Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2016 (6) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (6) TMI 1462 - AT - Income TaxIncome taxable in India - income earned from short-term capital gain - to be treated as capital gain so as to give benefit under Article 13(6) or as a ‘business income’ to be taxed under Article 7 - HELD THAT:- As pointed out by the assessee, the brokers, the employees and the activities are entirely different. There is no active part by the Branch in negotiating, concluding or fulfilling the contracts of purchase and sale of securities carried out by the PE. Thus, Mumbai Branch cannot be held to be involved directly or indirectly of the activities carried out by the assessee in India, therefore, the FII activities have to be segregated from the activities carried out by the Branch. Accordingly, we hold that the income of the FII is separate and distinct from the Branch and accordingly, the income has to be separately considered in the hands of the assessee as FII. As regards taxability of income of FII as capital gains, we find that, first of all, the gain from the transaction of securities has always been assessed as capital gains in the earlier years and as pointed out by the Ld. Senior Counsel by the DRP in AY 2011-12 also. CIT(A) has clearly brought out as to why such an activity has to be reckoned as taxable under the head “capital gain” specifically in light of his finding given at paragraph 3.6. Accordingly, we affirmed the order of the CIT (A) and hold that, assessee’s income is chargeable under the head ‘capital gain’ and not business income and consequently, under Article 13(6) such a capital gain is exempt from tax in India. Thus, ground No.1 as raised by the revenue stands dismissed. Taxability of interest income earned in respect of debt securities - whether under Article 11 or under Article 7 as held by the AO by treating it as a business income? - HELD THAT:- The assessee had shown interest income on debt securities as ‘income from other sources’ and had offered to tax @ 10% in terms of Article 11 of Indo-Swiss DTAA. Since the AO has held that the entire income from transaction of securities and the activities as FII is to treated as income from business directly or indirectly attributable to the PE, therefore, he has taxed the same under Article 7 as business income. CIT(A) held that, mere existence of Mumbai Branch of the assessee does not result in automatic establishing a effective connection of such interest received earned in the status of the FII to the banking operations of the PE. Such a finding of the CIT(A) has to be upheld, because, firstly, we have already held above that income from FII activities and debt securities do not form part of the business asset of the PE and secondly, the Mumbai Branch did not felicitate or participate in any manner in the earning of interest income from debt securities, which is earned by the assessee in the capacity of FII only. Accordingly, the order of the CIT(A) on this score is affirmed and the grounds raised by the revenue is dismissed. Claim of the additional expenses as deduction while computing the business income - HELD THAT:- Head Office of the assessee company had granted various employees, stock compensation awards to some of the employees of the Mumbai Branch under various employee share plans, wherein the shares of the assessee company were allotted to the credits of employees. The claim of ESOP cost relatable to the Mumbai Branch was identified and such quantification has also been certified by the independent Accountant which has not been disputed. This being the nature of direct expenses, it has been rightly allowed by the CIT(A) under section 37(1). There is no obligation on the Branch to deduct TDS on such ESOP costs, therefore, qua this expenditure, the finding of the AO is not relevant, however, with regard to other expenses it has been confirmed by the CIT(A) that same has to be computed as per section 44C in view of Article 7(3), the same is not in dispute before us. Accordingly, the order of the CIT(A) is confirmed on this point.
|