TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 1371
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.... return was revised twice. The assessee claimed deduction u/s. 10AA. The assessment was completed by determining the total income, under the regular provisions of the Act, at Rs. 766,09,96,530/-. I. SET OFF OF LONG TERM CAPITAL LOSS OF AMALGAMATING COMPANY 3. The first major issued raised by the assessee, through ground no. 9, is against not allowing brought forward long term capital loss of Rs. 104,46,39,309/- in respect of erstwhile iGATE Computer Systems Limited (ICSL), which amalgamated with the assessee company w.e.f. 01-04-2012 under the Scheme approved by the Hon'ble High Court. 4. The factual matrix anent to this ground is that the assessee claimed brought forward long term capital loss of Rs. 109.86 crore. On perusal of the details, the AO observed that a sum of Rs. 104,46,39,309/- was long term capital loss of the erstwhile ICSL which got amalgamated with the assessee company on the first day of the financial year under consideration. On being called upon to explain as to how such long term capital loss could be allowed set off against the assessee's income, it was submitted that the amalgamation took place w.e.f. 01-04-2012 and the Scheme of amalgamation, as approved....
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....is discernible that all the assets and liabilities of the amalgamating (transferor) company vested in the assessee-amalgamated (transferee) company, which "shall be claimed by the Transferee Company and these shall relate back to the appointed date as if the Transferee Company was originally entitled to all the benefits". It has further been provided that any exemption which was benefit by way of set off or carry forward, as the case may be, of any unabsorbed depreciation/investment allowance or "other allowance or loss" which is available to the Transferor Company shall be available to the Transferee Company. On an analysis of the relevant clauses of the Scheme, it is overt that any loss which was available to amalgamating company shall become available to the amalgamated company for necessary set off. 6. Even otherwise, the law of succession puts the successor in the shoes of the predecessor, as a result of which all the liabilities and assets of the predecessor fall upon or vest in the successor subject to the specific stipulations under the relevant statutes. The liabilities of the predecessor under the Income-tax Act, 1961 (hereinafter also called `the Act') become the obliga....
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....any. Thus, it is evident that the per se existence of the business of the amalgamating entity does not extinct in amalgamation in contrast to the business coming to an end in the winding up. It is imperative to draw a line of distinction between `business' of an entity and the `entity' itself. When the business of the entity continues despite the closure of the entity or divesting of the business, then all the obligations and privileges attached to the business of the erstwhile entity, must go along with the business in the hands of the new entity carrying on such business, save as otherwise provided under the Act. 9. Adverting to the facts of the extant case, it is seen that the amalgamating company had long term capital loss of Rs. 104.46 crore which vested in the assessee company along with all other assets and liabilities of ICSL. The assessee claimed set off of such long term capital loss of the amalgamating company, which the AO denied by relying on section 72A of the Act. 10. Section 72A with the heading: "Provisions relating to carry forward and set off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger etc.," defines the term `accumulat....
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....ch undertaking to the same extent and in respect of residual period as it would have been allowable to the amalgamating company on such amalgamation not taking place. This provision is clarificatory qua preliminary expenditure reiterating the-ever existing position of law on this score that all the benefits and privileges etc. available to the predecessor-amalgamating company pass on to the successoramalgamated company. Though sub-section (3) has been inserted w.e.f. 01-04-2000, the Pune Tribunal in Kirloskar Oil Engines Ltd. Vs. JCIT (ITA Nos. 1039 and 1040/PUN/2000) has held for the assessment years 1995-1996 and 1996-97 that the amalgamated company is entitled to deduction in respect of the residual period of expenditure on know-how incurred by the amalgamating company de hors sub-section (3) of section 35AB. 12. Similarly, the Tribunal in several decisions has held that MAT credit of the amalgamating company is to be allowed in the hands of the amalgamated company after amalgamation. The Chennai bench of the Tribunal in ACIT Vs. M/s. Caplin Point Laboratories Ltd. (ITA No.667/Mds/2013) has held, vide order dated 31-01-2014, that MAT credit is no different from the TDS credit a....
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.... that benefits, inter alia, under tax laws `shall be transferred and vest in the Transferee Company..... as if the Transferee Company was originally entitled to all benefits'. The term "the assessee" as used in sub-section (1) of section 74, which was originally referring to the amalgamating company which suffered the loss, shall now substitute the amalgamated company to be considered as the assessee entitled to set off of the brought forward long term capital loss not only because of the Scheme of amalgamation so providing but also because of the assessee becoming a successor-in-interest of such loss. Going with the phraseology of section 74, the sequitur is that the long term capital loss of the amalgamating company is available for set off in the hands of the assessee-amalgamated company. This ground is, thus, allowed. II. FRINGE BENEFIT TAX PAID IN AUSTRALIA 15. Ground No.6 of the assessee's appeal is against not allowing deduction towards Fringe Benefit Tax (FBT) paid in Australia. The facts apropos this ground are that the assessee claimed deduction of Rs. 9,84,270/- in respect of FBT paid in Australia both for the purposes of computation of income under regular provisions....
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....the Act. 18. Our view is fortified by the judgment of Hon'ble Bombay High Court in Reliance Infrastructure Ltd. Vs. CIT (2017) 390 ITR 271 (Bom.) holding that income tax paid in Saudi Arabia was allowable as deduction in computing the income under the provisions of the Act as the same was not taken benefit of by the assessee either under section 90 or 91 of the Act. This position stands accepted by the legislature as is manifest from the insertion of Explanation 1 to section 40(a)(ii) of the Act declaring: `that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.' This implies that the deduction of income tax paid outside India will be admissible if no benefit of such tax has been availed either u/s 90 or 91. 19. The assessee in the instant case has not taken any benefit of the FBT paid in Australia and further unlike section 40(a)(ic) of the Act, it is also not hit by any specific provision calling for disallowance. On a parity of the reasoning, such FBT i....
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....he relevant material on record. The AO computed the amount of foreign tax credit available to the assessee as under: Table No.1: (in Rs. ) Total claim by the assessee as per the submission made 13,05,33,028/- Less : Reduction in respect of Japan taxes: Yen 5,15,69,314 less Yen 3,55,02,000/- x conversion rate of 0.66 1,06,04,427/- Revised amount 11,99,28,601/- Less : 8.90% in respect of 10AA units 1,06,73,645/- Balance claim 10,92,54,956/- 23. The detail of foreign tax credit claimed by the assessee during the year, is as under: Table No.2: Branch Tax payable on converted income in India Amount of tax paid in foreign currency Credit available being lower of two Australia 1,14,58,119 1,87,730 1,05,94,642 Belgium 84,13,219 1,23,432 84,13,219 Canada 7,52,27,873 11,57,102 6,28,15,596 Japan 2,51,97,787 5,15,69,314 2,51,97,787 Switzerland 2,15,35,045 2,30,520 1,59,93,284 Malaysia 97,57,502 4,26,751 75,18,499 15,15,89,547 13,05,33,028 24. The assessee has given further break-up of the amount of taxes paid in Japan in the following two tables: Table No.3: Particulars Amt. JPY Remarks Eligibility for FTC Corporation t....
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....tries in respect of 10AA units in the proportion of such sale to total sales, computed at 8.90%. 28. This shows that the amount of foreign tax paid by the assessee in Japan in respect of Inhabitant tax - capital base, Enterprise tax - value added base and Enterprise tax - capital base, being, the figures emerging from Table No.3, which is the subject matter of the assessee's ground, has been allowed by the ld. CIT(A) as deduction u/s 37(1) of the Act by specifically recording in para No.53 that: "However, I find force in the alternate claim of the appellant in respect of allowing inhabitant taxes, enterprise taxes etc. paid in Japan to be allowed u/s. 37(1) of the I.T. Act". The assessee's ground No.10 is confined only to the action of the AO in not granting deduction for the foreign tax credit in respect of inhabitant tax, enterprise tax etc., paid in Japan, which amount has, in fact, been allowed by the ld. CIT(A) in the above terms. As the ld. CIT(A) has himself allowed such deduction, the ground raised by the assessee seeking the relief already allowed, becomes infructuous. The ld. AR was fair enough to accept this position. 29. Turning to the ground raised by the Revenue on ....
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....economic relations, trade and investment, or' (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be' 33. The essence of section 90 is that where India has entered into DTAA with a country, then India needs to provide relief in respect of taxes paid in the other country, depending upon the terms and conditions of the DTAA. Whereas, sub-clause (i) of section 90(1)(a) talks of granting relief in respect of income on which have been paid both income tax under this Act and income tax in the other country; sub-clause (ii) talks of granting relief in respect of income-tax chargeable under this Act and under the corresponding law in force in the other country. The Hon'ble Karnataka High Court in Wipro Ltd. (supra) considered a situation in which the assessee had claimed deduction u/s. 10A and the AO did not allow foreign tax credit paid in USA and Canada on the ground that such income was not taxed in India because of the availability of deduction u/s 10A. The Hon'ble High Court, while considering the prescription of sub-clause (ii) of section 90(1)(a), held that the same talk....
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....e excluded for allowing foreign tax credit. The Hon'ble High Court answered the question in favour of the Revenue by holding that the amount of deduction claimed u/s. 80HHB and section 35B could not be construed as 'doubly taxed income' as it did not bear any tax in India. It is pertinent to note that the judgment deals with section 91 of the Act, which specifically talks of providing relief only in respect of `doubly taxed income', which language is at variance to some extent with that of section 90(1)(a)(ii). Before deciding the issue in favour of the Revenue, the Hon'ble jurisdictional High Court also took into account the judgment in Wipro Ltd. (supra) and held the same to be not applicable inasmuch as the question before the Hon'ble Karnataka High Court was on the interpretation of section 90 and the observations made in the context of section 91 in that case were held to be obiter dicta. 36. On a comparative analysis of sections 90 and 91, it transpires that - Section 90(1) applies in the context of countries with which India has entered into DTAAs as against section 91 applying in the context of countries with which India has not entered into DTAA. - Section 90 provides....
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....e other country that the benefit of foreign tax credit shall follow. There is no further requirement, like section 91, that the income bearing foreign tax should not be deemed to accrue or arise in India. 37. Having understood the ratio of both the decisions relied by the rival parties rendered in the context of sections 90 and 91, we turn to the facts of the instant case to examine how these are placed. Table No.2 reproduced above indicates that the assessee paid foreign tax in six countries, viz., Australia, Belgium, Canada, Japan, Switzerland and Malaysia. India has entered into DTAAs with all such countries. As such, section 90 governs the allowability or otherwise of foreign tax credit in the extant case and as a corollary, section 91 goes out of reckoning, leaving the reliance of the ld. DR on Reliance Infrastructure (supra) superfluous. 38. Now we proceed to examine the availability or otherwise of the foreign tax credit in terms of section 90 of the Act in respect of the all the six countries, in seriatim. 39. The first country is Australia. Article 24 of the DTAA between India and Australia deals with elimination of double taxation. Para 4(a) of this Article provides as....
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.... Belgium. The elimination of double taxation under this DTAA is governed by section 90(1)(a)(ii) of the Act, which simply contains requirement of income-tax chargeable under this Act' and under the corresponding law in force in Belgium. There is no further stipulation of actual payment of tax in India. As the income from 10AA units arising in Belgium is chargeable to tax in India, even though it is not subjected to tax because of the deduction provided by this section, the requirement of chargeable under the Act gets fulfilled. As the assessee admittedly paid tax on such income in Belgium, fulfilling the mandate of section 90(1)(a)(ii), the DTAA provides for granting relief by India of the tax paid on such income in Belgium. However, there is a cap that such deduction shall not exceed that part of the income-tax (as computed before the deduction is given), which is attributable to the income. 43. The next country from which the assessee got foreign tax credit is Canada. Article 23 of DTAA between India and Canada deals with elimination of double taxation. Para 3(a) of the Article, dealing with India, to the extent it is relevant for our purpose, reads as under: "(a) The amount o....
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.... credit only from Belgium, Japan, Swiss and Malaysia. The foreign tax paid by the assessee in the remaining two countries, namely, Australia and Canada, does not qualify for credit. 47. The AO computed the ineligibility of foreign tax credit at 8.90% of revised amount of foreign tax credit as per Table I drawn above by considering the proportionate sales made by the 10AA units to these six countries vis-à-vis total sales of the assessee. This working made by the AO cannot be upheld because of the discussion made above about the question for consideration not being the deductibility of such income from Indian incometax, but the credit in respect of tax paid on such income in six countries. Thus, we need to find out the precise amount of foreign tax in respect of sale of 10AA units made to Australia and Canada, which cannot be allowed credit. However, such amount, though not available for credit, will be eligible for deduction u/s. 37(1) of the Act, as being not hit by section 40(a)(ia) of the Act in line with our decision on the first part of the ground raised by the Department. The taxes paid in other four countries, namely, Belgium, Japan, Swiss and Malaysia in respect of ....
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....ating to certain companies. Sub-section (2) provides that where any amount of tax is paid u/s. 115JA by an assessee, being, a company for an assessment year, then credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this Act. Because of the assessee-amalgamated company stepping into the shoes of the amalgamating company, it will satisfy the requirement of allowing credit to `him' in accordance with the provisions of this section. The above position of allowing MAT credit of the amalgamating company in the hands of the amalgamated company seems to have been accepted by the legislature when we read sub-section (7) of section 115JAA containing a specific prohibition, which provides that: "In case of conversion of a private company or unlisted public company into a limited liability partnership under the Limited Liability Partnership Act, 2008 (6 of 2009), the provisions of this section shall not apply to the successor limited liability partnership." This provision indicates that the Parliament wanted to restrict the allowing of MAT credit to the successor only on conversion of a company into LLP and not any other case of succession, including t....
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....he Revenue's appeal is against the direction of the ld. CIT(A) to allow deduction u/s. 10AA in respect of Pune unit without appreciating the fact that such deduction was not claimed in the original return of income but was claimed in the revised return of income and further Form No. 56F was uploaded at the time of filing of the revised return. 55. The facts of this ground are that the AO did not allow deduction u/s. 10AA in respect of three units of the amalgamating company, which issue has been discussed above. He gave another reason for making the disallowance in respect of Pune unit, which is subject matter of the instant ground. Such other reason for making disallowance was that the assessee did not claim deduction u/s. 10AA in respect of this unit in the original return. The assessee claimed deduction of Rs. 5,23,54,148/- in respect of such unit only in the revised return and further Form No.56F was also uploaded at the time of filing of the revised return. The ld. CIT(A) overturned the assessment order on this score. 56. It is seen that an additional reason given by the AO for not allowing deduction u/s. 10AA in respect of the Pune unit is that such deduction was not claime....
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....profit of Rs. 7,38,72,275/-. Applying the provisions of section 10AA(9) r.w.s.80IA(10), he held that the amount of deduction u/s. 10AA was to be reduced to this extent. The ld. CIT(A) overturned the assessment order by relying on the orders passed for earlier years. 58. The provisions of section 10AA(9) r.w.s.80IA(10) can obviously be applied by the AO, but, before that it is incumbent upon him to demonstrate that the assessee derived higher profit on account of its arrangement with the Associated Enterprises in such a manner that the same produced more than the ordinary profit. Without doing so, the AO cannot make addition by taking note of section 10AA(9) of the Act. Since the AO has simply compared the profit margin of the assessee from the transactions with the AE and that earned by the comparables, it cannot be said that the mandate of section 10AA(9) r.w.s.80IA(5) is fulfilled because the AO has not proved any arrangement with its AEs so as to produce more than ordinary profits in the hands of the assessee. It is further seen as an admitted position that similar issue came up for consideration before the Tribunal in assessee's own case for immediately preceding assessment ye....
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....he ld. CIT(A) on this score. Following the same, we dismiss the grounds raised both by the assessee as well as the Revenue. 63. Ground No.3 of the assessee's appeal is against the decision of the ld. CIT(A) on deputation of technical manpower (DTM). The AO did not allow deduction u/s. 10AA on on-site/deputation of technical manpower software services which resulted in reduction of deduction by Rs. 88,56,874/-. The AO, following his order for earlier years, reduced the amount of deduction accordingly. Similar course of action was adopted by the ld. CIT(A) as well. 64. Having regard to the facts of the instant case, we find that this issue is no more res integra in view of the decision taken by the Tribunal in the immediately preceding assessment year, in which the assessee has been entitled to deduction u/s. 10AA on the amount of profit on on-site/deputation of technical manpower services. Following the same, we overturn the impugned order on this score. This ground is allowed. 65. Ground No.4 of the assessee's appeal is against allocation of interest expenditure of Rs. 71,95,967/- to section 10AA undertakings for the purpose of computing deduction under this section. The assesse....
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....rofits. However, the onus is on the assessee to correlate the amount of provision created in the earlier year by the erstwhile ICSL and not claimed as deduction with the amount of provision written back during the year under consideration by the assessee. The ld. AR submitted that all the necessary details are available and the matter may be considered by the AO. In such circumstances, we direct the AO to examine such details which the assessee is now proposing to file to prove its case and then decide accordingly in terms of the discussion made above. 70. Ground No.8 of the assessee's appeal is against the confirmation of disallowance of Rs. 71,65,523/- out of Finance Lease charges. The assessee claimed deduction of Rs. 2,58,58,545/- on account of finance lease charged paid. During the course of assessment proceedings, the AO observed that a sum of Rs. 71,65,523/- was credited to the said account against the narration "re-class during the year". The nature of reclassification was not explained. The AO allowed deduction towards lease rentals for a sum of Rs. 1,86,93,022/- as against Rs. 2.58 crore claimed by the assessee, thereby reducing the claim to the extent of re-classed amou....
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....ance has to be restricted to the extent of exempt income of Rs. 9,80,400/-. As the assessee has suo motu offered disallowance of Rs. 1,72,539/-, we sustain the further disallowance at Rs. 8,07,861/- (Rs. 9,80,400 - Rs. 1,72,539). This ground is, therefore, partly allowed. 75. Ground No. 7 of the Revenue's appeal is against allowing depreciation of Rs. 19,84,571/- on goodwill. The AO, following his order for earlier years, disallowed the amount of depreciation on goodwill. The ld. CIT(A) allowed the same. 76. It is seen that this issue came up for consideration before the Tribunal in assessee's own case for the A.Y. 2011-12. Copy of such order has been placed on record. Relevant discussion has been made at para 18 onwards of the order, in which the matter has been restored to the AO with certain directions. Similar view has been followed by the Tribunal in the immediately preceding assessment year, namely, 2012-13 by remitting the matter to the file of the AO for deciding it in conformity with the guidelines laid down by the Tribunal in earlier years. We also take similar view and send the matter to the file of the AO for deciding this issue in conformity with the directions given....