TaxTMI 
TaxTMI 
2022 (9) TMI 1577
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.... 14A as per Rule 8D at Rs. 3,64,31,158/ b) The learned CIT (A) ought to have considered the appellant's submission that the expression "in relation to means u/s 14A dominant and immediate connection, as has been judicially defined by the Supreme Court in the case of H.H. Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur of Gwalior & Others v UOI (1971) 1 SCC 85, and appellant had not incurred any expenditure in relation to exempt income. c) The disallowance upheld by learned CIT (A) is unjustifiable and must be quashed. 2. EXPENDITURE ON REFURBISHMENT OF PREMISES AND SOFTWARE - 14,91,98,977/- (Pages 15 to 21 of CIT(A)'s order) a) The learned CIT (A) erred in estimating 25% of the expenditure incurred on refurbishment of leasehold premises as capital in nature. Accordingly, expenditure of Rs. 1,77,56,417/- was disallowed as capital expenditure on which depreciation at the eligible rate was allowed. b) The learned CIT(A) further erred in confirming the disallowance of expenditure incurred on Software Development expenses made by the Assessing Officer aggregating to Rs. 13,14,42,560/- by treating the same as capital in nature. c) The disallowance upheld by lear....
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.... that in spite of the fact that companies have earned book profits and have paid handsome dividends, no tax has been paid by them to the exchequer. In case of the Branch-PE of a foreign company, the question of payment of dividends out of book profits does not arise. For this reason also, the provisions of Section 115JA are not intended to apply to Branch-PE of foreign companies, which are governed by the tax treaty provisions. * Since the section provides for presumptive rate of profits, which is not beneficial to the Appellant, due to its carried forward losses and which, therefore has to be disregarded in view of the provisions contained in section 90(2) of the Act c) The contention upheld by learned CIT (A) is unjustifiable and must be quashed. 4. DENIAL FOR DEDUCTION OF HEAD OFFICE EXPENDITURE OF Rs. 23,28,71,503/- IN ENTIRETY AND RESTRCITING THE CLAIM TO Rs. 2,43,70,712 u/s. 44C (Page 23 of CIT(A)' order) a) The learned CIT(A) erred in holding that the claim of the appellant for allowing Head Office Expenditure of Rs 23,28,71,503/- in entirety without taking recourse to section 44C cannot be accepted since appellant has not filed revised return for such claim. b....
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....CIT 229 ITR 383 (SC), we admit the said additional grounds of appeal. 7. At the outset, Ld. AR of the assessee with regard to original Ground No. 1 which is in respect of tax free interest and proportionate expenses disallowed for an amount of Rs..3,64,31,158/- brought to our notice Para No. 6.1 of the Assessment Order and Para No. 4.3.0 to 4.3.2 of Ld.CIT(A) order, he submitted that assessee has own funds and interest free funds are far more than the investments and no borrowed funds were utilized for the purpose of investment. Ld. AR further brought to our notice that similar ground which assessee has raised before the Coordinate Bench in ITA.No. 7891 and 9229/Mum/2014 for the A.Y. 1997-98 and the Coordinate Bench has considered and adjudicated the issue in favour of the assessee. Copy of the order is placed on record. 8. Ld. DR fairly agreed that the issue is covered in favour of the assessee. 9. Considered the rival submissions and material placed on record, we observe that similar issue was considered and adjudicated by the Coordinate Bench in assessee's own case for the A.Y. 1997-98 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held....
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..... Ld. AR relying on the following case laws prayed that the above expenses be disallowed: - Refurbishment: (i). Madras Auto Service Pvt. Ltd., [233 ITR 468 (SC) (ii). R.B Bansilal Abirchand Spg & Weaving Mills vs. CIT 31 ITR 427 (Nagpur- HC) (iii). CIT vs. Rex Talkies (18 Taxman 363 (Karnataka - HC) (iv). CIT vs. Oxford University Press 108 ITR 166 (Bom - HC) (v). ACIT vs. India United Mills Ltd (8 Taxman 182) (Bom - HC) (vi). Empire Jute Co. Ltd - 124 ITR 1 (SC) (vii). Tea Estate (P) Ltd. - 198 ITR 535 (Cal) (viii). Nila Products - 148 ITR 99 (Bom) (ix). Bhagat Industries Corporation - 126 ITR 645 (P&H) (x). Girdhari Dass & Sons - 105 ITR 339 (All) (xi). Assam Bengal Cement Co Ltd. - 27 ITR 34 (SC) (xii). Ooty Dasaprakash - 237 ITR 902 (Mad) (xiii). B and A Plantation and Industries - 242 ITR 22 (Gau) (xiv). HEDE Consultancy P Ltd. - 258 ITR 380 (Bom) Software: (xv). CIT vs. Raychem RPG Ltd. 346 ITR 138 (Bom) 12. Ld.DR relied on the orders of the Assessing Officer. 13. Considered the rival submissions and material placed on record, we observed that Hon'ble Supreme Court in the case of Madras Auto Services Pvt. Ltd., (supra) on similar issue....
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....construction of a new building is in the nature of business expenditure for proper carrying on of the business of the assessee. The Tribunal has, therefore, treated these amounts as revenue expenditure and allowed a deduction in that regard to the assessee. The claim of the department that the expenditure was capital expenditure and was, therefore, not deductible was negatived by the Tribunal. On the application of the department the Tribunal referred the following question to the High Court for its determination under Section 256(1) of the Income-tax Act, 1961 : "Whether on the fact and in the circumstances of the case the Appellate Tribunal was right in holding that the building expenses of Rs. 1,62,835/- are not liable to be taken into account as deductible expenditure in arriving at the real income of the assessee fro the assessment year 1968-69?" For the next assessment year, a similar question was raised in regard to the second sum of Rs. 50,937/-. The High Court has, by the impugned judgment, upheld the view of the Tribunal and has held that the two amounts constitute revenue expenditure for the concerned assessment years and are deductible in order to arrive at the in....
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....lime-stone quarries for a period of 20 years for the purpose of manufacture of cement. The lessee had, inter alia, agreed to pay an annual sum during the whole period of the lease as a protection fee and in consideration of that payment, the lessor undertook not to grant to any person any lease, permit or prospecting licence for lime-stone. This Court examined tests laid down in various cases for distinguishing between capital expenditure and revenue expenditure. One of the standard tests now in use was laid down in the case of Atherton v. British Insulated and Helsby Cables Ltd. ([1925] 10 Tax. Cases 155). It said : "When an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capita." Whether by spending the money any advantage of an enduring nature has been obtained or not will depend upon the facts of each case. Moreover, as the above passage itself provides, this test would not apply if t....
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....tter carrying on of the business of the assessee and could be allowed as revenue expenditure, looking to the circumstances of each of those cases. Thus in Lakshmiji Sugar Mills Co. P. Ltd. v. Commissioner of Income-tax, New Delhi (82 ITR 376) the assessee company was carrying on the business of manufacture and sale of sugar. It paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between various sugarcane-producing centres and the sugar factories of the assessee. The roads remained the property of the Government. This Court held that the expenditure was not of a capital nature and had to be allowed as an admissible deduction in computing the profits of the assessee's business. The expenditure was incurred for the purpose of facilitating the running of the assessee's motor vehicles and other means employed for transportation of sugarcane to its factories. In the case of L.H. Sugar Factory and Oils Mills (P) Ltd. v. Commissioner of Income-tax, U.P. (125 ITR 293), the assesee was carrying on the business of manufacture and sale of sugar. It has its factory in U.P. The assessee paid a contribution towards me....
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....e kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expense has been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but t he assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure. In the premises, the appeals are dismissed with costs." 14. Respectfully following the above said decision, we allow ground No.2 raised by the assessee. 15. With regard to Ground No. 3 which is in respect of taxability u/s. 115JA of the Act, Ld. AR brought to our notice that similar ground has been raised before the Coordinat....
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....of business profit directly attributable to Bank's branches in India. Whereas, what section 115JA of the Act seeks to tax is nothing but the profits derived by the assessee shown in the Profit & Loss Account in respect of Indian branches. Thus, ultimately, he held that the assessee is liable to pay tax under section 115JA of the Act and computed the tax accordingly under the said provision. The assessee challenged the aforesaid decision of the Assessing Officer before the first appellate authority. 5. Learned Commissioner (Appeals) after considering the submissions of the assessee did not find merit in them. Relying upon a decision of the Authority for Advance Ruling reported in 234 ITR 335, he held that the provisions of section 115JA of the Act would apply to a non-resident company. Accordingly, he upheld the decision of the Assessing Officer insofar as applicability of section 115JA of the Act is concerned. 6. Learned Sr. Counsel for the assessee drawing our attention to the provisions contained under section 115JA of the Act submitted, as per sub-section (2) of section 115JA of the Act, the companies whose Profit & Loss Account is prepared in accordance with the provisions ....
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....der the Banking Regulations Act, 1949. Section 115JA of the Act provides for computation of total income chargeable to tax to be an amount equal to 30% of the book profit in case such income is less than 30% of the book profit. However, sub- section (2) of section 115JA of the Act mandates that the company for the purpose of section 115JA of the Act has to prepare its Profit & Loss Account in accordance with the provisions of Part-II & III of Schedule- VI of the Companies Act, 1956. Undisputedly, the assessee being governed under the Banking Regulations Act, 1949, is not required to prepare its Profit & Loss Account under the provisions of Part-II & III of Schedule-VI of the Companies Act, 1956. That being the case, the provisions of section 115JA of the Act are not applicable to the assessee. The Tribunal, Mumbai Bench, in Krung Thai Bank (supra) has held that the provisions of section 115JB of the Act, which is more or less pari- materia to section 115JA of the Act, can only come into play when the assessee is required to prepare its Profit & Loss Account in accordance with the provisions of Part-II & III of Schedule-VI of the Companies Act, 1956. It was observed by the Branch th....
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....um) - Sec 44C (vi). Rolls Royce Industrial Power Ltd v. ACIT - 42 SOT 264 (Del) - Sec 44AD -UK Treaty DaimlerChrysler India - 29 SOT 502 (Pune) - Sec 79 OTHER CASES-COVERED IN FAVOUR (vii). Citibank N. A. v. ACIT ITA Nos. 5275 & 5276/Mum/2001 (at para 30) (Mum) - Sec 40(a)(i) (viii). DCIT v. Lazard India (P.) Ltd - 41 SOT 72 (Mum) - Sec 40(a)(i) (ix). Central Bank of India v. DCIT - 42 SOT 450 (Mum) - Sec 40(a)(i) (x). B4U International Holdings Ltd v. DCIT - 21 taxmann.com 529 (Mum) - Sec 40(a)(i) (xi). Sandoz (P.) Ltd v. ACIT - 34 taxmann.com 280 (Mum) - Sec 40(a)(i) 20. Ld. DR relied on the orders of the lower authorities. 21. Considered the rival submissions and material placed on record, we observe that Coordinate Bench in the case of Metchem Canada Inc., v. DCIT (supra) considered the similar issue and adjudicated in favour of the assessee. While deciding the issue, the Coordinate Bench held as under:- "3. We have heard the rival contentions, perused the material on record, and duly considered factual matrix of the case as also the applicable legal position. 4. We may, first of all, reproduce the relevant extracts from the provisions of arts. 7 and 24 of ....
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...., no account shall be taken in the determination of the profits of a PE, for amounts charged (otherwise than towards reimbursement of actual expenses), by the PE to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices. Article 24 - Non-discrimination 2. The taxation on a PE which an enterprise of a Contracting State has in the other Contracting State shall not be less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities. 5. The core issue, as we have noted earlier as well, is whether or not the limitation on deduction of head office expenditure, as set out in Section 44C of the Indian IT Act, will apply in the case of nonresident companies governed by the India Canada DTAA, particularly in the light of non-discrimination clause in the said DTAA. ....
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....duction is to be allowed without any restriction other than those imposed on the resident enterprise. This makes two things clear-(a) that the restriction on admissibility of expenditure in accordance with the domestic law is, according to the OECD Commentary, is in respect of the normal business expenditure incurred by the PE; and (b) that the deduction on account of overheads of the head office is to be allowed without placing any restriction on such deduction save and except such restrictions as may also be placed on the resident enterprises. As the provisions of Article 24(2) of Indo-Canadian DTAA and of the provisions of Article 24(3) of the OECD Model Convention are in pari materia, the OECD Model Convention Commentary has a key role in determining the scope and connotations of art 24(2) of the Indo Canadian DTAA. Hon'ble Andhra Pradesh High Court in the case of CIT v. Vishakhapatnam Port Trust (1983) 144 ITR 146 (AP), referred to the OECD Commentary on the technical expressions and the clauses in the model conventions, and referred to, with approval, Lord Redcliffe's observation in Ostime v. Australian Mutual Provident Society (1960) 39 ITR 210, 219 (HL) which have d....
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....t such a PE visa-vis a domestic Indian entity because no such restriction is applicable for deduction of head office or controlling office overheads of an Indian entity. It puts PE of a Canadian company to an unfair disadvantage inasmuch as even legitimate business expenses attributable to the PE and deductible under Section 37(1) cannot be allowed as a deduction in the light of restriction placed under Section 44C of the Act, whereas all the legitimate business expenses of the Indian entity operating in India will be allowed as a deduction. The scope of deduction under Section 37(1) thus stands curtailed for PE of a Canadian company. 7. In the Indo-Canadian DTAA, arts. 24 to 28 are clubbed together under Chapter VI titled "specific provisions", whereas the provisions of arts. 6 to 21 are contained in Chapter III titled "taxation of income". It is thus clear that the provisions of Article 24 are specific provisions whereas the provisions of Article 7 are in the nature of general provisions. While taxation of business profits under Article 7 refers to the general principles on the basis of which the business profits are to be computed, Article 24(2) refers to the specific provisio....
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....office expenses cannot be allowed at all for want of verification of expenses. We see no substance in this plea either. In the case of CIT v. Deutsche Bank AG (IT Ref. No. 139 of 1997, judgment dt. 24th July, 2003), upholding the action of this Tribunal, Hon'ble Bombay High Court held that in a case where Section 44C is held to be not applicable, the head office expenditure was allowable under Section 37(1) of the Act and that Section 44C puts a ceiling on the deduction of head office expenditure. Whatever be the object of the said section, it is clear that it is in the nature of a disabling provision which puts a ceiling on the admissibility of a deduction. It does constitute a restriction-and a restriction which is not similarly placed for a domestic enterprise. The head office expenses, to the extent the same can be fairly allocated to the PE, are admissible as deduction under Section 37(1) and this is so held by the Hon'ble jurisdictional High Court in Deutsche Bank's case (supra). 9. We have noted that the CIT(A) has, in the asst. yrs. 1994-95 and 1996-97 restored the matter to the file of the AO for examining the claim of expenditure as attributable to the PE in....
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....ing issue: Whether the interest payable to the assessee under Section 244A of the I.T. Act, on the tax refundable in the proceedings under Section 143(1)(a) of the Act, accrued to the assessee in the year of its receipt or in the year in which the proceedings under Section 143(1)(a) attained finality 2. This Bench has been constituted because of the cleavage of opinion between the Benches at Mumbai. In the case of Saffron Trading Co. Pvt. Ltd., "G" Bench of the Tribunal at Mumbai, took the view that the income by way of interest under Section 244A of the Income-tax Act, 1961 (Act) is assessable in the year in which it was received by the assessee. On the other hand, the Tribunal Benches at Mumbai in the case of Shrusti Trading Pvt. Ltd. and in the case of Swarna Trading Pvt. Ltd. has held that right to receive interest under Section 244A is contingent till the assessment is made under Section 143(3) of the Act or the period when limitation for taking action under Section 143(2) is expired. In view of such difference of opinion, the reference was made to the Hon'ble President. Hence, the Hon'ble President referred the issue mentioned above for the consideration of the Sp....
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....ued or received as the case may be. The issue regarding accrual of income is concluded by the judgment of the Hon'ble Supreme Court in the case of E.D. Sassoon & Co. Ltd. v. CIT , wherein it has been held that income accrues when right to receive is acquired and such right can be said to have been acquired when an enforceable debt is created in favour of the assessee. This legal position has been applied by the Courts including the Apex Court in various cases. 8. Let us now look at the relevant provisions of Section 244A of the Act which for the benefit of this order are stated below: 244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of his Section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:-- (a) Where the refund is out of any tax paid under Section 115WJ or collected at source under Section 206C or paid by way of advance tax or treated as paid under Section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-half per cent for every month or part of a ....
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....r the reasons given hereafter. According to the dictionary meaning, a right or an obligation can be said to be contingent when such right or obligation is dependent on something not yet certain. According to Section 244A, the only condition for grant of interest is that there must be a refund due to assessee under any provision of the Act. There is no other condition in the said provision affecting such right. Therefore, the moment a refund becomes due to assessee, an enforceable debt is created in favour of assessee and assessee acquires a right to receive the interest. Sub-section (3) of Section 244A only affects its quantification under certain circumstances and not the right of interest. The Hon'ble Supreme Court in the case of CIT v. Shri Goverdhan Ltd. , has observed at page 681 that once a debt is created, then the liability cannot be said to be contingent merely because it is to be quantified at later date. Under Section 244A, even the interest is quantified immediately whenever a refund is issued. In our view, the right to grant interest is absolute since existence of such right is not dependent on any event. For example, assessee is granted interest of Rs. 1,000 on th....
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....aim of assessee when appeal before the Sales Tax authority was pending. The claim of the assessee was also rejected by Income-tax Tribunal as well as High Court. On further appeal, the Hon'ble Supreme Court held that the moment a dealer makes either purchases or sales which are subject to taxation, the obligation to pay the tax arises and taxability is attracted. Although that liability cannot be enforced till quantification is effected by assessment proceeding, the liability for payment of tax is independent of assessment. In view of these observations, the Apex Court upheld the claim of assessee. It also affirmed the Madras High Court judgment in the case of Pope the King Match Factory (supra). 12. The ratio of the above judgment is clearly applicable to the present case. According to the above judgment, if an enforceable debt is created under a statute then any subsequent event would not affect the existence of such right/obligation despite the fact that such debt is subject-matter of appeal. The right to interest under Section 244A is not dependent upon any assessment inasmuch as there is no compulsion or obligation upon the Assessing Officer to make an assessment under S....
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....re unable to accede to this contention. As mentioned earlier, the right of the assessee to get compensation for unlawful termination of its services and the quantum of compensation to which it was entitled were clearly prescribed in the agreement. It was also so held by the High Court in the suit between the assessee and the managed company. The fact that the assessee was claiming an exorbitant sum to which it was not entitled will not convert its right into a contingent right. In Thiagaraja Chettiar & Co. v. Commissioner of Income-tax, the High Court of Madras held that, where a managing agent is entitled under the terms of the managing agency agreement to remuneration at a certain percentage on the annual net profits of the company, the remuneration payable to the managing agent accrued when the net profits of the company for the year are ascertained. The mere fact that, owning to disputes between the company and the managing agent the company had not credited the managing agent with the remuneration due to the latter in its accounts would not entitle the managing agent to claim that the remuneration due to him had not accrued and should not be assessed to incometax until the com....
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....educed/increased amount as the case may be. Thus, income on account of interest if assessed can be rectified under Section 154. 15. In view of the above discussion, we are of the view that interest on refund under Section 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings under Section 143(1)(a) attain finality. 26. Respectfully following the above said decision, additional ground No.(i) is allowed as per the stated direction in the above decision of the Coordinate Bench. 27. With regard to Additional ground (ii) which in in respect of "interest on tax refund be taxed at 10% as per India-UK Treaty", we observe that the Hon'ble Bombay High Court in the case of Director of Income-tax (IT) v. Credit Agricole Indosuez [377 ITR 102] held as under: - "2. At the hearing Mr. Tejveer Singh, learned counsel for the Revenue urges the following questions of law for consideration. "(1) ........ (2) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble ITAT was right in holding that the income chargeable at special rate u/s. 10(15) would be on gross basis and not on net basis? (3) ...... (4)....
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....cted with the PE (Permanent Establishment) either on asset test or activity test. Therefore, taxable under the Article 11(2) of Indo-Netherlands tax treaty. The Revenue carried the aforesaid decision of M/s DHL Operations B.V.(supra) in appeal to this Court, being Income Tax Appeal No.431 of 2012. This Court by order dated 17 July 2014 refused to entertain the appeal. In the circumstances no fault can be found with the impugned order of the Tribunal in restoring the issue to the Assessing officer to determine / adopt the rate of tax on refund in the light of the relevant clauses of Indo-France DTAA and the decision of Special Bench in Clough Engineering (supra) Accordingly, question 4 does not raise any substantial question of law so as to be entertained." 28. Respectfully following the above decision of the Hon'ble Bombay High Court, we allow the additional ground (ii) raised by the assessee. 29. Coming to appeal of the Revenue in ITA.No. 850/Mum/2009. Revenue has raised following grounds in its appeal: - "1. On the facts and in the circumstances of the case and in law, the Id. CIT (Appeals) erred in holding that direct expenses incurred outside India of Rs. 68,84,43,367/-....
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....sidered and adjudicated by the Coordinate Bench in assessee's own case for the A.Y. 1997-98 and decided the issue in favour of the assessee. While holding so the Coordinate Bench held as under: - "16. In ground no.1, the Department has challenged the deletion of disallowance of expenses amounting to Rs..24,85,49,931. 17. Brief facts are, in the course of assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction of expenditure incurred outside India amounted to Rs..24,85,49,931 comprising of salaries of expatriate employees, direct expenditure attributable to Indian branches and NRI expenses. The Assessing Officer after examining the nature of expenses held that the aforesaid expenditure claimed by the assessee being part of Head Office expenses is eligible for deduction under section 44C of the Act, hence, cannot be claimed as deduction separately. Being aggrieved with the aforesaid decision of the Assessing Officer, assessee preferred appeal before the first appellate authority. 18. Learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and materials on record found that identical disallowa....
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.... an administrative and executive in nature falling under the definition of head office expenses as given under section 44C of the Act. It was submitted that section 44C of the Act deals with the allowability of the head office administrative expenses. Accordingly, it was submitted that the expenses incurred by the assessee are out of the scope of provision of section 44C as these expenses are not in the nature of general administrative expenses but are solely and exclusively incurred for the purpose of the operations of the assessee in India and no portion of expenditure is referable to a business outside India. Reliance was also placed on various decisions of Tribunal and High Court 13. After considering the submissions and perusing the material on record the CIT (A) found that these expenses are incurred wholly for the purpose of assessee's business and no portion of these expenses fails under section 44C. Accordingly, the disallowance made by the Assessing Officer was deleted. 14. The learned Departmental Representative placed reliance on the order of the Assessing Officer. On the other hand, counsel for the assessee placed reliance on the order of CIT (A). It was furthe....