TMI Blog2022 (9) TMI 1577X X X X Extracts X X X X X X X X Extracts X X X X ..... , flooring etc. and it is essential for the Bank to incur such expenses for proper ambience as it is in a customer centric industry - HELD THAT:- We observed that Hon'ble Supreme Court in the case of Madras Auto Services Pvt. Ltd. [ 1998 (8) TMI 1 - SUPREME COURT] on similar issue adjudicated in favour of the assessee as held looked upon expenditure which did bring about some kind of an enduring benefit to the company as a revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expense has been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but t he assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, in our humble opinion, if the interest granted under Section 244A(1) is varied under Sub-section (3) of such section, then the interest originally granted would be substituted by the reduced/increased amount as the case may be -Interest on refund under Section 244A(1) would be assessable in the year in which it is granted and not in the year in which proceedings under Section 143(1)(a) attain finality. Interest on tax refund be taxed at 10% as per India-UK Treaty - HELD THAT:- As decided in Credit Agricole Indosuez [ 2015 (6) TMI 974 - BOMBAY HIGH COURT] no fault can be found with the impugned order of the Tribunal in restoring the issue to the Assessing officer to determine / adopt the rate of tax on refund in the light of the relevant clauses of Indo-France DTAA and the decision of Special Bench in Clough Engineering [ 2011 (5) TMI 562 - ITAT, DELHI] . - SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER For the Assessee : Shri P.J. Pardiwala Shri Fenil Bhatt For the Department : Shri Soumendu Kumar Dash ORDER PER S. RIFAUR RAHMAN (AM) 1. These cross appeals are filed by the assessee and revenue against order of the Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e more beneficial to him. Circular No. 333 dated April 12, 1982 issued by the Central Board of Direct Taxes (CBDT) provides that where a Double Taxation Avoidance Agreement (DTAA) provides for a particular mode of computation of income, the same would be followed irrespective of the provisions of the Income tax Act. The DTAA specifically lays down the method of determination of profits of the PE and therefore, it overrides the provisions of Section 115JA (which stipulates the presumptive rate of profits and to which therefore, no recourse need to be had in view of the CBDT CircularNo.333 referred to above. Courts of many countries have held that the international binding effect of the treaty cannot be affected by such subsequent domestic legislation and such domestic legislation violates international law and causes a breach of the international obligations brought about by the treaty Since the tax agreements are special rules, the issue of conflict falls upon the maxim a subsequent general law does not override a prior special law In view of this, the tax agreements being specific rules will 'precede' tax laws and prevail upon them. Section 115JA (4) provides that, save as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e no application. The tax authorities are under an obligation to compute the income in accordance with the law as interpreted by the Judicial authority. c) The contention upheld by learned CIT (A) is unjustifiable and must be quashed. 5. The Appellant craves leave to add, alter and/or amend one or more of the above grounds of appeal. 6. The Appellant prays for appropriate relief. 3. Assessee has further raised additional grounds as under: - Additional Ground No. 1A The interest on income-tax refund ought to be excluded from taxable income and should be taxed, if necessary, only when the issue of Income-tax refund reaches finality. Additional Ground No. 1B In addition and without prejudice to the Additional Ground 1A above, in case it is held that interest on income-tax refund is taxable, it should be taxed only at the rate of 10% in accordance with provisions of Article 12 of the Tax Treaty between India and United Kingdom and not at the maximum marginal rate of tax 4. Ld. Counsel for the assessee submitted that the above additional grounds of appeal are purely legal grounds and do not require any fresh examination of facts. Therefore, Ld. Counsel for the assessee prayed it may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner (Appeals) after considering the submissions of the assessee having found that there is no nexus between the interest bearing funds and the investment made in tax free bonds and further, the assessee had sufficient own fund to finance investment in tax free bonds, directed the Assessing Officer to delete the disallowance made. 29. We have considered rival submissions and perused material on record. As could be seen, learned Commissioner (Appeals) has recorded a categorical factual finding that the interest bearing funds have no nexus with the investment made in tax free bonds. Further, he has also recorded a finding of fact that the assessee had sufficient own fund to make investment in tax free bonds. The aforesaid factual finding of the first appellate authority has not been controverted by the Revenue through any substantive evidence brought on record. That being the case, we do not find any valid ground to interfere with the decision of learned Commissioner (Appeals) on the issue the issue. Accordingly, the ground raised is dismissed. 10. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and construct a new building thereon to suit the purpose of their business as per the plan approved by the lessors. Under Clause 2 of the lease deed, the lessee was required to pay a rent of Rs. 1000/- per month for the first fifteen years, Rs. 1500/- per month for the next ten years, Rs. 1650/- per month for the next ten years and Rs. 2000/- per month for the remaining years. The lease deed further provided that the new construction shall, right from t he commencement of the work, be the property of the lessors; and upon completion of the work of construction the lessee will have only the right to be a tenant for a period of 39 years under the existing lease subject to the payment of rent and observation of other terms and conditions of the lease. The lessee shall not be entitled under any circumstances for any compensation whatsoever on account of its putting up the new construction in the place of the old. Acting under the lease agreement the assessee invested a sum of Rs. 1,62, 835/- in the previous year relevant to the assessment year 1968/69 and Rs. 50, 937/- during the succeeding year in constructing a new building on the said land. The assesee claimed before the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be paying was only Rs. 2,000/-. This concessional rent was on account of the fact that the new building was constructed by the assessee at its own cost. In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else and spending money for such construction? The assessee got a long lease of a newly constructed building suitable to its own business at a very concessional rent. The expenditure, therefore, was made in order to secure a long lease of new and more suitable business premises at a lower rent. In other words, the assessee made substantial savings in monthly rent for a period of 39 years by expending these amounts. The saving in expenditure was saving in revenue expenditure in the form of rent. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure. Moreover, assessee in the present case did not get any capital asset by spending the said amounts. The assessee, therefore, could not have claimed any depreciation. Looking to the nature of the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. (underlining ours) Relying upon the second test enumerated above, learned counsel for the appellant has submitted that the assessee got enduring benefit of a capital nature by spending the amount because the assessee obtained a new building for a period of 39 years. The difficulty, however, in the present case, arises from the fact that this building was never to belong to the assesseee. Right from inception, the building was of the ownership of the lessor. Therefore, by spending this money, the assessee did not acquire any capital asset. The only advantage which the assessee derived by spending the money was that it got the lease of a new building at a low rent. From the business point of view, therefore, the assessee got the benefit of reduced rent. The High Court has, therefore, rightly considered this as obtaining a business advantage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntered into an agreement to supply water to the municipality and provide water pipelines as also to supply electricity for street lighting and put up a transmission line for that purpose. The assessee also agreed to concrete the main road from the factory to the railway station. The amounts expended for these purposes were held to be revenue expenditure since the installations and accessories were the assets of the municipality and not of the assessee. The expenditure, therefore, did not result in creating any capital asset for the company. The advantage secured by the respondent was immunity from liability to pay municipal rates and taxes for a period of 15 years. This Court said that had these liabilities been paid, the payments would have been on revenue account. Therefore, the advantage secured was in the field of revenue and not capital. In the case of Commissioner of Income-tax v. Bombay Dyeing and Manufacturing Co. Ltd. (219 ITF 521) the company contributed to the State Housing Board certain amounts for construction of tenements for its workers. The tenements remained the property of the Housing Board. It was held that the expenditure was incurred wholly and exclusively on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he laws of England and Wales. It carries on business of banking, financial service and allied activities. The assessee company opened branches in India to carry on such activities with the permission of Reserve Bank of India (RBI) under the Banking Regulations Act, 1949. For the impugned assessment year, the assessee filed its return of income on 28th November 1997, declaring total income of ` 2,54,830. In the course of assessment proceeding when the Assessing Officer proposed to compute assessee s tax liabilities under section 115JA of the Act, it was contended by the assessee that as per Article 7 of India U.K. Double Taxation Avoidance Agreement (DTAA) only business profit directly attributable to the Indian branches can be taxed in India. Thus, it was submitted, the assessee has no liability under the provisions of section115JA of the Act. It was submitted, the provisions of the Act would apply to the assessee only to the extent they are beneficial to it as provided under section 90(2) of the Act. In this context, the assessee also relied upon CBDT Circular no.333, dated 12th April 1982. Thus, in sum and substance, it was submitted by the assessee that when the India U.K. Tax T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act, 1956. He submitted, the said amendment would be applicable form assessment year 2012 13 onwards. Learned Sr. Counsel for the assessee submitted, no such corresponding amendment like section 115JB(2)(b) of the Act was made to the provisions of section 115JA of the Act. Thus, he submitted, the provisions of section 115JA of the Act cannot be applied to the assessee. In support of his contention, learned Sr. Counsel relied upon the following decisions: (i). ICICI Lombard General Insurance Co. Ltd. v/s ACIT, 54 SOT 538 (Mum.); (ii). UCO Bank v/s DCIT, 156 ITD 146 (Kol.); (iii). State Bank of Hyderabad v/s DCIT, 58 SOT 278 (Hyd.); (iv). DCIT v/s Royal Bank of Scotland, 76 taxmann.com 91; and (v). Bank of Tokyo Mitsubishi UFJ Ltd. v/s ADIT, 49 taxmann.com 441. 7. The learned Departmental Representative submitted, since the assessee has a Permanent Establishment (PE) in India, its accounts have to be maintained as per the provisions of the Act. In this context, he strongly relied upon the observations of learned Commissioner (Appeals). 8. We have considered rival submissions and perused material on record. The main plank of assessee s argument against applicability of section 115 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies Act, 1956. The facts involved in assessee s case are more or less identical to the facts of MSEB (supra). In view of the aforesaid, we hold that the provisions of section 115JA of the Act are not applicable to the assessee. This ground is allowed. 18. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee s own case for the A.Y. 1997-98, we allow the ground raised by the assessee. 19. With regard to Ground No. 4 which is in respect of denial for deduction of head office expenditure of ₹.23,28,71,503/- in entirety and restricting the claim to ₹.2,43,70,712/- u/s. 44C of the Act, Ld. AR submitted that Deduction of Head Office expenses should be allowed in entirety as per Non Discrimination Article 26 of Tax Treaty between India and UK and not restricting the claim u/s. 44C of the Act. Ld. AR submitted that discriminatory provisions have to be ignored for foreign/non-resident assessee in view of Tax Treaty (e.g., Article 26 of India- UK Tax Treaty). In support of the above contentions, he relied on the following case laws:- (i). DIT v. Citibank N.A. (377 ITR 69) (Bom HC) - Sec 40(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profits which it might be expected to make if 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 a PE. In any case, where the correct amount of profits attributable to a PE is incapable of determination or the ascertainment thereof presents exceptional difficulties, the profits attributable to the PE may be estimated on a reasonable basis provided that the result shall be in accordance with the principles laid down in this Article. 3. In the determination of the profits of a PE, there shall be allowed those deductible expenses which are incurred for the purposes of the business of the PE including executive and general administrative expenses, whether incurred in the State in which the PE is situated or elsewhere as are in accordance with the provisions of and subject to the limitations of the taxation laws of that State. However, no such deduction shall be allowed in respect of amounts, if any paid (otherwise than as a reimbursement of actual expenses) by the PE to the head office of the enterprise or any of its other offices, by way of royal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restriction on admissibility of deduction of head office expenditure at, and, whether the provisions of Section 44C, only provide for a fair method of estimation of deductible head office expenses and are enabling provisions in nature. 6. Article 24(2) of the Indo-Canadian DTAA is worded on the lines of Article 24(3) of the OECD Model Convention. In fact, it is verbatim extract from the Model Convention. While elaborating upon the scope of the said clause the OECD Model Convention Commentary, inter alia, states as follows: 24. Effect of tax bases With regard to the basis of assessment of tax, the principle of equal treatment normally has the following implications: (a) PE must be accorded the same right as resident enterprises to deduct the trading expenses that are, in general, authorised by the taxation law to be deducted from taxable profits in addition to the right to attribute to the PE a proportion of overheads of the head office of the enterprise. Such deductions should be allowed without any restriction other than those imposed on the resident enterprise. (b) ... It is thus clear that according to the scope of this clause as explained by the OECD Commentary, includes the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ached to the DTAA, it is only axiomatic that the clause or the expression will have the same meaning as normally assigned in the tax literature by the OECD. Therefore, when an expression or a clause from the OECD Model Convention is used even in a bilateral tax treaty involving a non OECD country, one has to proceed on the basis that it is used in the same meaning and with the same connotations as assigned to it by the OECD Model Convention Commentary. As per the OECD Commentary, placing a restriction on the deduction on account of overheads of the head office, except when the same restriction is also placed on the resident enterprises, does constitute discrimination under Article 24. The taxation on a PE of a Canadian company, by the reason of placing a restriction on deduction of head office expenditure which is not applicable in the case of resident companies, does, therefore, constitute less favourable tax treatment in India than the taxation levied on Indian enterprise carrying on the same activities in India. Viewed in this perspective, it is clear that the limitation on deduction of head office expenditure, as stipulated by Section 44C of the Act, will be hit by the non-disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of Article 24. Revenue's argument that since the business profits are to be computed in accordance with the provisions of and subject to the limitations of the taxation laws of that State under Article 7(3) and, therefore, limitation placed under Section 44C of the Indian IT Act cannot be ignored, cannot, therefore, be accepted. What Article 24(2) seeks to remove is the discrimination to the permanent residents of Indian and Canadian residents in the other States visa-vis the domestic business entities of that other State. When domestic tax laws permit such discrimination, such legal provisions have to be treated as overridden by the provisions of the Indo-Canadian DTAA. There is no dispute about the fact that when the provisions of the IT Act and the DTAA are in conflict, the provisions of the Act will be applicable only to the extent the same are more beneficial to the assessee. In other words, the provisions of the treaty prevail over the provisions of the Act. Therefore, the restriction placed on the allowability of the head office expenditure by Section 44C of the Act is to be ignored in the light of the provision of Article 24(2) of the Indo-Canadian DTAA. 8. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of the AO for adjudication de novo in the light of the above observations. 22. Respectfully following the above said decision, we allow the ground raised by the assessee. 23. Coming to additional grounds which are in respect of (i) non taxability of interest on income tax refund and (ii) interest on tax refund be taxed at 10% as per India-UK Treaty. Ld. AR relying on the following cases submitted that this issue is decided in favour of the assessee and prayed that the same may be adopted for the case of assessee also. (i). CIT vs. Hindustan Housing and Land Development Trust Ltd (161 ITR 524) (ii). DIT vs. Credit Agricole Indosuez - 377 ITR 102 (Bom-HC) (iii). ACIT vs. Clough Engineering Ltd. - 130 ITD 137 (Del-SB) (iv). Avada Trading vs. ACIT 284 ITR (A.T.) 73 (Mum) (v). Bechtel International Inc vs. ADIT - 135 ITD 377 (Mum). (vi). International Global Networks BV vs. DDIT-50 SOT 433 (Mum) MISC Berhad vs. ADIT - 150 ITD 213 (Mum) 24. Ld. DR relied on the orders of the lower authorities. 25. Considered the rival submissions and material placed on record, we observe that Coordinate Bench in the case of Avada Trading v. ACIT (supra) considered the issue of non taxability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent a refund is issued the assessee becomes entitled to interest. There is no compulsion on the Assessing Officer to make assessment under Section 143(3) in every case. Further, the right vested in assessee is independent right and is not dependent on the assessment under Section 143(3). It is the quantification which is finally done in case assessment is made under Section 143(3). In support of his contention, he relied on the decision of Tribunal in the case of Saffron Trading Co. (supra). A query was raised whether provisions of Section 154 of the Act can be invoked in case interest is taxed in the year of receipt but varied under Section 244A(3). In response to the same, the Learned Departmental Representative did not respond but the learned Counsel for the assessee submitted that he has no objection if it is held that such assessment can be rectified under Section 154 of the Act. The hearing was concluded at this stage on 15-9-2005. 5. 6. . 7. Rival contentions have been considered carefully. The question for consideration is whether interest under Section 244A granted to assessee in the proceedings under Section 143(1)(a) of the Act is taxable in the year of its receipt or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which interest was payable under Sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the demand shall be deemed to be a notice under Section 156 and the provisions of this Act shall apply accordingly. A bare look at the provisions of Sub-section (1) reveals that as soon as any refund becomes due under any provisions of the Act, the assessee becomes entitled to receive the interest in respect of such refund calculated in the manner provided in Clauses (a) and (b) of such provisions. Therefore, the moment the refund is granted, as enforceable debt is created in favour of assessee in respect of interest due on such refund. Consequently, income can be said to accrue on the date of refund itself. Therefore, when such interest is actually granted along with the refund then, in our opinion, the requirement of Sections 4 and 5 of the Act are fully satisfied and the same can be taxed in the year of receipt. 9. The main contention of the assessee's counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the claim since such demand was subject-matter of dispute and this liability did not crystallise in the year in which demand was served. The High Court upheld the claim of assessee. This judgment was considered by the Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (supra) and the Apex Court approved the view of the Hon'ble Madras High Court by observing that assessee had incurred an enforceable legal liability on and from the date on which he received the Collector's demand for payment and that his endeavour to get out of that liability by preferring appeals could not in any way detract or retard the efficacy of the liability which had been imposed upon him by the competent Excise authority. [Emphasis supplied] 11. The Hon'ble Supreme Court in the case mentioned in the earlier para, had to consider a case where sales tax authority had served a demand notice on assessee on 21-11-1957 for payment of sales tax of Rs. 1,49,776 in respect of sale effected during the financial year ended 31-12-1954 relevant to assessment year 1955-56 without claiming any deduction on account of such liability. However, subsequently revised return was filed on 9-11-1959 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices were terminated before the period of 21 years except for the reasons mentioned in Clause 15 of the agreement. In April 1951, the services of assessee were terminated and assessee became entitled to compensation. Assessee claimed compensation of Rs. 50 lakhs but the managed company offered to pay only Rs. 2,34,000. The assessee refused to accept the same and filed suit against the said company in the High Court of Bombay. The suit was decreed on 1711-1955, in the sum of Rs. 2,34,000 and the decree was affirmed in appeal. Assessee received the said amount in December 1955. In the income-tax proceedings for assessment year 1956-57, this amount was considered as business profits and consequently the Assessing Officer assessed the same in that year. The assessee challenged the same before the appellate authority on the ground that compensation became due to assessee in the year 1951 when its services were terminated and, therefore, could not be assessed in the assessment year 1956-57. The matter reached the Apex Court. The Hon'ble Supreme Court rejected the appeal of the revenue by observing as under: It was urged on behalf of the department that, as the assessee A disputed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld amount to mistake rectifiable under Section 154 of the Act. In our opinion, if the basis, on which income was assessed is varied or ceases to exist, then such assessment would become erroneous and can be rectified. This can be explained with an example. For instance, land in a village belonging to various persons is acquired by Government for some development works and the compensation is awarded by the Collector with interest, if any. But one of the land holders challenges the acquisition proceedings in the High Court and later on succeeds as the acquisition is declared illegal. By virtue of such High Court order, such compensation has to be returned and Government will have to restore the land to the villagers. Therefore, if capital gain has been assessed in the hands of some of the persons where lands were acquired, such assessment would become patently erroneous, as the basis itself has ceased to exist. Such assessment would, therefore, amount to mistake, which, in our opinion, can be rectified. Similarly, any income assessed may become non-taxable by virtue of retrospective amendment and consequently, erroneous assessment can be rectified. Therefore, in our humble opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-assessee and decisions in those cases have not been shown to be inapplicable to the present facts and/or disturbed in appeal. Accordingly, Question 2 does not raise any substantial question of law to be entertained. .. 6. Regarding Question 4 (a) The Tribunal by the impugned order restored the issue of the rate at which interest is to be charged to tax on income-tax refund received under Section 244A of the Act to the Assessing Officer to be decided in the light of Indo-France DTAA and the decision of the Special Bench of the Tribunal in the matter of Assistant Commissioner of Income Tax vs. Clough Engineering Ltd. [130 ITD 137]. (b) The grievance of the Revenue is with the impugned order following the decision of the Special bench in Clough Engineering Ltd. (supra). (c) However we find that the decision in Clough Engineering (supra) of the Special Bench had been followed by the Tribunal in ITA No.183/Mum/2010 [M/s DHL Operations B.V., The Netherlands Vs. Dy. Director of Income Tax]. The issue before the Tribunal was the rate of tax on which Income tax refund is to be taxed i.e. on the basis of the Articles of DTAA or under the Act. The Tribunal on examination of the DTAA in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on refurbishment of leasehold premises) be treated as revenue expenses and 25% of the expenditure be considered as capital expenses. There is no provision under the Act to estimate certain percentage of the total expenditure related to a particular asset as revenue expenditure or capital expenditure. The expenditure incurred in relation to any particular asset is either entirely on capital account or on revenue account. 5. The Appellant prays that the order of the ld. CIT (Appeals) on the above grounds be set aside and that of the Assessing Officer restored. 30. With regard to Ground No. 1 and 2 which are in respect of expenses incurred outside India comprising of (a) salaries of Expatriate employees (b) expenses incurred exclusively for operations in India and (c) NRI Desk expenses, Ld. AR brought to our notice that similar ground has been raised before the Coordinate Bench in ITA.No. 7891 and 9229/Mum/2014 for the A.Y. 1997-98 and the Coordinate Bench has considered and adjudicated the issue in favour of the assessee. Copy of the order is placed on record. 31. Ld. DR fairly agreed that the issue is covered in favour of the assessee. 32. Considered the rival submissions and mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Commissioner (Appeals) on the issue. Ground is dismissed. 33. Similarly, the Coordinate Bench in assessee s own case for the Assessment Year 1994-95 in ITA.No. 1683/Mum/2003 dated 29.10.2007 held as under: - 11 Ground no.4 is against deleting the expenses incurred outside India Rs 14,61,83,854/ 12. The Assessing Officer disallowed the claim of the assessee by observing that expenses are incurred by assessee outside India which are directly related to the operations of the assessee in India, cannot be allowed in full as they are in nature of head office expenses deductible in accordance with and subject to limits rule 44C of the Act. It was submitted before CIT (A) that the expenses in question are directly related to the business operation in bank in India and hence fully allowable under the provisions of the Act. It was further submitted that article 7(5) of the DTAA between India and United Kingdom, provides that in the determination of the profits of a permanent establishment the expenses incurred by the assessee shall be allowed as deduction. Accordingly, it was submitted that these expenses are for the business of the assessee therefore, they are allowable. It was furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits and gains of business or profession . The expenses in question incurred by the Appellant, though outside India, have been incurred for the purposes of business of the Appellant in India. The expenses are not of capital or personal in nature and therefore, allowable u/s. 37(1) of the Act. The Bombay ITAT in the case of American Bureau of Shipping (Supra) has held that expenses, which are specifically incurred on account of Indian branch, cannot be held to be in the nature of Head Office expenses u/s. 44C. Further expenses on expatriates' salaries are for the services rendered in India and these by no stretch of imagination can be considered and Head Office expenses falling under section 44C. These expenses are not incurred by the Appellant outside India in managing the affairs of any office outside India and therefore, no covered u/s. 44C. The allowability of these expenses is also squarely covered by the decision of the Calcutta ITAT in ABN AMRO Bank's case (supra). As far as the absence of debit in the books of accounts for these expenses is concerned, the Supreme Court in Kedamath Jute Mfg. Co's case (supra), has held that absence of entry in the books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X
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