TaxTMI 
TaxTMI 
2020 (10) TMI 753
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....t order, for an amount of INR 48,41,53,789 paid as salaries by the HO overseas, in foreign currency (including Indian taxes thereon), without appreciating that such salary paid by the HO to the expatriate employees working in India exclusively for the Permanent Establishment ('PE') of the Appellant, is fully allowed as deduction under section 37(1) of the Act. 1.2 That on the facts and in the circumstances of the case and in law, the Hon'ble DRP and the ld. AO have erred in not following the favourable decision of the Hon'ble Delhi Court/Hon'ble Tribunal in the Appellant's own case for earlier years. 1.3 Without prejudice to above, the Id. AO erred in not refunding the tax deducted at source on such salaries in view of the fact that the deduction for such salaries paid to expatriate employees outside India was not allowed by him. 2. Interest amounting to INR 34,99,476 accrued/ received by the Indian PE from its HO overseas branches. 2.1 That on the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in confirming the addition, as proposed in the draft assessment order, for an amount o INR 34,99,476 being the inter....
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.... the alleged addition made to the total income on account of interest received by the Appellant on ECBs. 5 Taxability of interest under section 244A of the Act on income tax refund That on the facts and circumstances of the case and in law, the Id. AO has erred in taxing the interest under section 244A on income-tax refund amounting to INR 6,83,72,179 at tax rate of 40% (excluding surcharge and education cess) instead of beneficial tax rate of 10% as provided under Article 11 of India - Japan DTAA. 6 Applicable rate of tax 6.1 That on the facts and circumstances of the case and in law, the Hon'ble DRP and the Id. AO erred in imposing the tax rate of 40% (plus surcharge and education cess) on the income of the Appellant. 6.2 Under the provisions of Article 24 of the DTAA, the applicable rate of tax on the income of the Appellant attributable to its PE in India cannot exceed the applicable rate of tax (as per the Finance Act for the subject AY) in the case of Domestic Companies and consequential directions may kindly be issued in this regard. 7. Short grant of credit for TDS That on the facts and circumstances of the case....
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....of prices to determine the ALP of the impugned transaction. 9.6 That on the facts and circumstances of the case and in law, the Hon'ble DRP and Ld. AO/TPO have erred in not providing an opportunity to cross-examine the third party banks from whom guarantee fee quotes have been obtained under section 133(6) of the Act for determining the ALP of the impugned transaction, thereby, violating the principles of natural justice. 10 That on the facts and in the circumstances of the case and in law, the ld. AO has erred in initiating penalty proceedings, being against the provisions of the Act. 11 General a) Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant.' 3. The brief facts of the case shows that the assessee is a banking company incorporated in Japan and is a tax resident of Japan. The assessee is engaged in wholesale banking operations in India Under a license From the Reserve Bank of India and is covered by The Banking Regulation Act, 1949. It is earlier known as the Bank of Tokyo Mitsubishi UFJ Ltd. MUFG group is the holding company for the Japan, Mitsubishi UJF trust and ban....
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....ccount of corporate guarantee commission of Rs. 103,485,509/-, disallowance u/s 14 A of the act is also required to be made of Rs. 22,521,366/- , addition on account of deduction claimed in respect of salary paid to the expatriates employees amounting to Rs. 484,153,789/- is also required to be made. Therefore the adjusted total income of the assessee was worked out at Rs. 525,68,31,974/-. The learned AO reduced the above sum by granting deduction at the rate of 5% u/s 44C of the act of Rs. 262,841,599 and thereafter computed the income of the permanent establishment of assessee in India at Rs. 4,993,990,375. Over and above that learned assessing officer also made an addition in terms of the income Under India Japan DTAA on account of receipt of interest on external commercial borrowing by head office or other overseas branches amounting to Rs. 668,93,71,324/-. Accordingly total income of the assessee was computed at Rs. 11,683,361,699/-. The learned assessing officer computed the business income of Permanent establishment of assessee in India at Rs. 4,993,990,375 which is to be taxed at the rate of 40% plus applicable surcharge and education cess. Out of the interest income on ext....
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.... entire salary including which is paid outside India is exclusively towards the services rendered by the employees for Indian operations of the bank while on reputation in India. Such salaries are accounted by debiting only that portion of salary paid to the expatriate employees which was paid in Indian rupees by the branches in India. Salary paid in the foreign currency by the head office was not routed through the profit and loss account of the Indian branches and such salaries accounted for at the head office level. The assessee bears the Indian tax payable on the salaries paid to the expatriate's employees including the salary paid by the head office in Japan computed after grossing up of the salaries paid to such expatriates employees. Tax deduction u/s 192 of the income tax act was also carried out. Accordingly in computing the taxable income of the assessee's permanent establishment India for the impugned assessment year the assessee claimed deduction of Rs. 484,153,799/- in respect of salaries paid by the head office to the expatriates employees and taxes paid thereon but not debited in the books of PE in India . The claim of the assessee is as the sum paid represented expe....
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....en by the Department in earlier years and made the disallowance. 9. The learned authorised representative submitted that expatriate employees deputed by the HO are working exclusively for the Indian branches. Therefore, the salary paid to expatriates is incurred wholly and exclusively for the purpose of carrying on the business of branches in India and thus, the salary paid to expatriate is deductible as an expense under section 37(1) of the Act and not covered within the scope of 'head office expenditure' under section 44C of the Act. It is submitted that this issue is now covered by the order of the High Court in A.Y. 2007-08 and 2008-09 wherein the High Court dismissed the appeal of the Department holding as under : 'Salaries paid to expatriates' 9. The first question urged concerns the payment of salaries to the expatriates. In deciding this issue in favour of the Assessee, the ITAT has in the impugned common order referred to and relied upon the decision of its coordinate bench at Kolkata in ABN Amro Bank vs. JCIT (2005) 97 ITD 1 (ITAT [Kol.]). Further the ITAT followed the decision of the Bombay High Court in CIT vs. Emirates Commercial Bank Ltd. (2003) 2....
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....ian branches from head office and other overseas branches amounting to Rs. 3,499,476/-. During the year , assessee has received an interest of Rs. 3,499,476 from its head office and overseas branches. The assessee has included this income in its computation of total income however during the assessment proceedings it is claimed that this amount should be excluded from its income being payment to self and hence same is not taxable. It was submitted by the assessee that since Indian branches in head office and other overseas branches of the assessee are one assessee for the purpose of taxation Under the act and the interest received by the Indian branches of the assessee from its head office and other overseas branches cannot be taxed in the hands of the assessee being payment to self which cannot give rise to the income that is taxable in India as per the domestic laws of India. The assessee relied on the several judgments of the High Court and coordinate benches. Assessee also submitted that this issue is squarely covered in favour of the assessee by the decision of the coordinate bench dated 25 January 2017 in assessee's own case for assessment year 2010 - 11 where the issue is sq....
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....bmitted that above order was followed subsequently by the Tribunal in A.Y. 2003-04 (Para 20 Page 101 of Compilation), A.Y. 2009-10 (Para 23 Page 161 of Compilation) and in A.Y. 2013-14 (Para 12 Page 116 of Compilation). 14. The learned departmental representative vehemently supported the order of the learned assessing officer and direction of the learned dispute resolution panel. 15. We have carefully considered the rival contention and perused the orders of the lower authorities. In absence of any changes in the facts and circumstances of the case, as this issue has already been decided by the coordinate benches in the assessee's own case for earlier years and subsequent year, respectfully following the same we direct the learned assessing officer to not to tax the sum of Rs. 34,99,476 which is interest accrued and received by the Indian permanent establishment from its head office and overseas branches. Accordingly the learned assessing officer is directed to reduce the income of the assessee by the above sum. Accordingly ground number [2] of the appeal is allowed. 16. Ground number [3] of the appeal is with respect to the disallowance u/s 14 A of the act on account of t....
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....it shall be a presumed that the investments have been made with the assessee's own funds and not with the borrowed funds. Therefore it was stated that no disallowance of any interest expenses can be made where no interest-bearing funds are utilized for investing in assets which give rise to exempt income. Assessee further submitted that assessee has shown the pass through certificates as stock in trade of the assessee as 'available for sale 'category and its redemption has been recognized as business income by the assessee. Therefore these instruments qualifies as stock in trade of the assessee and no disallowance u/s 14 A of the act can be made. The learned assessing officer rejected the contentions of the assessee and imputed the disallowance u/s 14 A of the income tax act. The learned assessing officer considered the expenditure directly relating to the pass through certificates interest expenditure at Rs Nil , however proportionate disallowance of the indirect interest expenditure was made of Rs. 1 97,40,048/-. ½% of the average value of the investment was also considered at Rs. 2,781,318/- .Accordingly total disallowance was made of Rs. 22,521,366/-. 17. The learned ....
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.... falling under the head 'Profits and gains of business' and thus deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961. This has been so held in Bihar State Co-operative Bank Ltd. v. CIT [1960] 39 ITR 114 (SC), CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194 (SC) and CIT v. Ramanathapuram District Co-operative Central Bank Ltd. [2002] 255 ITR 423 (SC). 3. The principle in these cases would also cover a situation where a Co- operative bank carrying on the business of banking is statutorily required to place a part of its funds in approved securities. The appeals are accordingly dismissed without costs.' 3. For completeness, the assessee also brings to the notice of the Tribunal that the AO himself, for invoking provisions of section 14A,has held that mobilization of deposits and investing such funds in appropriate channels to earn income is the prime business activity of the assessee. Hence, the AO is also in agreement with the contention of the assessee that investment made in PTCs is in the course of carrying on its business consequently, it forms part of stock-in-trade of the assessee. 4. It has been held by Delhi Tribunalin....
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....pt income was earned from securities held as stock-in-trade following the Judgment of Supreme Court in case of Maxopp Investment Ltd. vs. CIT (402 ITR 640). 7. In view of the above, it is submitted that the disallowance made by the AO under section 14A is unsustainable as the securities are held as stock-in-trade. Rule - 8D(2)(ii) & (iii) does not apply to stock-in-trade: 8. It is submitted that the disallowance made by the AO under Rule - 8D(2)(ii) of Rs. 1,97,40,048 on account of interest expenditure and Rs. 27,81,318 under Rule - 8D(2)(iii) is bad in law as those provisions are applicable only when exempt income is earned from securities which are held as 'Investments'. Since, in the instant case, the securities are held as 'stock-in-trade', the provisions of Rule -8D(2)(ii) & (iii) are not applicable and therefore, the disallowance made by the AO is bad in law. 9. In this regard, the assessee refers to the decision of Kolkata Tribunal in case of DCIT vs. Gulshan Investment Co. Ltd.(142 ITD 89) wherein the Tribunal held that the provisions Rule 8D(2)(ii) & (iii) do not apply when securities are held as stock in trade and the only disallowance ....
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....by the assessee which can come within the provisions of Rule 8D(2)(i)(Page -40 of Final assessment order). 11. Similar view was also taken by the Ahmedabad Tribunal in case of Anjalee Exim Pvt. Ltd. vs. ACIT (ITA No. 2386/Ahd/2011) (Para 4 Page 249 of Compilation) and Chandigarh Tribunal in case of The State Bank of Patiala vs. ACIT (ITA No. 215/Chd/2015) (Para 15 Page 264 of Compilation). In view of the above, it is submitted that the disallowance made by the AO applying Rule - 8D(2)(ii)&(iii) is bad in law and deserves to be deleted. 12. If the Hon'ble Bench agrees with the argument of Stock-in-trade then, the following contentions will become academic. However, if the Bench does not agree with the argument of Stock-in-trade then the following argument must be considered for adjudication of this ground. Section 14A does not apply as the provisions of India-Japan DTAA are more beneficial: 13. As mentioned above, the assessee, being a resident of Japan, is entitled to the benefits of India-Japan DTAA. Article - 7(3) of the DTAA provides that in determining the profits of a permanent establishment, there shall be allowed as deductions of expenses ....
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.... Act as existing on 28th June 1984. This position changed only by virtue of amendment to the DTAA in the Assessment Year 1998-99. 4.It therefore follows that during Assessment Year 1994-95, Section 44C of the said Act as applicable would be one existing as on 28th June 1984 and not as existing during the subject assessment year. This is because the preamended Section 44C of the said Act allowed more deduction to head office expenses then the amended Section 44C of the said Act. Consequently, the issue as raised before the Tribunal and this Court would continue to be governed for the subject assessment year by the order of this Court in the matter of Deutsche Bank AG (supra).' 16. Similar view was taken by the Mumbai Tribunal in case ofAbu Dhabi Commercial Bank Ltd. vs. ACIT (138 ITD 83) (Para 14 Page 355 of Compilation). Therefore, it is submitted that the provisions of section 14A cannot be invoked as the DTAA does not allow the disallowance of expenses based on provisions inserted after the signing of the DTAA. 17. It is also submitted that the provisions of section 14A although inserted w.r.e.f. 1 April 1962 however, insofar as the DTAA is concerned, i....
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...., David R. Davis in Principles of International Double Taxation Relief , David R. Davis, Principles of International Double Taxation Relief , Page4 (London Sweet & Maxwell, 1985)points out that the main function of a Double Taxation Avoidance Treaty should be seen in the context of aiding commercial relations between treaty partners and as being essentially a bargain between two treaty countries as to the division of tax revenues between them in respect of income falling to be taxed in both jurisdictions. It is observed (vide para 1.06): The benefits and detriments of a double tax treaty will probably only be truly reciprocal where the flow of trade and investment between treaty partners is generally in balance. Where this is not the case, the benefits of the treaty may be weighted more in favour of one treaty partner than the other, even though the provisions of the treaty are expressed in reciprocal terms. This has been identified as occurring in relation to tax treaties between developed and developing countries, where the flow of trade and investment is largely one way. Because treaty negotiations are largely a bargaining process with each side seeking concess....
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....is important to note that under the Act for income earned by the trust, the trustee is treated as a representative assessee under section 160(iv) of the Act and assessment is made on the trustee in the capacity of a representative assessee. Therefore, the tax that is paid under section 115TA of the Act is paid as a representative assessee, as the trustee has no interest in the income since it is earned for the benefit of beneficiaries under the trust i.e. the assessee. In this regard, reliance is placed on the Judgment of Supreme Court in case of C.R. Nagappa vs. CIT (73 ITR 626) wherein the Judgment of Bombay High Court in case of CIT vs. Balwantrai Jethalal (34 ITR 187) was approved holding as under(Page 374 of Compilation): 'In a later judgment of the same High Court, the court reversed the earlier opinion: Commissioner of Income-tax v. Balwantrai Jethalal Vaidya [1958] 34 ITR 187. The court held in that case that the liability of trustees to income-tax is co-extensive with that of the beneficiaries and cannot in any case be a larger or wider liability. If the assessment is made upon a trustee, his liability to pay tax must be determined in accordance with section 41 of....
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....ibution of income. Such provisions are not found in section 115-O of the Act wherein a company is required to pay dividend distribution taxeven when the shareholder's income is exempt under section 10 of the Act for a simple reason that company is not assessed as a representative assessee for the shareholders and is a separate legal person independent of the shareholders. 22. It is also submitted that the Judgment of Supreme Court in case of Godrej & Boyce Manufacturing Co. Ltd. vs. CIT (394 ITR 449) is distinguishable on facts as in that case the argument of the assessee was that the tax paid under section 115-O of the Act is the tax paid on the dividend income earned by the assessee which was rejected Supreme Court holding as under (Page 398 of Compilation): '31. So far as the provisions of Section 115-O of the Act are concerned, even if it is assumed that the additional income tax under the aforesaid provision is on the dividend and not on the distributed profits of the dividend paying company, no material difference to the applicability of Section 14A would arise. Sub-sections (4) and (5) of Section 115-O of the Act makes it very clear that the further benefit....
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....interest free funds available with the assessee were in excess of the borrowed funds, the AO was wrong in holding that the borrowed funds were used in making investments in PTC. In this regard, reliance is placed on the following judgments wherein it has been held that disallowance under section 14A cannot be made when own funds are available with the assessee: a. ITAT AY 2003-04 (ITA No. 2150/Del/2008) in assessee's own case (Para 30 Page 103 of Compilation) b. ACIT vs. Delhi International (89 taxmann.com 326) (Del. Trib.) (Para 47 Page 431 of Compilation) c. Hero Cycles (P.) Ltd. vs. CIT (379 ITR 347) (SC) (Para 16 Page 440 of Compilation) d. Reliance Industries Ltd. vs. CIT (410 ITR 466) (SC) (Para 7 Page 442 of Compilation) e. CIT vs. HDFC (366 ITR 505) (Bom.) (Para 4 Page 445 of Compilation) f. CIT vs. Ashok Apparel (106 taxmann.com 63) (Bom.) (Para 7 Page 450 of Compilation) g. PCIT vs Shreno Ltd. - 409 ITR 401 (Guj) (Para 16 & 17) (Pages 458 & 459 of Compilation) 18. The learned departmental representative vehemently supported the order of the learned assessing officer and submitted that as assessee has earned....
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....see and distribution of income is also exempt in the hands of the assessee, it is also on the same footing as in case of other banks which are receiving the dividend from securities held as stock in trade. Therefore, we hold that in this case, provisions of Section 14 A does not apply. Hence no disallowance is called for under that Section. Accordingly, made by the learned assessing officer u/s 14A of the income tax act of Rs. 22,521,366/- is unwarranted. Further, as the assessee is granted relief on the first argument that Section 14 A is not applicable in case of bank when the investments are held as stock in trade, other arguments raised are merely academic. Accordingly ground number [3] of the appeal of the assessee is allowed. 20. One limb of Ground number [4] of the appeal is against the taxability of interest earned on external commercial borrowing to Indian customers. During the year the assessee has received interest of Rs. 6,689,371,324 from external commercial borrowing loan given by the head office/overseas branches to various customers in India. The learned assessing officer has taxed this income at the rate of 10% applying the article 11 (2) of double Taxation Avoi....
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....The assessee relied upon the decision of the honourable Bombay High Court in 263 ITR 590 wherein in paragraph number six it has been held that the expression total income has been defined u/s 2(45) to mean total income of the income referred to in Section five and computed in the manner laid down Under the provisions of the income tax act. He further relied upon the decision of the honourable Delhi High Court in CIT versus Kribhco 349 ITR 618. Therefore he submitted that the deduction u/s 44C of the act shall be granted after considering the interest taxed under article 11 (2) of the double taxation avoidance agreement and u/s 194LC of the act. 23. The learned departmental representative vehemently supported the order of the learned assessing officer and stated that the above income has been taxed according to the provisions of article 11 (2) of the Double Taxation Avoidance Agreement and therefore same cannot be included in the adjusted total income as same has not been computed in accordance with the provisions of the income tax act as business income but by applying the provisions of the Double Taxation Avoidance Agreement. He submitted that the ECB loans are given to the Ind....
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....It excludes certain allowances such as depreciation, additional depreciation and certain expenditure covered u/s 36 (1) (ix) of the act. It also prohibits allowance under sections 72, 73, 74 and 74A with respect to the losses carried forward. The ld AR has not addressed any argument on the facts of the case that when the assessee's income is taxed on gross basis as per rates adopted as per DTAA, can for claiming expenses out of that income , assessee look at the Domestic tax laws, i.e. section 44C of the act. Our answer is emphatic No. In the present case the income of the interest on external commercial borrowing is not computed under the head of income chargeable under the head profits and gains of the business as provided u/s 28 to 43A of the act. Further the income of the assessee is taxed under article 11 (2) of the India Japan DTAA on gross basis at the rate of 10%. It is the option of the assessee to govern by the provision of the Domestic tax Laws or DTAA, whichever is more beneficial to assessee. But there is no mandate that assessee can opt for lower taxes as per DTAA and claim expenses as per Domestic tax laws. Therefore there cannot be any further expenditure claimed as....
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....mbay High Court in 377 ITR 102 wherein the issue has been set aside to the file of the learned assessing officer to determine/adopt the rate of tax on refund in the light of relevant clauses of the DTAA and the decision of the special bench in clough engineering [supra] . Therefore, we also set aside this issue to the file of the learned assessing officer to decide on the rate of tax on interest on income tax refund received by the assessee. Accordingly ground number [5] of the appeal of the assessee is allowed. 29. Ground number [6] of the appeal is on the applicable rate of taxes. The assessee being a foreign company the income is taxed at the rate of 40% as per the rates provided by the finance act, 2015 for assessment year 2015 - 16. However the assessee being a resident of Japan is entitled to the benefits of the double taxation avoidance agreement between India and Japan. Therefore the claim of the assessee is that as per article 24 (2) of the DTAA, the taxation of a permanent establishment shall not be less favourable than the other enterprises in the contracting State carrying on the same activities. Therefore according to the assessee the tax rate of 40% levied on the t....
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....learned transfer pricing officer confirmed by the learned Dispute Resolution Panel of Rs. 103,485,509 to the returned income of the appellant in respect of international transaction pertaining to receipt of counter guarantee commission from associated enterprises. The fact shows that during the year the assessee has entered into various international transactions with its associated enterprises. One of the international transactions is receipt of commission for issuance of guarantee to 3rd parties against the counter counter guarantees issued by the overseas branches. The assessee has already accounted for a commission of Rs. 31,066,225/- for issuance of guarantee against the counter guarantee issued by the associated enterprise. Issue is that the customers of the associated enterprise of the assessee may need a guarantee from a bank in India to participate in a tender, performance guarantee or in relation to its business in India. In such a case the customer of the associated enterprise approaches associated enterprise to arrange for a guarantee in India. Associated enterprises then issues counter guarantee in favour of the assessee for issuing a further guarantee in favour of a b....
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....sessee of Rs. 134,380,249/-, assessee has already been paid Rs. 30,894,740/- , therefore, the net adjustment of Rs. 103,485,509 was made. On objection before the learned Dispute Resolution Panel the order of the learned Transfer Pricing Officer was upheld. Therefore assessee is aggrieved with that adjustment and is in appeal as per this ground. 36. The learned authorised representative submitted that the identical issue has been decided in favour of the assessee by the coordinate bench for assessment year 2009 - 10 in assessee's own case wherein it has been held that when the assessee has undertaken bundled of international transactions with its associated enterprise and the same has been benchmarked by applying combined approach and the method adopted is transactional net margin method where the margin shown by the assessee have been accepted, then there is no merit in segregation of the international transaction of the receipt of guarantee commission and benchmarking the same separately adopting CUP method. 37. Before us the learned authorised representative has also raised an issue that the transfer pricing officer in the order dated 31st of October 2018 has not disputed t....
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....r of the assessee that the international transaction of guarantee cannot be separately benchmark and further even if it is separately to be benchmarked it is at arm's-length. 38. The learned departmental representative vehemently supported the order of the learned transfer pricing officer and direction of the learned dispute resolution panel. 39. We have carefully considered the rival contention and perused the orders of the lower authority and the direction of the learned dispute resolution panel. As in the case of the assessee In ITA No. 1162/Del/2014 for Assessment Year: 2009-10 dated 21/5/2020 has considered the identical issue as Under:- '53. We have heard the rival contentions and perused the record. The issue raised vide ground of appeal no.12 is against the transfer pricing adjustment made on account of Receipt of guarantee commission. The assessee while benchmarking its international transactions in the transfer pricing report applied combined approach and has benchmarked under TNMM method. The case of the assessee is that the Transfer pricing analysis undertaken by applying TNMM method on combined approach should be accepted, as the margins of the assessee ....
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....ded in case of the assessee for assessment year 2009 - 10, respectfully following the decision of the coordinate bench, we allow this ground of appeal of the assessee holding that as the banking business of the assessee and the transactions related to the issue of guarantee commission on by the assessee are interlinked and closely connected, they should have been benchmarked in a bundled manner. Accordingly ground number 9 of the appeal of the assessee is allowed. 41. Now we come to the additional ground raised by the assessee. Assessee has raised following additional ground of appeal:- That on the facts and in the circumstances of the case, the liability for education cess on income-tax levied for AY 2015-16 ought to be allowed as a deduction under the head income from business and profession.' 42. Assessee submitted that it filed its return of income for AY 2015-16, wherein the Appellant paid education cess on the income-tax levied on the total income chargeable under the Act (refer relevant extracts of the return of income filed by the Appellant for AY 2015-16 enclosed as Annexure B). Subsequently, the learned Assessing Officer also assessed the income of the Appellant ....
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....ion regarding education cess has been decided by the honourable Bombay High Court in case of Cesar Goa Ltd versus joint Commissioner of income tax hundred and 17 taxmann.com 96 and honourable Rajasthan High Court in case of Chambal fertilisers and chemicals Ltd versus joint Commissioner of income tax 102 CCH 202 in favour of the assessee holding that assessee is entitled to the deduction of education cess while computing income Under the head profits and gains from business and profession. Therefore in the absence of judgment of a jurisdictional High Court against the assessee on this issue, the judgment of the honourable Bombay and Rajasthan High Court is binding on the tribunal. To support his contention he relied on the decision of the honourable Bombay High Court in case of CIT versus GodavariDevi Saraf 113 ITR 589 wherein it has been held that in absence of any decision of the jurisdictional High Court, the decision of the non jurisdictional High Court is binding on the tribunal of a different state. Similarly he relied upon 150 ITR 1, 210 ITR 580 and 167 TTJ 689. He further submitted that the liability to pay the education cess has also arising during assessment year 2015 - 1....
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.... The aforesaid question arises in the context of provisions of Section 40(a)(ii) which inter alia provides that notwithstanding anything to the contrary in sections 30 to 38 of the IT Act, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession', - (a) in the case of any assessee - (ia) (ib) (ic) ... (ii) any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. [Explanation 1.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.] [Explanation 2.-For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes any sum eligible for relief of tax und....
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....ing assumptions and presumptions [See Goodyear v. State of Haryana 188 ITR 402(SC)]. 21. There are several decisions which lay down rule that the provision for deduction, exemption or relief should be interpreted liberally, reasonably and in favour of the assessee and it should be so construed as to effectuate the object of the legislature and not to defeat it. Further, the interpretation cannot go to the extent of reading something that is not stated in the provision [See AGS Tiber v. CIT 233 ITR 207]. 22. Applying the aforesaid principles, we find that the legislature, in Section 40(a)(ii) has provided that 'any rate or tax levied' on 'profits and gains of business or profession' shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession'. There is no reference to any 'cess'. Obviously therefore, there is no scope to accept Ms. Linhares's contention that 'cess' being in the nature of a 'Ta x' is equally not deductable in computing the income chargeable under the head 'profits and gains of business or profession'. Acceptance of such a contention will amount to reading something in the text of the provi....
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.... Parliament stood as under:-'(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains'. When the matter came up before the Select Committee, it was decided to omit the word "cess' from the clause. The effect of the omission of the word "cess'' is that only taxes paid are to be disallowed in the assessments for the years 1962-63 and onwards. 3. The Board desire that the changed position may please be brought to the notice of all the Income-tax Officers so that further litigation on this account may be avoided.[Board's F. No. 91/58/66-ITJ(19), dated 18-5-1967.] 27. The CBDT Circular, is binding upon the authorities under the IT Act like Assessing Officer and the Appellate Authority. The CBDT Circular is quite consistent with the principles of interpretation of taxing statute. This, according to us, is an additional reason as to why the expression 'cess' ought not to be read or included in the expression 'any rate or tax levied' as appearing in Section 40(a)(ii) of the IT Act. 28. In the Income-tax....
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....business profits may be allowed in computing such profits under this Act. 30. The Division Bench of the Rajasthan High Court (Jaipur Bench) in Income-tax Appeal No. 52/2018 decided on 31st July, 2018 (Chambal Fertilisers and Chemicals Ltd. v. CIT Range-2, Kota), by reference to the aforesaid CBDT Circular dated 18th May, 1967 has held that the ITAT erred in holding that the 'education cess' is a disallowable expenditure under section 40(a)(ii) of the IT Act. Ms. Linhares was unable to state whether the Revenue has appealed this decision. Mr. Ramani, learned Senior Advocate submitted that his research did not suggest that any appeal was instituted by the Revenue against this decision, which is directly on the point and favours the Assessee. 31. Mr. Ramani, in fact pointed out three decisions of ITAT, in which, the decision of the Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd.(supra) was followed and it was held that the amounts paid by the Assessee towards the 'education cess' were liable for deduction in computing the income chargeable under the head of 'profits and gains of business or profession'. They are as follows :- (i) DCIT ....
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....ty of excise' and consequently, the amounts paid towards such cess or NCCD did not qualify for exemption under the exemption Notification. This view of the High Court was upheld by the Apex Court in Unicorn Industries (supra). 36. The aforesaid means that the Supreme Court refused to regard the levy of education cess, higher education cess and NCCD as 'duty of excise' when it came to construing exemption Notification. Based upon this, Mr. Ramani contends that similarly amounts paid by the Appellant - Assessee towards the 'cess' can never be regarded as the amounts paid towards the 'tax' so as to attract provisions of Section 40(a)(ii) of the IT Act. All that we may observe is that the issue involved in Unicorn Industries (supra) was not at all the issue involved in the present matters and therefore, the decision in Unicorn Industries (supra) can be of no assistance to the Respondent - Revenue in the present matters. 37. Ms. Linhares, learned Standing Counsel for the Revenue however submitted that the Appellant - Assessee, in its original return, had never claimed deduction towards the amounts paid by it as 'cess'. She submits that neither was any such claim made b....