION OF INCOME OF FOREIGN INSTITUTIONAL INVESTORS FROM SECURITIES OR CAPITAL GAINS ARISING FROM THEIR TRANSFER, FOR THE PRESENT, SHALL BE AS UNDER: - (I) THE INCOME RECEIVED IN RESPECT OF SECURITIES (OTHER THAN UNITS OF OFF - SHORE FUNDS COVERED B Y SECTION 115AB OF THE INCOME - TAX ACT) IS TO BE TAXED AT THE RATE OF 20%; (II) INCOME BY WAY LONG - TERM CAPITAL GAINS ARISING FROM THE TRANSFER OF THE SAID SECURITIES IS TO BE TAXED AT THE RATE OF 10%; (III) INCOME BY WAY OF SHORT - TERM CAPITAL GAINS ARISING FROM THE TRANSFER OF THE SAID SECURITIES IS TO BE TAXED AT THE RATE OF 30%; (IV) THE RATES OF INCOME - TAX AS AFORESAID WILL APPLY ON THE GROSS INCOME SPECIFIED ABOVE WITHOUT ALLOWING FOR ANY DEDUCTION UNDER SECTIONS 28 TO 44C, 57 AND CHAPTER VI - A OF THE IN COMETAX ACT. 2. THE EXPRESSION FOREIGN INSTITUTIONAL INVESTOR HAS BEEN DEFINED IN SECTION 115AD OF THE INCOMETAX ACT TO MEAN SUCH INVESTORS AS THE CENTRAL GOVERNMENT MAY, BY NOTIFICATION IN THE OFFICIAL GAZETTE, SPECIFY IN THIS BEHALF. THE FIIS AS ARE RE GISTERED WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA WILL BE AUTOMATICALLY NOTIFIED BY THE CENTRAL GOVERNMENT FOR THE PURPOSE OF SECTION 115AD. 8.15. FROM THE ABOVE PRESS NOTE, IT IS ABUNDANTLY CLEAR THAT FIIS HAVE BEEN CONSIDERED AS INVESTORS (AN D NOT AS TRADERS). SECONDL Y, INCOME FROM TRANSFER OF SECURITIES HAS BEEN VIEWED AS CHARGEABLE TO TAX UNDER THE HEAD `CAPITAL GAINS AS LONG - TERM OR SHORT - TERM CAPITAL GAIN DEPENDING UPON THE PERIOD FOR WHICH SUCH SECURITIES ARE HELD. 8.16. IN VIEW OF THE ABOVE DISCUSSION, IT IS O UT - AND - OUT THAT INCOME ARISING TO A FII FROM THE TRANSFER OF `SECURITIES AS SPECIFIED IN EXPLANATION (B) TO SEC. 115AD CAN ONLY BE CONSIDERED AS SHORT - TERM OR LONG - TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME. AS THE `DERIVATIVES HAVE BEEN INCLUDED IN THE DEFINITION OF SECURITIES FOR THE PURPOSES OF THIS SECTION, THE INCOME FROM DERIVATIVES SHALL ALSO BE CONSIDERED AS SHORT - TERM OR LONG - TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. IF THE VIEWPOINT OF THE DEPARTMENT, TO THE EFFECT THAT INCOM E FROM TRANSFER OF SHARES OR DEBENTURES ETC. SHOULD BE CONSIDERED AS SHORT - TERM OR LONG - TERM CAPITAL GAIN (AS HAS BEEN ACCEPTED BY THE AO IN THE INSTANT CASE) BUT THAT FROM DERIVATIVES SHOULD BE CONSIDERED AS `BUSINESS INCOME (SPECULATION BUSINESS), THEN IT WOULD MEAN CONSIDERING SHARES AND DEBENTURE ETC. AS DISTINCT FROM DERIVATIVES. MOREOVER THERE IS NOTHING ON RECORD TO DEMONSTRATE THAT THE ASSESSEE WAS VISITED WITH ANY CONSEQUENCES AS PER REGULATION 7A FOR VIOLATION OF REGULATIONS ITA NO. 1207/13 & CO NO. 69/2014 12 15 OR 16. IT SHOWS TH AT THE REGULATIONS HAVE BEEN CONSCIENTIOUSLY FOLLOWED BY THE ASSESSEE AS PER WHICH IT SIMPLY MADE ONLY INVESTMENT IN SECURITIES AND THERE IS NOTHING OF THE SORT OF TRADING. ALTHOUGH IN COMMON PARLANCE, THE SHARES OR DEBENTURES ETC. ARE DISTINCT FROM DERIVA TIVES, AND THEIR TAXATION MAY ALSO DIFFER IN THE CASE OF NON - FIIS, BUT SUCH DISTINCTION IS OBLITERATED IN THE CONTEXT OF FIIS DUE TO THE INCLUSION OF BOTH SHARES AND DEBENTURES ETC. ON ONE HAND AND DERIVATIVES ON THE OTHER, IN THE DEFINITION OF SECURITIES FOR THE PURPOSE OF SEC. 115AD AND SUBSECTION (1) PROVIDING FOR THE INCOME FROM THEIR TRANSFER TO BE CONSIDERED AS LONG TERM OR SHORT TERM CAPITAL GAIN. 8.17. IT IS NOTICED THAT SEC. 115AD FALLS IN CHAPTER XII WHICH DEALS WITH THE DETERMINATION OF TAX I N CERTAIN SPECIAL CASES. THIS CHAPTER CONSISTS OF SECTIONS 110 TO 115BBC. EACH SECTION CONTAINS SPECIAL PROVISIONS DEALING WITH SPECIFIC TYPES OF INCOMES FOR WHICH A SPECIFIED RATE OF TAX IS PROVIDED. IF A PARTICULAR ITEM OF INCOME IS COVERED IN ANY OF THE SE SECT IONS, IT SHALL BE STRICTLY GOVERNED BY THE PRESCRIPTION OF THAT RELEVANT SECTION ALONE. WE ARE REMINDED OF THE LEGAL MAXIM `GENERALIA SPECIALIBUS NON DEROGANT, WHICH MEANS THAT SPECIAL PROVISIONS OVERRIDE THE GENERAL PROVISIONS. IT IS A WELL SETTLED LEGAL POSITION THAT SPECIFIC PROVISIONS OVERRIDE THE GENERAL PROVISIONS. IN OTHER WORDS, IF THERE ARE TWO CONFLICTING PROVISIONS IN AN ENACTMENT, THE SPECIAL PROVISIONS WILL PREVAIL AND THE SUBJECT MATTER COVERED IN SUCH A SPECIAL PROVISION SHALL STAND EXCLUDED FROM THE SCOPE OF THE GENERAL PROVISION. THE HONBLE SUPREME COURT IN THE CASE OF BRITANNIA INDUSTRIES LTD. VS. CIT (2005) 278 ITR 546 (SC) HAS HELD THAT EXPENDITURE TOWARDS RENT, REPAIRS, MAINTENANCE OF GUEST HOUSE USED IN CONNECTION WITH BUSINESS IS TO BE DISALLOWED U/S. 37(4) BECAUSE THIS IS A SPECIAL PROVISION OVERRIDING THE GENERAL PROVISION. 9. COMING BACK TO OUR CONTEXT, IT IS SEEN THAT INCOME ARISING FROM THE TRANSFER OF SECURITIES OF THE FIIS HAS BEEN INCLUDED UNDER SEC. 115AD(1)(B) TO BE CATEGO RIZED AS SHORT - TERM OR LONG - TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLDING. IN SUCH A SITUATION, IT IS IMPERMISSIBLE TO CONSIDER SUCH INCOME AS FALLING UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. SUCH INCOME ARISING FROM THE TRANS FER OF SECURITIES SHALL BE CHARGED TO TAX UNDER THE HEAD CAPITAL GAINS ALONE. ONCE INCLUSION OF SUCH INCOME FROM THE TRANSFER OF SECURITIES IS HELD TO BE FALLING ONLY UNDER THE HEAD CAPITAL GAINS, IT CANNOT BE CONSIDERED AS `BUSINESS INCOME, WHETHER S PECULATIVE OR NON - SPECULATIVE. 10. THE HEADING OF SECTION 43 IS : `DEFINITIONS OF CERTAIN TERMS RELEVANT TO INCOME FROM PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE OPENING PART OF THIS SECTION IS : IN SECTIONS 28 TO 41 AND IN THIS SECTION, UNLESS THE CONTEXT OTHERWISE REQUIRES - . THEREAFTER, SIX SUBSECTIONS HAVE BEEN GIVEN, OF WHICH SUB - SEC. (5) DEFINES SPECULATIVE TRANSACTION. IT IS, THEREFORE, CLEAR ITA NO. 1207/13 & CO NO. 69/2014 13 THAT SEC. 43(5) DEFINING SPECULATIVE TRANSACTION IS RELEVANT ONLY IN THE CONTEXT OF INCOME UND ER THE HEAD `PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT RULES OUT ITS APPLICATION TO INCOME UNDER ANY OTHER HEAD. IF THAT BE THE POSITION, THE PICTURE IS CLEAR THAT SEC. 43(5) HAS NO APPLICATION TO FIIS IN RESPECT OF SECURITIES AS DEFINED IN EXPLAN ATION TO SEC. 115AD, INCOME FROM WHOSE TRANSFER IS CONSIDERED AS SHORT TERM OR LONG TERM CAPITAL GAINS. 11. WE, THEREFORE, HOLD THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT INCOME FROM INDEX BASED OR NON - INDEX BASED DERIVATIVES BE TREATED AS BU SINESS INCOME, WHETHER SPECULATIVE OR NONSPECULATIVE. THE IMPUGNED ORDER IS, THEREFORE, SET ASIDE BY HOLDING THAT INCOME FROM DERIVATIVE TRANSACTION RESULTING INTO LOSS OF RS.11.27 CRORES IS TO BE CONSIDERED AS SHORT - TERM CAPITAL LOSS ON THE SALE OF SECUR ITIES WHICH IS ELIGIBLE FOR ADJUSTMENT AGAINST SHORTTERM CAPITAL GAINS ARISING FROM THE SALE OF SHARES. 9. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVEN UE. ACCORDINGLY, WE HOLD THAT THE INCOME ARISING FROM THE TRANSACTION IN DERIVATIVES BY THE ASSESSEE, BEING FII, CANNOT BE TREATED AS BUSINESS PROFIT OR LOSS BUT THE SAME HAS TO BE CAPITAL GAIN OR LOSS. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL, W E DO NOT FIND ANY INFIRMITY IN THE FINDINGS RECORDED BY THE CIT(A) IN HOLDING THAT THE GAIN ARISING FROM TRANSACTIONS IN DEBT SECURITIES AMOUNTING TO RS.18,86,80,339/ - IS ASSESSABLE AS CAPITAL GAINS AND NOT AS BUSINESS INCOME. 7. IN REGARD TO GROUND OF C HARGING OF INTEREST U/S.234B & 234C , WE FOUND THAT SINCE THE ALLEGED INCOME WAS LIABLE TO TAX DEDUCTION AT SOURCE U/S.195, THEREFORE, THERE WAS NO LIABILITY TO PAY ADVANCE TAX U/S.208 OF THE ACT AND IN THE ABSENCE OF ANY LIABILITY TO PAY ADVANCE TAX, THE P ROVISIONS OF SECTION 234B&234C COULD NOT BE INVOKED. THE CIT(A) HAS RIGHTLY DIRECTED TO DELETE THE INTEREST LEVIED U/S.234B&234C, IN WHICH OUR ITA NO. 1207/13 & CO NO. 69/2014 14 INTERFERENCE IS UNCALLED FOR. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE CIT(A). 8. AS WE H AVE ALREADY DISMISSED THE APPEAL OF THE REVENUE, THEREFORE, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME INFRCTUOUS, THEREFORE, THE SAME IS HEREBY DISMISSED 9 . IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION OF THE ASSESSEE ARE DI SMISSED . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 17/04 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUN TANT MEMBER MUMBAI ; DATED 17/04/ 201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUM BAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//