TaxTMI 
TaxTMI 
2023 (1) TMI 1008
X X X X Extracts X X X X
X X X X Extracts X X X X
....laring income of Rs.73,20,89,000. 5. In course of assessment proceedings, the Assessing Officer while examining the audited financial statement of the assessee, noticed that the assessee has debited expenditure of Rs.2,63,36,331 showing it as amortization of premium on derivative on long term borrowings. After calling for necessary details and examining them he found that the assessee has availed two long term External Commercial Borrowings (ECB)/Foreign Currency loans from a Japanese entity viz. Mitsubishi Electric Corporation (MELCO) amounting to Japanese Yen (JPY) of 511,999,000 and 730,221,000 respectively. In order to hedge the foreign currency exposer on long term borrowings, the assessee executed currency swap contracts with Bank of Tokyo, Mitsubishi UFJ (BTMU) on 07.06.2012 and 01.01.2013. As per the terms and conditions of currency swap contracts, the assessee was obliged to pay fixed amount of rupee denominated installment to BTMU. Whereas, the obligation to repay the principal and interest amount in foreign currency to MELCO was placed with BTMU. It was explained by the assessee to the Assessing Officer that as per the swap contracts, the assessee was required to pay in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equired to pay interest at a fixed rate of 7.35% or 7.59% in Indian rupees as the case may be. Whereas, BTMU, in turn, was required to pay interest to MELCO in foreign currency. In other words, the assessee was not required to pay any interest directly to MELCO. It is observed, for accounting purposes, the assessee had bifurcated the fixed interest cost into two portions i.e. interest and premium. The premium portion has been claimed as amortization premium derivative on long term borrowings. However, in our view, the nature and character of the fixed cost on foreign currency swap contract is nothing but interest, therefore, allowable under Section 36(1)(iii) of the Act. As could be seen, the Assessing Officer has refused to entertain assessee's claim, firstly, on the ground that the amount paid to BTMU under swap contracts is independent of the foreign currency loan, hence, cannot be treated as interest covered under Section 36(1)(iii) of the Act. Further, he has held that the amount paid to BTMU is in respect of speculative transaction under Section 43(5) of the Act. 12. In our considered opinion, the aforesaid reasoning of the Assessing Officer are unsustainable. As discussed e....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at source of an amount of Rs.1,65,39,932, whereas, he has not deducted tax on an amount of Rs.86,27,286. When called upon to explain the reason for not doing so, the assessee submitted that such amount is purely in the nature of reimbursement of cost incurred towards air-tickets and hotel bookings etc. The Assessing Officer was not convinced with the submissions of the assessee. He observed, the travelling and hotel expenses, since, are in connection with rendering of technical services, they also have to be regarded as fee for technical services (FTS). Hence, the assessee was required to withhold tax under Section 195 of the Act. Since, the assessee has not done so, the Assessing Officer disallowed the amount of Rs.86,27,286. 16. Learned Dispute Resolution Panel while considering the objections of the assessee upheld the disallowance made by the Assessing Officer. 17. Before us, learned counsel appearing for the assessee has broadly submitted as under: * The amount represents reimbursement of cost of air-ticket, hotel billing etc. without any element of profit and based on third party invoices submitted by the payee; * Section 40(a)(i) cannot be invoked as, the assessee ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....des for disallowance only in respect of expenditure which are revenue in nature. Therefore, the provision does not apply to a case of the assessee whose claim is for depreciation. In this regard, we may specifically refer to the decision of Hon'ble Karnataka High Court in PCIT vs. Tally Solution Pvt. Ltd. (supra). 23. In view of the aforesaid, we delete the disallowance. This ground is allowed. 24. In ground no.5, the assessee has contested the disallowance of Rs.6,90,154 on account of difference in rent cost incurred by the assessee for providing accommodation to its employees and the respective perquisite value of such residential accommodation determined in the hands of the employees. 25. Briefly the facts are, in course of assessment proceedings, the Assessing Officer noticed that the assessee had provided rent free accommodation to various employees and debited expenditure in respect thereof. After calling for and examining the necessary details, the Assessing Officer noticed that there is difference in the quantum of rent paid by the assessee on behalf of its employees and the amount taxed as perquisite at the hands of the employees. Holding that, the excess rent paid is t....