Income Tax Act, 1961

Section 74

Loss - Capital loss - 'Capital losses' brought forward from earlier years, pertaining to a source of income that was exempt from tax -

Assessee, based at Mauritius, claimed short-term capital gains from transfer transactions carried out in India for the year under consideration as exempt under Article 13 of Indo-Mauritian DTAA. AO set off short-term capital losses brought forward from earlier assessment years against short term capital gains for the concerned year and permitted to carry forward only balance short-term capital losses instead of entire brought forward short term capital losses. Assessee challenged this. Revenue's case was that when section 45, by virtue Indo-Mauritian DTAA was rendered unworkable in respect of 'Capital gains' derived by assessee, the 'Capital losses' would also not form part of its 'total income', and thus, were not required to be computed under the Act. Held: Short-term and long-term capital gains earned by assessee from transfer of securities during the year in question were admittedly exempt from tax under Article 13 of the India-Mauritius tax treaty, therefore, brought forward STCL of earlier years was rightly carried forward by assessee to the subsequent years. Further, 'capital losses' in question had been brought forward from earlier years and had been determined and allowed to be carried forward by AO while framing the assessment for assessment year 2012-13 and had not arisen during the year under consideration, i.e., assessment year 2013-14. Accordingly, claim of AO that 'capital losses' brought forward from earlier years, pertaining to a source of income that was exempt from tax was thus not to be carried forward to the subsequent years, was devoid of any merit, and was rejected.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2013-14

section 234C

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