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

ITA 614/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3319 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2010-2011
• Appeal Filed On: 01-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V SREEKAR
• Keywords: Double taxation relief
• Section: 143(1); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 614 / MUM . /2018 ( ASSESSMENT YEAR : 20 1 0 1 1 ) JT. COMMISSIONER OF INCOME TAX (OSD) (IT), CIRCLE 3(2)(1), MUMBAI . APPELLANT V/S MERRILL LYNCH CAPITAL MARKET C/O M/S. G.M. KAPADIA & CO. 1007, RAHEJA CHAMBERS 213, NARIMAN POINT MUMBAI 400 021 PAN AACCM7105R . RESPONDENT ASSESSEE BY : SHRI V. SREEKAR REVENUE BY : SHRI NITESH JOSHI DATE OF HEARING 05 . 0 2 .201 9 DATE OF ORDER 15.02.2019 O R D E R PER SAKTIJIT DEY, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE CHALLENGING THE ORDER DATED 9 TH NOVEMBER 2017 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) 57 , MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 20 10 11 . 2 . THE REVENUE HAS RAISED AS MANY AS EIGHT GROUNDS .H OWEVER, THE ONLY ISSUE IN DISPUTE IS WHETHER THE INCOME / LOSS ON ACCOUNT OF FOREIGN 2 MERRILL LYNCH CAPITAL MARKET EXCHANGE TRANSACTION SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAIN OR IS EXEMPT UNDER ARTI CLE 14(6) OF INDIA SPAIN DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). 3 . BRIEF FACTS ARE, THE ASSESSEE A TAX RESIDENT OF SPAIN IS LICENSED TO PURCHASE AND SELL SECURITIES IN INDIA AS A FOREIGN INSTITUTIONAL INVESTOR (FII). THE ASSESSEE IS ALSO REGISTERED WITH SEBI. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 22 ND SEPTEMBER 2010, DECLARING TOTAL INCOME OF ` 2,31,150. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS INITIALLY PRO CESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). SUBSEQUENTLY, THE ASSESSING OFFICER RE OPENED THE ASSESSMENT UNDER SECTION 147 OF THE ACT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT ON 26 TH MARCH 2014. WHILE FRAMING DRAFT ASSESS MENT ORDER, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DECLARED A LOSS OF ` 50,53,55,685, ON ACCOUNT OF ITS TRANSACTION IN FOREIGN EXCHANGE AND HAS TREATED THE SAME AS SHORT TERM CAPITAL LOSS. FURTHER, THE ASSESSEE CLAIMED GAIN / LOSS ON ACCOUNT O F TRANSACTION IN FOREIGN EXCHANGE AS EXEMPT UNDER ARTICLE 14 OF THE INDIA SPAIN DTAA. THOUGH, THE ASSESSING OFFICER MADE NO ADJUSTMENT SINCE THERE WAS A LOSS ON FOREIGN EXCHANGE TRANSACTION, HOWEVER, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE CAPITAL G AINS ARISING FROM SALE OF SHARES OF COMPANIES DEALING IN REAL ESTATE IN INDIA AND DERIVING THEIR VALUE FROM IMMOVABLE 3 MERRILL LYNCH CAPITAL MARKET PROPERTY SHOULD NOT BE COVERED UNDER ARTICLE 14(4) OF THE DTAA AND CHARGED TO TAX IN INDIA. IN RESPONSE, THOUGH, THE ASSESSEE SUBMITTED TH AT THERE IS NO DIRECT TRANSFER OF IMMOVABLE PROPERTIES THROUGH SALE OF SHARES OF REAL ESTATE COMPANIES AND FURTHER SUBMITTED THAT UNDER ARTICLE 14(6) OF THE TAX TREATY GAIN / LOSS ON SALE OF SHARES ARE NOT LIABLE TO TAX IN INDIA, HOWEVER, THE ASSESSING OFF ICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. RELYING UPON THE ASSESSMENT ORDER PASSED FOR THE ASSESSMENT YEAR 2007 08, 2008 09 AND 2009 10, THE ASSESSING OFFICER ULTIMATELY COMPUTED SHORT TERM CAPITAL GAIN OF ` 94,71,36,713. BEING AGGRIEVED WITH THE AFORESAID DECISION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND NOTICING THAT IDENTICAL ISSUE ARISING IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007 08, 2008 09 AND 2009 10, WAS DECIDED BY HIM IN FAVOUR OF THE ASS ESSEE WHICH WAS ALSO CONFIRMED BY THE TRIBUNAL , DELETED THE ADDITION MADE BY TH E ASSESSING OFFICER. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, THOUGH, AGREED T HAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN PRECEDING ASSESSMENT YEAR S , HOWEVER, HE ALSO SUBMITTED THAT THE DEPARTMENT HAS NOT ACCEPTED SUCH DECISION AND HAS PREFERRED APPEAL 4 MERRILL LYNCH CAPITAL MARKET BEFORE THE HON'BLE JURISDICTIONAL HIGH COURT. LEARNED D EPARTMENTAL REPRESENTATIVE SUBMITTED , WHEN AS PER ARTICLE 14(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 SUPPORTING TH E DECISION OF THE LEARNED COMMISSIONER (APPEALS) SUBMITTED , THERE IS NO SCOPE FOR THE DEPARTMENT TO ASSAIL THE ORDER OF THE FIRST APPELLATE AUTHORITY AS THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE FOR PRECEDING ASSE SSMENT YEAR S . IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.2824/MUM./2012 &ORS., DATED 11 TH SEPTEMBER 2017, FOR ASSESSMENT YEARS 2007 08, 2008 09 AND 2009 10 AND IN ITA NO.831/ MUM./2017, DATED 8 TH NOVEMBER 2013, FOR THE ASSESSMENT YEAR 2012 13. HE SUBMITTED , MERELY BECAUSE THE DECISION OF THE TRIBUNAL IS NOT ACCEPTABLE TO THE DEPARTMENT, IT CANNOT BE SAID THAT THE ASSESSEE IS NOT ENTITLED TO EXEMPTION UNDER ARTICLE 14(6) OF THE INDIA SPAIN TAX TREA TY. WITHOUT PREJUDICE TO THE AFORESAID SUBMISSION, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED, SHAREHOLDING OF THE ASSESSEE IN THE INDIAN COMPANIES CONSTITUTE A MERE 0.11% TO 6.45%. THEREFORE, IT CANNOT BE SAID THAT THE ASSESSEE ENJOYS ANY RIGHT OVER THE IMMOVABLE PROPERTIES OF THE REAL ESTATE COMPANIES. 5 MERRILL LYNCH CAPITAL MARKET 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 2007 08, 2008 09 AND 2009 10 ON IDENTICAL ISSUE HAS HELD THAT THE ASSESSEE IS LIABLE TO BE TAXED ON CAPITAL GAIN ON SALE OF SHARES HELD BY IT IN REAL ESTATE COMPANIES AS PER ARTICLE 14(4) OF INDIA SPAIN DTAA. HOWEVER, IT IS A FACT ON RECORD THAT WHEN IDENTICAL ISSUE ARISING IN ASSESSM ENT YEAR 2007 08 TO 2009 10 CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO.2824/MUM./ 2012 &ORS., DATED 11 TH SEPTEMBER 2017, THE TRIBUNAL UPHELD THE DECISION OF THE FIRST APPELLATE AUTHORITY IN ALLOWING ASSESSEES CLAIM OF EXEMPTION ON CAPITAL GAI N UNDER ARTICLE 14(6) OF THE INDIA SPAIN DTAA. THE SAME VIEW WAS EXPRESSED AGAIN BY THE TRIBUNAL WHILE DECIDING DEPARTMENTS APPEAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2012 13, IN ITA NO.1831/MUM./2017, DATED 9 TH NOVEMBER 2018. FOR BETTER APPREC IATION, THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD IS REPRODUCED HERE UNDER: 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. AT THE OUTSET, LEARNED AUTHORISED REPRESENTATIVE 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 DECISION 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 NO.2824/MUM./ 201 2 AND ORS., DATED 11 TH SEPTEMBER 2017. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED, ASSESSEES CASE IS 6 MERRILL LYNCH CAPITAL MARKET 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 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, REFE RENCE 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 REPRESENTATIVE DREW OUR ATTENTION TO THE ASSES SMENT 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 ASSESSMENT 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 YEARS REFERRING TO ARTICLE 14(4) OF INDI A 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 COMMISSIONER (APPEALS) IN ASSESSMENT YEAR 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 SEEN FROM THE FACTS ON RECORD, THE ASSES SEE 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 ASSE SSEE. 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. 8 . THERE BEING NO MATERIAL DIFFERENCE IN FACT S INVOLVED IN THE IMPUGNED ASSESSMENT YEAR, RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL ON THE DISPUTED ISSUE, AS REFERRED TO ABOVE, WE UPHOLD 7 MERRILL LYNCH CAPITAL MARKET THE ORDER OF THE LEARNED COMMISSIONER (APPEALS) ON THE ISSUE. GROUNDS RAISED ARE DISMISSED. 9 . IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.02.2019 SD/ N.K. PRADHAN ACCOUNTANT MEMBER SD/ SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 15.02.2019 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