TaxTMI 
TaxTMI 
2020 (12) TMI 862
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....o Minimum Alternate Tax under section 115 JB, and, if so, whether the income of the foreign branches, amounting to Rs. 1,408.32 crores, and, provision for bad doubtful debts amounting to Rs. 5,359.64 crores in required to be excluded from the computation of book profits computed under section 11JB of the Act. Let us take up these two issues first, and then we will proceed to take up the remaining issues raised in the appeal. 3. So far as the first issue is concerned, i.e. exclusion of profits of foreign branches from taxable income in India, this is certainly an issue of wider ramification touching the assessment of every Indian enterprise which has branch offices abroad inasmuch as whatever we decide in this case of a public sector undertaking will have equal application in other cases of Indian companies having branch offices abroad in the countries with which India has entered into the double taxation avoidance agreements. The related grounds of appeal are as follows: 3. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing exclusion of profits of branches of the Appellant Bank situated in countries with whom India ha....
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....rieved, assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied and is in further appeal before us. 5. Learned counsel's contention, as articulated in the written note filed before us, is that the issue in appeal is covered, in favour of the assessee, by decisions of the coordinate benches in two immediately preceding assessment years, namely 2013-14 and 2014-15, wherein the matter has been remitted back to the file of the Assessing Officer in the light of certain directions. It is thus contended that when profits of a branch abroad has been subjected to tax abroad, under article 7 of the applicable double taxation avoidance agreement, the same income cannot again be taxed in India. On the first principle, the merits of this argument, merit if there is any, could only be its simplicity, or naivety- to be more apt, in its approach. It proceeds on the fallacy that there is only one method of relieving double taxation of an income, due to inherent conflict of the source taxation vs residence taxation rule, and that method is exemption method, and that is the method of relieving double taxation of income in the Indian tax treati....
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.... assessee has earned profits aggregating to Rs. 11,91,18,391 in these branches, which, for the purposes of the provisions of the respective tax treaties, constitute permanent establishments. The claim of the assessee, as noted by the DRP at page 10, is that "the foreign branches create permanent establishments (PEs) in the foreign countries, the income from the same is liable to tax in these foreign countries, i.e. source states, and, hence, the income from aforesaid foreign branches should be exempt in India as per Article 7 of the tax treaties". The assessee has further contended that "according to many judicial precedents cited below, it has been held that under a tax treaty, it has been provided that tax 'maybe' charged in a particular state in respect of specified income, it is implied that tax will not be charged by the other state in respect of such income". As noted in the DRP's order, further at page 11, the contentions of the assessee have been that "it has been held that once an income is held to be taxable in a particular jurisdiction under a tax treaty, unless there is a specific mention that it can be taxed in the other jurisdiction as well, the latter is ....
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....r Oil Ltd. v. Addl.CIT [2014] 42 taxmann.com 21 wherein it is said to have been held, in paragraph no. 76, that notifications issued under earlier section 90 shall hold good till 1st October 2009. As a corollary to this observation, according to the learned counsel, the notifications issued under earlier section 90 will not hold good after 1st October 2009. He submits that in this view of the matter, nothing really turns on the notification no 91/2008 under section 90(3). He submits that the impact of notification having been nullified by re-enactment of section 90, the law laid down by Hon'ble Supreme Court in the case of CIT v. PVAL Kulandagan Chettiar [2004] 137 Taxman 460/267 ITR 654 (SC) will hold the field, and, therefore, income taxable in the source jurisdiction under the treaty provisions cannot be included in total income of the assessee. He hastens to add, and rather curiously so, that he would once again urge us not to decide the matter on merits and simply remit the matter to the file of the Assessing Officer. Learned Departmental Representative, on the other hand, vehemently relies upon the stand of the authorities below, and leaves the matter to us. 6. F....
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....tered into under section 90 apply. That was the scheme of law, as evident from the following observations, as settled by Hon'ble Supreme Court: 13. We need not to enter into an exercise in semantics as to whether the expression "may be" will mean allocation of power to tax or is only one of the options and it only grants power to tax in that State and unless tax is imposed and paid no relief can be sought. Reading the Treaty in question as a whole when it is intended that even though it is possible for a resident in India to be taxed in terms of sections 4 and 5, if he is deemed to be a resident of a Contracting State where his personal and economic relations are closer, then his residence in India will become irrelevant. The Treaty will have to be interpreted as such and prevails over sections 4 and 5 of the Act. Therefore, we are of the view that the High Court is justified in reaching its conclusion, though for different reasons from those stated by the High Court. 8. We are, at this stage, not concerned about how the above legal position was at some variance with the first principles and what impact the aforesaid decision had on the worka....
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.... was inserted in Section 90, and this new sub-section provided that "(a)ny term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf". In exercise of the powers so vested in the Central Government, vide notification no. 91 of 2008 dated 28th August 2008, it was notified as follows: In exercise of the powers conferred by sub-section (3) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that where an agreement entered into by the Central Government with the Government of any country outside India for granting relief of tax, or as the case may be, avoidance of double taxation, provides that any income of a resident of India "may be taxed" in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income-tax Act, 1961 (43 of 1961), and relief shall be granted in accordance wi....
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...., the notifications, circulars and instructions issued therein do not cease to hold good. Section 297(2)(k) of the Income-tax Act, 1961, specifically provides that notwithstanding the repeal of Income-tax Act, 1922, "any agreement entered into, appointment made, approval given, recognition granted, direction, instruction, notification, order or rule issued under any provision of the repealed Act shall, so far as it is not inconsistent with the corresponding provision of this Act, be deemed to have been entered into, made, granted, given or issued under the corresponding provision aforesaid and shall continue in force accordingly". On a similar note, under section 24 of the General Clauses Act, "Where any Central Act or Regulation, is, after the commencement of this Act, repealed and re-enacted with or without modification, then, unless it is otherwise expressly provided any appointment notification, order, scheme, rule, form or bye-law, made or issued under the repealed Act or Regulation, shall, so far as it is not inconsistent with the provisions re-enacted, continue in force, and be deemed to have been made or issued under the provisions so re-enacted......." The scheme of law is....
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....t when re-enactment of law has exactly the same provisions, so far as the related notification is concerned, the mere fact of re-enactment of law will be fatal to the notification. As regards learned counsel's reliance on observations made by a coordinate bench, in the case of Essar Oil (supra), to the effect "We are, therefore, of the considered view that the substitution of Section 90, which has come into effect from 1st April 2004, and notification issued therein shall continue to hold at least upto 1st October 2009", the import of words "at least" is being missed out. The issue for consideration by the coordinate bench was pre 1st October 2009 situation, and the coordinate bench was of the view that "at least" for this period, the validity of notification cannot be called into question. As held by Hon'ble jurisdictional High Court in the case of CIT v. Sudhir Jayantilal Mulji [1996] 84 Taxman 205/[1995] 214 ITR 154 (Bom.), a judicial precedent is only "an authority for what it actually decides and not what may come to follow from some observations which find place therein". The issue regarding validity of notification after 1st April 2009 was not before the coo....
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....n the legal position, as analysed above, has changed, and, under the changed legal position, these judicial precedents do not hold good. As regards the DRP decisions for the immediately two preceding assessment years, we have noted that the post amendment legal position was not even brought to the notice of the Dispute Resolution Panel. There is not even a whisper of a suggestion that the amendment in law in Section 90(3) and the post amendment notification was brought to the notice of the DRP. Learned counsel's arguments before the DRP simply proceeded on the basis that there was no change in statutory provisions after the Kulangadan Chettiar's judgment. That is simply unacceptable. While we restrain from making any observations on the conduct of the representatives of the assessee, we find it difficult to believe that a big-4 accounting firm, as the assessee's representative before the DRP, as indeed before us, is, would really be oblivious of the correct legal position and it was anything less than a calculated ignorance, before the DRP, on the basic legal position. Advising the correct legal position and then making whatever aggressive claim one makes is on....
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....edents inasmuch as reasoning adopted therein does not hold good any longer in the light of the decision in the case of Technimont (supra), admirable grace. It is not clear to us whether this approach is to preempt a detailed discussion on merits of the matter, or whether this approach is indeed bonafide stand of the assessee. That does not, however, matter much at this stage, as all the facets of this matter are covered above nevertheless. The basis on which the relief was granted in the earlier years has been examined and that basis being ex facie incorrect and even rendered by inadvertence is glaring in the analysis that has been extensively reproduced above. Learned counsel for the assessee, however, does not give up; he has an even more innovative plea now. He submits that above decision is per incuriam for some other reason, which has not been discussed in any judicial precedent so far, inasmuch as it overlooks the fact that the notification dated 28th August 2008 was not issued in the context of the business income, and, should accordingly not be applicable so far as business income earned abroad, as in this case, is concerned. We see no substance in this plea either. The not....
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....rdance with the scheme of related treaty. With these directions, the matter stands restored, for the limited purposes of granting tax credit, in terms of the related double taxation avoidance agreements, if, and to the extent, admissible. 9. The action of the authorities below is thus upheld in principle, but its clarified that the tax credits for the taxes paid abroad, in treaty partner countries, will be admissible in terms of the provisions of the respective treaty. 10. Ground no. 3 raised in the appeal filed by the assessee, is thus dismissed and ground no. 3 A therein is allowed for statistical purposes in the terms indicated above. 11. The second important issue in this appeal is with respect to levy of Minimum Alternate Tax under section 115 JB, i.e. whether or not the assessee bank is liable to subjected to Minimum Alternate Tax under section 115 JB, and, if so, whether the income of the foreign branches, amounting to Rs. 1,145.14 crores, and, provision for bad doubtful debts amounting to Rs. 5,359.64 crores in required to be excluded from the computation of book profits computed under section 11JB of the Act. The related grounds of appeal are as follows: ....
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....ook Profit accordingly. 12. The first point, so far as this set of grievances is concerned, is like this. The stand of the assessee, as culled out from his arguments and the material on record, is that the provisions of Section 115JB donot apply to the assessee bank at all. His submission is that the assessee bank is not a company incorporated under the Companies Act, 1956, nor recognized under section 3 of the Companies Act, which is sine qua non for applicability of Explanation 3 to Section 115JB, inasmuch as the assessee bank came into existence under the Banking Companies (Acquisition and Transfer of Undertaking Act, 1970. He submits that since section 115JB starts with a non obstante clause, i.e. "notwithstanding anything contained in any other provisions of this Act", it should be treated as a complete code in itself, no other provisions of law in the context of the Income Tax Act, 1961 should be held to be applicable here, and the expression 'company' should be construed as to a company incorporated under the Companies Act, 1956. He virtually argues for its being seen as a standalone provision and be seen as a complete code in itself. A lot of emphasis is repeatedly place....
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....is substantially interested, so far as assessment of their income is concerned, but they will not be treated as such for other purposes. We see no support of such an approach, as is implicit in the stand taken by the assessee bank. Once the provisions of Section 11 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, provides that "for the purposes of the Income Tax Act, 1961, every corresponding new bank shall be deemed to be Indian company and a company in which public is substantially interested", a new bank established under the said Act, as is the assessee before us, is required to be treated as an Indian company in which public is substantially interested, for all the purposes of the Act. No exclusions can be inferred. Once the assessee bank is required to be treated an Indian company for the purposes of the Income Tax Act, 1961, it cannot be open to us to hold that it will not be treated as a company for the purposes of Section 115JB of the Income Tax Act, 1961. 15. A lot of emphasis is then placed on the fact that the provisions of Section 115 JB start with a non obstante clause, and, therefore, this section is to be treated as a complete cod....
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....ch the non-obstante clause is attached. (Bihar Rajya M.S.E.S.K.K. Mahasangh (supra); Iridium India Telecom Ltd. v. Motorola Inc. [2005] 2 SCC 145. While interpreting a provision containing a non-obstante clause, it should first be ascertained what the enacting part of the Section provides, on a fair construction of the words used according to their natural and ordinary meaning, and the non-obstante clause is to be understood as operating to set aside as no longer valid anything contained in any other provision which is inconsistent with the Section containing the non-obstante clause. (Aswini Kumar Ghosh v. Arabinda Bose [1953] SCR 1; A.V. Fernandez v. State of Kerala [1957] SCR 837). [Emphasis, by underling, supplied by us now] 17. Clearly, therefore, what is to be seen is to "what the provision containing non obstante clause provides", and, to that extent, the provision containing non-obstante clause sets aside, as no longer valid, any other provision which is inconsistent with such a provision. As Chaturvedi & Pithisaria's Income Tax Law [2020 edition; page 626] puts it, citing authorities for this proposition, a non-obstante clause "is equivalent to saying that in sp....
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....payable on the total income as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012, is less than eighteen and one-half per cent of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the amount of income-tax at the rate of eighteen and one-half per cent. (2) Every assessee,- (a) being a company, other than a company referred to in clause (b), shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Part II of Schedule VI to the Companies Act, 1956 (1 of 1956); or (b) being a company, to which the proviso to sub-section (2) of section 211 of the Companies Act, 1956 (1 of 1956) is applicable, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of the Act governing such company: Provided .......................... Explanation 3.-For the removal of doubts, it is hereby clarified th....
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....B and the assessee being treated as a company for any purpose of the Income Tax Act, 1961. This part of the tax law position cannot come in the way of implementing the scheme of Section 115 JB, and, cannot, therefore, be overridden. 22. The next point raised by the learned counsel is that the expression 'banking company' is well defined in the provisions of the Banking Regulation Act, 1949 read with the related provisions of the Companies Act, 1956, and, unless the conditions so set out in those definitions are satisfied, section 115 JB cannot come into play. It is contended that the term "banking company" has been defined in section 5(c) of Banking Regulation Act, 1949, as any company which transacts the business of banking in India, and the term 'company' has been defined in section 5(d) of Banking Regulation Act, 1949 to mean any company as defined in section 3 of Companies Act, 1956 and includes a foreign company within the meaning of section 591 of that Act. It is further contended that the term 'company' has been defined in section 3 of Companies Act, 1956 as " a company formed and registered under this Act (i.e. the Companies Act , 1956" and includes (a) a....
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....ontext requires otherwise", the defined meanings are to be adopted. Unlike a charging provision under the tax laws, which fails when conditions precedent for charging the income to tax fail, every definition has the saving clause enabling improvising the definition to meet the contextual requirements. Whether this is section 5 of the Banking Regulation Act 1949 which has the opening words as "In this Act, unless there is anything repugnant in subject or context" before setting out the definitions, or Section 2 of the Companies Act, 1956 which begins with the words "In this Act, unless context otherwise requires" and then sets out the definition, it is absolutely clear that these definitions will have to make way for the requirements of the context in which the definitions are required to be interpreted. Elaborating upon this aspect, a coordinate bench of this Tribunal, in the case of Maharashtra State Electricity Board vs. JCIT [(2002) 82 ITD 422 (Mum)], has observed that, "The definition as given in section 2 of the Act begins with the qualifying words, 'unless the context otherwise requires'. Text and context are the basis of interpretation. If the text is the texture, cont....
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....purposes, was on a much lower amounts. We are unable to see any reasons as to why in this scheme of taxation of book profits, an assessee like the assessee before us, i.e. a bank distributing dividends on the basis of books profits but paying tax on a substantially lower amount of taxable profits, should be excluded. It is a corporate entity treated as such for the purposes of Income Tax Act 1961 by the virtue of specific legal provisions to that effect, it pays dividends, its taxable profits are substantially lower than book profits, and, therefore, in our humble understanding, there is no good reason not to treat it as a company- at least no good reasons are shown to us. All that has been said is that there is a drafting error in the legislation, by not specifically including the nationalized banks- as for the purpose of some other deduction provisions, but then what this argument overlooks is that definition provision is not the same thing as charging provision or even computation provision, and that the statutory definitions- on account of specific provision to that effect in the definition itself, have to yield to the contextual meanings. While on this aspect of the matter, we....
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.... the coordinate bench in the case of Indian Overseas Bank (supra), it does pertain to a post-amendment year, i.e. 2014-15, but it mechanically relies upon the decision in the case of UCO Bank (supra) without even taking note of the fact that the said decision pertained to the pre-amendment assessment year, i.e. 2003-04. As for the obiters of the coordinate bench, these obiters anyway have to make way for the obiters of Hon'ble jurisdictional High Court, as we see a little later, which touch a different chord These obiters in the coordinate bench decision, which do not bind us anyway- as is the settled legal position, proceed on the assumption that the provisions of the Banking Regulation Act, 1949 do not cover the nationalized banks, and that the assessee cannot be considered to be a company for the purposes of Section 115JB.. As for the latter proposition, we have already discussed the matter at length to make our point, As for the former proposition, in our considered view, what really matters is whether the provisions of the Banking Regulation Act govern the format of annual accounts of the assessee, and, to that extent, the requirements of Schedule VI make way for these specifi....
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....esaid provision, is also reproduced below for ready reference: Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company [Emphasis, by underlining, supplied by us] 27. Quite clearly, therefore, the annual accounts of a nationalized bank, like the assessee before us, are required to be prepared in accordance with the requirements of the Banking Regulation Act, 1949, and, for that reason, it has an option to prepare its profit and loss account in accordance with act governing the assessee company. In any case, in the light of the above legal position- particularly provisions of Section 51 read with Section 5(da) of the Banking Regulation Act, 1949. it is not even in dispute that the provisions of the Banking Regulation Act, 1949 to the assessee company, as indeed every nationalized bank. Yet, if anyone has any doubts about even this elementary legal position, even a casual look at published annual accounts of a....
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....nts in terms of the requirements of the Companies Act, 1956. When the profit and loss account is drawn up as the per the related provisions of the Companies Act, the starting point for computation of taxable book profits is the profit as computed in accordance with these provisions. However, when profit and loss account is drawn up, in accordance with the requirements of, say, the Banking Regulation Act, 1949, the starting point of computation of book profits is the profit computed as computed in accordance with the provisions of the said legislation. In this light, and bearing in mind the fact that the provisions of preparing profit and loss account in accordance with the provisions of the Banking Regulation Act 1949 applies to the assessee before us, which is treated as a company for the purposes of the Income Tax Act, the provisions of Section 115JB clearly apply to the assessee as well. 29. While dealing with this issue, we may add that our own Hon'ble jurisdictional High Court, in assessee's own case- though reported as CIT Vs Union Bank of India, and others [(2019) 105 taxmann.253 (Bom)], has, inter alia, observed as follows: 14. There are certain significant legi....
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....its book profit in case tax on its total income computed under the provisions of the Act is less than the MAT liability. Book profit for this purpose is computed by making certain adjustments to the profit disclosed in the profit and loss account prepared by the company in accordance with the Schedule VI of the Companies Act, 1956. As per section 115JB, every company is required to prepare its accounts as per Schedule VI of the Companies Act, 1956. However, as per the provisions of the Companies Act, 1956, certain companies, e.g. insurance, banking or electricity company, are allowed to prepare their profit and loss account in accordance with the provisions specified in their regulatory Acts. In order to align the provisions of Income-tax Act with the Companies Act, 1956, it is proposed to amend section 115JB to provide that the companies which are not required under section 211 of the Companies Act to prepare their profit and loss account in accordance with Schedule VI of the Companies Act, 1956, profit and loss account prepared in accordance with the provisions of their regulatory Acts shall be taken as a basis for computing the book profit under section 115JB. ....
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....Act governing such class of company: 17. This proviso thus refers any insurance or banking companies or companies engaged in the generation or supply of electricity or to any other class of company in which form of financial statement has been specified in or under the Act governing such class of company. Combined reading of this proviso to sub-section (1) of Section 129 of the Act, 2013 and clause (b) of sub-section (2) of Section 115JB of the Act would show that in case of insurance or banking companies or companies engaged in generation or supply of electricity or class of companies for whom financial statement has been specified under the Act governing such company, the requirement of preparing the statement of accounts in terms of provisions of the Companies Act, is not made. Clause (b) of sub-section (2) provides that in case of such companies for the purpose of Section 115JB the preparation of statement of profit and loss account would be in accordance with the provisions of the Act governing such companies. This legislative change thus aliens class of companies who under the governing Acts were required to prepare profit and loss accounts not in accordance with the....
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.... requirements therein. 31. The plea of the assessee, with respect to non-applicability of section 115JB to the banking companies like the assessee before us, is, therefore, rejected. 32. Let us now move to the alternate pleas, so far as levy of MAT under section 115JB is concerned, as raised by the learned counsel. 33. Learned counsel contends that profits of the branches, in countries with whom India has entered into DTAA- namely UK, France, Belgium, Kenya, Japan, USA, Singapore, China and South Africa, amounting to Rs. 1145,14,40,634 should be excluded. His contentions that so far as these profits are concerned, as these profits have already been subjected to tax in the respective countries, the same cannot be taken into account for the taxation of income, including the minimum alternate tax, in India. Without prejudice to this line of argument, it is further submitted that the credit for taxes paid by the said branches in their respective countries be allowed as a deduction in accordance with Sec. 90 of the Act while determining tax liability in India. 34. This plea is only to be noted and rejected. We have already discussed, at length, as to how taxation of profits ....
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....Vodaphone Essar Gujarat Ltd. After considering the argument of both sides, the Hon'ble High Court has held as under: "The situation that arises is that prior to the introduction of clause (i) to the Explanation to section 115JB, as held by the Supreme Court in case of HCL Comnet Systems & Services Ltd (supra), the then existing cause (c) did not cover a case where the assessee made a provision for bad or doubtful debt. With insertion of clause (i) to the Explanation with retrospective effect, any amount or amounts set aside for provision for diminution in the value of the asset made by the assessee, would be added back for computation of book profit under section 115JB. However, if this was not a mere provision made by the assessee by merely debiting the Profit and Loss Account and crediting the provision for bad and doubtful debt, but by simultaneously obliterating such provision from its accounts by reducing the corresponding amount from the loans and advances on the asset side of the balance sheet and consequently, at the end of the year showing the loans and advances on the asset side of the balance sheet as net of the provision for bad debt, it would amount to a w....
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....uting total income under normal provisions of the Act. In the instant case, we are concerned with the provisions of sec. 115JB, wherein the book profit is required to be computed from the audited accounts prepared under the provisions of the Companies Act. Under the accounting principles, on the basis of which the accounts are prepared under the Companies Act, the terms "Bad debts" and the "Provision for bad and doubtful debts" have distinct meaning and has got different accounting treatment. Hence, in our view, the decision rendered by Hon'ble Supreme Court in the case of Vijaya Bank (supra) under the normal provisions of Income tax Act cannot be applied to the provisions of sec. 115JB of the Act. We notice that the Co- ordinate bench in the case of Tainwala Chemicals & Plastics India Ltd., did not consider the applicability of the Companies Act to the book profit computed under sec. 115JB Act. In view of the foregoing, in our view, the Ld CIT was justified in upholding the addition of "Provision for bad and doubtful debts" to the book profit. Accordingly, we uphold his order on this issue." Recently, the Hon'ble ITAT Hyderabad "B" Bench in the case of M/s Souther....
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.... written off ought to have been debited to the P&L A/c as per the provisions of the Companies A/c and thereafter the net profit is to be arrived at to which the adjustments under the Explanation (1) are to be made. Where the AO has no jurisdiction to tinker with the accounts of the assessee, likewise the AO has no authority to make an adjustment not provided under the explanation Therefore, we see no reason to interfere with the order of the CIT (A) on this issue as the assessee as clearly debited the provision of Rs. 22.81 crores to the P&L A/c. The assessee's ground of appeal No. 4 is accordingly rejected." Respectfully following judgement of Hon'ble ITAT in the case of Shakti Insulated Wires (P) Ltd (supra) and M/s Southern Power Distribution Company of Andhra Pradesh Ltd (supra), the ground raised by the Appellant is, dismissed. 37. In the course of arguments before us, learned counsel for the assessee has simply placed his reliance on the judgment of Hon'ble Gujarat High Court in the case of CIT Vs Vodafone Essar Gujarat Limited [(2017) 85 taxmann.com 32 (Guj)] but has not even dealt with the specific issues, as discussed above, by the learned CIT(A). Be th....
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....e plea of the assessee in principle. However, so far as the computation of book profits for levy of MAT is concerned, we have upheld one of the grievances of the assessee and remitted the matter to the file of the CIT(A) for factual verification. 39. Ground no. 5, raised in the appeal filed by the assessee, is thus partly allowed for statistical purposes in the terms indicated above. 40. Let us now take up the other issues raised in the cross appeals. We will fist take up the remaining issues in appeal filed by the assessee. 41. In the first set of grounds of appeal, the assessee-appellant has raised the following grievance: 1. In the facts and in the circumstances of the case and in law, the learned Assistant Commissioner of Income tax - 2(1)(1) (herein after referred to as 'ACIT') has erred in disallowing Rs. 158,75,16,480 u/s. 14A r.w.r 8D of the income tax Act, 1961 (herein after referred to as "the Act") towards expenditure incurred in relation to income claimed exempt u/s. 10(34) and 10(15) of the Act and the Hon'ble Commissioner of Income tax (Appeals) - 4 (herein after referred to as "CIT(A)") has erred in confirming the said disallowance u/s. 14A ....
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....llowed for the statistical purposes, in the terms indicated above. 45. In the second set of ground of appeal, the assessee-appellant has raised the following grievances: 2. On the facts and in the circumstances of the case and in law, the learned ACIT has erred in disallowing amortization of lease premium paid in respect of various lease hold properties aggregating to Rs. 4,08,67,975 by treating the same as capital expenditure and the Hon'ble CIT(A) has erred in confirming the disallowance made by the learned ACIT. The learned ACIT be directed to allow amortization of lease premium paid in respect of various lease hold properties aggregating to Rs. 4,08,67,975 as revenue expenditure and reduce the total income accordingly. 2A. Without prejudice to Ground no. 2 above, on the facts and in the circumstances of the case and in law, assuming without accepting that your Honours is of the opinion that amortization of lease premium paid in respect of various lease hold properties aggregating to Rs. 4,08,67,975 is in the nature of capital expenditure, then the learned ACIT be directed to allow depreciation u/s. 32 of the Act on the same and reduce the total income a....
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.... file of the Assessing Officer for fresh adjudication as above. Ordered accordingly, and the additional ground of appeal is thus allowed, for statistical purposes, in these terms. 53. In the result, the appeal of the assessee is partly allowed in the terms indicated above. 54. We now take up the appeal filed by the Assessing Officer. 55. In the first ground of appeal, which is raised by way of a question for our consideration, the assessee has raised the following grievances: Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is correct in upholding that the broken period interest paid is taxable on due basis instead of accrual basis relying on the decision of the Bombay High Court in the case of State Bank of India without appreciating the fact that the assessee follows accrual basis of accounting during the year. 56. Learned representatives fairly agree that this issue is covered by several decisions of the coordinate benches in assessee's own case, and that is a fact noted by the learned CIT(A) in the impugned order itself as well. There is no good reason, nor has any reason been pointed to us, to take a different view of th....
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....hus dismissed. 64. In ground no. 4, the assessee has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in upholding that the Perpetual Bonds cannot be compared to the equity/ share capital of the banks without considering as per settled legal position in 130 ITR 18 (P&H) of Hon'ble Punjab & Haryana High Court in the case of Pepsu Road Transport Corp vs CIT that an element of refund or repayment is a must in the concept of borrowing. 65. So far as the deductibility of interest on perpetual bonds is concerned, we have noted that the Assessing Officer has disallowed the said deduction, which amounted for Rs. 197.62 crores, in computation of taxable income, and he justified the said action by observing, inter alia, as follows: The assessee during the course of assessment proceedings was asked to show cause why perpetual bonds should not be treated as equity in nature and consequently the interest paid on such bonds should be allowed under 36(1)(iii) of the IT Act. The assessee was asked to provide the details of the interest cost debited to the P&L A/c on account of such perpetual bonds. ....
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.... bond is sold, the rights of future interest passes to the new bond holder. To sum up the perpetual bonds are quasi equity and they have following equity like features:- Perpetual in nature High loss absorption capacity. Provisions for write down of principal or conversion to equity on trigger Discretionary pay-out with existence of full coupon discretion. 12.4 Normally, the amount is not shown in the balance sheet as debt or borrowing. It is shown below share capital and interest payable is not charged to profit and loss account. The assessee company in its reply has also admitted that the interest is paid out of distributable profits of previous year or current year. As per the section 36(1)(iii), deduction is allowed in respect of the amount of interest in respect of capital borrowed for the business and profession. Before allowing interest u/s 36(1)(iii), the Assessing Officer was required to examine as to whether the issue of perpetual bond qualifies as 'borrowing' for the purposes of the said section. 12.5 In this regard, reference may be made to the decision of the Hon'ble Punjab & Haryana High Court in the case of Pep....
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....has submitted that Ld. A.O was not correct in giving the observation that the amount was not reflected as borrowings in its books of accounts. According to the Appellant, the same was shown as borrowing in Schedule IV of the Annual Report. In support of its claim, a copy of the Annual Report was filed by the Appellant during the course of Appellate proceedings. The Appellant further clarified that the interest paid on such bonds was debited to P & L A/c under the head "Interest Expenditure". It was further clarified that A.O was not correct in stating that the lender had no authority to claim the refunds. According to the Appellant, these bonds were listed in Stock Exchange and the lender had choice to exit at any point of time by selling them through Stock market. The Appellant emphasized that in case of share capital, the assessee company had an option to declare or not to declare dividends depending upon the financial requirement of the company, whereas, a fixed interest liability has to be paid by the Appellant on such bonds annually without any failure. The Appellant further contended that on share capital, dividend is paid out of the reserves which is purely discreti....
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....ent". Reference in this respect may also be made to CEPT v. Bhartia Electric Steel Co. Ltd. [1954] 25 ITR 192 (Cal). In this also, the question was whether it was "money had and received"; or "borrowed money". It was held that there has to be a positive act of lending coupled with acceptance by the other side of the money, as a loan. Thus, it is clear that an element of refund or repayment is inherent in the concept of borrowing. There is no provision in the Act which contemplates the repayment of the capital so provided under section 23 of the Act. Apart from that, section 23 of the Act provides that the Central Govt. and the State Govt. may provide any capital. In other words, it is not by virtue of any agreement, etc., between the parties, but because of the statutory provision that the Governments are obliged to provide the capital. It is under section 26 of the Act that the corporation may borrow money in the open market for the purpose of raising its working capital. Thus, the distinction has been made in the Act itself between the "capital provided" under section 23 and the "capital borrowed" under section 26. It is further clear from the provisions of sect....
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....this issue. The matter thus restored to the file of the learned Commissioner (Appeals) as such. 71. Ground no. 4 is thus allowed for statistical purposes. 72. In ground no. 5, the Assessing Officer has raised the following grievance: On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in allowing relief the assessee relying on the decision of Hon'ble Special Bench of ITAT Delhi in the case of Vireet Investment (P) Ltd., without appreciating the facts that the issue has not reached to its finality as the Hon'ble Delhi High Court in its decision in the case of Goetz India Ltd., reported in 361 ITR 505 held that while computing Book Profit disallowance u/s 14A is required to be made. However, in its later judgment the Hon'ble Delhi High Court in the case of Bhushan Steel Ltd. (ITA No. 593 & 594/2015) has taken a contrary view". 73. Even going by the ground so raised by the Assessing Officer, there is a cleavage of opinion on the issue by Hon'ble non-jurisdictional High Court, and the special bench decision in the case of ACIT Vs Vireet Investments Pvt Ltd [(2017) 82 taxmann.com 415 (Del)] is in favour of the assessee. When de....