IN RE: UNIVERSITIES SUPERANNUATION SCHEME LTD. AS TRUSTEES OF UNIVERSITIES SUPERANNUATION SCHEME Vs. STATE

JUDGEMENT

(1.) THE applicant in this application under section 245(1) of the Income -tax Act, 1961 (for short the 'Act'), is a tax resident of the United Kingdom (the UK). It is registered in India as Foreign Institutional Investor (FII) with the Securities and Exchange Board of India (SEBI) on March 3, 1998 and accordingly it has been investing in securities in India. The Universities of the UK, for the purpose of providing pension and other superannuation benefits to academic and senior administrative staff in the universities and other higher education and research institutions, founded Universities Superannuation Scheme (USS). The applicant, the Universities Superannuation Scheme Limited (USSL), was established to under take and discharge the office of the trustee of USS. The applicant is thus the legal owner of the assets of USS and operates to meet the existing and prospective entitlement of the beneficiaries of USS. The applicant was incorporated in the UK as a company limited not by shares but by guarantee. For the assessment years 1999 -2000 to 2003 -04, the applicant filed returns of its income from investment in India as a FII by applying provisions of section 115AD of the Act. In the accounting year relevant to assessment year 2003 -04, the applicant incurred long -term capital losses of INR 12,94,46,340. The case of the applicant is that had it the option of computation under the second proviso to section 48 as against section 115AD(3) of the Act, the capital loss would have worked out to INR 17,38,75,450 and thus the loss would have been more by INR 4,44,29,110. On these facts, the applicant is seeking advance ruling of the Authority on the following questions : -

(2.) IT is stated that taxation of a non -resident in India is deter mined in accordance with the provisions of the Act read with the concerned Double Taxation Avoidance Agreement. The Government of Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland concluded a convention on double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains on 26th October, 1993 ( hereinafter referred to as "Treaty"). The applicant is taxable both under the Act as well as the Treaty. Section 115AD is a special provision in respect of "tax on income of Foreign Institutional Investors from securities or capital gains arising from their transfer" in Chapter XII which deals with "determination of tax in certain special cases". Section 115AD being a special provision will override the general provisions. There are several decisions of the Hon'ble Supreme Court laying down the law on this aspect. The applicant has not shown that section 115AD is ambiguous and not clear. On the alleged ground that it no longer provides any preferential treatment to the FIIs, it cannot be ignored. The judgment of the Hon'ble Supreme Court of India in A. Sanayasi Rao's case would not apply since the constitutional validity of that provision is neither in issue nor can it be questioned before the Authority. Section 115AD applies to all FIIs and there is no cogent reason as to why the applicant should be treated differently in the assessment year in question. Where the Parliament so intended it provided, as in section 115 -I, an option to be exercised by the assessee. Absence of such a provision in the scheme of 115AD indicates that no option is available to FIIs. For the reason that the applicant suffered capital loss in an assessment year, it cannot claim the option to opt out of section 115AD of the Act. If an option as in section 115 -I, is read into section 115AD, it would result in applying such provisions of the Act which the Parliament did not intend to apply to FIIs. It is well - settled position in law that income includes both profit and loss. In any event section 115AD does not cause any discrimination and article 26 of the Treaty is not attracted.

(3.) MR . P.J. Pardiwalla, the learned counsel for the applicant, has argued that sections 48 and 112 of the Act deal with capital gains and are applicable to all the assessees whereas section 115AD of the Act which provides for a concessional rate of tax on gains, applies to FIIs therefore it would not apply to a case where loss is suffered by FIIs as no levy of tax on loss is involved. As the intention of the Parliament was to provide certain incentives to FIIs, they must be deemed to have an option to be governed either by the normal provisions (sections 48 and 112) or by section 115AD whichever is beneficial to them. The further contention is that on transfer of securities computation should be under section 48 of the Act and if gains accrue or arise only then, for the purpose of rate of tax, section 115AD should be re sorted to. Under article 26 of the Treaty there can be no discrimination of a non -citizen; by making the option available to domestic companies and denying the same to the FIIs, article 26 is violated. It is pleaded that the same option which is avail able to the domestic companies should also be made available to FIIs. Mr. Srivastava (Addl. DIT) who has appeared for the Commissioner, argued that sections 48 and 112 are general provisions and are not applicable to FIIs which are governed by special provisions of section 115AD - a concessional tax regime. For residents two alternatives are available under the Act; the first is indexation provision of section 48 and the higher rate of tax @ 20 per cent and the second is computation without indexation provision but lower rate of tax @ 10 per cent as provided in the proviso to section 112(1) of the Act. Where the Parliament intended to give the benefit of an option it had so provided as under section 115 -I which is grouped in Chapter XII. For FIIs, there is no option to elect to work out profit or loss with or without indexation under the scheme of section 115AD which falls in Chapter XIIA. The domestic companies and FIIs are not based on similar footing, and there is no discrimination between a domestic company and a FII, on the basis of nationality so article 26 of the Treaty will not be violated.