TaxTMI 
TaxTMI 
2023 (7) TMI 342
X X X X Extracts X X X X
X X X X Extracts X X X X
....come Tax (Appeals)- 28, Delhi, ('CIT(A)-28'), has erred on the facts as well as in law while holding that: - 1.1 The Foreign Exchange Loss of Rs. 11,72,81,379/- was: (a) A Contingent Liability, (b) Incurred on Capital Account, (c) Liable to be reduced from cost of asset. 1.2 That on facts and in law the AO erred in holding that the Foreign Exchange Gain could not be set off against Foreign Exchange Loss. 2. That on the facts and in the circumstances of the case and in law, the Appellant denies its liability to be assessed at a book profit of Rs. 1,25,89,57,239/- under section 115JB of the Act. 2.1 That on the facts and in the circumstances of the case and in law, the Assessing Officer ought to have held that the book profits were to arrive at after reducing a sum of Rs. 44,40,47,384/- in terms of cause (iii) of the Explanation below subsection (2) of section 115JB, based on consolidated amount of brought forward loss and unabsorbed depreciation as reflected in the books of accounts." 3. At the outset, Ld. Counsel for the assessee submits that ground no.2 and 2.1 of the grounds of appeal are not pressed. In view of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and took loan to part finance commencement of Air line operations and the amount was borrowed for the purpose of meeting working capital requirement. Part of the loan was utilized towards deposits for operating lease of aircrafts and the other part was utilized towards other expenses. Assessee contended that during the year the loan was repaid with interest to Royal Holdings Services Ltd. on 23.11.2010 and furnished copy of ECB return submitted to RBI to HSBC Bank Limited. In so far as the FCCB are concerned the assessee contended that the bonds were initially used for financing non-refundable pre-delivery payments for acquisition of 10 aircrafts. Assessee made an offer through an offer letter dated 07.12.2005 for issue of US dollars, 80 million 0 coupon secured convertible bonds due for redemption in 2010 comprising of 800 bonds at the issue price of US dollars 1,00,000/- per bond to the foreign investors and the proceeds were utilized towards advance payment for acquisition of 10 aircrafts. Assessee submitted that after obtaining the possession of 8 aircrafts out of 10 upto September, 2007 were sold to the lessors and taken back on operating leases. The remaining two aircrafts we....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee. Thus, we restore ground no. 1 and 1.2 of grounds of appeal of the assessee to the file of the Assessing Officer for deciding afresh in accordance with law. 11. Coming to Revenue's appeal (ITA No.5153/Del/2016), AY 2011-12, the only ground is whether the Ld.CIT(Appeals) was right in deleting the addition in respect of supplemental lease rent amounting to Rs. 168,72,51,723/- made by the AO u/s 40(a)(i) of the Act. 12. Briefly stated the facts are that the Assessing Officer noticed that assessee company debited an amount of Rs. 168,72,51,723/- under the head "supplementary rent" in its profit and loss account which has been paid to foreign companies/entities from whom the assessee acquired aircrafts on lease. The assessee was required to give details and also explain its position regarding deduction of tax at source from these payments. The assessee contended that maintenance reserve is in the nature of supplemental rent paid by the assessee on monthly basis in addition to the basic lease rental for the aircraft and is part of lease rent. It was submitted that one way of fixing the lease rent could be one consolidated lease rent payable per month in respect of total cos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or non- deduction of tax at source in respect of the supplemental rent/maintenance reserve paid for the aircrafts taken on lease prior to 01.04.2007. 14. Further the Assessing Officer in so far as the supplemental lease rent paid by the assessee in terms of the lease agreements entered into on or after 01.04.2007 amounting to Rs. 84,64,61,731/- is concerned the same was treated as royalty as per Article 12 of Indo Ireland DTAA. The AO also held that as per the provisions of DTAA the receipt of royalty would be taxable in the contracting state of residence i.e. Ireland and hence no TDS would be liable in India. 15. On appeal the Ld.CIT(A) deleted the disallowance made u/s 40(a)(ia) of the Act following the decision of the Hon'ble Delhi High Court in the case of Jet Lite (India) Ltd. vs. DCIT, wherein the Hon'ble Delhi High Court affirmed the order of the Tribunal in the case of Sahara Airlines Ltd. vs. DCIT [83 ITD 11], in so far as the lease agreements entered into by the assessee prior to 01.04.2007 are concerned. Accordingly, the disallowance to the extent of Rs. 84,07,89,542/- was deleted. 16. Coming to the lease agreements entered into on or after 01.04.2007 and the pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the Tribunal by order dated 28.12.2022 decided the issue in favour of the assessee holding that supplemental rent/maintenance reserve would be exempt from tax in the hands of lesser in India as per Section 10(15A) of the Act and hence, no disallowance u/s 40(a)(ia) can be made observing as under: - "36. In ground no. 3(a), the revenue has challenged deletion of addition of Rs. 26,22,21,942/- made under section 40(a)(i). 37. Briefly the facts are, in course of assessment proceeding the Assessing Officer noticed that the assessee had debited various expenses amounting to Rs. 28,55,97,487/- under the head aircraft maintenance cost. After calling for necessary details and examining them the Assessing Officer found that an amount of Rs. 26.88 crores was paid towards supplemental lease rent to the lessor of the aircrafts. He observed, the supplemental rent is towards usage of life limited parts of auxiliary power unit, and part of engines which are not covered by the approval of CBDT under section 10(15A). Alleging that the asses see had failed to deduct tax at source while making the payment, the Assessing Officer disallowed the amount under section 40(a)(i) of the Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....since, the supplemental rent was determined taking into consideration a number of flying hours and had character of basic rent, said payment would be exempt from tax in the hands of lessor in India as per section 10(15A) of the Act, hence, no disallowance under section 40(a)(i) can be made. The aforesaid decision of the Special Bench of the Tribunal clinches the issue in favour of the assessee: Therefore, no disallowance under section 40(a)(i) can be made in respect of supplemental rent of Rs. 26.88 crores." 21. We further observe that the Special Bench of the Delhi Tribunal in the case of Inter Globe Aviation Ltd. (Indigo) vs. Addl. CIT (supra) considered the lease rental pursuant to agreements executed after 01.04.2007 and its chargeability to tax in the hands of lesser under Article 12 of DTAA between India and Ireland and the Special Bench held that supplementary rent paid for lease agreements executed after 01.04.2007 are not chargeable to tax in India. While holding so the Special Bench observed as under: - "42. For Lease Agreements executed after 1st April, 2007, a claim was made by the assessee before 1 'Mower authorities that the income is not chargeable to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....film or films or tapes for radio or television broadcasting, patent, trade mark, design or model, plan, secret formula or process or for the use of or the r to use industrial, commercial or scientific equipment, other than an aircraft, or for information concerning industrial, commercial or scientific experience; (b) The term "fees for technical services" means payment of any kind in consideration for rendering of any managerial, technical or consultancy services including the provision services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention." 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Article 8(1) reads as under: "Profits derived by an enterprise of a contractor state from the operation of rental of ships or aircraft in international traffic and the rental of containers and related equipment which is incidental to the * operation of ships or aircraft in international traffic shall be taxable only in that contractor State." 42.3 This Article states that profits from rental of Aircrafts is taxable only in state of residence of Lessor. We, therefore, find merit in the arguments of the Learned Senior Counsel for the Assessee that as per Articles 12 and 8 of the Tax Treaty with Ireland, profits derived by an enterprise of a contracting State from rental of Aircraft are taxable "only" in Ireland. Supplementary Rent of Rs. 276,28,59.821/- paid for Lease Agreements executed after 1-4-2007 are, therefore, not chargeable to tax in India. However, the above figure is subject to verification by the A.O." 22. In view of the above, respectfully following the decision of the coordinate bench of the Tribunal in assessee's own case and also the decision of the Special Bench of Delhi Tribunal in the case of Inter Globe Aviation Ltd. (Indigo) vs. Addl. CIT (su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i.e. 2012-13. We ordered accordingly. 27. The last ground of appeal in the appeal of the Revenue is directed against deletion of disallowance on account of interest paid on late deposit of service tax and VAT u/s 37(1) of the Act. 28. Brief facts are that in the course of assessment proceedings the Assessing Officer noted that interest paid on late deposit of service tax and VAT amounting to Rs. 78,68,958/- has not been added back. The assessee contended that the interest on late deposit of service tax and VAT was compensatory in nature and, therefore, is an allowable deduction. However, the Assessing Officer denied the claim observing that assessee has not furnished any documentary evidence or any details/explanation to show that the interest payment was indeed compensatory in nature and was not because of any breach of law. 29. On appeal the Ld.CIT(A) deleted the disallowance to the extent of Rs. 76,52,276/- as the assessee was able to substantiate the nature of interest expenditure as compensatory in nature. 30. Before us the Ld.DR supported the orders of the Assessing Officer and the Ld. Counsel placed reliance on the orders of the Ld.CIT(Appeals). 31. On perusal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ase of a service provider, whose value of tax services provided in a financial year does not exceed sixty lakh rupees during any of the financial years covered by the notice or during the last preceding financial year, as the case may be, such rate of interest, shall be reduced by three per cent per annum. " 11. The facts of the case and the material available on record has been considered. It is observed that the AO has made a total disallowance Rs. 78,68,958/-. Out of this during the course of appellate proceedings, the appellant was able to substantiate the nature of interest expenditure only vis-à-vis delay in payment of service tax of Rs. 76,52,276/-. As regards, the balance amount of Rs. 2,16,682/-, no details or other relevant facts have been submitted by the appellant in order to demonstrate whether the nature of interest is compensatory or penal. Since the appellant has not been able to substantiate claim for deduction of interest expense of Rs. 2,16,682/-, therefore, disallowance to this extent is upheld. 12. As regards, interest payment on delay in payment of service tax, from the perusal of service tax returns furnished by the appellant, it is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e by the AO to the extent of Rs. 76,52,276/- is deleted. As a result ground No.6 s partly allowed." 32. On careful perusal of the Ld.CIT(Appeals), we observe that the disallowance was deleted on appreciation of facts and the evidences on record and also applying the decision of the Mumbai Bench in the case of Sri Radha Krishna Shipping Ltd. (supra), wherein it has been held that interest on account of delay in payment of service tax is allowable as deduction u/s 37(1) of the Act. Thus, we see no infirmity in the order passed by the Ld.CIT(A). Ground no.3 of the Revenue appeal is rejected. ITA No.668/Del/2022 (AY 2015-16) (Assessee's appeal) : 33. The assessee has raised the following grounds: - 1. "That on facts and in law, the CIT(A) has erred in upholding disallowance of Rs. 13,00,37,516/- being Loss incurred on account of Foreign Exchange Fluctuation. 1.1 That on facts and in law, the AO/CIT(A) have erred in holding/observing that: a) Foreign Exchange Loss is notional and not actualized. b) Forex Loss has been incurred on Capital Account. c) Appellant has not been able to give working of Loss claimed. 2. Without prej....