TaxTMI 
TaxTMI 
2024 (4) TMI 737
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....dering services to PE, erred in not considering at the same time that these expenses being not recorded in books of assessee (PE) in India, were neither actually paid nor shown payable in books of Indian PE and as the assessee did receive the services of such value through its HO, simultaneously there was equivalent income also accruing to assessee u/s 28(iv) and once the AO having not made any separate addition u/s 28(iv), the disallowance of expenses claimed directly in computation of income was merely to bring tax neutrality." 2. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in holding that the interest received by HO of the non-resident bank from its PE in India is not taxable under the Act." 3. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in not considering section 9(1)(v)(e) of the Act as a charging section as held by the Hon'ble Supreme Court in the case of A. Sanyasi Rao (1996) 3 SCC 465 and reiterated by the Hon'ble Supreme Court in the case of Sedco Forex International Inc in Civil Appeal No. 4906 of 2010." 4. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in n....
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.... of Rs 5,56,40,717- (incurred on refurbishment of leasehold premises) be treated as revenue expenses and 25% of the expenditure be considered as capital expenses, without considering the fact that there is no provision under the Act to estimate certain percentage of the total expenditure related to a particular asset as revenue expenditure or capital expenditure and that the expenditure incurred in relation to any particular asset is either entirely on capital or on revenue account" 10. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 4. At the time of hearing, both the counsels fairly agreed that the issues raised in this appeal are covered and adjudicated by the Coordinate Bench of the Tribunal in assessee's own case for the A.Ys. 1994-95 to 2001-02. Copies of the orders are placed on record. 5. We proceed to dispose off this appeal by adjudicating the issues ground wise. 6. With regard to Ground No. 1, which is in respect of salaries paid to Expatriates, Ld DR brought to our notice the relevant facts and fairly agreed that the issue under consideration is similar to the issue raised by the tax authorities in the earlier as....
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....following the above decision in assessee's own case for the A.Y. 1997-98 and also following rule of consistency, we dismiss the grounds raised by the revenue." Further, with respect to the contention of the department that equivalent income accruing to the Appellant under section 28(iv) of the Act (being raised for the very first time directly before the Hon'ble ITAT), the Appellant submit that this issue is covered in favor of the Appellant by the decision of the Mumbai Tribunal in case of Shinhan Bank vs. DCIT [2022] 144 taxmann.com 182(Mumbai ITAT) (Copy of the decision is enclosed in the Department's appeal legal paper book at page no. 1), wherein the Hon'ble Tribunal has inter alia held that non-reimbursement of expenses incurred by HO for salary of employees of Indian PE did not result in taxable income in the hands of PE/HO under section 28(iv) of the Act. Relevant para is reproduced as under: "9. We find that Article 7(1) of India Korea Double Taxation Avoidance Agreement [(1987) 165 ITR Stat 191; the then Indo-Korea tax treaty, in short], provides that "The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries....
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....tation is thus based on this fiction. We must also remember that the taxable unit is the foreign company itself, and not the Indian PE. As observed by the Hon'ble Supreme Court in the case of CIT v. Hyundai Heavy Industries Co. Ltd. [2007] 161 Taxman 191/291 ITR 482, "it is clear that under the Act, a taxable unit is a foreign company and not its branch or PE in India". It is in this light that one has to analyze the fact situation that we are dealing with. The assessee has eleven Korean expatriates working in India and running the entire show with respect to its Indian banking operations. These persons are employees of the assessee company, but they work exclusively for the Indian PE. As employees of the Assessee Company and working for its head office, these employees get salaries in Korea and, in addition to that salary, when they come to India, they get a certain additional amount as compensation for working in India. While the Indian salaries of these eleven expatriates are paid in India, and shown in the books of accounts in India, and, as such duly reflected in the profit and loss account of the PE in India, so far as the salaries paid to these expatriates in Korea are c....
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....s Tribunal, in the case of Sumitomo Mitsui Banking Corpn. v. Dy. CIT (IT) [2012] 19 taxmann.com 364/136 ITD 66 (Mum.), the intra-organization transactions, as non-reimbursement of employee costs by the PE to HO, is, are tax neutral. In any case, there cannot be a benefit accruing to the Korean company when the Indian PE of the assessee company does not reimburse its Korean company, because the assessee itself is the Korean company and the transaction in question is a wholly non-business and internal transaction of the Korean company." In view of the above, the Appellant submits before us to follow the own case ITAT order for A.Y. 1999-00 dated 27 September 2022 and decision of Mumbai Tribunal in case of Shinhan Bank(supra) and allowed the deduction of INR 3,25,01,633/- by dismissing the ground raised by the Revenue. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee's own case for the A.Y. 1997-98 and 1999-00 and also following rule of consistency, we dismiss the grounds raised by the revenue." 10. Respectfully following the above decision and following the principle of consistency, the ....
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.... arising from transaction between the PE and its HO. ..... The Assessee submits that this issue is covered in favor of the Assessee by the decision of the Special bench of the Mumbai Tribunal in case of Sumitomo Mitsui Banking Corporation vs. DDIT (2012) (136 ITD 66).The Hon'ble Tribunal has inter alia held that since the interest payment by branch to HO is in the nature of payment to self, (the HO and branch being one legal entity), the same should not be chargeable to tax in the hands of the HO under the provisions of the Act. It was also held that this interest cannot be taxed in the hands of the HO / overseas branch of the Bank even under the provisions of the tax treaty. (The relevant portion of Mumbai Special Bench order is already reproduced at para 3.5 of Ground 3 above.) Further, the Assessee submits that the amendment under the provisions of section 9(1) (v) of the Act, is applicable prospectively with effect from 1 April 2016 (i.e., AY 2016-17 onwards). Hence, the interest paid by Branch to the Head office is not taxable under the domestic laws for the year under consideration. In view of the above, the Assessee submits before the Hon'ble ITAT to dismiss the gr....
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....er: - 3.1 Ground 3.1 The learned CIT(A) erred in law and on facts to disallow interest payable to head office/ overseas branches on the ground that the Act does not allow deduction of interest paid by Branch to Head office. 3.2 The learned CIT(A) ought to have considered that a combined reading of Articles 7(2) and 7(5) of DTAA entered into by India with UK provides that interest paid by the Permanent Establishment (PE) on moneys lent to it by the Head Office / overseas branches of any banking enterprise would be taken into consideration in determining the profits attributable to that PE. 3.3 The learned CIT (A) ought to have allowed deduction for interest payment by the Appellant to its Head Office / overseas branches and accordingly, disallowance should be deleted. ..... At the outset, the Appellant wish to highlight that this issue of disallowance of interest paid to HO was first time raised in AY 2000-01. The Appellant submits that this issue is covered in favor of the Appellant by the decision of the Mumbai Special Bench of the Tribunal in case of Sumitomo Mitsui Banking Corporation vs. DDIT (2012) (136 ITD 66) (SB-Mumbai ITAT), wherein the Special Bench of the T....
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....at source from the said payment of interest made by the PE, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) of the Act does not arise. Accordingly we answer question No.1 referred to this Special Bench in the negative i.e. in favour of the assessee and question No.2 in affirmative i.e. again in favour of the assessee. 89. before parting, we may clarify that there may arise a situation where interest is payable by PE to GE and also there is interest receivable by PE from GE in the same year. A similar situation may arise where there are internal dealings of the Indian Branch of a foreign bank with its head office as well as other overseas branches. In such a situation, the issue may arise whether only the net interest would be allowable as deduction while determining profits attributable to the PE in India. This issue, however, has neither been referred to this Special Bench nor any arguments have been advanced by both the sides thereon specifically during the course of hearing. We may further clarify that the issue referred to this Special Bench in question No. 2 has been raised by Antwerp Diamond Bank NV in its appeal by way of an....
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....ecision of special bench (supra), ground raised by the assessee is allowed." 19. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2000-01 is respectfully followed, accordingly, grounds raised by the revenue are dismissed. 20. With regard to Ground No. 9 which is in respect of disallowance of expenditure on Refurbishment, Ld.DR brought to our notice the relevant facts of the issues raised by the revenue and submitted that the issue brought on record by the lower authorities are proper and he justified the additions, at the same time, he has fairly agreed that the issue under consideration is similar to the issues raised in the earlier assessment years. 21. Ld. AR of the assessee submitted that these expenses incurred on refurbishment of various branch premises like electrical works, cabling and wiring, etc. Assessing Officer held that these expenses are capital in nature (and not revenue) disallowed the same. Assessing Officer allowed depreciation on the said expenses. Since the facts of this case are same as earlier assessment years, the Ld.CIT(A) (by relying on its own past orders), held that 75 percent....
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....asimharaja Road, Bangalore for a period of 39 years commencing from 1st of January, 1966. Under the terms and conditions of the lease, the lessee (that is to say the assessee), had the right to demolish at its own expense the existing premises and appropriate to itself all the material thereof without paying to the lessors any compensation and construct a new building thereon to suit the purpose of their business as per the plan approved by the lessors. Under Clause 2 of the lease deed, the lessee was required to pay a rent of Rs. 1000/- per month for the first fifteen years, Rs. 1500/- per month for the next ten years, Rs. 1650/- per month for the next ten years and Rs. 2000/- per month for the remaining years. The lease deed further provided that the new construction shall, right from the commencement of the work, be the property of the lessors; and upon completion of the work of construction the lessee will have only the right to be a tenant for a period of 39 years under the existing lease subject to the payment of rent and observation of other terms and conditions of the lease. The lessee shall not be entitled under any circumstances for any compensation whatsoever on account ....
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....sting lease in respect of the new building at the agreed rent for a period of 39 years. The Tribunal has found, as a fact, that the rent as stipulated in the lease was extremely low. It rental rate for the area in which the building was situated was much higher and would be not less than Rs. 12,000/- as against which the maximum rent the assessee would be paying was only Rs. 2,000/-. This concessional rent was on account of the fact that the new building was constructed by the assessee at its own cost. In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expendit....
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....to existence an asset or an advantage for the enduring benefit of a trade...........If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. (Underlining ours) Relying upon the second test enumerated above, learned counsel for the appellant has submitted that the assessee got enduring benefit of a capital nature by spending the amount because the assessee obtained a new building for a period of 39 years. The difficulty, however, in the present case, arises from the fact that this building was never to belong to the assessee. Right from inception, the building was of the ownership of the lessor. Therefore, by spending ....
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.... to or expansion of the profit making apparatus of the assessee. The amount was contributed for the purpose of facilitating the business of the assessee and making it more efficient and profitable. It was, therefore, revenue expenditure. In the case of Commissioner of Income-tax, Bombay City- I v. Associated Cement Companies Ltd. (172ITR 257) the respondent-company entered into an agreement to supply water to the municipality and provide water pipelines as also to supply electricity for street lighting and put up a transmission line for that purpose. The assessee also agreed to concrete the main road from the factory to the railway station. The amounts expended for these purposes were held to be revenue expenditure since the installations and accessories were the assets of the municipality and not of the assessee. The expenditure, therefore, did not result in creating any capital asset for the company. The advantage secured by the respondent was immunity from liability to pay municipal rates and taxes for a period of 15 years. This Court said that had these liabilities been paid, the payments would have been on revenue account. Therefore, the advantage secured was in the field of....
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...." 24. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2001-02 is respectfully followed, accordingly, ground raised by the revenue is dismissed. 25. In the result, appeal filed by the revenue is dismissed. ITA No. 2936/MUM/2019 (A.Y. 2002-03) 26. Coming to the appeal relating to A.Y. 2003-04, since facts and the grounds raised by the revenue in this appeal are identical to A.Y.2002-03, therefore the decision taken in A.Y. 2002-03 are applicable mutatis mutandis to this assessment year also. Accordingly, the appeal filed by the revenue is dismissed. Assessee Appeals ITA No.1683/MUM/2019 (A.Y. 2002-03) 27. Assessee has raised following grounds in its appeal: - "1. TRANSFER PRICING ASSESSMENT IS BAD IN LAW (Pages 78-81 of CIT(A)'s order) 1.1 The learned CIT(A) erred on facts and in law in holding that transfer pricing assessment order is valid. The learned CIT(A) erred in not appreciating, in proper perspective, Appellant's submission that Transfer Pricing Adjustments/ additions / variations made by the authorities is bad in law, illegal, without inherent jurisdiction and contrary to and / o....
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....icit provisions of India UK Double Tax Avoidance Agreement. 3. SALARY PAID TO EXPATRIATES CIT(A)'s Order) Rs. 5,56,66,866/- (Pages 31-30 of 3.1. The learned CIT(A) erred in referring the matter to the Assessing Officer by holding that deduction of salary paid to expat employees be allowed only if TDS has been deducted on such salary without appreciating the fact that concerned employees have already offered the relevant income to tax in India and this fact has not been disputed by the Assessing Officer. 3.2. The learned CIT(A) ought to have allowed the said expenditure and accordingly disallowance should be deleted without remanding the matter to the Assessing Officer. 3.3. Without prejudice to the above, the Appellant also submits that action of CIT(A) in remanding the matter back to the Assessing Officer without granting any opportunity to the Appellant is not in accordance with law. 4. EXPENDITURE ON REFURBISHMENT - Rs. 5,56,40,717/- (Pages 45-52 of CIT(A)'s Order) 4.1. The learned CIT(A) erred in law and on facts to disallow 25% of the expenditure incurred on refurbishment of leasehold premises as capital in nature. 4.2. The learned CIT(A) ought to have al....
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....e for acquiring monopoly right over a long period of time from producer of goods. 7.2. It is respectfully submitted that both these decisions deals with totally different facts and ratio thereof cannot be applied to Appellant's case. 7.3 The learned CIT(A) ought to have considered the submissions of the Appellant that expenditure on the acquisition of retail asset portfolio does not result in the acquisition of any capital asset or an advantage of enduring benefit the same cannot be regarded as capital in nature. 8. DENIAL FOR DEDUCTION OF HEAD OFFICE EXPENDITURE OF Rs. 94,26,40,311 IN ENTIRETY (Pages 72-78 of CIT(A)'s order) 8.1. The learned CIT(A) erred disallowing the claim of the appellant towards Head Office Expenditure of Rs. 94,26,40,311 in entirety by holding that Article 26 of the DTAA entered into by India with UK is not applicable to the provisions of section 44C and the provisions of section 44C does not create a situation of discrimination vis-à-vis an Indian resident tax payer and the ratio of Mumbai Tribunal decision in the case of Metchem Canada is not applicable in Appellant's case. 8.2. The learned CIT(A) ought not to have restricted t....
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....d to Transfer Pricing Officer vide reference dated 16.01.2004 from the Dy. Director of Income Tax, International Taxation 2(1), Mumbai. Accordingly, notices under section 92CA(2) of the Act was issued vide letter dated 21.01.2004. In response, Authorised Representative of the assessee filed the relevant information as called for. 34. During Transfer Pricing proceedings the assessee was asked to explain the benefits derived out of this cost allocation and show that the benefits are commensurate to the costs allocated to it. In this regard letter dated 20.01.2005 was issued to the assessee calling for specific information for the following details: - a) Copy of the agreement entered into by the branch for the cost sharing arrangement. b) Copy of the invoice raised by the overseas entity for the purpose of charging these costs to the Indian Branch. c) Contemporaneous evidence of the service and the benefits received by the assessee during the previous year under various heads for which individual charge has been made. d) To confirm that the overseas entities rendering these services have not claimed any deduction on account of these expenses, in the event, no charge is made i....
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.... equivalent benefit out of the same. In response, assessee vide letter dated 16.02.2005 has provided approximately 60% of the cost for demonstrating the benefit for the Indian operations. The cost from the above table were regrouped and explained in the following manner which are reproduced as under: - 38. It was also explained to the Transfer Pricing Officer that (a) Hubbing cost to the extent of Rs..11.30 crores which was allocated by Hong Kong and Singapore branches to the assessee and the nature of cost were explained and it was also submitted before Transfer Pricing Officer that these costs are charged on actual basis and these costs involved salary, travel and office expenditure incurred till the completion of the projects. (b) Multi Business processing project costs to the extent of Rs..7.98 cores and were allocated by the Singapore branch. The nature of expenditure was explained and also it was submitted that costs are allocated on the basis of direct cost ratio of each country which utilizes the services of the back-office as a ratio of the overall cost allocated on the basis of utilization, again on the basis of actual costs. (c) Systems / IS costs of consumer Banking ....
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....f the HO where such expenses have been incurred b Original vouchers supporting such expenses c Why such expenses have not been debited in the books of account of the branch in India? What are the RBI guidelines in this regard considering the fact that if such amount are to be paid, it would have required RBI approval and by not debiting such amount remittable surplus figure remains higher by such expenses. d The KPMG certificate does not provide any information about the nature of such expense. Kindly give the complete details. e If such expense are on account of royalty or FTS incurred by Head Office on account of the branch, then such payments are liable for taxation in India u/s 9 as well as under the DTAA. Kindly provide whether tax was deducted by the Head Office on such payments or not. If not, why the same should not be disallowed u/s 40(a)(i)... f Also refer to Para 7 of Article 7 which provides that no expenses by way of royalty or fee for technical services (except reimbursement of actuals) to Head Office should be allowed as deduction. Kindly specify as to why the expenses claimed by you should not be disallowed under Article 7.7." 41. During the course of ass....
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.... cause notice which are more or less similar to the submissions made by the assessee in the earlier assessment proceedings. It is fact on record that the addition proposed by the Assessing Officer is not a fresh addition. Similar additions were proposed by the earlier Assessing Officers in the respective assessments. The submissions of the assessee are reproduced in the assessment order at Para No. 5.3 at Page No. 5 to 8 of the assessment order Objecting to the proposal to disallow the allocation of cost which were accepted by the Transfer Pricing Officer in the Transfer Pricing Order dated 10.03.2005. 43. After considering the submissions of the assessee, Assessing Officer dealt with this issue in his order wherein he discussed the issue of acceptance of Arm's Length Price adjustment proposed by the Transfer Pricing Officer to the extent of Rs..34.97 crores wherein the Arm's Length Price adjustment is treated as Nil and at the same time, he has justified the further disallowance of Rs..41.97 crores with the following observations: - "The assessee was asked to furnish various details vide notice u/s.142(1) including books of account of HO, where such expenses have been incurred,....
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....outside India. b The Appellant has demonstrated the need and benefit for the costs allocated (refer pages 68 to 71 of the factual paperbook including the detailed breakup of the costs before the Ld. TPO (refer page 75 of the factual paperbook). c Representative sample documents evidencing receipt of services submitted before the Ld. TPO (refer pages 72 to 218 of the factual paperbook). d The Ld. TPO has not disputed the benefits derived from the costs incurred. e An External Independent Accountant certificate certifies the incurrence and allocation of the costs (refer page 268 of the factual paperbook). The allocation of cost, based on recognized allocation keys is an accepted method. Also, the said allocation key adopted by the Assessee has not been disputed the Ld. TPO. f No deduction in respect of these amounts has been claimed by the Associated Enterprise in their Income tax computation. g The Ld. TPO erred in questioning commercial expediency and determining the Arm's Length Price of the part of the Direct costs as NIL, erroneously on an adhoc basis and without following any of the prescribed Method. h Without prejudice to the above, the transactions between ....
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....f the Hon'ble CIT(A) who had held that this cost component represents payment to self and the amounts are held to be not liable to TDS [Page 77 of the ITAT Order - page 295 of the legal paperbook]. B. Advisory and Business Support Services (INR 7 Cr) i. The Hon'ble CIT(A) held that these expenses are royalty in nature as it imparts scientific, technical or commercial knowledge and hence disallowed in absence of TDS [Page 28 of the CIT(A) order] ii. In AY2001-02, the Hon'ble CIT(A) held that the said expenses are capital in nature and not allowable as deduction. However, Hon'ble ITAT reversed the order of the Hon'ble CIT(A) and held that the said expenses are revenue in nature and allowable as deduction [Page 19 of the ITAT order - page 237 of the legal paperbook]. C. Singapore IT Hubbing / IT Cable and Wireless - Singapore-India Metros, Honk Kong/Singapore - Information System & Technology (IS & T) Cost (INR 67 Cr) i. The Hon'ble CIT(A) held that these expenses are in nature of FTS as the services are mainly for development of system and therefore, covered by make available clause. Hence, disallowed the same in absence of TDS. [Page 28 of the CIT(A....
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....n the basis of various documents and justification by the Transfer Pricing Officer by observing that he has asked the assessee to furnish various details vide notice issued under section 142(1) of the Act including the books of accounts of Head office where such expenses have been incurred, original vouchers supporting such expenses etc.,. Assessing Officer observed that assessee has not furnished any such details and with reference to the order under section 92CA(3) wherein even the assessee has accepted that there are no agreements entered with the branches for sharing all the costs, no invoices was raised on the Indian branch. 52. Further, he has proceeded to treat the entire allocation of cost as FTS by invoking provisions of section 40(a)(i) of the Act which are similar to the facts brought on record by the earlier Assessing Officers to disallow the expenses under section 37(1) of the Act and there is a failure on the part of the assessee to withholding of tax. 53. After considering the various submissions and facts on record as far as the issue raised by the Assessing Officer on the issue of FTS and failure on the part of the assessee to withholding the tax under section 40....
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....FTS on which the Appellant was liable to deduct tax at source. In absence of TDS, the amount is not allowed as deduction [refer para 6.17, page 20 of the Ld. CIT (A) order]. 2.5 Appellant's submissions Advisory and Business support costs: * The Appellant submits that this issue is covered in favor of the Appellant, in the case of CIT vs. Bombay Dyeing & Mfg. Co. Ltd [1996] 85 Taxman 396 (SC) [Handed over during the hearing on 5 October 2023- refer page 3], wherein it was held that professional fees incurred for effecting amalgamation of a company was necessary for smooth and efficient conduct of assessee's business and held as allowable under section 37(1) of the Act (relevant part extracted as under): "The facts concerning the first question are the following: a company named Nawrosjee Wadia Ginning & Pressing Company was amalgamated with the assessee-company. In that connection an expenditure of Rs. 10,350/- was incurred by the assessee-company towards the professional charge paid to the firm of Solicitors. In the assessment proceedings the said amount was claimed as revenue expenditure. The assessee's case was that Nawrosjee Wadia Ginning &Pressing Company was engage....
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....nt this Court referred to the earlier decision of this Court in State of Madras v. G.J. Coelho [1964] 53 ITR 186 wherein it was held that the interest on the amount borrowed for acquiring a capital asset is deductible as revenue expenditure. It is true, that in the said decision this Court re-affirmed the well established principle that any expenditure laid out for acquiring an asset of a permanent character would be capital expenditure, held at the same time that inasmuch as the acquisition of the other company was in the course of carrying on of the assessee's business, the interest paid thereon was deductible under section 10(2)(xv) of the Act. In this case too, the Tribunal has recorded a finding that the acquisition of Nawrosjee Wadia Ginning & Pressing Company was necessary for the smooth and efficient conduct of the assessee's business. Following the ratio of the aforementioned decisions of the Court, we hold that the expenditure incurred towards professional charges of the Solicitors' firm for the services rendered in connection with the said amalgamation was in the course of carrying on of the assessee's business and, therefore, deductible as a revenue expe....
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.... before us to allow the deduction towards Advisory services expenses and Singapore IT Hubbing cost of INR 42, 54, 26,899/- under section 37(1) of the Act. We agreed with the logics put forward by the assessee and not in favour of additional contentions raised by the Ld. CIT (A). Moreover, similar issue is covered in the Appellant's own case in A.Y. 1999-00, wherein with respect to the similar nature of services, the Hon'ble ITAT held that the said expenditure is allowable under section 37(1) and should not be restricted under section 44C of the Act. Respectfully following the decision of coordinate bench and judicial pronouncements relied upon by the assessee, we are in agreement with the contentions of assessee and ground raised by the assessee is allowed." 54. Further, the Coordinate Bench in assessee's own case for the A.Y.1999-2000 in ITA No. 803/MUM/2009 dated 27.09.2022 held as under: - "30. With regard to Ground No. 1 and 2 which are in respect of expenses incurred outside India comprising of (a) salaries of Expatriate employees (b) expenses incurred exclusively for operations in India and (c) NRI Desk expenses, Ld. AR brought to our notice that similar ground has been ra....
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....see by the Tribunal in assessee's own case for the assessment year 1994-95 and 1995-96 while disposing off Revenue's appeal in ITA no.1683/Mum./2003, dated 11th October 2007 and ITA no.1769/Mum./2003, dated 18th November 2011 respectively. Following the consistent view of the Co- ordinate Bench as referred to above, we uphold the decision of learned Commissioner (Appeals) on the issue. Ground is dismissed." 33. Similarly, the Coordinate Bench in assessee's own case for the Assessment Year 1994-95 in ITA.No. 1683/Mum/2003 dated 29.10.2007 held as under: - "11 Ground no.4 is against deleting the expenses incurred outside India Rs 14,61,83,854/ 12. The Assessing Officer disallowed the claim of the assessee by observing that expenses are incurred by assessee outside India which are directly related to the operations of the assessee in India, cannot be allowed in full as they are in nature of head office expenses deductible in accordance with and subject to limits rule 44C of the Act. It was submitted before CIT (A) that the expenses in question are directly related to the business operation in bank in India and hence fully allowable under the provisions of the Act. It was further....
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....f the learned Counsel and the basis of disallowance in the assessment order. As per section 37(1) of the Act, any expenditure, which is not in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". The expenses in question incurred by the Appellant, though outside India, have been incurred for the purposes of business of the Appellant in India. The expenses are not of capital or personal in nature and therefore, allowable u/s.37(1) of the Act. The Bombay ITAT in the case of American Bureau of Shipping (Supra) has held that expenses, which are specifically incurred on account of Indian branch, cannot be held to be in the nature of Head Office expenses u/s.44C. Further expenses on expatriates' salaries are for the services rendered in India and these by no stretch of imagination can be considered and Head Office expenses falling under section 44C. These expenses are not incurred by the Appellant outside India in managing the affairs of any office outside India and therefore, ....
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....s details he has proposed for TP Adjustments only to the extent of 40% of the cost allocation. He has technically accepted the various submissions and documents submitted before him. Therefore, in our considered view Assessing Officer in one hand accepts the TP Adjustment and on the other hand he has proposed the additions suomoto disregarding the total findings of the Transfer Pricing Officer. For disallowing the whole allocation of costs, he observed that there are no agreements entered into with the branches of sharing of costs. In our considered view, these costs are allocated between the Head office and branches which are nothing but allocation of costs within the cost centers of same assessee, allocated the cost on the basis of allocation key, which are accepted principles without any profit element on it. The arrangements are within the organization and there cannot be any agreement, strictly speaking the agreement on allocation key is itself on an agreed terms between the branches. It is not necessary that it should have a separate agreement between the branches and also there is no requirement of invoices between the branches it is enough that there are approved internal m....
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....e is the allocation of intra group services to be borne by the assessee from its AE in 16 worldwide localities. The assessee's allocation is based upon a global agreement between the AEs in this regard. Various allocation keys, i.e., asset, revenue, number of employee, depending upon the nature has been used. The allocation is supported by a CPA certificate. The Revenue's grouse is that necessary evidence in this regard for the veracity of allocation and incurring of expenditure has not been submitted. That the CPA certificate is not credible in absence of supporting documents on the basis of which the said certificate was issued. That there are several errors in the global agreement. That the use of allocation keys is not permissible. The solution found by the TPO to the above shortcoming is the rejection of the assessee's allocation to be substituted by an absolutely whimsical and bizarre estimation that total 1500 man hours @ 8,500/- would only be permissible and that would be allocated as under: IT support service - 300 hours Finance service - 400 hours Other intra group services for sales, marketing, etc .- 300 hours 27. We find that the ld. Counsel of the assessee h....
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....l consideration for intra group services has observed that mainly two issues were to be considered, one was whether intra group service have in fact been provided. The other issue is whether the intra group charge for such services for tax purpose should be in accordance with the arms length principle. The OECD guidelines interalia also provide that the allocation of the group cost might be based upon the turnover or staff employed or some other basis. It mentioned that whether the allocation method is appropriate may depend upon the nature and use of the services. A reading of this OECD guidelines makes it abundantly clear that contrary to the Revenue's argument, the using of allocation keys for allocation of intra group services is not alien to international tax jurisprudence. Further, the allocation of concerned group expenses to different accounting units is a duly accepted accounting procedure. Furthermore, the assessee has used a CPA certificate for the allocation of intra group services from the AE. The authorities below have rejected the CPA certificate on the ground that underlying documents on the basis of which the CPA certificate has been issued has not been produced be....
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....ertificate and verify the allocation key and relevant allocation of the cost to the Indian entity. Therefore, we rely on the above decision and findings of the Coordinate Bench in assessee's own case, we are inclined to allow the Ground No. 2 raised by the assessee with the above direction. 57. With regard to Ground No. 3 which is in respect of disallowance of salaries paid to Expatriates, this ground is similar to Ground No. 1 raised by the revenue in ITA No. 1407/MUM/2019 for the A.Y. 2002-03 and as we have adjudicated the issue in favour of the assessee by following the assessee's own case in earlier assessment years, no further adjudication is required on the same. Accordingly, Ground No. 3 raised by the assessee is allowed. 58. With regard to Ground No. 4 which is in respect of disallowance of expenditure on Refurbishment, this ground is similar to Ground No. 9 raised by the revenue in ITA No. 1407/MUM/2019 for the A.Y. 2002-03 and as we have adjudicated the issue in favour of the assessee by following the assessee's own case in earlier assessment years, no further adjudication is required on the same. Accordingly, Ground No. 4 raised by the assessee is allowed. 59. With re....
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....bmits that the Hon'ble Supreme Court in the case of South Indian Bank Ltd [2021] (130 taxmann.com 178) held that disallowance u/s. 14A of the Act is not warranted for investments made in tax-free bonds/ securities which yield tax-free dividend and interest in those situation wherein interest free own funds available to the assessee exceeded their investments (Copy of decision is enclosed in the Bank's Appeal legal paperbook - refer para 27, page 414), which reads as under: "27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under section 14A of Income Tax Act for investments made in tax-free bonds/securities which yield tax-free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favoring the assesses" In view of the above, the Appellant submits before us to follow its own case vide ITAT order for A.Y. 1999-00, dated 27 September 2022, and delete the disallowance of INR 1,26,28,068/- made by the L....
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....f loan tenure i.e., two to five assessment years on the basis of deferred revenue. 65. In regard to the proposition that Loan portfolio to be treated as trading asset and any loss arising on the same is allowable as business loss, he relied on the following case law: - i) GE Money Financial Services v. ACIT (ITA No. 4206/Del/2011) ii) CIT v. Gillanders Arbuthnot & Co. Ltd (Cal HC) (69 Taxman 31) iii) PCIT v. South Canara District, Central Co-operative Bank Ltd (2022) (139 taxmann.com 303) (Karnataka HC). 66. On the other hand, Ld. DR relied on the orders of the lower authorities. 67. Considered the rival submissions and material placed on record, we observe from the record that the assessee has acquired the retail loan portfolio from Standard Chartered Grindlays Bank Ltd, which is a separate legal entity on the proprietary basis, it is also relevant to note that it has acquired the running retail portfolio business. Therefore, it is only a trading assets acquired by it. In our view, the assessee will get the benefit based on the tenure of this trading assets. It was submitted by the Ld AR that the tenure of this retail loans are for the period 2 to 5 years. Therefore, cost....
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....he case of Metchem Canada Inc. v/s. DCIT [284 ITR (A.T.) 196], wherein after referring to Article on non-discrimination, it has been held that provisions of section 44C of the Act will have no application. 8.3 Without prejudice to the above, the learned CIT(A) also erred in holding that Article 26 of the DTAA entered into by India with UK is not applicable to the provisions of section 44C of the Act and the provisions of section 44C of the Act does not create a situation of discrimination vis-a-vis an Indian resident taxpayer. 8.4 The learned CIT (A) ought not to have restricted the claim of head-office expenses to 5% under section 44C of the Act and accordingly, should have allowed the head-office expenses in entirety. ...... The Appellant submits that this issue is covered in favor of the Appellant by the decision of the Co-ordinate bench of the Tribunal in the Appellant's own case for the A.Y. 1999-2000 wherein the Tribunal, following the decision of the Mumbai ITAT in the case of Metchem Canada Inc. v DCIT 284 ITR (AT) 196 (copy of decision enclosed in the Appellant's legal paper book at page 444), has held that in view of Article 26 of the India-UK DTAA, provisions of ....
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....executive and general administrative expenses, whether incurred in the State in which the PE is situated or elsewhere as are in accordance with the provisions of and subject to the limitations of the taxation laws of that State. However, no such deduction shall be allowed in respect of amounts, if any paid (otherwise than as a 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 PE. Likewise, 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 ....
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.... right as resident enterprises to deduct the trading expenses that are, in general, authorized by the taxation law to be deducted from taxable profits in addition to the right to attribute to the PE a proportion of overheads of the head office of the enterprise. Such deductions should be allowed without any restriction other than those imposed on the resident enterprise. (b)... It is thus clear that according to the scope of this clause as explained by the OECD Commentary, includes the deduction on account of head office expenditure. In addition to the deduction of normal business expenditure of a PE as permissible under the domestic taxation laws, the deduction is also required to be allowed for a proportion of overheads of the head office and such a deduction 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 placi....
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....ion on a PE of a Canadian company, by the reason of placing a restriction on deduction of head office expenditure which is not applicable in the case of resident companies, does, therefore, constitute less favorable tax treatment in India than the taxation levied on Indian enterprise carrying on the same activities in India. Viewed in this perspective, it is clear that the limitation on deduction of head office expenditure, as stipulated by Section 44C of the Act, will be hit by the non-discrimination clause in the Indo-Canadian DTAA. In any event, on a plain reading of the provisions of the Article 24(2), we are of the considered view that a restriction on admissibility of head office overheads of PE of a Canadian company constitutes discrimination against such a PE vis-a-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) of the Act cannot be allowed as a deduction in the light of restriction placed under Section 44C of ....
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....do-Canadian DTAA. There is no dispute about the fact that when the provisions of the IT Act and the DTAA are in conflict, the provisions of the Act will be applicable only to the extent the same are more beneficial to the assessee. In other words, the provisions of the treaty prevail over the provisions of the Act. Therefore, the restriction placed on the allowability of the head office expenditure by Section 44C of the Act is to be ignored in the light of the provision of Article 24(2) of the Indo-Canadian DTAA. 8. The next contention of the Revenue is that the provisions of Section 44C of the Act are not in the nature of restriction but provide only a fair method of allocation of head office overheads. It is also contended that in the absence of the provision of Section 44C of the Act, the head 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 of the Act is held to be not applicable, the head office expenditur....
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....dia-Canada Treaty. Relevant extracts from 'Non-discrimination' Article from India-UK and India-Canada Tax treaty are produced below for easy reference: Provision India - UK Treaty India - Canada Treaty Non-discrimination Article 26(2) "The taxation on a permanent establishment 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 in the same circumstances or under the same conditions." Article 24(2) "The taxation on a permanent establishment 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." In view of the above, we observe that the above additional ground involves question of law liable to be admitted. Further, on the basis of the above submissions by assessee, we agree that as decided by the coordinate bench, in the case of assessee that the Head office expenditure is allowed in entirety under the provisions of Article 26 of t....