2018 (9) TMI 1021 - AT - Income Tax

Tribunal Upholds Tax Rate for Non-Resident Company, Allows Interest Income

The tribunal upheld the 40% tax rate for a non-resident foreign company, dismissing the grounds raised by the assessee for certain assessment years. It ... Interest income on NPA accounts assessment - to be assessed on mercantile basis OR receipt basis - Held that:- As decided in assessee's own case [2018 (9) TMI 415 - ITAT KOLKATA] When the account becoming NPA is not disputed by the revenue, the recognition of income is to be done only on receipt basis which is in consonance with the real income theory. In these circumstances and respectfully following the decisions of VASISTH CHAY VYAPAR LTD. [2010 (11) TMI 88 - DELHI HIGH COURT] and various other decisions referred to by the ld AR and in view of this issue being already decided in favour of the assessee by this tribunal in its own case supra, we hold that the interest income on NPA accounts should not be assessed on mercantile basis and the same is to be taxed only on receipt basis. Accordingly, the ground nos. 2(a) to 2(d) raised by the assessee are allowed.” Disallowance of payment made to employees against the provision made for unfunded pension - Held that:- As decided in assessee's own case there was no contribution made by the assessee bank to any of the funds. The payments were directly made to the employees of the bank and subjected to deduction of tax at source. The moment the payments are made to those employees, the assessee had lost complete control over those funds and it had not come back to the assessee in any manner whatsoever either by creation of any fund managed by it or otherwise. From the approval letter of the competent authority of the assessee bank, we find that these payments were made only to meet the increased cost of living of the employees and hence it is effectively a payment made as a welfare measure . Hence the provisions of section 40A(9) of the Act as heavily relied upon by the ld DR is not at all applicable to the facts of the instant case. Disallowance of write off of CENVAT credit - Held that:- AR fairly conceded before us that this sum of ₹ 46 crores was allowed as deduction by this Tribunal in assessment year 2011-12 [2018 (9) TMI 415 - ITAT KOLKATA] and hence the same should be disallowed in assessment year 2012-13 in order to avoid double deduction. We are in agreement with this fair representation by the ld. AR and accordingly uphold the disallowance made in the sum of ₹ 46 crores for assessment year 2012-13 in order to avoid double deduction to the assessee. Addition towards interest on income tax refund - AR vehemently prayed for setting aside of this entire issue for both the assessment years to the file of ld. AO for de novo adjudication with liberty to the assessee to raise fresh grounds in the light of protocol to India-Netherlands DTAA read with India-Italy DTAA vis-à-vis the most favoured nation clause agreed in the protocol to India-Netherlands DTAA - Held that:- DR fairly considered for de novo adjudication of this issue by the ld. AO. Hence we deem it fit and appropriate, in the interest of justice and fair play, to remand this entire issue to the ld. AO for both assessment years 2012-13 and 2013-14 for de novo adjudication of the issue and decide the same afresh in accordance with law. The assessee is at liberty to furnish additional evidences and raise fresh grounds, contentions with regard to this issue for both the assessment years under appeal before us Issues Involved:1. Rate of Tax2. Addition Towards Interest Income on NPA3. Disallowance of Payment Made to Employees in Relation to Unfunded Pension4. Disallowance of CENVAT Credit Written Off5. Addition Towards Interest on Income Tax Refund6. Chargeability of Interest u/s 234C7. Initiation of Penalty u/s 271(1)(c)Detailed Analysis:1. Rate of TaxThe issue pertains to the applicable tax rate for a non-resident foreign company. The assessee argued for a 30% tax rate, but the tribunal upheld the 40% rate along with surcharge and education cess, referencing its own prior decisions for the assessment years 2005-06 to 2008-09. Consequently, the grounds raised by the assessee for assessment years 2012-13 and 2013-14 were dismissed.2. Addition Towards Interest Income on NPAThe core issue was whether the addition of Rs. 25,94,566/- on account of interest income from Non-Performing Advances (NPA) was justified. The assessee, a bank, did not recognize interest income on NPA as per RBI guidelines, arguing it should be recognized only on receipt basis due to uncertainty in collection. The tribunal referenced the Supreme Court's decision in Southern Technologies Ltd vs CIT and the Delhi High Court's decision in CIT vs Vasisth Chay Vyapar Ltd, supporting the assessee's stance that interest on NPA should not be recognized on an accrual basis. The tribunal allowed the grounds raised by the assessee for both assessment years 2012-13 and 2013-14.3. Disallowance of Payment Made to Employees in Relation to Unfunded PensionThe issue involved the disallowance of Rs. 5.38 crores claimed by the assessee for payments made to employees against unfunded pension. The assessee argued these payments were akin to salary and deductible under Section 37(1) of the Act. The tribunal noted that these payments were treated as salary, subjected to TDS, and included in Form 16, making them eligible for deduction. The tribunal allowed the grounds raised by the assessee for assessment years 2012-13 and 2013-14.4. Disallowance of CENVAT Credit Written OffThe assessee claimed a deduction for writing off unavailed service tax credit of Rs. 46 crores. The tribunal noted that this sum was already allowed as a deduction in assessment year 2011-12, and allowing it again would result in double deduction. Consequently, the tribunal upheld the disallowance for assessment year 2012-13.5. Addition Towards Interest on Income Tax RefundFor assessment year 2012-13, the issue was the taxability of Rs. 9,35,01,366/- as interest on income tax refund, which was erroneously adjusted against non-existent demands. For assessment year 2013-14, the assessee argued that interest on income tax refund is not taxable in India under the India-Netherlands DTAA. The tribunal remanded the issue back to the AO for de novo adjudication for both assessment years, allowing the assessee to raise fresh grounds and submit additional evidence.6. Chargeability of Interest u/s 234CThis issue is consequential in nature and does not require specific adjudication.7. Initiation of Penalty u/s 271(1)(c)The adjudication of this issue is premature at this stage due to the decisions on various grounds on merits.Conclusion:The tribunal partly allowed the appeals for statistical purposes, remanding certain issues for fresh adjudication and upholding or allowing others based on established legal precedents and factual analysis.