BARCLAYS MERCHANT BANK ( SINGAPORE ) LTD., MUMBAI V. CIT (INTERNATIONAL CIRCLE) RANGE-1, MUMBAI

ITA 907/MUM/2021

AI Insights

The case revolves around the tax treatment of gains from foreign exchange forward contracts by Barclays Merchant Bank (Singapore) for the assessment year 2014-15. Initially, these gains were treated as short-term capital gains and not taxed in India, based on the Indo-Singapore Double Taxation Avoidance Agreement (DTAA). However, the CIT later contested this treatment, viewing the gains as income from other sources, which should be taxable in India. The Tribunal's decision supported the CIT's directive for a re-assessment to ensure proper tax treatment, emphasizing the need for a detailed examination of the transactions and their connections to investments in India.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130202 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 01-06-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 23-05-2021
• Other Referred Cases: ADIT(IT) Vs. Merril Lynch Capital Market Espana S.A.S.V, DCIT Vs. D.B. International (Asia) Ltd., DDIT V. Deutsche Bank AG, Citicorp Banking Corporation, Bahrain V. ADIT, Credit Suisse (Singapore) Limited vs. ADIT, Radiant Life Care Mumbai Pvt. Ltd. Vs. Pr. CIT-3, CIT Vs. Jawahar Bhattacharjee, CIT Vs. Emery Stone Manufacturing Company, Rampyari Devi Saraogi Vs. CIT, Tara Devi Aggarwal Vs. CIT, ITO Vs. DG Housing Projects Limited, Gee Vee Enterprises Vs. ACIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Revision of order; Double taxation relief; Assessment record; Set aside; Capital Gains
• Section: 263; 143(3); 142(1); 144C

Judgement Text

P a g e | 1 ITA No.907/Mum/2021 Barclays Merchant Bank (singapore) Ld. Vs. CIT (IT) range 1 IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No. 907/Mum/2021 (A.Y.2014-15) Barclays Merchant Bank (Singapore)Limited C/o SRBC and Associates LLP 14 th Floor, The Ruby, 29, Senapati Bapat Marg, Dadar West, Mumbai – 400028 Vs. Commissioner of Income Tax (IT)Range-1 B, Wing 17 th Floor, Room No. 1704, Air India Building, Nariman Point, Mumbai 400021 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AACCB0070E Appellant .. Respondent Appellant by : Madhur Agarwal Respondent by : Rajesh Meshram Date of Hearing 02.06.2023 Date of Pronouncement 14.06.2023 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assesse is directed against the order passed by the CIT(I.T)-1 dated 25.03.2021 for A.Y. 2014-15. The assesse has raised the following grounds before us: “Ground No. 1 On the facts and in the circumstance of the case and in law, the learned CIT has erred in initiating proceedings under section 263 of the Act. 1.1 The CIT has erred in holding that order passed by the Assessing Officer (hereinafter referred to as the learned AO) under section 143(3) of the Act dated 18 December 2017 (hereinafter referred to as the Assessment Order) is erroneous and prejudicial to the interest of the Revenue. 1.2 The CIT has erred in not appreciating that where a legally permissible view is adopted while passing the Assessment order, the same cannot be P a g e | 2 ITA No.907/Mum/2021 Barclays Merchant Bank (singapore) Ld. Vs. CIT (IT) range 1 considered as erroneous and prejudicial to the interest of the Revenue for the purpose of Section 263 of the Act. 1.3 The CIT has erred in not appreciating that the learned AO has passed the Assessment Order after due consideration of all facts and documents on record, duly supported by various judicial precedents available during the course of the assessment proceedings and, hence, the Assessment Order cannot be said to be erroneous and prejudicial to the interest of the revenue; 1.4 The CIT has erred in setting aside the aforesaid Assessment Order with directions to the learned AO to make a fresh assessment and examine the taxability of the gains arising on account of foreign exchange forward contracts amounting to INR 63,68,30,403. Ground 2 Without prejudice to Ground no 1, the learned CIT has erred in holding that the learned AO has not verified the details pertaining to the gains arising on account of foreign exchange forward contracts and, accordingly, the Assessment Order is erroneous and prejudicial to the interest of the Revenue. 2.1 The CIT erred in holding that the learned AO has not enquired regarding the basis on which the gains earned on foreign exchange forward contracts is treated as capital gains. 2.2 The CIT erred in holding that the Appellant has not substantiated with evidence that transactions in foreign exchange forward contracts are related/ have direct nexus with the investments made in India. 2.3 The CIT erred in holding that the Appellant has not submitted details regarding the transaction in securities and debt made in India with the transactions made in foreign exchange forward contracts. 2.4. The CIT erred in holding that the learned AO has not made any enquiry in respect of foreign exchange forward contracts entered into by the Appellant and the authorized dealer and has passively accepted the claim of the Appellant. Each of the grounds of appeal referred above is separate and may kindly be considered as independent of each other The Appellant craves leave to add, alter, vary, omit, amend or withdraw the ground of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal so as to enable the Hon'ble Income-tax Appellate Tribunal to decide this appeal according to law.” 2. The fact in brief is that return of income declaring total income of Rs.1,20,04,67,824/- was filed on 26.11.2014. The case was subject to scrutiny assessment u/s 143(3) of the Act was finalized on 18.12.2017 and total income was assessed at Rs.1,20,25,15,400/-. P a g e | 3 ITA No.907/Mum/2021 Barclays Merchant Bank (singapore) Ld. Vs. CIT (IT) range 1 Subsequently, the Ld. Commissioner of Income Tax (International Taxation) -1, Mumbai, on verification of the assessment record observed that the assessee company i.e M/s Barclays Merchant Bank (Singapore) has transactions in foreign exchange contracts in F.Y. 2013-14 resulted in gains of Rs.63,68,30,403/-. The assessee has treated the gain from transaction in foreign exchange contracts as short term capital gain. Consequently, the capital gains from the transaction in foreign exchange contracts has not been offered to tax in India as same was taxable in Singapore and not in India as per the treaty with Singapore. However, The ld. CIT(A) was of the view that transactions in foreign exchange contracts were income from other sources and not capital gains as per Article 23 of the Indo-Singapore DTAA. The ld. CIT further stated that A.O has accepted the submission of the assessee and treated the same as short term capital gain which was not only erroneous but prejudicial to the interest of the revenue. 3. Therefore, a notice u/s 263(1) of the Act was issued to the assesse on 21.02.2020 reproduced as under: "On examination of records in the case of M/s Barclays Merchant Bank(Singapore) Ltd for A.Y 2014-15 in which assessment order passed u/s 143(3) r.w.s. 144C of the (inadvertently mentioned r.w.s. 144C) IT. Act, 1961 on 18.12.2017, it has been observed that the assessee company le. M/s Barclays Merchant Bank Singapore Ltd has transactions in foreign exchange contracts as short Term Capital Gain. Consequently, the gain from the transactions in foreign exchange contracts has not been offered to taxation in India as same is taxable in Singapore and not in India as per the treaty with Singapore. It may be brought to your notice that the gains made through transaction in foreign exchange contracts is income from other sources and not capital gains as per Article 23 of the Indo Singapore DTAA. However, the Assessing Officer has accepted the same as short term capital gain which is not only erroneous but prejudicial to the interest of revenue. In view if the above,I am of the considered view that the order of the Assessing Officer passed u/s 143(3) on 18.12.2017 need to be revised u/s 263 of the I.T. Act. As I am considering to revise the order of the Assessing officer passed u/s 143(3) of the IT Act on 18.12.2017, therefore, you are being given an opportunity to represent your case by submitting your reply on or before 27.02.2020.” P a g e | 4 ITA No.907/Mum/2021 Barclays Merchant Bank (singapore) Ld. Vs. CIT (IT) range 1 In response vide written submission dated 04.03.2020 the assesse has objected to the revision of the assessment order u/s 263 of the Act. The assesse submitted before the ld.CIT that the relevant details pertaining to the proposed revisions were already submitted before the A.O during the course of assessment proceedings. The assessee further submitted that the A.O had applied his mind and sought the requisite documents and information before completing the assessment. The assessee has also referred a number of judicial pronouncements before the ld. CIT(A) as referred at para 7 in the 263 order. 4. Aggrieved, the assesse has filed the appeal against the order of ld. CIT u/s 263 of the Act. 5. However, the ld. CIT has not agreed with the submission of the assessee. The ld. CIT stated that in the case of the assesse the A.O has passed the assessment order without conducting any independent inquiry about the details of the cancellations of foreign exchange forward contracts and about the investment made by the assessee. Therefore, the ld. CIT held that order dated 18.12.2017 passed u/s 143(3) of the Act was erroneous and prejudicial to the interest of revenue. Accordingly, the same was set aside with direction to the A.O call for details of investment made and its direct nexus to the foreign exchange forward contracts and examine the same before treating the same as income from other sources. 6. During the course of appellate proceedings before us the ld. Counsel submitted that assessee company is incorporated in Singapore and during the F.Y under consideration it was registered with the SEBI as Foreign Institutional Investors. The ld. Counsel has also filed paper book and referred detailed submission made by the assessee during the course of assessment proceedings on 13.11.2017 and 18.12.2017 in response to the notices issued by the A.O u/s 142(1) of the Act. The ld. P a g e | 5 ITA No.907/Mum/2021 Barclays Merchant Bank (singapore) Ld. Vs. CIT (IT) range 1 Counsel further submitted that during the course of assessment proceedings complete specific inquiries has been made by the A.O before completing the assessment made u/s 143(3) of the Act. The ld. Counsel has also placed reliance on the various judicial pronouncements: “i. ADIT(IT) Vs. Merril Lynch Capital Market Espana S.A.S.V (2017) 86 taxmann.com 161 ii. DCIT Vs. D.B. International (Asia) Ltd. (2018) ITa No. 992/Mum/2015 iii. DDIT V. Deutsche Bank AG (2013) 33 taxmann.com 91 iv. Citicorp Banking Corporation, Bahrain V. ADIT (2011-TII-40-ITAT-MUM- INTL) v. Credit Suisse (Singapore) Limited vs. ADIT (ITA No. 8716/Mum/2012)” 7. On the other hand, the ld. D.R submitted that no fruitful inquiry has been conducted by the A.O. He also referred the decision of ITAT in the case of Radiant Life Care Mumbai Pvt. Ltd. Vs. Pr. CIT-3 vide ITA No. 895 & 896/Mum/2021, dated 31.05.2022. He also submitted that the gain arose from the foreign exchange forward contract is required to be assessed under the Income from other sources. The ld. D.R submitted that A.O has merely accepted the submission without any inquiry or without any application of mind on the issue of gain earned from foreign exchange contracts. The ld. D.R also submitted that the assesse has not established that the said forwards contracts were especially entered into for hedging the portfolio of the assesse. “i. Guwahati High Court in the case of CIT Vs. Jawahar Bhattacharjee (341 ITR 434). ii. Rajasthan High Court in the case of CITVs. Emery Stone Manufacturing Company (213 ITR 843) iii. Hon’ble Supreme Court in the case of Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal Vs. CIT (1973) 88 ITR 323 (SC) iv. ITO Vs. DG Housing Projects Limited (2012) 343 ITR 329 (Delhi) v. Delhi High Court in the case of Gee Vee Enterprises Vs. ACIT (1975) 99 ITR 375 (Delhi)” 8. Heard both the sides and perused the material on record. During the course of assessment proceedings the assesse has filed detailed note as to how income on foreign exchange contract transactions are in the P a g e | 6 ITA No.907/Mum/2021 Barclays Merchant Bank (singapore) Ld. Vs. CIT (IT) range 1 nature of capital gain/loss and not revenue income assessable under the head income from other sources and also filed copies of comprehensive guidelines on Foreign Exchange Derivatives/Hedging commodity Price Risk/Freight Risk overseas. Before the AO the assessee has submitted only the details of short term capital gains/loss as per annexure to letter dated 15.09.2017 in the form of Foreign Exchange Reports. The assessee claimed that it had earned income from capital gains on account of investment made in debt securities and cancellation rollover/early utilization of foreign exchange forward contracts. The assessee also stated it was registered with the Securities and Exchange Board of India (SEBI) as a registered Foreign Institutional Investor. 9. The ld. CIT stated that A.O has not enquired or asked from the assessee the basis on which the said income was to be treated as capital gain as the same was never held by assessee as capital asset. He also mentioned that assessee has not substantiated with the evidence that transactions in foreign exchange forward contracts were related to have direct nexus with the investment made in India. No specific inquiries like the detail of the forwards contracts entered by the assessee with the authorized dealer were furnished before the A.O to prove the genuineness of the claim made by the assessee. The ld. CIT has also referred various judicial pronouncements in his order. The CIT was of the view that the transactions in forward purchase of foreign exchange and settlement cannot be said to be resulting in capital gains as the same was never held by the assessee as capital asset meant to be settled for price difference. The ld. CIT stated that income of the assessee from cancellation of foreign exchange was income from other sources and same to be taxed in accordance with tax lows of the respective contracting states. P a g e | 7 ITA No.907/Mum/2021 Barclays Merchant Bank (singapore) Ld. Vs. CIT (IT) range 1 10. After perusal of material placed on record, we consider that copy of foreign exchange report and copy of Foreign Exchange guidelines are not sufficient to claim that AO has made the required verification during the course of assessment. We could not find any supporting material showing significant clauses of the forward hedging contracts executed by the assesse. Therefore, the facts of the case of the assessee are entirely different from the facts of cases referred in the submission made by the assessee. 11. Even during the course of appellate proceedings before the ITAT the assessee was asked to furnish the copies of hedging contracts, notes however, no such basic documents relevant to the investment made by the assessee and its nexus to the foreign exchange contract were furnished. 12. Therefore, we are inclined with the direction of the ld. CIT(A) that the AO is required to verify the nature of the transactions and the details of investment made and its direct nexus to the foreign exchange forward contracts to arrive at a logical conclusion on the claim of the assessee of earning short term capital gain foreign exchange contracts. In view of the above facts and findings we do not find any merit in the grounds of appeal of the asesssee. Accordingly, the appeal of the assesse is dismissed. 12. In the result, the appeal of the assesse stand dismissed. Order pronounced in the open court on 14.06.2023 Sd/- Sd/- (Aby T Varkey) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 14.06.2023 Rohit: PS P a g e | 8 ITA No.907/Mum/2021 Barclays Merchant Bank (singapore) Ld. Vs. CIT (IT) range 1 आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.