Set-off of STCL on Sale of Equity Shares Against STCG on Sale of Derivatives is Allowable | ITAT

Case Details: JS Capital LLC vs. ACIT (International Taxation) - [2024] 160 taxmann.com 286 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Amit Shukla, Judicial Member & Amarjit Singh, Accountant Member
  • Ms Hirali Desai, A.R. Dhanesh Bafna, A.R. & Nirmal Hardik, A.R. for the Appellant.
  • Anil Sant, D.R. for the Respondent.

Facts of the Case

The assessee was a non-resident entity registered with the Security Exchange Board of India (SEBI) as a Foreign Portfolio Investors (FPI) for carrying out investment activity in Indian capital markets.

While furnishing the return of income, the assessee disclosed Long Term Capital Loss (LTCL), Short Term Capital Loss (STCL) and Short Term Capital Gain (STCG) on the sale of derivatives and physical settlement of derivatives.

During the assessment proceedings, the Assessing Officer (AO) noticed that the assessee set off STCG on the sale of derivatives and STCG on the physical settlement of derivatives, which was taxable at the rate of 30% with STCL on the sale of equity taxable at the rate of 15%.

Contending that the STCG on the sale of derivatives was in the nature of speculative gain and attracts tax liability at the rate of 30%, the STCL on the sale of equity shares cannot be set off against the said gain. Accordingly, the AO made additions to the assessee’s income.

Aggrieved by the order, the assessee filed objections before the Dispute Resolution Panel (DRP) and the DRP confirmed the AO’s order. The matter then reached before the Mumbai Tribunal.

ITAT Held

The Tribunal held that referring to section 70(2) provisions, STCL arising from any asset can be set off against STCG arising from any other asset under a similar computation made irrespective of different tax rates. Therefore, loss arising from the transfer of short-term capital assets brought forward from earlier years can be set off against the capital gain assessable for subsequent assessment years with respect to any other capital asset, which could be either LTCG or STCG.

Further, loss arising on short-term capital assets is to be set off against income arising from such assets for the same year, irrespective of whether transactions are categorized as off-market or on market transactions. Accordingly, the assessee’s appeal was allowed.