TaxTMI 
TaxTMI 
2016 (7) TMI 562
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....k profits' under section 115JB of the Income Tax Act, 1961 (in short 'the Act') was computed at Rs. 43,79,75,890/- as against Rs. 43,19,03,036/- in the original return of income. The case was taken up for scrutiny and the assessment was completed under section 143(3) of the Act vide order dated 07.12.2009, wherein the income of the assessee was determined at Rs. 71,06,72,550/- under normal provisions in view of the following additions/disallowances: - i) FCCB issue expenses Rs. 28,58,28,246/- ii) Legal and professional fees Rs. 49,74,139/- iii) Disallowance under section 14A of the Act Rs. 5,97,63,000/- iv) Non deduction of withholding tax on interest payments on FCCB Rs. 3,35,70,044/- 2.2 Aggrieved by the order of the assessment for A.Y. 2007-08 dated 07.12.2009, the assessee preferred an appeal before the CIT(A)-13, Mumbai. The learned CIT(A) disposed off the appeal vide the impugned order dated 26.10.2010 allowing the assessee partial relief. 3. Both Revenue and the assessee, being aggrieved by the order of the CIT(A)-13, Mumbai dated 26.10.2010 for A.Y. 2007-08 in respect of the issues held against them, have preferred appeals before the Tr....
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....irming the disallowance of Rs. 7,31,115/- under section 40(a)(ia) of the Act due to non deduction of tax at source by holding that the said payment to Centre for Investment and Business Advisory, Indonesia was exigible to tax in India as fees for technical services (FTS) under section 9(1)(vii) of the Act. It is contended that the said payment, made to the Indonesian resident for tax due diligence services in Indonesia, is not exigible to tax under the India-Indonesia DTAA and therefore since no tax was deductible under section 195 of the Act no disallowance under section 40(a)(ia) of the Act ought to have been made in respect of this payment. 5.2 The facts of the matter as emanate from the record are that in the year under consideration, the assessee had incurred legal and professional fees amounting to Rs. 3,11,10,502/- which included payment of Rs. 7,31,115/- to Centre for Instrument and Business Advisory, Indonesia for consultancy for tax due diligence in relation to coal companies in Indonesia. The assessee claimed the said expenditure was revenue in nature in its computation of income. The Assessing Officer (AO), however, disallowed the assessee's claim on the ground that ....
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....is seen that there is no dispute with the finding of the learned CIT(A) that the amount of Rs. 7,31,115/- paid by the assessee to the Indonesian entity for tax due diligence is exigible to tax in India under section 9(1)(vii) of the Act as FTS. The dispute put forth by the assessee is that since the assessee, in this regard, is entitled to the benefit of the India-Indonesia DTAA or the Act, whichever is favourable to it, the learned CIT(A) erred in not considering the DTAA, which is favourable to it, while passing the impugned order. It has been submitted that the India-Indonesia DTAA does not contain any Article in respect of FTS. In these circumstances, it is contended that the said payment for tax due diligence fees to the Indonesian entity would constitute a part of its 'business income' as per Article 7 thereof and therefpre there is no requirement to deduct tax at source on the said payment under section 195 of the Act. A copy of the said DTAA has also been placed on record and we have perused the same. As contended by the learned A.R. for the assessee, a perusal of the impugned order shows that the learned CIT(A), in coming to the finding he did, has not examined the India-I....
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....hat the Hon'ble Apex Court in the case of Brook Bond India Ltd. (supra) has held that even though the increase in capital results in expansion of the capital base of the company and incidentally that would help the business of the company and may also help in profit making, the expenses incurred in that connection still retains the character of capital expenditure since the expenditure is directly related to the expensing of the capital base of the company. In that view of the matter, the aforesaid expenditure incurred by the assessee in the case on hand for listing of GDRs is capital expenditure and the assessee's claim that the said expenditure be allowed under section 37(1) of the Act is not legally tenable as the share capital of the assessee has increased consequent to the issue of GDRs and the said expenditure incurred is clearly capital in nature. We, therefore, finding no infirmity in the impugned order of the learned CIT(A) uphold the finding therein that the said expenditure of Rs. 49,01,024/- paid to Linklaters, U.K. in respect of listing of GDRs is capital expenditure and the same is not allowable under section 37(1) of the Act. Consequently ground No. 2 of the asse....
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..... The AO after examination of the matter, was of the view that disallowance of expenditure in relation to earning of the above exempt income was required to be made and proceeded to disallow an amount of Rs. 513.70 lakhs under section 14A r.w. Rule 8D(2)(ii) on the ground that the assessee has utilised borrowed funds for making investment in shares and MFs. The AO also worked out the disallowance under Rule 8D(2)(iii) @0.5% of the average value of investments at Rs. 83.93 lakhs. Thus the total disallowance made by the AO under section 14A w.r. Rule 8D of the I.T. Rules amounted to Rs. 597.63 lakhs (i.e. Rs. 513.7 lakhs plus Rs. 83.93 lakhs). On appeal, the learned CIT(A) held that the assessee has no borrowings other than for FCCBs and therefore has not incurred any interest or finance cost in respect of exempt income and therefore deleted the disallowance of Rs. 513.7 lakhs made under Rule 8D(2)(ii) of the Rules. The learned CIT(A) further held that the assessee's claim that it has not incurred any expenditure in relation to earning of exempt income is not correct and directed the AO to work out the disallowance under Rule 8(2)(iii) by taking the average monthly value of investmen....
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....ereon. 9. In the result, the assessee's appeal for A.Y. 2007-08 is partly allowed. Revenue's appeal in ITA No. 1425/Mum/2011 for A.Y. 2007-08 10. In this appeal Revenue has raised the following grounds: - "1. On the facts and in the circumstances of the case of the CIT(A) erred in law in deleting the disallowance of expense of Rs. 28,58,28,246/- on issue of Foreign Currency Bonds because they were incurred for the issue of foreign currency convertible bonds of Rs. 1304.13 crores and were thus capital in nature. 2. The CIT(A) while deleting the disallowance mention in ground No. 1 above by saying that the decision of Karnataka High Court in the case of Samsung Electronics Co. Ltd (320 ITR 209) was overruled by the supreme court where in fact the case was remanded to the High Court for fresh adjudication. 3. Without prejudice to ground Nos.1 and 2, the CIT(A) erred in law in deleting the disallowance mentioned above because in the alternative even if the expenditure was treated as revenue in nature TDS was not deducted as required u/s 195 of the Act and section 40a(ia) had to be invoked. 4. The CIT(A) erred in law in deleting the addition ....
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....e AO was also of the view that the assessee had not deducted tax at source on the payment of the said expenses and therefore the same is to be disallowed under section 40(a)(i) of the Act. The AO also held that out of the total expenditure of Rs. 28,58,28,246/-, an amount of Rs. 2,28,29,616/- was in respect of payments to Barclays Bank (India) were not covered by TDS certificates and hence the same was to be disallowed. On appeal, the learned CIT(A) held that the FCCBs are in the nature of debentures and unsecured loans and hence the expenditure incurred for issue of FCCBs is allowable deduction under section 37(1) of the Act. 11.3 Before us, the learned A.R. for the assessee reiterated the facts of the matter on this issue as laid out in para 11.2 of this order (supra). According to the learned A.R., FCCBs in the case on hand are issued by the assessee only as debt raising instruments and the FCCB holders never had any voting rights as the same were not converted into equity shares of the company. It is contended that in such circumstances, the FCCB's are to be deemed to be the debentures issued by the assessee for business purposes. In support of the proposition that the said ....
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....ncurred in connection with issue of FCCBs. Assessee raised these Foreign Currency Bonds of Rs. 1 lakh Each. Details of such expenditure is given on page 42 of the APB. In this contest, assessee paid Rs. 5.82 Crs (rounded off) to lead managers / legal advisors and listing fees. AO treated the same as „capital expenditure‟. Will such revenue expenditure when incurred in connection FCCB makes it of capital nature? We shall examine the nature of FCCBs. 10. Assessee issued the FCCBs for the purpose of Acquisition of the companies in similar lines abroad for expanding the business presence abroad. Whereas the relevant agreements and issue documents suggest that they were issued for equity purposes. It is a fact that the proceeds of the FCCBs were spent on acquiring the companies abroad. Being optionally convertible, the bond holders have the option to convert into equity. But the assessee did not issue shares to the Bond holders as they did not exercise that option. Rather, assessee refunded the Bond money with premium to the Bond Holders. Considering the fact of REFUND of entire FCC Bond money, we are of the opinion that FFCB issue exercise of the assessee amounts t....
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.... 12. ..... Summary 13. We have held that the expenses in question are in principle of revenue nature. It is the trite law such expenses incurred n connection with raising of debts / FCC Bonds constitute allowable expenditure of the Assessee." 11.4.2 Following the ratio of the decision of the Coordinate Bench of this Tribunal in the case of Prime Focus Ltd. (supra), we hold that, in the facts and circumstances of the case on hand, the expenditure incurred by the assessee in connection with the issue of FCCBs was correctly held to be revenue in nature by the learned CIT(A), being expenses incurred in connection with the raising of debts and allowable expenditure under section 37(1) of the Act. 12.1 Revenue has also contended that the learned CIT(A), while deleting the disallowance of Rs. 28,52.28,246/- on account of expenditure incurred on issue of FBBCs has wrongly mentioned that the Hon'ble Apex Court had overruled the decision of the Hon'ble Karnataka High Court in the case of Samsung Electronics Co. Ltd. (320 ITR 209) whereas the issue had been remanded to the Hon'ble High Court for fresh adjudication. 12.2 We have heard both parties in th....
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....m SB) iii) Intratck Testing Services India P. Ltd. (307 ITR 418) (AAR) iv) DCIT vs. Boston Consulting Group Pte Ltd. (94 ITD 31) (Mum) v) ITO vs. De Beers India Minerals P. Ltd. (297 ITR (AT) 1760 (Bangalore) 13.4 We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncement cited. We find that the issue under consideration is covered by the decision of the Coordinate Bench of this Tribunal in the case of Raymond Ltd. vs. DCIT (2003) 86 ITD 791 (Mum) wherein it was held that neither management commission nor underwriting commission nor selling commission would amount to FTS within the meaning of the DTAA with U.K. and consequently there was no obligation on the part of the assessee-company to deduct tax under section 195 of the Act. Following the decision of the Coordinate Bench, we hold that there is no liability case on the assessee in the case on hand to withhold tax under section 195 of the Act on the said payments which, inter alia, constitute payment of legal and professional fees, L/C Commission, arranger fees, etc., incurred in connection with the issue ....
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....er was possible and accordingly, the same was assigned to Western Power Alliance Ltd. for a consideration of Rs. 9,00,000/-. The assessee claimed a STCL on this transaction of sale of a book debt. 14.3.2 In assessment proceedings, the AO disallowed the assessee's claim on the ground that capital expenditure is not allowable unless specifically provided for in the Act., though he accepted the fact that it is a capital loss. On appeal, the learned CIT(A) deleted the disallowance made by the AO and allowed the assessee's claim by holding as under at paras 4.3 and 4.4 of the impugned order: - "4.3 The facts of the case has been considered. a) Loan given is an asset and the same was assigned i.e. transferred and therefore the capital gain was rightly computed. The Assessing Officer has accepted that the loss on assignment of loan is a capital loss but has disallowed the same on the ground that there is no provision for assessment under the head "short term capital gain". The Assessing Officer's reasoning is vague and not supported by the law. What is required to be seen is whether the loss has occurred on account of transfer of capital asset or not and if the loss i....
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....by an assessee, whether or not connected with his business or profession" except as specifically excluded in the said section. So far as business assets are concerned, I.T.A. No. 3833/Mum/2011 Assessment years: 2002- 03 Page 5 of 8 the exclusion is only for "(i) any stock- in- trade, consumable stores or raw materials held for the purposes of his business or profession", and it is not, nor can it be, anybody's case is that an advance is covered by the exclusion clause. The question, therefore, arises as to what are the connotations of the expression "property". Hon'ble Bombay High Court, in the case of CWT Vs Vidur V Patel [1995] 215 ITR 30/79 Taxman 288 had an occasion to consider this question in the context of wealth tax, and this is what Their Lordships had to say: '.........So far as the meaning of "property" is concerned, it is well-settled that it is a term of widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can hold or enjoy. As observed by the Supreme Court in Commissioner, Hindu Religious Endowments vs. Shri Lakshmirudra Tirtha Swami of Sri Shirur Mutt [1954] SCR 1005, there is no....
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....ance or basis of these observations. The capital asset in this case is the money recoverable from an Indian entity which is thus essentially required to be treated as in India, and, as is the mandate of Section 9(1)(i) any income, inter alia, "through the capital asset situated in India" is deemed to accrue or arise in India. As a corollary to this taxability of income, the loss through the capital asset situated in India is also required to be taken into account. The authorities below were, in determining whether or not the amount recoverable from an Indian entity was a capital asset under section (14), swayed by the considerations which were not germane in this context. In view of these discussions, in our considered view, the advance, debt or recoverable amount, in whichever way one describes it, was a capital asset under section 2(14). 9. The next thing that we need to decide is whether or not there was a transfer under section 2(47) or not. Section 2 (47)(i) provides that "transfer, in relation to a capital asset, includes (i) the sale, exchange or relinquishment of the asset". There is no dispute that the rights to recover the money from the Indian entity, which is w....