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Singapore Entity can carry forward short-term capital losses



Goldman Sachs India Investments (Singapore) PTE Limited Vs DCIT (ITAT Mumbai)

1. Section 90(2) of Income Tax Act provides that where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax (Double Taxation Avoidance Agreement or DTAA) then, the provisions of the Act shall apply to the extent, they are more beneficial to the assessee.

2. Under section 74 , if capital loss cannot be wholly set off, the amount of loss not so set off shall be carried forward to the following eight assessment years.

Facts:

1. Assessee is a FII incorporated in Singapore, registered with the SEBI and has incurred a short term capital loss (STCL) of Rs 20.59 Cr.

2. The AO claimed that since the capital gains earned by the Assessee is exempt under the provisions of the India- Singapore treaty (DTAA), it follows that capital losses are to be ignored. So the AO did not allow the assessee to carry forward the STCL.

3. The assessee’s contention was that, in view of the provision of Section 90(2) of the Act, the provisions of the Act or DTAA, to the extent more beneficial to the assessee would apply and so instead of DTAA, provisions of Income Tax could be made applicable and losses could be carried forward.

The Mumbai ITAT held as below:

1. The provisions of the DTAA cannot be thrusted upon the Assessee simply because the Assessee is a tax resident of a country with which India has entered into a tax treaty or on account of the mere perception of the AO that the Assessee may claim benefits under the tax treaty in subsequent years.

2. Having regard to the provisions of section 90(2) of the Act and given that the provisions of section 74 of the Act permit the Assessee to carry forward capital losses to subsequent assessment years, the provisions of the Act are more beneficial than the provisions of the IS treaty. Short term losses should be eligible to be carried forward.

3. Accordingly, we are of the view that the capital losses incurred from transactions in the Indian capital markets amounting to Rs 205,969,056 should be construed as income accruing or arising from transactions undertaken in India falling within the scope of section 5 of the Act and therefore, the same should be eligible to be carried forward to subsequent years in accordance with the provisions of section 74 of the Act. We allow this issue of assessee.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal of assessee is arising out of the order of Dispute Resolution Panel-I, Mumbai [in short ‘DRP’], in objection No. 31 vide direction dated 07.07.2016. The Assessment was framed by the Dy. Commissioner of Income Tax, (IT), Circle 2(3)(2), Mumbai (in short ‘DCIT/AO’) for the assessment year 2012-13 vide order dated 21/09/2016 under section 143(3) read with section 144C (13) of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’).

2. The only issue in this appeal of assessee is against the order of DRP and Assessing Officer in denying the carry forward of short-term capital loss. For this, assessee has raised the following two grounds: –

“Aggrieved by the final order passed by the Deputy Commissioner of Income-tax (International Taxation) – 2(3)(2) Mumbai (‘AO’) dated 21 September 2016, under section 143(3) read with section 144C(13) of the Act, in pursuance of the directions issued by Dispute Resolution Panel I (‘DAP’), Mumbai, Goldman Sachs India Investments (Singapore) Pte Limited (‘the Appellant’) respectfully submits that the learned AO has erred in passing the order on the following ground:

1. The learned AO has denied the Appellant’s right to carry forward the short-term capital losses incurred during the Assessment Year 2012-13 amounting to Rs. 205,969,056/- to subsequent years, on the ground that the capital gains earned by the Appellant are exempt from tax under the Double Taxation Avoidance Agreement (DTAA) entered into between India and Singapore. In the course of issuing the final assessment order, the AO has ignored the following –

the provisions of section 90(2) of the Act which provides that where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to an Appellant to whom such agreement applies, the provisions of the Act shall apply to the extent, they are more beneficial to that Appellant;

and the fact that every assessment year is a separate unit and it is upto the discretion of the Appellant to determine whether the provisions of the Act are more beneficial or the provisions of DTAA.

2. The learned AO failed to follow the decision of the jurisdictional Tribunal in the case of Flagship Indian Investment Co. (Mauritius) Ltd v. ADIT (IT) (2008) 114 ITD 159 (Mumbai ITAT).”

3. Briefly stated facts are that the assessee company is incorporated in Singapore and registered with the Securities and Exchange Board of India (SEBI) as a sub-account of Goldman Sachs & Co (Registration No. IN-US-FA-0220-94). Goldman Sachs & Co. is registered with the SEBI as a FII. During the financial year ended 31.03.2012 relevant to this AY 2012-13, the assessee company has incurred short term capital loss amounting to Rs.20,59,69,056/-. The Assessing Officer during the course of assessment proceedings required the assessee to explain as to why the short term capital loss is incurred during the Assessment Year 2012-13 should be allowed to be carry forward to subsequent years. The assessee before Assessing Officer submitted that it is a tax resident to Singapore and hold a valid tax resident certificate. India has entered into a Double Taxation Avoidance Agreement (DTAA) with Singapore.

Thus, in view of the provision of Section 90(2) of the Act, the provisions of the Act, to the extent more beneficial to the assessee would apply. The Assessing Officer has not accepted the scheme of the assessee and disallowed. The DRP also confirmed the action of the Assessing Officer. Aggrieved, assessee is in appeal before Tribunal.

4. Before us, the learned counsel for the assessee explained the fact that the Assessing Officer has claimed that since the capital gains earned by the Assessee is exempt under the provisions of the IS treaty, it follows that capital losses are to be ignored. Pursuant to concluding on the matter of capital losses for the current year, the Assessing Officer has further denied the Assessee’s to claim carry forward of such capital losses to subsequent years. In this connection, it is pertinent to note that as per provisions of section 74 of the Act, after the computation of capital gains if loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following eight assessment years.

In the instant case the Assessee had incurred short-term capital losses, the Assessee has elected to be assessed under the provisions of the Act and has claimed carry forward of losses. As noted from the provisions of section 74 of the Act that once the amount of capital losses to be carried forward under section 74 of the Act are quantified (and not disputed by the Revenue), it follows that such losses would be permitted to be carried forward and be available for set off against taxable income of subsequent years. While the set- off of such losses in any subsequent year under assessment may be examined, where the same have not been offset in a subsequent year under assessment, it is not open to the Assessing Officer to deny the carry forward of losses so determined and quantified in a prior year. In light of the above, we noted that the AO has erred in denying the carried forward of short-term capital losses claimed by the Assessee in the return of income filed for AY 2012-13.

5. The learned Counsel for the stated that the assessee’s issue is covered in assessee’s sister concern case in the case of Goldman Sachs Investments (Mauritius) Ltd. Vs. DCIT (2020) 120 taxmann.com 23 (Mum-Trib.), wherein the following ground was adjudicated. The learned Counsel for the assessee took us through Para 12 of the order and finally stated that “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 assessee. 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 Patni 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. The Grounds of appeal Nos. 1 and 2 are allowed in terms of our aforesaid observations.”

6. From the above, we noted that it is very clear that while determining taxability of the income of an assessee, if provisions of the Act are more beneficial as compared to the tax treaty then the beneficial provisions of the Act will apply in determining the taxability of such income. Thus, having regard to the provisions of section 90(2) of the Act and given that the provisions of section 74 of the Act permit the Assessee to carry forward capital losses to subsequent assessment years, the provisions of the Act are more beneficial than the provisions of the IS treaty. For the year under consideration, the Assessee has filed its return of income in accordance with the provisions of the Act.

Based on judicial jurisprudence, the provisions of the IS treaty cannot be thrusted upon the Assessee simply because the Assessee is a tax resident of a country with which India has entered into a tax treaty or on account of the mere perception of the AO that the Assessee may claim benefits under the tax treaty in subsequent years. Accordingly, we are of the view that the capital losses incurred from transactions in the Indian capital markets amounting to Rs 205,969,056 should be construed as income accruing or arising from transactions undertaken in India falling within the scope of section 5 of the Act and therefore, the same should be eligible to be carried forward to subsequent years in accordance with the provisions of section 74 of the Act. We allow this issue of assessee.

7. In the Result, the appeal of assessee is allowed. Order pronounced in the open court 09.04.2021

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