M/SA. LG INDIA FUND LTD, MUMBAI V. THE DY CIT (IT) 3(2), MUMBAI

ITA 7635/MUM/2007

• Counselvise Citation: 763519914 RSA 2007
• Duration Of Justice: 3 year(s) 10 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 22-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 27-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: SHEETAL SH AH
• Keywords: Double taxation relief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L , MUMBAI BEFORE SHIRI D. K. AGARWAL, JM AND SHRI R.K. PANDA , AM ITA NO. : 7635/MUM/2007 ASSESSMENT YEAR : 2003-04 M/S. LG INDIA FUND LIMITED C/O. S. R. BATLIBOI & CO. 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI-400 021 PAN NO : AAACL 2266 N VS. DEPUTY DIRECTOR OF INCOME - TAX (INTERNATIONAL TAXATION)- 3(2), 1 ST FLOOR, SCINDIA HOUSE, BALLARD PIER, MUMBAI-400 038 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M. P. LOHIA & MS. SHEETAL SHAH RESPONDENT BY : SHRI JITENDRA YADAV DATE OF HEARING : 22.09.2011 DATE OF PRONOUNCEMENT : 28.10.2011 ORDER PER R. K. PANDA (AM) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 03.09.2007 PASSED BY THE LD. CIT(A)-XXXIII, MUMBAI RELATING TO ASSESSMENT YEAR 2003-04. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER OF INCOME- TAX-XXXIII, MUMBAI [HEREINAFTER REFERRED TO AS THE LEARNED CIT(A)], UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 (ACT) AND BASED ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, LG INDIA FUND LIMITED [HEREINAFTER REFERRED TO AS THE APPEL LANT] RESPECTFULLY SUBMITS THAT THE LEARNED CIT(A) ERRED IN DISPOSING THE APPEAL OF THE APPELLANT AGAINST THE ORDER OF TH E DEPUTY ITA NO : 7635/MUM/2007 M/S. LG INDIA FUND LIMITED 2 DIRECTOR OF INCOME-TAX, (INTERNATIONAL TAXATION) 3( 2) (THE ASSESSING OFFICER) ON THE FOLLOWING GROUNDS : IN DENYING THE APPELLANT THE RIGHT TO CARRY FORWARD THE CAPITAL LOSSES INCURRED DURING THE YEAR AND BROUGHT FORWARD FROM THE EARLIER ASSESSMENT YEARS, TO SUBSEQUENT YEARS, ON T HE GROUND THAT THE CAPITAL GAINS OF THE APPELLANT ARE EXEMPT FROM TAX UNDER THE INDIA-MAURITIES TAX TREATY, WITHOUT CONSIDERING THE FACT THAT THE PROVISIONS OF THE TAX TREATY OR THE ACT, WHICHE VER ARE MORE BENEFICIAL, WOULD APPLY TO THE APPELLANT. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A FOREIGN INSTITUTIONAL INVESTOR (FII) AND A TAX RESIDENT OF MAURITIUS. THE ASSESSEE FILED TAX RESIDENCE CERTIFICATE IN THIS REGARD. THE ASSESSEE HAD MADE INVESTMENT IN THE INDIAN CAPITAL MARKET AFTER TAKIN G APPROVAL FROM THE SECURITIES AND EXCHANGE BOARD OF INDIA AND EARNS IN COME BY WAY OF DIVIDEND CAPITAL GAINS AND INTEREST. 3.1 AFTER EXAMINATION OF DETAILS SUBMITTED AND AFTE R DISCUSSION, THE AO ACCEPTED THE RETURNED INCOME OF `. 1,01,55,520/- DECLARED BY THE ASSESSEE. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED CARRY FO RWARD OF SHORT TERM CAPITAL LOSS AND LONG TERM CAPITAL LOSS WHICH WAS I NCURRED ON ACCOUNT OF TRANSACTIONS IN SHARES IN INDIAN COMPANIES. ACCORDI NG TO THE AO AS PER ARTICLE 13(4) OF THE INDO-MAURITIUS TREATY, CAPITAL GAINS FROM ALIENATION OF PROPERTY OTHER THAN IMMOVABLE PROPERTY [ARTICLE 13( 1)], MOVABLE PROPERTY FORMING PART OF BUSINESS [ARTICLE 13(2)] AND SHIP/A IRCRAFTS [ARTICLE 13(3)] IS TAXABLE ONLY IN THE COUNTRY OF TAXPAYERS RESIDENCE . SINCE THE ASSESSEE IS A TAX RESIDENT OF MAURITIUS, CAPITAL GAINS FROM ALIEN ATION OF SHARES IS TAXABLE ONLY IN MAURITIUS. SINCE CAPITAL GAINS ARE EXEMPT F ROM TAXATION IN INDIA, IT NECESSARILY FOLLOWS THAT CAPITAL LOSS IS ALSO EXEMP T. ACCORDINGLY, THE AO WAS OF THE VIEW THAT IT IS NOT CORRECT FOR THE ASSESSEE TO CLAIM CARRY FORWARD OF SUCH CAPITAL LOSS, WHICH MAY, FOR INSTANCE, COULD B E SET OFF WITH CAPITAL GAINS ON IMMOVABLE PROPERTY. HE, THEREFORE, REJECTE D THE CLAIM OF CARRY ITA NO : 7635/MUM/2007 M/S. LG INDIA FUND LIMITED 3 FORWARD OF SHORT TERM CAPITAL LOSS OF `. 2,43,77,349/- AND LONG TERM CAPITAL LOSS OF `. 2,89,01,956/- PERTAINING TO THIS YEAR. FURTHER, HE ALSO REJECTED THE CLAIM OF BROUGHT FORWARD LONG TERM CAPITAL LOSS OF `. 13,50,96,670/- TO BE CARRIED FORWARD SINCE THE SAME WAS REJECTED IN ASSE SSMENT YEAR 2002-03 ON SIMILAR REASONS. THE AO FURTHER NOTED THAT THE A SSESSEE ITSELF HAS OFFERED THE DIVIDEND INCOME UNDER THE BENEFIT OF TR EATY @ 15% AND BENEFIT OBTAINED. HENCE, HE REJECTED THE ASSESSEES CLAIM O F BENEFIT OF TAXATION OF CAPITAL GAIN UNDER THE DOMESTIC LAW. 4. IN APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION S OF HON'BLE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. AZADI BACHO ANDOLAN REPORTED IN 263 ITR 706 AND IN THE CASE OF CIT VS. P.V.A.L. KUL ANDAGAN CHETTIAR REPORTED IN 267 ITR 654 UPHELD THE ACTION OF THE AO . FURTHER, HE DISTINGUISHED THE VARIOUS DECISIONS CITED BY THE AS SESSEE DURING THE COURSE OF APPELLANT PROCEEDINGS. 5. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INCOME DECLARED IN THE RETURN OF INCOME HAS BEEN ACCEPTED. HE SUBMI TTED THAT THE ASSESSEE HAS INCURRED SHORT TERM CAPITAL LOSS OF `. 2,43,77,349/- AND LONG TERM CAPITAL LOSS OF `. 2,89,01,956/-. THE ASSESSEE HAS ALSO BROUGHT FORWAR D LONG TERM CAPITAL LOSS OF `. 13,50,96,670/-. THE AO HAS DENIED THE CARRY FORWARD OF THE SAME TO SUBSEQUENT YEARS. HE SUBMITTED THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL I N ASSESSEES OWN CASE IN ASSESSMENT YEAR 2002-03 AND THE REVENUE HAS NOT FIL ED ANY APPEAL. REFERRING TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG VS. CIT REPORTED IN 193 ITR 321, HE DREW THE ATTENTION OF THE BENCH TO THE FOLLOWING : ITA NO : 7635/MUM/2007 M/S. LG INDIA FUND LIMITED 4 STRICTLY SPEAKING, RES JUDICATA DOES NOT APPLY TO INCOME-TAX PROCEEDINGS. THOUGH, EACH ASSESSMENT YEAR BEING A U NIT, WHAT WAS DECIDED IN ONE YEAR MIGHT NOT APPLY IN THE FOLL OWING YEAR ; WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH THE D IFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAI NED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR.' 6.1 REFERRING TO THE DECISION OF THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN THE CASE OF FLAGSHIP INDIAN INVESTMENT CO. (MAURITI US) LTD. REPORTED IN 38 SOT 426 HE SUBMITTED THAT ON IDENTICAL FACTS AND CI RCUMSTANCES, THE TRIBUNAL HAS ALLOWED THE CLAIM OF CARRY FORWARD OF LOSSES OF EARLIER YEARS TO BE SET OFF IN SUBSEQUENT YEARS. HE ACCORDINGLY, SUB MITTED THAT THE ISSUE BEING A COVERED MATTER, THE GROUNDS RAISED BY THE A SSESSEE SHOULD BE ALLOWED. HE ALSO RELIED ON THE DECISIONS IN THE CAS E OF MORGAN STANLEY ASSET MANAGEMENT INC. REPORTED IN 6 SOT 384 AND DCIT VS. PATNI COMPUTER SYSTEMS LTD. REPORTED IN 114 ITD 159 (PUNE). 7. THE LD. DR ON THE OTHER HAND, STRONGLY RELIED ON THE ORDER OF THE LD. CIT(A) AND ALSO RELIED ON THE DECISION IN THE CASE OF UNIVERSITIES SUPERANNUATION SCHEME LTD. AS TRUSTEES OF UNIVERSIT IES SUPERANNUATION SCHEME, IN RE REPORTED IN 275 ITR 434, ACCORDING TO WHICH FOREIGN INSTITUTIONAL INVESTOR HAS TO BE ASSESSED WITH REGA RD TO CAPITAL GAINS/LOSS UNDER S.115AD AND IS NOT ENTITLED TO OPT OUT AND CL AIM TO BE ASSESSED UNDER S.48 R/W.S. 112 WITH INDEXATION PROVISIONS IN CASE OF ASSESSMENT RESULTING INTO CAPITAL LOSS. REFERRING TO THE DECIS ION IN THE CASE OF ADVANTAGE ADVISORS INC. REPORTED IN 33 SOT 46 HE SU BMITTED THAT FOREIGN INSTITUTIONAL INVESTOR IS ASSESSABLE AS PER S.115AD AND IS NOT ENTITLED TO THE BENEFIT OF INDEXATION ON THE TRANSACTIONS RESUL TING IN LONG-TERM CAPITAL GAIN/LOSS. ITA NO : 7635/MUM/2007 M/S. LG INDIA FUND LIMITED 5 8. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDE R SUBMITTED THAT THE LD. DR DID NOT SAY ANYTHING ABOUT THE COVERED MATTE R. HE SUBMITTED THAT THE CHOICE HAS BEEN GIVEN TO THE ASSESSEEE AS TO EI THER ACCEPT THE INDIAN TAX SYSTEM OR THE DTAA SYSTEM WHICH IS BENEFICIAL T O THE ASSESSEE. HE SUBMITTED THAT THE PROVISION OF SECTION 90(2) OF TH E ACT GIVES LIBERTY TO THE ASSESSEE, WHICH IS MORE BENEFICIAL. THE VARIOUS DEC ISIONS RELIED ON BY THE LD. DR DO NOT DEAL WITH TREATY AND THE PROVISIONS O F SECTION 115AD (3) GIVES ANSWER TO THIS. HE SUBMITTED THAT THERE CANNOT BE A NY DISCRIMINATION BETWEEN THE ASSESSEE AND AN INDIAN COMPANY. REFERRI NG TO THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. PATNI COMPUTER SYSTEMS LTD. REPORTED IN 114 ITD 159 HE SUBMITTED T HAT TREATY PROVISIONS CANNOT BE THRUST UPON THE ASSESSEE . 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THE ONLY DISPUTE IN THE GROUNDS RAISED B Y THE ASSESSEE IS REGARDING THE CARRY FORWARD OF THE SHORT TERM AND L ONG TERM CAPITAL LOSS INCURRED BY THE ASSESSEE DURING THE YEAR AND THE BR OUGHT FORWARD LOSS OF ASSESSMENT YEAR 2002-03 TO BE CARRIED FORWARD TO SU BSEQUENT ASSESSMENT YEARS. 9.1 WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE VID E ITA NO.1819/MUM/06 ORDER DATED 29.08.2008 FOR THE ASSES SMENT YEAR 2002- 03 WHILE DECIDING THE ISSUE HAS HELD AS UNDER : WE HAVE HEARD BOTH THE SIDES, GONE THROUGH THE REC ORDS AND THE ORDERS PASSED BY THE AUTHORITIES BELOW. THE ISS UE INVOLVED IN THIS APPEAL WAS CONSIDERED BY THE ITAT, MUMBAI ( SPECIAL BENCH) IN CASE OF JCIT VS. MONTGOMERY EMERGING MARK ETS FUND (SUPRA) THE SPECIAL BENCH HAS HELD THAT THE ASSESSE E HAD ITS RIGHT TO SET OFF THE LONG TERM CAPITAL LOSS AGAINST SHORT TERM CAPITAL GAINS FOR THE REASON THAT EVERY TRANSACTION S RELATING TO ITA NO : 7635/MUM/2007 M/S. LG INDIA FUND LIMITED 6 THE ASSETS BROUGHT UNDER THE COMMON HEAD OF INCOME CAPITAL GAINS IS TO BE TREATED AS SEPARATE SOURCE OF INCOM E. EVERY TRANSACTION IS FOR THAT MATTER, A SOURCE OF INCOME WITH REFERENCE TO TRANSFER OF THAT FURTHER, DURING THE RELEVANT PERIOD, STATUTE HAS NOT PLACED ANY DISTINCTION BETWEEN LONG TERM ASSET AND SHORT TERM ASSET OR FOR THAT MATTER LONG TERM C APITAL GAINS AND SHORT TERM CAPITAL GAINS. IT IS WITHIN THE LEGI TIMATE RIGHT OF AN ASSESSEE TO CHOOSE THE OPTION WHICH IS MORE FAVO URABLE TO IT SO THAT IT COULD AVAIL THE BENEFIT OF CONCESSIONAL RATE OF TAX ON THE LONG TERM CAPITAL GAINS. THE SPECIAL BENCH HELD, TH EREFORE, THAT SETTING OFF OF SHORT TERM CAPITAL GAINS AGAINST LON G TERM CAPITAL LOSS WAS PERMISSIBLE TO COMPUTE THE AMOUNT FOR TAXA TION UNDER THE HEADS CAPITAL GAINS. SO FAR AS THE PRESENT CA SE IS CONCERNED, THE ASSESSMENT YEAR IS 2002-03. THEREFOR E, THE ISSUE IS TO BE DECIDED IN THE LIGHT OF THE SPECIAL BENCH DECISION CITED ABOVE. WE, THEREFORE, SET ASIDE THE ORDERS OF THE L OWER AUTHORITIES ON THIS POINT AND DIRECT THE ASSESSING OFFICER TO ACCEPT THE SET OFF AS PROPOSED BY THE ASSESSEE. THI S ISSUE IS ACCORDINGLY, DECIDED IN FAVOUR OF THE ASSESSEE. SINCE THE IMPUGNED ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE ORDER OF THE SPECIAL BENCH, WE DECI DE THIS ISSUE IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ORDER O F THE CIT(A) IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SET OFF OF THE LONG TERM CAPITAL LOSS AGAINST THE SHORT TERM CAPITAL GAIN. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 9.2 THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSE SEE THAT THE REVENUE HAS NOT CHALLENGED THE ORDER OF THE TRIBUNAL BEFORE THE HON'BLE HIGH COURT COULD NOT BE CONTROVERTED BY THE LD. DR. THE VARIOU S OTHER DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE ALSO SUPPORT HIS CASE. THE DECISIONS RELIED ON BY THE LD. DR ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. RESPECTFULLY, FOLLOWING THE DE CISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLO WED. ITA NO : 7635/MUM/2007 M/S. LG INDIA FUND LIMITED 7 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 28 TH DAY OF OCTOBER, 2011. SD/ - SD/ - ( D.K. AGARWAL ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 28.10.2011 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI