TaxTMI 
TaxTMI 
2013 (8) TMI 445
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....IT(A) ought to have held that the order issued by the AO is beyond the scope and powers conferred on the AO by the provisions of the Income-tax Act, 1961 (hereinafter referred to as the Act) and is therefore bad in law. Your appellants pray that the impugned order passed by the AO be quashed. In any event, the relevant observations of the AO be deleted. 2. The CIT(A) erred in holding that the AO was justified in invoking the provisions of Section 14A of the Act and thereby disallowing the whole of interest amounting to Rs. 4,21,73,860, paid on FCNR(B) deposits. Your appellants submit that on the facts and circumstances of the case, the CIT(A) ought to have held that provisions of Section 14A have no application to the facts of their case. Your appellants pray that the AO be directed to delete the addition of Rs. 4,21,73,860 made to their total income. 3. The CIT(A) erred in holding that the AO was justified in holding that the whole of interest paid amounting to Rs.4,21,73,860 on FCNR(B) deposits is relatable to income to which the provisions of Section 14A are applicable. Your appellants submit that on a proper appreciation of the facts, the CIT(A) should have held tha....
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....directed accordingly. 8. The CIT(A) erred in holding that the AO was justified in disallowing data processing charges amounting to Rs. 91,03,072 on the ground that provisions of Section 40(a)(i) have not been complied with. Your appellants submit that the provisions of Section 40(a)(i) of the Act have no application in their case and the CIT(A) ought to have directed the AO to grant your appellants a deduction of Rs. 9 1,03,072. Your appellants pray that the AO be directed accordingly. 9. The CIT(A) erred in upholding that your appellant's income is taxable at the rate of 48% as applicable to non-resident company. Your appellants submit that on the facts and in the circumstances of the case, the CIT(A) ought to have held that in accordance with the provisions of Article 26 of the Agreement for Avoidance of Double Taxation between India and France (AADT), tax on business income should have been levied at the rate applicable to domestic company. Your appellants pray that the AO be directed to recompute their tax liability in accordance with the provisions of Article 26 of the AADT. Your appellants crave to leave to add to, amend, alter, vary, omit or substitute the aforesaid....
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....ered opinion that the assessment order on this count needs to be approved in preference over the view taken by the learned CIT(A). This ground taken by the Revenue about the chargeability of interest on NOSTRO account amounting to Rs. Rs. 13.66 crore is, therefore, allowed. 5. It is observed that the ld. CIT(A) made enhancement of income to the tune of Rs. 32.79 crore by computing disallowance under section 14A in respect of such interest income on NOSTRO account, which was held by him to be not chargeable to tax as against the AO's decision as to the chargeability of this amount. When the view of the ld. CIT(A) on this issue is overturned and that of the AO is restored, interest on NOSTRO account becomes taxable. Once the income itself is chargeable to tax, there can be no question of computing any disallowance under section 14A, the mandate of which operates to disallow deduction for expenses incurred in relation to income which does not form part of the total income under the Act. Accordingly, grounds raised by the assessee against the enhancement done by the learned CIT(A) for Rs. 32.79 crore by invoking the provisions of section 14A are also consequently allowed". 8. In ....
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..... After considering the rival submissions and perusing the relevant material on record, we find that the action of the revenue authorities on treating the amount being in the nature of royalty and hence not allowable under section 40(a)(i) cannot be allowed. The obvious reason is that the assessee made the payment on account of data processing costs to its head office. By no standard this amount can be considered as royalty as a consideration for the use of the assets specified under Explanation 2 to section 9(1)(vi). This amount is in the nature of head office expenses. The assessee did not include this amount in the ambit of head office expenses to be considered on the touchstone of section 44C of the Act. Since AO made disallowance by treating it as royalty, he had no occasion to consider the deductibility or otherwise of the amount as per the prescription of section 44A. Under such circumstances, we are of the considered opinion that it would be in the interest of justice if the impugned order on this issue is set aside and the matter is restored to the file of the AO. We order accordingly and direct the AO to consider the deductibility or otherwise of such amount by treating i....
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....12.4 The assessee bank is a branch of a foreign bank, which carries on limited banking activities in a metropolitan city. The Indian banks are spread over the country and have to operate in rural areas. The RBI has laid down guidelines which the banks have to follow. These guidelines enjoin that certain percentage of the bank's resources have to be utilised in rural advances, which carry more risk than corporate loans etc. The banks also have to invest their resources in a certain manner as per the guidelines laid down by RBI. The guidelines are not identical in case of foreign banks. The following chart shows the unequal treatment given to the foreign banks, as compared to their Indian counterparts; Domestic Non-Resident Priority sector advances 40% 32% Advances to agriculture 18% NIL Advances to weaker sections 10% NIL The above advances have a lower rate of return and carry a greater risk. The Indian Banks as illustrated earlier, carry a heavier burden of social responsibility, which also has a dampening effect on their profits. Considering the totality of the tax structure, the non-resident companies enjoy certain concessions over t....
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....ld also have option of carrying forward or backward a loss. Permanent establishment should further have the same rules applied to resident enterprises, with regard to taxation of capital gains. All the above facilities are available to the assessee bank. The rate of tax is just one of the threads in the total fabric of taxation. The commentary, on structure and rate of tax, on para 4 of Article 24 of the UN Model convention is very relevant, in this context:- it should be pointed out as being a fact central to the issue here that most OECD member countries which have adopted this system do not consider themselves to be bound by the provisions of paragraph 4 to extend it to permanent establishments of non-resident companies. This attitude is based, in particular, on the view that the split rate is only one element amongst others (in particular a withholding tax on distributed income) in a system of taxing profits and dividends of companies, which must be considered as a whole and is, therefore, both for legal and technical reasons, of domestic application only. The State where the permanent establishment is situated could claim the right not to tax such profits at the reduced ....
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.... respective State except when express provision to the contrary is made in the treaty. It may so happen that the tax treaty with a foreign company may contain a provision giving concessional treatment to any income as compared to the position under the Indian law existing at that point of time. However, the Indian law existing at that point of time. However, the Indian law may subsequently be amended reducing the incidence of tax to a level lower than what has been provided in the tax treaty. Since the tax treaties are intended to grant tax relief and not put residents of contracting country at a disadvantage vis-à-vis other tax payers, section 90 of the Income-tax Act has been amended to clarify that any beneficial provisions in the law will not be denied to a resident of a contracting country merely because the corresponding provision in the tax treaty is less beneficial." Whether an assessee has been less favourably treated or not, cannot be decided on the basis of single item of tax rate alone and a comprehensive view after taking into consideration all other aspects has to be taken. Article 24 of the Indo-Japanese treaty is similar to Article 26 of the Indo France tr....
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....eing amount received from HO and branches. The AO has held, "In the computation of income of the branch as per the domestic laws, the interest has been allowed as deduction from computation of income but the same is not allowable under section 40(a)(i) of the I.T. Act, 1961 because it failed to deduct tax on payment of interest to Overseas branch /H.O. as discussed in para 6 to 6.4. The income of the Overseas branch/H.O. would be taxable under article 12 of the Treaty with France @ 10%. I, therefore added the amount of Rs. 33,55,026/- to the total income of the assessee as interest income of the Overseas branch/H.O". 25. The AR submitted that patently, the amount has been brought to tax twice, which is included in interest & commission paid to overseas branches and HO, the issue is clearly covered by the decision of the Special Bench of the ITAT in the case of Sumitomo Mitsui Banking Corp. vs. DDIT, reported in 136 ITD 66, wherein the SB held, "... that the interest paid by the Indian branch of the assessee bank to its HO and other branches is not chargeable to tax in India. Section 195 would not be attracted". 26. Having heard the rival submissions and perused the relevan....
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....learned Departmental Representative was fair enough to concede that similar issue was there in the appeal for the immediately preceding year and the Tribunal, following its decision for assessment year 1991-92, has decided this issue against the Revenue. In view of the fact that the facts and circumstances for the previous year relevant to the assessment year under consideration are similar and no distinguishing feature has been brought to our notice by the learned Departmental Representative, respectfully following the precedent, we uphold the impugned order on this issue by directing that the interest paid in respect of the broken period be set off against the interest received in respect of the broken period. This ground is disposed off accordingly". 33. Respectfully following the order, we hold that the issue is against the revenue and thus we uphold the order of the CIT(A). Ground no. 2, therefore, is rejected. 34. Ground no. 3 pertains to disallowance of Rs. 1,16,62,285/- incurred by the HO on credit risk assistance. 35. The issue has been dealt with by the coordinate Bench, wherein they relied upon the decision of JCIT vs American Express Bank Ltd., reported in 2....
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....r 1997 30.06.00 DSQ Ltd. 82,22,645.83 2000-01 June 1999 30.09.00 Dewan Tyres 5,72,736.75 2000-01 June 1999 30.06.00 Chemwood Corp. 18,44,449.80 Rajesh Mension 10,00,000.00 TOTAL 5,76,81,811.51 10.4 When in the course of appellate proceedings the appellant was asked to get its contention verified that all the above provisions were offered for tax the respective year of provision, the appellant filed following submission necessary details: As submitted in the course of the appellate proceedings provision for doubtful debts is offered to tax in the respective year of provision. We now enclose at Annexure 2 a copy of computation of total income for assessment year 1998-99. You will note therefrom that provision for doubtful debts amounting to Rs. 17,93,96,844 was added back in computing business income for that assessment year. Further, we enclose at Annexure 3 a copy of computation of total income for assessment year 2000-01. It will be noted therefrom that, provision for doubtful debts was added back at Rs. 62,84,82,300. We also enclose at Annexure 4 party-....