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2012 (7) TMI 401 - ITAT CHENNAIDisallowance of expenses by applying Rule 8D - assessee contention that no borrowed capital was utilized for making the investment and the dividend income received was directly remitted to the bank account - Held that:- As decided in Godrej and Boyce Mfg. Co. Ltd. v. Dy. CIT (2010 (8) TMI 77 (HC))that Rule 8D applies only prospectively with effect from assessment year 2008-09 and also that though the said rule was not applicable for the earlier years, AO was duty bound to compute the disallowance by applying reasonable method - Since the disallowances were made applying a rule which was not applicable for the impugned assessment years the matter requires a re-visit by the Assessing Officer - in favour of assessee by way of remand. DTAA between India and Sri Lanka - taxing capital gains arising out of sale of certain shares held by the assessee-company in a company incorporated in Sri Lanka - Notification No. 90 of 2008 (supra) relied on by the learned D.R - exclusion method or the Tax Credit Method ?- Held that:- Case of the assessee falls under clause 4 which says that gains from alienation of shares "may be taxed" in the State of issue - when the term "may be taxed" is used in a treaty, there is an automatic exclusion of other State - power cannot be expanded or interpreted in such a way that it would include a power to define terms in a DTAA between countries as well. When a notification is issued exercising the powers conferred under sub-section (3) of Section 90A it can have effect only on those types of agreement mentioned in sub-section (1) thereof. If such a notification goes beyond that mandate, it will have to be ignored to the extent it goes overboard. Even if the term "may be taxed" has been given a meaning by the Government through a Notification No. 90A(3) so as to extend such meaning to terms used in DTAA, it will have to be ignored and the said Section 90A cannot come to the aid of the Revenue in any manner at all - Exclusion Method was the appropriate one and this was rightly used by the CIT(A). The capital gains arising on account of transfer of share in Sri Lanka would not exigible to tax in India in the given circumstances - in favour of assessee.
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