The Mumbai bench of the Income-tax Appellate Tribunal (ITAT) has held that Goldman Sachs India Investments, a Singapore resident entity, which is registered as a Foreign Institutional Investor (FII) in India, can rely on the provisions of the Income-tax (I-T) Act, if these are more beneficial.
Section 90 (2) of the I-T Act provides that if a taxpayer is covered by a tax treaty entered into by India, then the provisions of the Act shall apply to the extent these are more beneficial.
In this case, during the financial year 2011-12, the I-T department had denied carry forward of short-term capital losses aggregating to Rs. 20.59 crore to subsequent years. This denial was on the ground that the capital gains earned by the FII are exempt from tax under the India-Singapore tax treaty.
It may be recalled that subsequent to the two countries signing a protocol to the tax treaty, India has got the right to levy capital gains tax from April 1, 2017, for investments routed through Singapore. A 50% concessional tax rate was applicable for two-years to aid in a smooth transition.
This case, before the ITAT, pertains to the period prior to signing of the protocol. The tax tribunal held that the capital losses incurred from transactions in the Indian capital markets should be construed as income accruing or arising in India falling within the scope of Section 5 of the I-T Act. Therefore, such short-term capital losses would be eligible to be carried forward to subsequent years. The ITAT bench rejected the tax department’s argument that since the capital gains earned by the FII are exempt under the provisions of the India-Singapore tax treaty, the capital losses are to be ignored.
The ITAT concluded: “Based on judicial jurisprudence, the provisions of the tax treaty cannot be thrust upon the assessee (taxpayer) 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 assessing officer 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 20.59 crore 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,” held the ITAT bench.