TaxTMI 
TaxTMI 
2021 (2) TMI 576
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....engaged in manufacture of paints and synthetic enamel in India and is considered to be a market leader. The assessee has also set up subsidiaries in various countries outside India for its business. During the year under consideration, the assessee had entered into various international transactions with its overseas associate enterprises (AEs). However, in this ground of appeal, we are concerned with the adjustment made on account of provision of letter of comfort. In course of proceedings before the Transfer Pricing Officer(TPO), he found that the assessee had issued non contractual letters of comfort/support to banks on behalf of some of its subsidiaries from time to time. He also noticed that while providing such letters of comfort/support, the assessee had not charged any fee. Being of the view that similar transactions between unrelated parties without charging fee would not have been undertaken, the TPO held that the transaction relating to provision of letter of comfort/support with AEs, is not at arm's length. Having held so, he proceeded to determine the arm's length fee for issuance of letter of comfort/support at 1.41% of loan availed by the AEs of Rs. 82.07 cro....
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....oan availed by AE. Therefore, it has to be treated at par with corporate guarantee. Hence, the decision of learned Commissioner (Appeal) should be upheld. 7. We have considered rival submissions in light of the decisions relied upon and perused materials on record. After going through sample copy of letter of comfort/support given to the bank towards loan availed by the AE, we have noticed that there is no liability or responsibility fastened with the assessee for making good the liability of the AE in case of any default. There is nothing on record to suggest that in case of any default by the AE, the outstanding loan will be recovered from the assessee. Pertinently, while sustaining a part of the adjustment made by the TPO, learned Commissioner (Appeals) has equated the letter of comfort/support to corporate guarantee. In our view, on perusal of the letter of comfort/support, it cannot be construed to be in the nature of any sort of guarantee in respect of the loan liability of the AE. The only promise made by the assessee is, it will not make any divestment of the shares during the currency of the loan. In our view, in no way it makes the letter of comfort/support a guarantee....
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.... vide judgment dated 06-02-2019. Thus, he submitted, the issue is squarely covered by the aforesaid decision of the Hon'ble jurisdictional High Court. 11. The learned Departmental Representative strongly relied upon the observations of first appellate authority and Assessing Officer. 12. We have considered rival submissions in the light of decisions relied upon and perused material on record. Undisputedly, the assessee in its computation of income has computed disallowance under section 14A of the Act at Rs. 23,98,769 by applying certain principles of apportionment. Therefore, it is not a case of any disallowance being made by the assessee. In fact, a perusal of impugned assessment order clearly reveals that though a detailed submission was filed by the assessee justifying the suo motu disallowance, however, the Assessing Officer without recording a proper satisfaction to the effect that the computation made by the assessee is incorrect having regard to the books of account maintained, has proceeded to compute the disallowance simply on the reasoning that disallowance under section 14A of the Act has to be made by applying the methodology of Rule 8D. In our view, the afor....
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....ities, the ground should not be admitted. 17. We have considered rival submissions and perused materials on record. Admittedly, in the return of income filed for the impugned assessment year the assessee had offered the royalty income received from its subsidiary in Egypt. For the first time through an additional ground raised before us the assessee has claimed that the royalty income is not taxable in India in view of Article 13 of India-Egypt tax treaty. No doubt, this is a purely legal issue. Further, we find that identical issue raised by the assessee through additional ground in Assessment Years 2008-09 and 2006-07 has been restored back to the Assessing Officer for fresh adjudication, keeping in view the provisions of the tax treaty between India and Egypt. We have also noted that while completing the assessment for Assessment Year 2012-13, the Assessing Officer has accepted assessee's claim that royalty income is not taxable in view of Article 13 of India-Egypt tax treaty. In view of the above, we are inclined to restore this issue to the Assessing Officer for fresh adjudication keeping in view Article 13 of the India Egypt tax treaty as well as the decisions of the T....
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....) of the Income-tax Act, 1961 ('the Act') which states as under: "40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a)(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. 4. It is noted from the above that reference is to "any rate or tax". Thus the reference is not to only a restricted definition of Income Tax canvassed by the assessee. It refers to any charge on the basis of profit and gains. There is a difference between "rate of tax" and "tax. 5. In the case of Indian Iron & Steel Co. Ltd. v. CIT: (1968) 68 ITR 561 (Cal) which applied the Apex Court decision in the case of Tata Iron c & Steel Co. Ltd. v. State of Bihar (1963) 48 ITR 123 (SC), it was held that in a mining business, profits accrue even at the stage of the mining and so a cess levied on the basis of the profits of the mine would not be deductible even though the assessee ma....
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....em to have been taken before the Hon'ble Rajasthan HC. 8. The decisions cited by the assessee are the Hon'ble Rajasthan High Court in the case of Chambal Fertilizers and Chemicals Ltd. and the decision of the Hon'ble Bombay High the case of Sesa Goa Ltd. 117 taxmann.com 96 (Bom) which in turn follows the decision in the case of Chambal Fertilizers. 9. It is humbly submitted that in the case of Sesa Goa Ltd. the Hon'ble Bombay High Court queried the Ld. Standing Counsel as to whether the Revenue had filed appeal against the decision of the Rajasthan High Court in the case of Chambal Fertilizers which could not be replied to by the Ld. Standing Counsel. However, it is submitted that an SLP had been preferred by the Revenue against the decision of the Hon'ble Rajasthan High Court. This was dismissed on account of low tax effect. Special Leave to Appeal (C) No(s). 10460/2018 (Arising out of impugned final judgment and order dated 15-05-2017 in ITA No. 919/2008 passed by the High Court of Judicature For Rajas than at Jaipur) Nov 19, 2019 (2019) 106 CCH 0216 ISCC 10. The Hon'ble Bombay High Court, therefore, decided the issue on....
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....urt in the case of Smith Kline and French (India) Ltd. (219 ITR 581), judgment of High Court of Kerala in the case of AV Thomas and Co. Ltd. v. CIT (159 ITR 431) have reiterated this principle and distinguished Jaipuria Collieries judgment. Thus, it is humbly prayed that the judgment of Rajasthan High Court in Chambal Fertilisers and of Bombay High Court in Sesa Goa is per incuriam to this extent as the education cess presently under dispute is based on determination of profits under the head profits and gains of business and is to be computed as a rate of it. 15. Another factor that is worth considering is that the tax and consequent cess on it are 'below the line entities' in statement of accounts and therefore, can at best be considered as an application of profit rather than expenditure for the purpose of business. Alternatively, it can be said that when a business runs - to loss, it need not pay cess but yet that per se will not stop the business from running. Therefore, the purpose of the cess can not, be equated to the purpose of running the business. 16. It is further submitted that Bombay HC decision is per-incuriam as it has not taken into accoun....
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....apter II is 'Income-tax'. It is, thus. It is thus very clear that Education Cess charged under sub-sections (11) and (12) of section 2 of Chapter II of the Finance Act is a part of Income-tax chargeable. Sec. 2(37A) that defines rate or rates in force too refer to rates in Finance Act thereby taking under its sweep the cess being a surcharge. 18. As regards the CBDT circular referred to earlier, the removal of the word cess on advice of select committee cannot be a guiding factor for the simple reason that education cess has been defined as a rate/tax being part of the surcharge in relevant finance act. Had it been not done so, it would not have been tax and consequently, we could not have disallowed it under the circular. Conversely, without the select committee's raison d'etre, it appeals to common sense that cess on State Acts, district boards, industry specific, computed on turn-over or otherwise, but not on profits was required to be allowed and hence it was removed from Act. Otherwise too the circular obviously did not create a vested right in the assessee so as to influence the outcome of the current dispute. The Circular in question is reproduced be....
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....essee referred to the inclusion of "cess" in section 43B to contend that it means that it is otherwise allowable. In my view, this is a misinterpretation. Firstly, before applying section 43B, the expense concerned must otherwise be allowable. The assessee is using section 43B to make an expense which is not otherwise allowable to make it allowable. Secondly, the term "cess" relates to various levies by other statutory authorities and not to "education cess" levied in addition to income tax. 21. The assessee has also mentioned that "education cess" is levied on Indirect Taxes also. This has no bearing on the "education cess" disallowable u/s. 40(a)(ii). 22. An interesting point to be noted is that, if interpretation canvassed by the appellant is followed, the income-tax computation will become a loop or a reiterative calculation - education cess is computed on income-tax and when claimed as a deduction will change the base for income-tax amount on which "education cess" is to be again computed. 23. Thus it is humbly submitted that considering: - the rationale of the SC judgment in case of Smith Kline and K. Srinivasan; jurisdictional Bombay HC ju....
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....stment of corporate guarantee to 0.2% p.a. 25. Briefly the facts are, in course of proceeding before the TPO, he noticed that the assessee had provided corporate guarantee to Standard Chartered Bank towards loan availed by two of its overseas AEs situated in Singapore and China. He found that for the corporate guarantee so provided, the assessee had charged commission of 0.20% to the AEs. Being of the view that commission charged to AEs for corporate guarantee is not at arm's length, the TPO observed that considering the risk factor and safety level, assessee's AEs can be given triple BBB grade, corporate fund as per the information received from M/s. CIRISIL. He observed, while the yield on the AAA bond is 9.98% that of BBB Bond has to be taken with a 20% mark up on the credit spread. Accordingly, he determined the arm's length price of corporate guarantee commission at 7.07% p.a., thereby, proposing an adjustment of Rs. 7,08,95,979. The adjustment proposed by TPO was added to the income of the assessee. Assessee contested the addition before the first appellate authority. After considering the submissions of the assessee, in the context of facts and materials on re....
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...., the Assessing Officer noticed that the assessee has claimed weighted deduction under section 35(2AB) at Rs. 22.885 crores. Whereas, as per the certificate issued by Department of Industrial & Scientific Research (DSIR) to the Director General of Income-tax (Exemption), eligible R&D expenditure has been reduced to Rs. 22.237 crores. Noticing the above, the Assessing Officer reduced an amount of Rs. 32.40 lakhs from the deduction claimed by the assessee. The assessee contested the aforesaid disallowance before the first appellate authority. After considering the submissions of the assessee in the context of facts and materials on record and keeping in view the decision of the Tribunal in assessee's own case for earlier assessment year, he directed the Assessing Officer to verify the nature of expenditure and if it is found that the expenditure so incurred is for the purpose of R&D, it has to be allowed. 32. The learned Departmental Representative submitted, deduction under section 35(2AB) of the Act has to be allowed on the basis of quantum of expenditure approved by DSIR. 33. The learned Counsel for the assessee submitted, the issue is covered by the decision of the Trib....
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....ssing Officer. The aforesaid decision of the Tribunal has also been upheld by the Hon'ble jurisdictional High Court. In the latest order passed by the Tribunal for the assessment year 2008-09 in ITA No. 7253/Mum/2012 dated 20-11-2015, the Tribunal has reiterated its earlier view. In view of the aforesaid, we uphold the decision of learned Commissioner (Appeals) on the issue. Ground is dismissed. 38. In ground No. 5, revenue has challenged the decision of learned Commissioner (Appeals) in allowing assessee's claim of additional depreciation. 39. Briefly the facts are, in course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed carried over amount of additional depreciation relating to the immediately preceding assessment year. Therefore, he called upon the assessee to justify the claim. Though, the assessee furnished a detailed submission stating that the balance portion of additional depreciation, which could not be claimed in the preceding assessment year has to be allowed in the impugned assessment year; however, the Assessing Officer was not convinced. Accordingly, he disallowed the additional depreciation claimed of Rs. 1,72,86....
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....Noticing this, he called upon the assessee to justify the claim. After verifying the details furnished by the assessee, the Assessing Officer observed that the amount was paid to SOTC for foreign trip of its dealers. Being of the view that the expenditure incurred was not for the purpose of assessee's business, he held the same as not allowable. Further, he held that since the assessee has not deducted tax at source on the expenditure incurred, which is nothing but in the nature of commission paid to dealers and distributors, the same has to be disallowed under section 40(a)(ia) of the Act. Accordingly, he disallowed the deduction claimed by the assessee. Assessee contested the disallowance before the first appellate authority. After considering the submissions of the assessee in the context of facts and materials on record, learned Commissioner (Appeals) deleted the disallowance made by the Assessing Officer. 45. Strongly relying upon the observations of the Assessing Officer, the learned Departmental Representative submitted, the expenditure incurred by the assessee for trip scheme is nothing but commission paid to dealers and distributors; hence, subject to deduction of t....