AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (8) TMI 1371
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....t') at Rs. 7,08,45,55,209/-. Thereafter, the 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....
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....ng through the approved Scheme of amalgamation, it 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 ....
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....gamating company is now continued by the amalgamated company. 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 i....
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.... entitled to claim deduction under the section in respect of such 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 ....
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....lgamation as approved by the Hon'ble High Court specifically declares 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....
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.... paid in Australia is eligible for deduction under the normal provisions of 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 speci....
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....unal on their respective stands. 22. We have heard both the sides and gone through the 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....
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....d as foreign tax credit. 27. The second constituent of the foreign tax credit not allowed by the AO is Rs. 1.07 crore (Rs. 2.13 crore minus Rs. 1.06 crore), which is the proportionate amount of tax paid by the assessee in the six countries as noted in Table No.2 towards the sales made to such countries 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 fac....
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.... in respect of- (i) income on which have been paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country or specified territory, as the case may be, to promote mutual 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 situatio....
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....for taxes paid in the countries with which it has not entered into any DTAA on doubly taxed income. We find that the second question before the Hon'ble Bombay High Court was whether the Tribunal was right in holding that the sum of Rs. 47,30,951/-, being, the amount deducted u/s. 80HHB and Rs. 5,59,919/-, being, weighted deduction allowed u/s. 35B were to be 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....
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....ruing or arising in India, that it will be eligible for credit for tax paid in foreign country. On the other hand, Section 90 is more liberal in terms of granting foreign tax credit and does not require the income to be exclusively accruing or arising in foreign country. It simply states that where income is either taxed in both the countries or chargeable to tax in India and also in the 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 ....
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....f para 2(a) of Article 23 between India and Belgium indicates that the elimination of the tax paid in Belgium is contemplated in India. It calls upon India to allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in Belgium. There is no further requirement, like the DTAA between India and Australia seen above, that the income should be subjected to tax both in India and 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....
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.... and Belgium. Thus, the credit for taxes paid by the assessee in Japan, Swiss Federation and Malaysia is eligible for credit subject to the limitation of such relief not exceeding that part of the tax (as computed before the deduction is given) which is attributable to the income which is taxed in Japan, Swiss and Malaysia. 46. It can thus be seen that out of tax paid by the assessee in six countries, it is entitled to foreign tax 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....
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....ding that credit for minimum alternate tax shall be claimed by the Transferee company, there remains no doubt whatsoever that MAT credit of the amalgamating company has to be allowed in the hands of the amalgamated company. 51. Now, we will examine if the Act contains any restriction on the allowability of the MAT credit in the hands of the amalgamating company. Section 115JAA deals with tax credit in respect of tax paid on deemed income relating 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 conve....
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....ng that the erstwhile 3 units of the amalgamating company were newly established units and hence, eligible for deduction u/s. 10AA, we do not find any infirmity in the impugned order in granting such deduction in the hands of the assessee, as the very foundation, being, the three units were not newly established, does not exist in view of the orders passed by the Tribunal in earlier years in the hands of the amalgamating company. 54. Ground No.4 of the 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 i....
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....0IA(10) of the Act. The facts apropos this issue are that the assessee declared margin of 17.80% on sales to the Associated Enterprises. While determining the ALP, the assessee chose certain comparables giving average margin of 11.72%. The AO held that the assessee earned excess margin of profit on such software sales at 6.80% (17.80% - 11.72%). By applying such excess percentage of margin to the sale made by the assessee to its AEs, he worked out the excess 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 th....
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....t exclude this amount from the export as well as total turnover. The AO excluded it only from export turnover. The ld. CIT(A) directed its exclusion from both the export as well as total turnover. Both the sides have come up in appeal against the impugned order on this issue. 62. It is seen that similar issue came up for consideration before the Tribunal in assessee's own case for the immediately preceding assessment year. The Tribunal has upheld the view taken by the 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....
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....e has lodged a clam for deduction of a sum of Rs. 28,20,289/- on the ground that it was a write back of the provision created by the erstwhile ICSL which was not claimed as deduction in the computation of total income as well as computation of book profit u/s. 115JB of the Act at the time of its creation in the respective years. If that is a fact, then, in principle, its reversal during the year under consideration, obviously, cannot be included in the total income as well as book profits. 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 clai....
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....(Del) has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) 90 CCH 081-Del-HC. More recently the Hon'ble jurisdictional High Court in Pr. CIT VS. Kohinoor Projects Pvt. Ltd. (2020) 425 ITR 700 (Bom) has held that in the absence of any exempt income, there cannot be any disallowance of expenses u/s 14A of the Act. Thus the disallowance 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....