TaxTMI 
TaxTMI 
2013 (11) TMI 932
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....tating 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 under section 80M of the Act, as claimed.  ....
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....sp; 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 assessee operates through branch offices under a banking licence issued by the Reserv....
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....). * 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 v. Jt. CIT in ITA.No.692/Cal/2000 7. Elaborating each of the arguments, it was submitted that assessee is a 'national' ....
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....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 401 (Mum.) to submit that this decision, which held deduction under section 80M allowed to domestic company can not be allowed to foreign company on the basis of the ....
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....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 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 wh....
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....ires 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 out subsequently by the Finance Act, 1976 wherein foreign companies were not specifically allowed the deduction and the tax rate was reduced drastically in the cases of foreign companies. Even though it....
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....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 applicable in the context of Indo-French DTAA and relied on the decision of coordinate Bench in the case of Credit Llyonnais (supra) which is the only decision on the issue and is applicable fully to the facts of th....
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....ans 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 return of income under sub section (1) of section 139". 17. Originally upto 1976 'foreign companies' were eligible for deduction at 80% of such income in respect of income by way of dividends received by it from 'an Indian Company w....
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....able 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 to taxation of Dividends in DTAA: 20. The DTAA applicable in impugned years was Double Taxation Avoidance Agreement between India and the Republic of France, executed on March 26, 1969 and notified vide GSR No 260 dated February 18, 1970 ('the Old India-France tax treaty'). The relevant articles applica....
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...., 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 dividends in cases where the Indian tax thereon has been reduced or exempted by the operation of section 80J, 80K and 80M of the Income Tax Act, 1961, it shall be deemed that the amount by which the Indian tax has been reduced or exempted has been actually paid in India. (4) Income which, in accordance ....
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....ble 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- (a) Where the interest has been subjected to tax in India, 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; (b) Where the interest is exempt from tax under section 10(15)(iv) an amount equal to 50 per cent of the tax payable on s....
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....dia. 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 registered under the Companies Act, 1966 and interalia includes any institution or association or body which is declared by the Board to be a company under clause 17 of section 2 of the I.T. Act. Under section 2(17) of the I.T. Act the CBDT has been empowered to declare any institution, association or body whether incorporated or not and whether Indian....
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....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 domestic company only and there is no force in the argument of the learned counsel, this ground of appeal is dismissed. 2.8. It may also be mentioned that Article XIX of the Treaty provides as under : "The laws in force in either of the Contracting States will continue to govern the taxation of income ....
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.... 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 arrangements for the purpose of the Explanation. The Explanation thus remains a dead letter and no reliance can be placed on the same by the department." The Decca Survey Ruling was followed by the Mumbai ITAT and its subsequent ruling in the case of Bank International Indonesia v. JCIT (ITA. No. 3013/M/2001) and it was held that the Explanation to section 90 of the Act has ....
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.... 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 opinion was supported by various decisions of ITAT. (A) The decision in the case of ABN Amro Bank NV v. Jt. CIT[2005] 4 SOT 643 (Kol) (TM) "Double Taxation relief-Agreement between India and Netherlands - Rate of tax for a foreign company - It is only when there is a conflict between the provisions of the agreements in contrast with the prov....
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....come. 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 conditions including the constitution have to be compared-Tax rate of a foreign company has to be compared with tax rate of a domestic company for purposes of art. 26(2) of DTAA between India and UAE-Further, in the light of Explanation to s. 90, charging of higher rate of tax to any foreign company cannot be regarded as less favourable charges or discrimination whether the treaty contains any specific pro....
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....low 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 India took precaution to provide specifically in these tax treaties with various countries that charging of higher rate of tax will not amount to discrimination. In the absence of this Explanation to s. 90, this can be argued that in such cases, where there is no such specific provision in the treaty, charging of higher rate of tax will amount to discrimination; but in the light of this Explanation t....
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....s- 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 insofar as assessability of an item is concerned and it is different thing to say that the agreement (DTAA) will also control the applicability of Finance Act which provides the rates for different assessable entities. The DTM gets the trade off only with the provisions of the IT Act and unless so specifically provided in a particular DTA, the rate of tax which is prescribed in an Annual Finance Act cannot give w....
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....red 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 function under 'same circumstances' and hence discrimination clause in art. 25 of Indo Korean DTAA is not applicable. Further, s. 2(22A) says that not only Indian company but also any other company can be termed as domestic company provided it has made prescribed arrangement for distribution of dividend (including dividend on preference shares) payable out of income to tax. Sec. 2(23A) defines a foreign company as a c....
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.... 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, form of ownership cannot be ignored-Ownership characteristics of a PE have to be the same as that of the enterprise of which it is a PE-In the instant case, assessee is admittedly a banking company incorporated in UAE-Therefore, for the purposes of art. 26(2), PE of the assessee can only be compared with a domestic company carrying on same activities in the same circumstances or similar conditions-Simply because the Indian P....
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....ate 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: "5. We have heard the rival contentions and perused the material on record. We have also duly considered the legal position in the light of the provisions of the applicable India France Double Taxation Avoidance Agreement and the Income-tax Act, 1961. 6. The applicable India France Double Taxation Avoidance Agreement is India France DTAA dated 26th March, 1969 (reported in 76 ITR Statute 1). In th....
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....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 residence. It is also very important to appreciate that such Indian and French nationals, as are compared for the purpose of finding out whether or not taxation etc. of one of which is more burdensome than the other, must be 'in the same circumstances'. Elaborating upon the scope of expression 'in the same circumstances', OECD commentary, inter alia, observes as follows: "The expression 'in the same circumstances' refers t....
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....n 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 that the said deduction is available only to the domestic companies. The availability, or non-availability, of deduction under section 80M is entirely dependent on in which of these mutually exclusive categories an assessee company falls. It is therefore important to ascertain whether that this classification is dependent on the nationality of a company because that will be the only situation in which non-discrimination clause can be invoked. In othe....
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....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 is no question of making any prescribed arrangements for the declaration and payment, within India, of the dividends. It thus implies that conditions under section 2(22A) of the Act, for being classified as a domestic company, are satisfied. 10. This argument, however, does not impress us. We are not at present dealing with the question as to whether the assessee is required to be treated as a domestic company or not. It is an ....
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....nce 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 various DTAAs and assessee submits that all these agreements are similar in nature. However, according to assessee's own chart furnished, there are variations in non discrimination clause itself. India UK Tax Treaty Article 23 India-Netherlands Article 24 India France Article XXI 1. The nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith which is other or more burdensome than....
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....ll 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 State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of that first mentioned State are or may be subjected. 5. In this Article, the term "taxation" 4. Except where the provisions of paragraph 1 of Article 9, paragraph 9 of Article 11, or paragraph 9 of Article 12, apply, interest, royalties and other disbursements paid by an enterprise of one of the States to a ....
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.... 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 other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents. 4. Except where the provisions of Article 10, paragraph 7 of Article 12 or paragraph 8 of Article 13, apply, interest, royalties and other disbursements paid by an enterprise of one of the Contracting States to a resident of the other Contracting State shall, for the purp....
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.... 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 France, even though some principles laid down therein are taken support of by both the parties to support and object to the contentions. Even when there is a diversion of views by the different Benches on same issue, then the decision which laid down the principles more elaborately and logically after considering the latest statutory provisions as applicable has to be followed as held by the full Bench of Hon'ble Andhra Pradesh High Court in the case of Ushodaya Enterprises Ltd v. CIT [1998] 111 STC 711. 30. Th....
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....ons 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 income accrues to assessee. The learned Counsel at the outset fairly submitted that this issue is to be restored to the file of AO consequent to the orders of the ITAT in earlier years, more so on the order for assessment year 1989-90, Para No.8 which is as under: "8. We are of the view that the matter has to be restored back to the file of the learned CIT (A) with a direction to re-decide the issue after considering the factual aspect of the matter as stated above and also in the light of the....
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....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, following the principles of Hon'ble Bombay High Court in the case of CIT v. United Motors (India) Ltd,[1990] 181 ITR 347 (Bom.), the expenditure is allowable in the year of liability. We are unable to examine the issue on facts as no bills were placed on record with reference to the expenditure and there is also no finding that the said expenditure was not claimed in the later years or claimed as previous year expenditure in later year. Since complete facts are not available on record, it is very difficult to establish whether liabi....
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....II 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 and 2** ** ** 3(a) In determining the profits of a permanent establishment, there shall be allowed as deductions expense which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation law of that Contrac....
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....ion 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 department's case has been, wherever, there has been no specific provision in Article 7(3) for computing the profit of PE as per domestic laws, the same should be interpreted in view of the provisions of Article 25(1) of the DTAA which provides that the laws in force in either of the contracting States shall continue to govern the taxation of income in the respective contracting State except for expressly provided in the agreement. The ld. CIT(A) has observed that most of the Treaties entered into by India with various countries, it has been specifically provided that comp....
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....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),which 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, in accordance with the provisions of and subject to the limitations of the tax laws of that State." 11.1 Now, with the insertion of phrase, "in accordance with the pr....
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....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 paid in either of the states. Various countries in their agreements based on different models have adopted different method of credit of taxes or deductions or exemptions to eliminate the incidents of double taxation in their domestic laws. Article 25 per se does not provide any rules on the mechanism for computing relief. Hence for this purpose, the domestic laws may have to be referred. Interpretation of Article 25 that it extends to Article 7 for applicability of domestic law will not be correct. If a computation of profit has been provided in a certain manner in Article7, restrictions ca....
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....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 case to whom the double tax avoidance treaty entered into by the Indian government applies, the provisions of Income-tax Act shall apply to the extent they are more beneficial to him. It, therefore, follows that if the provisions of the domestic law are more beneficial to the assessee than the provisions of the relevant tax treaty, the provisions of the domestic law shall override and prevail over the provisions of the treaty. Article 23 of the Indo-Japanese treaty therefore cannot be interpreted in a way as sought by Shri Girish Dave because if such interpretation is assigned to article 23 and the i....
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....lic 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 or elsewhere, in accordance with the provisions of and subject to the limitations of the tax laws of that State." (emphasis given) 14.1 In view of the aforesaid amendment, now the admitted legal position is that the admissibility of expenditure is to be governed by Article 7(3) of the Treaty upto the date from which the new amended provisions of the Treaty shall be applicable i.e. w.e.f. 1.4.2008. It can, inter alia, be summed-up that the contracting States and to avoid any conflict in the provisions of the tax laws vis-à-vis the provisions of Treaty, as also to streamli....