TMI Blog2009 (6) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... onal High Court in the case of CIT v. Emirates Commercial Bank Ltd.[ 2003 (4) TMI 2 - BOMBAY HIGH COURT] has laid down to this extent. The Tribunal in assessee s own case for assessment year 1998-99, has upheld the order of the CIT(A) and deleted the partial disallowance made by the AO. The copy of the said Tribunal order is placed on record. Respectfully following the precedent we uphold the impugned order on this issue. Similar grounds raised by the revenue in its appeals for assessment years 1999-2000, 2000-01, 2001-02, 2002-03 and 2003-04 are dismissed, the facts of which are mutatis mutandis alike. Loss on sale of securities - Business loss or 'Capital loss' - payment of salaries was made to them by the Head office outside India and buying and selling of securities was a normal business activity of a banking company and the current investments were nothing but stock-in-trade - AO noted that since the assessee had itself shown the securities as current investments , then any income/loss from investment was to be dealt with under the head Capital gains . Thus, he treated the said sum as capital loss and did not grant deduction as claimed by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see assessee debited a sum to its Profit Loss Account on account of loss arising to it on the revaluation of current investments, i.e., securities - CIT(A) deleted the addition by noting that the assessee was following cost or market price, whichever is less method for valuing its stock-in-trade. He further considered certain norms issued by the Reserve Bank of India on valuation and classification of investments vide Circular No. BP.BC.129/21-04-043-92. HELD THAT:- The method of cost or market price, whichever is less is one of the recognized methods for the valuation of the closing stock as having got the seal of approval from case of Chainrup Sampatram [ 1953 (10) TMI 2 - SUPREME COURT] - Under this method if the market price is higher than the cost price, then the cost price is to be considered for valuing the closing stock. But if the cost is more than the market price, then that item of stock has to be valued at the market price. We find that the assessee has valued its closing stock scrip-wise by following this method as per which the appreciation in the value due to the higher market value has been ignored but the depreciation in the value of the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore us to demonstrate that there was any clause in the agreement or there was some other material obliging the bank to refund the part of the guarantee commission in case it is earlier revoked. There is no reference to any facts of the case as to whether or not there was any obligation of the bank to refund the money in case the guarantee was revoked prior to the guarantee period. Further, the Bench did not touch on the aspect of that assessee having made any refund as was the position in the case of Bank of Tokyo Ltd. [ 1993 (5) TMI 172 - CALCUTTA HIGH COURT] We have already noted that the facts of the instant case are distinguishable from those before the Hon ble Supreme Court in Madras Industrial Investment Corpn. Ltd. s case [ 1997 (4) TMI 5 - SUPREME COURT] and in Bank of Tokyo Ltd. s case (supra). Thus, no assistance can be taken by the assessee from the case of State Bank of India, Banking Operations Department (supra). To sum up we hold that CIT(A) was not justified in deleting this addition in assessment year 2002-03. We restore the addition made by the AO on this score and for the assessment year 2003-04, the view taken by the ld. CIT(A) is upheld. Thus, ground ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the said expenditure was incurred by the Head office situated outside India. He, therefore, disallowed this amount and allowed deduction under section 44C at Rs. 11,78,096. In the first appeal, the learned CIT(A), relying on his own order passed in assessee s own case for assessment year 1998-99, concurred with the submissions advanced on behalf of the assessee and deleted the remaining amount of addition. 4. After considering the rival submissions and perusing the relevant material on record it is found as an undisputed fact that the said amount was paid as salary to expatriates who were actually working with the assessee in India though the payment of salaries was made to them by the Head office outside India. Section 44C contemplates allocation of expenses amongst the various entities. The expenditure covered in this section is that of a common nature the benefit from which is derived both by the Head office and branch. If a particular expenditure is incurred by the head office exclusively for branch in India, that cannot be covered within the purview of section 44C. The Hon ble jurisdictional High Court in the case of CIT v. Emirates Commercial Bank Ltd. [2003] 262 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee has incurred loss were depicted as current investment as has also been noted by the Assessing Officer in the assessment order. A certificate from Chartered Accountant certifying that the securities sold by the assessee were under "current investment" category has been given to the lower authorities. When it is so the securities in the nature of current investments automatically become the stock-in-trade of the assessee and not investment. It is a settled legal position that the nomenclature given by the parties to a particular transaction is not material to decide its character. Rather it is the true nature of the transaction, which matters. Whereas any profit or loss from the sale of Investment is taxed under the head Capital gain , such profit or loss from the sale of stock-in-trade is considered under the head Profits and gains of business or profession . The instant loss of Rs. 77,000, arising from the sale of stock-in-trade referred to as current investments , in our considered opinion has been rightly held by the ld. CIT(A) to be a business loss. Accordingly, this ground is not accepted. 7. The next issue raised by the revenue is against the deletion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closing stock, i.e., securities of the assessee in relation to the assessment year 2000-01. Briefly stated the facts of this ground are that the assessee debited a sum of Rs. 45,000 to its Profit Loss Account on account of loss arising to it on the revaluation of current investments, i.e., securities. The Assessing Officer observed from the details furnished, during the course of assessment proceedings, that in respect of certain other securities the assessee had profit of Rs. 15,43,400 on account of revaluation. Both the sets of securities constituted current investments of the assessee. The Assessing Officer further noted that as per the accounting policy of the assessee-bank, the current investments were to be valued at lower of cost or market value. Since the assessee had claimed deduction for depreciation of Rs. 45,000 in the value of securities and had not offered for taxation the profit of Rs. 15,43,400 on account of appreciation in the value of the remaining securities, the Assessing Officer held that the assessee could not be allowed to follow different methods for valuing different portions of stock. Accordingly, the addition of Rs. 15,43,400 was made to the total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xure, it should not be booked as income. It has further been suggested in this Circular that the banks which have adopted a more prudent method of valuation of securities than the one now being suggested, may continue the practice hitherto followed by them. From here it is clear that the Apex Bank has also suggested the method of valuation of closing stock at cost or market price, whichever is less . It is the method which is being consistently followed by the assessee as recorded by the authorities below. Adverting to the facts of the instant case, we find that the assessee has valued its closing stock scrip-wise by following this method as per which the appreciation in the value due to the higher market value has been ignored but the depreciation in the value of the other items of stock has been reflected. As the abovereferred amount of Rs. 15,43,400 represents the excess of market price over the cost price in respect of certain scrips and further going by the method of valuation adopted by the assessee as cost or market price whichever is less , the same in our considered opinion cannot be added to the total income. We, therefore, uphold the impugned order on this count. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the relevant material on record. It is noted that though in this year, the assessee got relief from the ld. first appellate authority, but in the assessment year 2003-04, again the Assessing Officer made similar addition for Rs. 13,79,740 but the ld. CIT(A) differed with the view of his predecessor and upheld the addition, against which the assessee is in appeal before us. Whenever the bank issues the guarantee for its customer to some third party, it charges commission. The amount of commission depends on the amount guaranteed and the period for which guarantee is given. The case of the assessee is that if guarantee is given by the bank for a period crossing over the year ending, then the income should be spread over to the periods to which such guarantee relates and as such only to the extent of the portion which is connected with the respective years should be recognized as income in those years. In other words if the guarantee is given for three years, the ld. AR contends that only 1/3rd should be considered as accruing to the assessee in the first year and the remaining 1/3rd each in the second and third years respectively. In order to bolster his submission, he relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of fixed deposit receipts from the customer. If the customer fails in honouring his commitment to the third party, for which the bank stands as a guarantor, it makes the payment after appropriating the proceeds from the FDR, etc., which lies in its custody as a security from the customer. In no case any guarantee is given by the bank without taking security equal to or more than the amount guaranteed. 16. Admittedly, the amount of commission is received when the bank issues guarantee. Such guarantee is for a specific period, sometimes extending to years. The amount of full guarantee commission is received at the time of issuing guarantee irrespective of the period for which the guarantee is given. If the customer does not make a default to the third party, then the guarantee expires at the end of the period and the security received from its customer, in the shape of FDRs, is returned. There may be situation in which the client revokes the guarantee prior to the completion of the guarantee period or commits the default as a result of which the bank has to appropriate the proceeds of the security to satisfy the third party. Whatever may be the case the bank incurs no p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f commission is received in advance but the receipt cannot be said to have assumed the character of income because the accrual is dependent on the period for which the guarantee continues. The accrual of the amount of commission relatable to the period beyond the close of the year in such a situation will be solely dependent on the fact that whether the guarantee continues or not. Thus, in the contingency of the customer revoking the guarantee, the amount earlier received will require refund. Consequently, if there exists such a clause of refund of the commission in the agreement on the earlier revoking of the guarantee or there is some other material to show the understanding between the bank and the customer to that extent, in that situation the accrual of entire income will not take place on furnishing guarantee, but it will be spread over the period to which the guarantee relates. If, however, the amount of the guarantee commission is received at a stretch and there is no contingency of paying it back even in the eventuality of revoking the guarantee prior to the completion of the guarantee period, then the entire amount of guarantee commission will partake the character of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Rules. Five sample cases were placed before the Tribunal on behalf of the assessee to show that the guarantee commission in respect of the unexpired period was factually refunded by the assessee-bank to its different clients". It was in the light of these facts that there was inherent obligation of the bank to refund guarantee amount in case the guarantee contract was revoked before the prescribed period and further the assessee had, in fact, refunded the amount to different clients, that the Hon ble High Court held that the income from deferred guarantee commission should be spread over to the period to which the guarantee commission related and be assessed proportionately. 19. We are unable to find any correlation between the facts of the instant case and as those considered by the Hon ble High Court. The assessee has categorically admitted vide its letter dated 4-7-2006 before the learned CIT(A) in its appeal for assessment year 2003-04 that In case the client decided to revoke/cancel the guarantee prior to the completion of the guarantee period then the Bank does not refund the guarantee commission pertaining to the unexpired period of the guarantee to the custome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the proportionate part of warranty claim was held to be not includible in the income of the current year. On the contrary, the assessee in the present case does not have any obligation to incur any cost beyond the year in question. Further in that case, there was further liability to refund the deposit to the members of the warranty scheme, if they so desired and that assessee actually refunded a particular sum to those persons who did not wish to continue with the scheme. On the contrary in our case there is neither any such obligation nor any amount was returned to the customers in the years in question. We are, therefore, of the considered opinion that this judgment does not bring the case of the assessee any further. 21. The other case relied on by the ld. AR is the order passed by the Tribunal in the case of State Bank of India, Banking Operations Department ( supra ). Relevant discussion on this issue has been made in para 5 of the order in which the Bench placed reliance on the judgment of the Hon ble Supreme Court in the cases of Madras Industrial Investment Corpn. Ltd. ( supra ) and Bank of Tokyo Ltd. ( supra ) for coming to the conclusion that the income w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2003-04. Since the necessary details are not available on record, we direct the Assessing Officer to verify this fact from the assessment records. If it is found that the amount of Rs. 40,80,147 added by the Assessing Officer in the total income for assessment year 2002-03 has also been reflected by the assessee in its income for assessment year 2003-04 in full or in part, then such portion may be excluded from the income for assessment year 2003-04. Needless to say the assessee will be allowed a reasonable opportunity of being heard. 24. The last issue is which has been raised by the assessee by way of Ground No. 1 in its appeal for the assessment year 2003-04 is about the rate of tax applicable. The learned CIT(A) held that the assessee s income was to be taxed at 40 per cent plus surcharge as against the assessee s claim of 35 per cent. The learned A.R. fairly conceded, at the very outset, that the Tribunal in assessee s own case for assessment year 2002-03 has decided this issue in favour of the revenue. He placed on record the copy of the order in ITA No. 4948/Mum./2005, dated 25-11-2005 in which similar ground was not accepted. Respectfully following the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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