S. 90 : Double taxation relief-Capital gains-Exempt income-Set-off of losses-Carry-forward allowed-No set-off of capital losses against exempt gains permitted- Carry-forward of losses for future years is allowed, subject to that the set-off must be applied only to income which is taxable in India-DTAA-India-Mauritius. [S. 70, 74(1), 90(2), Art. 4, 13(3B) ,13(4)]
The assessee, TVF Fund Ltd, a company incorporated in Mauritius and registered with SEBI as a Foreign Portfolio Investor (FPI), earned LTCG of Rs.225 crores and STCG of Rs. 39 crores during AY 2021-22 from the sale of shares and derivatives acquired prior to 01.04.2017. The assessee, a resident of Mauritius under Article 4 of the India-Mauritius DTAA, claimed exemption for these gains under Article 13(3) and 13(4) of the DTAA, holding that such gains are taxable only in Mauritius. The assessee also carried forward LTCL of Rs. 45 crores for AY. 2020-21 and Rs. 11 crores for AY 2021-22, as well as STCL of Rs. 9 crores after setting off Rs. 3 crores in AY 2021-22. The AO issued a show-cause notice on 26.12.2022 and passed an order setting off the brought-forward capital losses against the exempt capital gains, thereby restricting the exemption claimed under the DTAA. The DRP upheld the order of the AO. The Tribunal held that capital gains on shares and derivatives acquired prior to 01.04.2017 are exempt from tax in India under Article 13(3) and 13(4) of the India-Mauritius DTAA, as such gains are taxable only in Mauritius. The Tribunal also held that the set-off of capital losses against exempt income is not permissible as the gains are not chargeable to tax in India, no loss can be set off against such exempt income. The Tribunal also held that carry-forward of losses for future years is allowed, subject to that the set-off must be applied only to income that is taxable in India. (ITA No. 4632/Mum/2023, dt. 23-01-2025)(AY.2021-22)
TVF Fund Ltd. v. Dy. CIT (Mum.)(Trib.) www.itatonline.org
[Coram : Hon’ble Smt. Beena Pillai (JM) and Hon’ble Ms. Padmavathy S (AM)]