ADIT (IT) 1(2), MUMBAI V. CITIBANK OVERSEAS INVESTMENT CORPORATION, MUMBAI

ITA 5479/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7909 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 28-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE SHRI G S PANNU, AM, & SHRI SAKTIJIT DEY, JM ITA NO. 5479/MUM/2014 ASSESSMENT YEAR 2009-10 ADIT (IT) 1(2), MUMBAI VS. CITIBANK OVERSEAS INVESTMENT CORPORATION, C/O DELOITTE HASKINS & SELLS TOWER- 3, 28 TH FLOOR, INDIABULLS FINANCE CENTRE, ELPHINSTONE MILL COMPOUND, SENAPATI BAPAT MARG, MUMBAI 400 013 PAN AABCC5333N (APPELLANT) (RESPONDENT) CO NO. 19/MUM/2016 (ARISING OUT ITA NO.5479/MUM/2014 ASSESSMENT YEAR 2009 - 10) CITIBANK OVERSEAS INVESTMENT CORPORATION, MUMBAI VS. ADIT (IT) 1(2), MUMBAI (CROSS- OBJECTOR) (RESPONDENT) REVENUE BY : SHRI B S BISTI [CIT-DR] CROSS-OBJECTOR BY: SHRI ARVIND SONDE DATE OF HEARING : 15.03.2017 DATE OF PRONOUNCEMENT : 24 .03.2017 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THE CAPTIONED APPEAL AND THE CROSS-OBJECTION BY TH E DEPARTMENT AND THE ASSESSEE RESPECTIVELY ARE AGAINST THE COMMON OR DER DATED 11.02.2014 OF THE LEARNED CIT(A)- 10, MUMBAI FOR THE A.Y. 2009-10 . ITA NO.5479/MUM//2014 & CO NO.19/MUM/2016 CITIBANK OVERSEAS INVESTMENT CORPORATION 2 2. ITA NO. 5479/MUM/2014 : THE ONLY ISSUE ARISING IN THE DEPARTMENTAL APPEAL IS IN RELATION TO THE DECISION OF THE LEARNED CIT(A) IN HOLDING THAT GAIN ON CANCELLATION OF FORWARD FOREIG N EXCHANGE CONTRACTS IS TO BE TREATED AS CAPITAL GAIN. 3. BRIEFLY, THE FACTS ARE THAT THE ASSESSEE IS A NO N-RESIDENT COMPANY. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESS EE FILED ITS RETURN OF INCOME ON 26.09.2009 DECLARING TOTAL INCOME OF RS.1 2,63,199/-. DURING THE ASSESSMENT PROCEEDINGS, THE AO FROM THE RETURN OF I NCOME AS WELL AS ACCOMPANYING STATEMENTS FOUND THAT THOUGH THE ASSES SEE, IN THE RELEVANT PREVIOUS YEAR, HAS MADE GAINS OF RS.21,72,55,371/- ON CANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACT HOWEVER, HAD NOT OFFERED THEM TO TAX ON THE PLEA THAT SUCH RECEIPTS ARE IN THE NATURE OF CA PITAL RECEIPT AND HENCE, NOT CHARGEABLE TO TAX. THE AO NOT BEING CONVINCED WITH SUCH PLEA CALLED UPON THE ASSESSEE TO EXPLAIN WHY SUCH GAIN SHOULD NOT BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. IN REPLY, THOUGH, THE ASSESSEE OBJECTED TO THE TREATMENT PROPOSED TO BE GIVEN BY THE AO TO GAIN DE RIVED FROM FORWARD FOREIGN EXCHANGE CONTRACT AND IN ALTERNATIVE IT WAS ALSO SUBMITTED THAT SUCH GAIN SHOULD BE TREATED AS BUSINESS INCOME AND IN AB SENCE OF A PERMANENT ESTABLISHMENT (AE) IN INDIA, IT IS NOT TAXABLE, HO WEVER, THE AO DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND ULTIMA TELY HELD THAT GAIN ARISING ON FORWARD FOREIGN EXCHANGE CONTRACT CANNOT BE TREA TED AS BUSINESS ITA NO.5479/MUM//2014 & CO NO.19/MUM/2016 CITIBANK OVERSEAS INVESTMENT CORPORATION 3 TRANSACTIONS AND GAIN ON CANCELLATION OF THE FORWAR D FOREIGN EXCHANGE CONTRACT GIVES RISE TO INCOME UNDER THE HEAD INCOM E FROM OTHER SOURCES. ACCORDINGLY, HE COMPLETED THE ASSESSMENT. BEING AG GRIEVED BY THE ASSESSMENT ORDER SO PASSED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE LEARNED CIT(A) NOTICING THAT IN ASSE SSEES OWN CASE FOR A.Y. 2001-02, THE ITAT HAS HELD THAT GAIN DERIVED FROM C ANCELLATION OF FORWARD FOREIGN EXCHANGE CONTRACT IS TO BE TREATED AS CAPIT AL GAIN, WHICH WAS SUBSEQUENTLY FOLLOWED BY HIS PREDECESSOR WHILE DECI DING ASSESSEES OWN CASE FOR A.YS 2006-07 AND 2007-08, HELD THAT GAIN DERIVE D FROM FORWARD FOREIGN EXCHANGE CONTRACT IS TO BE TREATED AS CAPITAL GAIN. 4. AT THE OUTSET THE LEARNED AR SUBMITTED BEFORE US THAT THE ISSUE STANDS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES O WN CASE FOR A.Y 2001-02, 2006-07 AND 2007-08, WHEREIN TRIBUNAL HAS HELD THAT INCOME ARISING FROM FORWARD EXCHANGE CONTRACT IS ASSESSABLE UNDER THE H EAD CAPITAL GAIN. THE LEARNED DR FAIRLY AGREED WITH THE AFORESAID SUBMISS IONS OF THE ASSESSEE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN FROM THE MATE RIAL ON RECORD, THE ONLY ISSUE IN DISPUTE BETWEEN THE PARTIES IS IN RELATION TO THE STATUS OF GAIN DERIVED FROM THE FORWARD FOREIGN EXCHANGE CONTRACT, WHETHER TO BE ASSESSED AS CAPITAL GAIN OR INCOME FROM OTHER SOURCES. UNDISPUT EDLY, THIS IS A RECURRING DISPUTE BETWEEN THE ASSESSEE AND THE DEPARTMENT FRO M EARLIER ASSESSMENT ITA NO.5479/MUM//2014 & CO NO.19/MUM/2016 CITIBANK OVERSEAS INVESTMENT CORPORATION 4 YEARS AND IN ASSESSEES OWN CASE FOR A.Y. 2001-02 I N ITA NO. 4436/MUM2005 THE TRIBUNAL VIDE ITS ORDER DATED 21.12.2005 HAS HE LD THAT INCOME ARISING FROM FORWARD FOREIGN EXCHANGE CONTRACT IS ASSESSABL E UNDER THE HEAD CAPITAL GAINS. THE SAME VIEW WAS REITERATED BY THE TRIBUN AL IN ASSESSEES OWN CASE FOR A.Y. 2007-08 IN ITA NO. 7044/MUM/2010 VIDE ORDE R DATED 16.01.2013. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS OF T HE CO-ORDINATE BENCH, WE HOLD THAT THE GAINS ARISING FROM FORWARD FOREIGN EX CHANGE CONTRACT ARE ASSESSABLE UNDER THE HEAD CAPITAL GAIN AND NOT AS INCOME FROM OTHER SOURCES. HENCE, GROUNDS RAISED BY THE DEPARTMENT ON THIS ISSUE ARE DISMISSED. 5. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMIS SED. 6. CO NO. 19/MUM/2016 : GROUND NOS. 1 AND 2 ARE NOT PRESSED. HENCE, THESE TWO GROUNDS ARE DISMISSED AS NOT PRESS ED. 7. GROUND NO.3 IS ON DISALLOWANCE OF ASSESSEES CLA IM OF SET OFF OF BROUGHT FORWARD CAPITAL LOSS AGAINST THE GAINS FROM FORWARD FOREIGN EXCHANGE CONTRACT. 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. THE LEARNED AR HAS SUBMITTED BEFORE US THAT THE GAIN DE RIVED FROM THE FORWARD FOREIGN EXCHANGE CONTRACT SINCE HAS BEEN HELD TO BE CAPITAL GAIN; THE SAME SHOULD BE SET OFF AGAINST THE CAPITAL LOSS. AS COU LD BE SEEN FROM THE ITA NO.5479/MUM//2014 & CO NO.19/MUM/2016 CITIBANK OVERSEAS INVESTMENT CORPORATION 5 IMPUGNED ORDER OF THE LEARNED CITA(A), THE ASSESSEE HAD RAISED A SPECIFIC GROUND BEFORE THE CIT(A) CLAIMING SET OFF OF CAPITA L GAIN FROM THE FORWARD FOREIGN EXCHANGE CONTRACT AGAINST BROUGHT FORWARD C APITAL LOSS. HOWEVER, THE LEARNED CIT(A) WITHOUT ADJUDICATING THE GROUND ON M ERIT HAS DISMISSED THE SAME AS INFRUCTUOUS. WHILE DECIDING THE DEPARTMENT S APPEAL IN THE EARLIER PART OF THIS ORDER, WE HAVE UPHELD THE DECISION OF THE CIT(A) IN TREATING THE GAIN ARISING FROM FORWARD FOREIGN EXCHANGE CONTRACT TO BE ASSESSABLE UNDER THE HEAD CAPITAL GAIN. CONSEQUENTIALLY, THE ASSE SSEE IS ENTITLED TO SET OFF SUCH GAIN AGAINST BROUGHT FORWARD CAPITAL LOSS AS P ER THE RELEVANT STATUTORY PROVISIONS. WE, THEREFORE, DIRECT THE AO TO VERIFY ASSESSEES CLAIM BY EXAMINING THE MATERIAL ON RECORD AND ALLOW CONSEQUE NTIAL RELIEF TO THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL P URPOSE. 9. IN THE RESULT, THE DEPARTMENTS APPEAL IS DISMIS SED AND THE ASSESSEES CROSS-OBJECTION IS PARTLY ALLOWED FOR STATISTICAL P URPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF MARCH 2017. SD/- SD/- (G S PANNU) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI; DATED : 24 TH MARCH, 2017 SA ITA NO.5479/MUM//2014 & CO NO.19/MUM/2016 CITIBANK OVERSEAS INVESTMENT CORPORATION 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. THE CIT 5. DR, C BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI