2012 (6) TMI 831 - AT - Income Tax

Tribunal Decision: Assessee's Appeals Partly Allowed for Multiple Years

Summary: The Tribunal partly allowed the assessee's appeals for Assessment Years 2003-04, 2004-05, 2005-06, and 2006-07. Additionally, the Revenue's ... Disallowance of depreciation on assets taken over from Bank of Thanjavur(BOT)- Held that:- Down-loaded master detail from the official website of Registrar of Companies, clearly mention that status of M/s.BOT as dormant. It is also mentioned that corrections are to be submitted by the concerned persons, if such data is incorrect. This downloaded material cannot be considered as material evidence proving the existence of that company. These were only the master data, which could be incorrect and such master data was always subject to correction. It would not show that the M/s.BOT continued its independent existence and continued its operation despite amalgamation. - Decided against assessee. Broken period interest - Held that:- When interest received by an assessee, from transferees for broken period is included under the head ‘business income’, amounts paid by the assessee to the transferors for broken periods could not have been disallowed. Bad debts written off need to be allowed. Allowance of normal write-off of bad debts - Held that:- The issue regarding write-off of bad debts raised by assessee in its ground No.4 for Assessment Years 2004-05 and 2006-07and as ground No.3 for Assessment Year 2005-06 requires reconsideration by the Assessing Officer, in the light of judgment of the Apex Court in Catholic Syrian Bank Ltd‘s case (2012 (2) TMI 262 - SUPREME COURT OF INDIA) as held that once bad debts were written off in the books of accounts, the claims had to be allowed Disallowance made under Section 14A -Held that:- We are of the opinion that this issue requires a fresh look by Assessing Officer. Rule-8D was held to be applicable only from Assessment Year 2008-09 by Hon’ble Mumbai High Court. It was also held that even for earlier years, disallowance had to be made under Section 14A of the Act considering the facts and circumstances. We, therefore, set aside the orders and remit back to the file of Assessing Officer for consideration of this issue afresh in accordance with law. This issue thus, stands decided in favour of assessee for statistical purposes. MAT applicability - Held that:- The provisions of Sec.115JB could not be applied on the assessee. In the result, this issue stands decided in favour of assessee. Exclusion of income of assessee from its Singapore and Colombo operations -branch income of assessee at Singapore and Colombo, whether to be excluded or to be considered for only tax credits.? - Held that:- Hon’ble apex Court in the case of PV.AL. Kulandagam Chettiar (2004 (5) TMI 8 - SUPREME Court ), after studying the Double Taxation Avoidance Agreement between Govt of India & Govt. of Malaysia, held that even if a person was resident in India, once such a resident in India was deemed to be a resident of a contracting state, on account of economic and personal relationship with such contracting state, then residence in India will become irrelevant and treaty would be prevail over Sections 4 & 5. Therefore, we are of the opinion that Commissioner of Income Tax(Appeals) took a correct view that income of the foreign branches in Singapore and Columbo had to be excluded and not considered only for tax credits. Issues Involved:1. Disallowance of depreciation on assets taken over from Bank of Thanjavur (BOT).2. Treatment of broken period interest.3. Allowance of bad debts written off (technical write-off).4. Allowance of normal write-off of bad debts.5. Disallowance under Section 14A.6. Applicability of Section 115JB (Minimum Alternate Tax).7. Exclusion of income from foreign branches (Singapore and Colombo).Detailed Analysis:1. Disallowance of Depreciation on Assets Taken Over from Bank of Thanjavur (BOT):The issue pertains to the disallowance of depreciation on assets acquired from BOT. The Tribunal had previously disallowed the depreciation due to the inability of the assessee to provide evidence of BOT's continued existence post-amalgamation. The assessee presented master details from the Registrar of Companies' website indicating BOT's status as dormant. However, the Tribunal found this insufficient to prove BOT's independent existence. Consequently, the Tribunal upheld the previous decision, disallowing the depreciation claim.2. Treatment of Broken Period Interest:The assessee argued that broken period interest should be allowed as revenue expenditure, citing Tribunal and High Court decisions, including the Mumbai High Court's ruling in CIT vs. Union Bank of India. The Tribunal noted that the Supreme Court had dismissed the Department's Special Leave Petition against this decision, establishing the precedent that broken period interest is allowable as revenue expenditure. Thus, the Tribunal ruled in favor of the assessee, allowing the broken period interest as revenue expenditure.3. Allowance of Bad Debts Written Off (Technical Write-Off):The assessee contended that bad debts written off on technical grounds should be allowed, referencing a Tribunal decision in its favor for the Assessment Year 1998-99. The Tribunal, following its earlier ruling and the Supreme Court's decision in Vijaya Bank v. CIT, allowed the bad debts written off, recognizing the technical write-off as valid for deduction under Section 36(1)(vii).4. Allowance of Normal Write-Off of Bad Debts:The issue concerned the disallowance of bad debts written off against a provision. The Tribunal referred to the Supreme Court's judgment in Catholic Syrian Bank Ltd., which clarified that provisions under Sections 36(1)(vii) and 36(1)(viia) are distinct. The Tribunal remitted the issue back to the Assessing Officer for reconsideration in light of this judgment, directing that bad debts written off should be allowed if they meet the requirements of Section 36(2).5. Disallowance Under Section 14A:The assessee challenged the disallowance made under Section 14A, arguing that no expenditure was incurred in relation to exempt income. The Tribunal noted the Mumbai High Court's decision in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, which held that Rule 8D is applicable prospectively from Assessment Year 2008-09. The Tribunal remitted the issue back to the Assessing Officer for fresh consideration, directing that the disallowance be made in accordance with the facts and circumstances of the case.6. Applicability of Section 115JB (Minimum Alternate Tax):The assessee argued that as a banking company governed by the Banking Regulation Act, it was not required to prepare accounts as per Schedule VI of the Companies Act, and thus MAT provisions under Section 115JB were not applicable. The Tribunal, referencing its earlier decision in the assessee's case for Assessment Year 2000-01 and the Mumbai Tribunal's decision in Krung Thai Bank PCL vs. JDIT, held that Section 115JB does not apply to banking companies. Consequently, the Tribunal ruled in favor of the assessee, exempting it from MAT provisions.7. Exclusion of Income from Foreign Branches (Singapore and Colombo):The assessee sought exclusion of income from its foreign branches based on Double Taxation Avoidance Agreements (DTAAs) with Singapore and Sri Lanka. The Tribunal, citing the Supreme Court's decision in CIT vs. PV.AL. Kulandagam Chettiar, held that the DTAAs prevail over domestic tax laws, and income from foreign branches should be excluded from the total income. Thus, the Tribunal upheld the exclusion of foreign branch income, dismissing the Revenue's contention.Summary of Results:- Assessee's appeals for Assessment Years 2003-04, 2004-05, 2005-06 & 2006-07: Partly allowed.- Revenue's appeal for Assessment Year 2003-04: Partly allowed for statistical purposes.