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Income Tax - Case Laws
Showing 181 to 200 of 175810 Records
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2025 (6) TMI 1949
Disallowance on account of material expense and on account of plot development expense - Addition made as some of the parties did not respond to the notice of the AO - MOU entered into by the assessee with RNTC, the assessee was not obliged to incur these expenses AND RNTC had claimed expenses in their books of account for common work such as development of common amenities, club house, road construction etc. and that as per the development agreement, the role of the assessee was to execute those work on behalf of RNTC - CIT(A) deleted addition - HELD THAT:- From the perusal of ledger account of RNTC brought on record in the paper-book, it is found that the assessee had debited the account of RNTC in respect of Garden Expense, Common Amenity Expense, Club House Preparing Expense and Road Construction Labour. Thus, the common expenditure for the development of common facilities such as road, common amenities, garden, clubhouse etc. was borne by RNTC and not by the assessee company. Therefore, the finding as given by the AO in this respect is not found correct.
The assessee had brought on record supplementary agreement between the assessee and RNTC which was not considered by the AO. As per the supplementary agreement, certain expenses such as construction including compound wall, land filling and levelling as per the customer requirement of individual plots, was to be incurred by the assessee for which it was entitled to charge Rs. 100/- per sq. meter from the respective plot owners. The ledger account of the administrative and development income brought on record in the paper-book reflects the party-wise details of income received from various parties towards development charges.
Against this income, the assessee had incurred total expenses of Rs. 4,51,00,181/- (Rs.1,91,00,181/- for material purchased as per the Schedule S-14 + Rs. 2.62 Crores towards plot development expense as per Schedule S-15). The assessee had accordingly earned net income of Rs. 46 Lakhs out of administrative and development income. In view of these facts, the disallowance of material expense and plot development expenses as made by the AO was totally misconceived.
Merely because some of the parties did not respond to the notice of the AO, the entire expenditure cannot be held as non-genuine. It is found that the Ld. CIT(A) had correctly appreciated the facts of the case and thereafter had rightly allowed the relief to the assessee. We do not find anything wrong with the findings as given by the Ld. CIT(A) in respect of these two additions. The ground nos.1 & 2 taken by the Revenue are dismissed.
Disallowance of commission/brokerage expense - DR submitted that this brokerage was paid to four parties at varying rates from Rs. 50/- per sq. yard to Rs. 200/- per sq. yard of plot area sold - DR further submitted that as per the development agreement, RNTC was the actual owner of the land and, therefore, commission paid was to be claimed as deduction by RNTC and not by the assessee - whether the assessee was required to pay any commission at all, in these transactions? - HELD THAT:- As per the development agreement, the entire land owned by the assessee was purchased by RNTC. If so, there was no question of payment of any commission for the sale of land as made by the assessee.
Expenditure incurred as per clause-7 of the agreement was for registration of new members and not for the sale of plot of land, which was already sold by the assessee to RNTC as per the development agreement. Since the ownership of the land was vested with RNTC, the commission for sale of individual plots was to be borne by the RNTC and not by the assessee. Under the circumstances, we do not find any justification for claim of expenditure of commission/brokerage towards sale of land. The contention of the assessee that this commission was, in essence, discount towards bulk purchase of land is self-contradictory and cannot be held as correct. If it was discount, the same was required to be deducted from the sale consideration of land and there was no requirement for deduction of any TDS on such discount.
The action of the AO in disallowing the commission expense and reducing the same from the capitalized closing stock of land is upheld. The ground taken by the Revenue is allowed.
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2025 (6) TMI 1948
Locus standi of directors to file appeal during liquidation process - maintainability of the appeals filed by the assessee company under liquidation - NCLT initiated Corporate Insolvency Resolution Process against this company which led to its liquidation and liquidator was appointed - HELD THAT:- As present appeals directed before us are signed by some directors of the company. On appointment of liquidator, those directors do not have any locus standi to file and pursue these appeals. The Liquidator has though issued Letter of Authority in favour of the counsel, however, has not replaced Form 36 duly signed by him.
This is not done despite liquidation process going on for almost 5 years. In view of this, these appeals filed by the assessee before us are dismissed as not properly verified and also not substituting the form no 36 duly signed and verified by the liquidator. Thus, the appeals filed by assessee are not maintainable and hence dismissed.
The Liquidator is granted liberty that if he wants to continue the above proceedings involved in these appeals, fresh Form 36 is required to be filed along with petition for condonation of delay that why it has not been done for such a long time. The coordinate Bench may take a decision at that time in accordance with law regarding recall of this order.
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2025 (6) TMI 1947
Revision u/s 263 - failure of the AO to examine the applicability or otherwise of the provisions of sec.40(a)(iib) in respect of guarantee commission paid to State Government of Kerala - nature of fee or charge or contractual payment - HELD THAT:- As undisputed appellant is a wholly owned undertaking of State Government of Kerala. The appellant company made payment of guarantee commission to the State Government of Kerala.
On a careful perusal of the order passed u/s.263 of the Act, it would be clear that the learned PCIT gave a specific direction to the AO to disallow the guarantee commission paid to the State Government of Kerala. The issue was not open before the Assessing Officer, to decide the allowability or otherwise of the expenditure, the order of the learned PCIT passed u/s.263 of the Act had attained finality. Therefore, the issue is no longer alive and cannot be further agitated in an appellate forum. Thus, we do not find any merit in the appeal filed by the same - Decided against assessee.
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2025 (6) TMI 1946
Mistake to be corrected by filing of a revised return or u/s 264 as it was not an error apparent on record to be rectified u/s 154 - Profit on Sale of investment being assessable to tax under the head of income ‘Capital Gains’ - appellant company however by mistake omitted to exclude/reduce the Profit on Sale of Investment by way of deduction and Sl. No. 3(b)- ‘Income/Receipts credited to profit and loss account considered under other heads of income chargeable u/s 115BBF/chargeable u/s 115BBG’ of Schedule BP in the ITR.
HELD THAT:- When the matter was taken up today, Respondent on instructions, submitted that the appellant will be permitted to file its physical returns for consideration before the Central Processing Centre AO. Appellant has also placed a decision of Cosmo Films Limited [2019 (5) TMI 1067 - DELHI HIGH COURT] where in similar circumstances the petitioner therein was allowed to file the returns manually.
As the concession has been made by the respondents, nothing remains for further consideration in the present appeal, and the same is disposed of by directing the CPC AO to accept the revised returns filed by the appellant manually/physically, for due consideration in accordance with law.
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2025 (6) TMI 1945
Addition towards profit on sale of land - Nature of land - factor determinative of the issue whether the land is agricultural or not - According to AO, the land was barren land and the irrigation was only through seasonal rains and wells and depending on the quantum of seasonal rains, the wells hold water for some period only. Due to this, observed that the land could not be used for raising any crops or trees
HELD THAT:- ITAT rightly accepted the fact that the land has always been classified as agricultural land in revenue records; the land was situated 8 kms from nearest municipality; as per the revenue records, agricultural activities were being carried out on the said land; and the intention of the purchase of the land would be immaterial. Assessee, in addition, has also produced Electricity Board receipts, which shows that assessee has been granted subsidy on electricity charges. Assessee has also furnished land test report mentioning soil content and nature of crop which could be grown on the land.
ITAT also considered the fact that Kengayapalayam Village has population of less than 1600 and the patta shows that the land has been classified as “Punjai” wet land. Agricultural income receipts and ploughing expense receipts have also been placed on record. The list of documentary evidence produced has also been listed in the impugned order.
None of the lower authorities has placed on record any document to rebut the evidence placed on record by assessee, but they have proceeded on the reasoning that the area where the land was situated had commercial potential and, hence, have assumed that the land was acquired as a part of real-estate business to reap the benefits of commercialisation.
ITAT has arrived at a factual finding that assessee has fairly established that the land was agricultural land and revenue has failed to rebut the documentary evidence and bring on record adverse material to prove that the land was not classified as agricultural land.
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2025 (6) TMI 1944
Revision u/s 263 by CIT - AO's order was erroneous and prejudicial to the interests of the revenue - deductions claimed by the assessee under Sections 80IA(4), 80G, Section 37(1), and freight charges - HELD THAT:- A careful perusal of Section 263(1) of the IT Act would show that it is the essential condition to invoke Section 263 that the Commissioner must find that the order of assessment is erroneous firstly and secondly, that the order of the assessing authority is prejudicial to the interests of the revenue. The Commissioner of Income Tax has power to take into consideration all records available at the time of examination by him. ‘Record’ would mean all records relating to proceeding available at the time of examination with the Commissioner. See Shree Manjunatheaware Packing Products & Camphore Works [1997 (12) TMI 4 - SUPREME COURT]
ITAT has clearly observed that the PCIT did not carry out any independent enquiry or pinpoint any specific error in the assessment order and further held that the AO had conducted due diligence and applied his mind before passing the order of assessment. ITAT has further observed that the PCIT has merely asked the AO to verify those facts again which were already verified and which is not the valid ground under Section 263 of the IT Act and furthermore, in order to invoke Section 263, it is well settled that both the conditions that the order must be erroneous and it must be prejudicial to the interest of revenue must be satisfied.
The assessee had made donation to the Prime Minister’s National Relief Fund and he has also been allowed deduction for last assessment year and documents have also been filed showing that deduction has been allowed in previous year. As such, the finding recorded by the ITAT that there is no apparent error in the assessment order and it is neither erroneous nor prejudicial to the interest of revenue is the correct finding of fact based on the evidence available on record, it is neither perverse nor contrary to the record and therefore we do not find any ground to interfere with the order of the ITAT.
We are of the considered opinion that both the twin conditions, namely, the order of the Assessing Officer sought to be revised is erroneous and it is prejudicial to the interests of the Revenue, are not satisfied at all to invoke the jurisdiction under Section 263 - Decided in favour of assessee.
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2025 (6) TMI 1943
Validity of reassessment proceedings - alleged incorrect set off of business loss, on a different ground viz., carry forward of unabsorbed depreciation allowance - HELD THAT:- As decided in Galiakot Containers Pvt. Ltd. Mumbai [2021 (9) TMI 1577 - BOMBAY HIGH COURT] Tribunal answered the first question [reopening] in favour of revenue and assessee has not challenged that finding.
Disallowing the set off against short term capital gains by assessee of the earlier years’ unabsorbed depreciation and carry forward a business loss against capital gain - Section 72(1) of the Act employs the expression “computation under the head profits and gains of business or profession”, whereas, Section 72(1) (i) does not use the said expression but it says “against profits and gains, if any of any business or profession”. Therefore, what is required to be seen is whether profits and gains against which the loss is sought to be set off was part of the business activity of the assessee or business asset of the assessee.
Assessee had sold block of assets, i.e., buildings / development, factory building, plant and machinery and had shown short term capital gain plus long term capital gain by sale of immovable property. The assessee was in the business of manufacturing metal containers and the computations of gain was under a different head nevertheless the profit or gain on sale of depreciable assets to extent of recoupment of depreciation is nothing but business income in substance. The assessee is entitled to set off brought forward loss against income which has the attributes of business income even though the same is assessible to tax under head other than profit and gain from business. We find support for this view from Alcon Developers [2021 (2) TMI 284 - BOMBAY HIGH COURT] and Nandi Steels Ltd. [2021 (3) TMI 737 - KARNATAKA HIGH COURT] Decided in favour of assessee.
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2025 (6) TMI 1942
Payment of Employees' Contribution to Superannuation fund u/s 36(i) (va) - Payment beyond due date - whether the contribution made by the assessee to the Employees’ Superannuation Fund qualifies for deduction, having been paid after the due date prescribed under the scheme but before the due date u/s 139(1).
HELD THAT:- We find from the record that the assessee had made the payment towards employees’ contribution to the Superannuation Fund before the due date for filing the return of income u/s 139(1). The fact of such payment and its timing is not disputed. CIT(A) has rightly noted that the critical requirement for allowing the deduction is whether the Superannuation Fund is an “approved” fund under the provisions of the Act.
It is settled law, including by several decisions of various High Courts, that where employees’ contributions are deposited before the due date of filing the return under section 139(1), such payments are allowable as deduction, provided the underlying fund is duly approved.
In the instant case, the Ld. CIT(A) has already issued directions to the AO to verify the approval status of the Superannuation Fund and allow the claim accordingly. We, therefore, find no infirmity in the order of the Ld. CIT(A) and the directions given by the Ld. CIT(A) are fair and reasonable.Appeal of the assessee is allowed for statistical purposes.
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2025 (6) TMI 1941
Unexplained cash credit u/s. 68 - Assessee argued it as Agricultural Income - as per AO for the year under consideration which witnessed widespread calamity i.e. Gujarat 2017 floods, the agricultural income cannot be more and the reply given by the assessee was nothing but a concocted story - HELD THAT:-Explanation of the assessee that there has been hike in agricultural income by three times in the current year and expenses have gone down from 76% to 43% cannot be held to be reasonable, logical and acceptable. We are in agreement with the Ld. CIT(A)’s observation in confirming the addition on merits of the case. Appeal of the assessee is dismissed.
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2025 (6) TMI 1940
Rejection of registration u/s. 80G(5) - CIT(E) found that the assessee had incurred expenditure of religious nature which is more than 5% of its total income primarily donations to other trusts and funds - HELD THAT:- As assessee could not explain the donations made to the other Trusts and how they are relating to charitable purpose. In support of the same, the assessee has not filed any details or Paper Book either before the Ld. CIT(E) or before this Tribunal. In the absence of the same, the grounds raised by the assessee are devoid of merits and liable to be dismissed.
Appeal filed by the Assessee is hereby dismissed.
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2025 (6) TMI 1939
Unaccounted cash found from the premises during search and survey proceedings - sale receipts from tyres business - taxable at normal rates OR 60% - HELD THAT:- As admitted position of fact that during the course of search & survey, this receipt of Rs.36 lakhs has not been found mentioned in the books of the assessee.
Assessee has not even disclosed this while filing the original return, which has been filed much after the date of search and survey. It is pertinent to note that neither in survey nor in search proceedings at the premises of third party any cogent material has been recovered which would show that the source of this amount is the sale receipts of tyres. Therefore, we see no hesitation in confirming the view of the AO to tax this amount at 60%.
So far as the judgements relied upon by the counsel for the assessee, in all these cases, it is admitted position of fact that the assessee has duly surrendered that amount and offered the same in the return of income in response to the notice u/s 153A & 153C of the Act as the case may be.
Reliance of the assessee on the CBDT Instruction No.1916 is concerned, that instruction has no relevance because that instruction is not related to the gold coins rather related to the jewellery, ornaments of the ladies and gents. Therefore, we find no reason to disturb the order of ld. CIT(A) and AO.
Appeal of the assessee stands dismissed.
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2025 (6) TMI 1938
Penalty levied u/s. 271(1)(b) - as per notice u/s. 142(1) assessee failed to furnish certain documents to the department - appropriate application of mind or not?
HELD THAT:- The assessee had filed reply through e-portal dated 17.07.2018 and submitted that the requisite information as sought for by the department was not possible to file in a short span of time and at the same time there is no intention on the part of the assessee to avoid the proceedings.
That without considering the fairness of the submissions of the assessee or any merit in the grievance brought out by the assessee without any such verification on the next date i.e. 18.07.2018, the A.O passed order levying penalty u/s. 271(1)(b) of the Act.
As examined first of all the CIT(Appeals)/NFAC had made perverse order by stating wrong facts regarding quantum of penalty and secondly, there was no examination conducted in terms with Section 273B of the Act. Appeal of the assessee is allowed.
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2025 (6) TMI 1937
Denial of exemption u/s. 11 - Form No. 10 was filed belatedly -typographical error in the original audit report - HELD THAT:- Assessee Trust already made fixed deposits with Axis Bank in specified mode. However in the original Audit Report in Form No. 10, there is some typographical error which was rectified by filing a Revised Audit Report on 01-07-2023.
Therefore held that Revised Form No. 10 should be considered for determining accumulated funds available with the assessee u/s. 11(2) of the Act. Further the Board resolution passed for Investment also as per Section 11(5) of the Act, as the amount was deposited in fixed deposits with the bank accounts - Appeal filed by the Revenue is hereby Dismissed.
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2025 (6) TMI 1936
Assessment of private discretionary trusts - income as chargeable to tax at the Maximum Marginal Rate (“MMR”) - surcharge is chargeable at the highest applicable rate or as per slab rate? - levying surcharge of 37% or 15% - section 167B rws 2(29C) applicability applicability
HELD THAT:- In light of the ratio laid down in the case of Araadhya Jain Trust [2025 (4) TMI 648 - ITAT MUMBAI] in our considered view, Addl./JCIT(A) has erred in holding that that the entire income of the assessee is required to be subjected to MMR with surcharge @ 37%. The assessee has rightly claimed the levy of surcharge @ 15% in its return of income and the Ld. AO/CPC has rightly allowed the said claim of the assessee in the rectification order. Appeal of the assessee is allowed.
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2025 (6) TMI 1935
TP Adjustment - comparable selection - HELD THAT:- We find that the comparables namely (1) Cybage Software Pvt. Pvt. Ltd. (2) Nihilent Ltd. (3) Infobeans Technologies Ltd. and (4) EInfochips Pvt. Ltd. stands already examined by this Tribunal in assessee’s own case for A.Yrs. 2014-15, 2016-17 and 2017-18 and after examining the functionality of the assessee company vis-a-vis the comparables it has been consistently held that all the above referred four companies are not to be included as comparables in the case of assessee for calculating the ALP of the international transactions carried out with its Associated Enterprises. We therefore direct the Assessing Officer/Transfer Pricing Officer to exclude all these four comparable companies namely (1) Cybage Software Pvt. Pvt. Ltd. (2) Nihilent Ltd. (3) Infobeans Technologies Ltd. and (4) E-Infochips Pvt. Ltd. from the list of comparables.
Ninestars Information Technologies Ltd. - Now from going through finding of this Tribunal in the case of M/s. Persistent Systems Ltd. [2023 (11) TMI 1190 - ITAT PUNE] we find that since the nature of activity carried out by M/s. Persistent Systems Ltd. is similar to the activity carried out by the assessee, i.e. Software Development and support services, we therefore following the decision of this Tribunal and Rule of Consistency hold that Ninestars Information Technologies Ltd. is not a good comparable and deserves to be excluded from the list of comparables. We direct the Assessing Officer/Transfer Pricing Officer to exclude the said company from the list of comparables.
Appeal of the assessee is allowed.
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2025 (6) TMI 1934
TP Adjustment - arm’s length price (ALP) with regard to research and development fees (R&D Fees) and management services fees - HELD THAT:-We find that TPO suggested upward adjustment of management fee and R&D payments to its AEs by taking view that assessee has not provided adequate documentation with regard to management fees and R & D expenses. The ld DRP confirmed the action of TPO/AO.
We find that before DRP the assessee filed additional submissions and also filed copy of agreements with its AEs for availing management fee. The assessee also furnished various evidences in the form of correspondence with its AEs to substantiated the proof of availing such services. On filing such additional evidence, the DRP called remand report of AO/ TPO. No such remand report was furnished by AO/ TPO as recorded in order of DRP.
We find that in CIT Vs Lever India Exports Limited [2017 (2) TMI 120 - BOMBAY HIGH COURT] held that TPO has no jurisdiction to consider whether or not expenditure incurred has passed the test of section 37 of the Act.
As decided in CIT Vs Lever India Exports Limited [2017 (2) TMI 120 - BOMBAY HIGH COURT] held that TPO has no jurisdiction to consider whether or not expenditure incurred has passed the test of section 37 of the Act.
We find that assessee has filed sufficient evidence on record which prima facie substantiate the payment of management fees as well as R & D expenses are arm’s length price, though such evidences has not been examined by TPO nor the TPO computed the adjustment as per prescribed method simply holding that sufficient evidence is not filed before him.
No remand report was furnished by AO / TPO on the direction of DRP. The DRP also made a general observation regarding various additional evidences furnished by assessee. Therefore, the order of TPO / AO and DRP is set aside and the matter is restored back to the file of AO/ TPO to recompute the adjustment afresh in accordance with law. The assessee is also directed to provide requisite details and evidences before AO / TPO. In the result, the grounds of appeal raised by assessee are allowed for statistical purposes
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2025 (6) TMI 1933
Depreciation on the plant and machinery for moulds - @ 30% OR 15% - rate applicable to moulds used in plastic/rubber manufacturing - As per the AO, it does not meet the criteria prescribed u/s 32 r/w Rule 5A of the IT Rules 1962, thus restricted depreciation @ 15% available for general Plant and Machinery - AO is of the opinion that depreciation @ 30% is only for rubber and plastic good factories and the appellant does not own these factories - HELD THAT:- As decided in Honda Motorcycle & Scooter India (P) Ltd[2016 (10) TMI 634 - ITAT DELHI] Prime requirement is that moulds should be owned by the assessee, the same should be part of block assets shown by the assessee and these were put io use for the purpose of business of the assessee and the three requisite conditions have been fulfilled by the assessee in the present case and thus it is entitled to claim, depredation @ 30%.
Respectfully following the order of the Coordinate Bench of the Tribunal in [2023 (10) TMI 446 - ITAT KOLKATA] relying on Honda Motorcycle & Scooter India (P) Ltd [supra] it is held that the assessee is eligible for depreciation @ 30% and there is no need to interfere in the order of the Ld. CIT(A) which is confirmed and the appeal of the Revenue is hereby dismissed for A.Y. 2012-13. Assessee appeal allowed.
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2025 (6) TMI 1932
Capital gain income on account of sale of equity oriented mutual funds in India - capital gains were claimed as exempt under Article 13(4) of the India-Mauritius DTAA - AO held that when the assessee sells the equity-oriented Mutual Funds, it becomes the beneficiary of capital gains arising from the alienation of the underlying asset of investment i.e. shares/ equity, accordingly held that since the assessee has underlying assets of transactions as Equity, therefore, 65% of the total capital gains is covered under Article 13(3A) of the India Mauritius DTAA as the underlying asset in the transaction is shares and is taxable
HELD THAT:- In Mutual Fund schemes, dividends are distributed when the fund has booked profits on the sale of securities in its portfolio. Mutual Fund dividend and stock dividends are two different things. While stock dividends represent the profits earned by a company, mutual fund dividends are not an indicator of the profitability of a mutual fund scheme. High mutual fund dividends do not mean that the fund is doing very well or otherwise. When a mutual fund scheme declares a dividend, the NAV (Net Asset Value) of the concerned scheme falls by a corresponding amount.
The most vital aspect of investment in shares and investment in mutual funds is that while in selling of shares the possibility of rigging the share prices leading to heavy capital gain and siphoning out the gains to tax heavens, cannot be ruled out. There can be no rigging of the price or artificial appreciation of the capital gains.
Thus there is no doubt left that under the Indian Laws, the shares and mutual fund both are different forms of securities and investment in both of them have significant differences in terms of the rights of investors, regulation, nature of return and taxability under the domestic laws. Equity Mutual Funds are merely a class of mutual funds. They may be treated along with equity shares for giving exemption or rate of taxation by virtue of section 10(38) or 112 of the Act, but for the DTAA the gain on sale of Equity Mutual Funds cannot be said be out of alienation of ‘shares’.
Deeming provisions for purposive interpretation cannot be extended absurdly to include in the definition of shares even a right entitlement to allotment of the shares of a company. Then in ITO Vs. Satish Beharilal Raheja [2013 (8) TMI 1113 - ITAT MUMBAI] while dealing with Article 13(6) of the India Swiss DTAA, the coordinate bench has following the decision of Apollo Tyres Ltd [2002 (5) TMI 5 - SUPREME COURT] held that the units of mutual fund cannot be treated as shares of a company.
Thus, as concluded is that as for the purpose of taxing an income earned from selling a security the DTAA should be strictly interpreted and if any security is not specifically mentioned then by any fiction or way of purposive interpretation a distinct nature of security cannot be considered akin to one giving rise of taxable income.Appeal of the appeal of assessee is allowed.
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2025 (6) TMI 1931
Proportionate credit for TDS - as per revenue sales return is not explained by the assessee, whether the sales return are net of TDS or gross amount - AO said assessee has reported only part of the turnover and not entire turnover - HELD THAT:- AO is erred in allowing credit for TDS on proportionate basis, even though the assessee has offered the income in total for the year under consideration. The reasons for the AO to allow proportionate TDS is difference in turnover as per Form 26AS and turnover reported in the books.
The assessee has explained the said difference with the sales return. If we consider sale return, then the turnover declared by the assessee tallies with the turnover reported in Form 26AS with reference to TDS credit as per section 194 O of the Act.
Although, these facts has been explained to the learned CIT (A), but the learned CIT (A) based on assumption and presumption rejected the explanation of the assessee on the ground that if at all sales turnover is there, then the assessee must have replaced with other goods or refund gross amount including TDS amount.
TDS has been deducted by the e-platform operators at the time of sales whereas the money is returned to the buyer after e-platform operators deducted TDS. Therefore, in our considered view, the reasons given by the CIT (A) to reject the explanation of the assessee is on assumption and presumption, but not based on fact. Appeal filed by the assessee is allowed.
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2025 (6) TMI 1930
Taxability of interest income earned on CCDs and OCDs - applicability of the concessional tax rate of 5.46% (including applicable surcharge and cess) -provisions of section 194LD applicability on CCD and OCD as falls in the category of Rupee denominated bond of an Indian company
HELD THAT:- Revenue does not dispute that the interest rate on the respective OCDs and CCDs does not exceed the maximum interest rate notified by the Central Government, being 500 basis points over the base rate of State Bank of India. Thus, it can be concluded that the interest rate condition is also satisfied in the present case in respect of the respective OCDs and CCDs issued by the Indian AEs.
Is if CCD and OCD fall in the category of Rupee denominated bond of an Indian company so the provisions of section 194LD of the Act, becomes applicable - The rights and obligation of debentures, in general, would mutatis mutandis be applicable to the OCDs / CCDs prior to their conversion. The only uncertainty in the OCDs is whether the debenture holder will go for conversion into shares or will continue to hold them as debentures. This uncertainty in no way impacts the inherent nature of the instrument. The nature, rights and obligations attached to OCDs / CCDs, cannot be equated with that of shares until conversion thereof till then OCDs / CCDs retain the character of a debenture simplicitor.
We are of further considered view that as for the purpose of Section 194LD what is important is that the security should be rupee denominated one. Intention being that Indian company does not bear any risk out of foreign exchange fluctuation at the time of repayment of the principal or the interest amount. The distinction between OCD/CCD with NCD is of no consequence and they are debt instrument only like the bonds. Bond as a security when distinguished from the debentures only is for the purpose of signifying that bonds may at times be backed up by some collateral security while same is not the case when the debentures are issued.
To treat CCD and OCD as shares in praesentia would be extending too far the principles of interpretation and infact the purposive interpretation would require extending benefit to the assessee as long as the OCD/CCD are rupee denominated, when investment is sought or interest is paid.
Thus, Tax Authorities have fallen in error to not give the assessee the benefit of Section 194LD in regard to OCD/ CCDs also. It appears that ground was specifically raised before the ld DRP but no specific direction in that regard was made and while passing the final assessment order the AO has gone by the limited directions of the ld DRP with regard to NCDs only. Thus, we are inclined to sustain the grounds in favour of the assessee.
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9911796707
