The Mumbai bench of Income Tax Appellate Tribunal (ITAT) has held that the capital loss incurred under the India-Ireland Double Taxation Avoidance Agreements (DTAA) cannot be set off against short term capital gain (STCG) derived from sale of rights of entitlement.
The bench of Amit Shukla (Judicial Member) and Amarjit Singh (Accountant Member) has observed that the capital loss incurred under the provisions of the Income Tax Act read with Article 13(5) of India-Ireland DTAA cannot be set off against short term capital gain derived from sale of rights of entitlement because such case is not subjected to tax in India as per Article 13(6) of DTAA and therefore, assessee has rightly excluded from the computation of total income.
The appellant/assessee, Vanguard Funds Public Limited Company Vang FTSE Emerging MKTS UCITS ETF (VFEME) is a fund organized as a company in Ireland and is a tax resident of Ireland.
It is registered with Securities and Exchange Board of India as a Foreign Portfolio Investor (FPI). VFEME invests in Indian capital markets in accordance with the SEBI resolutions and during the relevant Financial Year it has earned income from capital gain, dividend and interest.
The AO in his draft assessment order has noted that assessee has claimed short term capital gains of Rs.1,60,24,148/-, which assessee has claimed as exempt under Article 13(6) of India- Ireland DTAA which provides that gains from transfer/alienation of any property other than those mentioned in Articles 13(1) to 13(5) shall be taxable only in Ireland.
The case of the Assessing Officer that assessee has not set off the same against short term capital loss which has been carried forward to the next year. He held that as per the provision of Section 70 or 71 of the Income Tax Act the current year capital losses are to be set off against current year capital gains as per the manner specified therein and as per the provision of Section 74 of the Income Tax Act, the brought forward losses have to be set off against the current year capital gain.
The AO held that before giving any relief as per Section 90 read with Articles of DTAA, the income of the assessee is to be computed first as per the normal provisions of the Act. Thus, in the draft assessment order he has set out the short term capital gain against the short term capital loss holding that short term capital gain on sale of rights entitlement is taxable and has changed the claim of exemption under Article 13(6) by the assessee.
The issue raised was whether capital gain earned from sale of ‘rights entitlement’ can be claimed as exempt under Article 13(6) of India-Ireland DTAA which provides that gains from transfer / alienation of any property other than those mentioned in Articles 13(1) to 13(5) shall be taxable only in Ireland.
The tribunal while allowing the appeal held that rights entitlements is not covered under Article 13(4) and Article 13(5) so as to be taxed in the country of source i.e. in India, albeit, it falls under Article 13(6) whereby, gain on alienation of any property which are not covered in para 1 to 5 is taxable only in the resident state i.e. Ireland.
Case Details
Case Title: Vanguard Funds Public Limited Company Vang FTSE Emerging MKTS UCITS ETF Versus ACIT
Case No.: ITA No.4658/Mum/2023
Date: 19/03/2025
Counsel For Appellant: Anish Thacker
Counsel For Respondent: Krishna Kumar
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