TaxTMI 
TaxTMI 
2026 (7) TMI 204
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....eals and cross objections by the department, arise out of separate orders, passed by learned Commissioner of Income Tax (Appeals)-VII, Mumbai ('ld. CIT(A)' for short), for the assessment years ('A.Ys.' for short) 1998-99, 1999-2000 and 2000-01. ITA No. 5514/Mum/2001 (Assessee's appeal for A.Y. 1998-99) 2. In ground no. 1, the assessee has challenged the taxability of interest received by the permanent establishment ('PE' for short) from Nostro account/overseas placement made with the head office and overseas branches as also with other overseas banks, amounting to Rs. 6,68,50,601/-. 3. Briefly, the facts are, the assessee is a non-resident banking company incorporated in United Kingdom ('UK' for short) and has opened branches in India at Mumbai and New Delhi, which constitute assessee's PE in India. For the assessment year under dispute, the assessee had filed its return of income on 30.11.1998, declaring income of Rs. 7,38,03,150/-. Subsequently, the assessee filed its return of income on 30.03.2000, declaring income of Rs. 3,66,09,620/-. 4. In course of assessment proceedings, the Assessing Officer (A.O. for short) noticed that in the original return of income, th....
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....able at the hands of the assessee. In this regard, learned counsel relied upon the following decisions: a) DIT(IT) vs. Credit Agricole Indosuez [2016] 69 taxmann.com 285 (Bom) b) Sumitomo Mitsui Banking. Corporation v/s DDIT, [2012] 19 taxmann.com 364 (Mum.) c) Credit Agricole Indosuez vs. Jt. CIT [2007] 14 SOT 246 (Mum) d) Assam Fronter Tea Co. Ltd. vs. ITO [1994] 49 ITD 412 (Cal.) 7. Learned Departmental Representative ('ld. DR' for short) strongly relied upon the observations of the A.O. and ld. First appellate authority. 8. We have considered rival submissions and perused the materials on record. We have also applied our mind to the judicial precedents cited at the bar. Undisputedly, in the year under consideration, the assessee had received interest from Nostro account and overseas placements with its head office and overseas branches. That apart, the assessee had also received interest on a placement of funds/advances with other overseas banks (third party banks). The details of interest earned are as under: 1. Rs. 1,21,688/- Nostro account with head office and overseas branches 2. Rs. 1,47,00,212/- From placements o....
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....e Revenue and submits that in the present case the question as raised by the Revenue is not in respect of deducting the payment of interest to compute total income but with regard to the chargeability to tax of the interest received by the Indian Permanent Establishment (PE) from its Head Office in computing the total income. It is pointed out that the Indian PE and the head office are one and the same person. It is settled position that one cannot make a profit out of oneself as held by the Apex Court in Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506. The impugned order of the Tribunal also places reliance upon the Special Bench decision in the case of Sumitomo Mitsul Banking Corpn. v. Dy. DIT [2012] 19 taxmann.com 364/136 ITD 66 (Mum.) (SB) to hold that man cannot make profit out of himself and therefore the interest received by the Assessee from it's own Head Office is not chargeable to tax. (c) So far as the reliance by the Revenue on order dated 14 April 2013 of this Court admitting the appeal in Antwerp Diamond Bank N.V. (supra), is concerned, deduction on account of interest paid by the Indian PE to its Head office was in the specific context of Articles 7(2) a....
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....ular provisions of Income-tax Act. Thus the fact that the Appeal in the case of Antwerp Diamond Bank N.V. (supra) is admitted would have no relevance for admitting the present appeal on the proposed Question No.5. It is also necessary to point out that the Tribunal in the impugned order has recorded the fact that the Respondent-Assessee has admitted before it that to bring about parity, it is not claiming any deduction of interest paid by it to its Head Office while computing the taxable income. 11. Thus, keeping in view the observations of the Hon'ble Jurisdictional High Court and ITAT (Special Bench) in the decisions referred to above, we hold that the interest income earned by the Indian branches on the Nostro account and the placements made with head office and overseas branches is not taxable in India. 12. Having held so, it is necessary to examine the issue relating to the taxability of interest earned of Rs. 6,68,50,601/- from other overseas banks. While bringing to tax the aforesaid amount under the domestic law, the line of reasoning of the AO is that such income is taxable both under the general provision contained u/s. 9(1)(i) as also the special provision u/s.....
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....e statute w.e.f. 01.06.1976 for taxing the interest income, the general provision would not apply. Thus, we hold that the interest amount of Rs. 6,68,50,601/- is not taxable in India. Ground No. 1 is allowed. 15. In ground No. 2, the assessee has challenged the disallowance of expenditure amounting to Rs. 2,21,05,763/- on the alleged interest income earned from foreign currency lendings to Indian entities. 16. Briefly, the facts are, in course of assessment proceedings, the A.O. noticed that the assessee had paid tax at 20% on the interest earned on FCNR(B) deposits by applying the provision of section 115A of the Act. After calling for and verifying the necessary details, the AO was of the view that the interest income cannot be made taxable on gross basis in terms with section 115A of the Act. He observed that the expenses attributable to earning of interest income has to be computed by establishing the link between the funds deployed and interest earned. Accordingly, he computed the interest expenses at Rs. 2,30,74,177/-. However, since the interest expenditure so computed was more than the interest income, he restricted the disallowance to Rs. 2,21,05,763/-. 17. The as....
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....me earned to Rs. 11,07,000/-. 22. Though the assessee contested the aforesaid disallowance before learned first appellate authority, however, it was unsuccessful. 23. We have considered rival submissions and perused the materials available on record. Upon going through the financial statements of the assessee, we find, the interest free fund available with the assessee was more than enough to take care of the investments giving rise to exempt income. Therefore, as per the legal position settled by the Hon'ble Supreme Court, Hon'ble Jurisdictional High Court and the co-ordinate benches, no disallowance of interest expenditure can be made. Accordingly, we direct the AO to delete the disallowance. 24. In ground number 4, the assessee has challenged disallowance of write-back of provision of bad debt amounting to Rs. 39,18,611/- u/s. 36(1)(vii) of the Act. 25. We have considered rival submissions and perused materials available on record. In course of assessment proceedings, the AO found that the assessee had written back an amount of Rs. 74,07,000/- towards bad debts written off. Referring to the decision taken by the AO with regard to the similar claim made in A.Y. 1997-9....
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....ayment made to clubs, called upon the assessee to justify the deduction claimed. After considering the submissions of the assessee, the AO concluded that the expenditure incurred is not wholly and exclusively for the purpose of business, hence, is not allowable. Accordingly, he disallowed the same. While deciding the issue in appeal, learned first appellate authority allowed the claim. 32. We have considered rival submissions and perused the materials available on record. We find, the assessee has been settled in favor of the assessee by various judicial precedents. In this context, we place reliance upon the decision in the case of Swiss Re Services India (P) Ltd. [2023] 156 taxmann.com 56 (Bom), wherein the Honourable High Court, while dealing with an identical issue, has held that the payment made towards entrance and subscription fee of employees is allowable as 'revenue expenditure'. In case of CIT v. United Glass Manufacturing Co. Ltd. [2012] 28 taxmann.com 429, Hon'ble Supreme Court has upheld allowability of club membership fee for employees as allowable expenditure. Thus, respectfully following the decisions referred above, we uphold the decision of Ld. First Appell....
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....u/s 234B is required to be calculated on the basis of total income computed without considering the refund determined u/s 143(1) of the Act. We, therefore, uphold the impugned order on this issue. This ground is not allowed. 38. Viewed in the context of the aforesaid observations of the co-ordinate bench, the A.O. essentially seeks to levy interest u/s. 234D of the Act in the garb of section 234B of the Act though section 234D of the Act was not in the statute at the relevant point of time. In view of the aforesaid, we do not find any infirmity in the decision of ld. First appellate authority. Hence, this ground is dismissed. CO No.232/Mum/2001 (by the Department for A.Y. 1998-99) 39. The department has filed an application seeking condonation of delay of 553 days in filing the cross-objection. It is necessary to observe that assessee's appeal was filed on 19.09.2001. Whereas, the cross-appeal was filed by the Revenue on 16.08.2001. The crossobjection was filed on 08.10.2013. Thus, actually, there is delay of more than 12 years in filing the cross-objection. However, the department has recognized the delay from the date of decision in case of Sumitomo Mitsui Banking Corpn.....
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....nting regularly followed by the assessee, the foreign exchange contracts outstanding at the end of the year are revalued and the gain/loss arising on such revaluation is either offered to tax or claimed as loss. In the year under consideration, there was loss of Rs. 33,45,486/- on such revaluation. When called upon to justify the claim, the assessee submitted that such revaluation at market price at the end of the year has to be undertaken as per the guidelines of FEDAI. The AO, however, was not convinced. He was of the view that such loss on revaluation is speculative and is in the nature of contingent liability, as, if at all, such loss would be arising at a future date. Thus, he held that such loss cannot be allowed as deduction u/s. 37 of the Act. 44. Learned first appellate authority upheld the decision of the A.O. 45. Having considered rival submissions, we find that the issue is settled in favour of the assessee by the decision of the ITAT, Special Bench in the case of DCIT vs. Bank of Bahrain & Kuwait [2010] 41 SOT 290 (Mum-SB). Thus, respectfully following the Special Bench decision noted above, we direct the AO to allow the assessee's claim. 46. In the result....
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....be applicable. Respectfully following the ratio laid down by the Special Bench in the decision referred to above, we dismiss the cross objection. ITA No. 3280/Mum/2004 (by Assessee's appeal for A.Y. 2000-01) 51. The only issue arising in the appeal relates to the addition of interest received from Nostro account and overseas placement of funds with head office and overseas branches, as also other overseas banks. This issue is identical to the issue raised in ground no.1 of ITA No. 5414/Mum/2000, decided by us in the earlier part of the order. Following our reasoning therein, we hold that the interest is not taxable in India. Accordingly, the AO is directed to delete the addition. ITA No. 3927/Mum/2004 (Department's appeal for A.Y. 2000-01) 52. Ground no. 1, the department has contested the disallowance of broken period interest amounting to Rs. 11,73,76,223/- on purchase of current securities. As per Reserve Bank of India ('RBI' for short) guidelines, banks are required to purchase securities to maintain Statutory Liquidity Ratio (SLR). According to the accounting principle followed by the Banks, these securities are held as stock-in-trade. The banks have to pay int....
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.... no merit in the appeal and the same is dismissed with no order as to costs. 56. Thus, respectfully following the observations of the Hon'ble Jurisdictional High Court, we uphold the decision of learned first appellate authority. 57. In the result, the appeal is dismissed. CO No. 280/Mum/2013 (by the Department for A.Y. 2000-01) 58. The department has filed an application seeking condonation of delay of 615 days in filing the cross-objection. It is necessary to observe that assessee's appeal was filed on 30.04.2004, whereas, the cross-appeal was filed by the Revenue on 14.05.2004. The cross objection was filed on 06.12.2013. Thus, actually, there is a delay of more than 9 years in filing the cross-objection. However, the department has recognized delay from the date of decision in case of Sumitomo Mitsui Banking Corpn. Vs. DDIT [2012] 19 taxmann.com 364 (Mum.)(SB) delivered on 31.03.2001. In our view, the reasoning of the department cannot be accepted. It is established on record that the delay is of more than 9 years, which by any standard is inordinate. Therefore, the department has to explain the delay of 9 years and not 615 days. Even for argument's sake, accept....