2010 (6) TMI 636 - AT - Income Tax

Tribunal partial win for bank appeal: delay excused, tax rate upheld, expenses, donations disallowed.

The Tribunal partly allowed the appeal by condoning the delay in filing but upheld the higher tax rate for the assessee bank and disallowances for capital ... Business expenditure, Assessment Issues Involved:1. Condonation of delay in filing the appeal.2. Tax rate applicable to the assessee bank.3. Disallowance of capital expenditure on fixed assets.4. Disallowance of donation as business expenditure.Issue-wise Detailed Analysis:1. Condonation of Delay in Filing the Appeal:The appeal was filed with a delay of 19 days. The assessee submitted an affidavit explaining that the delay was due to the time taken to receive instructions from the head office. The Tribunal condoned the delay and admitted the appeal.2. Tax Rate Applicable to the Assessee Bank:The assessee, a foreign bank incorporated in Mauritius with operations in India, was taxed at the rate of 48% by the Assessing Officer, following the ruling in the case of Societe Generale. The assessee argued that the ruling should not apply as per section 245S(1) of the Income-tax Act, 1961, and that the tax rate should be 35% as per the Indo-Mauritian DTAA. The CIT(A) upheld the 48% tax rate. The Tribunal referred to the ITAT decision in ITA No. 525/Mum./2001 for the assessment year 1997-98, which stated that the tax rates prescribed in the Finance Act must be applied, even if an assessee company is covered by the provisions of DTAA. The Tribunal noted that the Explanation to section 90, inserted by the Finance Act 2001 with retrospective effect from 1-4-1962, clarified that charging a foreign company at a higher rate would not be considered less favorable. Thus, the Tribunal set aside the CIT(A)'s order and decided in favor of the revenue, applying the higher tax rate.3. Disallowance of Capital Expenditure on Fixed Assets:The assessee claimed a deduction for capital expenditure of Rs. 35,48,153 on fixed assets under Article 7(3) of the Indo-Mauritian DTAA. The CIT(A) and the Tribunal referred to a previous Tribunal decision in ITA No. 4147/Mum./98, which held that profits mentioned in the DTAA are commercial profits computed according to the taxation laws of the contracting state. The Tribunal agreed with the CIT(A) that commercial principles cannot override the provisions of the Income-tax Act. Consequently, the Tribunal dismissed the assessee's appeal on this ground.4. Disallowance of Donation as Business Expenditure:The assessee claimed deductions for donations of Rs. 15,000 made to Stanislaus High School and Mauritian Students Association, arguing that these were essential for business purposes. The CIT(A) confirmed the disallowance. On further appeal, the assessee cited the case of Mahindra & Mahindra Ltd. v. CIT, where a donation was allowed as business expenditure due to staff welfare. However, the Tribunal noted that no evidence was provided to prove the business exigency of the donations in the present case. Thus, the Tribunal upheld the disallowance of the donation.Conclusion:The appeal was partly allowed. The Tribunal condoned the delay in filing the appeal but upheld the higher tax rate and disallowances for capital expenditure and donations.