Carry Forward of STCL allowed Despite Treaty-Exempt Gains: ITAT Mumbai Rules in Favour of Goldman Sachs (Singapore) Pte [Read Order]

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has ruled in favour of Goldman Sachs (Singapore) Pte., allowing the carry forward of short-term capital losses (STCL) incurred in AY 2014-15 despite the company claiming capital gains as exempt under the India–Singapore Double Taxation Avoidance Agreement (DTAA) in later years.

These appeals were filed by Goldman Sachs (Singapore) Pte. relate to the denial of carry-forward of brought-forward capital losses by the AO and the CIT(A) for Assessment Years (AYs) 2016–17 and 2021–22.

The assessee, a Singapore-incorporated company registered as a Foreign Portfolio Investor with SEBI, invests in the Indian capital markets and earns income in the form of capital gains, dividends, and interest. While filing its returns, the assessee claimed certain capital gains as exempt under Article 13 of the India-Singapore DTAA.

However, the AO disallowed the carry forward of STCL amounting to ₹37.55 crore from AY 2014-15, reasoning that since the gains were exempt under the treaty, the corresponding losses should also be treated as non-allowable. The CIT(A) upheld this approach, prompting the assessee to appeal to the ITAT.

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The assessee contended that the eligibility to carry forward losses is determined in the year the loss is incurred, and these losses were computed under domestic law in AY 2014-15. It was submitted that once losses are allowed under the Income Tax Act, their carry forward cannot be denied merely because the assessee chooses to claim treaty benefits in subsequent years.

The assessee relied on coordinate bench rulings, including ACIT v. J.P. Morgan India Investment Co. (Mauritius) Ltd. [2022] and prior cases involving Goldman Sachs’ sister concerns, which held that the right to carry forward capital losses remains intact even when capital gains are later exempt under a treaty.

The assessee emphasised that Article 13 of the India–Singapore DTAA, like its Mauritius counterpart, vests exclusive taxing rights on capital gains with the country of residence, without extinguishing the taxpayer’s pre-determined rights under domestic law.

The Tribunal noted that India, as the source country, consciously relinquishes its right to tax certain capital gains under the DTAA, but this does not automatically negate the right to carry forward losses established under the Income Tax Act.

The Tribunal examined the AO’s reasoning and observed that setting off brought forward losses against treaty-exempt gains would, in effect, bring the exempt income to tax, an outcome inconsistent with both the DTAA and the settled principle of loss carry forward under section 74.

The Tribunal emphasised that taxpayers can choose between domestic law and treaty provisions under section 90(2) of the Act, and once losses are beneficially computed under domestic law, these must be allowed to carry forward irrespective of later treaty elections.

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Further, the Tribunal reviewed earlier ITAT decisions, including Goldman Sachs India Investments (Singapore) Pte. Ltd. and Goldman Sachs Investment (Mauritius) Ltd., where similar facts led to the allowance of STCL carry forward. Both rulings underscored that the computation and determination of losses in years governed by domestic law remain valid, and subsequent reliance on treaty benefits does not invalidate these losses.

The Tribunal observed that the AO’s attempt to set off past losses against exempt gains contradicted the intent and operation of Article 13 of the India–Singapore DTAA and judicial precedents.

Consequently, the two-member bench comprising Amith Shukla (Judicial Member) and Padmavathy S (Accountant Member) held that the brought forward STCL of ₹37.55 crore from AY 2014-15 should be carried forward to subsequent years.

The Tribunal allowed the assessee’s appeal for both AY 2016-17 and AY 2021-22, ruling that the AO and CIT(A) erred in denying the benefit of carry forward.

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