TaxTMI 
TaxTMI 
2012 (12) TMI 730
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....the appeals under consideration by accepting that the facts and circumstances are similar, unless otherwise separately submitted, which we will advert to distinctly. Assessment Year : 1994-1995 3. First ground of the Revenue's appeal is against the deletion of addition of Rs. 15,57,491 being the net interest and commission received by the assessee from head office. Briefly stated the facts of this ground are that the assessee received certain interest/commission from its HO/overseas branches and also simultaneously paid interest/commission to its HO/overseas branches. Such income/expenditure was credited/debited to the profit and loss account of the assessee. However, while computing the total income the assessee excluded the interest/commission income and also added back the interest/commission expenditure. The Assessing Officer held that the interest/commission income was chargeable to tax. This resulted into an addition of Rs. 15,57,491. The learned CIT(A) overturned the assessment order on this point. It is observed that similar issue was raised in the appeals for assessment year 1997-98. Relying on the Special Bench order in the case of Sumitomo Mitsui Banking Corpn. v. Dy. ....
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....rd it is observed from the order passed by the Tribunal in assessee's own case for assessment year 1996-1997 in ITA No.3121/Mum/2000, a copy of which has been placed on record, that similar issue was raised in that year as well. After considering the earlier order passed by the Tribunal in assessee's own case for assessment year 1991-92, the Tribunal decided it in favour of the assessee by holding that interest paid on broken period was liable to be allowed as deduction against the interest received in respect of the broken period. From para no.25 of the Tribunal order for assessment year 1996-97 it can be seen that the Tribunal, while following the order for assessment year 1991-92, also took into consideration the view taken by the Tribunal for assessment years 1987-88 and 1988-89. Be that as it may it is palpable that the assessee switched over from one recognized method of valuation of bonds and securities to another recognized method in the previous year relevant to the assessment year under consideration in respect of PSU bonds. Broken period interest which was hither to capitalized came to be considered as deduction in the year of purchase. This changed method has been undis....
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....n we uphold the impugned order on this issue for the current year as well and dismiss this ground. 10. Ground no.6 of the assessee's appeal is against the direction of the learned CIT(A) that interest/commission received from HO/branches should not be charged to tax. 11. After considering the rival submissions, we find that similar issue was there in appeal for the assessment year 1997-98. After considering the decision of the Special Bench of the Tribunal in the case of Sumitomo Mitsui Banking Corpn. (supra), the bench has directed the Assessing Officer to exclude the amount of interest/commission received by Indian PE from its HO/overseas branches and also not to grant deduction in respect of interest/commission incurred towards HO/overseas branches. We follow the same view for this year as well and direct the Assessing Officer accordingly. 12. Ground no.7 of the assessee's appeal is to the effect that interest amounting to Rs. 11,02,79,210 received from branches on placement of overseas deposits should not be charged to tax. The learned Counsel for the assessee contended that though this issue does not arise out of the impugned order but the facts are available on record inas....
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....ward foreign exchange contract during the year. In respect of the unmatured contracts as at the year end, the assessee valued such unmatured forward foreign exchange contracts at the rate of exchange prevailing as at the end of the year which resulted into loss of Rs. 7.14 crore. It can be considered by way of simple example. If the assessee undertakes a forward foreign exchange contract as on 18th January, 1998, on which the rate of dollar is Rs. 42. Further suppose that the contract is to mature on 30th April at the price of Rs. 46 per dollar. Suppose at the end of the year 31st March, the rate of dollar has gone up to Rs. 43, the assessee's claim is that the difference of Rs. 1 (Rs. 43 - 42) as on 31st March, 1998 should be taken as loss and allowed deduction accordingly. The Special Bench of the Tribunal in the case of Dy. CIT (International taxation) v. Bank of Bahrain & Kuwait [2010] 41 SOT 290 (Mum.) has held that the loss incurred by the assessee on account of evaluation of the contract on the last day of the accounting year i.e. before the date of maturity of the forward contract, is allowable as deduction. In that view of the matter this loss of Rs. 7.14 crore representin....
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....ection of the learned CIT(A) to allow the broken period interest paid of Rs. 4,35,90,306 as an expense. This issue has been discussed by us in our order for assessment year 1997-1998 and the decision has been taken for allowing broken period interest as an expense. This ground is accordingly not allowed. 19. Ground no.3 is against the allowing of exemption in respect of gross interest earned from tax free securities u/s 10(15) of the Act. The learned Departmental Representative fairly submitted that this is also a recurring issue. He however argued that the expenditure in connection with the earning of such tax free interest income should be disallowed u/s 14A. 20. Having heard the rival submissions and perused the relevant material on record we find that the facts and circumstances of the ground as well as the arguments raised by the learned Departmental Representative in respect of disallowance u/s 14A are similar to those for assessment year 1997-98. While disposing off this ground for assessment year 1997-98 we have held that exemption u/s 10(15) is to be allowed on gross interest and not on the net interest. Further, it has been held by the ld. CIT(A) that investment in tax ....
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....he credit of this account was available as US$ Float to the HO to be drawn as and when required. The A.O. observed that the interest earned from HO was lower as compared to interest paid for FCNR-B Deposit. Such excess interest of Rs. 1,05,18,450 was held by the Assessing Officer to be not deductible. The learned CIT(A) deleted this addition. 26. Having heard the rival submissions and perused the relevant material on record it is seen that the assessee kept certain deposits received from clients abroad in NOSTRO account maintained with the BTC by the HO to be used as Dollar Float Fund for its global operations. Whether and at what point of time such deposits were to be brought into India was a decision to be taken by the assessee taking into consideration various factors such as the foreign exchange rate prevailing at the time of receipt of deposits. Such deposits were not with the HO of the bank but were in NOSTRO account. Simply because the assessee paid interest on domestic deposits at a little higher rate than that it received on FCNR-B Deposits, it cannot be said that the interest paid should be disallowed to that extent. In our considered opinion there is no force in the sub....
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....reference to the cost of purchase of securities by ignoring adjustment made in books of account in this respect by the appellant. The A.O. is directed accordingly". The facts of this ground are that the assessee wrote off premium paid on purchase of securities which was amortized over the life of investment. The learned CIT(A) held that when securities are purchased from market at market value, there can be no question of carrying the stock at a lower price by writing off the premium paid on purchase of securities, as done by the assessee. We are in agreement with the view canvassed by the learned CIT(A) for the obvious reason that when the assessee is purchasing securities as stock-in-trade, there can be no question of amortizing the premium paid for the purchase of securities over the life of such securities. The purchase price so paid has to be taken as such by disregarding the assessee's view point that the premium on purchase of securities should be amortized over the life of investment. To this extent we approve the view taken by the learned CIT(A). The learned AR argued that if this was to be upheld then the direction of the learned CIT(A) be modified in the sense that not o....
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....this contention advances the case of the Revenue. Once the source of tax free securities is interest free funds, it makes no difference when there is change in tax free securities from one to another. The relevant criteria is to see the source of investment. We, therefore, find no reason to disturb the finding given by the learned CIT(A) in this regard. This ground is not allowed. 36. Ground no.4 is against the direction of the learned CIT(A) to allow deduction of Rs. 3.50 crore independent of the provisions of section 44C. The A.O. discussed this issue on page 13 of his order. He noted that these expenses were claimed to have been incurred by the HO, "which are again claimed to be specific to the Indian operations, the correctness of which cannot be verified". The learned CIT(A) accepted the assessee's stand. 37. After considering the rival submissions and perusing the relevant material on record it is observed that the assessee did furnish its explanation to the A.O. vide its letter dated 6th March, 2002 about the details of expenses incurred and the reason as to why these expenses were allowable independent of section 44C. This fact is borne out from the statement of facts fil....
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....eld that the interest/commission received by the assessee from HO/overseas branches is not chargeable to tax and in the same manner the interest/commission paid to HO/overseas branch is not allowable as deduction. The same view is reiterated here. The AO is directed to give effect to this direction. These grounds are, therefore, disposed off accordingly. 43. Ground nos. 7 and 8 of the assessee's appeal are against making of disallowance u/s 40(a)(i) in respect of deduction u/s 55,82,037 being interest paid to HO and Rs. 42,539 being the interest paid to overseas branches. While disposing off ground nos.5 and 6, we have held that the assessee is not entitled to deduction in respect of interest/commission paid to Ho/overseas branches. Once the assessee is not entitled to deduction, there can be no question of making any disallowance u/s 40(a)(i) as the deduction is denied at the very outset itself. 44. Ground no.9 of the assessee's appeal is against the direction of the learned CIT(A) not to allow loss on revaluation of unmatured forward foreign exchange contracts as on 31st March, 2000 amounting to Rs. 1,56,70,296. The facts and circumstances of this ground are similar to those di....
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....d such amount to be covered within the ceiling prescribed u/s 44C. The learned CIT(A) directed to allow independent deduction distinct from section 44C. 49. After considering the rival submissions and perusing the relevant material on record it is observed that the A.O. has made out a case that the expenses to the tune of Rs. 1.06 crore were allocated to the assessee and are not incurred exclusively by the HO for the assessee. The A.O. observed these features from the invoices submitted by the assessee. The learned AR has invited our attention towards the statement of facts filed before the learned CIT(A) in which it has been submitted that the details of expenses and reason as to why such expenses were allowable independent of section 44C were made available to the A.O. vide its letter dated 19th March, 2003. The learned AR submitted that as per the terms of Article 7 of the DTAA, all the expenses incurred by the assessee for business purposes were to be allowed as deduction. 50. We are not convinced with the submission made by the learned AR in this regard for the reason that as per the mandate of Article 7, the deduction is to be allowed in conformity with the provisions of th....