TaxTMI 
TaxTMI 
2008 (10) TMI 252
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....ss. The assessee explained that RBI had issued circulars offering attractive rates of interest for obtaining foreign currency deposits from NRIs to meet "balance of payment" situation ofIndia. To mobilise such deposits the assessee set up NRI counters outsideIndiafor soliciting such deposits and incurred expenses. The AO rejected this claim on the ground that (1) the expenses are not reflected in the appellant's Indian books of accounts and (2) the expenditure is in the nature of head office expenses in respect of which deduction under s. 44C has been allowed. Relying on the decision of Calcutta High Court in the case of UCO Bank vs. CIT (1993) 114 CTR (Cal) 123 : (1993) 200 ITR 68 (Cal) the disallowance was made. The learned CIT(A) held that similar issue arose for asst. yr. 1995-96. In the said year it was held that expenses with reference to different centres for mobilisation of deposits from NRIs could not be related to head office expenses. The expenses are incurred for the appellant's banking business and are allowable under s. 37 of the Act. The assessee has also filed certificate from auditor, M/s KPNG on the basis of review of accounts. On consideration of above the learne....
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....s to be seen whether the expenses have been incurred wholly and exclusively for the purpose of business of Indian PE and at the same time are not in the nature of head office expenses which are otherwise allowable under s. 44C of the Act. Therefore, the finding is to be arrived at every year before holding that the expenditure is to be allowable. He submitted that the expenses were incurred at Dubai by Dubai branch and therefore, the expenses are deductible from income ofDubaibranch and not Indian branch. Such expenses were never reimbursed by Indian branch of either toDubaibranch or to the head office. The income has to be computed subject to regulation of the domestic law as provided in art. 7 of Indo-UK Double Taxation Avoidance Agreement (DTAA). The expenses are on estimate basis. This shows that they are not actual expenses but estimate. There is no relationship between business of PE inIndiaand that inDubai. Such expenses are neither considered in accounts nor subject to tax audit as required under s. 44AB of the Act. In a way the expenses not recorded in the books of accounts should be considered as unexplained expenditure and to be added under s. 69C of the Act. The approva....
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.... business carried on inIndia. We, therefore, remand the matter back to the file of the AO. The assessee shall furnish details as to what were the deposits raised and how the same were brought intoIndiain respect of business carried on inIndia. The AO shall also examine the details of expenses and the basis of allocation of such expenses for considering allowability of the same. The matter is accordingly restored back to the file of the AO for re-examination. If it is found that the deposits raised abroad from NRI were accounted by the Indian branches and are treated as deposits from NRI on which even the interest is payable by Indian branches, the same may be allowed as expenses subject to satisfaction as regards allocation of the same. The assessee shall file necessary details in this regard. 7. Ground No. 2 in assessee's appeal and ground No. 3 in Revenue's appeal is in respect of depreciation on let out properties disallowed by the AO. The assessee declared rental income of Rs. 44.29 lacs in respect of 5 properties situated inIndia. After claiming deduction as per s. 24 of the Act, net income from house property was declared. The AO noted that while computing profit of the bu....
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....us, the addition of Rs. 35,00,000 is reduced to Rs. 10,00,000 and appeal on this ground is, therefore, partly allowed." 9. The learned counsel for the assessee submitted that on principle the learned CIT(A) is justified in holding that depreciation in respect of let out properties is not allowable when the income is computed under the head "Income from house property". However, she submitted that the property being too old, the WDV of such asset on which depreciation was claimed which is part of claim under s. 32 is not discernible. Considering the rental income received as also the age of the property, the value of such property itself being too low, the disallowance cannot be as high as Rs. 35 lacs. She alternatively submitted that the income from house property be taxed as business income, the claim of repairs under s. 24 be withdrawn and the claim of depreciation be allowed. This is one way to end litigation as the assets being too old and ever since the depreciation is allowable on block of assets since 1989, since WDV of such assets is not separately available instead of allowing notional expenses towards 1/5th of ALV, the claim of depreciation be allowed. 10. The learn....
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....bsp; ---------------- Total Rs. 17,60,25,983 ---------------- The assessee also credited its P&L a/c by a sum of Rs. 14,37,64,264 being excess provision of doubtful debts (old account recredited). The assessee added back a sum of Rs. 9,49,02,492 as provision for bad debts (old account) being not allowable while computing total income. At the same time the amount credited to P&L a/c of Rs. 14,37,64,264 was reduced from the profit for arriving at total income. The AO was of the view that total provision for bad and doubtful debts credited was for a sum of Rs. 17,60,25,983 and at the same time it ....
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....is account has been deducted in the computation of income. Thus, in effect both these accounts get nullified. What is left in the computation is only the claim of Rs. 8,11,23,491 which is as per s. 36(1)(viia) of the IT Act. However, what escapes in the process is the amount recovered by the appellant during the year or debts that have become recoverable. With the appellant deducting the recredited amount in the computation of income, no part of the recovery out of bad debts or its provision gets included in its income. The appellant's explanation to this is that since this amount in the provision had been added back in the earlier years, being not allowable, it has been deducted now to avoid it being taxed twice. This position is not correct. The recoveries that are made now form part of the income of the appellant in the year in which they are received. These recoveries are not out of the provisions created in earlier years, which were added back, but out of the amount of provision for bad debts allowed to the appellant under s. 36(1)(viia) in those years. When any recovery is made out of the provision allowed to the. appellant under s. 36(1)(viia) in earlier years or a debt beco....
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....pect of provision made under s. 36(1)(viia), under s. 41(1) where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability and subsequently any amount in respect of such loss or expenditure is recovered, such benefit shall be chargeable to tax. Since the assessee cannot bifurcate the amount in respect of excess provision for doubtful debts recredited, it can be considered that the provision which was allowed in earlier year under s. 36(1)(viia) is now recredited and hence only net provision can be considered for allowability under s. 36(1)(viia). 17. We have considered the rival submissions. The assessee, on one hand created two types of provisions as mentioned in above para totalling to Rs. 17,60,25,983. The assessee also credits to the P&L a/c a sum of Rs. 14,37,64,264 as excess provision in respect of bad and doubtful debts. The excess provision written back is in respect of provision no longer required. If the account has actually turned bad, the assessee would have credited the account of borrower and debited the provision account but would not have credited the P&L a/c. Credit entry in P&L a/c implies that ....
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....red by the limitation provided by r. 6D. The AO was therefore justified in making the disallowance on this score and hence appeal on this ground is dismissed." 21. The learned counsel for the assessee reiterated the submissions made before the learned CIT(A). She submitted that the halls booked in hotel for training purpose do not fall within the purview of r. 6D and hence even as per auditor, the same is not disallowable. 22. The learned Departmental Representative on the other hand, supported the appellate order. 23. We have considered rival submissions. The expenses on the travel of employees which was for the purpose of training were claimed under s. 37(1) of the Act. However, under s. 37(3), notwithstanding anything contained in s. 37(1), any expenditure incurred in connection with travelling by an employee shall be allowed only to the extent and subject to such condition, if any, as may be prescribed. Rule 6D prescribes limits for deductibility of travelling expenses/allowance. The question to be decided is as to whether the expenses are in connection with travelling or is in respect of training, The primary purpose of incurring expenses by the assessee was for train....
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....of expenses incurred on mobilization of deposits from NRI. This issue has been discussed while dealing with the appeal of the assessee. 29. Next ground of appeal is against omission of learned CIT(A) in admitting certificates of approval given by the Government of India to the assessee which were submitted by the assessee during appellate proceedings and learned CIT(A) having given relief on the basis of these certificates. 30. The assessee claimed exemption under s. 10(15)(iv)(f) in respect of fees received in respect of foreign currency syndicated term loan amounting to Rs. 1,33,13,040. The AO in principle agreed that the fact that interest and other fees earned by the assessee from loan to Indian Oil Corporation (IOC) were exempt under s. 10(15)(iv)(c) and (f) of the Act in view of approval given by the Ministry of Finance. It was only on comparison of the approval certificate issued by ECB Division of Ministry of Finance, as available in the return with the exemption claimed that the AO found that the claim of fees earned was working out to be more than that covered by the certificate produced before him. He, therefore, disallowed the balance amount after allowing as exem....
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..... 1992-93 to 1995-96 and by its order dt.18th Aug., 2006, the Tribunal decided this issue in favour of the assessee. The AO has disallowed expenses on the basis of assessment order for asst. yr. 1995-96. However, in asst. yr. 1995-96 the learned CIT(A) has deleted the disallowance and the same was upheld by the Tribunal. The Tribunal held that the expenditure pertaining to subscription to club and periodical fee is to be treated as expenditure allowable under s. 37(1). Reimbursement of actual expenses otherwise than incurred by the officer while availing of any facility of club is not to be treated as allowable expenditure. However, in the year under appeal, the expenses not being related to facilities of the club availed by the officers but towards subscription and periodical fee, is allowable as such. This ground accordingly fails. 38. Next ground of appeal is against deletion of Rs. 32,20,00,000 being interest payable to the head office. 39. The background facts are that in May, 1992 certain disputes arose between assessee and National Housing Bank. The dispute was with respect to 9 account payee cheques aggregating to Rs. 506.54 crores issued by NHB and credited to the ac....
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.... Under s. 9(1)(v) income by way of interest payable by a person who is a non-resident where the interest is payable in respect of debt incurred or moneys borrowed and used for the purposes of business carried on by such person inIndiais deemed to accrue or arise inIndia. Therefore, the interest earned by the head office from the branch inIndiais also taxable inIndia. Special Bench of the Tribunal in the case of ABN Amro Bank NV vs. Asstt. Director of IT (2005) 98 TTJ (Kol)(SB) 295 : (2005) 97 ITD 89 (Kol)(SB) held that payment of interest paid by the PE of a foreign enterprise to head office outside India is not an allowable deduction. Though the said case was in relation to treaty withNetherlands, there is no difference in treaty withUKtreaty withNetherlandsandUKare identically worded and hence as per interpretation of the Special Bench such interest cannot be allowed. 41. The learned counsel for the assessee on the other hand, relied upon the appellate order. She reiterated the submissions as made before the learned CIT(A). She also submitted that the decision of Special Bench shall not apply as a treaty withUKis differently worded than that withNetherlands. However, on a spec....
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....der obligation to deduct in terms of s. 40(a)(i) of the Act, the expenditure is not allowable. We, therefore, uphold the disallowance of Rs. 33.2 crores. 43. Next ground of appeal is against deletion of addition of Rs. 10 crores being made on alleged commission earned by foreign branches of ANZ Grindlays Bank on their credit card business overseas where transactions have taken place inIndia. 44. During the course of assessment the AO required the assessee to give details of total commission received by the foreign branches of the assessee bank on international credit cards issued by them where the transactions were completed in India by the card holders and the cards were honoured by the branches of the assessee bank or branches of any other bank in India. The AO was of the view that whatever income arose in or fromIndiato any foreign branch of the assessee is also taxable inIndia. The assessee could not furnish any details; at the same time it did not deny that no income arose from the transaction inIndiaon credit cards issued by its foreign branches. The AO, therefore, estimated the income. The AO stated that commission income from cards issued by Indian branches was Rs. 9.....
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....from transaction inIndiaby using credit cards of foreign branches should be taxed inIndia. This income can only be the income received by the Indian branch and such commission income being already included as an acquiring batik. The income to the foreign branch from the credit given to its card holders outsideIndiacannot be taxed in the hands of the Indian branch since it is not arising inIndiaand also it cannot be attributed to the assets and activities of the Indian branch as is required under art. 7 of DTAA. Therefore, there is no need to further estimate any income. He accordingly deleted the addition. 46. The learned Departmental Representative submitted that when through an international credit card issued outsideIndiaa transaction is completed inIndia, the card holders receive various services like availing foreign exchange, payment to venders inIndia, etc. For this purpose banks received remuneration which is charged to the vender's establishment. Even in cases where credit cards are issued outside India but are used in India, the debt is incurred in India and the bank receives remuneration for providing funds, exchange facility etc. From every payment made by the card h....