TaxTMI 
TaxTMI 
2020 (10) TMI 1189
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....t NRI expenses are fully allowable and no portion of these are head office expenses. 2. The Ld. CIT(A) was not justified in law in ignoring the order of a superior judicial forum in the appellant's own case for earlier years wherein it was held that the NRI expenses are fully allowable and no part of them are in the nature of Head office expenses. 3. The learned Ld. CIT(A) has erred in law and on facts in upholding an excessively high pitched estimate of as much as 94% of the gross receipts amounting to Rs. 3,04,60,516/- as expenses attributable to earning income on foreign currency syndicated term loans under Sec. 115A(3) of the Income Tax Act, 1961. 4. (i) The learned Ld. CIT(A) has erred in law and on facts in making an ad hoc addition of Rs. 15,00,000/- on account of expenses incurred on earning foreign currency syndicated term loans. (ii) On page 14, para 6.1 of the CIT(A)'s Order, when dealing with the expenses on foreign currency syndicated terms loans, the CIT(A) has erroneously quoted an extract of the AO's order with respect to deduction under sec.36(1)(viia), which is not relevant to the ground of appeal being discussed. Hence this AO'....
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.... 1961 and Article 7 of the Indo-Australia DTAA and CBDT Circular No.649 dated 31.3.1993. 10. The Order of the Ld. CIT(A) suffers from an error apparent: on the face of the records on the following ground: • The CIT(A) has allowed us the tax deductibility of CBS costs, and Operations & Technology costs for the following periods: 1.4.1999 to 31.3.2000 & 1.4.2000 to 31.7.2000. This was in accordance with the provisions of sec. 40(a)(i) as withholding tax was paid on such payments in May 2000. • However when granting relief in figures, the CIT(A) has correctly taken the CBS costs & Ops /Tech costs for the period 1.4.1999 to 31.3.2000. • But for the period 1.4.2000 to 31.7.2000 he has erroneously bunched up the costs of CBS.+ Operations Technology + Credit Cards Support Costs and treated the entire amount as Credit Cards Support Costs costs. This would be exfacie evident from CIT(A)'s order itself as well as the records. • Therefore although the relief is computed by him of Rs. 379,366,666/- actually there is a further relief available per his order of: CBS costs for 1.4.2000 to 31.7.2000-Rs. 91,601,740 + Operations /....
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.... the judgment of the Calcutta High Court in the case of UCO Bank Vs. CIT, 200 ITR. 5. The ld. CIT (A) directed to re-compute the disallowance @80% of NRI deposit mobilization expenses u/s 37(1) of the Income Tax Act, 1961 and 20% of NRI expenses u/s 44C. 6. This issue has been adjudicated by the ITAT Delhi Bench in the case of the assessee for the assessment years 1993-94 to 1998-99 in ITA No. 4988/Del/2003 dated 24.10.2008 and ITA No. 1106/Del/2017 dated 30.11.2017. The relevant portion of the order of the ITAT is as under: "6. We have considered the rival submissions. The Tribunal while considering similar claim in earlier year held as under (ITA Nos.1850/Del/1997, 2376, 2818 & 2819/Del/99, order dated 18th August, 2006). We have carefully considered the rival submissions: The xxxxxx abroad were brought to India in foreign currency xxxx and kept in India for the Indian business of the assessee bank. The benefits reaped by the India branch or Permanent Establishment in India have been accounted for as Indian income. We, therefore, see no reason as to why the deduction of expenditure* should not allowed. These expenses incurred for procurement of business cannot be u....
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.... The appeal of the assessee on this ground is allowed. Disallowance of Expenses: 8. Brief facts of the case are that the assessee has shown an amount of Rs. 3,24,04,804/- as interest income from foreign currency loans to its Indian customers, taxable u/s 115A(3). The AO held that under section 115A(3), no deduction is permissible for the income covered under the said provision and the corresponding expenditure is to be disallowed. Based on the gross receipts and expenditure shown in the P&L account for the year of Rs. 14,82,24,25,000/- and Rs. 13,94,24,89,000/- respectively, the AO held that the assessee had incurred expenses in the ratio of 94% of the gross receipts. Therefore, the AO estimated the expenditure relatable to income of Rs. 3,24,04,804/- at Rs. 3,04,60,516/-. 9. The ld. CIT (A) confirmed the addition on the grounds that in absence of any details, the AO is correct in estimating the disallowance. 10. Before us, it was submitted that the bank earned interest of Rs. 3.24 crores on FCNR - B Rules and this interest duly offered at the rate of 20% in accordance with the provisions of Section 115A(1) of the Income Tax Act, 1961. 11. This issue has been adjudic....
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....es out of Dividend Income The grounds are being adjudicated together. 13. The AO disallowed Rs. 81.31 lakhs on account of expenses incurred on earning foreign currency syndicated term loan of Rs. 86.50 lakhs which is tax free. The ld. CIT (A) confirmed the addition to the tune of Rs. 15 lakhs on the grounds that estimation of disallowance of expenditure of 17.34% on the exempt income. 14. With regard to dividend, the AO disallowed an amount of Rs. 16,60,280/- out of the dividend income earned of Rs. 17,66,255/-. The ld. CIT (A) confirmed the addition to the extent of Rs. 2,50,000/- on estimate basis. 15. Before us, the ld. AR relied on the order of the Hon'ble Supreme Court in the case of Walfort Shares & Stock Brokers Pvt. Ltd. 326 ITR 1. The ld. DR relied on the order of the ld. CIT (A). 16. The relevant portion of the judgment of the Hon'ble Supreme court is as under: "Section 14A of the Income-tax Act, 1961, clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the assessee may be relatable partly to exempt income and partly to taxable....
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....f appellant in Melbourne (b) that the payments totaling to Rs. 68,10,18,767/- were not debited in books of account of appellant for the year. (c) that payment made on behalf of appellant suffered withholding taxes @ 15% whereas claim of deduction of these payments resulted in reduction of tax liability of appellant @ 48% which incurred revenue loss of 33% on such claim. 20. The ld. CIT (A) was confirmed the addition to the tune of Rs. 30,15,52,101/- and granted the relief of Rs. 37,94,66,666/-. The revenue is in appeal against the relief granted and the assessee's in appeal against the addition confirmed by the ld. CIT (A). 21. For the sake of ready reference and for detailed facts, the order of the ld. CIT (A) is reproduced as under: "10.3.2 The AR stated that the appellant had made payments totaling to Rs. 68,10,18,767/- to Australia and New Zealand and Banking Group (in short ANZ) through HO of appellant in Melbourne Australia, after deduction of withholding tax in the year under consideration in lieu of technical services rendered by ANZ to PE of appellant in India under three agreements. It was argued that copies of original challan evidencing ....
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.... The Bank had duly deducted taxes at source on the payments in to the paid in accordance with Article 11 of Indo-Australian Double Tax Treaty and paid interest u/s 201(1A) and made payment Government on 31st May 2000. Since such taxes have been the current accounting period, the above expenses are deductible as business expenditure from the Profits and Gains of Business in accordance with Proviso to section 40(a)(i). (i) Original challans evidencing payment of withholding taxes are attached. (ii) Report of External Auditors - KPMG certifying the payments made for availing of technical services are attached. (ii) For the period 1.4.2000 to 31.7.2000 the Bank continued to avail of the technical services from ANZ Banking Group Ltd. Of: (a) Commercial Banking system (CBS) for its Indian operations (b) Operations and Technology services for its Indian operations (c) Cards Technology services for its Indian operations For which payment of Rs. 16,48,46,668/- was made during the year. The Bank has duly paid withholding taxes to the Indian Govt., in accordance with Article 11 of the Indo-Australian Double Tax Treaty wit....
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.... 1.3 The entire ownership rights in the CBS System has at all points of time vested with the 1st Party. The 2nd Party had only access to, and use of this system during the term of the Agreement between the parties." (extracted from CBS agreement between HO of appellant and ANZ dated 1.4.1999) The operations and technology support and services and licence agreement also stipulates operation and support services in India. "THE PARTIES AGREED UPON THE FOLLOWING: 1. OPERATIONS & TECHNOLOGY SUPPORT SER VICES AND SOFTWARE LICENCES AND MAINTENANCE PROVIDED BY THE 1st PARTY TO THE 2nd PARTY FOR ITS BANKING OPERATIONS IN INDIA: The 1st Party provided the following operations and technology support services including software licences to the 2nd Party, for its business in India during the extended period of 4 months. Maintenance Based Systems: The lsl Party has developed and maintained various Mainframe based Computer systems at Melbourne such as: - IT Service Delivery - IT Software Solutions (other than CBS Fail & Fix) - Payment Services - Telecommunications - Operations & Technology Internati....
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....of appellant that payment of Rs. 13,40,53,333/-, Rs. 26,72,100/- and Rs. 16,48,46,668/- were incurred on credit card support service to PE of appellant in India was not proved before me as the relevant agreement does not stipulate credit card support service in India. The AR did not file any other evidence to prove if credit card services were actually rendered in India for the PE of appellant. In light of these findings it is held that payment totaling to Rs. 301552101 was not incurred for the purpose of business of the appellant and was not deductible u/s 37(1) of the Act. For aforestated reasons, I am of considered view that out of total expenditure of Rs. 68,10,18,767/- payments of Rs. 7,51,13,333/- for operation and technology support in India and Rs. 30,43,53,333/- for CBS technical services in India were incurred wholly and exclusively for the purpose of the business of the PE of appellant in India and were allowable deduction u/s 37(1) of the Act and balance amount of payment of Rs. 30,15,52,101/- was not proved to be incurred for the purpose of the business of appellant in India and the same cannot be claimed as allowable deduction u/s 37(1) of the Act. It is pertinent to ....
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....e claimed as deduction in the year pertained to the earlier year on which the appellant had deducted and paid TDS in the year under consideration accordingly the proviso to section 40(a)(i) is attracted and the claim of appellant was allowable u/s 37(1) read with proviso to section 40(a)(i). 10.3.7 After having considered aforesaid findings and circumstances, 1 am of the considered view that appellant had proved that expenditure of Rs. 7,51,13,333/- and Rs. 30,43,53,333/- was genuine revenue expenditure which were incurred wholly and exclusively for the purpose of the business of the PE of appellant in India and appellant had discharged its onus u/s 37(1) of the Act. Accordingly, AO was not justified in making disallowance of Rs. 30,43,53,333/- and Rs. 7,51,13,333/-. I have also held that appellant had not discharged its onus to prove that balance expenditure of Rs. 30,15,52,101/- incurred for the purpose of the business of the appellant in India. Accordingly, disallowance of Rs. 68,10,18,767/- made by the AO is restricted to Rs. 30,15,52,101/- and appellant gets relief Rs. 37,94,66,666/- (Rs. 30,43,53,333 + Rs. 7,51,13,333/-). This ground of appeal is partially allowed." ....
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....ords and details the support services provided to the 2nd Party by the 151 Party during the extended four month period from 1st April 2000 to 31st July 2000. 1. CREDIT CARDS SUPPORT SERVICES PROVIDED BY THE 1ST PARTY TO THE 2ND PARTY: The 1st Party had provided the following support services to the 2nd Party for its Credit Cards business operations: 1.1 Risk Management & Compliance- The risk management compliance services which included monthly credit portfolio reviews, advice on fraud & collection matters, advice regarding portfolio improvement strategies, advice regarding the establishment of external debt collection agents, development of an operations manual, technological support for international cards operations, scorecard & policy development, design documentation of collection system. 1.2 International Cards Operations:- The international cards operations services comprised the providing of consultancy for delivery of card operation services, support to resolve operational issues, consistency of processes, cost reduction, coordination of projects, the proposed centralized processing of charge-backs and voucher processin....
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.... source in accordance with Art. 12 of the Indo-Australian Double Tax Avoidance Treaty @ 15% on the abovementioned amount, and remitted taxes to the Indian Government, as per the tax laws prevailing in the country. 2.3 The telegraphic transfer buying rate of State Bank of India on the specified date on which tax is required to be deducted at source was used as the exchange rate for conversion of Australian Dollars into Indian Rupees. 27. We have gone through the notes attached to and forming part of the computation of income for the year ended 31 March 2001 which is as under: 1) The name of ANZ Grind lays Bank Limited has been changed to Standard Chartered Grind lays Bank Limited effective 23 September 2000. 2) (i) During the Financial year 1.4.99 to 31.3.2000 the Bank had made the following payments for obtaining technical services for its Indian operations from ANZ Banking Group for access and use of : (a) Commercial Banking System for its Indian operations- Rs. 304,353,333 Original challans evidencing payment of withholding tax of Rs. 4,56,53,000 along with interest under section 201(1A) of Rs. 44,99,000 is attached as Annexure A-1. ....
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....ttached. (vi) Report of External Auditors- KPMG Certifying the above payments made for availing of the said 'technical services' are attached. 3) The reversal of excess provisions in respect of the following are not taxable, since the said provisions were added back to the taxable income in the year of creation of such provisions. Accordingly, the same are not taxable on reversal /write back during the year: (a) Excess provision for bad & doubtful debts written back Rs. 124,787,880 (b) Reversal of interest tax provision Rs. 17,000,000 (c) Reversal of excess general provision for standard assets Rs*11,014,750 (d) Reversal of excess provision for other operating losses Rs. 94,442,913 4) (i) In March/April 1992, the Bank purchased from Mr. L.R. Gupta & family (LRG) 9% NHPC (Tax free) bonds of Face Value Rs. 16.16 crores (in three transactions of FV Rs. 4.50 crore, Rs. 2.58 crore & Rs. 9.06 crore). The interest warrants were not delivered except for the coupon date 31/3/92 in respect of FV Rs. 4.50 crore & Rs. 9.06 crore bonds. All the bonds were maturing on 11 December 1997. (ii) In June/ July 1992, the bo....
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....Z Grindlays Bank Limited. The audit opinion expressed in this report has been formed on the above basis. Audit opinion In our opinion, the attached Schedule presents fairly, in accordance with the generally accepted accounting principles, charges which relate to production support, recovery from system failures, troubleshooting, problem investigation, user assistance, right to use the system software and services provided in respect of Credit Cards, CBS and other Operation and Technology support, and have been incurred on behalf of the Indian branch of ANZ Grindlays Bank Limited for the period from 1 April 1999 to 31 March 2000. Schedule of Charges for the Access and Use of the Commercial Banking System Allocated to the ANZ Grindlays Bank Limited - India Branch For the year ended 31 March 2000 Charges for A$ - providing the access to and use of the CBS system for Indian banking operation for the year 1 April 1999 to 31 March 2000 6,800,000 - providing software maintenance and other technical support services for the use of the CBS system 4,063,000 TOTAL 10,863,000 The local currency allocation amount to I....
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....oftwares 238,000 TOTAL 4,878,000 The local currency allocation amount to INR135,866,934 Independent audit report to management of Australia and New Zealand Banking Group Limited Scope We have audited the schedule of charges of Operations and Technology Support Services (Operation and Technology), Credit Cards Support Services (Credit Cards) and Access to and Use of The Commercial Banking System (CBS) for the Indian Branch of ANZ Grindlays Bank Limited (the Schedule) in respect of the services provided by the Australia and New Zealand Banking Group (the Company) for the period from 1 April 2000 to 31 July 2000. The Company's management are responsible for the Schedule and have determined that the accounting policies used are appropriate to the needs of management. We have conducted an independent audit of the Schedule in order to express an opinion to management on its preparation and presentation. No opinion is expressed as to whether the accounting policies used are appropriate to the needs of management. Our audit has been conducted in accordance with Australian Auditing Standards. Our procedures included examination, on a....
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....'Payment Services' 40,000 - providing 'Telecommunications and International' communication services 143,000 - providing the services of the central operation technology & information technology planning team 41,000 -providing access to and use of 'BTS: ANZLINK' 68,0000 -providing the use of' ANZIB: MIDANZ Support & Maintenance' 0 - providing support to various ANZ software 'ANZIT Recon Support' 1,000 - Projects: Y2K 31,000 -providing Operation and Technology support and access to and use of 'IT Service Delivery: Mainframes-Project TEP' (126,000) - providing Operation and Technology support and access to and use of 'IT Service Delivery: Mainframes-Project Telephone Banking (excluding Capex)' 75,000 TOTAL 745,000 The local currency allocation amount to INR19,431,463. Schedule of Cards Charges Allocated to the ANZ Grindlays Bank Limited -India Branch For the four months ended 31 July 2000 Charges for A$ -IT Service Delivery: Mainframes 386,000 -providing consultancy and support services in connection with 'International Cards Operations....
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....ess overseas, where transactions were completed in India. (c) In disallowing the expenditure of Rs. 69,93,427/- on the payments made to clubs. (d) In restricting the disallowance to Rs. 30,15,52,101/- out of Rs. 68,10,18,767/- made after rejecting the deduction claimed u/s 37(1) of the IT Act, 1961 and without considering the facts that the amount has not been debited in books of accounts." 36. Ground No. 1(a): Disallowance of NRI expenses is dealt in the ground no. 1 of the assessee's appeal. Hence, we hereby hold that the ratio of the adjudication applies to the ground of the revenue. 37. Ground No. 1(b): Commission payment The AO made estimated addition of Rs. 10 crores on account of the commission earned on Credit Cards issued by the foreign branches and used in India. The relevant portion of the order of the Assessing Officer is as under: "For the last five A.Ys., the assessee has been asked to give the details of commission received by the branches of ANZ Grindlays Bank abroad on the International Credit Cards issued by them, where the card holders had completed their transactions in Indict and the settlement of these transactions was done,....
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....The income to the foreign branch from the credit given to its card holders outside India cannot be taxed in the hands of the Indian branch since it has not arisen in India and also it cannot be attributed to the assets and activities of the Indian branch, as is required by Article 7 of the DTAA. 39. The matter also stands covered by the order of the ITAT in ITA No. 1345/Del/2006 for the assessment year 1997-98. The relevant portion of the order is as under: "At the outset, we find that the issue is already covered in favour of assessee in its own case in ITA No. 4988/Del/2003 for the AY 1996-97. The relevant extract of the order is reproduced below:- "We have considered the rival submissions. We are in agreement with the finding of the Learned CIT(A). Where the-foreign branch has issued credit care and even if the transaction takes place in India, the credit is given to the customer outside India and the debt has also arisen outside India. The merchant shipment in India may receive the payment but the merchant shipments do not incur any debt They merely receive charges for the goods sold or services rendered. However, the charges are received by the foreign bra....