STT-Paid STCL Set-Off allowed against 30% STCG Despite 15% Rate: ITAT Quashes Denial [Read Order]

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) set aside denial of set-off ruling that short-term capital loss (STCL) arising from transactions on which Securities Transaction Tax (STT) was paid cannot be denied set-off against short-term capital gains (STCG) taxable at a higher rate merely due to different rates of tax.

The appellant, iShares Core MSCI Emerging Markets ETF, filed appeals challenging the final assessment orders passed under Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961 for the Assessment Years 2022-23 and 2023-24.

The dispute arose when the Assessing Officer (AO) denied the appellant’s claim for setting off STCL arising from transactions subject to STT against STCG arising from transactions not subject to STT. The AO held that since gains taxable under Section 111A of the Income Tax Act, 1961 are subject to tax at 15%, such losses could not be adjusted against gains taxable at 30% under Section 115AD of the Income Tax Act, 1961. The Dispute Resolution Panel affirmed this view, leading to the present appeal.

Pranav Gandhi representing the appellant contended that the Income Tax Act, 1961 does not impose any restriction on the set-off of STCL based on tax rates and Sections 111A and 115AD of the Income Tax Act, 1961 merely prescribe the applicable rate of tax and do not control or restrict the computation or set-off of losses. Further, submitted that once income falls under the head “Capital Gains” and is computed in accordance with Sections 48 to 55 of the Act, the set-off mechanism under Section 70(2) applies uniformly.

The Bench of Vikram Singh Yadav, Accountant Member and Sandeep Singh Karhail, Judicial Member allowed the appeal of the appellant, holding that the Income Tax Act, 1961 does not recognise tax rate as a criterion for denying or restricting set-off of losses. The Tribunal observed that Sections 111A and 115AD only determine the rate at which the resultant income is taxed and do not carve out separate classes of STCG for computation purposes.

The Bench ruled that the AO’s denial of set-off solely on the ground of differential tax rates was contrary to the express provisions of the Act and unsupported by law. Accordingly, the Tribunal quashed the denial and directed the AO to allow the set-off of STT paid STCL against STCG.

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