TaxTMI 
TaxTMI 
2012 (5) TMI 665
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....) of the Act and order of ld CIT(A) dated 9.3.2005. 2. Since some of the grounds in these appeals are common on similar facts, we heard these appeals together and dispose of the same by this common order. 3. Firstly, we take up the appeals for assessment years 2000-2001. 4. In the appeal filed by assessee for assessment year 2000-2001 being I.T.A. No.2974/M/2004, the assessee has taken four grounds. 5. In Ground No.1 of appeal, the assessee has disputed the order of ld CIT(A) in levying tax @ 48% applicable to non-resident companies as against levy of tax @ 35% to Indian companies. 6. The relevant facts are that the assessee is a branch of a Foreign Banking Company incorporated in Japan having banking business in India. India and Japan have entered into an Agreement for Avoidance of Double Taxation (DTAA), which, inter alia, provides that enterprises of either State operating in the other State shall not be subjected to tax in a manner less favourable than that levied on an entity of that State similarly placed. During the course of assessment proceedings, the AO asked the assessee as to why the rate of tax 48% should not be charged instead of 35% as has been offered....
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....s 1 to 7 of PB. He further submitted that the above issue is also covered in assessee's own case for assessment year 1996-97 to 1998-99 in I.T.A. Nos.3341/M/01 and 933/M/2000 vide order dated 21.6.2006, which has subsequently been followed by the Tribunal in assessee's own case in I.T.A. No.6471/M/04 for A.Y. 1999-2000 vide order dated 28.1.2008, copy placed at pages 7 to 8 of PB. 8. In view of above facts that the issue is covered against the assessee by orders of the Tribunal(supra) in assessee's own case, we confirm the action of authorities below by rejecting ground No.1 of appeal taken by the assessee. 9. In Ground No.2, assessee has disputed the order of ld CIT(A) in confirming the action of Assessing Officer to disallow foreign exchange loss of Rs. 6,01,94,000 on outstanding foreign exchange transactions considering the same as notional loss and not the actual loss to the assessee. 10. The relevant facts are that the assessee bank claimed an amount of Rs. 1257.72 lakhs as loss on account of foreign exchange contracts. It includes an amount of loss of Rs. 601.97 on account of loss on outstanding foreign exchange contracts as on 31.3.2000. On behalf of assessee, it wa....
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....as confirmed the action of Assessing Officer in disallowing notional loss from revaluation of foreign exchange forward contracts. Hence, assessee is in further appeal before the Tribunal. 12. At the time of hearing, ld A.R. submitted that the same very issue has been considered by the Tribunal in assessee's own case for assessment year 1999-2000 in I.T.A. No.6471/Mum/2004 and the Tribunal by its order dated 28.1.2008 has decided the issue in favour of the assessee. Ld A.R. referred to pages 7 to 8 of PB. Ld D.R. relied on the orders of the authorities below. 13. We have carefully considered the orders of authorities below and submissions of representatives of parties and also decision of the Tribunal dated 28.1.2008 in assessee's own case (supra). We observe that the Tribunal after considering the decision of Special Bench in the case of ONGC, 83 ITD 151 and also the decision of Hon'ble Delhi High Court in the case of Woodward Governor India Pvt Ltd., 294 ITR 451, held that the loss on account of change in currency rate is allowable in the year in which change in rate was effected. It is relevant to state that Hon'ble Apex Court in the appeal filed by the department against o....
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....pany is assessed to tax provides for a lower rate of taxation, the same would be applicable. The AO has stated that assessee was required to deduct TDS on the interest remitted as per the provisions of section 195 of the Act. Since the assessee has not deducted TDS as per provisions of section 195 of the Act, the same is not allowable as deduction under section 40(a)(i) of the Act. Being aggrieved, assessee filed appeal before the first appellate authority. 16. On behalf of assessee, it was contended that payment of interest by Indian Branch to Head Office of overseas was nothing but payment to self. It is contended that as per maxim that "no man can make a profit out of himself" and it cannot give rise to any income, thus there was no question of deduction of any tax at source and applicability of section 40(a)(i) of the Act. It was contended that the said payment is a payment to self but is deductible in view of Article 7(2) and (3) and paragraph 8 of the protocol. It was contended that the aforesaid payment is a payment to self and not income of head office and other offices. It was contended that Article 11 (1) & (2) are not applicable since the assessee has a Permanent Esta....
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....ches abroad, would be construed as income of the Indian branch or permanent establishment which would be taxable in India and similarly the interest paid by the Indian branch of the appellant bank (permanent establishment) on funds borrowed from head office and other branches abroad, would be construed as expenditure of the India branch or permanent establishment, which would be allowable subject to other provisions of the Act., 6.5 In International Law also the above principle is recognized. Klaus Vogel in authoritative commentary on Double Taxation Conventions (3rd edition) quotes from OECD commentary on Article 7 as follows: "Special considerations apply to payments which under the name of interest, are made to a head office by its permanent establishment with respect to loans made by the former to the latter. In that case, the main issue is not so much whether a debtor/creditor relationship should be recognized within the same legal entity as whether an arm's length interest rate should be charged. This is because: from the legal standpoint, the transfer of capital against payment of interest and an undertaking to repay in full at the due date is really a formal act in....
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.... Betts Hartley Huett & Co. (116 ITR 425) and an earlier decision of ITAT Bombay dated 20.08.1982 in the case of ,city Bank, N.A. in support of the contention. The Hon'ble ITAT however had held that the facts of the assessee bank's case were distinguishable from the facts in the above cases. ITAT subsequently vide its order dated 20.09.2000 had also refused to make any reference on the issue to Bombay High Court (R.A. No. 762 t 763/Mum/98) and rejected the reference applications made by the assessee bank. 6.7 The contention of the appellant bank that such interest payment to head office etc. would have to be ignored, as it was a transaction with self can not be accepted. The maxim that in computation of income of an entity, receipts from different parts within the entity should be ignored is applicable only in the situation of computation of the global income of the entity. When we have to determine, not the global income of the appellant bank, but only a part of its which has accrued or arisen in India, the above maxim would not be applicable. It is to be noted that Calcutta High Court in the case of Betts Hartley Huett & Co. (Supra) had primarily held that since no commission w....
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....upports the appellant's contention. This part of the Protocol provides an exception in the case of a banking Institution to the general provision that no deduction shall be allowed in respect of the amounts paid by a permanent establishment of an enterprise to the head office or any other office of the enterprise by way of interest. This implies that interest paid by the permanent establishment of an enterprise to its head-office shall be allowed as deduction in the case of a banking institution. But this does not mean that the appellant will not have to comply with other provisions of the domestic law, which in the present case includes provisions of section 195 and second 40(a)(i) of the I.T Act. In fact it is an established principle of International taxation that computation of income of a PE is always in accordance with the provisions of the domestic law. Therefore, there remains no doubt that the appellant has failed to comply with the provisions of section 195 of the I.T. Act and therefore the payment of interest to Head Office/overseas branch does not remain allowable in terms of provisions of section 40(a)(i) of the LT. Act. The action of the AO is upheld and the ground of....
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....ions of the assessee, save and except relying on the orders of authorities below. 19. We have carefully considered the orders of authorities below and submissions of representatives of parties. We agree with ld A.R. that the same very issue has been considered by ITAT Mumbai in assessee's own case vide its order dated 30.3.3012 and both the issues are decided in favour of the assessee. We consider it prudent to reproduce para 88 of the order, which reads as under: "88. Keeping in view all the facts of the case and the legal position emanating from the interpretation of the relevant provisions of domestic law as well as that of the treaty as discussed above, we are of the view that although interest paid to the head office of the assessee bank by its Indian branch which constitutes its PE in India is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit attributable to the PE which is taxable in India as per the provisions of article 7(2) & 7(3) of the Indo- Japanese treaty read with paragraph 8 of the protocol which are more beneficial to the assessee. The said interest, however, cannot be taxed in Indi....
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....rom CIT(A)'s order, he submitted that the additional ground need not be considered. Ld A.R. submitted that the assessee is a foreign company whose income is liable to deduction of tax at source. Ld A.R. relying on the decision of Hon'ble Bombay High Court in the case of Director of income-tax (International Taxation) v. NGC Network Asia LLC, 313 ITR 187 (Bom) submitted that if the payer fails to deduct TDS, no interest can be levied on the assessee under section 234B of the Act. Ld A.R. referred to the decision of Hon'ble Delhi High Court in the case of Director of Income-tax v. Jacabs Civil Incorporated, 330 ITR 578 (Del) to substantiate his above submission. 23. We have considered the submissions of representatives of parties. We agree with ld A.R. that the above ground is a legal ground. The assessee can agitate the legal ground before the Tribunal even though not taken before the authorities below in view of decision of Hon'ble Supreme Court in the case of NTPC (supra). We observe that assessee has taken this ground for the first time before the Tribunal and it is not arising out of order of ld CIT(A). Further, the AO has stated that it has failed to pay advance tax as....
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.... 29. On the other hand, ld A.R. submitted that there were only two dividend warrants and practically no expenditure was incurred by the assessee. He further submitted that disallowance of 20% of dividend income is excessive. 30. On consideration of facts of the case and submissions of ld Representatives of parties and also considering the availability of funds, details of which are given by ld CIT(A) at page 21 of the impugned order, we agree with ld CIT(A) that AO has not proved that investment in shares has been made by the assessee out of interest bearing funds but on the other hands sufficient funds to finance the shares is available with assessee. However, we do not agree with ld A.R. that there was no administrative cost incurred by the assessee for maintaining portfolio of the shares against which assessee has received dividend income of Rs. 13,11,750 which is exempted u/s.10(33) of the Act. We consider it prudent to estimate Rs. 25,000 as cost on account of administrative expenses towards maintaining shares portfolio by the assessee to earn dividend income which is exempted from income tax. Hence, we restrict the disallowance under section 14A of the Act to Rs. 25,000 by....
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.... limitations Act does not apply to these deposits. Therefore, in these circumstances, when the said amount could not have been written back, there is no question of treating as income of the appellant. The AO is directed to delete the addition made in this regard." Hence, department is in appeal before the Tribunal. 34. During the course of hearing, ld D.R. relied on the order of Assessing Officer and submitted that the said amount was received by the assessee in the ordinary course of its business and in view of that, the same has been rightly treated by the AO as income of the assessee. He referred to the decision of Hon'ble apex Court in the case of Commissioner of Income-tax v. Karam Chand Thapar, 222 ITR 112(SC). 35. On the other hand, ld A.R. supported the order of ld CIT(A) and further submitted that assessee has shown the said amount in its current liabilities and if the concerned person present the DD/cheque to the assessee bank, assessee has to pay the said amount to the Constituents. He submitted that the provisions of section 41(1) does not apply. He further submitted that the case law cited by ld D.R. is not relevant to the facts of this case. 36. We have c....
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....he relevant facts are that assessee in the course of its business activities advanced a loan to 'DSS Mobile', which had bid for a telecom license with the Government of India. The said loan was guaranteed by one party viz 'SK Telecom' of Korea. Since 'DSS Mobile' failed to repay the loan to the assessee bank, assessee bank called upon 'SK Telecom' of Korea to honour the guarantee which the said 'SK Telecom' did. However, 'SK Telecom' while making the payment , deducted tax on the interest element of the payments in terms of the Korean tax laws. The assessee bank while returning its total income from Indian operations for the year, offered only net interest (net of tax deducted at source in Korea) to tax. However, the AO taxed the gross interest (without reducing the tax deducted at source in Korea). The AO has stated that as per provisions of section 9(1)(i) of the Income tax Act, 1961, the amount of tax deducted at source in Korea is deemed to accrue or arise in India and hence, includible while computing the assessee's total income from Indian operation. Being aggrieved, assessee filed appeal before ld CIT(A). 42. On behalf of assessee, it was contended that tax deducted at so....
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....e was whether the income from foreign dividend that should be included in Indian assessment, should be gross or net income after deduction of tax at soruce. The Hon'ble High Court held that gross dividend alone should be taken for tax purposes. Insofar as the appellant's reliance on the decision of the Hon'ble Bombay High Court in the case of Amablal Kilachand (supra) is concerned, it may be pointed out that the Bombay High Court in a subsequent judgment in the case of Madhavrao J Scindia vs. CIT, 243 ITR 683 has held that gross dividend declared by the companies abroad was chargeable to tax and not the net amount after deducting the tax at soruce. Needless to say, decision in the Madhavrao J Scindia's case being a later decision than Ambalal Kilachand's case, the same will be preferable. Therefore, in view of the above, the action of the AO in taxing the interest income fro 'SK Telecom' Korea on gross basis, i.e. adding back the tax deducted at source of Rs. 59,85,368 is upheld and the ground of appeal is dismissed. Hence, assessee is in further appeal before the Tribunal. 43. At the time of hearing, ld A.R. made his submissions on the line of the submissions made before the....
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....d that the said decision was on a different point i.e. whether restriction or prohibition imposed for remittance in such country could be accrual of income and, it was held that 'not' and, therefore, it was on a different point and not on the point of as to whether gross amount is to be considered for tax or net amount after deducting tax at source is to be consideration for taxation. 44. On the other hand, ld D.R. supported the orders of authorities below. He submitted that the bank has received income in respect of guarantee commission. Therefore, the total income in respect of that transaction has accrued to the assessee in India. Ld D.R. submitted that in subsequent decision of Hon'ble Bombay High Court in Madhavrao J Scindia (supra); has considered the identical issue and, therefore, the same should be followed. He submitted that it is not relevant that the said order was passed by Hon'ble Bombay High Court by consent of parties. He submitted that it does not affect the merit of the case. Ld D.R. further submitted that the decision of Hon'ble M.P. High Court in the case of Yawar Rashid and Others (supra) relied by ld A.R. is in favour of revenue wherein, it has been held th....
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....ons of the Income tax Act, 1961 and to allow deduction u/s.36(1)(viia) of the Act. 49. We observe that ld CIT(A) vide para 11.3 has directed the AO to grant eligible deduction u/s. 44C and 36(1)(viia) of the Act in accordance with the provisions of said section and to re-compute the income after giving effect to the appellate order. Therefore, at the time of hearing, ld A.R. conceded that the said grounds have been taken mistakenly and, there is no grievance of the assessee. Accordingly, Ground Nos.5 & 6 are rejected. 50. In Ground No.7 of appeal, assessee has disputed the order of ld CIT(A) in upholding the levy of interest u/s.234D of the Act. 51. At the time of hearing, ld A.R. submitted that the above issue is covered in favour of assessee by the decision dated 15.4.2009 of Hon'ble Jurisdictional High Court in the case of of CIT v. M/s. Bajaj Hindustan Ltd in Income Tax Appeal No.198 of 2009, wherein, Their Lordships have held that the provisions of section 234D inserted w.e.f. 1.6.2003 have no retrospective effect and, accordingly ITAT was right in holding that interest u/s.234D cannot be charged in respect of refunds granted prior to 2003. However, ld D.R. submitted ....