Set-Off of STCL on Which STT Was Paid Against STCG Not Subject to STT Is Valid | ITAT

Case Details: iShares Msci EM UCITS ETF USA ACC vs. Deputy Commissioner of Income Tax - [2024] 164 taxmann.com 56 (Mumbai-Trib.)

Judiciary and Counsel Details

• Prashant Maharishi, Accountant Member & Sandeep Singh Karhail, Judicial Member
• Anish Thacker, Pranay Gandhi & Lekh Mehta, ARs for the Appellant.
• Anil Sant, Addl. CIT DR for the Respondent.

Facts of the Case

Assessee, a Mauritius-based company, was registered with the Securities and Exchange Board of India as a foreign portfolio investor (FPI). During the relevant assessment year, the assessee earned short-term capital gain that was not subject to securities transaction tax (STT) and was taxable at the rate of 30 percent. The assessee also incurred short-term capital loss subject to STT and was in the 15% tax category.

While furnishing the return of income, the assessee had set off short-term capital losses against the short-term capital gains. During the assessment proceedings, the Assessing Officer (AO) contended that the set off of losses having lower taxability with gains of higher taxability was not in order. Thus, the AO computed set-off of short-term capital loss covered under section 111A against short-term capital gains chargeable to tax at the rate of 15% and did not grant any set-off short-term capital gain which was chargeable to tax at the rate of 30%.

On appeal, the Dispute Resolution Panel (DRP) also confirmed the action of the AO. Aggrieved by the order, the assessee preferred an appeal to the Mumbai Tribunal.

ITAT Held

The Tribunal held that Section 70(2) provides that where the assessee suffers a short-term capital loss, the assessee shall be entitled to set off such losses against capital gain computed similarly as under sections 48 to 55 of the Act. According to section 70(3), where the assessee suffers long-term capital loss, the assessee shall be entitled to set off such losses against the long-term capital gains computed similarly as provided under sections 48 to section 55.

Sections 48 to 55 do not provide for the tax rate on capital gain. It specifically lays down the computation mechanism of capital gain and certainly not tax on such capital gains. It is not the case that either in the computation of short-term capital gains or short-term capital loss, there is any difference in the manner of computation. Therefore, short-term capital gain and short-term capital loss arising during the year are computed similarly as provided under sections 48 to 55 of the Act.

Thus, there was no reason to deprive the assessee of set-off of short-term capital losses suffered by the assessee for the same year against the short-term capital gains earned by the assessee. Such a claim was in accordance with the provisions of section 70(2) of the Act.

List of Cases Reviewed

• Rungamatee Trexim ITA number 812 of 2008 dated 19-12-2008 followed (para 22).

List of Cases Referred to

• First State Investments (Hongkong) Ltd. v. Asstt. DIT (International Taxation) [2009] 33 SOT 26 (Mumbai) (para 011)
• Kineta Global Ltd. v. IDBI Bank Ltd. [2024] 160 taxmann.com 686 (NCLAT – Chennai) (para 011).