DCIT (IT) 3(2)(1), MUMBAI V. MERRILL LYNCH CAPITAL MARKET, ESPANA SASV, MUMBAI

ITA 5861/MUM/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7187 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 03-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV S KESARWANI
• Keywords: Double taxation relief
• Section: 143(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI B.R BASKARAN, ACCOUNTANT MEMBER AND SHRI AMARJIT SINGH, JUDICIAL MEMBER ITA NO.5861/MUM./2016 (ASSESSMENT YEAR :2011-12) DCIT(IT) - 3(2)(1), ROOM NO.1615, 16 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI-400021 . APPELLANT V/S M /S MERRILL LYNCH CAPITAL MARKET ESPANA SASV, C/O- M/S G M KAPADIA & CO, 1007, RAHEJA CHAMBERS, 213 NARIMAN POINT, MUMBAI-400021 PAN AACCM7105R . RESPONDENT REVENUE BY : SHRI RAJEEV S. KESARWANI ASSESSEE BY : SHRI NITESH JOSHI DATE OF HEARING-10.04.2019 DATE OF ORDER -10.04.2019 PER B.R. BASKARAN, AM O R D E R THE APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29/07/2016 PASSED BY LD CIT(A)-57, MUMBAI AND IT RE LATES TO THE ITA NO.5861/MUM./2016 M/S MERRIL LYNCH CAPITAL MARKET ESPANA SASV 2 ASSESSMENT YEAR 2011-12. THE REVENUE HAS RAISED FO LLOWING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE ID CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE ASSESSING OFFICER HAS RIGHTLY HELD THAT RIGHT TO OCCUPY IMMOVABLE PRO PERLY IS NOWHERE MENTIONED IN ARTICLE 14(4) AND INDIA IS NOT SIGNATO RY TO THE UN MODEL. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT IT IS NOT REQUIRED TO CONSIDER THE COMMENTARY ON ARTICLE 13(4) OF THE UN MODEL WHEN THE ARTICLE 14(4) IS VERY CLEAR IN ITSELF AND THE COMMENTARY ON THE ARTICLE COMES IN PICTURE ONLY WHEN THERE IS ANY AMBIGUITY ON THE ISS UE. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT UN MODEL TREATY ON CAPITAL GAIN AND INDIA- SPAIN TREATY ARE NOT SAME A ND HAVE DIFFERENT PROVISIONS AND CARVED OUTS FOR CAPITAL GAIN AND THU S CANNOT BE APPLIED TO EXPLAIN INDIA-SPAIN TREATY. 4. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID CIT(A) ERRED IN NOT APPRECIATING THE FACT TH AT THE ASSESSING OFFICER'S DECISION IN THIS CASE THAT THE TRANSFER OF SHARES I N ATTRACTED BY ARTICLE 14(4) OF THE INDIA-SPAIN DTAA WHICH IS VERY CLEAR ON THIS ISSUE. 3. THOUGH THE REVENUE HAS RAISED MANY GROUNDS, A LL OF THEM ARE DIRECTED AGAINST A SOLITARY ISSUE, VIZ., WHETHER TH E CAPITAL GAINS ARISING ON SALE OF SHARES IS EXEMPT UNDER ARTICLE 1 4(6) OF INDIA- SPAIN DOUBLE TAXATION AVOIDANCE AGREEMENT. 4. AT THE TIME OF HEARING, BOTH THE PARTIES AGRE ED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE C O-ORDINATE BENCH IN THE ASSESSEES OWN CASE IN ITA NO.614/MUM/2018 D ATED 15.02.2019 RELATING TO AY 2010-11. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE ORDER PASSED BY THE CO-ORDINAT E BENCH IN AY 2010-11:- ITA NO.5861/MUM./2016 M/S MERRIL LYNCH CAPITAL MARKET ESPANA SASV 3 3 . BRIEF FACTS ARE, THE ASSESSEE A TAX RESIDENT OF S PAIN IS LICENSED TO PURCHASE AND SELL SECURITIES IN INDIA AS A FOREIGN INSTITUTIONAL INVESTOR (FII). THE ASSESSEE IS ALSO REGISTERED WITH SEBI. F OR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN O F INCOME ON 22ND SEPTEMBER 2010, DECLARING TOTAL INCOME OF ` 2,31,15 0. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS INITIALLY PROCESSE D UNDER SECTION 143(1) OF THE INCOMETAX ACT, 1961 (FOR SHORT 'THE ACT'). SUBSEQUENTLY, THE ASSESSING OFFICER REOPENED THE A SSESSMENT UNDER SECTION 147 OF THE ACT BY ISSUING NOTICE UNDER SECT ION 148 OF THE ACT ON 26TH MARCH 2014. WHILE FRAMING DRAFT ASSESSMENT ORDER, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEC LARED A LOSS OF ` 50,53,55,685, ON ACCOUNT OF ITS TRANSACTION IN FORE IGN EXCHANGE AND HAS TREATED THE SAME AS SHORT TERM CAPITAL LOSS. FU RTHER, THE ASSESSEE CLAIMED GAIN / LOSS ON ACCOUNT OF TRANSACTION IN FO REIGN EXCHANGE AS EXEMPT UNDER ARTICLE14 OF THE INDIASPAIN DTAA. TH OUGH, THE ASSESSING OFFICER MADE NO ADJUSTMENT SINCE THERE WA S A LOSS ON FOREIGN EXCHANGE TRANSACTION, HOWEVER, HE CALLED UP ON THE ASSESSEE TO EXPLAIN WHY THE CAPITAL GAINS ARISING FROM SALE OF SHARES OF COMPANIES DEALING IN REAL ESTATE IN INDIA AND DERIVING THEIR VALUE FROM IMMOVABLE PROPERTY SHOULD NOT BE COVERED UNDER ARTICLE14(4) OF THE DTAA AND CHARGED TO TAX IN INDIA. IN RESPONSE, THOUGH, THE A SSESSEE SUBMITTED THAT THERE IS NO DIRECT TRANSFER OF IMMOVABLE PROPE RTIES THROUGH SALE OF SHARES OF REAL ESTATE COMPANIES AND FURTHER SUBMITT ED THAT UNDER ARTICLE14(6) OF THE TAX TREATY GAIN / LOSS ON SALE OF SHARES ARE NOT LIABLE TO TAX IN INDIA, HOWEVER, THE ASSESSING OFFI CER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. RELYING UPON THE ASSESS MENT ORDER PASSED FOR THE ASSESSMENT YEAR 200708, 200809 AND 20091 0, THE ASSESSING OFFICER ULTIMATELY COMPUTED SHORT TERM CA PITAL GAIN OF ` 94,71,36,713. BEING AGGRIEVED WITH THE AFORESAID DE CISION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BE FORE THE FIRST APPELLATE AUTHORITY. 4. THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDE RING THE SUBMISSIONS OF THE ASSESSEE AND NOTICING THAT IDENT ICAL ISSUE ARISING IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 200708, 20 0809 AND 200910, WAS DECIDED BY HIM IN FAVOUR OF THE ASSESS EE WHICH WAS ALSO CONFIRMED BY THE TRIBUNAL, DELETED THE ADDITION MAD E BY THE ASSESSING OFFICER. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE, THOUGH, AGREED THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE T RIBUNAL IN PRECEDING ASSESSMENT YEARS, HOWEVER, HE ALSO SUBMITTED THAT T HE DEPARTMENT HAS NOT ACCEPTED SUCH DECISION AND HAS PREFERRED AP PEAL BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT. LEARNED DEPARTME NTAL REPRESENTATIVE SUBMITTED, WHEN AS PER ARTICLE14(4) OF THE INDIA SPAIN TAX TREATY, THE ASSESSEE IS LIABLE TO TAX ON CAPITAL GAIN, THERE IS NO NEED TO REFER TO U.N. MODEL CONVENTION. 6. THE LEARNED AUTHORISED REPRESENTATIVE STRONGLY S UPPORTING THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) SUBM ITTED, THERE IS NO SCOPE FOR THE DEPARTMENT TO ASSAIL THE ORDER OF THE FIRST APPELLATE ITA NO.5861/MUM./2016 M/S MERRIL LYNCH CAPITAL MARKET ESPANA SASV 4 AUTHORITY AS THE ISSUE HAS BEEN DECIDED BY THE TRIB UNAL IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR PRECEDING ASSESSME NT YEARS. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.2824/MUM./2012 &ORS., DATED 11TH SEPTEMBER 2 017, FOR ASSESSMENT YEARS 200708, 200809 AND 200910 AND I N ITA NO.831/ MUM./2017, DATED 8TH NOVEMBER 2013, FOR THE ASSESSM ENT YEAR 2012 13. HE SUBMITTED, MERELY BECAUSE THE DECISION OF THE TRIBUNAL IS NOT ACCEPTABLE TO THE DEPARTMENT, IT CANNOT BE S AID THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER ARTICLE 14(6) OF THE INDIA SPAIN TAX TREATY. WITHOUT PREJUDICE TO THE AFORESAI D SUBMISSION, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, SHAREH OLDING OF THE ASSESSEE IN THE INDIAN COMPANIES CONSTITUTE A MERE 0.11% TO 6.45%. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE ENJO YS ANY RIGHT OVER THE IMMOVABLE PROPERTIES OF THE REAL ESTATE COMPANI ES. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. UNDISPUTEDLY, THE ASSESSING OFFICER RELYING UPON THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEARS 20 0708, 200809 AND 200910 ON IDENTICAL ISSUE HAS HELD THAT THE AS SESSEE IS LIABLE TO BE TAXED ON CAPITAL GAIN ON SALE OF SHARES HELD BY IT IN REAL ESTATE COMPANIES AS PER ARTICLE14(4) OF INDIASPAIN DTAA. HOWEVER, IT IS A FACT ON RECORD THAT WHEN IDENTICAL ISSUE ARISING IN ASSESSMENT YEAR 200708 TO 200910 CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO.2824/MUM./ 2012 &ORS., DATED 11TH SEPTEMBER 2017, THE TRIBUNAL UPHELD THE DECISION OF THE FIRST APPELLATE AUTHORITY IN ALLOWING ASSESSEES CLAIM OF EXEMPTION ON CAPITAL GAIN UNDER ARTICLE 14(6) OF THE INDIASPAIN DTAA. THE SAME VIEW WAS EXPRESSED A GAIN BY THE TRIBUNAL WHILE DECIDING DEPARTMENTS APPEAL IN ASSE SSEES OWN CASE FOR THE ASSESSMENT YEAR 201213, IN ITA NO.1831/MUM./20 17, DATED 9TH NOVEMBER 2018. FOR BETTER APPRECIATION, THE RELEVAN T OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD IS REPRODUCED HERE UNDE R: 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIALS ON RECORD. AT THE OUTSET, LEARNED AUTHORISED REPRESENT ATIVE SUBMITTED, THE ISSUE IN DISPUTE IS NOW COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 200708 TO 200910. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, WHILE DECIDING THE ISSUE THE TRIBUNAL HAS UPHELD THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) THAT THE ASSESSEE IS ENTITLED TO AVAIL EX EMPTION OF CAPITAL GAIN UNDER ARTICLE14(6) OF INDIASPAIN DTAA. IN THIS CO NTEXT, HE DREW OUR ATTENTION TO THE RELEVANT OBSERVATION OF THE TRIBUN AL AS CONTAINED IN PARA7 OF THE ORDER PASSED IN ITA NO.2824/MUM./ 201 2 AND ORS., DATED 11TH SEPTEMBER 2017. THE LEARNED DEPARTMENTAL REPRE SENTATIVE SUBMITTED, ASSESSEES CASE IS COVERED UNDER ARTICLE 14(4) OF THE INDIA SPAIN TAX TREATY, THEREFORE, CAPITAL GAIN / LOSS IS TAXABLE IN INDIA. HE TRIED TO DISTINGUISH THE DECISION OF THE TRIBUNAL I N ASSESSEES OWN CASE FOR PRECEDING ASSESSMENT YEAR BY SUBMITTING THAT TH E TRIBUNAL HAS DECIDED THE ISSUE KEEPING IN VIEW THE ARTICLE14(5) OF THE INDIASPAIN TAX TREATY. IN REJOINDER, THE LEARNED AUTHORISED RE PRESENTATIVE SUBMITTED, REFERENCE TO ARTICLE14(5) OF THE INDIA SPAIN DTAA IN THE ORDER OF THE TRIBUNAL IS A TYPOGRAPHICAL ERROR WHIC H HAS BEEN WRONGLY MENTIONED IN PLACE OF ARTICLE 14(4). TO DEMONSTRAT E SUCH FACT, THE ITA NO.5861/MUM./2016 M/S MERRIL LYNCH CAPITAL MARKET ESPANA SASV 5 LEARNED AUTHORISED REPRESENTATIVE DREW OUR ATTENTIO N TO THE ASSESSMENT ORDER AND FIRST APPEAL ORDER PASSED FOR ASSESSMENT YEAR 200910. 6. HAVING CONSIDERED RIVAL SUBMISSIONS WE ARE OF TH E VIEW THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSES SEES OWN CASE FOR ASSESSMENT YEARS 200708 TO 200910. AS COULD BE SE EN, THE ISSUE IN DISPUTE BETWEEN THE PARTIES IS WITH REGARD TO APPLI CABILITY OF ARTICLE 14(4) OF INDIASPAIN TAX TREATY. THE LEARNED COMMIS SIONER (APPEALS) WHILE DECIDING THE ISSUE IN PRECEDING ASSESSMENT YE ARS REFERRING TO ARTICLE14(4) OF INDIA SPAIN TAX TREATY QUA ARTICL E13(4) OF U.N. MODEL CONVENTION HAS HELD THAT CAPITAL GAIN ARISING OUT S ALE OF SHARES IS NOT TAXABLE IN INDIA. THE AFORESAID DECISION OF THE LEA RNED COMMISSIONER (APPEALS) IN ASSESSMENT YEAR 200708 TO 200910 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 ASSESSME NT YEARS. MOREOVER, AS COULD BE SEEN FROM THE FACTS ON RECORD, THE ASSE SSEE HAD INCURRED HUGE LOSS IN ASSESSMENT YEAR 200910 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 C ARRY FORWARD OF SUCH LOSS IS ALLOWABLE TO THE ASSESSEE. HOWEVER, NO SUCH BENEFIT HAS BEEN GIVEN TO THE ASSESSEE BY THE ASSESSING OFFICER ON T HE 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 COMMISSI ONER (APPEALS) ON THE ISSUE. GROUNDS RAISED ARE DISMISSED. 8. THERE BEING NO MATERIAL DIFFERENCE IN FACTS INVO LVED IN THE IMPUGNED ASSESSMENT YEAR, RESPECTFULLY FOLLOWING TH E CONSISTENT VIEW OF THE TRIBUNAL ON THE DISPUTED ISSUE, AS REFE RRED TO ABOVE, WE UPHOLD THE ORDER OF THE LEARNED COMMISSIONER (APPEA LS) ON THE ISSUE. GROUNDS RAISED ARE DISMISSED. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 5. CONSISTENT WITH THE VIEW TAKEN BY THE CO-ORDIN ATE BENCH, WE ALSO HOLD THAT THE CAPITAL GAINS EARNED BY THE ASSE SSEE ON SALE OF SHARES IS EXEMPT UNDER ARTICLE 14(6) OF INDIA-SPAIN DTAA. IT WAS FURTHER SUBMITTED THAT THE LD CIT(A) HAS FOLLOWED T HE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE ASSESSEES OWN CASE IN THE EARLIER YEARS IN GRANTING RELIEF TO THE ASSESSEE. SINCE THE LD CIT(A) HAS FOLLOWED THE DECISION RENDERED BY THE CO-ORDINA TE BENCH ON AN ITA NO.5861/MUM./2016 M/S MERRIL LYNCH CAPITAL MARKET ESPANA SASV 6 IDENTICAL ISSUE, WE DO NOT FIND ANY REASON TO INTER FERE WITH THE ORDER PASSED BY HIM. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.04.2019 SD/- SD/- AMARJIT SINGH B.R BASKARAN JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 10.04.2019 F{X~{T? P.S 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. BY ORDER (DY./ASSTT.REGISTRAR) MUMBAI, ITAT, MUMBAI