AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 591
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.... the delay and admit this appeal. 3. The assessee is a company engaged in the business of manufacturing & processing of float glass, mirror glass etc. It filed return of income on 28-09-2012 declaring total loss of Rs. 75,16,43,560/- and book loss of Rs. 56,41,39,850/- u/s. 115JB of the Act. The Assessing Officer passed an order u/s. 143(3) of the Act. On 27-03-2015, determining the total income of the assessee at a loss of Rs. 72,87,81,724/- under normal provisions, inter alia making disallowances of i) loss on interest rate (hedging contract) of Rs. 2,26,10,487/- and ii) disallowed monitoring fees for non-deduction of TDS u/s. 40(a)(ia) of the Act. On appeal the Ld. CIT(A) granted relief. 4. Aggrieved, the Revenue is in appeal before us on the following grounds:- 1. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in considering the monitoring fees within the preview of interest as per DTDA article between India and Germany as per clause 4 of this article. 2. Whether on the facts and in the circumstances of the case, the Ld CIT(A) has erred in allowing deduction on account of loss on interest rate hedging contract as this loss cannot be co....
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....ault' for not deducting tax on the monitoring fees and therefore disallowed the payment of Rs. 2,51 ,3501by invoking Section 40(a)(i) of the Act. In this factual background the limited issue for my consideration is whether at all the monitoring fees is in the nature of 'interest' so as to qualify for exemption from incometax in India under Article 11(3) (b) or for that matter at all chargeable to tax in India terms of the DTAA between India and Germany. 4.3 In this context it would first be relevant to the expression 'interest' as defined in section 2(28A) of the Act which reads as follows: "2(28A) interest means interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes an service fee or other charge in respect of the monies borrowed or debt incurred or in respect of an credit facility which has not been utilized.;." It is noted the above definition is an inclusive one which was inserted vide the Finance Act, 1976. The said inclusive side of the definition is relevant. In other words, the expressions 'any service fee or other charge' in respect of the ....
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....#39; is defined so as to mean income from debtclaim of any kind. Meaning thereby any stream of income derived in any form by the lender, i.e. DEG Bank, which emanate from a debtclaim which in the present case is the loan advanced by DEG to the appellant is in the nature of interest. In my considered view therefore the term 'interest' as defined in the DTAA between India & Germany is far wide and comprehensive than the definition under Section 2(28A) of the Act. The definition of interest is not restricted to only service charges or any other charges in relation to the loan/debt/borrowing but it includes any and all forms of income derived in relation to the loan/debt/borrowing. In the given facts of the present case the income by way of monitoring fees has arisen to DEG Bank from the loan agreement entered into with the appellant and therefore it is without any doubt that it is in the nature of 'interest' as defined under Article 11 of the DTAA between India & Germany. 4.7. For the reasons set out above therefore I hold that the monitoring fees paid by the appellant to DEG Bank, Germany qualified as 'interest' both under Incometax Act, 1961 as well as the....
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....ellant had entered into an interest swap derivative with State Bank of India with a view to reduce effective interest cost on the borrowings. The assessee had originally borrowed a foreign currency loan which carried floating rate of 6 month LIBOR Rate SSA. Since the appellant expected that the global USOR rates would increase in view of the slow market conditions, the appellant entered into a derivative contract with State Bank of India wherein it swapped the loan amount notionally in the same USD currency but converted it into a fixed rate loan carrying 2.77% interest rate with a view to cap its losses and the effective cost of borrowings in case the global LIBOR rates increased. Meaning thereby if the floating rate payable on the original USD Loan would be lower than 2.77%, then the appellant would pay the difference under the swap arraignment to SBI but if the floating rate paid on the original USD Loan was higher than 2.77%, then SBI shall pay the difference to the appellant. In the relevant year, since the LIBOR rate was lower the appellant was required to bear higher interest cost i.e. fixed rate of 2.77% thereby resulting in a loss of Rs. 5,11,03, 987/as on 31st March 2012 ....
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....how Section 43A was applicable in the present case. I find that it is not a case that the loss arose on repayment of the principal amount of loan or due to any exchange fluctuation in the foreign currency component of the principal loan. Instead the facts on record are clear that the loss had arisen on account of interest rate hedging contract. Hence I am of the considered view that Section 43A had no application whatsoever in the given facts of the present case. 5.8. For the reasons set out above the MTM loss of Rs. 5, 11 ,03,987/incurred by the appellant under the interest rate swap arrangement is held to be fully allowable as deduction from. the profits of the business u/s 28 of the Act. The AO is therefore directed to delete the net disallowance of Rs. 2,26, 10,487/. These grounds are allowed." 8. We find that this issue is covered in favour of the assessee by the decision of the coordinate bench of this Kolkata Tribunal, 'B' Bench in the case of M/s. Mcleod Russel India Ltd. Vs. DCIT in ITA Nos. 114-115/Kol/2016 for the AYs. 2008-09 & 2009-10 order dated 03-05-2019. As the ld. CIT(A) has applied the proposition of law laid down by this Tribunal on this issue , we find ....