DCIT (IT) 3(2)(2), MUMBAI V. MERRILL LYNCH CAPITAL MARKET, ESPAMA SASV, MUMBAI

ITA 1831/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2389 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 15-03-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N PADMANABHAN
• Keywords: Double taxation relief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO. 1831 /MUM./2017 ( ASSESSMENT YEAR : 20 12 13 ) DY. COMMISSIONER OF INCOME TAX CIRCLE 3(2)(1), MUMBAI . APPELLANT V/S MERRILL LYNCH CAPITAL MARKET, ESPANA SASV C/O M/S. G.M. KAPADIA & CO. 1007, RAHEJA CHAMBERS 213, NARIMAN POINT MUMBAI 400 021 PAN AACCM7105R . RESPONDENT ASSESSEE BY : SHRI NITESH JOSHI REVENUE BY : SHRI N. PADMANABHAN DATE OF HEARING 31 . 1 0.2018 DATE OF ORDER 09.11.2018 O R D E R PER SAKTIJIT DEY, J.M. THIS APPEAL HAS BEEN FILED BY THE REVENUE CHALLENGING THE ORDER DATED 28 TH NOVEMBER 2016, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 57, MUMBAI, FOR THE ASSESSMENT YEAR 2012 13. 2 . T HE DISPUTE IN THE PRESENT APPEAL IS CONFINED TO THE ISSUE WHETHER THE INCOME / LOSS ON ACCOUNT OF FOREIGN EXCHANGE TRANSACTION SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAIN OR IS EXEMPT UNDER 2 MERRILL LYNCH CAPITAL MARKET, ESPANA SASV ARTICLE 14(6) OF INDIA SPAIN DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). 3 . BRIEF FACTS ARE THE ASSESSEE COMPANY , A TAX RESIDENT OF SPAIN , IS LICENSED TO PURCHASE AND SELL SECURITIES IN INDIA AS A FOREIGN INSTITUTIONAL INVESTOR (FII). THE ASSESSEE IS A LSO REGISTERED WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI). FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED ITS RETURN O F INCOME ON 20 TH NOVEMBER 2012, DECLARING TOTAL INCOME OF ` 77,91,989. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE VERIFYING THE RETURN OF INCOME HAVING FOUND THAT THE ASSESSEE HAS TREATED THE INCOME / LOSS ARISING OUT OF FOREIGN EXCHANG E TRANSACTIONS AS CAPITA L GAIN AND HAS CLAIMED EXEMPTION UNDER THE RELEVANT TAX TREATY CALLED UPON THE ASSESSEE TO FURNISH NECESSARY DETAILS INCLUDING COPIES OF CONTRACT NOTES, ETC. AFTER VERIFYING THE INFORMATION FURNISHED BY THE ASSESSEE, THE ASSESSING O FFICER NOTICED THAT LOSS OF ` 7,05,150 ON ACCOUNT OF FOREIGN EXCHANGE TRANSACTION WAS TREATED AS SHORT TERM CAPITAL LOSS BY THE ASSESSEE AND CLAIMED TO BE EXEMPT UNDER ARTICLE 14 (6 ) OF THE TAX TREATY. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICE R AS TO WHY THE INCOME / LOSS DERIVED FROM SELL OF SHARES OF COMPANIES DEALING IN REAL ESTATE IN INDIA SHOULD NOT BE HELD TO BE GOVERNED UNDER ARTICLE 14(4) AND BROUGHT TO TAX IN INDIA, IT WAS SUBMITTED BY THE ASSESSEE THAT AS PER ARTICLE 14 OF THE INDIA S PAIN 3 MERRILL LYNCH CAPITAL MARKET, ESPANA SASV TAX TREATY R/W ARTICLE 13 OF U.N. MODEL, CAPITAL GAIN CAN BE BROUGHT TO TAX IN RESPECT OF SALE OF SHARES OF A COMPANY IF SUCH COMPANY WA S INCORPORATED TO HOLD PROPERTY. IN OTHER WORDS, WHERE THE OWNERSHIP OF SHARES CARRIES THE RIGHT TO OCCUPY THE PROP ERTY , ARTICLE 14(4) OF INDIA SPAIN TAX TREATY WILL APPLY. IT WAS SUBMITTED , SINCE THE ASSESSEE WAS NOT OCCUPYING ANY IMMOVABLE PROPERTY BY VIRTUE OF SHARES THE CAPITAL GAIN / LOSS IS EXEMPT AS PER ARTICLE 14(6) OF THE INDIA SPAIN TAX TREATY. IT WAS ALSO SU BMITTED , THE LEARNED COMMISSIONER (APPEALS) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSMENT YEAR 2007 08 TO 2009 10. WITHOUT PREJUDICE TO THE AFORESAID SUBMISSIONS, IT WAS SUBMITTED BY THE ASSESSEE THAT IF THE INCOME DERIVED FROM SALE OF SHA RE IS HELD TO BE TAXABLE UNDER SECTION 14(4) OF INDIA SPA IN TAX TREATY, THE LOSS ARISING OUT OF SALE OF SHARES BY THE ASSESSEE SHOULD BE ALLOWED AND BENEFIT OF CARRY FORWARD OF LOSS TO SUBSEQUENT ASSESSMENT YEAR SHOULD ALSO BE MADE AVAILABLE TO THE ASSESSE E AS PER THE DOMESTIC LAW. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND MERIT IN THEM. HE HELD THAT THE CAPITAL GAIN ON SALE OF SHARES OF COMPANIES ENGAGED IN REAL ESTATE DEVELOPMENT ACTIVITIES IS TAXABLE IN INDIA UN DER ARTICLE 14(4) OF INDIA SPAIN TAX TREATY. AT THE SAME TIME, THOUGH , THE ASSESSING OFFICER AGREED THAT IN THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE SUFFERED SHORT TERM CAPITAL LOSS IN RESPECT OF SALE OF SHARES, HOWEVER, HE 4 MERRILL LYNCH CAPITAL MARKET, ESPANA SASV REFUSED TO ALLOW CARRY FORWARD OF LOSS SINCE THE ASSESSEE HAS NOT CLAIMED IT IN THE RETURN OF INCOME. BEING AGGRIEVED OF THE ASSESSMENT ORDER SO PASSED, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS) TAKING NOTE OF THE FACT THAT IDENTICAL ISSUE ARISING IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 10 AND 2011 12, WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE LEARNED COMMISSIONER (APPEALS) FOLLOWED THE SAME AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR AS WELL. IN EFFECT, THE LEARNED COMMISSIONER (APPEALS) ALLOWED ASSESSEES CLAIM OF EXEMPTION UNDER ARTICLE 14(6) OF INDIA SPAIN DTAA. 5 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON R ECORD. AT THE OUTSET, LEARNED AUTHORISED R EPRESENTATI VE SUBMITTED , THE ISSUE IN DISPUTE IS NOW COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 08 TO 2009 10. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , WHILE DECIDING THE ISSUE THE TRIBUNAL HAS UPHELD THE DECIS ION OF THE LEARNED COMMISSIONER (APPEALS) THAT THE ASSESSEE IS ENTITLED TO AVAIL EXEMPTION OF CAPITAL GAIN UNDER ARTICLE 14(6) OF INDIA SPAIN DTAA. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE RELEVANT OBSERVATION OF THE TRIBUNAL AS CONTAINED IN PARA 7 OF THE ORDER PASSED IN ITA 5 MERRILL LYNCH CAPITAL MARKET, ESPANA SASV NO.2824/MUM./2012 AND ORS., DATED 11 TH SEPTEMBER 2017. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , ASSESSEES CASE IS COVERED UNDER ARTICLE 14(4) OF THE INDIA SPAIN TAX TREATY, THEREFORE, CAPITAL GAIN / LOSS IS TAXABLE IN IN DIA. HE TRIED TO DISTINGUISH THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR PRECEDING ASSESSMENT YEAR BY SUBMITTING THAT THE TRIBUNAL HAS DECIDED THE ISSUE KEEPING IN VIEW THE ARTICLE 14(5) OF THE INDIA SPAIN TAX TREATY. IN REJOINDER, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , REFERENCE TO ARTICLE 14(5) OF THE INDIA SPAIN DTAA IN THE ORDER OF THE TRIBUNAL IS A TYPOGRAPHICAL ERROR WHICH HAS BEEN WRONGLY MENTIONED IN PLACE OF ARTICLE 14(4). TO DEMONSTRATE SUCH FACT, THE LEARNED AUTHORISED REPRE SENTATIVE DREW OUR AT TENTION TO THE ASSESSMENT ORDER AND FIRST APPEAL ORDER PASSED FOR ASSESSMENT YEAR 2009 10. 6 . HAVING CONSIDERED RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEARS 2007 08 TO 2009 10. AS COULD BE SEEN, THE ISSUE IN DISPUTE BETWEEN THE PARTIES IS WITH REGARD TO APPLICABILITY OF ARTICLE 14(4) OF INDIA SPAIN TAX TREATY. THE LEARNED COMMISSIONER (APPEALS) WHILE DECIDING THE ISSUE IN PRECEDING ASSESSMENT YE ARS REFERRING TO ARTICLE 14(4) OF INDIA SPAIN TAX TREATY QUA ARTICLE 13(4) OF U.N. MODEL CONVENTION HAS HELD THAT CAPITAL GAIN ARISING OUT SALE OF SHARES IS NOT TAXABLE IN INDIA. THE AFORESAID DECISION OF THE LEARNED 6 MERRILL LYNCH CAPITAL MARKET, ESPANA SASV COMMISSIONER (APPEALS) IN ASSESSMENT YE AR 2007 08 TO 2009 10 HAS BEEN UPHELD BY THE TRIBUNAL IN THE DECISION REFERRED TO ABOVE. NO DOUBT, IN THE IMPUGNED ASSESSMENT YEAR, THE LEARNED COMMISSIONER (APPEALS) HAS FOLLOWED HIS ORDERS PASSED FOR THE EARLIER ASSESSMENT YEARS. MOREOVER, AS COULD BE SE EN FROM THE FACTS ON RECORD, THE ASSESSEE HAD INCURRED HUGE LOSS IN ASSESSMENT YEAR 2009 10 AS WELL AS IN THE IMPUGNED ASSESSMENT YEAR. ADMITTEDLY, IF THE CAPITAL GAIN IS HELD TO BE TAXABLE IN INDIA, THEN THE LOSS SUFFERED BY THE ASSESSEE AND CARRY FORWARD OF SUCH LOSS IS ALLOWABLE TO THE ASSESSEE. HOWEVER, NO SUCH BENEFIT HAS BEEN GIVEN TO THE ASSESSEE BY THE ASSESSING OFFICER ON THE REASONING THAT ASSESSEE HAS NOT CLAIMED IT IN THE RETURN OF INCOME . THUS, THE ASSESSEE HAS BEEN PUT TO DOUBLE JEOPARDY WHICH , IN OUR VIEW , IS UNJUST AND IMPROPER. IN VIEW OF THE AFORESAID, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) ON THE ISSUE. GROUNDS RAISED ARE DISMISSED. 7 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09.11.2018 SD/ - RAJESH KUMAR ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 09.11.2018 7 MERRILL LYNCH CAPITAL MARKET, ESPANA SASV COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI