Mumbai ITAT in case of JS Capital LLC [TS-165-ITAT-2024(Mum)] in its order dated March 7, 2024 allows short-term capital loss (“STCL”) against short term capital gain (“STCG”) despite different tax rates applicable to each such capital asset transactions.
In the given case, the assessee, who is a US tax resident and a SEBI-registered FPI, offset STCG from the sale or physical settlement of derivatives, which were taxed at a rate of 30%, with short-term capital losses (STCL) from the current year’s sale of equity (STT paid), taxable at a rate of 15%. The remaining STCG was then offset against brought forward STCL.
However, the Assessing Officer disallowed this setoff citing the difference in tax rates under section 70(2) of the Income Tax Act, 1961, since the sale of derivatives was taxed at 30% while the sale of equity shares with STT paid was taxed at 15%.
On appeal before ITAT, it was observed that Section 70(2) allows STCL from any asset to be set off against STCG from any other asset under a similar computation, irrespective of different rates of tax. It further emphasised that the distinction in tax rates should not preclude such set-offs as long as the computation follows similar procedures.
Additionally, the ITAT referred to the Calcutta High Court’s decision in Rungamatee Trexim [ITA No. 812 of 2008 (Kol. HC) (2008)], asserting the assessee’s right to choose the most beneficial chronology for set-offs. In view thereof, the appeal of the assessee was allowed.
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