TaxTMI 
TaxTMI 
2013 (11) TMI 932
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....ns raised which the learned DR objected to stating that there are no conflicting orders and so constitution of Special Bench is not required. Therefore, we have proceeded hearing the appeal keeping in mind the request of assessee for constitution of Special Bench on various legal principles and therefore, the issue of deduction of section 80M was elaborately discussed and findings are given in this order. There are other issues also which are agitated by assessee. Therefore, for the sake of clarity the grounds raised by assessee in both the years are extracted as under: Grounds- A.Y 1991-92: (ITA No. 8693/Mum./1995) 1. "In confirming the disallowance of deduction of Rs. 1,09,29,533 under section 80M of the Income Tax Act, 1961 (hereinafter referred to as "the Act") made by the Assessing Officer (hereinafter referred to as "the A.O"). Your Appellant submits that on the facts and in the circumstances of the case and having regard to the provisions of the Double Taxation Avoidance Agreement between India and France (hereinafter referred to as "the DTA"), the CIT(A) ought to have held that your Appellant was entitled to deduction ....
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....ise which is wholly unnecessary". Grounds - A.Y 1994-95: (ITA No.507/Mum/2000) "1. In setting aside and restoring the case back to the learned Assessing Officer to decide on the question of allowability of the following expenses in light of the recent decision in appellant's own case enunciated by the Authority for Advance Ruling ('AAR') in 236 ITR 103. of travel under Rule 6D - 99,627 of gift expenses under Rule 6B - 6,221 of entertainment expenses under section 37(2) -5,28,387 under section 43B -5,01,477 of 50 percent in respect of payments made to clubs - 60,070 2. In disallowing the claim for deduction under section 80M of the Act amounting to Rs. 3,92,89,504 on the ground that the deduction is available only to domestic companies and not to non-resident companies such as the appellant". ITA No.8693/Mum/1995: AY 1991-92 3. Ground no. 1 is on the issue of claim of deduction under section 80M. The facts leading to the issue are as under. Assessee is a company incorporated in France and is engaged in the business of banking. In India, the....
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....ed to a more burdensome taxation than Indian Scheduled Banks (nationals of India in the same circumstances). * This has been specifically prohibited by Article XXI of the Old India France Tax Treaty, further by virtue of section 90(2) of the Act, provisions of the Old India-France tax treaty must prevail over the provisions of the Act. * Therefore, the discrimination contemplated under section 80M of the Act can be applied to assessee and assessee must be allowed deduction under section 80M of the Act for AYs 1991-92 and 1994-95. * All the above arguments of assessee have been considered and held in assessee's favour in the Standard Chartered Bank v. IAC[1991] 39 ITD 57 (Bom.) by Mumbai ITAT. Assessee also places reliance on the ratio laid down in the following rulings: (a) State Trading Corpn. of India v. CTO AIR 1963 SC 1811 (b) ITO v. Decca Survey Overseas Ltd. In ITA.No.3604/Bom/94, dated 27-2-2004 (c) Bank International Indonesia v. Jt. CIT in ITA.No.3013/M/2001. (d) ABN Amro Bank NV ....
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...., nor any other rules are prescribed in the context of this section. This plea was already noticed by the ITAT in the case of Decca Survey Overseas Ltd (supra) in the context of section 90 as it stood then. This decision was followed in subsequent case of Bank International Indonesia (supra) and also by ABN Amro Bank NV (supra). In view of this it was submitted that as discrimination was prohibited by Article XXI of India-France treaty and as assessee was placed at a disadvantageous position as far as this deduction was concerned, the deduction under section 80M is allowable. 9. Assessee's working pertains to this claim is as under: Particulars Indian Scheduled Banks Assessee Dividend 100 100 Less: Deduction under section 80M of the Act 60 - Taxable dividends (subject to tax at the following rates: -Indian Scheduled Banks @ 57.5 per cent - The Assessee at the rate of 25 per cent) 40 100 Effective rate 23 25 As the tax rate is more to the assessee bank, it was the submission that there is discrimination which should be avoided. 10. The learned Counsel further referred to the case of Credit Llyonnais v. Dy. CIT[2005] 94 ITD ....
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....g in conflict with the provisions of Paragraph 4 of Article 7 of this Convention. 1. Nationals of one of the States shall not be subjected in the other State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances are or may be subjected. These provisions shall, notwithstanding the provisions of Article 1 also apply to persons who are not residents of one or both of the States. 2. Except where the provisions of paragraph 3 of Article 7 apply, the taxation on a permanent establishment which an enterprise of one of the States has in the other State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. 3. The provisions of paragraph 2 shall not be construed as obliging one of the States to grant to residents of the other State any personal allowances, reliefs and reduction for taxation purposes on account of civil status or family responsibilities which it grants to its own residents. The nationals of one of the Contracting States shall no....
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....re burdensome than the taxation and connected requirements to which other similar enterprises of the first mentioned State are or may be subjected. It was the stressed that the issue requires adjudication by a special bench as there are conflicting orders. 12. Countering the arguments of the learned AR, the learned CIT (DR) submitted that assessee's contentions are not correct. Non discrimination clause of Article-XXI can only be invoked if two assessees are placed "in the same circumstances", notional discrimination cannot be considered. It was submitted that a foreign bank operating in India cannot be considered as assessee in 'the same circumstances' vis-à-vis scheduled banks in India which are governed by the RBI guidelines with reference to loans to priority sector, rural branches etc. So this cannot be considered as operating in the same circumstances and relied on the AAR decision in the case of of ABC Inre 236 ITR 103 with reference to the principles therein. Then the learned DR referred to the provisions of section 80M as it existed before when the foreign companies were also getting deduction, but tax rates were very high, and the amendment brought ....
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....s of Parliament and interpretation of discrimination of clause. He further submitted that by virtue of Article IXX(1), it was agreed that the domestic laws shall prevail and relied on the M.A. order in the case of Abu-Dhaby Commercial Bank (Supra) and Mashreqbank PSC v. Deputy Director of Income-tax (International Taxation), Range 3(2) 14 SOT 1, DCIT vs. Mitsubishi Heavy Industries Ltd,61 TTJ 656. 15. Learned CIT DR then referred to the protocol entered by the Govt. of India with the French Republic and the revised DTAA to submit that the Article 26 in the revised DTAA is different from old Article XXI to submit that 'enterprises of one Contracting State' has been specifically referred in the later DTAA, so they cannot be considered as nationals under the old DTAA so as to come under the non discrimination clause, even though the Hon'ble Supreme Court held that the nationals may be included juridical persons also. Then he referred to the CBDT clarification on credit available for giving Tax relief and Article XXII for mutual agreement procedure provided under the DTAA which were not availed by assessee. He submitted that all other case law relied upon by assessee are not applica....
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....ious year ending on the 31st day of March, 1990, no deduction shall be allowed in respect of such dividend. Explanation: For the purposes of this section, the expressions- (i) "scheduled bank" means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934) and which is a domestic company; (ii) "public financial institution" shall have the meaning assigned to it in section 4A of the Companies Act, 1956 (1 of 1956). (iii) "State financial corporation" and "State Industrial Investment Corporation" shall have the same meaning as in section 43B. (iv) "due date" means the date for furnishing the r....
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....on than the Indian Scheduled Banks (Nationals of India). On the fact of this above Table, it looks apparently that there is higher rate of 2% in the case of foreign bank vis-à-vis Indian Scheduled Bank, but on this basis alone, deduction under section 80M allowable to domestic company cannot be extended to the foreign company, as otherwise the following scenario will arise: Particulars Indian Scheduled Banks Assessee Dividend 100 100 Less: Deduction under section 80M of the Act 60 60 Taxable dividends (subject to the tax at the following rates - Indian scheduled Banks @ 57.5%. - The Assessee @ 25% 40 40 Effective tax rate 23 10 19. If assessee's contentions were to be accepted, the dividend income will be taxed at 10% being the effective tax rate vis-à-vis Indian Scheduled Bank at 23%. This works in a reverse discrimination to the Indian banks. Thus the prima facie, rate difference of 2% in the effective tax rate alone cannot be considered as a discrimination vis-à-vis Indian Scheduled Bank, so as to allow the deduction under section 80M which is not otherwise allowable under the Act. Provisions applicable t....
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.... royalties. (b) On interest mentioned in Article VIII derived from sources within India: (i) In cases where such interest has been subjected to tax in India, France shall allow, against the French tax payable in respect of such interest and within the limit of such French tax, a credit of Indian tax payable in respect of such interest; (ii) In cases, where, owing to the operation of section 10(15)(iv) of the Income tax Act, 1961, no Indian tax is payable on such interest France shall reduce the French Tax payable in respect of such interest by an amount equal to fifty per cent thereof. (c) On dividends, mentioned in Article IX, derived from sources within India, France shall allow, against the French tax payable in respect of such dividends and within the limit of such French tax, a credit of an amount equal to thirty per cent of the gross amount of such dividends. In computing the French tax, on such divi....
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....y under the special concessional provisions in taxation laws for encouraging investment and promoting industrial development. In the French Agreement, both these methods have been used. As regards industrial and commercial profits derived by an enterprise of one country in another country, the same are taxable in the source country if and to the extent that they derived from a "permanent establishment" of the enterprise in the country of sources. As regards income from investments, viz, dividends, interest and royalties, such income to be taxed in both the countries i.e. the country of residence as well as the country of residence. Thus, royalty, dividends and interest paid by an Indian enterprise to a French enterprise may be taxed in both the countries. In such cases, France will allow credit against French tax payable by a French enterprise in respect of such income on the following: In respect of royalty income an amount equal to the tax charged in India on such income, subject to a maximum of the tax payable in France under the French law. In respect of interest income- &nb....
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....d counsel that deduction u/s. 80M was intended by the DTAA. 2.5. This argument of the learned counsel is not correct. If by operation of section 80J, 80K and 80M Indian tax on dividend has been reduced, then it shall be deemed that the amount by which the Indian tax has been reduced or exempted has been actually paid in India. This provision of Article XIX(3)(c) does not provide for deduction u/s. 80M but it only provides for considering certain amount actually paid in India if by operation of section 80M, 80J and 80K tax in India has been reduced or exempted in respect of dividend income. Article XIX(3)(c) does not indicate application of 80M in the case of foreign non-resident company. There may be a case where even deduction u/s. 80M can be available to a foreign non resident bank also. For instance a domestic company is defined as an Indian co. u/s.2(22A) of the I.T. Act or any other company which in respect of its income liable to tax under income-tax has made prescribed arrangement for the declaration and payment within India of the dividend out of such income. U/s. 2(26) of the I.T. Act an Indian company has been defined as a company formed and re....
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.... XXI of DTAA between India and France are general in character whereas provisions of section 80M are specific and applicable only in the case of domestic co. It is well established that such general provision in Treaty do not derogate from special provision of law. There is no dispute between specific provision of section 80M of I.T. Act and Article XXI of DTAA between India and France but even in case of disputes between general and specific provisions, special provisions have to be applied. This principle is contained in the maxim "generalia specialibus non derogant" which means that general words or things do not derogate from special. This expression was explained to mean that when there is conflict between a general and special provision, the latter shall prevail or the general provisions must yield to the special provision. The maxim is regarded as a cardinal principle of interpretation and is characterized as a well recognized principle. In view of the fact that there is no specific provision in the DTAA between India and France regarding deduction u/s. 80M of the I.T. Act specific provisions of section 80M would prevail. Since deduction u/s. 80M is admissible in the case of....
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....n of tax than a national of the Indian State." In this respect, reliance is also placed on the following observations of the Mumbai ITAT, in the case of ITO v. Decca Survey Overseas Ltd. (ITA.No.3604/Bom/94). The Decca Survey Ruling was issued in the context of Explanation to section 90 of the Act, which, as it stood then, made reference to foreign companies making the prescribed arrangements for declaration and payment of dividend. In Decca Survey Ruling, the Mumbai ITAT observed : "Rule 27 of the Income Tax Rules, to which our attention was drawn by the department lays down as to what would be the prescribed arrangement for declaration and payment of dividends within India, but that is only for the purpose of sections 194 and 236 of the Act. This rules does not refer to section 90. The department was not able to draw our attention to any rule in the Income Tax Rules framed for the purpose of section 90 listing out the prescribed arrangements within the meaning of the section. The Explanation, thus not having been activated, is incapable of being applied. There are no guidelines framed in the Income Tax Rules as to what would be the prescribed arrang....
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....er rate invoking the non discrimination clause cannot be applied when the tax on dividend in the case of a foreign company is specially charged under section 115A at a tax rate, lesser than tax on Indian companies. We are not convinced that the above decisions will apply to the case of income from Dividends which are governed by special provisions both under domestic law and also under DTAA. 22. Explanation 1 to section 90 is as under: Explanation 1 to section 90 "Explanation 1. - For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company. 23. This explanation is available under section 90 w.e.f. 01-04-1962 (inserted by Finance Act 2001 and modified by Finance Act 2004, to be effective from that date). In view of this, since the only difference for invoking the non discrimination clause is the rate alone that cannot be considered as a discrimination of foreign company vis-a-vis the Indian company. This opini....
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.... in respect of a foreign company vis-à-vis an Indian company (i.e. a domestic company). The second category as per Explanation is the foreign company vis-à-vis the domestic company other than Indian company. Even under the Finance Act, the domestic company is recognized as Indian company and any other company having made arrangement for declaration of dividends payable on such income. Therefore, the language of the Explanation to section 90 is not in appropriate. Moreover in so far as there is no doubt about the category of the foreign company vis-à-vis the Indian company having been specified in the Explanation, one need not ascertain as to whether in any case the second category of the companies would at all exist". (B) Similar opinion was also expressed in the case of Abu-Dhabi Commercial Bank Ltd (supra): "Double taxation relief-Agreement between India and UAE-Taxation under art. 26(2) of DTAA-For comparing the tax rate of a foreign entity and an Indian entity for purposes of art. 26(2) of DTAA, not only carrying on the same activity is required to be considered but also the circumstances and condition....
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....compared with the domestic company and therefore, there is no force in this contention of the assessee and that in the present case, rate of tax to be charged to the present assessee should be compared with rate of tax being charged to co-operative bank in India. Now, the second contention of the assessee that Explanation to :;. 90 would not be applicable to the assessee's case; as it only seeks to allow discrimination between a domestic company and a foreign company; and since, co-operative bank is not a domestic company, the Explanation would not apply. It is also contended that the assessee company is also 'national' as per art. 3(h) and hence as per art. 26(1) of the DTAA, higher rate of tax cannot be charged. There is no force in these arguments of the assessee also because, only comparable can be compared and rate of tax to be charged to foreign company has to be compared with the rate of tax being charged to domestic company and the same cannot be compared with the co-operative bank. In view of Explanation to s. 90, the second argument regarding charging of higher rate of tax to foreign national also has no substance. Prior to insertion of Explanation to s. 90, Government of....
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....Korea-Clause (2) of art. 25 could not be construed to mean that no tax could be levied on a foreign company at a rate higher than the rate payable by Indian company-Where no rates on an income or a category of income on the status of an assessee have been prescribed in DTAA,. then there cannot be any conflict with the IT Act-The DTAA in general does not prevail over the Finance Act and hence over the tax rates- Further, domestic banking company and non-domestic banking company do not function under 'same circumstances' and, hence, discrimination clause in art. 25 is not applicable- Explanation to s. 90(2) introduced-by the Finance Act, 2001 retrospectively w.e.f. 1st April, 1962, provides that charging of a foreign company at a 'higher rate will not be regarded as less favourable as compared to domestic company-This clarifies the position and is no way in conflict with the DTAA with Korea". The charging of PE of the assessee-company at higher rates applicable to non- domestic companies is not hit by non-discrimination clause of art. 25 of the DTM with Korea. It is one thing to say that provisions of agreement will prevail over the provisions of IT Act in....
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....e, One is 'nationals' and the other is 'in the same Circumstances'. Corporate bodies are not covered in the definition of nationals. Since 'legal person' come side by side with individual in the above definition, then from the principle of noscitur a sociis, the legal person' would not be a corporate body. Further, 'other entity' as used in Art. 3(g) would a so not include 'corporate bodies' unless they are declared nationals under the law of that State. For the sake of argument presuming that the assessee-company is a national of the Contracting State (i.e. Korea), it still cannot be said that it is functioning in India under the same circumstances like a domestic company. The place of residence has been considered to be an essential criterion in determining whether two taxpayers are functioning 'in the same circumstances'. Another distinction between domestic company and non-domestic company is the declaration of dividend or making arrangement therefore. Thirdly, the domestic banking company has to abide by the additional conditions imposed by RBI about advances to agriculture or to weaker sections of society, Domestic banking company and non-domestic banking company do not funct....
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....he DTAA or in IT Act. Therefore, it cannot be construed to mean that levy of higher. rate on the income of non-domestic company would be 'less favourable'. Art. 25 (2), as per Model Convention is designed to curb the discrimination in the treatment of PE as compared with resident enterprises belonging to the same sector of activities. Even though, broadly Indian domestic bank and PE of the assessee-bank are engaged in banking activities but the activities are not the same, they may only be similar. Conclusion: Charging of assessee foreign banking company at higher rate applicable to non domestic companies was not hit by non discrimination clause of art.25 of the DTAA with Korea. (D) In the case of MashreqBank PSC (supra), it was held : "Double taxation relief-Agreement between India and UAE-Rate of tax for a foreign company vis-a-vis non-discriminatory clause-Basic mandate of art. 26(2) of the DTAA is that a PE, in one State, of a non-resident enterprise must not be taxed any loss favourably than the enterprise of that State-However, for the purpose of this comparison, fo....
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....teristics of a PE have to be the same as that of the enterprise of which it is a PE. In the present case, the assessee is admittedly a company incorporated in the UAE, and, therefore, for the purposes of art. 26(2), PE of the assessee can only be compared with a domestic company carrying on the same activities in the same circumstances or similar conditions. Just because Indian PEs of foreign banking companies are taxed at a rate higher than the rate at which Indian co-operative societies carrying out the same business activity are taxed, the provisions of art. 24(2), dealing with non-discrimination in taxation of PE, cannot be invoked". Even though the above decisions were given while interpreting various DTAAs, but the context is with reference to Section 90 post amendment retrospectively. Foreign bank and Indian bank; are they operating under similar circumstances: 24. As rightly pointed by the learned DR, foreign bank and the Indian Scheduled Banks is not operating under similar circumstances. This issue was discussed by the Coordinate Bench in the case of Credit Llyonnais (supra) wherein similar issue was elaborately discussed and considered as under: &....
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....ended to the nationals of the other country who are residents in the first country. In the Indian perspective, such a situation may arise when, for example, deduction under section 80DD, for deduction in respect of maintenance of a dependant with disability, is restricted to Indian nationals only. In such an eventuality, in view of the provisions of Article XXI, the benefits of that provision would have been available to the French nationals as well. Another situation in which the provisions of Article XXI may affect the provisions of the Income-tax Act is perhaps the entitlement for deduction under section 80R which is available only to an Indian citizen. Since one of the necessary conditions for entitlement of deduction under section 80R, in respect of remuneration from certain foreign incomes in the case of professors and teachers etc., is an Indian citizenship, this section appears to discriminate on the ground of nationality. It is interesting to note that while section 80R and 80RRA deal with the citizenship also, many similar sections such as section 80QQB, section 80RR, section 80RRB, there is no reference to citizenship, and the requirements are only with respect of reside....
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....uage'. The importance of OECD commentary in interpretation of tax treaties can hardly be overemphasized. This proposition finds support from the judgment of Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 1461 and Tribunal decisions in the cases of Graphite India Ltd. v. Dy. CIT[2003] 86 ITD 384 (Kol.) and Dy. CIT v. ITC Ltd. [2003] 85 ITD 162 (Kol.). In any event, on a plain reading of the provision also it is unambiguous that it deals with discrimination on account of nationality alone. It is so stated in clear words of the DTAA. 7. The question then is as to on what basis is a company classified as a domestic company and a foreign company under the Income-tax Act. Is it based on the nationality simplicitor or is it on the basis of some other criterion? Does this classification depend on requirements connected with residence, or is it the nationality of a company which decide such company being classified as a 'domestic company' or a 'foreign company'? This question is very important because the contention of the assessee is that a foreign company, it is not entitled to deduction under section 80M, and th....
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....any is eligible for deduction under section 80M is not the nationality of the said company, but it is whether or not it has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of such income. This kind of a classification, under the scheme of non-discrimination clause in the applicable India French DTAA, cannot be considered as a discrimination on the ground of nationality. 9. During the course of hearing before us, we shared our, then prima facie, impression with the learned representatives that the discrimination so far as non-availability of section 80M to the foreign companies is concerned, if at all that can be termed as a discrimination, is not on the ground of nationality but is on the ground as to whether or not the company in question has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of income liable to tax in India have not been made. Learned counsel's reply was that since the appellant company does not have any shareholders in India, there i....
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....on clause in the Indian France DTAA cannot be invoked in the cases where provisions of Indian Income-tax Act more favourable to the domestic companies vis-á-vis foreign companies. Once we come to this conclusion, it follows that the case of non-availability of deduction under section 80M cannot be covered by the non-discrimination clause under the India France DTAA. We, therefore, see no need to address ourselves to the merits of assessee's grievance about discrimination against foreign companies, even if such a discrimination actually exists. 11. The assessee's grievance against CIT(A)'s declining the deduction of Rs. 2,70,91,836 under section 80M, and assessee's reliance on Article XXI of the applicable India France DTAA, in support of such a grievance, is not sustainable in law. We, therefore, reject the same". Many of the arguments raised before us were considered and discussed in the above decision, so we are not repeating the same. Suffice to say that, we also agree with the above decision in all respects. DTAAs : 25. Many of the decisions relied upon by the learned Counsel are given in the context of variou....
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....it grants to its own residents. The nationals of one of the Contracting States shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of the other Contracting State in the same circumstances are or may be subjected. In particular, the citizens of one Contracting State who are subjected to tax in the other Contracting State shall be entitled to the same extent as the citizens of that other Contracting State, to any exemption, deduction, credit or other allowance accorded in consideration of the family circumstances. 3. Nothing contained in this Article shall be construed as obliging a Contracting State to grant to individuals not resident in that State any personal allowances, reliefs and reductions for taxation purposes which are by law available only to individuals who are so resident. 4. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first mentioned Contracting ....
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.... "Article 26 : Non-discrimination 1. Nationals of one of the Contracting States shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of the other Contracting State in the same circumstances are or may be subjected. The provision shall, notwithstanding the provisions of Article I, also apply to persons who are not residents of one or both of the Contracting States. 2. Except where the provisions of paragraph 3 of Article 7 apply the taxation on a permanent establishment which an enterprise of one of the Contracting States has in the other Contracting State shall not be less favourably levied in that other Contracting State than the taxation levied on enterprises of that other Contracting State carrying on the same activities. 3. The provision of paragraph 2 shall not be construed as obliging one of the Contracting States to grant to residents of the ot....
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.... the compliance of terms and conditions as prescribed under the said section. Since the Indian assessee can avail the deduction under section 80M only after the fulfillment of the conditions as prescribed under section 80M, the benefit of non discriminate clause of DTAA can be available by the foreign national under the similar circumstances and therefore, the conditions which are required to be fulfilled by the Indian national are also required to be fulfilled by the foreign national. Assessee cannot claim a deduction under section 80M without fulfilling the conditions as required under the said section. Assessee before us admittedly does not fulfill the conditions prescribed under section 80M and therefore, cannot claim deduction under section 80M. 29. Since there is only one direct decision given by a Coordinate Bench interpreting the non discrimination clause in the case of foreign Bank in the case of Credit Llyonnais (supra) and as there is no other contradictory decision under the same DTAA, we are of the view that the Coordinate Bench decision has to be followed. The decision relied upon by both the parties in other cases are not applicable to the DTAA between India and F....
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....e order of the CIT(A). We also see no reason to constitute a Special Bench on this issue when there is no other contradictory order analyzing the Indo-French DTAA particularly invoking non- discrimination clause while taxing dividends under section 115A at a reduced rate. In view of this, we affirm the order of AO and the CIT (A) and reject assessee's contentions. Ground no 1 is dismissed. 32. Ground No.2 is with reference to the provisions of interest of bad and doubtful interest. AO had observed that the provisions for interests of Rs. 42,47,986 on account of bad and doubtful debts has been made for meeting future contingent liability. AO did not allow the reduction. It was argued before the learned CIT (A) that the basis of accounting for these revenues/expenses are in keeping in tune with the RBI Circular No. DBOD/BP.BC.133/C469(W) 89, dated 25.5.89 which states that interests earned on bad and doubtful debts are not to be taken into income account on accrual basis and may be accounted on cash basis. The learned CIT (A) discussing the provisions of section 36(1)(viia) and 36(1)(vii) confirmed the amount as he was of the opinion that since assessee charged the amounts, the in....
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....o make payment arose after the receipt of the bill in the month of August, 1991. Upto 31.3.1991 the amount of Rs. 55,000 was only a provision. Neither the appellant has incurred the expenses nor the liability to pay has arisen in respect of Delhi premises. Therefore, the sum of Rs. 55,000 cannot be considered as the expenditure incurred by the appellant because the liability to pay has not arisen. Similarly, provision for expenses amounting to Rs. 5,84,000 in respect of Bombay property is only in the nature of provision and no liability to pay has arisen before 31.3.1991. Since the liability to pay has not arisen the appellant is not entitled to deduction of Rs. 5,84,000 + 55,000 totaling to Rs. 6,39,000 which is not admissible. The balance amount of Rs. 4,99,182 (Rs. 11,38,182 - Rs. 6,39,000) is admissible to the appellant on account of actual expenses incurred on flat. AO is therefore, directed to allow Rs. 4,99,182. The appellant gets a relief of Rs. 4,99,182. This ground of appeal is partly allowed". 34.1 It was the contention that the bills pertaining to the above expenditure has come in the later year, however the liability to pay has arisen in this year. Therefore, follow....
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.... ratio of the decision by the AAR. It was the contention of assessee that AO may be directed to follow the orders of the ITAT in earlier years. 40. We have considered the rival contentions and examined the provisions of the Act along with the DTAA. Assessee's contentions that DTAA which is more beneficial should be applied and deductions/ disallowances under the above sections as per the Income Tax Act should not be made while allowing general and Administrative expenditure. This contention of assessee is acceptable considering the Article-III of the Indo-French DTAA as applicable in the relevant assessment year. (The agreement as notified on 18.02.1970). Article-III(3) is as under: "3. In determining the industrial or commercial profits of a permanent establishment, there shall be allowed as deductions all expenses, wherever incurred reasonably allocable to such permanent establishment, including executive and general administrative expenses so allocable". Vide new agreement with French Republic notified on 07.09.1994, Article-III has been revised as under: "Article 7: business profits 1....
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....ire controversy is whether in determining the profits of PE in India, the expenses incurred for the purpose of PE is to be computed by applying the provisions of section 44C of the Act (i.e., under the domestic law in which PE is situated) on an interpretation of Article 7(3) r/w Article 25(1) of the India-UAE DTAA as was prevalent in the relevant assessment year. The other corollary to this issue are:- (i) Whether on a true and correct interpretation of Article 7(3), (at the relevant time), the limitation clause of applicability of domestic laws of the State in which PE situated, (herein in this case, India), should be construed to be available from Article 25(1); (ii) Whether the limitation clause inserted in Article 7(3), by way of amendment brought by Protocol vide notification No.282/2007, dated 28-11-2007, w.e.f. 1.04.2008, regarding applicability of domestic law, can be said to have come into force, w.e.f. 1st day of April, 2008 or can be held to be clarificatory in the nature, hence, to have retrospective effect. 10.1. The departmen....
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....l, reads as under :- "3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere." From the above, it is apparent that in determining the profits of PE, (i) all expenses incurred for the purposes of the business of the PE shall be allowed as a deduction in determining profits of PE; (ii) such expenses include executive and general administrative expenses; and (iii) such expenses could be incurred within or outside the state in which the PE is situated. Thus, there is no restriction on allowing of head office expenses and other expenses attributable to PE. The said article has now been amended by the Protocol entered into by the India-UAE on 3-10-2007 which has been notified on 28-11-2007, effective from 1st April, 2008. The Article 2 of the Protocol, has amended the Article 7(3)....
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....ended unless by necessary implication it has been made to have the retrospective effect. Thus, the amendment brought in Article 7(3) w.e.f. 1-4-2008, will not apply retrospectively, prior to such date as it would impose a new obligation or a liability to tax which was not made by the two Contracting States. 12. A lot of stress has been given by the department and the learned DR that such an exception already existed by virtue of Article 25(1) which provides that, "The laws in force in either of the Contracting States shall continue to govern the taxation of income and capital in the respective Contracting States except where express provisions to the contrary are made in this Agreement." Article 25 which is similar to Article 23 of other treaties, deals with the Elimination of double taxation and it is for this purpose, it has been provided that the 'laws in force' in either of the Contracting States shall continue to govern the taxation of the income unless express provision to the contrary are made in this Agreement. Further paragraphs of Article 25 provide for deductions or credit of the taxes pa....
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....ation of income in respective contracting state except where express provisions to the contrary are made in the convention. According to him, article 11 read with article 7 of the treaty contains such express provision and make the interest payable by the PE in India to the GE abroad the income of the GE chargeable to tax in India. Before we consider this argument of Shri Girish Dave in the light of the relevant provisions of the article 7 and 11 of the Indo-Japanese treaty, it is pertinent to discuss certain basic aspects of the matter which are relevant in this context. 61. Section 90(2) of the Income-tax Act, 1961 provides that where the Central Government has entered into an agreement with the Government of any country outside India or specific territory outside India, as the case may be, section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. This specific provision contained in section 90(2) makes it abundantly clear that in relation to the assessee like the one in the present cas....
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....nses which are incurred for the purposes of the business of the said PE, including general administrative expenses is to be allowed. At this stage of argument, we have categorically raised a question that if executive and general administrative expenses of a PE is to be allowed having been incurred for the purposes of the business of a PE, then what is the utility of the introduction of section 44C of the IT Act. Ld. AR Mr. Milin Mehta has answered that keeping in mind the controversy an amendment took place in the Articles and vide a protocol amending the agreement between the Government of the Republic of India and the Government of United Arab Emirates vide Notification No.282/2007, dated 28/11/2007 which is effective from 1st day of April, 2008, paragraph 3 of Article 7 (Business Profits) has been replaced by the following :- "3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated ....