TaxTMI 
TaxTMI 
2005 (6) TMI 218
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.... bills, issue of letters of credit/guarantees, executing forward transaction in foreign currencies for importers/exporters, money market lending/borrowings, investment in securities etc., in terms of the existing rules and regulations governing such transactions. In the years under consideration, the appellant had three branches in India at Mumbai, Kolkata and New Delhi. There is an agreement between India and Netherlands for Avoidance of Double Taxation and Prevention of Fiscal Evasion (hereinafter called as DTAA). Article 7 of the DTAA provides for taxation in India of a foreign enterprise in respect of profits attributable to its permanent establishment (hereinafter referred to as PE) in India. Since the ABN AMRO Bank NV was having a PE in India, the appellant is liable to tax in respect of income attributable to the PE. 3. One of the common issues involved in all the four assessment years is relating to deduction on account of remuneration paid to the expatriate employees outside India for the services rendered in India. Tax deducted at source and paid in previous year relevant to assessment year 1995-96 is also claimed as a deduction in the respective assessment years. Inte....
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....by the head office in the current financial year to the expatriate employees rendering services in India, on the basis of the reasons stated in his order for the assessment year 1996-97, without controverting the submissions made by the appellant. 2. That, on the facts and in the circumstances of the case, the learned CIT(A), on the basis of the reasons stated in this earlier order for the assessment year 1996-97, erred in confirming the disallowance of Rs. 35,86,781, being that part of the remuneration of the expatriate employees rendering service in India paid by the appellant and representing the tax deducted at source after grossing up the expatriate's total income taxable in India as per the terms of employment. Assessment year 1995-96: "On the facts and in the circumstances of the case the CIT(A) erred in confirming disallowance of Rs. 89,04,276 being the remuneration, tax and interest paid in the current financial year in respect of the expatriate employees. The CIT(A) erred in not appreciating that all the details and explanations called for by the Assessing Officer had duly been filed during the course of the assessment proceedings, but, which were....
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....educt tax from the salary paid to their expatriate employees. Some of the expatriate employees having rendered services in India, had received their remuneration outside India. It is not disputed that the income derived by such expatriate employees from the services rendered in India is liable to tax in India notwithstanding the fact that they received their remuneration outside India. The assessee had failed to deduct tax from the remuneration paid to the said expatriate employees. Whereas the remuneration paid to the expatriate employees in India had been taken into account in the books of account of the assessee relevant to the PE, the remuneration paid to the offshore employees who had rendered services in India but whose remuneration was paid abroad, had been debited in the books of account of head office. As pointed out earlier, the assessee-bank had failed to deduct taxes under section 192 in respect of remuneration of such employees paid outside India for services rendered in India. The CBDT, in order to encourage the compliance in respect of TDS, issued Circular No. 685, dated 20th June, 1994 providing exemption from penalty and prosecution to those employers who paid the ....
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....isites provided abroad to their employees for services rendered in India. Doubts have been raised in some quarters as to whether, due to the disclosure of the excess salary payments by the employers, any consequential action will be taken in the hands of the employees. 2. The Board has considered the matter. The spirit behind issue of Circular No. 685, dated 20th June, 1994, was to encourage immediate voluntary compliance on the part of the employers defaulting in tax deduction. In order that this intention is fully achieved, the Board has decided that the assessments of the employees, in respect of whom payments of short deduction and interest thereon are made by the employers in pursuance of Circular No. 685, dated 20th June, 1994, will not be reopened or otherwise disturbed merely on account of the excess salary payments now disclosed by the employers." 7. The assessee took advantage of the circular and paid a sum of Rs. 2,06,54,499 detailed below as tax deducted at source and interest under section 201(1A) for assessment years 1990-91 to 1995-96. The net offshore remuneration in respect of expatriate employees is also indicated in the statement as under: Details ....
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....e Court decision in the case of Kedarnath Jute Mfg. Co. Ltd v. CIT [1971] 82 ITR 363 (SC). Accordingly, we now wish to claim the said deduction to the extent of amount of such remuneration pertaining to fiscal year 1991-92 (relevant to the assessment year 1992-93) amounting to Rs. 23,87,325. (iii) Tax on remuneration paid to expatriates offshore: The assessee has further stated in the said letter of 13th January as under: We have paid tax in fiscal year 1994-95 on remuneration to expatriates offshore pertaining to the period under the Amnesty Scheme announced by the CBDT vide Circular No. 685, dated 17/20th June, 1994. To the extent such tax pertained to fiscal year 1991-92 (relevant to assessment year 1992-93) we now wish to claim the deduction of tax paid by us in fiscal year 1994-95 in pursuance of the Amnesty Scheme amounting to Rs. 29,86,963.00. The break-up of the figures filed by the assessee are as under: Name of the expatriates offshore staff Net offshore remuneration (Rs.) Additional tax borne by the bank (Rs.) Total offshore remuneration (Rs.) Tax thereon (Rs.) Mr. Moulder 14,00,121 17,81,972 ....
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....Payments to the extent they relate to the previous year relevant to this assessment year are now claimed as a deduction. We have accordingly, revised the computation of total income.' I have carefully considered the submissions of the assessee. I, however, find that the facts of the case relied upon by the Authorised Representative are not all for the present case and as such the decision in the case of Kedarnath Jute Manufacturing Co. Ltd, is not applicable to this case. Salary was paid to the expatriates rendered services in India by the head office of the bank and the same has not been debited to the accounts of the bank in India. In the circumstances, the claim for deduction of Rs. 61,90,206 cannot be accepted. As regards the claim for deduction of Rs. 49,44,312 being tax borne by the bank as salary paid to the expatriates offshore, it is to be noted that the payments have been made only in fiscal year 1994-95. In the circumstances, the assessee's claim for deduction of Rs. 49,44,312 in the assessment for the assessment year 1993-94 cannot be entertained. Hence, the assessee's claim for deduction of Rs. 61,90,206 on account of salary paid to expatr....
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....r 1995-96, the Assessing Officer disallowed the claim for the following reasons: "(a) Assessee has not given detail as to how much amount out of such remuneration has already been claimed as expenditure by any other office of the assessee, particularly because assessee is not allowed to claim the same expenditure twice, once in other country and again in India. (b) Assessee has not given details of services rendered, place of services rendered and terms of agreement regarding such employees/offshore expatriates. (c) The said remuneration has not been included in the income of concerned employees for taxation in India for which assessee is, therefore, liable. (d) The payment has been made under Amnesty Scheme and it is not a regular payment. Therefore, not allowable under regular provisions. (e) Assessee is allowed head office expenses at the rate of 5 per cent of taxable income in India. Therefore in such expenditure including the remuneration under consideration has merged with head office expenses and, therefore, it is treated as allowed by way of head office expenses." The Assessing Officer has further observed in the assessment or....
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....r all the assessment years including the current assessment year paid in the current assessment year. The facts are that CBDT had launched a scheme whereby defaulters of TDS in terms of salary and remuneration paid to expatriate employees abroad tax could be paid by the employer. The appellant-company took advantage of this scheme and paid tax and interest due thereupon for several assessment years with respect to payment made to its expatriate employees to save itself from the rigour of prosecution, although in other sense of the term, these taxes were due and collectable from the expatriate employees from whom the appellant-company in earlier years had failed to collect taxes in accordance with the Indian law and pay the same. Even now, I will say that these taxes have been paid purely on behalf of the expatriate employees and if there is any liability for payment of the same to the bank it rests on those expatriate employees. The appellant cannot say that this should be treated as revenue expenditure. Therefore, for the detailed reasons given above, I am of the opinion that the taxes paid by the appellant-company because of its own fault in not collecting taxes from its expatria....
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....careful consideration to the rival contentions. We propose to consider the dispute separately under three heads, viz-, (a) remuneration; (b) tax deducted at source; and (c) interest. First we take up the issue relating to remuneration. Remuneration: 18. The assessee had failed to deduct tax in respect of the remuneration paid to the expatriate employees outside India and after taking advantage of the amnesty granted by the Government of India in respect of penalty and prosecution, had deposited the tax deductible from such expatriate employees. For assessment years 1992-93 to 1994-95, no deduction, either in respect of remuneration or tax payment, was claimed in the original returns. So, however, after having paid the tax, deduction was claimed in course of the assessment proceedings for the respective assessment years. Article 7 of the DTAA between India and Netherlands provides for taxation of income of the PE. The said article also provides certain guidelines for determination of the profits of PE for the purpose of taxation in India. It will be useful to reproduce paras 2 and 3(a) of article 7 of the DTAA: "2. Subject to the provisions of para 3, where an enterpr....
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.... it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is PE. 20. Para 3(a) of article 7 provides that in determining the profits of a PE, there shall be allowed as deductions, expenses which are incurred for the purposes of the PE including executive and general administrative expenses so incurred, whether in the State in which the PE is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State. Thus, it is evident from the above quoted article of the DTAA that any expenditure which is attributable to PE is to be taken into consideration for the purpose of computation of profits of the PE. We have, therefore, no doubt in our minds that the assessee is entitled to deduction in respect of the remuneration paid to the expatriate employees having rendered services in India notwithstanding the fact that the payment for such remuneration was paid to them outside India. This view has also been taken by the co-ordinate Bench in the assessee's own case for the assessment year 1996-97 a....
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.... direction given by the CIT(A) in this regard at para 8 of his appellate order is, therefore, reversed as a corollary to our order with regard to the ground taken up by the assessee in this regard." 21. It is evident from the above order of the Tribunal that the claim of the assessee in regard to the payment of remuneration to the expatriate employees rendering whole-time services in India throughout the accounting year has been accepted in principle as allowable deduction in computing the profits of the PE. This is, however, with the rider that such payment is not taken into account in working out the deduction under section 44C. We adopt the above direction in regard to the remuneration paid to the expatriate employees for the whole-time services rendered in India, subject to further rider placed under provisions of section 40(a) of the Income-tax Act, 1961. We direct the Assessing Officer to consider the claim of the assessee for assessment years 1992-93, 1993-94 and 1994-95 as under: In principle, the remuneration paid to expatriate employees for the services rendered in India is to be accepted as allowable deduction in computing the profits attributable to PE. So, howeve....
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....C provides for restriction for I he allowance of head office expenses. The maximum deduction permissible is 5 per cent of the adjusted total income. The Assessing Officer has allowed straightway deduction of 5 per cent and there is no reference of the computation of head office expenses which presumably are more than 5 per cent of the adjusted total income. The Assessing Officer shall accordingly, verify the claim in accordance with the provisions of section 44C for taking a decision in the light of the directions of the Tribunal in assessee's own case for assessment year 1996-97 which we have adopted for the years under appeal. 22. The aforementioned direction is valid for the offshore remuneration pertaining to assessment years 1992-93, 1993-94, 1994-95 and 1995-96. In case after verification the Assessing Officer comes to the conclusion that the assessee has not taken the amount of remuneration into consideration in working out the deduction under section 44C, the claim would in principle be permissible in the respective assessment years. So, however, deduction has got to be allowed, as already pointed out, in accordance with section 40(a) read with proviso. The tax not h....
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....icy for its expatriate staff. This policy is laid down in the Bank's Guide Expatriate Staff and Guide International Career Bankers. 'Guide Expatriate Staff'-Principle Expatriate employees all over the world cannot be transferred from one country to another if there is not a certain continuity and consistency in their remuneration. Therefore, the bank has a worldwide salary policy for its expatriate staff. In order to ensure that changes in local taxes and social security regulations do not influence the application of this policy, a net salary system is effective for all expatriates. Net, salary package-The net salary allowance and benefits to which the employees is entitled are determined by head office. Both the expatriate staff member and the local management will be duly informed by International Human Resources of the actual amounts to be paid. Gross up : Once an employee's net salary, allowance and benefits are-determined, his/her gross income for (a part of) the current fiscal year should be calculated by or in consultation with the bank's external tax adviser. Payment of taxes and social security Taxe....
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....he tax borne by the appellant on the offshore remuneration is part and parcel of the local remuneration and is grossed up for the purpose of calculation of taxable income. In fact, the tax on the total income is only a measure for calculating the additional remuneration/benefit for inclusion in the total income as such the result (is the additional remuneration) does not partake the character of tax. Reference is drawn to the Supreme Court judgment in the case of Senairam Doongarmall v. CIT [1961] 42 ITR 392, 397 (SC). From the above reasons the local remuneration (which includes, inter alia, the gross up of the tax) is an allowable expenses. We enclose a copy of letter from International Human Resource Department of the bank at Amsterdam confirming that the tax in respect of the offshore remuneration payable to the expatriate employees is to be borne by the bank. In view of the above submission made we urge that the claim of the appellant for Rs. 35,86,781 on account of the local remuneration being the tax paid in India on the expatriate employees taxable income should be allowed as deductible expense." 24. It is evident from above that the salary paid to the ....
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....d paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income deduction is made. Under section 205 of the Income-tax Act, 1961, there is a bar for the Revenue to demand tax from the assessee to the extent the amount has been deducted from his income. Thus, the tax deducted at source by the assessee and paid to the Government is treated as the tax paid on behalf of the expatriate employees. It is true that the expatriate employees have a right to demand refund of the tax deducted at source if not found chargeable in the assessment in their hands. However, in this case the assessee has paid remuneration net of tax. Therefore, refund, if any claimed on behalf of the expatriate employees would be assessable to tax in the year of refund in the hands of the appellant. Therefore, the objection of the Revenue is overruled. We, accordingly, direct the Assessing Officer to consider the claim of the assessee in regard to the remuneration and the taxes paid relating to assessment years 1992-93 to 1995-96 in assessment year 1995-96 in accordance with the directions contained in this order. 27. In assessment year 1995-96, the assessee has also....
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....learned counsel for the assessee contended that the assessee is entitled to deduction in respect of interest paid under section 201(1A) for delayed payment of TDS as the same is compensatory and not penal in character. In this connection reliance is placed on the decisions of the Supreme Court in the cases of Mahalakshmi Sugar Milk Co. v. CIT [1980] 123 ITR 429, Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684 and CIT v. Ahmedabad Cotton Mfg. Co. Ltd. [1994] 205 ITR 163. The learned counsel contended that section 221 provides for payment of penalty in the event of default for non-payment of TDS. Section 271C provides for penalty for non-deduction of tax. Section 201(1A) provides for payment of interest. According to the learned counsel, it is evident from the aforesaid provisions of the Act that the interest under section 201(1A) is purely compensatory and not penal in character. According to him, since the interest has been paid in the year under appeal, the same is allowable as a deduction in the year of payment by virtue of section 40(a)(i) as part of remuneration. The learned counsel contended that the deduction may be considered under section 37 for the expenditure hav....
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....e employee. So, however, it is interesting to note that in this case the assessee has not discharged the obligation on behalf of the expatriate employees insofar as taxes have not been paid as an obligation on behalf of the employees. The assessee has neither filed the returns nor has any assessment made. No interest has been charged by the revenue for non-payment of taxes by the employees. That is one aspect of the matter. 33. The other side of the matter is that the assessee was under a statutory obligation to deduct tax from the remuneration paid/payable to the nonresident expatriate employees and pay the same to the Government. This is an independent statutory obligation imposed upon the assessee. The tax deducted at source by the assessee and payment thereof to the Government does not by itself qualify for deduction as business expenditure by reason of the compliance of statutory obligation made by the assessee. It is important to bear in mind that the deduction of tax claimed by the assessee is as part of the agreement for payment of remuneration net of salary and not as part of the fulfilment of the statutory obligation. For better appreciation of this issue, relevant sec....
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....tax is actually paid. (2) Where the tax has not been paid as aforesaid after it is deducted, the amount of the tax together with the amount of simple interest thereon referred to in sub-section (1A) shall be a charge upon all the assets of the person, or the company, as the case may be, referred to in sub-section (1)." 34. It is noteworthy from abovementioned provisions of the Act that the interest levied by the Department is for the assessee having been treated as the "assessee-in-default" for the payment of tax deductible at source. This obligation is independent of the obligation of the assessee as an agent of the expatriate employees. Therefore, the payment of interest does not partake the character of the part of the remuneration package in respect of the expatriate employees. As already pointed out, the interest has been paid as the assessee-in-default. Since the assessee is not entitled to deduction in respect of the tax deducted at source per se, as such the interest paid for the default in payment of tax deducted/deductible at source also does not qualify for deduction. Reference may be useful to the decision of the Calcutta High Court in the case of Jubilee In....
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....allowance of Rs. 2,00,81,000 made by the Assessing Officer in respect of loss on revaluation of securities/investments held by the appellant instead of deleting the disallowance made by the Assessing Officer. The appellant submits that the CIT(A) while fairly conceding that in valuing the securities at market price, if the value of the appellant's stock gets reduced, the appellant should be allowed relief thereon, erred in concluding that the appellant should file all the details regarding each and every security along with nature of securities whether it is current or permanent with the Assessing Officer so that the Assessing Officer can decide the issue afresh and set aside the assessment to this limited extent. The CIT(A) should have appreciated that all the details have already been filed with the Assessing Officer and treatment of the securities as current securities in terms of the RBI guidelines has also been explained to the Assessing Officer." The above ground has not been pressed before us and the same is, accordingly, dismissed as not pressed. 36. The second ground of appeal raised by the assessee is as under: "2. Expenditure on food and bever....
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.... 1 lakh, a relief of Rs. 30,000 has been allowed and disallowance of Rs. 70,000 sustained. Thus, the total disallowance under the head 'entertainment expenses' after the order of the CIT(A) is of Rs. 10,42,446. 37. It has been brought to our notice that similar issue had come up for consideration of the Tribunal in an appeal of the assessee for assessment year 1996-97 in ITA No. 692/Cal/2000 and vide order dated 30th March, 2001, the Tribunal has accepted 25 per cent of the expenses as attributable to employees participation. Respectfully following the aforementioned decision of the Tribunal in the assessee's own case for assessment year 1996-97, we hold that 25 per cent of the entertainment expenses are attributable to the employees participation in entertaining the guests and by virtue of section 37(2) read with Explanation (iii), the said amount is outside the purview of entertainment expenses. Learned counsel for the assessee pleaded that it may be clarified as to whether 25 per cent disallowance is with reference to Rs. 19,53,892 or 25 per cent of the disallowed portion of entrainment expenses. We hereby clarify that the relief allowable to the assessee is 25 pe....
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.... [1989] 177 ITR (St.) 72 read with section 90 of the Act and Circular No. 333 dated 2nd April, 1982 [1982] 81 CTR (TLT) 18 : [1982] 137 ITR (St.) 1 issued by the CBDT. (3) That, in any view of the matter, and without prejudice to grounds 3(a) and 3(b) above, the learned CIT(A) completely disregarded the specific direction given by the Hon'ble CBDT in the appellant's own case that the appellant shall be taxed at the rates applicable to domestic companies for the concerned assessment years read with the provisions of article 25 of the DTAA between India and Netherlands. (4) That, in view of the impugned issue decided in favour of the appellant's own case for assessment year 1996-97 by the Hon'ble Tribunal in its order dated 30th March, 2001, the learned CIT(A) erred in taking a contrary view overruling the Tribunal decision considering the Explanation to section 90(2) of the Act, inserted by the Finance Act, 2001." 39. The relevant facts relating to this issue are that the Assessing Officer had levied tax in this case at the rates applicable to domestic companies. However, in course of appellate proceedings before the CIT(A) against the assessment....
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.... as applicable to Indian companies. The learned counsel further pointed out that the said letter has been modified by the Board vide subsequent letter dated 24th March, 2000. It has been clarified therein that action could be taken by the Assessing Officer for application of higher rate of tax in respect of the respective assessment years barring the years covered by the aforementioned letter dated 21st November, 1994. Our attention was invited to article 25 of DTAA which provides for mutual agreement procedure in the event of any dispute relating to taxation contrary to the provisions of the Convention. Sri Dastur pointed out that the D.O. No. 500/45/94-FTD, dated 21st November, 1994, was issued by the Board in response to reference from Embassy of Netherlands and, therefore, by virtue of the provisions of DTAA article 25, any decision reached after following the procedure is binding upon both the parties and in the event of any conflict with the domestic law of the State, such an agreement would prevail. The learned counsel pointed out that reference for mutual agreement is required to be made to the competent authority and the competent authority is defined to mean the Central G....
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....fulfil the condition of making prescribed arrangement for declaration and payment within India, of the dividends payable out of its income in India. Our attention was also invited to rule 27 of IT Rules, 1962, in support of the above submission. The learned counsel contended that the Explanation does not make any sense insofar as the prescribed arrangement for declaration and payment within India of the dividends payable out of its income in India cannot be fulfilled. Sri Dastur contended that the CIT(A) has enhanced the rate of tax without the aid of the Explanation when the Tribunal in assessee's own case for assessment year 1996-97 had decided the issue in favour of the assessee. Sri Dastur further contended that the reference to the decision of the Authority for Advance Ruling was misplaced as the said decision has been set aside by the Hon'ble Supreme Court in the case of Societe Generale v. CIT [2001] 251 ITR 657. It was pointed out that the Tribunal in assessee's own case has decided the issue in favour of the Revenue in respect of article 24(1) of the DTAA. So, however, the claim of the assessee under article 24(2) has been upheld. It was, accordingly, pleaded t....
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....e 25, the learned Departmental Representative contended that the mutual agreement has got to be arrived at by following a procedure and reference has got to be made with competent authorities. Mere letter of the CBDT seeking opinion about the applicability of the rate of tax does not take the character of mutual agreement. 45. In counter-reply, the learned counsel for the assessee relied upon the decision of the Calcutta Bench of the Tribunal in the case of Dy. CIT v. ITC Ltd. [2002] 82 ITD 239 in support of the contention that in the event of conflict between the provisions of DTAA and the IT Act, the provisions of the DTAA shall prevail. Reference was also made to section 90(2) of the Income-tax Act, 1961, which was inserted by the Finance (No. 2) Act, 1991, with effect from 1st April, 1972, which clearly provides that in the event of conflict between the provisions of the Act and the DTAA, the provisions more beneficial to the assessee shall apply. The learned counsel also relied upon the decision of the Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 in support of the contention that the mutual agreements under the DTAA have a bind....
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....ment, as directed by the CIT(A) in this case and, on the other hand, order that the rate of tax as considered in the assessment be adopted." 47. The decision of the Tribunal has been arrived at after consideration of the detailed arguments advanced on behalf of the assessee which have been reiterated before us. We would have no difficulty in following the elaborate decision of our co-ordinate Bench, but for the amendment in section 90 of the Income-tax Act, 1961, by the Finance Act, 2001, with retrospective effect from 1st April, 1962. We, therefore, do not consider it necessary to deal with the contentions advanced on behalf of the assessee without taking into account the above amendment in section 90. We consider it necessary to examine the effect of the amendment of section 90 in regard to the application of rate of tax. 48. It will be useful to quote section 90 as under: "90.(1) The Central Government may enter into an agreement with the Government of any country outside India- (a) for the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country, or (b) for the avoidance of dou....
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....onal law even as nations respect international opinion. The comity of nations requires that rules of international law may be accommodated in the municipal law even without express legislative sanction provided they do not run into conflict with Acts of Parliament. But when they do run into such conflict, the sovereignty and the integrity of the Republic and the supremacy of the constituted Legislature in making the laws may not be subjected to external rules except to the extent legitimately accepted by the constituted Legislatures themselves. The doctrine of incorporation also recognizes the position that the rules of international law are incorporated into national law and considered to be part of the national law, unless they are in conflict with an Act of Parliament. Comity of nations or no, municipal law must prevail in case of conflict. National Courts cannot say "yes" if Parliament has said "no" to a principle of international law. National Courts will endorse international law but not if it conflicts with national law. National Courts being organs of the National State and not organs of international law must perforce apply national law if international law conflicts with ....
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....espective of the provisions in the IT Act. Where there is no specific provision in the agreement, it is the basic law, i.e., the IT Act, that will govern the taxation of income." 52. As already pointed out, an agreement for avoidance of double taxation and prevention of fiscal evasion with Netherlands was executed between the Republic of India and the Kingdom of Netherlands which was notified vide Notification No. 382(E), dated 27th March, 1989, and amended by Notification No. S.O. 693(E), dated 30th August, 1999. This agreement is available in [1989] 177 ITR (St.) 72. The Notification gives the source of the agreement, i.e., section 90 of the IT Act, 1961, and similar provision under the Companies Profits (Surtax) Act and WT Act. Thus, it is evident that the DTAA derives its source from the IT Act, 1961, itself. It overrides the provisions of the IT Act, 1961, within the limits provided under the said Act. The limit provided under the Act, as pointed out earlier, is that in the event of conflict between the provisions of the DTAA and the provisions of the IT Act, the beneficial provision of the Act shall prevail in regard to the taxation of the subjects. It thus becomes abundan....
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....tly owned, controlled, directly or indirectly, by one or more residents of the other State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which other similar enterprises of the first-mentioned State are or may be subjected." 53. The Tribunal in the assessee's own case for assessment year 1996-97 has held that article 24, para 1 is not applicable in the case of the appellant. However, the Tribunal has expressed the view that article 24(2) applies in the case of the appellant. However, Explanation to section 90 specifically provides that the charge of tax in respect of the foreign company at the rate higher than the rate at which a domestic company is chargeable shall not be regarded as less favourable charge. In the DTAA, there is no definition of "less favourable charge". Therefore, the Explanation to section 90 cannot be said to be in conflict with the provisions of the DTAA. On the facts and in the circumstances of this case, there is no escape from the conclusion that there is no conflict between the provisions of the DTAA and the ....
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....dends on preference shares) payable out of such income in accordance with the provisions of section 194 of the Act." Thus, even under the Finance Act the domestic company is recognized as Indian company and any other company having made arrangement for declaration of dividends payable on such income. We, therefore, do not find the language of the Explanation to section 90 as inappropriate. Moreover, insofar as there is no doubt about the category of the foreign company vis-a-vis the Indian company having been specified in the Explanation, one need not ascertain as to whether in any case the second category of the companies would at all exist. We, therefore, do not find merit in the contentions advanced on behalf of the assessee in this regard. 57. The contention advanced on behalf of the assessee that the CIT(A) was not justified in ignoring the decision of the Tribunal for assessment year 1996-97 is also not well-founded. The CIT(A) has decided this issue in assessment year 1993-94, and this order has been followed in other years. The relevant portion of the order is reproduced hereunder:- "4. I have considered the submissions of the appellant. The Hon'ble Tribu....
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....ed at a higher rate as is applicable to a foreign company. The appellant in response to the show-cause dated 19th July, 2000, filed a written submission through letter dated 24th July, 2000. The submission so made are reiteration of the detailed submissions made before CIT(A) during appeal proceedings for the year 1996-97 with regard to a similar show-cause notice issued to the appellant. The CIT(A) rejected the appellant's contention raised in the aforesaid submission and held in his order in appeal No. 88/A-ii/1999-2000 for the assessment year 1996-97 that "while giving effect to this order, the Assessing Officer is directed to recalculate the tax in accordance with the provision of the Finance Bill relating to the assessment year 1996-97 at the rate chargeable to foreign companies". This order of the CIT(A) was set aside by Hon'ble Tribunal in ITA No. 692/Cal/2000, dated 30th March, 2001, on the following grounds: 'Taking into consideration the different aspects of the case, we are finally of the opinion that by virtue of article 24(2) of the DTAA between India and Netherlands the assessee-company cannot be subjected to taxation in a less favourable manner t....
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....A) that he has decided the issue on the basis of the amendment of section 90 and after taking into account the decision of the Tribunal in the assessee's own case for the assessment year 1996-97. 58. That leaves us to consider the effect of the letters issued by the CBDT in regard to the taxation of the appellants. The CBDT had issued the two letters, one dated 21st Nov., 1994 and another dated 24th March, 2000. These are reproduced hereunder:- Letter dated 21st Nov., 1994: "Sub.: Taxation of ABN-AMRO Bank-Ref. From Embassy of Netherlands. Please refer to your letter D.O. No. CC-11/HQ Asstt. 4 Misc/93-94/ Vol-IV/504, dt. 29th July, 1994, on the above subject. The matter has been looked into and the Board is of the opinion that the tax rate applicable in the case of ABN AMRO bank would be the same as for an Indian company, at the relevant tax rates applicable for the concerned assessment years." Letter dated 24th March, 2000: "Subject: Taxation of M/s. ABN Amro Bank at the rates as applicable to non-resident companies as per letter No. F.No. 500/5/99-FTD, dt. March 1999-matter reg. I am directed to refer to your letter No. CC/HQ-II/As....
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.... the Board issued under section 119 cannot override or be detracted from the Act, inasmuch as what section 119 has empowered is to issue orders, instructions or directions for the proper administration of the Act or for such other purposes specified in sub-section (2) of that section. Such an order, instruction or direction cannot override the provision of the Act; that would be destructive of all the known principles of law as the same would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament. This principle has been further reiterated in the case of Shanmuga Traders v. State of Tamil Nadu [1998] 5 SCC 349 at p. 354. In the case of Union of India v. M. Bhaskar, JT 1996 (5) SC 500 at p. 503, their Lordships held that there is no dispute in law that statutory provision cannot be changed by administrative instructions. 60. Thus, from the decisions of the Supreme Court referred to above, it becomes abundantly clear that when the law is amended, any circular issued earlier automatically gets superseded. Since in this case the law was amended retrospectively, the letters issued by the Board, even assuming that they have the ....
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....on to section 90 is attracted in this case and the letters issued by the CBDT have been superseded by the said Explanation with effect from 1st April, 1962. We, accordingly, uphold the decision of the CIT(A) in regard to the applicability of the rate of tax as applicable in the case of foreign companies in the case of the appellant. Before parting with this issue we would like to point out that article 25 of the DTAA is not attracted in this. The said article is reproduced hereunder:- "Article 25. Mutual agreement procedure.- 1. Where a person considers that the actions of one or both of the States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the State of which he is a resident or, if his case comes under para 1 of article 24, to that of the State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention. 2. The competent authority shall endeavour, i....
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....[(1982) 81 CTR (TLT) 18: (1982) 137 ITR (St.) 1] issued by the CBDT. 1c. That, in any view of the matter, and without prejudice to grounds 1a and 1b above, the learned CIT(A) completely disregarded the specific direction given by the Hon'ble CBDT in the appellant's own case that the appellant shall be taxed at the rates applicable to domestic companies for the concerned assessment years read with the provisions of article 25 of the DTAA between India and Netherlands. 1d. That, in view of the impugned issue decided in favour of the appellant's own case for assessment year 1996-97 by the Hon'ble Tribunal in its order, dated 30th March, 2001, the learned CIT(A) erred in taking a contrary view overruling the Tribunal decision considering the Explanation to section 90(2) of the Act inserted by the Finance Act, 2001." 65. Our decision in regard to the issue of rate of tax for assessment years 1992-93, 1993-94 and 1994-95 shall apply to assessment years 1997-98 and 1998-99 mutatis mutandis. Assessment year 1994-95: 66. The only other ground that remains to be considered for assessment year 1994-95 is ground No. 3 which reads as under: "3....
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....essee was dismissed by the Company Law Board vide order dated 25th Aug., 1994. The assessee appealed to the Delhi High Court. However, the appeal was transferred to the Special Court and the said Court also dismissed the appeal of the assessee on 31st March, 1998. 68. In the previous year relevant to the assessment year 1994-95, the assessee settled the claim of the PHB by returning the principal along with 17 per cent interest. It may be pertinent to mention that the assessee had returned a sum of Rs. 24,41,096 to PHB out of Rs. 10 crores at the time of issuing the cheque in favour of the Andhra Bank for Rs. 9,75,58,904. Subsequently, in March, 1992, a sum of Rs. 18 lakhs received from Sri N.K. Agarwal was also refunded to PHB. The balance of Rs. 9,57,58,904 and the interest at the rate of 17 per cent of six months was refunded to the PHB on 7th July, 1993. Whereas the interest paid to the PHB was claimed as a deduction separately as interest under the head "Business income", the sum of Rs. 9,57,58,904 paid to the PHB was claimed as "loss in business". The Assessing Officer denied the claim of the assessee. The CIT(A) has also confirmed the disallowance. 69. The learned coun....
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....decisions relied upon by the learned counsel for the assessee are distinguishable on facts. The facts and circumstances of this case clearly reveal that the assessee had not suffered the loss in the year under appeal and, therefore, no deduction was permissible. 71. We have given our careful consideration to the rival submissions. The assessee is engaged in the business of accepting deposits, giving loans, discounting/collection of bills, issue of letter of credit, guarantee, executing forward transaction in foreign currencies for importers/exporters, money market lending/borrowings, investment in securities, etc. The assessee received a sum of Rs. 10 crores from PHB in the course of business for purposes of investment with assured return of interest at 17 per cent. Sum of Rs. 42,41,096 (Rs. 24,41,096 + Rs. 18,00,000) had been returned to PHB out of 10 crores investment. The assessee had made investment in the course of its business with Andhra Bank through Sri N.K. Agarwal, a broker. It is the claim of the Andhra Bank that the amount received from Sri N.K. Agarwal on behalf of the appellant was credited in the account of Sri Hitendra Dalai as per instructions of Sri N.K. Agarwa....
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....e of its business. Though the investment made by PHB with appellants and the investment made by the appellant with Andhra Bank are related, yet they are not part of the same transaction. The assessee has received money for the purpose of investment which is the business of the assessee. The investor had been assured the return of 17 per cent per annum. In turn, the assessee made investment in the course of its business. The possibility of loss of investment is part of the business of the assessee. The assessee had accepted IRFC Bonds from Shri N.K. Agarwal. However, PHB was not a party to such transaction or acceptance of the bonds. In the petition filed with the Company Law Board regarding transfer of IRFC Bonds, PHB is not a party. It thus becomes abundantly clear that the investment made by the assessee with the Andhra Bank was not as agent of PHB but as an independent business investment. Andhra Bank has claimed that the cheque was issued with clear instructions to be credited to be account of Sri Hitendra Dalal. In view of the disputed facts one cannot come to the conclusion that the assessee has lost the money. In any case, even if it is assumed that the assessee had suffered....
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....o a loss suffered by the assessee in the course of business. This view gets further strength from the fact that the assessee paid interest of 17 per cent of the PHB along with the refund of the principal. It is unimaginable that the assessee-bank would have agreed not only to refund the principal amount to PHB but had also agreed to pay interest at the rate of 17 per cent to the said Board as a matter of business prudence when according to the assessee they were not obliged to even return the investment to PHB. Facts and circumstances of this case clearly indicate that the refund to PHB was of their investment with the appellants and payment of interest on such investment was rightly allowed as expenditure incurred for purposes of business. It is like purchases being made from 'A' and the goods having been sold to 'B'. If 'B' does not pay the price of the goods, it may amount to loss suffered by the assessee. But the payment to 'A' for the goods supplied will not amount to loss to the assessee though the loss to the assessee on account of B's refusal to pay relates to the goods supplied by 'A'. Similarly, in this case, PHB made investment....
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....persuade myself to agree with certain conclusions arrived at therein I proceed to place on record my dissenting views. 76. The facts of this case and the developments giving rise to this litigation have been rather comprehensively set out in the learned Vice President's draft, and, for the sake of brevity I need not repeat the same. I would, therefore, come directly to the areas of disagreement which are primarily on the legal principles. A: On the scope of proviso to section 40(a)(i): 77. In paras 24 and 27 of his draft, the learned Vice President has, inter alia, observed as follows: "It is evident from the above that the salary paid to expatriate employees is net of taxes. The assessee had neither paid nor deducted taxes in assessment years 1992-93 to 1994-95. However, in the assessment year 1995-96, the assessee had paid the tax deductible at source. Therefore, in principle the assessee would be entitled to deduction in respect of the tax component of the salary also if the salary is found to be deductible as per directions of the Tribunal for the assessment year 1996-97 which has been adopted by us. So however, no deduction will be permissible in assessme....
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....e allowed as a deduction in computing the income of the previous year in which such tax has been paid or deducted...." 80. A plain reading of the above legal provision makes it clear that so far as payments outside India are concerned, these payments are not allowed as deduction unless the tax deduction at source obligations, if any, in respect of the same, are duly discharged by the assessee. It further provides that in cases in which such tax deduction at source obligations are discharged in a year subsequent to the year to which the payments pertain to, the related payments are allowable as deductions in the year in which the tax deduction at source obligations are so discharged. There is no suggestion, however, to the effect that the proviso to section 40(a)(i) will only come to the play when the assessee has claimed the deduction in the year to which the expense pertains and such a claim was rejected under section 40(a)(i). In the absence of any such limitation having been specifically placed on the scope of proviso to section 40(a), in my considered view, it is not open to us to infer or assume such restrictions which are not supported by the words of the statute. Even if ....
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....sabling provisions as well as enabling provisions. While section 40(a) lays down the restrictions on deducibility of certain expenses, proviso to section 40(a)(i) lays down the conditions in which such an expense is to be allowed. 82. Normally, proviso to a section sets out an exception to the scope of section. It carves out an area, out of the area covered by the scope of the section, and takes it away from applicability thereof. As Lush J. said, "When one finds a proviso to a section, the natural presumption is that, but for the proviso, the enacting part of section would have included the subject-matter of the proviso." As Lord Macnaghaten observed, 'the proviso may be a qualification of the preceding enactment which is expressed in terms too general to be accurate'. No doubt that, more often than not, it is somewhat alien to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is not directly relevant to the section of which it is a proviso. In other words, normally a proviso operates as an exception, rather than as a substantive provision. However, as was observed by the Hon'ble Supreme Court in....
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....account in India, as evident from the contents of para 9 of learned Vice President's draft, and yet the same was held to be allowable as a deduction in computing income attributable to Indian PE. By the same logic, merely because relevant interest expenses were not claimed as a deduction by showing the same in the books of account for the relevant years, cannot come in the way of allowing interest expenses as a deduction for the present year. On the facts of the present case, interest levy under section 201(1A) is an integral part of the remuneration paid to expatriates, since such remuneration is paid on 'net of tax basis' and interest under section 201(1A) will have the same character as the tax paid on such salaries which is undoubtedly the character of salaries or cost of employment. As a corollary to the remuneration itself having been held to be an allowable deduction, the tax paid in connection with such remuneration as also interest paid in connection with such taxes is also required to be treated as an 'allowable deduction'. 85. In para 34 of the proposed order, learned Vice President has further-observed that: "... It may also be pertinent ....
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....expatriate employees is net of taxes ... We ... direct the Assessing Officer to consider the claim of the assessee in regard to remuneration and the taxes paid relating to the assessment years 1992-93 to 1995-96 in the assessment year 1995-96 in accordance with the directions contained in this order." Once we hold that the taxes deducted at source, which were borne by the assessee as an employee cost and on account of expatriate salaries being on 'net on tax basis', constituted admissible deduction, it cannot be open to us to hold that interest payable in connection with such taxes deductible at source will not be deductible on the ground that tax itself is not an allowable deduction. To me, there appears to be an inherent contradiction in this stand; either income-tax deductible at source is an allowable deduction or it is not, but once on the facts of a case, it is held that it is an allowable deduction, and rightly so, the interest on delayed deposit of such tax cannot be declined deduction on the ground that income-tax deductible at source is not an allowable deduction. In any case, income-tax paid by the assessee, in discharge of tax liability of the employees and o....
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....e cost which cannot but be said to be in the nature of expenses, to use the terminology employed by the Hon'ble Supreme Court, "wholly and exclusively for the purpose of earning income". On the present set of facts, therefore, interest paid on account of delay in depositing the taxes deductible at source is an admissible deduction, and learned Vice President's reliance on Hon'ble Supreme Court's judgments in the case of Smt. Padmavati Jaikrishna and East India Pharmaceutical Works Ltd. does not appear to be wholly justified. 88. In his proposed order, learned Vice President has stated that "Since the income of the expatriate employees is liable to tax, the assessee would be obliged to file the returns of income and discharge the obligations which, but for the agreement of employment with the assessee, expatriate employees had to discharge." In my view, we have no basis for arriving at this conclusion, nor is it anyway relevant in deciding the deductibility of interest paid on delayed deposit of taxes deductible at source. 89. It cannot also be in dispute, that the interest under section 201(1A) is compensatory, and not penal in nature. Articulating the views o....
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....or exclusively for the purpose of the business. There is also no dispute that it is in the nature of revenue expenditure." In the case of Prakash Cotton Mills (P.) Ltd.'s case, Their Lordships of Hon'ble Supreme Court have observed that: "The decision of this Court in Mahalakshmi Sugar Mills Co. Ltd. [1980] 18 CTR (SC) 198 : [1980] 123 ITR 429 (SC) and the decision of the Division Bench of the Andhra Pradesh High Court in CIT v. Hyderabad Allwyn Metal Works Ltd. [1988] 72 CTR (AP) 2 : [1988] 172 ITR 113 with the view of which we are in complete agreement, are in our opinion, decisions which settle the law on the question as to when an amount paid by an assessee as interest or damages or penalty could be regarded as compensatory (reparatory) in character as would entitle such assessee to claim it as an allowable expenditure under section 37(1) of the Income-tax Act." 91. In view of the reasons stated above, I am unable to concur with the learned Vice President that the interest paid by the assessee under section 201(1A) of the Act is not eligible for deduction as expenses incurred for the purposes of business. In my view and on the facts of this case, the inte....
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....r bond plus accrued interest' and handed over a payment advice and the cheque, cheque forming part of the payment advice, to a broker by the name of Shri N.K. Agarwal. At this stage, I must clarify as to the present practice of issuance of 'payment advice-cum-cheque'. With the changes in the Indian banking practices brought about mainly by the multinational banks, it is no longer a cheque book which is used by the large corporate account holders, involving issuance of large number of cheques, or the banks. These cheque books are now replaced by packets of perforated computer friendly forms, used as a continuous computer stationery, issued by the banker to its important clients and, of course, for its own purposes. These pre-numbered advices are in two parts and can be separated by tearing off at the perforated points. The top portion contains the kind of details of the person issuing the cheques as a letter-head would contain, and has columns for the name and address of the person to whom cheque is issued, details of payment, and details of purposes for which it is issued. The bottom portion is a form for the cheque itself. These forms are computer friendly and, while p....
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.... and uses only the cheque portion for an unauthorized credit to the account of Hiten Dalal. As an agent of the PHB, which the assessee clearly was while making investment specifically on behalf of this principal, the assessee was bound to conduct the business of the principal as per directions given by the principal, or, in the absence of such instructions, according to the normal usage. Subsequent to this transaction, the assessee has been able to realize IRFC Bonds valued at Rs. 9,57,58,904 as also a sum representing the difference in value of NPC Bonds vis-a-vis the IRFC Bonds, on 18th March, 1992, but even the IRFC Bonds could not be transferred to the assessee-bank as the same were already sold to Standard Chartered Bank. The assessee carried the matter before the Company Law Board but without any success. As evident from p.1 of CLB's order, dated 25th Aug., 1994, marking attendance of Shri Manmohan and Shri C.M. Oberoi, Advocates representing PHB, PHB was also represented before the CLB. This CLB order, at p. 2, specifically observes as follows: "In accordance with the instructions of NKA (i.e., the broker), ABN Amro Bank, (i.e., appellant before us) issued an ac....
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....rtant factor contributing to this commercial expediency appears to be that the RBI declined to issue a licence for opening a new branch office at Chennai. The RBI in its letter dated 16th June, 1993, a copy of which was placed before us at p. 58 of the paper book, stated that "issue of a licence to your bank for opening a branch in Madras has again been decided to be kept in abeyance till such time as the dispute on securities transactions between your bank and Andhra Bank is resolved". Within three weeks of this communication, the assessee-bank entering into settlement with PHB, also, in a way, indicates the factors influencing the assessee-bank's decision to bear the loss. Let us see this from the point of view of a large multinational bank that this assessee admittedly is. In case such an assessee has to choose between bearing a loss of Rs. 9.57 crores or losing the opportunity to operate business in a major Indian metropolitan city like Chennai, the odds are that the commercial expediency may persuade the assessee to opt for losing only Rs. 9.57 crores. In other words, commercial expediency of bearing this loss, which is surely best judged by the assessee himself, cannot be....
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....gely thrives upon the confidence which its constituents have in its management. To maintain that; confidence the management has often to make concessions and thereby to preserve the goodwill of the business and its relations with the clientele. The bank could have, if so advised, taken its stand strictly on its legal obligations, and could have recovered the amounts due by the constituents at the same time denying liability to make any compensation for the loss of jewellery pledged with it. But such a stand might very well have ruined its business, especially in the rural areas in which it operated. The bank had evidently two courses open: to enforce its right strictly according to law, and thereby to lose the goodwill it had built up among the constituents, or to compensate the constituents for loss of their jewellery, and maintain its business connections and goodwill. In choosing the second alternative, in our judgment, the bank laid out expenditure for the purpose of its business. Paying to the constituents the price of the jewellery stolen in a robbery or a burglary was, therefore, expenditure for the purpose of the business. There can be no doubt that the expenditure was whol....
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....for dealing with security scam cases. But then this fact, by itself, cannot imply that there are reasonable prospects of recouping the loss, because, it is also a well-known fact, perhaps as equally well-known as the fact about existence of these Special Courts itself, that the claims on these scamsters are several times the value of their known assets. This money does not also appear to be recoverable from Andhra Bank also as in response of RBI's letter dated 16th June, 1993, a copy of which was placed before us at p. 58 of the paper book, stating "issue of a licence to your bank for opening a branch in Madras has again been decided to be kept in abeyance till such time as the dispute on securities transactions between your bank and Andhra Bank is resolved", the assessee-bank has clearly given more importance to the licence for Chennai branch rather than claim, whatever be its merits, on Andhra Bank. Keeping all these factors in mind, I am inclined to share the assessee's perception that there is no reasonable hope of recovery of this amount. There is no material before us to doubt or dispute the assessee's perception that the money so refunded to PHB constitutes a los....
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....he case of all the above four appeals for assessment years 1992-93 to 1995-96 was proposed by the Vice President. However, the AM has expressed his reservations in respect of some of the issues all relating to assessment year 1995-96. The AM has agreed with the proposed order in respect of which no specific reservation has been expressed in the dissenting order. Therefore, whereas the appeals of the assessee for assessment years 1992-93 to 1994-95 are disposed of by the consolidated order, a reference is made to the Hon'ble President for nomination of the Third Member in order to resolve the points of difference amongst the members of the Bench for assessment year 1995-96. The points of difference are identified as under: 2. Tax component in respect of expatriate employees for assessment years 1990-91 and 1991-92: In paras 24 to 27, the Vice President in his proposed order has held that in principle the assessee is entitled to deduction of tax component of salary relating to expatriate employees in assessment years 1992-93 to 1994-95 but for the operation of the provisions of section 40(a)(i) the deduction is not permissible in such year the tax not having been paid by th....
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....ault committed by the assessee of non-deduction and non-payment of TDS, the assessee had to pay interest under section 201(1A) of the IT Act, 1961. The interest was paid in the previous year relevant to the assessment year 1995-96 and the assessee claimed deduction in respect of such interest paid as an expenditure incurred for purposes of business. The Vice President has drawn a distinction between the cost of employment which includes the remuneration, taxes, interest etc. on behalf of the employees on the one hand and the assessee's statutory obligation to deduct and pay taxes on the other hand. The Vice President has expressed the view that, whereas the assessee is entitled to deduction on account of remuneration as well as taxes and interest in respect of such taxes as cost of employment, no deduction would be permissible to the assessee in respect of the interest payable as an assessee-in-default for its failure to discharge the statutory obligation of non-deduction of tax and payment of the same to the Government in contrast to the obligation of the assessee as an employer. 3.1 The AM in his dissenting order has expressed the view that the interest charged under secti....
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....as been paid by the assessee. (b) Whether or not, on the facts and in the circumstances of the case, the assessee was entitled to deduction of interest levied under section 201(1A). (c) Whether or not, on the particular facts and in the particular circumstances of this case, the assessee was entitled to deduction on account of operational loss of Rs. 9,57,58,904." 2. The questions referred were not depicting the real controversy and there was also confusion about the assessment year of reference. As regards question (a) above, the reference was only for allowability of the tax component on the salary of expatriate employees deducted at source, whereas the difference between the two Members was covering both the tax component as well as salary payment to the expatriate employees, and question (c) was arising out of the appeal proceedings for the assessment year 1994-95 whereas in the reference it is stated to be arising out of assessment year 1995-96. Therefore, a revised reference was directed by the President with the following questions: Assessment year 1995-96 "(a) Whether or not, on the facts and in the circumstances of the case, the assessee is....
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.... By another Circular No. 686, dated 12th Aug., 1994, the Board has also clarified that the assessments of the employees in respect of whom payments of short deduction and interest thereon are made by the employer in pursuance of Circular No. 685, dated 20th June, 1994, will not be responsible or otherwise disturbed merely on account of the excess salary payment now disclosed by the employer. The assessee took shelter under the said circular and paid a sum of Rs. 2,06,54,499 for previous years starting from assessment year 1990-91 to assessment year 1995-96. The P&L a/c of the assessee for assessment year 1995-96 was debited with the sum of Rs. 2,06,54,499. It was, however, added back and a deduction of only of Rs. 89,04,276 was claimed on account of remuneration including Rs. 52,35,222 paid in Netherlands, TDS and interest pertaining to the assessment year 1995-96. 7. For assessment years 1990-91 and 1991-92, it seems that the remuneration has not been claimed as a deduction and seemingly no reasons are on record as to why it was not claimed in those years. In the assessment year 1992-93, the assessee made claim before the Assessing Officer for remuneration and tax deducted at s....
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....nd that the amount does not pertain to the year under consideration and further that the remuneration and TDS paid by the assessee for the earlier years have not been included in the income of the concerned employees for their income-tax purpose in India for which the assessee is liable, and also that the interest on TDS is not a business expenditure and it does not pertain to the year of assessment. 9. The claim of Rs. 89,04,296 in assessment year 1995-96 being remuneration, TDS and interest pertaining to the (sic) was also disallowed by the Assessing Officer by further observing that the assessee has not given the details as to how much of such remuneration has already been claimed as expenditure by any other office of the assessee because the assessee cannot be allowed the same expenditure twice, once in another country and again in India. The assessee has not given details of services rendered, place of service rendered and terms of agreement regarding such employees/offshore expatriates and that the assessee was allowed head office expenses at the rate of 5 per cent of taxable income in India and, therefore, such expenditure including the remuneration under consideration ha....
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....ce the Assessing Officer is satisfied that the assessee is entitled to deduction in respect of remuneration, the claim of the assessee shall have to be dealt with in accordance with section 40 of the Act. The aforesaid directions were also stated to be valid for offshore remuneration pertaining to the assessment years 1992-93, 1993-94, 1994-95 and 1995-96 with a direction that if after verification the Assessing Officer comes to the conclusion that the assessee has not taken the amount of remuneration in respective assessment years into consideration in working out the deduction under section 44C, the claim would in principle be permissible in the respective assessment years. So, however, deduction has got to be allowed as already pointed out in accordance with section 40(a) read with the proviso. The tax not having been deducted at source in the respective assessment years but having been paid in assessment year 1995-96, the deduction in respect of remuneration is allowable in the year of payment, i.e., assessment year 1995-96. This would take care of part of the additional ground raised before the Tribunal by the assessee in assessment year 1995-96 whereby the deduction in respec....
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....ment year 1995-96. Both the Members, therefore, held that subject to verification, the claim of remuneration and tax deducted has not been taken into account under section 44C in regard to expatriate employees, the deduction relating to assessment years 1992-93 to 1994-95 would be permissible in assessment year 1995-96 as per the proviso to section 40(a)(i) of the Act. 14. In assessment year 1995-96, the assessee had also claimed a deduction for remuneration and tax paid for assessment years 1990-91 and 1991-92. The Vice President (JM) held that no evidence has been placed on record to establish that the assessee at any stage made the claim for deduction in the said assessment year and in principle, the claim of the assessee has got to be considered in assessment year to which the claim pertains. It is also observed that it is only when the claim is considered and found allowable but for provisions of section 40(a) that the same cannot be allowed in the year of payment and since the claim for assessment years 1990-91 and 1991 -92 is not established to have been made or considered in earlier year, the benefit according to him, is not permissible in assessment year 1995-96 merely ....
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.... deduction has not been paid before the expiry of the time prescribed under sub-section (1) of section 200 and in accordance with the other provisions of Chapter XVII-B of the Act. When a deduction is not allowable because of the statutory provisions, it would make no difference whether the same was claimed or not by the assessee. Because of the proviso to section 40(a)(i) such sum has to be allowed as a deduction in computing the income of the previous year in which such tax deducted at source has been paid in subsequent year. 17. Section 40(a)(i) reads as under: "40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee: (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938) royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at ....
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....ate employees as a result of which it had to pay interest under section 201(1A) of the Act. No deduction according to him, would be permissible to the assessee in respect of interest payable as an assessee-in-default for its failure to discharge its statutory obligation of non-deduction of tax and nonpayment thereof to the Government in contrast to the obligation of the assessee as an employer. The AM, on the other hand, expressed an opinion that interest charged under section 201(1A) is part of the cost of employment to the assessee and, accordingly, on the same parity of reasoning of allowability of the remuneration and taxes, the interest, would also be permissible deduction. 20. As regards this claim, the assessee's contention is that interest for the late payment of TDS imposed under section 201(1A) relating to the deduction for all the assessment years 1990-91 to 1994-95, is part of the remuneration, that it is therefore, an additional' cost and would be allowable on the same reasoning as a salary payment is allowable. The learned counsel of the assessee also submitted that it is compensatory in nature and should be allowed as a deduction. Interest, according to hi....
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....Ltd. v. Asstt. CIT [1999] 238 ITR 648 (Cal.), the Calcutta High Court dealt with the scope of levy of penalty under section 221 of the Act for failure to deposit the tax deducted at source in time and in that connection, the Calcutta High Court observed that when the assessee is found to be in default in depositing the amount of TDS within the time prescribed, he is liable to pay interest as well as he is liable to pay penalty and the fact that he has suffered loss or financial stringency and, therefore, could not deposit the amount in time has nothing to do with the liability to deposit TDS. 22. Besides the statutory obligation to deduct tax from the remuneration and pay to the Government, the assessee in the present case has undertaken to pay the tax on behalf of the employees and having not paid it failed to discharge the obligation it had which but for such an agreement of employment the expatriate employees had to discharge. The assessee has not discharged its obligation on behalf of the expatriate employees insofar as the taxes have not been paid as it had neither filed the return nor was there any assessment made. The interest liability in any case is not upon the employe....
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.... the Supreme Court held that when interest is paid for committing the default in respect of statutory liability to pay advance tax, the amount paid and expenditure incurred in that connection is in no way connected with the preserving or promoting the business of the assessee. Their Lordships held that interest levied on the assessee under section 139 of the Income-tax Act, 1961, for delay in filing the return and under section 215 for the failure to pay advance tax upto the statutory percentage are not allowable deduction as business expenditure under section 37 of the Act. 24. It might be true that the payment of salary and the liability for payment of tax thereon are part of the pay package or employment cost of the assessee and that they are in the nature of expenses wholly and exclusively for the purpose of business of the assessee but a part of that liability has partaken a character of a statutory liability. That part is, that as an employer the assessee was under an obligation under Sections 192 and 195 of the Act to deduct the tax and deposit the same with the Government of India. This statutory liability was a personal liability of the assessee and on failure to deduct....
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.... advice-cum-cheque' in the Indian Banking, it is no longer a cheque book which is used by the large corporate account-holders. These cheque books are now replaced by packets of perforated computer friendly forms, used as a continuous computer stationery. These are numbered advices. These are in two parts and can be separated by tearing off at the perforated points-the top portion containing the details of the person issuing the cheques like a letterhead, with columns for the name and address of the person to whom cheque is issued, details of payment, and details of purposes for which it is issued; the bottom portion being a form for the cheque itself. These forms are computer friendly and, while processing the payment, the details of payment are printed on the top portion, and the details necessary for cheque are printed on the bottom portion. The top portion is used as a payment advice, while bottom portion, on being removed from the aforesaid advice, works as a cheque itself. This was the system for the transaction with Andhra Bank. The cheque portion appeared to be in favour of Andhra Bank but the top portion was used, as a part of normally acceptable practice, to credit the....
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....on receiving the information from IRFC in June, 1992, informing that IRFC Bonds have already been transferred in the name of Standard Chartered Bank. The said date, according to him, fell in assessment year 1993-94. The Vice President (JM) held that refund to PHB was of their investment with the assessee and the payment of interest on such investment was rightly allowed as an expenditure incurred for the purpose of business. It is, according to him, like purchases being made from A and goods having been sold to B and if B does not pay the price of the goods, it may amount to loss suffered by the asseesee but the payment to A for the goods supplied will not amount to loss to the assessee though the loss to the assessee on account of B's refusal to pay relates to the goods supplied by A. According to him, in view of the disputed facts, it cannot be said that the assessee had suffered a loss. He further observed that the refund of principal and interest to the investor, PHB, in any case is not an event of loss. He, therefore, held that loss does not pertain to the year under appeal. He, however, made it clear that this decision is without prejudice to the right of the assessee to ....
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....s on these scamsters are several times the value of their own assets. This money does not also appear to be recoverable from Andhra Bank also as in response of RBI's letter dated 16th June, 1993, stating "issue of a licence to assessee-bank for opening a branch in Madras had again been decided to be kept in abeyance till such time as the dispute on securities transactions between assessee-bank and Andhra Bank is resolved", the assessee-bank has clearly given more importance to the licence for Chennai branch rather than claim, whatever were its merits, on Andhra Bank. The assessee's perception, according to him, was that there was no reasonable hope of recovery of this amount and there is no material to doubt or dispute that the money so refunded to PHB, according to him, constitutes a loss, and is, accordingly, booked as an expenditure, that the same is beyond reasonable hope of recovery, and that the chances of recouping the loss are too remote to affect the accounting treatment of the loss. 30. The assessee's contention is that it was a business loss. It approached the RBI in April, 1993, but they refused to interfere in the matter. The assessee was also refused pe....
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....tever returns that becomes due at that time. It was for the investment of this money received that the assessee issued a cheque of Rs. 9,57,58,904 on 9th March, 1992, to Andhra Bank. It was for the purchase of 17 per cent NPC Bonds at the rate of Rs. 97 per bond plus accrued interest. The assessee arranged investment. It however, fell down. The assessee made another deal though stated to be as a security for the 1st deal in substitute in the form of IRFC Bonds valued at Rs. 9,57,58,904 and also received a sum of Rs. 18 lakhs representing the difference in value of NPC Bonds and the IRFC Bonds, on 18th March, 1992, but even these IRFC Bonds could also not be transferred to the assessee-bank as the same were already sold to Standard Chartered Bank. The assessee pursued both the matters further. The matter of registration was carried to CLB, then to High Court from where it was transferred to Special Court dealing with scam matters and lost finally in 1998 and the matter of N.K. Agarwal (is) stated to be still pending. By the end of previous year relevant to assessment year 1994-95 both the matters (were) pending adjudication. 32. In my view, receipt of Rs. 10 crores from PHB and i....
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.... carried the matter further accepting the alternative security in the form of IRFC Bonds, the registration for which was refused on the ground that they have already been registered in the name of another bank. The matter of registration of alternative security ended in 1998 whereas the matter visa-vis Shri N.K. Agarwal is pending even on date. In these circumstances, in my opinion there was no loss which can be said to have arisen to the assessee in the year under consideration. 33. In the case of Dines h Mills Ltd., the assessee carried on business in textiles. It maintained mercantile system of accounting. It had incurred loss of Rs. 13,40,000 on account of embezzlement by its employee between 29th Jan., 1974, and 26th April, 1976. The assessee discovered the loss during the assessment year 1977-78 and claimed the entire loss as deduction in that year. The Assessing Officer disallowed the claim on the ground that the extent of loss remained indeterminate or unknown during the assessment year in question and the amount of actual loss could be known only when the assessee entered into a compromise decree with the defaulter-employee in the calendar year 1980. The CIT(A) consider....
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....the property of the company. They were not reflected in the closing stock of the company and were undergoing continuous deterioration being subjected to the elements day in and day out. As against this, a sum of Rs. 2,78,516 had gone out of the coffers of the company for purchase of four jeeps which had been handed over to the executive engineer. It was not known as of today what the company would recover as a result of the conclusion of the legal proceedings and when. The alleged accused was absconding. The record did not state anything as to whether any money was recovered from him when his arrest was effected. In case the company recovered anything by the sale of the four jeeps, the amount might not be much because of the considerable erosion in their value, after a lapse of time. In these circumstances, the Tribunal held that the claim merited allowance not only on the basis of system of accounting being followed by it, but also on the facts surrounding the claim. 35. In the case of Laxmi Ginning & Oil Mills, a case before the Punjab and Haryana High Court, the assessee sold a certain quantity of oil to a company for a total value of Rs. 26,642. The purchaser-company did not....