Treaty allocation, crystallised liability, and banking deductions shaped the tax treatment of foreign income and write-offs.

Provision for wage revision was treated as an ascertained liability because employee services had already been rendered and the liability had crystallised, so the deduction was allowed. Depreciation on leased assets and deductions under sections 36(1)(viii) and 36(1)(viia) were followed in line with earlier Tribunal and Supreme Court guidance, supporting the assessee's claims. Foreign branch income and Kenyan house property income were excluded under the applicable treaty framework, as treaty allocation of taxing rights prevailed over domestic notification. The agricultural debt waiver write-off was treated as a business loss arising in the ordinary course of banking business. Section 14A required fresh verification on the factual record, while section 115JB was held not to apply.

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Issues: (i) Whether the provision for wage revision was an ascertained liability allowable in computing income; (ii) whether depreciation on leased assets was allowable; (iii) whether income attributable to foreign branches and Kenyan house property could be excluded from Indian taxation under the applicable treaty framework; (iv) whether deduction under section 36(1)(viii) of the Income-tax Act, 1961 was correctly allowed; (v) whether the disallowance under section 14A required fresh examination; (vi) whether deduction under section 36(1)(viia) of the Income-tax Act, 1961 was allowable; (vii) whether the amount written off under the Agricultural Debt Relief and Waiver Scheme was allowable as a business loss; and (viii) whether section 115JB of the Income-tax Act, 1961 applied.

Issue (i): Whether the provision for wage revision was an ascertained liability allowable in computing income.

Analysis: The provision was made for employee services already rendered, and the liability was treated as having crystallised in the relevant year once wage negotiations were underway. It was not a contingent or unascertained liability.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether depreciation on leased assets was allowable.

Analysis: The issue was treated as already covered by the Tribunal in earlier years on the same facts, and the same view was followed without fresh departure from the earlier position.

Conclusion: The issue was decided against the Revenue.

Issue (iii): Whether income attributable to foreign branches and Kenyan house property could be excluded from Indian taxation under the applicable treaty framework.

Analysis: Foreign branch income was held to be governed by the treaty position applicable to a permanent establishment outside India, and the exclusion was sustained following earlier co-ordinate bench and High Court decisions. As regards Kenyan house property, the relevant treaty article dealing with immovable property governed the receipt, and domestic notification could not override the treaty allocation of taxing rights.

Conclusion: The issue was decided in favour of the assessee.

Issue (iv): Whether deduction under section 36(1)(viii) of the Income-tax Act, 1961 was correctly allowed.

Analysis: The Tribunal followed its earlier view that banks fall within the inclusive scope of the provision and that the claim had to be allowed consistently with prior years.

Conclusion: The issue was decided in favour of the assessee.

Issue (v): Whether the disallowance under section 14A required fresh examination.

Analysis: The matter was not finally concluded on the existing record and required verification of the assessee's factual claims before the Assessing Officer, including the nature of investments and the availability of interest-free funds.

Conclusion: The issue was restored to the Assessing Officer for fresh consideration.

Issue (vi): Whether deduction under section 36(1)(viia) of the Income-tax Act, 1961 was allowable.

Analysis: The claim was treated as covered by the Supreme Court's interpretation that the deduction for provision for bad and doubtful debts is distinct from the deduction for actual write-off, and the earlier Tribunal view in the assessee's own case was followed.

Conclusion: The issue was decided in favour of the assessee.

Issue (vii): Whether the amount written off under the Agricultural Debt Relief and Waiver Scheme was allowable as a business loss.

Analysis: The write-off arose in the ordinary course of banking business after waiver claims were not reimbursed by the Government, and the resulting loss was treated as a business loss or trading loss.

Conclusion: The issue was decided in favour of the assessee.

Issue (viii): Whether section 115JB of the Income-tax Act, 1961 applied.

Analysis: The issue was treated as already settled by the Tribunal in earlier years in the assessee's own case, and the same view was followed.

Conclusion: The provisions of section 115JB were held not to apply.

Final Conclusion: The assessee's appeal was allowed on most substantive issues, one issue was remanded for fresh examination, and the Revenue's appeal failed.

Ratio Decidendi: A liability is deductible when it has crystallised in the course of business and is not merely contingent, and settled treaty allocations governing foreign branch or immovable-property income cannot be displaced by domestic notifications or contrary tax treatment.

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