TaxTMI 
TaxTMI 
2026 (7) TMI 552
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....arned Commissioner of Income Tax (Appeals)-XXXI, Mumbai ['Ld.CIT(A)'], pertaining to Assessment Years (AY) 1999-2000 to 2001-02 wherein the respective grounds of appeal read as under: Assessee's grounds of appeal in ITA No. 3159/Mum/2004 pertaining to Assessment Year 1999-2000 "In disregarding the tax neutrality claimed in respect of interest of Rs. 86,239,455 received by the Appellant on funds placed with its head office/overseas branches, and the interest of Rs. 1,077,963 paid by the Appellant in respect of funds placed with it by its head office/overseas branches." Revenue's ground of appeal in ITA No. 3488/Mum/2004 pertaining to Assessment Year 1999-2000 "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 87,53,126/- on account of expenditure incurred in earning income exempt u/s. 10(15) of the IT. Act, 1961." Revenue's ground of appeal in cross-objection No. 174/Mum/2013 pertaining to Assessment Year 1999-2000 "Whether provision of section 14A of the I.T. Act will be applicable in the event it is held that the interest received by the Indian branch from its....
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.... order of the Ld. CIT(A) on the above grounds set aside and that of the AO restored." Revenue's ground of appeal in Cross-objection No. 175/Mum/2013 pertaining to Assessment Year 2000-2001 "Whether provision of section 14A of the I.T. Act will be applicable in the event it is held that the interest received by the Indian branch from its Head Office is not taxable in the hands of Indian branch office." Assessee's grounds of appeal in ITA No. 2285/Mum/2005 pertaining to Assessment Year 2001-2002 "1. In considering each branch/head office of the same legal entity as separate and distinct entities under the provisions of the Act. 2. In disregarding the tax neutrality of interest of Rs. 27,857,575 received by the Appellant on funds placed with its head office/overseas branches, and the interest of Rs. 8,069,725 paid by the Appellant in respect of funds placed with it by its head office/overseas branches. 3. Without prejudice to the above, in upholding the disallowance under provisions of section 40(a)(i) of the Act in respect of interest paid to overseas branches amounting to Rs. 8,069,725. 4. In simultaneously taxing the in....
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.... free bonds exempt u/s. 10(15)(iv)(h) of the Act. 3. With the consent of both the parties, the case of the assessee for A.Y. 2000-01 was taken as lead case, wherein briefly, the facts of the case are that the assessee had earned interest income amounting to Rs. 1,22,25,000/- on tax free NABARD bonds of 1996-97 and 1997-98 series which was claimed as exempt u/s. 10(15)(iv)(h) of the Act. The Assessing Officer referring to the provisions of Section 10 of the Act, the CBDT Circular no. 780 dated 04.10.1999 issued in the context of Section 10(23G) of the Act, and the decisions of various Coordinate Benches as well as the Hon'ble Courts held that the assessee is eligible for exemption u/s. 10(15)(iv)(h) of the Act only in respect of "net interest" income and not the "gross interest" income. The Assessing Officer also referred to the provisions of Section 14A of the Act and it was held that in view of the express mandate, no deduction can be allowed to the assessee in respect of the expenditure that it has incurred in earning exempt income. It was held by the Assessing officer that the exemption can be granted to the assessee in respect of that income only, which is clearly and un....
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....t that the assessee has surplus interest free funds in the form of capital and reserves to cover the investment made. Purportedly, no fresh investments were made in the impugned assessment year. The assessee had made investments in NABARD tax free bonds in assessment year 1996-97 and 1997-98. Similar disallowance u/s. 14A of the Act was made by the Assessing Officer in assessment year 1998-99 for earning tax free interest income. The Co-ordinate Bench vide order dated 24/03/2006 (supra) deleted the disallowance. The Hon'ble Apex Court in the case of South Indian Bank Ltd. vs. CIT (supra) has reiterated the legal position, "that the proportionate disallowance of interest is not warranted u/s. 14A of the Income Tax Act for investment made in tax free bonds/ securities which yielded tax free dividend and interest to assessee bank in those situation where, the interest free own funds available with the assessee, exceeded their investment.". The Revenue has not disputed the fund position as highlighted by the CIT(A) in the impugned order. Thus, taking into consideration entire facts of the case and the law expounded by Hon'ble Apex Court in this regard, we find no merit in groun....
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....of the ld CIT(A). 8. In the result, the sole ground of appeal taken by the Revenue in its appeal for A.Y. 1999-2000, ground no. 1 in its appeal for A.Y. 2000-01 and ground no. 2 in its appeal for A.Y. 2001-02 are dismissed. 9. In its appeal for A.Y. 2000-01 and 2001-02, the Revenue has challenged the action of the ld. CIT(A) in allowing the broken period interest claimed by the assessee. In this regard, briefly, the facts of the case are that during the course of assessment proceedings for A.Y 2000-01, the Assessing Officer observed that the assessee has paid a sum of Rs. 2,61,45,472/- by way of broken period interest on securities which formed part of its closing stock as on 31.03.2000, and following the decision of Hon'ble Supreme Court in case of Vijaya Bank Ltd. vs. Additional Commissioner of Income Tax (187 ITR 541), it was held that the broken period interest paid by the assessee forms part of the composite price which it had paid for purchasing the securities and therefore, the interest paid by the assessee is capital in nature and accordingly, it was held that the assessee is not entitled to claim of deduction for the broken period interest paid during the year un....
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....iod interest has to be allowed as revenue expenditure. It was accordingly submitted that both following the principle of consistency as well as in light of the decision of the Hon'ble Supreme Court in case of Bank of Rajasthan, the appeal of the Revenue be dismissed. 13. We have heard the rival contentions and perused the material available on record. In case of Bank of Rajasthan Ltd (supra), the matter for consideration before the Hon'ble Supreme Court was whether deduction for broken period interest can be claimed by the Banks. The Hon'ble Supreme Court referred to its earlier decisions in case of Vijay Bank and held that the same was distinguished by the Hon'ble Bombay High Court in case of American Express International Banking Corporation and which was approved in its earlier decision in case of Citi Bank NA wherein it was held that interest paid for the broken period should not be considered as part of purchase price but should be allowed as revenue expenditure. The Hon'ble Supreme Court thereafter examined the matter relating to whether the securities are held by the Banks as stock-in-trade or not. It held that the Banks are required to purchase Government securities ....
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....er where the Assessing officer has take cognizance of the assessee' submission that the securities constitute its stock-in-trade as they are treated as current investments in its books of accounts, that accrued interest upto the year end is accounted for in the profit/loss account and closing stock is accounted at cost, exclusive of the broken period interest. The Assessing officer thereafter at para 7.2.4 of the assessment order records his finding stating that the assessee pays broken period interest in respect of all the securities purchased during the year, including those securities which are subsequently sold during the year. The Assessing officer further held that the entire amount paid by the assessee by way of broken period interest is capital in nature, however the profit/loss account is adversely affected only by the amount which corresponds to the broken period interest paid by the assessee in respect of those securities which form part of its closing stock and disallowance is restricted to broken period interest in respect of securities purchased during the year and which continued to be in closing stock. We therefore find that the Assessing officer has not disputed th....
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.... 422 (Mum.). The submissions so filed by the assessee were considered but not found acceptable to the Assessing Officer. As per Assessing Officer, Explanation (c) to Section 115JA(2) clearly provides for disallowance of the provisions made while computing the book profits for the purposes of Section 115JA of the Act. Further, the decision in case of Maharashtra State Electricity Board (supra)was distinguished as in that case, the issue under consideration was whether MSEB was subject to the provisions of Section 115JA or not and in that background, it was held that the Tribunal was not concerned with the provision made for bad debts. 18. Against the said order and the findings of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) and it was submitted that for a particular provision to be added back in computing the book profits for the purposes of MAT liability for a particular year, it would have to fall within one of the adjustments prescribed in Section 115JA of the Act. It was submitted that Section 115JA provides that the amount or amount set aside towards provision made for meeting liabilities, other than ascertained liabilities are to b....
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....-Trib.) wherein, it was held that Section 115JA would not be applicable to the assessee being a banking company maintaining its account under the Banking Regulation Act, 1949. Further, reliance was placed on the decision of the Coordinate Delhi Benches in case of Bank of Tokyo Mitsubishi UFJ Ltd vs ADIT [2014] 49 taxmann.com 441 (Delhi-Trib.). 21. We have heard the rival contentions and perused the material available on record. We find that though the amount debited to the profit/loss account as provision for standard asset was not covered by the explanation (c) to section 115JA of the Act, however, the same is covered by explanation (g) to section 115JA of the Act which has been brought in by the Finance Act, 2009 with retrospective effect from 1-4-1998. Explanation (g) talks about "the amount or amounts set-aside as provision for diminution in the value of the any asset" and thus, it will cover provision for standard assets. The said amendment has been brought in apparently after the decision of the Hon'ble Supreme Court in case of HCL Comnet Systems and Services Ltd. Therefore, as per the provisions of section 115JA as applicable for the impugned assessment year 2000-2001, in....
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.... it had been raised only at the time of the arguments in the appeal before the Tribunal as a fresh ground and that if the ground was allowed to be urged and it succeeded, the result would be that the entire assessment proceedings would have to be held invalid and even the assessment on the undisputed amount of the income against which the assessee had not appealed would thereupon go by the board. The assessee had contended before the Tribunal that he wanted to urge that ground only for having the appeal of the department dismissed and stated that he did not want to disturb the assessment as already made by the Appellate Assistant Commissioner. The Tribunal, however, held that it could not permit a legal and an illegal order to stand side by side because once the plea was allowed to be raised and it was accepted the entire order of the Appellate Assistant Commissioner would stand vitiated. The Tribunal refused to allow the assessee to raise and argue that ground because of such difficulty which the Tribunal felt would arise. Now there is no doubt that, as the assessee had already filed a voluntary return, the notice under section 34(1)(a) was wrongly issued and the proceedi....
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....ity in maintaining the assessment order passed against the assessee and yet refusing to increase it on the ground that he was not liable to be assessed at all. The judgment points out however that if the Tribunal accepts the ground of defence that the assessee was not liable to be assessed, it can only refuse to increase the assessed income as only such an order would be within the scope of the appeal filed by the department and any other order such as annulling the assessment would be outside the scope of the appeal. That judgment holds that the position of an appeal under section 33 of the Income-tax Act and an appeal under the Code of Civil Procedure is identical. A Full Bench of the Madras High Court has in Venkata Rao v. Satyanarayanamurthy ILR 1944 Mad. 147; AIR 1943 Mad. 698 [FB], held that it was open to a respondent in appeal who had not filed cross-objection with regard to the portion of the decree which had gone against him to urge in opposition to the appeal of the plaintiff a contention which if accepted by the trial court would have necessitated the total dismissal of the suit, but the decree in so far as it was against him would stand. The judgment of the Tribunal in....
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....e is a banking company and has opened its branches in India after obtaining permission of the RBI. Therefore, the assessee is governed under the Banking Regulations Act, 1949. Section 115JA of the Act provides for computation of total income chargeable to tax to be an amount equal to 30% of the book profit in case such income is less than 30% of the book profit. However, sub- section (2) of section 115JA of the Act mandates that the company for the purpose of section 115JA of the Act has to prepare its Profit & Loss Account in accordance with the provisions of Part-II & III of Schedule- VI of the Companies Act, 1956. Undisputedly, the assessee being governed under the Banking Regulations Act, 1949, is not required to prepare its Profit & Loss Account under the provisions of Part-II & III of Schedule-VI of the Companies Act, 1956. That being the case, the provisions of section 115JA of the Act are not applicable to the assessee. The Tribunal, Mumbai Bench, in Krung Thai Bank PCL v. Jt. DIT (International Taxation) [2011] 16 taxmann.com 239/[2012] 49 SOT 70 (Mum)(URO) has held that the provisions of section 115JB of the Act, which is more or less pari-materia to section 115JA of the ....
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....h is eligible for concessional tax rate of 20% under the provisions of Section 115A of the Act. 28. In this regard, briefly, the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that the assessee has earned interest income amounting to Rs. 2,69,89,233/- from foreign currency loans given to Indian Corporates which is taxable as per concessional rate under Section 115A of the Act. Referring to the provisions of Section 115A, the Assessing Officer stated that it applies to interest income of a non-resident on account of loans extended in foreign currency. Further, reference was drawn to the words "interest received" used in Section 115A(1)(a)(ii) whereas the words used in Section 115A(1)(B) are "the amount of income by way of interest referred to in sub-clause (ii)". It was held that the lower rate of tax of 20% is to be applied to the amount of income arising to the assessee from interest received by it, which is covered by the provisions of Section 115A(1)(a)(ii) of the Act. It was held that where the lower rate of tax is not applied to the net income arising to the assessee, the assessee would be reducing its tax liability by....
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....erence was drawn to the Coordinate Bench decision for A.Y. 2002-03, wherein the relevant findings are contained at paragraph 7.1 of its order which reads as under: "7.1 We have heard the submissions made by rival sides. We find that in assessment year 1997-98 identical disallowance was made by Assessing Officer, the CIT(A) deleted the same, the Revenue carried the issue in appeal before the Tribunal in ITA No. 306/Mum/2001. The Co-ordinate Bench vide order dated 21/04/2004 dismissed the ground raised in the appeal of Revenue by observing as under:- "3. We have heard the rival submissions and also perused the orders of authorities below. Parties appearing before us have respectively relied upon the order of A.O and CIT(A). Since the introduction of section 115A certain changes have been made and with the passage of time the Finance Act 1994 has also carried out certain amendments in the said section w.e.f. 1/4/95 the scope and effect of the amendments was explained by CBDT in Circular No. 684 dated 6/6/94(208 ITR 08(St.), relevant page-43. This CBDT circular and related provisions of IT Act has been elaborately discussed by the first appellate authority. On careful....
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....d the findings of the ld CIT(A) are confirmed. 32. Before parting, a question that arises for consideration is where the assessee has incurred certain expenditure in relation to earning and receipt of such interest income as referred to in Section 115A, what happens to such expenditure for the purposes of computing the gross total income and how the provisions of sub-section (3) of section 115A have to be read in this regard. Since the said issue has not been agitated or any arguments been advanced by either of the parties, the same has not been dealt with by us. 33. In the result, ground no. 01 in Revenue's appeal for A.Y. 2001-02 is dismissed. 34. Now, we take up the grounds of appeal taken by the assessee in its respective appeals. 35. In assessee's appeal for A.Y. 1999-2000, 2000-01 and 2001-02, the assessee has challenged the action of ld. CIT(A) in disregarding the tax neutrality claimed in respect of interest received by the assessee on funds placed with its head office/overseas branches and interest paid by the assessee in respect of funds placed with it by its head office/overseas branches. 36. With the consent of the parties, the case of the assessee in A.Y....
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....rovisions of Section 9(1)(v)(c) of the Act and it was held by the Assessing officer that the interest in question is paid by a non-resident that is the head office of the assessee bank and the said interest is payable in respect of debt incurred or money borrowed and used for the purposes of business or profession carried on by such person in India and reference was drawn to the explanatory note to the Finance Bill, 1976. Further, reference was drawn to the Circular No. 740 dated 17.04.1992 issued by the Central Board of Direct Taxes, wherein, it has been clarified that the branch of a foreign company/concern in India is a separate entity for the purposes of taxation and the interest paid/payable by such branch to its head office or any branch located abroad would be liable to tax in India and would be governed by the provisions of Section 115A of the Act and consequently, the tax would have to deducted on the interest remitted as per the provisions of Section 195 of the Act. Further, reference was drawn to the provisions of Article 7(2) of the Double Taxation Avoidance Agreement (DTAA), wherein, it has been provided that the profits of the company's establishment are to be com....
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.... the amount so received in the overseas overnight call money market in which institutions like banks participate. The Indian branches of the assessee therefore, places the deposits received by them with their overseas branches and for tax purposes it has claimed exemption in respect of the net amount of interest. It was noted by the ld CIT(A) that the main contention of the assessee for claiming this exemption is that the said interest is receipt of the payment to self and therefore, cannot be construed as income or expenditure. The ld. CIT(A) however, did not find the submissions so made by the assessee as acceptable and relied on his findings for A.Y. 1999-2000 as well as the decision of Coordinate Mumbai Benches in case of Credit Agricole Indosuez (ITA Nos. 2089 to 2091/Bom/1991 and ITA Nos. 2472, 1954 and 1955/Bom/1991), dated 09.03.1998. Referring to the decision in the case of Credit Agricole Indosuez (supra), the ld CIT(A) noted that the Coordinate Bench in the said case had held that what was to be determined in the case of assessee foreign bank was not its world income but only the income attributable to its permanent establishment in India in terms of the Double Taxation ....
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....n India, which procures orders from customers in India, delivers goods and collects sale proceeds of goods and remits such sale proceeds abroad, and in return receives a sales commission from the head office, or is allowed to sell goods at a price higher than the price at which such goods are transferred to it by the head office and retain the difference, is it to be concluded that no income has accrued to the non-resident in India from its sales activities because the transactions between the head office and the selling branch would have to be ignored, as transactions with self. For that matter if the Indian branch of the appellant bank was permitted by R.B.I. to invest all its funds, including funds borrowed from India, abroad, would it mean that no income has accrued to the appellant bank in India. 42. On the question of deduction of tax at source on payment of interest to head office/overseas branch, it was held by the ld CIT(A) that it would be illogical to hold that the appellant bank would be entitled to deduction in respect of interest paid on funds borrowed either in India or abroad for the purpose of business in India, in computation of its business income under Indian....
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....of separate ground of appeal and covered in favour of the assessee by the earlier decision of the Coordinate Bench. It was accordingly submitted that as far as subject grounds of appeal is concerned, the limited dispute relates to interest income received from money lying with the head office/overseas branches and interest paid to head office/overseas branches. It was submitted that the assessee in its computation of income has reduced the interest received by the Indian branch office from the head office/overseas branches from the profit determined in the profit and loss account and the amount paid by the Indian branch office to the head office/overseas branches was also added to the profit determined in the profit and loss account, thereby, keeping a consistent stand that the transaction between the assessee and its head office/overseas branches are transaction with itself and therefore, tax neutral. It was submitted that the matter stands covered by the decision of the Hon'ble Delhi High Court in case of Commissioner of Income-tax (International Taxation) vs. Bank of Tokyo-Mitsubishi UFJ Ltd. [2024] 162 taxmann.com 872 (Delhi) [28-05-2024], the decision of the Special Bench ....
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....o tax in India as per domestic laws. It was accordingly held that such interest payment cannot be brought to tax in the hands of the head office in India and also, cannot be claimed as expenditure in the hands of the branch office in India. 46. Following the aforesaid decision of the Special Bench in case of Sumitomo Mitsui Banking Corpn.(supra), the Coordinate Mumbai Bench in case of ACIT vs. Credit Agricole Indosuez Ramon House, ITA No. 6615/Mum/2003, dated 12.09.2012, for A.Y. 1997-98, directed the Assessing Officer to exclude the amount of interest / commission received by the Indian PE from its overseas HO / branches and also not to grant deduction in respect of interest incurred towards overseas HO/branches and the relevant findings reads as under: "23. We have heard the rival submissions and perused the relevant material on record. It is apparent from para nos. 55 and 56 of the Special Bench order that under the provisions of the Income-tax Act, 1961 the taxable entity is only one i.e. overseas GE and the PE in India is a part of that entity. It is the overseas GE which has been held to be chargeable to tax in respect of income attributable to the PE in India. On....
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....d office and overseas branches is not taxable in India under the domestic law as it is a receipt from self to self, hence, covered under the principles of mutuality. The assessee has also preferred to be covered under the domestic law and not under the provisions of India-USA Double Taxation Avoidance Agreement ('DTAA' for short). In case of Sumitomo Mitsui Banking Corporation (supra), a five-member Special Bench of ITAT has decided identical issue in favour of the assessee by holding that the interest received from and paid to head office and foreign branches is not taxable either at the hands of PE or at the hands of the head office or foreign branches, applying the principles of mutuality under the domestic law. In case of Director of Income-tax (IT) vs. Credit Agricole Indosuez (supra), the Hon'ble Bombay High Court has agreed with the ratio propounded by the ITAT(SB). In fact, in assessee's case in A.Y. 1998-99, the co-ordinate bench has decided an identical issue in similar lines. Thus, respectfully following the judicial precedents referred to above, we uphold the decision of ld. First appellate authority while dismissing the ground." 48. In light of the aforesaid dis....
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....e held to be income in hands of the Head office/overseas branches and hence, the question of invoking the provisions of section 115A doesn't arise for consideration. Further, the matter stands covered by the earlier decision of the Coordinate Bench in assessee's own case as well as the decision of the Special Bench in case of Sumitomo Mitsui Banking Corporation(Supra). In the result, the ground no. 04 so raised by the assessee in its appeal for A.Y 2001-02 is hereby allowed. 54. Now, coming to the cross objections filed by the Revenue for A.Y. 1999-2000, 2000-01 and 2001-02, wherein the Revenue has taken a common ground stating that in the event, it is held that the interest received by the Indian branch from its head office is not taxable in the hands of the Indian branch office, then in such a situation, the provision of Section 14A will be applicable. 55. Heard both the parties and considered the material available on record. In this regard, we find that the matter is covered by the decision of Special Bench of the Tribunal in case of JP Morgan Chase Bank v. JCIT, (ITA No. 9189/Mum/2004, dated 10.10.2025), In the said case, the issue before the Special Bench was whether Se....
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....sideration before the Special Bench was limited to the application of provisions of Section 14A of the Act, where the interest received by the Indian branch from its head office is held not taxable on the principle of mutuality. Since the said issue has not been agitated or any arguments been advanced by either of the parties and the cross objection so filed by the Revenue were limited to applicability of Section 14A of the Act, we have not dealt with the said issue. 58. In light of the same, the cross objections so raised by the Revenue for the relevant assessment years are hereby dismissed. 59. In assessee's appeal for A.Y. 2000-01 and A.Y 2001-02, the assessee has challenged the action of the ld. CIT(A) in denying the exemption claimed by the assessee u/s. 9(1)(v) of the Act in respect of interest income earned on overseas placements of funds with non-resident banks. 60. Briefly, the facts of the case in A.Y 2000-2001, being the lead case, are that the assessee in its return of income has claimed exemption on interest earned amounting to Rs. 1,99,461/- from funds placed outside India with banks other than its own branches. The Assessing Officer disallowed the claim for ....
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....permission of the RBI and therefore, it is a case where the funds were lent in India and repayment of loan and interest would also have to be made in India and in such a situation, even though the actual user of the money was abroad, such interest income had accrued or arisen in India and have to be included in taxable total income of the assessee's bank in India. Against the said findings, the assessee is in appeal before us. 63. During the course of hearing, the ld. AR reiterated the submissions made before the lower authorities. It was submitted that the assessee has earned interest from overseas branches of Bayerische Landes Bank (Rs. 45,553) and from overseas branches of Midland Bank (Rs. 1,53,908). It was submitted that it is an undisputed fact that the interest was paid on money lying abroad which was lent to these non-resident banks and therefore, the act of lending and source of interest income happens outside of India. Further, our reference was drawn to the provisions of Section 9(1)(v)(c) of the Act, wherein income by way of interest payable by a person who is a non-resident will be taxable in India, where the interest is payable in respect of any debt incurred or mo....
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.... company, derived income from the manufacture and sale of tea in India. The Assessing Officer observed that the assessee had not included the interest income earned on deposit placed with a bank in the U.K. and the same was brought to tax invoking provisions of Section 9(1)(v) for the reason that interest was earned on funds which flowed from India to the assessee's headquarters in England. The ld. Commissioner (Appeals) took the view that the deposit should have come out of the unremitted sale proceeds of tea in England or out of a fund set apart from such unremitted funds, and so, in either case, the deposits were relatable to the assessee's business connection in India, attracting the provisions of Section 9(1)(i) and not Section 9(1)(v). Thereafter, the matter was carried in appeal before the Coordinate Bench. The Coordinate Bench held that the ld. CIT(A) was not correct in holding that the provisions of Section 9(1)(i) are applicable and not Section 9(1)(v). It was held that even the Legislature has recognized the fact that interest income for the purposes of the deeming provision of Section 9 would be dealt with as a separate category of income and accordingly, the pr....
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....and it is nobody's case that the bank has paid the interest in respect of any debt incurred or money borrowed and used by it for the purpose of its banking operations in India and it was accordingly held that such interest income will not be liable to tax in India. We fully subscribe to the view so taken by the Coordinate Bench. 68. In the instant case, the assessee bank, which qualifies as non-resident, has lent funds to overseas branches of two non-resident banks and both happen to be carrying on their respective banking operations. There is no dispute regarding the non-resident status of the borrower entities and factum of interest payable in respect of debt incurred or money borrowed by such borrower entities. The limited dispute as we could see from the findings of the Assessing officer is restricted to interpretation of the satisfaction of condition as to whether interest is payable in respect of debt incurred or money borrowed and used for the purposes of business carried on by such person in India and how the term "such person" should be interpreted. As we have noted supra, as so held by the Coordinate Bench, the term "such person" has to be read and understood to me....
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.... interest and not infraction of law, is an allowable deduction under section 37 of the Act in computing the chargeable profits of the business carried on by an assessee. It was further submitted that Section 24(2A) of the Banking Regulation Act, 1949 ('BR Act') requires every banking company to maintain in India in cash, gold or unencumbered securities an amount which shall not at the close of business on any day be less than 25 percent or such other percentage not exceeding 40 percent as the RBI may by notification in the official gazette specify, of the total of its net demand and time liabilities in India as on the last Friday of the second preceding fortnight. It was submitted that Section 24(4) of the BR Act provides for payment of penal interest by a banking company on account of default in maintenance of SLR. It was submitted that the assessee, being a bank, as required by the Banking Regulation Act, is required to maintain a prescribed amount of SLR balance in the form of cash, gold or unencumbered approved securities. Where the above requirement is not met with, the bank is required to pay interest at prescribed rates. The levy of interest under section 24 of the B....
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....ault shall be punishable with fine. Thus, it becomes evident that if the payment of interest is made in respect of first default in complying with the SLR requirement, it cannot be treated as a penal provision, however, if the payment relates to second default or subsequent default, such payment has to be treated as penalty for infraction of law, because the RBI Act and the Banking Regulation Act provide for sanction in the form of punishing the director, manager or secretary of the bank with fine and also for prosecution of said officers besides prohibition in receiving any fresh deposits. Therefore, in the backdrop of these provisions, the appellant was asked to furnish details of various defaults for which the amount as large as Rs. 1,03,00,131/- had to be paid by the appellant to Reserve Bank of India for default in maintaining SLR and to show that such payment was only in respect of first default and not any subsequent default/s. However, despite giving repeated opportunities to the appellant to comply with the aforesaid requirement, no details were furnished in appellate proceedings. The ld. CIT(A) held that the ld. AR expressed his inability to produce any further detail in ....
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....i Bank Ltd (76 TT) 439) (ITAT, Cochin), Bank of America [2014] 41 taxmann.com 9 (Mumbai Trib.) and the Hon'ble Jurisdictional High Court in case of CIT vs. Bank of Baroda (in ITA No. 4169 of 2009, dated 15.02.2011). It was submitted that the Jurisdictional Bombay High Court in case of Bank of Baroda (supra)have approved the decision passed by the Cochin Bench of the Tribunal in case of Dhanalakshmi Bank Ltd (supra), wherein it was held that the interest paid u/s. 24(a) and 24(b), both are compensatory in nature and allowable as deduction. It was fairly submitted that although the view of the ld. CIT(A) is supported by the decision of Kerala High Court in case of Catholic Syrian Bank Ltd. (2003) 130 taxmann.com 447 (Ker.), however, in view of the decision of the Jurisdictional High Court in case of Bank of Baroda (supra), the decision of the Jurisdictional High Court will have a binding force on the matter under consideration. 77. The ld DR has been heard who has relied on the findings of the AO and the ld CIT(A). 78. We have heard the rival contentions and perused the material available on record. There is no dispute in the legal proposition so canvassed by the ld. CIT(A)....
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....sub-section (4) to Section 24, it has been provided that where on any alternate Friday, the amount maintained by a banking company at the close of the business on that day falls below the minimum prescribed threshold, such banking company shall be liable to pay to the Reserve Bank in respect of that day's default, penal interest for that day at the rate of 3% per annum above the bank rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day. In sub-clause (b) to sub-section (4) to Section 24, it has been further provided that where the default occurs again on the next succeeding alternate Friday, and continues on succeeding alternate Fridays, the rate of penal interest shall be increased to a rate of 5% per annum, above the bank rate on each such shortfall in respect of that alternate Friday and each succeeding alternate Friday in which the default continues. Sub-section (6) to Section 24 provides that the penalty payable under sub-section (4) shall be paid within a period of 14 days from the day on which a notice issued by the RBI demanding payment is served on the banking company, and in the event of failure of the banking co....
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.... Section 24, it provides that where interest at the rate of 5% has become payable and thereafter, the amount required to be maintained is still below the prescribed minimum threshold, every director, manager or secretary shall be punishable with fine which may extend to 500 rupees and with a further fine of 500 rupees for each subsequent alternate Friday on which the default continues and therefore, even in respect of the liability of the directors, etc. of the banking company, we find that the liability continues to be a civil liability by way of levy of fine. There is no mention of any prosecution to be initiated and that too, any criminal prosecution against the directors, etc of the banking company. In light of the same, the payment of interest either at the rate of 3% or at the increased rate of 5% for non-compliance with the requirement to maintain the minimum prescribed SLR is compensatory in nature and cannot be termed as penal in nature. 81. In the instant case, the ld CIT(A) in absence of sufficient information on record and inability shown by the ld AR to furnish the requisite information and concession on part of the ld AR on behalf of the assessee that there was maj....
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....supra) has been taken into consideration and concurred by the Hon'ble Bombay High Court in case of CIT vs. Bank of Baroda (supra) and appeal filed by the Revenue was dismissed and the relevant findings of the Hon'ble Bombay High Court read as under: "The only question raised by the revenue in this appeal is, whether the interest paid by the assessee for non maintenance of the cash reserve ratio / statutory liquidity ratio as per Section 24 of the Banking Regulation Act, 1949 and Section 42 of the Reserve Bank of India Act, 1934 constitute penalty so as to disallow the interest claim. The Tribunal following the decision in the case of DCIT V/s. Dhanalakshmi Bank Ltd. (Cochin) reported in 76 TTJ 439 held that the interest paid to the RBI was not penalty and accordingly the interest expenditure is allowable. SLP filed by the revenue against similar decision of the Tribunal in the case of Dhanalakshmi Bank Ltd. (supra) has been dismissed by the Apex Court as reported in [2005] 277 I.T.R. (ST) 3. In this view of the matter, we find no merit in the appeal and the same is dismissed with no order as to costs." 84. Following the decision of Hon'ble Bombay High Court in c....
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....rn of income nor was it claimed as a deduction as business expenditure under section 37(1) during the course of assessment proceedings and the Assessing Officer therefore, never examined this issue. The ld. CIT(A) accordingly held that when the ground of appeal is not arising out of the assessment order, which is the subject matter of appeal, the same cannot be raised for adjudication before him and in support, reliance was placed on the decision of Hon'ble Supreme Court in case of Addl. Commissioner of Income-tax vs. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 (SC)[08-11-1977],wherein the Hon'ble Supreme Court held that a claim for deduction not made before the Assessing Officer cannot be entertained by the ld. CIT(A), where the relevant material to sustain the claim is not on record. Accordingly, the additional ground so raised by the assessee was not admitted. Therefore, as against the contention raised by the ld AR during the course of hearing that the ground was not adjudicated by the ld. CIT(A), on examination of the findings of the ld. CIT(A), we find that the ground was not admitted at first place and therefore, it was not adjudicated by the ld. CIT(A). 91. Further....