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2018 (4) TMI 1691 - HC - Income TaxTransfer pricing adjustment - Interest on loan to Sun Pharma Global Inc (AE) at London Inter Bank Offer Rate (LIBOR) Plus 2% Rate - Interest on short term advances - Corporate Guarantee fees to banks on behalf of AEs at London Inter Bank Offer Rate (LIBOR) - weighted deduction u/s. 35(2AB) - HELD THAT:- Appeal admitted on question 1 to 5 relating to TP adjustment for interest, corporate Guarantee fees & weighted deduction u/s. 35(2AB) Disallowance u/s. 14A r.w.r. 8D - disallowance of expenses incurred by the assessee for and on behalf of M/s. Sun Pharmaceutical Industries, partnership firm of which he is a partner, is a subject matter of dispute at the hands of the Revenue - assessee contends that such expenditure is in the nature of his business expenditure and therefore, allowable under section 37 - HELD THAT:- Tribunal did not accept the Revenue's contention that section 37 itself was not applicable and the entire expenditure should have been disallowed. This view of the Tribunal, the Revenue has challenged in corresponding appeal [2018 (4) TMI 1686 - GUJARAT HIGH COURT]. However, in the present appeal, the question is confined to the disallowance under section 14A of the Act which arises out of the Tribunal's decision in assessee's appeal and which, as noted above, was not allowed by the Tribunal. Therefore, this question is not entertained in the present Tax Appeal making it clear that the corresponding question of applicability or otherwise of section 37 of the Act raised by the Revenue in Tax Appeal would be debated independently. Foreign Exchange Fluctuation Gain - character of income - cancellation/renewal of forward contracts made by the assessee to protect the risk of investments in its subsidiary companies as capital receipts - HELD THAT:- In case of Deputy Commissioner of Income Tax (Assessment) vs. Garden Silk Mills Ltd.. [2009 (2) TMI 95 - GUJARAT HIGH COURT] the Court was concerned with facts where the assessee had received a gain on cancellation of forward foreign exchange contract and had treated such surplus as not allowable to tax. The Tribunal had added that it was a capital receipt not allowable to capital gains tax as cancellation of such a contract did not involve any transfer or assignment of any asset within the meaning of section 2(47) of the Act. The question of law framed at the instance of the Revenue in appeal before the High Court was “Is profit on cancellation of forward exchange contract, a capital receipt or a revenue receipt?”. This Court answered the question against the Revenue it cannot be stated that the Assessing Officer and the Tribunal have committed any error in law in holding: that the surplus received by the assessee company upon cancellation of forward foreign exchange contract will partake character of a capital receipt.
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