TaxTMI 
TaxTMI 
2016 (10) TMI 179
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....ficers below are not justified in invoking provisions of Section 14A r.w. Rule 8D especially when no exempted income has been received nor exemption claimed by the assessee during this year. 5. The Commissioner of Income Tax (Appeals) observation in para 6.3.4 that the cost is inbuilt into even so called passive investment are incidental administrative expenses on collecting information research etc. which helps in arriving at a particular investment decision, and these expenses relating to earning of income are embedded in the indirect expenses, are devoid of merits. 3. The brief facts of the case are that the assessee is engaged in the business of currency exchange and inward money remittance. For the AY 2011-12, the assessee has filed return of income declaring an income of Rs. 3,57,83,210. The Assessing Officer completed the assessment vide order u/s. 143(3) of the Income Tax Act dated 28/02/2014 determining total income at Rs. 4,21,37,508/-. Following additions were made in the assessment. i) Disallowance of Branding Expenses for non-deduction of tax 57,51,630/-. ii) Expenses attributable to exempt income u/s. 14A Rs. 6,02,669/- 4. The assessment was carried ....
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.... India through Muthoot Exchange Branches both inward and outward remittances. Foreign exchange services. Payment of educational expenses/fee from India to UK Targeted customers. NRIs residing in the United Kingdom Immigrant Indian workers in the UK. Foreigners and Indians travelling to India and UK Different modes of marketing done during the F.Y. 2010-11 Direct marketing to the customers of Muthoot Global Transfers Distributed the brochures explaining the products and services of Muthoot Exchange India. Sponsored various association programs organized by Indian Committees in the UK and gave wide publicity about money transfer and Forex Services provided by Muthoot Exchange. Muthoot Global Staff attended the events and explained the products and services of Muthoot Exchange India. 8. According to the Assessing officer, the basis of billing is reimbursement of expense incurred. The least minimum expected is that the assessee should have insisted split up of expenditure incurred, proof for having spent it etc. Therefore assessee was asked to furnish proof of expenditure incurred by Muthoot Global on behalf of the assessee,. Despite calling for informatio....
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.... located in India. There is a business connection to the company in India. According to her, the assessee has not produced any detailed break up of any kind of business promotion expenses and it is a consolidated payment of 78,000 UK pounds that were paid. The assessee company has claimed to have paid this amount for Brand Building, but in the remittance form submitted to bank for making this payment, this amount has been shown as only some 'other remittance' to the company in UK and not any payment of professional fee for brand building or any kind of reimbursement of business promotion expenses. She concluded that in view of the detailed reasoning brought out by the Assessing Officer, she agreed with the analysis that explanation (i) of section 9(1) r.w.s 5(2)(b) is applicable to the assessee and hence the business income is deemed to accrue or arise in India as it can be attributable to the business connections and operations carried out in India and hence tax should have been deducted at source while making payment to such company. Accordingly, she has confirmed the addition of 13. We have heard the rival submissions and perused the facts of the case. The Ld. Couns....
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....nt of expenses since it does not have the character of income. Accordingly. he submitted that there was no case of the Assessing Officer or the Ld. CIT(A) to disallow such expenditure and also confirm the same. 16. As regards the second disallowance pertaining to invocation of section 14A r.w.r. 8D being expenditure attributed to exempted income, the Ld. AR submitted that during the year under issue the assessee did not have any exempted income and further no expenditure have been incurred towards investment for earning exempted income. So much so, no disallowance is called for u/s. 14A. 17. According to the Assessing Officer expenditure incurred have to be divided into 2 categories which are related to the exempted stream of Income and other related to taxable stream of income. The Assessing Officer is of the view that it is not necessary that there would be exempted income earned during the year. According to him exempted income appearing in sec. 14A includes positive income, nil income and negative income (loss). Therefore, the provisions of section 14(2) and (3) read with Rule 8D are applicable and he has proceeded to disallow Rs. 6,02,559/- on this issue. 18. A....
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....an claim double taxation relief either as per the provisions of Double Taxation Avoidance Agreement (if any) entered into with that country (if any) by the Government of India or can claim relief as per section 91 (if no such agreement exists)." 21. It was pointed out that the assessee has investment of Rs. 6.81 crores in the shares of foreign company as shown in schedule 5 of Balance Sheet. Since the dividends if any received from these investments will be taxable in the hands of assessee there is also no question of exemption and therefore disallowance u/s. 14A r.w. Rule 8D is not applicable. 22. No doubt the branding expense has been incurred outside India and as is evident from various records available and also the application made under the FEMA regulation in Form 15CA. It is also not the case of the Assessing Officer that this has been incurred in India. The recipient Muthoot Global Transfers Pvt. Ltd. being a foreign company registered under the UK laws, cannot be held to have any business connections in India, though they are carrying out the service for some of the group concerns. it is also not the case of the Department that they are having any permanent establish....