TaxTMI 
TaxTMI 
2009 (6) TMI 693
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....199 under section 37(1) and not to restrict under section 44C of the Income-tax Act, 1961." 3. Briefly stated the facts of the case are that the assessee is a non-resident who filed its return disclosing the total income of Rs. 1,87,21,560. The Assessing Officer, in the present proceedings, noted that the assessee had claimed deduction of Rs. 58,71,199 on account of salaries paid to expatriates. In the opinion of the Assessing Officer, provisions of section 44C were applicable as the said expenditure was incurred by the Head office situated outside India. He, therefore, disallowed this amount and allowed deduction under section 44C at Rs. 11,78,096. In the first appeal, the learned CIT(A), relying on his own order passed in assessee's own case for assessment year 1998-99, concurred with the submissions advanced on behalf of the assessee and deleted the remaining amount of addition. 4. After considering the rival submissions and perusing the relevant material on record it is found as an undisputed fact that the said amount was paid as salary to expatriates who were actually working with the assessee in India though the payment of salaries was made to them by the Head office ou....
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.... divided into two categories, viz., (a) permanent investment, and (b) current investment. The distinction between the two is that the securities purchased with the intention of retaining it till the maturity of the security are to be classified as 'permanent investment', whereas the securities acquired by the bank with the intention of trading by taking advantage of short-term price/interest, are to be considered as 'current investments'. The securities from which the assessee has incurred loss were depicted as 'current investment' as has also been noted by the Assessing Officer in the assessment order. A certificate from Chartered Accountant certifying that the securities sold by the assessee were under "current investment" category has been given to the lower authorities. When it is so the securities in the nature of current investments automatically become the stock-in-trade of the assessee and not investment. It is a settled legal position that the nomenclature given by the parties to a particular transaction is not material to decide its character. Rather it is the true nature of the transaction, which matters. Whereas any profit or loss from the sale of 'Investment' is taxed ....
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....is patent that the judgment of the Hon'ble Bombay High Court, relied on by the learned CIT(A) for granting relief to the assessee, stands affirmed by the Hon'ble Supreme Court in the case of Citi Bank N.A. (supra). We, therefore, approve the view taken by the learned CIT(A) and dismiss this ground of appeal. 9. The Department is aggrieved against the deletion of addition of Rs. 15,43,400 on account revaluation of one part of the closing stock, i.e., securities of the assessee in relation to the assessment year 2000-01. Briefly stated the facts of this ground are that the assessee debited a sum of Rs. 45,000 to its Profit & Loss Account on account of loss arising to it on the revaluation of current investments, i.e., securities. The Assessing Officer observed from the details furnished, during the course of assessment proceedings, that in respect of certain other securities the assessee had profit of Rs. 15,43,400 on account of revaluation. Both the sets of securities constituted current investments of the assessee. The Assessing Officer further noted that as per the accounting policy of the assessee-bank, the current investments were to be valued at lower of cost or market value....
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....ice. The logic behind this method is that the loss in the value be recognized in the final accounts without unduly accounting for the appreciation in the value of stock. The ld. CIT(A) has taken note of the Circular issued by the RBI as per which the valuation is to be made scrip-wise and further 'if there is any appreciation in the value of securities on account of the method of valuation as indicated in the Annexure, it should not be booked as income.' It has further been suggested in this Circular that the 'banks which have adopted a more prudent method of valuation of securities than the one now being suggested, may continue the practice hitherto followed by them.' From here it is clear that the Apex Bank has also suggested the method of valuation of closing stock 'at cost or market price, whichever is less'. It is the method which is being consistently followed by the assessee as recorded by the authorities below. Adverting to the facts of the instant case, we find that the assessee has valued its closing stock scrip-wise by following this method as per which the appreciation in the value due to the higher market value has been ignored but the depreciation in the value of the ....
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....e in this year. He, therefore, made the addition. In the first appeal, the learned CIT(A) deleted this addition by relying on the judgment of the Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802and that of the Hon'ble Calcutta High Court in the case of CIT v. Bank of Tokyo Ltd. [1993] 71 Taxman 85. 13. We have heard the rival submissions and perused the relevant material on record. It is noted that though in this year, the assessee got relief from the ld. first appellate authority, but in the assessment year 2003-04, again the Assessing Officer made similar addition for Rs. 13,79,740 but the ld. CIT(A) differed with the view of his predecessor and upheld the addition, against which the assessee is in appeal before us. Whenever the bank issues the guarantee for its customer to some third party, it charges commission. The amount of commission depends on the amount guaranteed and the period for which guarantee is given. The case of the assessee is that if guarantee is given by the bank for a period crossing over the year ending, then the income should be spread over to the periods to which such guarantee relates and as such onl....
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....spective it is relevant to understand the nature of guarantee commission. Giving guarantee by the bank is like standing surety to a third party that in case its customer defaults, the bank will pay the amount to the third party. The guarantee is given after having equal or more the worth of security than the amount for which such guarantee is given. The security is generally in the nature of fixed deposit receipts from the customer. If the customer fails in honouring his commitment to the third party, for which the bank stands as a guarantor, it makes the payment after appropriating the proceeds from the FDR, etc., which lies in its custody as a security from the customer. In no case any guarantee is given by the bank without taking security equal to or more than the amount guaranteed. 16. Admittedly, the amount of commission is received when the bank issues guarantee. Such guarantee is for a specific period, sometimes extending to years. The amount of full guarantee commission is received at the time of issuing guarantee irrespective of the period for which the guarantee is given. If the customer does not make a default to the third party, then the guarantee expires at the end ....
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....nk and the customer that in case the guarantee is revoked prior to the prescribed period, then the bank shall be liable to refund the proportionate commission for the unexpired period, then the situation will be different. In such a case, the right to income will accrue only proportionately for the period covered in the year. It is for the clear reason that even if the amount of commission is received in advance but the receipt cannot be said to have assumed the character of income because the accrual is dependent on the period for which the guarantee continues. The accrual of the amount of commission relatable to the period beyond the close of the year in such a situation will be solely dependent on the fact that whether the guarantee continues or not. Thus, in the contingency of the customer revoking the guarantee, the amount earlier received will require refund. Consequently, if there exists such a clause of refund of the commission in the agreement on the earlier revoking of the guarantee or there is some other material to show the understanding between the bank and the customer to that extent, in that situation the accrual of entire income will not take place on furnishing gua....
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....of the assessee before the Tribunal that if the obligation under the guarantee were over before completion of the guarantee period, the guarantee contract necessarily had to be revoked and that guarantee commission relatable to the unexpired period was required to be refunded to the clients in terms of rule 16 as framed by the Foreign Exchange Dealers' Association of India Rules. Five sample cases were placed before the Tribunal on behalf of the assessee to show that the guarantee commission in respect of the unexpired period was factually refunded by the assessee-bank to its different clients". It was in the light of these facts that there was inherent obligation of the bank to refund guarantee amount in case the guarantee contract was revoked before the prescribed period and further the assessee had, in fact, refunded the amount to different clients, that the Hon'ble High Court held that the income from deferred guarantee commission should be spread over to the period to which the guarantee commission related and be assessed proportionately. 19. We are unable to find any correlation between the facts of the instant case and as those considered by the Hon'ble High Court. The as....
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....tant case do not have any resemblance with those considered by the Hon'ble Punjab & Haryana High Court. Primarily in that case, there was an obligation on the part of the respondent assessee to render services after the close of the year, i.e., within the warranty period. It was only in lieu of rendering of such services, entailing the cost to the assessee, that the proportionate part of warranty claim was held to be not includible in the income of the current year. On the contrary, the assessee in the present case does not have any obligation to incur any cost beyond the year in question. Further in that case, there was further liability to refund the deposit to the members of the warranty scheme, if they so desired and that assessee actually refunded a particular sum to those persons who did not wish to continue with the scheme. On the contrary in our case there is neither any such obligation nor any amount was returned to the customers in the years in question. We are, therefore, of the considered opinion that this judgment does not bring the case of the assessee any further. 21. The other case relied on by the ld. AR is the order passed by the Tribunal in the case of State B....