TaxTMI 
TaxTMI 
TaxTMI 
2025 (8) TMI 1308
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....iling the appeal in time. Thus, the delay of 60 days in filing the appeal is condoned and proceed to hear the appeal on its merit. I.T.A. No. 581/Chny/2024 [AY 2020-21] - Assessee's appeal: 3. The first ground raised by the assessee is against the action of the Ld. CIT(A) confirming the action of the Assessing Officer adding the income of the foreign branches at Singapore and Sri Lanka amounting to Rs.. 33,13,96,009/-, which was claimed as an exempt income of the assessee. 4. Brief facts of the case are that the assessee is a Scheduled National Bank i.e., it is a banking company under the Banking Regulation Act, 1949 engaged in the business of banking, trading in shares and securities etc. The assessee filed its return of income [RoI] for the AY 2020-21 on declaring income of Rs.. 30,17,04,74,740/- Later, the RoI was selected for scrutiny under CASS. Accordingly, notices under section 143(2) and 142(1) of the Income Tax Act, 1961 ["Act" in short] were issued along with questionnaire, which were complied by submitting reply and documents as called for by AO. From perusal of submissions made by the assessee, ITR & computation of income, audited financial statement & Form 3CD, the ....
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.... The AO noted that income of PE may be taxed in the source country, but it does not say shall be or only be. Further, according to the AO, the Treaty follows credit method for relieving taxation as against exemption method and that the treaty does not give exclusive right of taxation to the source country. Therefore, according to the AO, it is erroneous to say the income of PE can be taxed only in the country in which it is situated. The AO further observed that Article 25(2) of Singapore DTAA and Article 24(2) of Sri Lanka DTAA apply only to entities which do not have PE. According to AO, Article 25(1) of DTAA with Singapore clearly states. "The laws in force in either of the Contracting States shall continue to govern the taxation of income in the respective Contracting States except where express provision to the contrary is made in this Agreement. Where a resident of India derives income which, in accordance with the provisions of this Agreement, may be taxed in Singapore, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Singapore tax paid, whether directly or by deduction". Similarly, according to the AO, Article 24(1) and 24(....
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....larified that double taxation relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. In view of the above, the Assessing Officer disallowed the income from foreign branches amounting to Rs..33,13,96,009/- which was claimed as exempt income and added back to the total income of the assessee for the year under consideration. 7. The assessee carried the matter in appeal before the Ld. CIT(A). After considering the assessment order, submissions of the assessee and by following the decision of the Coordinate Bench of this Tribunal in assessee's own case in ITA No. 1877/Chny/2015 dated 11.03.2016, the Ld. CIT(A) confirmed the order of the Assessing Officer and dismissed the ground raised by the assessee. Aggrieved the assess is before us. 8. We have heard both the sides, perused the material available on record and gone through the orders of authorities below. We find that the ground raised by the assessee is no longer res integra in view of the decision of the Coordinate Benches of the Tribunal in assessee's own case for the assessment year 2011-12 wherein vide order dated 11.03.2016 (supra), this Tribunal has ....
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....e bank in consonance with the accounting standards ICBS-VI. 11. On perusal of assessee's audit report in Form 3CD, written submission, the Assessing Officer noted that the assessee has mentioned that Foreign Currency fluctuation arising on account of restatement of monetary items of the foreign branches of Rs.. 56.67 crores has not been offered to tax against the requirements of ICDS VI. This contention of the assessee was noted to be in line with the assertion of the assessee bank that as per Double Taxation Avoidance Agreement with Singapore & Sri Lanka, business income arising in a particular state would be subjected to tax in that particular state only, and hence the same be excluded while computing the total income in India. The said claim of the assessee was not accepted by the AO, since the incomes from foreign branches have been added back to the total income of the assessee for the year under consideration (supra). Hence, the said amount of Rs.. 56.67 crores was also added back to the total income of the assessee for the year under consideration. On appeal, the Ld. CIT(A) confirmed the addition made by the Assessing Officer. Aggrieved, the assessee is before us. 12. Befo....
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....or losses reported in the Profit and Loss account. 29. Simply put, exchange differences arising on translation of non-integral foreign operation to be accumulated separately in foreign currency translation reserve till investment in foreign operation is disposed of. 30. The Hon'ble CIT(A) has erred in deciding disallowance based on the accumulation in the FCTR. Unrealized exchange gains and losses, which are routed through the FCTR, do not represent real income or expenditure and hence are not taxable. 31. Without prejudice to the above, the Hon'ble CIT(A) erred in confirming the entire reserve created during the year amounting Rs. 56,67,00,000/- which includes both monetary and non-monetary items, contrary to the guidelines in "ICDS-VI Effects of changes in Foreign exchange rates, which clearly specify that only exchange difference arising from monetary items shall be recognized as income or expense for the year. 32. As per para 3 to 7 of Income computation and disclosure standard VI relating to the effects of changes in foreign exchange rates- Para 3 3(1) A foreign currency transaction shall be recorded, on initial recognition in the reporting currency, ....
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....e financial statements of a foreign operation shall be translated using the principles and procedures in paragraphs 3 to 6 as if the transactions of the foreign operation had been those of the person himself. By following para 7 of ICDS VI, the assets and liabilities of the foreign operations would need to be classified into monetary and non-monetary items and the foreign exchange gain/loss would be recognized to profit and loss or not will be as per para 5. Therefore, the income/expenses arising from following principles as per paras 3 to 6 above for monetary and non-monetary items, as opposed to principles under AS 11 for non-integral operations, may need to be adjusted in computing the taxable income. 33. To conclude, even if the reserve created for foreign currency translation is disallowed, only the portion related to monetary items should be added back to the income. Non-monetary items, however, should not be added back as per the above principles. According to ICDS VI, exchange differences for non-monetary items do not even need to be recognized as income or expense in the current year. 13. Besides the above written submissions, the Ld. AR brought to our notice that ....
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....ding to him, the allowability of education cess shall have to be examined first under the terms of Section 37(1) i.e. whether the said expenditure has been 'laid out or expended wholly and exclusively for the purposes of business or profession'. The fundamental question, therefore, which arises for consideration is whether education cess is an expenditure 'laid out or expended wholly and exclusively for the purposes of business or profession'. The answer to that question according to AO is clearly in negative because education cess is not an expenditure at all. Rather, it is a charge upon the profits, similar to income tax. Any expenditure to earn a profit cannot be a part of the profit itself. It is an application of an income and not an expenditure laid out or expended wholly and exclusively for the purposes of business or profession so as to pass the test envisaged in Section 37(1).Further, without prejudice to the applicability of provisions of Section 37(1), the claim of deduction of 'education cess' cannot be allowed under the provisions of Section 40(a)(ii) as well. Further, according to the AO, the Education cess was introduced as an additional surch....