TaxTMI 
TaxTMI 
2013 (1) TMI 509
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....ons of assessee deleted the penalty by stating as under: "1.11 I have duly considered the submissions of the authorised representative and findings of the AO. The AO has made certain additions to the total income of the assessee and levied penalty when those additions were confirmed by CIT(A). However, from the facts of the case, it is clear that assessee has furnished all the particulars of income and it cannot be accused of furnishing inaccurate particulars of income for levying penalty. The Explanation (1) to section 271(1)(c) has two limb wherein the first limb is applicable when such person fails to offer an explanation or offers an explanation which is found by the AO to be false. The second limb is where such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. In so far as the first limb is concerned, the AO has not considered the explanation filed by assessee to be false. AO has applied second limb which comes into play if such person gives an explanation which is not considered to be....
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....ed and controlled from Japan with Head Office in Tokyo, Japan. Assessee is operating as a Bank in India through its branch offices in Bombay and New Delhi. These branches have been considered as permanent establishment for the principal bank in Japan. Accordingly, assessee filed the returns of income on the profits derived by its branches in India. Apart from other issues, the issue in Item Nos. 1 & 2 i.e. disallowance of interest paid to HO under section 40(a)(i) and also treating the same amount as income of the principal holding assessee as an Agent were considered by the Special Bench of the ITAT in assessee's own case and accordingly, in the quantum appeal the two additions were deleted. Therefore, the learned CIT (DR) fairly admitted that the penalty on the above two issues does not survive for consideration. 4. The only remaining issue is with reference to the addition made in the assessment of Rs. 59,85,368. The facts of the issue are as under. Assessee branch in India has received an amount of Rs. 2,43,56,075 as income from M/s S.K. Telecom, Korea as the guarantor in respect of loan granted by the Bank to DSS Mobile Communication Ltd. This above amount was subjected to ta....
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....es shall be deemed to accrue or arise in India:- (i) All income accruing or arising whether directly or indirectly) through or from any business connection in India) or through or from any property in India) or through or From any asset or source of income in India) or through the transfer of a capital asset situate in India" In the case of assessee it has granted certain loan to DSS Mobile Communication Ltd and SK Telecom was the guarantor for this transaction. The funds which are advanced by assessee to DSS Mobile Communication Ltd are part of the funds raised through various 'sources' by the bank in India. Therefore, any income, received by the assessee bank from any person in respect of such advancement of loan, is takes the colour of income accruing or arising from business connection in India and gets squarely covered by section 9(1)(i) of the Act. Further, it is not an expenditure at all, whatever tax has been deducted in Korea, the assessee would be entitled for credit of the same in its home country. It only means an indirect receipt of income. In view of this, the 'entire amount of Rs. 2,43,56,674 is added to the total income of the assessee instead of Rs. 1....
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....uld be brought to tax as against the claim of net amount after deduction at source. Referring to the above judgments it was submitted that by the time assessee filed the income, the jurisdictional High Court has already adjudicated the issue that the gross amount only has to be brought to tax and not the net amount as claimed by assessee. It was his submission that assessee inspite of jurisdictional High Court judgment has not offered the amount even though the same was accounted in assessee's own books of account and therefore, there is no bonafide reason for making the claim and the CIT (A) erred in deleting the penalty on the above amount. 8. On the contrary, the learned Counsel submitted that assessee was of the view that since the amount was deducted and paid to Korean Government what is accrued to assessee in India is only the net amount received and relied on the order of the Hon'ble Bombay High Court in the case of CIT v. Ambala Kilachand [1994] 210 ITR 844 dated 12.4.1994. He also relied on the decision of Hon'ble Madhya Pradesh High Court decision on the case of CIT v. Yawar Rashid [1996] 218 ITR 699 wherein it was held that only net amount was taxable. It was his submis....
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....rued to India, which was ultimately affirmed by the ITAT. 10. Now whether assessee's contention that the tax deducted in Korea has not accrued to assessee is bonafide. In support it claims support from the decision of the Hon'ble Bombay High Court in the Ambala Kilachand (supra). On the facts in the said case, the Hon'ble Bombay High Court held as under: "In respect of income which is received or which accrues in India, section 5 provides for inclusion of income which is deemed to be received or deemed to have accrued to the assessee in India. But in respect of income arising outside India, what is includible in the total income under section 5(1)(c) is only the income which actually accrues or arises to the assessee outside India during the relevant year. Further, by virtue of the provisions of section 194, read with section 198, in respect of any dividend income received in India, not merely the dividend amount actually received by the assessee but also the income-tax deducted thereon under section 194 is considered as income deemed to be received by the assessee, thus, falling under section 5(1)(a). Accordingly, the gross amount of dividend would be includible in the total inc....
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....seen from the above said decision was rendered in the hands of the Indian resident interpreting the income arising outside India under section 5(1)(c) r.w. provisions 194 and 198 of IT ACT. Since assessee being a non-resident, the said decision does not come to the help of assessee as assessee cannot claim any benefit under the provisions of section 194 and 198 for tax credit. One of the issue, which the Hon'ble Bombay High Court also considered is with reference to the benefit of tax credit provided under schedule F of UK for grossing up of the dividend income by the tax so deducted. Hon'ble Bombay High Court also noticed that these provisions do not have any application to persons who are not resident in the UK. Therefore, as seen from the above judgment the provisions of UK and the provisions of the Indian Income Tax Act applicable to the residents in India were interpreted to come to a conclusion that only the net dividend is assessable on the facts of the case. 12. The learned Counsel also relied on the Hon'ble Madhya Pradesh High Court in the case of Yawar Rashid (supra). In the above said case it was held as under: "According to section 5 the total income of the assessee o....
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....hich accrues or arises to him outside India that means that only the income actually accrues or arises to him, that is the only total income. Therefore, in both the clauses, the word used "is received or is deemed to be received or accrues or arises or is deemed to accrue or arise in India", i.e., in both clauses (a) and (b), no distinction has been made that what is due to him shall be counted. As against in clause (c ), it makes clear that what is actual income accrues or arises to him outside India shall be counted, i.e., the gross income in clause (c) is not to be counted, but actual income which is received at the hands of the assessee, is to be counted. Similarly, section 198 says how tax deducted should be included in the gross total income under the provisions of the Income-tax Act. There is no such inclusion under section 198 of the income-tax deducted at source abroad. That gives an indication that the Legislature deliberately did not want to include that deduction as a part of the assessee's income for the purpose of computing his gross income or it is a case of a bona fide omissions. But nonetheless, the fact remains that there is no provision which mandates that if an....
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....ad wrongly relied on the above provisions, latest judgment in the case of Madhavarao Scindia (supra), relying on the principles laid down by the jurisdictional High Court in the case of Meherbai N Sethna (supra) does establish that the gross amount is taxable in India. These judgments were also rendered prior to filing of assessee's return of income. Therefore, we are of the opinion that the 'bona fide belief' so set by assessee does not hold in the light of the clear judgments of the jurisdictional High Court given in the context of Indian residents again. Therefore, assessee's non-offering of income in our view attracts penalty under section 271(1)(c). In our view learned CIT(A) did not separately examine the issue of "bona fide belief" on this addition but considered the same along with other additions which stand deleted. 15. Assessee relied on the judgment of the Hon'ble Supreme Court in the case of Reliance Petro products (P.) Ltd. (supra) for the proposition that the claim made does not lead to penalty under section 271(1)(c). However, this is not a claim made as under the Income Tax Act at all. There is no claim for credit of the tax paid in Korea. As already discussed abo....