PRASHANT KOTHARI,SINGAPORE V. CIT A (57) MUMBAI, OFFICE OF COMMISSIONER OF APPEALS MUMBAI

ITA 5391/MUM/2024

AI Insights

The case revolves around the taxability of capital gains and the treatment of capital losses under the India-Singapore Double Taxation Avoidance Agreement (DTAA) and the Indian Income Tax Act. Prashant Kothari, a tax resident of Singapore, contested the decision of the Income Tax Department which had taxed his capital gains from the sale of shares in India. The primary legal contention was whether the capital gains were taxable in India and whether the assessee could carry forward short-term capital losses without setting them off against short-term capital gains. The Tribunal examined the provisions of the India-Singapore DTAA, particularly Article 13(4), and relevant case law to arrive at its decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 397183 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2016-2017
• Other Referred Cases: NTPC Vs. CIT, Citicorp Investment Bank Pvt. Ltd. vs DCIT, SET Satellite (Singapore) Pte. Ltd. vs. ADIT, Sanofi Pasteur Holding SA vs. Department of Revenue, Ministry of Finance, Aroon Purie vs. CIT, Union of India vs. Azadi Bachao Andolan, Kasinka Trading vs. Union of India, APL Co Pte. Ltd vs. ADIT
• Laws Referred To: Income-Tax Act, 1961, India-Singapore DTAA
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KRISHNA KUMAR
• Assessee Lawyers: GUNJAN KAKKAD
• Keywords: Set aside; Capital asset; Reasonable cause; Question of law; Capital Gains; Search and seizure; Source of fund; Earning of tax free income; Double taxation relief; Benefit of exemption
• Section: 90

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘I’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ITA No. 5391/MUM/2024 (Assessment Year : 2016–17) Prashant Kothari C/O Mayur shah and Co, B 408 Lancelot APTS, S V Road, Opp Kalyan Jewellers, Borivali West, Mumbai-400092. Vs. Int Tax Ward 3(1)(1), Room No. 608, 6th Floor, Kautilya Bhavan, C-41 to C-43, G Block, Bandra Kurla Complex, Bandra East, Mumbai-400051. PAN/GIR No. ADTPK4169L (Appellant) .. (Respondent) Assessee by Shri. Gunjan Kakkad Revenue by Shri. Krishna Kumar, Sr. DR Date of Hearing 03/03/2025 Date of Pronouncement 29/05/2025 आदेश / O R D E R PER VIKRAM SINGH YADAV (A.M): The present appeal has been preferred by the assessee against the impugned order dated 26.07.2024 passed in Appeal no. CIT(A) 57, Mumbai/10266/2018-19 by the Ld. Commissioner of Income–tax(Appeals)/ National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “CIT(A)”] u/s. 250 of the Income-Tax Act, 1961 [hereinafter referred to as \"Act\"] for the Assessment year [A.Y.] 2016-17 wherein the assessee has raised the following ground of appeal: “The Learned CIT(A) has erred in not allowing the benefit of Article 13(4) of the India-Singapore DTAA even though the Appellant is admittedly a resident of Singapore and thereby eligible to avail benefit of the India – Singapore DTAA. ” ITA no. 5391/MUM/2024 Prashant Kothari 2 2. At the outset, it is noted that there is a delay in filing the present appeal by 21 days as pointed out by Registry. After hearing both the parties and considering the material available on record including the affidavit placed by the assessee, the contents of which has not been rebutted by the Revenue, we find that there is a reasonable cause for the delay in filing the present appeal. The delay is hereby condoned and the appeal of the assessee is admitted for adjudication. 3. Further, the Ld. AR has brought to our notice that the assessee has moved an application seeking permission to raise following additional grounds of appeal which read as under: “ 1. On the facts and circumstances of the case and in law, the learned Assessing Officer erred in taxing capital gains on a net basis after setting off the capital loss of Rs. 53,13,457/- of Short term Capital loss. 2. On the facts and circumstances of the case and in law, the learned Assessing Officer shall be directed to allow the Appellant the benefit of Article 13(4) of India Singapore Double Taxation Avoidance Agreement in respect of the capital gains and allow the capital loss to be carried forward in accordance with the provisions of the Act.” 4. It was submitted that all the relevant fact are available on records and the issue raised is purely legal in nature and relying on the decision of Hon'ble Supreme Court in case of the NTPC Vs. CIT (1998) 229 ITR 383, it was submitted that the additional grounds so raised be allowed to be admitted. 5. The Ld. DR did not raise any specific objection as far as the admission of the additional grounds of appeal are concerned. ITA no. 5391/MUM/2024 Prashant Kothari 3 6. After hearing both the parties and considering the material available on record, the additional grounds of appeal being legal in nature are hereby admitted for necessary adjudication. 7. Briefly the fact of the case are that assessee, a non-resident and tax resident of Singapore, filed his return of income declaring total income of Rs. 3,20,800/-. In his return of income, the assessee has shown his income under the head “capital gains” and which has been claimed as exempt under the provisions of India-Singapore Double Taxation Avoidance Agreement. In this regard, during the course of assessment proceedings, the Assessing officer asked the assessee to submit necessary information and documentation in order to examine the nature of capital assets so held by the assessee as well as the taxability of capital gains in light of the provisions of the Income tax Act as well as the DTAA between India and Singapore and in response, the assessee filed the necessary information/documentation. 8. Basis review and analysis of the information submitted by the assessee, the AO noted that the assessee has shown short term capital gains on listed shares through stock market (STT paid) amounting to Rs. 93,27,131/- and short term capital loss on listed shares through stock market (STT paid) amounting to Rs. 35,32,841/- resulting in net STCG on listed shares through stock market (STT paid) amounting to Rs. 57,94,288/-. Further, the assessee has shown long term capital gain (LTCG) on listed shares through stock market (STT paid) amounting to Rs. 1,83,57,857/-. 9. Besides that, the AO observed that the assessee has shown net long term capital gains on unlisted shares amounting to Rs. 46,71,374/-. Further, on examination of the nature of the capital asset so held and transferred by the assessee, the AO observed that all unlisted shares, except the shares of Adception Infotech Pvt. Ltd. which have been sold to ITA no. 5391/MUM/2024 Prashant Kothari 4 Mr. Neel Kothari, were held by the assessee for not more than 36 months, immediately prior to the date of transfer. Hence, gains on transfer of these shares were held as short term capital gains instead of long term capital gains and the set off of short term loss against short term gain in respect of these shares were recomputed and thereafter, worked out the net short term capital gains of Rs. 73,21,510/- from sale of unlisted shares was determined. Further, as regards the shares of Adception infotech Pvt Ltd which were sold to Mr. Neel Kothari, the AO observed that the assessee has shown long term capital loss in respect of these securities and in terms of Section 70(3) of the Act, the same cannot be set off against short term capital gains and will be liable to be carry forward under the provisions of the Act. 10. The AO thereafter referred to the Article 13(4) and Article 24 of India Singapore DTAA and the submissions of the assessee that capital gains which arise in India are not taxable under the provisions of article 13(4) of India Singapore DTAA as well as the facts that Article 24 is not applicable and also referred to the decision relied on by the assessee in the case of M/s. Citicorp Investment Bank Pvt. Ltd. As per the AO, the facts and circumstances of M/s. Citicorp Investment Bank Pvt. Ltd. are completely different and the ratio laid down therein cannot be applied in the instant case. The AO noted that in the case of the assessee, the long term capital gain and short term capital gains were from elimination of listed as well as unlisted equity shares of Indian companies whereas in the case of Citicorp Investment Bank Pvt. Ltd., capital gains arose from transfer of Debt instrument. The AO further referred to amended provision of Article 13 of the India-Singapore DTAA which makes a distinction between equity shares and instrument other than equity shares for taxation under the head “capital gains”. As per the AO, a cursory look at the provisions of amended Article 13 clearly differentiates between equity shares and other instruments as capital asset with different taxability and therefore there is no ambiguity that for the purposes of taking benefit of taxation under DTAA ITA no. 5391/MUM/2024 Prashant Kothari 5 between India and Singapore, the intention of both sovereign countries are in alignment to treat the equity shares and instruments other than equity shares differently for taxability under the head “capital gains”. The AO further referred to the fact that the assessee is an individual whereas Citicorp Investment Bank Pvt. Ltd. was a registered foreign institutional investor which has to mandatorily follow definitive rules to get registered with Indian Government or statutory body set up by the Indian Government for such purposes. The AO further referred to the fact that Citicorp Investment Bank Pvt. Ltd. had disclosed its global income to Singapore authority on accrual basis whereas the assessee has vehemently denied to disclose the true and correct position in this regard. The AO accordingly held that the claim of the assessee is not acceptable and the provision under limitation of relief is applicable for determining the taxability of capital gains in India or in Singapore and it is not disputed that no capital gain income is remitted or received in Singapore. Therefore, the whole of capital gains consisting of short term capital gains and long term capital gains were held by the AO as taxable in India. However, while computing the taxable income, it is noted that the AO has not brought long term capital gains to tax and has taxed net short term capital gains on listed shares (STT paid) of Rs. 57,94,288/- @ 15% and short term capital gain on unlisted shares (STT not paid) of Rs. 73,23,150/- at normal tax rate and the assessed income was determined at Rs 1,34,36,600/- accordingly. 11. The assessee thereafter carried the matter in appeal before the learned CIT(A). During the appellate proceedings, the appellant submitted that the India-Singapore DTAA was amended w.e.f. 01.04.2017 with a savings clause in form of para 4A to Article 13 that investment made prior to 01.04.2017 to continue to enjoy the benefit of pre-amended Article 13(4) of DTAA. The appellant submitted that prior to amendment in India- Singapore DTAA, there was no different treatment in the case of capital gains arising from shares or that arising from debentures. Even though shares and debentures are different types of assets, for taxation purpose, it ITA no. 5391/MUM/2024 Prashant Kothari 6 makes no difference in the DTAA. The appellant also submitted that the amendment made in India-Singapore DTAA is not applicable to A.Y 2016- 17. The appellant also submitted that for the purpose of Article 24 of DTAA, the item of income on first principles should be taxable and thereafter the question of exempting the same from taxation arise. It was submitted that the provisions of section 4 and 5 of Indian Income-tax Act are subject to provisions of section 90 of the Act and by force of Article 13(4) of DTAA and section 90(2) of the IT Act, capital gain arising to resident of Singapore is not taxable in India and therefore, Article 24 was not applicable in the case of the appellant. To support the argument, the appellant relied upon the decisions in the case of DCIT vs. D.B International (Asia) Ltd. [2018] 96 taxmann.com 75 (Mumbai Trib.), Citicorp Investment Bank (Singapore) Ltd. vs DCIT [2017] 81 taxmann.com 368 (Mumbai Trib.), SET Satellite (Singapore Pve. Ltd., now known as MSM Satellite (Singapore) Pte. Ltd. vs. ADIT (MA No 520/Mum/2010), Sanofi Pasteur Holding SA vs. Department of Revenue, Ministry of Finance [2013] 354 ITR 316 (Andhra Pradesh), Aroon Purie vs. CIT [2015] 375 ITR 188 (Delhi), Union of India vs. Azadi Bachao Andolan [2003] 263 ITR 706 (SC). Kasinka Trading vs. Union of India a [1995] SCC 274 and APL Co Pte. Ltd vs. ADIT [2017] 185 TTJ 305 (Mumbal-Trib.). It was submitted that the appellant should be allowed benefit of Article 13(4) of India-Singapore DTAA in respect of capital gains. 12. The submissions so filed by the assessee were considered by the Ld. CIT(A). As per Ld. CIT(A), the appellant has reiterated the submission made by him before the AO during the assessment proceedings. It was held by the ld CIT(A) that the AO has clearly distinguished the facts of the case and decision of ITAT in Citicorp Investment Bank Ltd and during the appellate proceedings, the appellant has not made out any case on the facts, which were distinguished by the AO in the assessment order. It was held by the ld CIT(A) that the appellant has not provided the nature of global income offered by the assessee for taxation in Singapore Thus, the ratio laid down ITA no. 5391/MUM/2024 Prashant Kothari 7 by the Courts in the decision relied upon by the appellant could not be blindly applied to the facts of the case of the appellant. 13. Referring to the decision of M/s. Citicorp Investment Bank Pvt. Ltd.[2023] 151 taxmann.com 501 (Bom), the Ld. CIT(A) noted that the Hon’ble Bombay High Court in the said case has held that in respect of capital gains on sale of debt instrument, the assessee FII, a tax resident of Singapore was entitled to benefit of Article 13(4) of India-Singapore DTAA without reference to amount remitted or received in Singapore. The Ld. CIT(A) further stated that the Hon’ble Bombay High Court in the said decision has taken note of certificate given by Singapore authorities to the effect that capital gains income would be brought to tax in Singapore. 14. The ld CIT(A) further referred to the decision of the Hon’ble Bombay High Court in case of CIT vs APL Co. Pte Ltd [2023] 156 taxmann.com 530 (Bom) and stated that in the said case, the Hon’ble Bombay High Court held that since the assessee submitted certificate issued by Singapore Tax Authority confirming taxability of income in Singapore on accrual basis, the same would constitute sufficient evidence and freight income from shipping business would not be taxable in India. 15. The ld CIT(A) held that in the present case, the AO asked the assessee to give details of global income offered in Singapore however the assessee never provided such details to the AO. Even during the appellate proceedings, the assessee has not provided such details, even the certificate from Singapore Authorities to the effect that such capital gain income would be brought to tax in Singapore has not been placed on record by assessee. Therefore on facts of the case, the benefit of exemption of capital gain under Indian Income tax Act as well as Article 13(4) of India-Singapore DTAA cannot be given to the assessee and accordingly, he upheld the AO’s action in denial of benefit of Article 13(4) of DTA as so claimed by the assessee and the taxation of capital gains in India was upheld. ITA no. 5391/MUM/2024 Prashant Kothari 8 16. Against the aforesaid findings and directions of the Ld. CIT(A), the assessee is in appeal before us. 17. During the course of hearing, the Appellant submitted that under Article 13(4) of the India Singapore DTAA, it is only country of residence, that is Singapore in the present case, who has the right to tax the capital gains and thus, the gains accrued to the Appellant would not be subjected to tax in India. The Assessing Officer has invoked provisions of Article 24(1) of the DTAA to deny the benefit of Article 13(4) of the DTAA. The Appellant submitted that Article 24(1) provides for conditions in respect of non- taxability of exempt incomes and the Appellant submits that since the capital gains are not taxable in India in view of the language provided under Article 13(4) of the DTAA, question of exemption of said income in India would not arise and thus, the provisions of Article 24(1) are not applicable. In support, reliance was placed on the decision of the Coordinate Benches in case of DCIT vs. D. B. International (Asia) Lid [2018] 96 taxmann.com 75 (Mumbai - Trib.), Citicorp Investment Bank (Singapore) Ltd vs. DCIT [2017] 81 taxmann.com 368 (Mumbai - Trib.) and APL Co. Pte Lid vs. ADIT [2017] 185 TTJ 305 (Mumbai). It was submitted that the Tribunal in case of Citicorp Investment Bank (Singapore) Lid (supra) and APL Co. Pte Ltd (supra) has held that Article 24(1) is not applicable for the following two reasons. • Income earned outside Singapore are not taxable. However, since the income was considered for taxation at the time of filing the return of income on accrual basis, provisions of Article 24(1) which deals with taxation on remittance basis in Singapore would not apply. • Capital gains are not taxable in India and thus, the question of exemption does not arise. Consequently, Article 24(1) of the India- Singapore DTAA does not apply. 18. It was submitted that the Hon’ble Bombay High Court in case of CIT vs. Citicorp Investment Bank (Singapore) Ltd (2023) 457 ITR 203 (Bombay) ITA no. 5391/MUM/2024 Prashant Kothari 9 and in the case of CIT vs. APL. Co. Pte. Ltd [2023] 156 taxmann.com 530 (Bombay) has upheld the order of the Tribunal on the first line of reasoning and did not adjudicate the second line of reasoning which had been decided by the Tribunal. In other words, the second line of reasoning adopted by the Tribunal has not been disturbed by the Hon'ble High Court. It was accordingly submitted that the CIT(A) was thus wrong in dismissing the appeal of the Appellant by relying on the decision of the Hon'ble Bombay High Court. 19. Per contra, the Ld. DR relied on the order of the lower authorities and our reference was drawn to the reference of the finding of the AO as well as the Ld. CIT(A) as well as the decisions of the Hon’ble Bombay High court in case of M/s. Citicorp Investment Pvt. Ltd. as well as the CIT Vs. APL Co. Pte. Ltd. It was accordingly submitted that there is no infirmity in the order of the Ld. CIT(A) in denying the benefit of Article 13(4) of India-Singapore DTAA to the assessee and the capital gains has been rightly brought to tax. 20. We have heard the rival contentions and purused the material available on record. There is no dispute to the fact that the assessee is a tax resident of Singapore and has thus claimed the benefit of Article 13(4) of the India Singapore DTAA in respect of short term capital gains on sale of shares of Indian companies. The first point of dispute relates to whether the amended provisions of India-Singapore DTAA apply or the pre-amended provisions of India – Singapore DTAA applies in the instant case. By Notification dated 23.03.2017, paragraph 4 of Article 13 was omitted and paragraph 4A, 4B, 4C and 5 were inserted in Article 13 of India- Singapore DTAA. It is noted that both the omission and insertion have been made effective w.e.f 1.04.2017 and therefore relates to transactions effected on or after 1.04.2017 in respect of which the taxability has to be examined under the said provisions. In the instant case, the transactions by way of alienation of shares have been effected during the financial year 2015-16 relevant to assessment year 2016-17 and therefore, the amended provisions ITA no. 5391/MUM/2024 Prashant Kothari 10 of India-Singapore DTAA will not apply and the pre-amended provisions of India – Singapore DTAA will apply in the instant case. 21. Having said that, even though there is no ambiguity that the amendment will apply prospectively, we find that the amendment which has been brought about in Article 13 of India-Singapore DTAA has no impact as far as the facts of the present case are concerned. Paragraph 4 of Article 13 of DTAA, prior to its omission, provides that gains derived by a resident of a contracting state from the alienation of any property other than those mentioned in paragraph 1, 2 and 3 of this Article shall be taxable only in that state. In terms of Article 13(4), the gains derived by resident of Singapore from alienation of shares shall thus be taxable only in Singapore and India doesn’t have the right to tax such gains. Now, coming to Paragraph 4A of Article 13 of DTAA, as inserted, it provides that gains from the alienation of shares acquired before 1 April 2017 in a company which is a resident of contracting state shall be taxable only in the contracting state in which the alienator is a resident. In the instant case, the shares, of the Indian companies, which are admittedly tax residents of India, have been alienated by the assessee who is admittedly a tax resident of Singapore, during the financial year 2015-16 relevant to assessment year 2016-17. Thus, it is evident that the shares so alienated were acquired well before 1 April 2017 and the gains on alienation of such shares shall be taxable only in Singapore where the assessee is resident of. Both under the pre-amended and post-amended provisions, gains on alienation of shares of Indian companies acquired prior to 1 April 2017 are taxable only in the state of residence of the assessee, i.e, Singapore and there is thus no ambiguity in this regard. The assessee, a tax resident of Singapore, is thus eligible for benefit of Article 13(4) of India- Singapore DTAA and gains from alienation of shares of Indian companies are not taxable in India. 22. Now, coming to Article 24 which has been invoked by the AO to deny the benefit claimed by the assessee under Article 13(4) of India-Singapore ITA no. 5391/MUM/2024 Prashant Kothari 11 DTAA. In this regard, we refer to the provisions of Article 24(1) which provides that where this Agreement provides (with or without other conditions) that income from sources in a Contracting State shall be exempt from tax, or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State, the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under this Agreement in the first-mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State. 23. We therefore find that what Article 24(1) envisages is a situation where income derived from a contracting state is either exempt from tax or taxed at a reduced rate of tax in that contracting state under the DTAA. It then goes further and provides that where under the laws in force in the other Contracting State, the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, the exemption or reduction of tax shall be limited to the amount remitted or received in the other contracting state. In other words, where the taxability of such income in the other state is based on amount remitted or received in the other state and not on accrual basis, then the exemption or reduction shall be limited to the amount actually remitted or received. There are thus two conditions and both the conditions need to be fulfilled cumulatively before the provisions of Article 24(1) can be invoked in a given case. 24. Now, let’s examine the satisfaction of these conditions in the instant case. Coming to the first condition, Article 13(4) doesn’t provide that capital gains derived by a resident of Singapore is exempt from tax or taxed at a reduced rate in India, rather, it clearly provides that capital gains derived by a resident of Singapore shall be taxable only in Singapore. Article 13(4) is clearly a taxing provision and the right of taxation has been given to the ITA no. 5391/MUM/2024 Prashant Kothari 12 state of residence instead of state of source of such income. There is clearly a material distinction between the exemption provision and the taxability provisions and only in case of former, Article 24(1) can be invoked. 25. The Coordinate Bench in case of D.B. International(Asia) Ltd (supra) has held that Article 13(4) in clear and unambiguous term expresses itself as not an exemption provision but it speaks of taxability of particular income in a particular state by virtue of residence of the assessee and that being a case, the provision of Article 24 of India Singapore DTAA doesn’t have much relevance in so far as it relates to applicability of Article 13(4) is concerned and by virtue of overriding nature of Article 13(4) of tax treaty makes the capital gains taxable only in the country of residence of the assessee. 26. Similarly, the Coordinate Bench in case of APL Co. Pte Ltd (supra) in the context of Article 8 of India- Singapore DTAA, which is similarly worded to Article 13(4) and which provides that “profits derived by an enterprise of a contracting state from the operation of ships…in international traffic shall be taxable only in that state” held that where India doesn’t have any taxation right on the shipping income of non-resident entity, which is exclusive domain of the resident state, there is no question of any kind of exemption or reduced rate of taxation in the source state. It only envisages territorial and jurisdictional rights for taxing the income and India has no jurisdiction for any taxing rights which are governed by Article 8. There is no stipulation about exemption under Article 8 unlike other Articles such as Article 20, 21 and 22 where it has been specifically provided. It was held that it cannot be reckoned that shipping income earned from India is to be treated as exempt from tax or taxed at reduced rate which is a condition precedent for applicability of Article 24 and thus, India doesn’t have the jurisdiction to tax shipping income of the non-resident entity. The said findings of the Coordinate Bench were sought to be challenged by the Revenue before the Hon’ble Bombay High Court (by way of one of the ITA no. 5391/MUM/2024 Prashant Kothari 13 grounds of appeal) in decision referred supra, however, the Hon’ble Bombay High Court didn’t find any merit and held that no substantial question of law arises and dismissed the same. 27. Now, coming to the second condition of Article 24(1) which provides that where under the laws in force in the other Contracting State, the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under this Agreement in the first-mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State. In other words, where under the laws of Singapore, such income is taxed not on the basis of accrual but on the basis of remittance or amount received, the benefit under the treaty shall be restricted to the amount remitted to or received in Singapore. It doesn’t provide that in every case of non-remittance of income to Singapore, the benefit under the treaty shall be restricted or shall not allowed irrespective of tax treatment thereof under the laws of Singapore. The decision of the Coordinate Bench in case of APL Co. Pte Ltd (supra), which has been followed in subsequent decision in case of Citicorp Investment Bank (Singapore) (Supra) and both these decisions on appeal by the Revenue were latter on affirmed by the Bombay High Court, were in context of non-applicability of Article 24(1) on the basis of taxability of income in Singapore on accrual basis rather than on remittance basis. In that context, the Coordinate Bench in APL Co. Pte Ltd has relied the certificate issued by the Singapore Revenue authorities and held that freight income derived by the assessee company from Indian operations was accrued in or derived from business carried on in Singapore and regarded as Singapore sourced income and assessed to tax in Singapore on accrual basis and not on remittance basis and held that Article 24(1) would not be applicable. Similarly, in case of Citicorp Citicorp Investment Bank, has relied on a certificate issued by the Singapore tax authorities to the effect that income derived by CIBSL from buying and ITA no. 5391/MUM/2024 Prashant Kothari 14 selling of India Debt securities and from foreign exchange transactions in India would be considered under Singapore tax law as accruing in or derived from Singapore and such income would be brought to tax in Singapore without reference to the amount remitted or received in Singapore. 28. In the instant case, we however find that there is no discussion either by the AO or by the ld CIT(A) as to how such income on alienation of shares of Indian companies is liable to tax in Singapore and what are the taxing provisions in Singapore whether on accrual or remittance basis and onus has been entirely placed on the assessee to produce his Singapore tax filings as well as appropriate certificate from the Singapore tax authorities to the effect that such capital gains would be brought to tax in Singapore. Equally, we find that the assessee in his submissions before the AO besides stating that he is assessed to tax on global income in Singapore, has not corroborated the same in terms of his Singapore tax filings or any certification from Singapore tax authorities. Further, nothing has been brought on record by either of the parties during the course of hearing before us. Therefore, in absence of requisite information which has a bearing on the matter under consideration, we are unable to decide whether second condition of Article 24(1) has been satisfied in the instant case or not. 29. In any case, as we have stated above, both the conditions so prescribed in Article 24(1) need to be fulfilled cumulatively and in the instant case, since the first condition has not been satisfied as we have examined supra, the question of examination of the second condition becomes academic in nature and in view of the same, we deem it appropriate to leave it open to be decided at appropriate stage, should the need for the same arise in future. ITA no. 5391/MUM/2024 Prashant Kothari 15 30. In light of the aforesaid discussion and in the entirety of facts and circumstances of the case, we are of the opinion that the assessee is eligible for the benefit of Article 13(4) of India- Singapore DTAA in respect of capital gains on alienation of shares in Indian companies acquired prior to 01 April 2017 as the taxing rights are with Singapore and not with India. 31. Regarding additional grounds of appeal, the ld AR submitted that the assessee during the previous year 2015-16 relevant to assessment year 2016-17 has had long-term and short-term capital gains and losses in respect of the different shares and securities. Long-term capital gains was exempt in view of section 10(38) of the Act and are not subject matter of dispute. During the assessment proceedings, the claim of the Assessee in respect of the capital gains was modified by the AO and the details of the claim made by the Appellant in the return of income and treatment by the AO in the assessment order which is the subject matter of present appeal are tabulated below: Particulars (claim made in the return of income Amount Treatment by the AO Long-term capital gains/loss (unlisted shares) Gains arising on transfer of shares of Reasoning Global Eapplications Limited (treated by the AO as short- term capital gain 91,02,126 Short-term (Not disputed by Assessee – see discussion in the assessment order at paragraph 5 to 7.4) Loss arising on transfer of shares of Karmic Labs Private Limited Omnipresent Retail India Private Limited (treated by the AO as short- term capital loss) 7,20,709 10,59,907 ITA no. 5391/MUM/2024 Prashant Kothari 16 Total 17,80,616 Long-term capital loss arising on transfer of shares of Adception Infotech Private Limited 21,77,193 Classification a long-term was accepted by the AO (see paragraph 7.3 and 7.4) Short-term capital gains (listed shares) Gains arising on transfer of listed shares 93,27,131 Classification as short- term was accepted by the AO Less: loss arising on transfer of listed shares 35,32,841 Net short-term capital gains 57,94,288 Total short term capital loss requested to be carried forward under the Income Tax Act 1961: Short term loss on unlisted shares (as per order passed by AO) 17,80,616 Short term loss on listed shares (as per return and confirmed by the AO in his order) 35,32,841 Total Loss 53,13,457 32. It was submitted that by way of the additional grounds, the Appellant prays that the short-term capital losses aggregating to Rs. 53,13,457/- ITA no. 5391/MUM/2024 Prashant Kothari 17 must be allowed to be carried forward in accordance with the provisions of the Act. The Appellant has suffered long-term capital loss of Rs. 21,77,193/- The said loss has already been allowed by the AO to be carried forward for set off in future assessment years and is therefore not a subject matter of dispute. 33. It was submitted that the capital gains/ losses arising on account transfer of share is a separate source of income and it is eligible to claim the benefit of Article 13(4) in respect of the capital gains under India -Singapore DTAA. In respect of losses, the Appellant is not claiming the benefit of article 13(4) of the India - Singapore DTAA and claims to be governed by the provisions of the Act in respect of carry forward of losses. It was submitted that in respect of each source of income, the Appellant is entitled to claim the provisions of the Act or the provisions of the India Singapore DTAA, whichever is more beneficial at the option of the Assessee. This is in accordance with provisions of section 90(2) of the Act and reliance in this regard was placed on the following decisions: • Matrix Partners India Investment Holdings, LLC vs. DCIT (ITA No. 3097/Mum/2023) (Mumbai -Tribunal) • Joint CIT vs. Montgomery Emerging Markets Fund [2006] 100 ITD 217 (Mum.) (SB) • IBM World Trade Corpn. vs. DDIT [2012] 148 TTJ 496 (Bangalore) affirmed by the Hon'ble Karnataka High Court in DIT vs. IBM World Trade Corpn. [2021] 436 ITR 641 (Karnataka) • ACIT vs. J. P. Morgan India Investment Company Mauritius Ltd [2023] 198 ITD 392 (Mumbai - Trib.) 34. Per contra, the Ld. DR has submitted that the set off of short term losses against the short term gains has already been allowed by the AO and it is only the net short term capital gains which have been considered by the AO. It was further submitted that though the assessee has a right to ITA no. 5391/MUM/2024 Prashant Kothari 18 avail the benefits of the provisions of the India Singapore DTAA or the domestic law whichever is beneficial, the issue is not about the taxability per se of the short term capital gains rather the issue is whether the assessee has an option not to set off short term losses against the short term capital gains and such an option has not been provided under the provisions of section 70 of the Act. Therefore once the AO has taxed the net short term capital gains after setting off the short term losses against the short term gains, there is no infirmity in the order so passed by the AO and therefore the additional ground so taken by the assessee deserved to be dismissed. 35. We have heard the rival contentions and purused the material available on record. The limited issue under consideration relates to short-term capital losses amounting to Rs. 53,13,457/- incurred during the year on sale of specified listed and unlisted shares which the assessee seeks to carry forward to subsequent years in accordance with the provisions of the Act instead of setting off against the short term capital gains. As far as short term capital gains is concerned, it has been submitted that the assessee seek to avail the benefit of Article 13(4) of India- Singapore DTAA and the short term losses thus should not be set off against short term capital gains and being allowed to be carried forward to subsequent years. We find that the AO has brought to tax the net short term capital gains (after setting off short term capital loss) and has denied the benefit of Article 13(4) of India- Singapore DTAA. We have already held supra that the assessee is eligible for the benefit of Article 13(4) of India-Singapore DTAA. Therefore, in light of the additional ground of appeal, the issue relates to segregation of short term capital losses and short term capital gains whereby the short term capital losses are sought to be carried forward and short term capital gains are sought to be eligible for benefit of Article 13(4) of India-Singapore DTAA. 36. We find that the matter relating to segregation of capital gains and capital losses, being separate sources of income for availing the tax treaty ITA no. 5391/MUM/2024 Prashant Kothari 19 benefits to the extent they are more beneficial to the assessee has been dealt with by various Benches of the Tribunal from time to time and we can gainfully refer to the latest decision of the Coordinate Bench in case of Matrix Partners India Investment Holdings, LLC (supra) where the matter has been examined at length and the relevant findings therein read as under: “6. The case of the assessee before us is to analyse whether assessee can be allowed to carry forward the loss without being set off against the capital gains in circumstances where both the situation aroses out of shares acquired prior to 01/04/2017 in the Indian Mauritius DTAA. It is also necessary to analyse if the DTAA between India Mauritius is interpreted in good faith as per Article 31 of Viena Convention on the Law of Treaties in the present facts of the case. 6.1. Admittedly, the assessee is registered under the laws of Mauritius and is engaged in investing in unlisted companies to achieve long term capital appreciation through multi-stage and multi-sector investments. It is involved in investing activity as per the objects of the DTAA which encouraged mutual trade and investment. It has made several investments over the years and earned profits as well as losses from these investments. 6.2. It cannot be ignored that, a prudent businessman makes investments for earning profits but also incurs losses, as it is part and parcel of making investments. The provisions of section 90(2) of the Act itself provides that, the provisions of the Act shall apply to the extent they are more beneficial to the assessee. Accordingly, the Appellant has claimed the exemption on capital gains earned on some shares and carried forward the capital loss on some shares under the Act. This is not in contravention of the object but is only a beneficial position opted by the assessee which is provided under law. 6.3. As far as the capital gain earned by the assessee from sale of shares of CFS during the year under consideration, claimed as exempt in view of Article 13(4) of the India Mauritius DTAA, Ld.AO allowed it. The Ld.AO disputed only carry forward of the short term capital loss suffered from sale of shares of Maharana, without being set off against the gain earned from sale of shares of Maharana. 6.4. A query was therefore raised by the bench whether, ‘Gains’ under Article 13(3)/(4) includes ‘loss’ ? 6.4.1. It was submitted that the primary purpose of a DTAAs amongst others is to provide tax relief by preventing double taxation. Further, section 90(2) of the Act, inter alia, provides that when the Government of India has entered into a DTAA with Government of any other country for granting relief of tax, or as the case may be for avoidance of double taxation, in relation to an assessee to whom such agreement applies, the provisions of the Act shall apply to the extent these are more beneficial to that assessee. It was ITA no. 5391/MUM/2024 Prashant Kothari 20 also submitted that, Section 90 of the Act, only grants relief, it does not impose any liability and the DTAA cannot act to the disadvantage of the taxpayer, and merely because India has entered into DTAA with Mauritius, the assessee can neither be denied the taxability under the scheme of the Act, nor can the DTAA be forced upon the assessee, who may wish to avail tax treaty benefit for one source of income and avail benefit in respect of loss under the Act as beneficial to the assessee as provided by law. 6.4.2. It is noted that, Article 31 of Viena convention on the law of treaties states that, treaties should be interpreted in good faith, in accordance with the ordinary meaning to be given to the terms of the treaties in their context, and in the light of the its object and purpose. It also states that the context for the purpose of interpretation of the treaty shall comprise in addition to the test, including its preamble and annexes. One of the most difficult areas of treaty interpretation is how to cope up with silence of absent terms, if the treaty dose not expressly make provision for the matter in issue, should it be assumed that it is not covered depends on the nature of the treaty and the interaction of the various elements of Viena rules. In the present facts of the case the double taxation avoidance agreements is based on the principle to provide tax relief by preventing double taxation. 6.4.3. As per India Mauritius DTAA read with section 90(2), capital gains are to be taxed based on the place of residence of the recipient, by granting relief of tax on such gains in India. Admittedly, the treaty is silent in respect of the loss if earned by an assessee and leaves it unclear whether, one has to deduce to interpret loss being included along with gain. This in our opinion can be possible subject to later negotiations and are not regulated by the treaty. The nature of the treaty in the present fact is key factor and therefore, what is not expressly granted is not permitted. 6.4.4. In so far as, applicability of good faith in interpreting the treaty provisions, we note that good faith differs from most of the other elements under the Viena rules. It applies to the whole process of interpreting for treaty rather than solely to the meaning of particular words or phrases within it. Although, it is difficult to give precise content to the concept generally, it does include one principle that applies to the interpretation of specific terms used in a treaty, commonly described as the principal “effectiveness”. The aspect of the principle of effectiveness is preferring an interpretation that fulfils the aims of the treaty and the intent of the contracting states as given in various Articles. 6.4.5. Applying the above rules to Article 13(4) of India Mauritius DTAA, it is clear that non taxability of the capital gains in India prior to 01/04/2017 cannot act to the disadvantage of the tax payer. This is because section 90(2) is clear to mean that Government of India entered into DTAA with the Government of Mauritius, according to which the capital gains is not taxable in India. However, the provisions of the act shall apply to the extent they are more beneficial to the tax payer. 6.4.6. The Ld.AR in support relied on following observations from the decision of Hon’ble Pune Bench in case of Patni Computers Systems Ltd., reported in (2008) 114 ITD 159 ITA no. 5391/MUM/2024 Prashant Kothari 21 8. The law laid down by the Hon'ble Supreme Court in binding on us under Article 141 of the Constitution of India. The prevailing legal position, therefore, is that once an income is held to be taxable in a tax jurisdiction under a double taxation avoidance agreement, and unless there is a specific mention that it can also be taxed in the other tax jurisdiction, the other tax jurisdiction is denuded of its powers to tax the same. To that extent, the worldwide basis of taxation in the scheme of the Indian Income-tax Act is no longer applicable in a situation provisions of a double taxation avoidance agreement entered into under section 90 apply. The next question then arises whether in a loss situation in the PE State, as is the case before us, can the assessee be forced to go for taxation in accordance with the provisions of the treaty with the said PE State. The provisions of section 90(2) of the Indian Income-tax Act are quite unambiguous and categorical in this regard. Section 90(2), inter alia, provides that when the Government of India has entered into a double taxation avoidance agreement with Government of any other country, \"in relation to an assessee to whom such agreement applies, the provisions of this Act shall apply to the extent these are more beneficial to that assessee\". Section 90 only grants relief; it does not impose any liability. Even without such provisions, Courts in US and Germany, as indeed in other parts of the world, have held that a treaty cannot act to the disadvantage to the taxpayer. In other words, therefore, merely because India has entered into a double taxation avoidance agreement with a foreign country, the assessee cannot be denied the taxability under the scheme of the Indian Income-tax Act. The scheme of the double taxation avoidance agreement cannot, therefore, be thrust upon the assessee. In this particular case, it is obviously to the advantage of the assessee that he is taxed in India on the basis of his worldwide income, which includes losses incurred abroad, and not to invoke the provisions of the IndiaJapan tax treaty. The provisions of the Indian Income-tax Act must, therefore, apply to that extent. Then comes the objection of the revenue that in the event of the assessee not opting for treatment on the basis of India-Japan tax treaty this year, he will be shut out from availing the benefits of the said treaty in the subsequent years. We see no support for this proposition. Under the Income-tax Act, every year is an independent unit, and it is for the assessee to examine whether or not, in the light of the applicable legal provisions and in the light of the precise factual position, the provisions of the Income-tax Act are beneficial to him or that of the applicable double taxation avoidance agreement. There is no specific bar on such an approach of the assessee, and in the absence thereof, we cannot impose the same. In any event, this question is relevant only in the year in which the assessee claims the treaty benefits and not in this year in which the provisions of the Act are clearly more beneficial to the assessee, and, therefore, the assessee does not claim the treaty protection. Just because the assessee may, in Assessing Officer's perception, may claim treaty protection in a subsequent year, the treaty provisions cannot be thrust on the assessee this year as well. In this view of the matter, the assessee was indeed eligible to claim taxation on worldwide basis, disregard the scheme of taxability under the India-Japan tax treaty, and, in effect, claim deduction of loss incurred by the PE in Japan. The CIT(A) was thus justified in his conclusion to the effect that losses of assessee's PE in Japan are to be taken into account while computing assessee's total income liable to tax in India. ITA no. 5391/MUM/2024 Prashant Kothari 22 Now coming to the contention whether each transaction can be considered as a separate source of income. 6.5. The Ld.AR placed reliance on the following observations by Hon’ble Mumbai Special Bench in case of Montgomery Emerging Market Fund reported in (2006) 100 ITD 217 in support of the above argument. Hon’ble Special bench observed the distinction between 'source of income' and 'head of income' and that there can be multiple source of income under the same head of income. Hon’ble Special Bench also observed that, what is taxed by the Act is not different source of income, independently and that income from different source is clubbed under respective heads that are finally aggregated into the total income. The relevant extract of the observations of the Hon’ble Special Bench in this regard held as under:- \"44. Therefore, it is very apparent that source of income does not mean head of income. The Assessing Officer has proceeded on a hypothesis as if the source of income is the head of income itself. This is not a proper construction of law provided in section 70. Short term capital gains/loss as well as long term capital gains/loss both are computed under the head \"capital gains\" for the aggregation of income culminating into total income which is taxable under the Income-tax Act. What is taxed by the Income-tax Act is not different sources of income independently, but income from different sources clubbed under respective heads and finally aggregated into the total income. The classification of income under different heads for computing the total income does not interfere with the independent character of different sources of income available to an assessee. Both, short term capital gains/loss and long term capital gains/loss are different sources of income, falling under the same head \"capital gains\". Even under short term capital gains, different transactions will be different sources of income resulting in short term capital gains/loss. Likewise, different transactions of long term capital assets will be different sources of income for an assessee to arrive at long term capital gains/loss. This is reflected in the scheme of computation of capital gains provided in section 48 where gains or loss is computed on the basis of individual asset and transaction and not on the basis of class of assets. Therefore, we have to agree with the argument of the learned senior counsel that every transaction of a property is a different source of income for the assessee. Head of income is not the source of income. Source of income is having the direct nexus with the stream or fountain out of which the income springs to the assessee. Head of income is provided for clubbing purpose of those like minded incomes derived from different sources for the purpose of aggregation and allowable deductions. (emphasis supplied) 6.5.1. From the above one can infer that there is no basis in grouping long term/short term capital assets. It can also be inferred that, long term and short term are different sources of income. Further, Hon’ble Special bench also observed that even the different short term assets and long term assets involved in the respective transactions are again different sources of income. In the present facts of the case, losss earned from sale of shares of Maharana and the gain earned from sale of shares of Maharana are therefore different sources of income. And further as per the observations of ITA no. 5391/MUM/2024 Prashant Kothari 23 Hon’ble Special Bench, even under short term/long term computation, every transaction is a different source. 6.5.2. Further, the Co-ordinate Bench of this Tribunal in the case of Credit Suisse (Singapore) Co. (Mauritius) Ltd. In ITA No. 1107 and 1108/Mum/2022, upheld the theory of the segregation of capital gain for drawing DTAA to the extent of more beneficial to the assessee. The relevant finding of the Tribunal is reproduced as under: “8. In the case of Flagship Indian Investment Co (Mauritius) Ltd.(supra), the assessee had claimed benefit of Article -13 of the DTAA in respect of 'Capital Gains' and had sought to carry forward capital losses of the earlier years as the same could not be set off against capital gains for the relevant assessment year. The Assessing Officer and CIT(A) rejected assessee's claim of carry forward of capital losses on the pretext that since the assessee had claimed benefit of exemption under Article 13 of the DTAA on capital gains, capital losses are also exempt. When the issue reached before the Tribunal, the Coordinate Bench placing reliance on the decision in the case of CIT vs. Western India Oil Distributing Co. Ltd., 249 ITR 517 (SC) and CIT vs. Manmohan Das 59 ITR 699(SC) and also after considering CBDT Circular No.22 of 1944 dated 29/07/1944 held that the assessee is justified in claiming carry forward of brought forward losses of the earlier years to the subsequent years and at the same time upheld assessee's claim of capital gains as exempt under the provisions of Article -13 of the DTAA. Thus, the Tribunal accepted the theory of segregation of capital gains and capital losses for drawing benefits of DTAA/the Act to the extent they are more beneficial to the assessee. 9. In the case of Goldman Sachs Investments (Mauritius) Ltd. (supra), the Co- ordinate Bench placing reliance on the decision of Flagship Indian Investment Co (Mauritius) Ltd.(supra) reiterated the position that the assessee is entitled to the benefit of Article-13 of DTAA in respect of capital gains and allowed carry forward of capital loss under the provisions of the Act. For the sake of completeness relevant extracts of the findings of the Coordinate Bench are reproduced herein under:- \"12. ……….We are unable to comprehend that now when admittedly the short term and long term capital gains earned by the assessee from transfer of securities during the year in question are exempt under Article 13 of the India- Mauritius Tax Treaty, where would there be any occasion for seeking adjustment of the brought forward STCL against such exempt income. Our aforesaid view is squarely covered by the order of the ITAT, Mumbai in the case of Flagship Indian Investment Company (Mauritius) Lid. (supra). In the case of the assessee before the Tribunal that pertained to A. Y. 2005-06 the assessee had brought fonvard capital loss of Rs. 87,06,49,335/-from transfer of securities in A.Y. 2002-03. The aforesaid loss was determined in the hands of the assessee vide an intimation under Sec. 143(1) for A.Y 2002-03. Observing, that since the capital gains were not taxable in India as per Article 13 of the IndianMauritius Tax Treaty, the A.O being of the view that capital loss would also be exempted, and therefore, the assessee would not be entitled to claim the set-off of the same against the capital gains for the relevaye assestment years. On benefit of carry forward of such capital losses of the earlier years, thus, declined the appeal, the CIT(A) upheld the order of the A.O. On further appeal, the Tribunal concluded that the assessee was fully justified in claiming the carry forward of the capital losses of the earlier years to the ITA no. 5391/MUM/2024 Prashant Kothari 24 subsequent years, and both the A.O and the CIT(A) were in error in not allowing the same. Accordingly, the A.O was directed to allow the carry forward of the capital losses of the earlier vears to the subsequent years, according to law. As in the aforesaid case, in the case of the present assessee before us, as the short term and long term capital gains earned by the assessee from transfer of securities during the year in question are admittedly exempt from tax under Article 13 of the IndiaMauritius tax treaty, therefore, the brought forward STCL of the previous years was rightly carried forward by the assessee to the subsequent years……… The Tribunal further held: ……….. Now coming to the claim of the revenue that as Sec. 45 of the Act, by virtue of India-Mauritius tax treaty was rendered unworkable in respect of \"capital gains\" derived by the assessee from transfer of securities in India, therefore, the \"capital losses\" would also not form part of the assessee's \"total income\", and thus, could not be computed under the Act. we are afraid does not find favour with us. Apropos the aforesaid observation of the A.O, we are of the considered view that the same had been arrived at by loosing sight of the fact that the \"capital losses\" in question had been brought forward from the earlier years and had been determined and allowed to be carried forward by the A. while framing the assessment for A.Y 2012-13, vide his order passed u/s 143(3), date 19-3-2015 and had not arisen during the year under consideration i.e A.Y 2013-14. Accordingly, the claim of the A.O that the \"capital losses\" b/forward from the earlier years, pertaining to a source of income that was exempt from tax was thus not to be carried forward to the subsequent years, being devoid of any merit, is thus rejected. At this stage, we may herein observe that it is for the assessee to examine whether or not in the light of the applicable legal provisions and the precise factual position the provisions of the IT Act are beneficial to him or that of the applicable DTAA. In any case, the tax treaty cannot be thrust upon an assesses. In case the assessee during one year does not opt for the tax treaty, it would not be precluded from availing the benefits of the said treaty in the subsequent years. Our aforesaid view is fortified by the order of the ITAT, Pune in Palm Computer Systems Ltd. (supra). We thus in terms of our aforesaid observations, not being able to persuade ourselves to subscribe to the view taken by the A.O/DRP, who as noticed by us hereinabove had sought adjustment of the b/forward STCL against the exempt short term and long term capital gains earned by the assessee during the year in question, thus 'set aside' the order of the A.O in context of the issue under consideration. Accordingly, we direct the A.O to allow carry forward of the b/forward STCL of Rs. 3926,36,70,910/- to the subsequent years.\" From the reading of above decisions, it is evident that there is no impedement in segregating capital losses and capital gains from different source of income under the head 'capital gains' for the purpose of claiming the benefit of DTAA/ provisions of the Act as the case may be, whichever is more beneficial to the assessee in terms of section 90(2) of the Act.” 7. It is relevant to understand the scheme of the act, to find out if the capital gains earned by the assessee from sale of shares that does not form part of total income of virtue of DTAA would enter the computation of total income. Section 4 of the act is the charging section that describes the rates on income charged for a particular assessment year. Section 2(45) defines the ITA no. 5391/MUM/2024 Prashant Kothari 25 total income to be the amount of income referred to section 5 and computed in the manner laid down in the Act. Section 14 of the act categorises income under various heads of income like salaries, income from house property, profit and gains from business of profession, capital gains and income from other sources. Section 66 to 80 deals with the aggregation of income and set off /carry forward of loss. 7.1. Hon’ble Bombay High Court in case of CIT vs. M. N. Raigi reported in (1949) 17 ITR 180 considered as to whether share income of a partner which does not form part of the total income, is to be added to the total income in order to determine the rate at which income tax was payable by the partner. Section 16 of Income tax Act 1922, corresponding to section 66 of the Income tax Act 1961 was subject matter for consideration in the aforesaid decision. Hon’ble Court after analysing the scheme of computation observed and held as under : Now, the scheme of the Indian Income-tax Act is that income, profits and gains of an assessee are liable to tax subject to certain exemptions and exceptions. Although certain sums may be exempted from taxation, still they may form part of the total income of an assessee in order to determine the rate at which income- tax is payable. Therefore it follows that the total income of an assessee is not necessarily wholly subject to tax. Portions of it may be exempt from taxation and yet may be computed for the purpose of determining the rate at which tax is payable. Mr. Joshi's contention is that all sums which are exempted from taxation must still be brought into the total income of the assessee for the purpose of determining the rate at which income-tax is payable, except where the statute in terms excludes these sums from the total income of the assessee. It is pointed out that in Section 4, sub-section (3), certain incomes, profits or gains falling within the classes mentioned in that sub-section are not to be included in the total income of the person receiving the income, and Mr. Joshi argues that except in these cases, in every other case, although the tax is not payable on certain sums, they must be included in the total income for the purpose of determining the rate. It is therefore argued that although under Section 25(4) an exemption is given to the assessee because there is a succession to the business carried on and no tax is payable by the assessee, the sum which is exempted under this sub-section does form part of the total income for the purpose of determining the rate. Total income is defined in Section 2(15) of the Act, and it means total amount of income, profits and gains computed in the manner laid down in this Act. Therefore, it would be erroneous to suggest that total income is to be determined only in the light of Section 4, sub-section (3), of the Act. How total income is to be computed and determined depends upon the various provisions contained in the Act as a whole. Then we might look at various sections which provide for exemptions from the payment of tax. There is Section 7 which contains various provisos which cover sums not liable to tax. Similarly Section 8. Section 14 also contains exemptions with regard to certain sums on which no tax is payable, and Section 15 contains exemptions in cases of life insurance. It will be noticed that the language used in all these sections, to which I have referred, is similar, if not indentical, with the language used in Section 25(4), viz., that the tax is not payable on these different sums. Now, if Mr. Joshi's contention was sound, then with regard to these various exemptions which I have enumerated, although tax is not payable, they should all be included in the total income for the purpose of ITA no. 5391/MUM/2024 Prashant Kothari 26 determining the rate payable in respect of income-tax. Now, the short and conclusive answer to that contention is Section 16 of the Indian Income-tax Act. It is that section which in terms includes in the total income of an assessee only certain sums which are exempted from the payment of tax. Therefore, by implication, where the sums are not included in the total income by Section 16, those sums are not only exempted from the payment of tax, but they are also excluded from the total income. Now, when we look at Section 16, it does not include the sum covered by Section 25(4) as a sum which is to be included in the total income of the assessee. The scheme, therefore, of the Income-tax Act is clear and is very different from what Mr. Joshi suggests it is. The scheme is that wherever one finds an exemption or exclusion from payment of tax, the exemption or exclusion also operates for the purpose of computing the total income. Not only is the sum not liable to tax, but it is also not to form part of the total income for the purpose of determining the rate. When the Legislature indends that certain sums, although not liable to tax, should be included in the total income, it expressly so provides, as it is done in Section 16, and therefore Prima facie, when we come to Section 25(4) and when we find that the assessee is not liable to pay tax on the sum received by him as his share of the partnership, that sum cannot and does not form part of his total income. Mr. Joshi has not succeeded in pointing out to us any provision in the Act whereby this particular sum covered by Section 25 (4) has been made a part of the total income of the assessee. Therefore, in my opinion, the share of the profit of the assessee in the firm of S.B. Billimoria & Co., in the accounting year 1942 cannot be included in the total income of the assessee for ascertaining the rate of income-tax. 7.2. It is thus clear from the above observation from the Hon’ble Bombay high court that, income does not form part of the total income do not enter the computation of the total income at all applying the above principle above ratio to the present facts of the case the capital gains that are already exempt under the DTAA which are binding on the parties being exempt in India, cannot enter the computation of total income of assessee in India. Therefore, setting off the loss suffered by the assessee from sale of shares of Maharana, against the gains earned from sale of shares of Maharana would tantamount to taxing the gain in India which is in violation of Article 13(3)(4) of DTAA as it stood prior to amendment. 8. Now we shall examine the provision relating to carry forward of the loss suffered from sale of shares of Maharana the assessee in the present case as carry forwarded long-term capital loss as per section 74 of the Act. Reference is made to the CBDT Circular No. 22 of 1944 dated 29/07/1944 that states that: “If the total income is a loss it has to be carry forwarded subject to the provisions us. 24(2) of the Indian income tax act 1922 and cannot be set off against any income which does not form part of the total income.” The circular also stated that, “the non resident otherwise would not get any relief in the Indian Taxation on account of loss incurred by in India.” Accordingly the Ld.AO is directed to grant the carry forward of the loss as claimed by the assessee.” ITA no. 5391/MUM/2024 Prashant Kothari 27 37. In light of aforesaid discussion, we find merit in the contention advanced by the ld AR that where the assessee wishes not to claim the tax treaty benefit and seeks to be governed by the provisions of the Act, the assessee be allowed to carry forward short-term capital losses incurred during the year amounting to Rs. 53,13,457/- on sale of specified listed and unlisted shares to subsequent years without setting off the same against the short term capital gains. The Assessing officer is directed accordingly to allow carry forward of short term capital losses amounting to Rs 53,13,457/- and in respect of gross short term capital gains, the Assessing officer is directed to allow the benefit of Article 13(4) of India- Singapore DTAA as we have discussed above. In the result, the additional ground of appeal is allowed. In the result, the appeal of the assessee is allowed. Order pronounced in open court on 29.05.2025. Sd/- (AMIT SHUKLA) Sd/- (VIKRAM SINGH YADAV) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 29/05/2025 Anandi Nambi, Steno ITA no. 5391/MUM/2024 Prashant Kothari 28 Copy of the Order forwarded to: BY ORDER, (Asstt. Registrar) ITAT, Mumbai Date Initial 1. Draft dictated on Sr.PS 2. Draft placed before author Sr.PS 3. Draft proposed & placed before the second member JM/AM 4. Draft discussed/approved by Second Member. JM/AM 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. File sent to the Bench Clerk Sr.PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "