TaxTMI 
TaxTMI 
2024 (10) TMI 523
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....ion of the Tribunal in assessee's case. 3. The effective grounds of appeal raised in both the years which have been agued based on chart submitted by the Ld. Counsel of the assessee are being discussed instead of reproducing the entire grounds of appeal. We will discuss in brief the issues raised in various grounds. ITAT Appeal No: 7336/MUM/2010 - Assessee's Appeal 2. Ground No. 1: Tax free income - Rs 24,34,88,920 2.1 Brief facts are that, the Assessee had claimed the gross interest of Rs. 24,14,88,425 earned on tax free bonds as exempt under section 10(15)(iv) of the Income Tax Act, 1961 ('the Act') and gross dividend of Rs. 20,00,495 earned on shares as exempt under section 10(34) of the Act. 2.2. The learned AO held that the cost of investment is taken at 3.84% towards interest on borrowed money, which was invested in tax free securities, which generated the tax free income to the assessee, and accordingly, rejected the submission that if the taxpayer owned funds far greater than borrowed funds no disallowance can be made. However, the CIT (A) disallowed 1 per cent of the incremental investment in tax free bonds (Rs 25,00,00,000/-) made during AY 2004....
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....ax-free bonds/securities which yield tax-free dividend and interest to assessee banks 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 favouring the assessees." 5. We find that the ITAT, in Assessee's own case for AYs 1997-98 to 2001-02 has decided this issue in the Assessee's favor. Relevant extracts of the ITAT's order dated February 15, 2007, for the assessment year 1997-98 are reproduced below: "67. We have given a careful consideration to the arguments placed before us by both the sides vis-a-vis the factual position as mentioned above. It is true that various Benches of the Mumbai Tribunal have held that exemption is available on gross income and not on net income. However, insertion of section 14A in the Income-tax Act with retrospective effect from 01.04.1962 makes a material departure. As per the new provision no deduction shall be allowed in respect of expenditure incurred in relation to income which does not form part of the total income. It is, therefore, clear that if there is any direct nexus between the expenditure incur....
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....No. 243/2012 dated 04/01/2013 had held as under:- The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under income tax. The Tribunal has computed the expenditure at 1% of such dividend income, according to them, as the thumb rule applied consistently. We find no reason to interfere. The appeal is dismissed. 5.3. Respectfully following the aforesaid decision of Hon'ble Calcutta High Court, we direct the Ld. AO to disallow 1% of total exempt income u/s. 14A of the Act. Accordingly, the ground No.4 raised by the assessee is partly allowed" (emphasis applied). 7. Moreover, in subsequent AYs 2005-06 to 2007-08 (i.e., until Rule 8D: Method for determining amount of expenditure in relation to income not includible in total income of the Rules was introduced), the CIT(A) deleted the ad hoc disallowance under section 14A of the Act made by the learned AO and held in favour of the Assessee (that no disallowance is warranted under section 14A of the Act), and the AO has not filed an appeal against the CIT(A) order on this ground. Without prejudice, the Assessee submitted that the disallowance cannot exceed 1....
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.... nature as revenue expenditure. The relevant extracts of the ITAT's order dated November 20, 2015, for AY 1999-2000 are reproduced below: "69. After hearing the contentions of both the parties and on perusal of records including the decisions relied upon by the assessee, we are of the considered opinion that the expenditure incurred by the assessee for vacating the premises given to the tenant is a business expenditure and allowable as revenue expenditure, Therefore, we allow Ground 4 in part. 70. Since we allow the main claim taken by the assessee in respect of business expenditure, we reject the alternative plea taken by the assessee." 14. Accordingly, the Assessee prayed that the additional ground raised by the Assessee should be admitted, and the expenditure of Rs 30,00,000 towards vacating the premises should be allowed as revenue expenditure, following the decision of the Hon'ble Tribunal for AYs 1999-2000. Without prejudice, if the Tribunal intends to deny the claim for revenue expenditure, the Assessee requests that the original plea for tax depreciation on payment to Gillanders be allowed. 15. Here in this case, the Tribunal as noted above h....
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....ant extracts of the ITAT's order for the assessment year 2001-02, dated November 20, 2015, which has relied on the decision of the Calcutta High Court in the case of CIT v/s Bank of Tokyo (71 Taxman 85), are reproduced below: "After hearing both the parties on the issue and perusal of the records including the case relied upon by the parties, we find that the Ld. CIT(A) has passed well reasoned order and directed the AO to delete the addition. For the sake of convenience, we also reproduce the relevant findings of the Hon'ble Calcutta high court viz CIT(A) Bank of Tokyo Ltd as under: "The Revenue contends that the right to receive the commission being a one-time right, its accrual shall coincide with the commencement of the service rendered by way of guaranteeing the debt repayment; it is immaterial that the repayment covers more than on previous year. Therefore the entirety of commission accrues at a time. The assessee bank on the other hand submits, that the service having a spread of years over the accrual should be year by year. The Revenue's contention that the accrual of the entire commission is a point of time accrual is not tenable. The contesting submissi....
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....is rightly recognized as income over the tenure of the guarantee and not in the year in which the guarantee is issued. This ground is thus allowed. Ground No. 5: Expenditure incurred on separation/ termination of employees-Rs 19,19,64,640. 22. Facts in brief qua this issue are that, as part of the rationalization of operations and workforce, some employees of the Assessee were terminated from bank services during AY 2004-05. Such employees were either redundant, and hence, their employment contract was terminated by the Assessee, or they resigned from the services on account of redundancy. The Assessee made a provision of Rs. 33,00,00,000 towards such separation costs during the subject year. As against this, an amount of Rs.19,19,64,640 was actually paid to the separating employees. Tax under section 192 of the Act has been withheld from the same and paid into the Government treasury. The Learned AO and CIT(A) treated the expenditure as falling within section 35DDA of the Act. 23. It is not disputed that the payments made to the redundant / separating employees have been incurred wholly and exclusively in relation to the Assessee's business and are deductible under se....
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....eal that the applicability of this section is attracted only when the payment has been made to an employee in connection with his voluntary retirement, in accordance with any scheme or schemes of voluntary retirement. Since the payment reduces the burden on the assessee relatable to subsequent years, the legislature inserted this section in order to allow only 1/5th of the total sum paid by the assessee to its employees. This amount in the hands of the employee has been exempted under s. 10(10C) of the Act to the extent of Rs. 5 lacs. The relevant part of s. 10(10C) reads as under :..." 19. The submission of the learned Departmental Representative is that the provisions of s. 35DDA are applicable because the payment has been made in pursuance to scheme of voluntary retirement and it is not necessary that the said scheme should comply with guidelines as per s. 10 (10C). We are not inclined to accept the plea of the learned Departmental Representative. In the present circumstances, in order to resolve the dispute, we are of the opinion that principles of harmonious construction of statute have to be applied. As per these principles a statute must be received as a wh....
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....the provisions of Section 35DDA of the Act. Accordingly, this ground is allowed. Ground No. 6: Salary of Mr. C Trench (3 days of salary and perquisites), Mr. Peter E. Davies - 12 days of salary 29. This is ground is similar to ground No 1 of the department and same shall be decided while deciding the appeal of the department. Ground No. 7: Salary of Mr. Ashok Bhatia - 50 per cent of total salary and perquisites. 30. Brief facts qua this issue is that, Mr. Ashok Bhatia was employed by HSBC Asia Holdings BV as the Chief Information Officer of India, Middle East and Africa located in the HSBC Software Development Centre, India. He had been deputed to the Indian branch of the Assessee for three years. As a part of his global role, Mr. Ashok Bhatia spent 50 per cent of his time rendering services to the Indian branch of the Assessee and the balance of 50 per cent of time was spent rendering services to the overseas associated enterprise ("AE') of the Assessee. The salary paid to Ashok Bhatia has following three components: Sr No Particulars Amount Deduction claimed by the Assessee in its income-tax return Remarks 1. Onshore salary Rs 74,45,620 ....
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....cise such powers in HBAP or any HSBC. Group company as may from time to time be delegated to you by, or with the authority of the Group IT director. The Group's earning Ratings will be determined by group Finance. Your personal rating will be determined by the Group IT Director." 35. At the time of hearing, assessee without prejudice claimed that the cash component of the offshore salary cannot be considered as head office expenditure as it is a direct cost of the Indian branch of the Assessee. Further, in order to avoid further litigation, the Assessee has restricted its claim to the following two contentions: (a) Though the CIT(A) directed the learned AO to disallow 50 per cent of the total salary and perquisite, in respect of the perquisite component of the offshore salary, no disallowance should be made as the said amount has not been claimed as a deduction in the return of income and thus, there is no question of a disallowance. Moreover, even the learned AO had also not disallowed the perquisite component of the offshore salary. (b) The disallowance of 50 per cent of both onshore salary and offshore salary (cash component) should be restricted proport....
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....f the Assessee, except in case of Mr Ashok Bhatia, Mr C Trench and Mr Peter E Davies, where the CIT(A) directed the learned AO to disallow 50 per cent of 3 days and 12 days of the total salary and perquisites respectively since it is not related to the business of the Indian branches. 39. Before us, the details of expatriate officers employed in India together with their designation and remuneration, copies of Form no 16 issued to the expatriate employees, the income-tax return forms filed by the expatriate employees, and secondment letters / posting letters justifying the aforesaid facts have been filed which was already been filed before the learned AO / CIT(A). It has been submitted that these employees were deputed to the Indian branch of the Assessee and worked exclusively for the India operations; the cash component of their offshore salary, which the overseas entity has paid, is an expenditure incurred exclusively for the Assessee's Indian branch, and hence, cannot be covered by section 44C of the Act, as it is not a part of the head office cost but a direct cost of the Indian branch. 41. We find that the Tribunal, in Assessee's own case (including that of the ....
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....dia both in terms of deposits and investment, and the large extensive network of HSBC's branches and offices, particularly in countries in the Middle East, is of great assistance to the Assessee in their marketing efforts. To persuade NRIs to invest in India, it is not merely enough to offer financial incentives; considerable selling efforts are also required. To mobilize and garner deposits, the Assessee has NRI desks in the Middle East, UK, USA, Singapore and Hong Kong 'desks'. The expenditure is in respect to activities exclusively related to the marketing for NRI deposits and to provide personalized and expert service to the NRIs. The expenses incurred toward these NRI desks are in the nature of salaries, travelling, advertising and other incidental expenses. Though the relevant offices outside India have debited this expenditure to the Assessee's head office in Hong Kong, it must be noted that the expenditure has been incurred wholly and exclusively for the purpose of the Assessee's Indian operations and is allowable as a deduction in computing the Assessee's income in respect of its Indian operations. The Indian branch of the Assessee alone benefits fr....
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....limited ( 265 ITR 55) wherein Their lordship have held that 'the expenditure which is covered by Section 44C is of a common nature, which is incurred for various branches or which is incurred for the purpose of head office and the branch'. Their Lordship held that the expenditure incurred exclusively for the purposes of the branch cannot be covered under section 44C. It would thus follow that the provision of section 44C will hit only such expenditure which are not being capable of being allocable to any particular profit centre and which are required to be allocated on some general basis. The expenses on mobilisation of NRI deposit can not be said to fall in this category because these expenses are for the purpose of India specific operations where non resident Indian deposits are of relevance. These expenses, therefore cannot be allocated to operations in other countries or to the head office. This kind of an expenditure, in our considered view, does not fall under scope of head office expenditure under section 44C of the Act. In the caseof American Express Bank Ltd in which a different view was take by the Tribunal has since been reversed by the Hon'ble Bombay High C....
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....as decided these issues in the Assessee's favor and before us detail chart on department's grounds has been given enclosed which contains the list of decisions of the ITAT in the Assessee's own case as well as other rulings on which the Assessee has placed reliance. 52. Since the grounds No.3-6 have been dismissed and allowed in favour of the assessee and therefore, following the same we hold that ld. CIT(A) has rightly deleted the said disallowance and consequently, these grounds raised by the Revenue are dismissed. Ground No. 7: Disallowance on increased provision made towards pension fund - Rs 30,67,20,000. 52. Brief facts are that during the year ended March 31, 2004 (relevant to AY 2004-05), the Assessee had made a provision of Rs. 30,67,20,000/- towards funding of overall deficit in the pension fund, which has arisen on account of changes in annuity rates. The said provision was based on an independent actuarial report. Such deficit arose since the total liabilities of the pension fund exceeded its total assets. The Assessee paid the said amount to the pension fund in the months of July and August 2004. The provision / payment of the aforesaid amount of R....
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....that the assessee bank has made the contribution towards the shortfall in Provident Fund's Statutory Interest Rate of 9.5%. This shortfall has been made good from the Fund created namely, "Staff Provident Fund (Interest)", specifically for this sole purpose. The fund has been created from Profit remained after payment of income tax. Hence, in the year of actual expenditure (i.e. Contribution towards Shortfall in maintaining the Statutory Rate of Interest of Provident Fund) the expenditure claimed under section 37(1) of the Act is allowable. The expenditure made from the Fund does not change its nomenclature. It is an expense. If the actual expenditure made by the assessee is not allowable than there is certainly double taxation in the hands of the assessee. It is the statutory requirement under the Provident Fund Rules notified by the Central Government. As per Rule 17, any deficiency/shortfall in the maintenance of Provident Fund Interest Rate shall be made good by the Employer. The Statutory Provisions of the Rules are reproduced as under:..." "16. Thus, ld Counsel submitted that from the above, it is very much evident that in case of any Shortfall in maintaining the....
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....drawn to paras 14.12.1 to 14.15 of the order for the findings of the Hon'ble Tribunal. 60. Brief facts are that, the Assessee is engaged in providing banking services and is part of an international banking company that provides services around the globe. The Assessee has a Correspondent Banking Division ('INM IB'), which manages relationships with Indian Banks / Financial Institutions operating in India ('Indian FIs'). The Assessee sells financial products to the Indian FIs, and the revenue earned is booked by the Assessee and offered to tax in India. During the year under consideration, the INM IB division of the Assessee earned 246.89 million. Further, the Assessee has earned a floating income of INR 18.805 million from the Nostro Account. 62. Further, Indian banks have to establish relations with overseas banks as they do not have a network of branches outside India. The Assessee, while dealing with the Indian bank/FIs would also acquaint its customers of the financial products available with the Assessee globally. This would encourage the FIs to bank with the Assessee considering its global reach. Separately, the overseas branches of HSBC would acquai....
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.... compensated, assuming. 68. More importantly, Ld. Counsel submitted that the Assessee has reported more than 100 transactions in Form 3CEB, and the same were accepted to be at ALP by the Ld. TPO. Admittedly these transactions include items which are marketed by INM IB division such as custodian charges, guarantee commission charges etc. as evident from Form 3CEB. Once the primary business transactions are found to be at ALP, one cannot separately treat incidental benefits as a separate transaction unless it is shown that it is separate from the main transaction. 69. Without prejudice to the above, Ld. Counsel submitted that there is no international transaction identified by the Ld. TPO, no Associated Enterprises identified by the Ld. TPO, no search process identified by the Ld. TPO, and no comparable identified by the Ld. TPO. Hence, the Assessee contends that no adjustment on account of corresponding banking activity is warranted. 70. He also drew our attention to the order from the Hon'ble Tribunal in the Assessee's own case for AY 2002-03 & 2003-04 with respect to such activities wherein the entire adjustment has been deleted, and it has been held: "14....
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.... 14.13 In view of the aforesaid observations in the peculiar facts and circumstances of the case herein and respectfully following the aforesaid decision of this Tribunal, we hold that the assessee had considerably benefitted out of earning income from Indian Fis and float income pursuant to correspondent banking activities and the said benefit directly flows to the assessee. 14.14 It would be crucial to note that assessee had reflected more than 100 international transactions in form No.3CEB filed along with the return of income and the same were accepted to be at arm's length by the Ld. TPO. Admittedly these transactions include items which are marketed by INM IB division such as custodian charges, guarantee commission charges etc. as is evident from Annexure' C to form 3CEB. Hence, it could be seen that the main transactions were found to be at arm's length and the incidental benefit arising out of such transaction has been considered as a separate transaction. We find in the instant case that the main business transactions have been accepted to be at arm's length and hence, the Ld. TPO cannot separately treat the incidental benefit as a separate transac....
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....tment. Since the facts were identical to AY 2003-04, the CIT (A) has relied upon the decision given by his predecessor and directed the AO to disallow 50% of Mr. Ashok Bhatia's salary and perquisites (paid in India & abroad). In the case of Mr. Peter Trench and Mr. C. Davis, he directed the AO to disallow only a certain portion of the salary and perquisites not related to the business of Indian branches. In the earlier assessment years 2002-03 and 2003-04, the Hon'ble Tribunal held that the roles played by the employees are merely an oversight on account of their functions and roles. These employees are primarily engaged in the day-to-day operations of the Assessee's business and predominantly provide services to the Assessee. These activities cannot be viewed as separate international transactions by segregating them from routine functions. The Hon'ble Tribunal in the preceding years held as follows: ".......generally in a multinational group, several oversight roles would arise within one's functions as an employee. These are mere incidental activities carried out by the employees, which acquire groupwise liaising and coordination an....
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.... that the issue is covered in favor of the Assessee by order of the Hon'ble Tribunal in the Assessee's own case for AY 2002-03 and 2003-04, wherein the Hon'ble Tribunal has deleted the Transfer Pricing adjustment relating to the aforesaid issue. Our attention was drawn to para 17.12 of the order for the findings of the Hon'ble Tribunal. 74. From the records it is seen that the marketing/ support services of ECB transactions, the Assessee performs the following functions:- * Engaging in discussions with the Indian customer to understand their requirements. * Providing the requirements to the overseas lender AE * Providing credit data to overseas lender AE. Since Indian corporates are customers of the Indian Branch, the credit appraisals are, in any case, done by the Bank from time to time for their local business. Accordingly, the credit data provided to overseas AE does not require additional effort from the Bank. * Liaising between Indian corporate and overseas AE. 75. The Assessee does not assume any risks in the transaction; all risks lie solely with the overseas lender AE. The charging of fees by the Assessee is based on....
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....any services except for the credit appraisals, which the Assessee conducts from time to time for their local business. Based on the said facts, the Hon'ble Tribunal in the preceding years held as follows: "...We find that the Ld. CIT (A) had categorically observed that HSBC India does not assume any risk in respect of continuing ECBs compared to the nature of service rendered by them. This categorical finding has not been controverted by the Revenue before us. Hence, we hold that no transfer pricing adjustment in respect of the services rendered by HSBC India in respect of continuing ECBs more so when the entire commission income / Debt Syndication Fee income received by the Assessee have already been accepted to be at arm's length. Accordingly, ground no. 6 raised by the Revenue is dismissed." Furthermore, the Ld.TPO relied on secret comparables not available in the public domain, engaged in controlled transactions between foreign banks and Indian branches, and adopted an ad hoc 25% as compensation. It is asserted that using secret comparables not available in the public domain is arbitrary and contrary to the law. Additionally and wholly contrary to the ....
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....d without any basis or reasoning applied ad-hoc 60% of NNBV. 83. The CIT (A), based on the case's facts, concluded that the Ld. TPO selected secret comparables and failed to disclose the details to the Assessee. These secret comparables were engaged in controlled transactions with group entities and were not independent transactions. In previous years (2002-03 and 2003- 04), the Ld. TPO accepted the ALP without making any adjustments, and there have been no changes in the facts. Moreover, the application of INPV would result in a lower value compared to NNBV. The relevant finding of the Ld. CIT (A), deleting the addition is below:- "....The Ld. TPO's order suffers from various infirmities. He has picked up secret comparables and not made available the details to the appellant for its reply. Secondly, the secret comparable is in respect of a controlled transaction and hence not independent and not liable to be used as sole benchmark. Thirdly, no prescribed method has been followed to determine the ALP. On the other hand, the appellant has been adopting a remuneration (Transfer) policy consistently followed by HSBC group entities across the globe. The Ld. TPO in t....
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.... 60% of INBV, the TPO disregarded the entire submissions, his own showcase notice and details provided during the proceedings. 85. Before us Ld. Counsel has submitted the following difference in the application of the two methods:- As per 30 per cent of the Net New Business Value (NNBV) method Notional: USD 11,000,000 Tenor of the deal: 3.5 years Value on the deal per annum: 10 basis points per annum (say) Credit Risk: 3.5 basis points per annum (say) Net New Business Value (NNBV) on the deal: PV of (USD11 mio * 6.5bps * 3.5 years) equals USD 22599 (i.e., Present Value of USD 25025) 30% of this is USD 6,780 /- As per 60 per cent of the INPV method Notional: USD 11,000,000 Tenor of the deal: 3.5 years Value on the deal per annum: 10 basis points per annum (say) Credit risk on the deal: 3.5 basis points per annum (say) Other event risk/uncertainty, etc.: 4 basis points per annum (say) INPV on the deal: PV of (USD11 mio * 2.5bps * 3.5 years) equals USD 8692 (i.e., Present Value of USD 9625) 60% of the above: USD 5215/- 86. From the working of the difference in the....
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.... on account of separation. Appropriate taxes have been deducted on such amounts paid to employees, and the taxes were deposited to the central government. The details of employees, along with sample copies of the termination letter, were handed over to the Bench during the course of the hearing. 90. The said termination was not part of any Voluntary Retirement Scheme (VRS); hence, the provisions of section 35DDA of the Income-tax Act, 1961 (the Act) are not applicable. 91. We have already given our finding in A.Y. 2004-05 and accordingly, in the finding given above, this issue is allowed in favour of the assessee. Ground No. 2: Depreciation of Rs 2,85,000 on amount paid to Gillanders Arbuthnot and Company Ltd ('Gillanders') 92. This issue has already been dealt by us in A.Y. 2004-05 wherein we have allowed this issue treating it as 'Revenue expenditure'. Accordingly, ground No.2 raised by the assessee is allowed. ITA No 4786/MUM/2016- Department Appeal Ground No. 1: Expenses incurred for mobilization of deposits from Non-resident Indians (NRIs) - Rs 9,29,19,828 94. Again this issue is similar to the ground raised in Revenue appeal for A.Y. 2004-05 and a....
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....garding liability remission or cessation, nor did it write off any liabilities in its accounts. Hence, the unilateral credit to the Profit & Loss A/c. did not amount to any cessation of liability that could be taxed. The Supreme Court of India in case of Sugauli Sugar Works (P) Ltd. (1999) (236 ITR 518) has held as under: "The principle that expiry of period of limitation prescribed under the Limitation Act could not extinguish the debt but it would only prevent the creditor from enforcing the debt, has been well-settled. It is enough to refer to the decision of this Court in Bombay Dyeing & Mfg. Co. Ltd. v. State of Bombay 1958 SCR 1122. If that principle is applied, it is clear that mere entry in the books of account of the debtor made unilaterally without any act on the part of the creditor will not enable the debtor to say that the liability has come to an end. Apart from that, that will not by itself confer any benefit on the debtor as contemplated by the section" 100. Further, it has been submitted that the excess funds have been adjusted against the contribution of liability payable to the gratuity fund in AY 2006-07. The Ld.CIT(A) in AY 2006-07 has not allowed t....
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.... arose. The financial statements of the Hong Kong and Shanghai Banking Corporation Pension Fund as on 31 March 2005 have been enclosed before us. 103. The Assessee has recognized the over funding/excess contribution as an asset in its books and credited the Profit & Loss A/c. by an aggregate amount of Rs. 40,27,00,000. This amount has been reduced from the contribution payable for AY 2008-09, 2009-10, 2011-12 and 2012-13 as it was already discharged in AY 2005-06. 104. The Assessee has contributed in excess of the required amount. The Assessee cannot claim deduction for expenses over and above what is required for the particular purpose as determined by the actuary for the previous year. As the Assessee has itself credited the same to the Profit & Loss A/c., it is taxed. 105. The relevant para of CIT (A) order allowing the ground in favour of Assessee is as under: "I have considered the facts of the case, AO's contention and the Appellant submission. I find that the aforesaid issue is covered in the Appellants' favour by the Supreme Court decision in the case of Sugauli Sugar Works (P) Ltd. (1999) (236 ITR 518). Thus, on the basis of the factual submission....
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....n liability in respect of ex-employees 109. Brief facts qua this issue are that, provision made in AY 2004-05 of Rs. 37,42,55,286 has been suo moto offered and taxed in AY 2004-05. During the current year, in the books out of Rs. 37,42,55,286 an amount of Rs. 16,64,97,286 has been credited to the Profit & Loss A/c. 110. The Assessee has contributed in excess of the required amount. The Assessee cannot be allowed to claim the deduction for expenses which are over and above what is required to incur for the particular purpose. 111. Before us Assessee submitted that as this have already been offered and taxed in AY 2004-05 and therefore, taxing the same would amount to double addition. Since, this amount has already been offered in tax in A.Y. 2004-05 and therefore, same cannot be taxed in this year. Accordingly, the said reversal is excluded while computing income of the assessee. Ground No. 5 & 6: Addition of Rs. 55,45,78,123 on account of loss on certain security transactions undertaken by the Assessee 112. Brief facts are that, the Assessee had undertaken certain security transactions with Canbank Financial Services Limited (Canbank). The Assessee had to deliver cer....
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....he Supreme Court of India. The relevant para of the Delhi High Court decision is as under: "In the present case, with the Award having been made rule of the Court by a learned Single Judge of this Court, the mere fact that the said judgment and decree was stayed by a DB would not relieve NAFED of its obligation to pay interest in terms thereof to Alimenta. Such liability commenced in the previous year in which the said judgment and decree was passed by the learned Single Judge. To borrow the phraseology of the Supreme Court in Shree Chamundi Mopeds Ltd. (supra), it cannot be said that merely because there is a stay granted by the DB of this Court that the order of the learned Single Judge has been "wiped out from existence." For the aforementioned reasons, this Court is unable to sustain the impugned order of the Special Bench of the ITAT. Accordingly, the question framed is answered in the negative i.e., in favour of the Assessee NAFED and against the Revenue." (emphasis applied) 117. Accordingly, we held that the liability to pay has accrued and quantified in current year and hence the deduction of Rs. 55,45,78,123 is allowed in this year. Ground No. 7,8 a....
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....n be deemed to have accrued in India only if payment is made for the debt that has been incurred in India by a non-resident which will not be the case here since the issuing bank which provides debt is outside India being a foreign branch. As per art. 7 of Indo-UK DTAA, income that can be brought to tax in India must be directly or indirectly attributable to the PE in India. Since the transactions were with appellant's foreign branches where the issuing bank and the acquiring bank in India was some bank other than the Indian branch of the assessee, it cannot be said that Indian branch was in any way connected with the transaction or that income earned could in any way be said to have been directly or indirectly through PE in India. He accordingly held that the income arising in India from transaction in India by using credit cards of foreign branches should be taxed in India. This income can only be the income received by the Indian branch and such commission income being already included as an acquiring bank. The income to the foreign branch from the credit given to its card holders outside India cannot be taxed in the hands of the Indian branch since it is not arising in Indi....
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....tion of income along with notes to return of income, wherein the details of Head Office expenses incurred and claimed are mentioned. The same is summarized as under: Particulars Amount in Rs. Head Office expenses incurred 98,98,69,000 Head Office expenses debited to the Profit & Loss A/c 35,36,04,000 Deduction claimed under section 44C 32,62,39,678 121. Thus, for the purpose of allowing deduction under section 44C, the amount equal to 5 per cent of adjusted total income or the expenditure or the amount incurred and attributable to the India branch (i.e., 98,98,69,000) is to be considered. The amount of Rs. 35,36,04,000 debited to the Profit & Loss A/c is irrelevant. We do not find any infirmity in the order of the ld. CIT(A) directing to allow expenditure to the extent of 5% of adjusted total income. Accordingly, ground No.10 raised by the Revenue is dismissed. Ground No. 11: CIT(A) is correct in directing to allow the expenditure to an extent of 5 per cent and computing deduction under section 44C @ 5/100 times of average adjusted total income against @5/105 times of average adjusted total income as worked out by the AO without giving any reasons. ....
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.... Ground No 16 - Marketing of derivatives services provided by the Assessee 130. The facts pertaining to the marketing of derivative services for the captioned appeal are similar to ground no. 10 of the Department's appeal for AY 2004-05. Again this issue is similar to ground decided in Revenue's appeal for A.Y. 2014-15, accordingly, our finding given therein will apply mutatis mutandis in this year also. Accordingly, this issue is allowed in favour of the assessee and consequently, the Revenue's ground is dismissed. Ground No 18 - Interest received from HSBC Bank USA 131. Brief facts are that the Assessee maintains an account with HSBC USA denominated in USD, which is used for settling dollar clearance. The credit balance in the account initially did not earn interest for the Bank. To earn revenue out of the surplus credit balances (balance exceeding 250,000 USD), the Bank has entered into an Investment Service Agreement with HSBC USA. 132. Under this agreement, the credit balance in the bank account exceeding USD 2.5 lac is invested by HSBC USA in approved securities on behalf of HSBC India on an overnight basis. The interest earned by the Assessee from HSBC USA ....
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.... 2002-03 by the LD. TPO as well as my predecessor in AY 2002-03 for benchmarking the overnight lendings in USD. I agree with the decision of my predecessor and beg to differ as to why the Fed Fund rate should be considered as an appropriate benchmark." 138. Before us Ld. Counsel submitted that the TPO ought to have considered the Fed Fund rate to benchmark the international transaction. The Federal Funds rate is a target interest rate that is fixed by the Federal Open Market Committee ('FOMC') for implementing the USA's monetary policies. The Fed Funds rate is achieved through open market operations at the Domestic Trading Desk at the Federal Reserve Bank of New York, which deals primarily in domestic securities. 140. He further submitted that the bank had placed the funds with HSBC USA. The relevant geographic market governing the placement of the funds is the USA, for which the Fed Fund rate used in USA markets would be the most appropriate for the purposes of benchmarking. LIBOR rates cannot be considered as a market-determined rate and hence are inappropriate for benchmarking, as LIBOR is calculated as an average of the submissions made by the major banks to t....