TaxTMI 
TaxTMI 
TaxTMI 
2010 (11) TMI 840
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....nts interest income and income from insurance, should be taxable as business income without appreciating the fact that the interest income is to be taxed as "Income from other sources" as per the Income-tax Act, 1961 unless and until the assessee is in the business of money lending, which is not the case here." ITA 3700/MUM/05-Ground No. 1 "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred the amount of Rs. 77,71,730 which represents interest income and income from insurance, should be taxable as business income instead of "income from other sources". 3. The assessee is a company incorporated in Korea and is engaged in lumpsum turnkey projects relating to procurement, engineering and construction. The assessee was awarded two contracts in the last quarter of 1999 viz. Diesel Hydro Treating unit (DHDT) and FCC, LPG and Gasoline Treatment Unit by Indian Oil Corporation Ltd. (IOCL) involving Residual Process Design, Detailed Engineering, Procurement, Supply, Fabrication, Transportation, Construction, Installation, mechanical testing, Pro commissioning, Commissioning and Mechanical guarantee for Barauni Refinery Expansion Project at Barauni Refine....
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....by the order of CIT(A), the revenue has raised Ground No. 1 in both assessment year 2001-02 and 2002-03 contending that interest income has to be assessed as income under the head "Income from other sources". 7. Before us the ld. D.R relied on the order of the Assessing Officer 8. The ld. Counsel for the assessee submitted that it has to maintain fixed deposits for keeping them as margin towards obtaining letter of credit and other guarantees for the various projects. Hence, the interest income and insurance claim is directly related to the business of the assessee and should be treated as business income. It was further submitted that the RBI has permitted to open a Project Office and Site Office for the purpose of executing the contract with Indian Oil Corporation Ltd. for the expansion of Barauni Refinery. The approval of the RBI for operation in India is restricted exclusively for the execution of the contract with IOCL. Hence, the income is inextricably connected with the Project Office in India. He placed reliance on the following judicial precedents. (1)CIT v. Lok Holdings [2009] 308 ITR 356 (Bom.) (2)CIT v. Indo Swiss Jewels Ltd. [2006] 284 ITR 389 (Bom.) (3)CIT ....
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....ith the bank, interest earned on such deposits was held to have arisen out of business activity and, therefore, the same had to be construed as income from business. In view of the above, we are of the view that the order of CIT(A) holding that the interest income is income from business has to be upheld. Accordingly, we uphold the order of CIT(A) and dismiss ground No. 1 in both the appeals. 10. Ground No. 2 in ITA No. 3006/M/05 and Ground No. 2 in ITA No. 3700/M/05 reads as follows: ITA 3006/M/05- Ground No. 2 "2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the expenditure of Rs. 31,93,79,280 on employee remuneration and welfare expenses which were incurred in Korea and debited in the books of accounts of the Indian project office should not be restricted to the limit prescribed under section 44C of the Income-tax Act, 1961. The CIT(A) has failed to consider that section 44C was introduced to get over difficulties in scrutinizing claims in respect of general administrative expenses incurred by the foreign head office and foreign companies operating through branches in India sometimes try to reduce incidence of tax in India....
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....ative overheads which were to be treated as the head office expenses under section 44C of the Income-tax Act, 1961 (the Act). Accordingly, disallowance of expenses were made by the Assessing Officer. 12. The assessee submitted before the CIT(A) that it has offered the entire global income of the contract as taxable in India. Hence, no PE concept was followed. These expenses are directly related to the Indian project and not in the nature of overheads, since proper time sheets are maintained for each department. The same has been certified by a Certified Public Accountant of Korea (CPA). The assessee submitted that section 44C of the Act is not applicable, since assessee has not claimed any expenses of Head Office in Rupee portion and further entire income is offered to tax and not only PE based income. Further, the assessee submitted, Offshore man hour statements for various months of the relevant year and independent auditor's report confirming that only employees' salary relating to Direct Project Teams who have directly work on FCC and DHDT project have been debited to cost of sales and does not include any allocation of administrative overheads as supportive evidence before CI....
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....ot fall within the ambit of section 44C. It is only in a case where there are common expenses which are incurred by the- Head Office for various branches the restrictions mentioned in section 44C will come into operation. The CIT(A) has found that the impugned expenses were incurred exclusively for the Indian Project and are not in the nature of overheads. In this regard the assessee had field time sheet, on daily basis for each employee in the organization and have recorded the man hours on daily basis through ERP software. The time spent on the Indian Projects are properly segregated. The same have been-verified by the auditors and certified. In the remand report the Assessing Officer has not found fault with the same. In such circumstances we are of the view that the findings of the CIT(A) have to be accepted. Once it is held that the disputed expenses are directly related to the Indian Project then the provisions of section 44C of-the Act will not come into operation. In this view of the matter, we do not find any infirmity in the order of the CIT(A). Consequently, the order of the CIT(A) is confirmed and Ground No. 2 of the revenue in both the appeals are dismissed. 15. Groun....
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....s in India. Hence no TDS was deductible on these payments. The assessee placed reliance on CBDT Circular No. 786 dated 7-2-2000 wherein it was clarified that in case of a non resident agent operating outside the amount, no part of income arises in India and therefore, no tax is deductible under section 195. The assessee also relied on the Hon'ble Mumbai ITAT's decision in case of Linde AG v. ITO [1997] 62 ITD 330 wherein ii was held that though procurement services required industrial and scientific experience, it did not mean imparting of any information concerning industrial, commercial or scientific experience. Hence it was not royalty under the treaty. The CIT(A) considered the above submissions of the assessee and held that the case of assessee is similar to the facts of the case: of Linde AG and hence payments towards procurements charges can be termed as commission and "not fees for technical services". Further it was held that, since Samsung Corporation does not have a PE in India, the procurement service fees cannot be brought to tax in India. Hence section 40(a)(i ) cannot be invoked. 18. Before us ld. D.R relied on the order of the Assessing Officer. The ld. Counsel for....
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....In the circumstances the disallowance made by the Assessing Officer was rightly deleted by the CIT(A). We do not find any ground to interfere in the findings of the CIT(A). Consequently, the ground raised in both the appeals are dismissed. 21. Ground No. 4 of ITA No. 3006/M/05 & ITA No. 3700/M/05 reads as follows: ITA 3006/M/05-Ground No. 4 "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that clause (h) and (j) of Rule 6DD is applicable in the case of the assessee without appreciating the fact that Barauni is a well established township and the above clauses of Rule 6 DD are not applicable in assessee's case." ITA 3700/M/05-Ground No. 4 "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that clause (h) and (j) of Rule 6DD is applicable in the case of the assessee without appreciating the fact that Barauni is a well established township and the above clauses of Rule 6 DD are not applicable in assessee's case. 22. During the assessment proceedings the Assessing Officer has made a disallowance of Rs. 22,32,116 at 20 per cent of Rs. 1,11,60,580 for assessment year 2001-02 and Rs. 36,11,592 ....
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....rmanent stay at the site office. The assessee also contended that clause (h) and (j) of Rule 6DD provide for exception to the rule of disallowance under section 40A(3) and the payments of salary to Korean staff and Indian staff are covered by these exceptions provided under clause (h) and (j) of Rule 6DD. The relevant clauses are as under: "Clause (h) of Rule 6DD states that: "Where the payment is made in a village or town, which on the date of such payment is not served any bank, to any person who ordinarily resides, or is carrying on any business, profession or vocation, in any such village or town." Clause (j) of Rule 6DD states that: "Where the payment is made by an assessee by way of salary to his employee after deducting the income-tax from the salary in accordance with the provisions of section 192 of the Act, and when such employee- -Is temporarily posted for a continuous period of fifteen days or more in a place other than his normal place of duty or on a ship; and -Does not maintain any account in any bank at such place or ship". The CIT(A) considered the fact that since the site office at Barauni, is 1000 kms way from the Project Office in New Delhi and there are ....