Mumbai Tribunal rules on set off of long-term capital loss on sale of STT paid equity shares

We are pleased to release a Tax Alert which summarizes a recent ruling of the Mumbai Income Tax Appellate Tribunal (Tribunal) in the case of Raptakos Brett & Co. Ltd. (Taxpayer) wherein the Tribunal ruled that long-term capital loss (LTCL) arising on sale of equity shares, which has been subject to securities transaction tax (STT), can be set off against long-term capital gain (LTCG) arising on sale of land, in spite of the fact that the LTCG on sale of such shares is exempt under the provisions of the Indian Tax Laws (ITL). The Tribunal ruled that exemption is provided in respect of qualified shares, which are only a part of the entire source of capital gains, and not for the entire source. Furthermore, the concept of income including loss will apply only when the entire source of income is exempt under the ITL and not in the cases where only one particular stream of income falling within a source is exempt.

This decision of the Tribunal is beneficial for taxpayers as it concludes that, where only a part/stream of source is exempt under the ITL, the loss in respect of such source may still be tax admissible. Taxpayers may wish to evaluate if this ruling could assist them to support claims for set off in respect of LTCL pertaining to transactions in listed securities, while gain is exempt by virtue of the tax provisions.