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2016 (10) TMI 1336 - AT - Income TaxTaxation of income earned by the assessee from investment made in Malaysia - DTAA between Union of India and Government of Malaysia - HELD THAT:- As rightly submitted by the Ld. D.R., this Tribunal examined the issue for assessment year 2000-01 and found that there was no permanent establishment in Malaysia. The Malaysian branch of the assesseecompany invested in M/s Goldman Sachs on the basis of the decision taken at Chennai. This Tribunal found that M/s Goldman Sachs invested in various bonds and shares. The Malaysian branch of the assessee-company was, in fact, operated from Chennai. This Tribunal, for the assessment year 2000-01, examined entire nature of investments made by the assessee7 company in Malaysia and found that the interest / income earned by the assessee from investments in Malaysia has to be construed as “income from other sources”. The loss suffered by the assessee on sale of shares and investments cannot be allowed to set off against the capital gain. This Tribunal further found that the income earned by the Malaysian branch of the assessee-company is taxable in India and not taxable in Malaysia. In view of the decision of this Tribunal in the assessee's own case for the assessment year 2000- 01, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Expenditure incurred by the assessee in Malaysian branch - HELD THAT:- This Tribunal found that the income from Malaysian branch has to be classified as “income from other sources” and it cannot be said to be arising from business, therefore, there cannot any question of allowing the expenditure against the business income. In view of this order of the Tribunal, the CIT(Appeals) is not justified in allowing the claim of the assessee. In fact, this order of the Tribunal was not brought to the notice of the CIT(Appeals). Interest under Section 234B - HELD THAT:- Payment of advance tax was increased due to inclusion of income of Malaysian branch in India. The assessee claims that there was a bona fide belief that the Malaysian income would not form part of total income of the assessee in India. The assessee-company is not making investments in any another companies. The other company M/s Goldman Sachs was doing business. The decision to make investment was taken in India, therefore, the Malaysian branch cannot be construed a permanent establishment. In those factual circumstances, this Tribunal found for the assessment year 2000- 01, in the assessee's own case, that the income earned on investments by Malaysian branch of the assessee-company is taxable in India. The taxability of income at Malaysian branch is not because of any legislative change brought in subsequently. Therefore, it cannot be said that the assessee was under the bona fide belief. This is the case of levy of tax on the income. Since there was no legislative change brought in by the Parliament, this Tribunal is of the considered opinion that the judgment of Madras High Court in Revathi Equipment Limited [2007 (6) TMI 154 - MADRAS HIGH COURT]may not be applicable to the facts of the case. Therefore, when the assessee admittedly paid advance tax, which is less than 90% of assessed tax, the assessee is liable to pay interest under Section 234B of the Act. Therefore, this Tribunal is unable to uphold the order of the CIT(Appeals). Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored. Levy of interest under Section 234D - claim of the assessee before the lower authorities was that no interest could be chargeable under Section 234D of the Act prior to assessment year 2001-02 - HELD THAT:- The Madras High Court in Infrastructure Development Finance Co. Ltd.[2011 (9) TMI 591 - MADRAS HIGH COURT] found that Section 234D of the Act came into force with effect from 01.06.2003. When the regular assessment was completed after the provisions of Section 234D of the Act came into force, the assessee was liable to pay interest on the excess amount refunded as contemplated under Section 234D of the Act. In this case also, the regular assessment was admittedly made on 21.01.2009 after Section 234D of the Act came into operation. Therefore, the assessee is liable to pay interest under Section 234D of the Act on the excess amount refunded. Reopening of assessment u/s 147 - assessee is challenging the reopening of assessment on the ground that the Malaysian branch of the assessee-company constitutes a permanent establishment in Malaysia, therefore, the income does not escape from assessment - HELD THAT:- This Tribunal for assessment year 2000-01, in the assessee's own case, found that the Malaysian branch of the assessee-company cannot constitute a permanent establishment and the assessee’s Malaysian branch is not doing any business other than making investments. Therefore, income from Malaysian branch is taxable India. In view of the finding of this Tribunal for assessment year 2000-01 that the income escaped assessment, therefore, the Assessing Officer has rightly reopened the assessment under Section 147 of the Act. On identical situation, for assessment years 2002-03 and 2003-04, this Tribunal confirmed the order of the Assessing Officer for reopening assessment. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Classification of interest income and dividend income - assessee, submitted that the business of the assessee is investment, therefore, the interest income earned by the assessee from investments and dividend income have to be classified as “income from business” - HELD THAT:- It is not in dispute that the assessee has invested in one M/s Goldsman Sachs through its Malaysian branch. The assessee has not done any other business other than making investment in M/s Goldsman Sachs. In those circumstances, this Tribunal is of the considered opinion that the income by way of interest and dividend income received from M/s Goldsman Sachs have to be classified as income from other sources and not as income from business. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Unrealised gain on currency translation - HELD THAT:- The gain on foreign currency translation from various international currencies is notional one. The Uttarakhand High Court in ONGC case [2007 (3) TMI 204 - UTTARAKHAND HIGH COURT]examined this issue and found that the gain is only a notional one and it is not taxable in the hands of the assessee. Since the CIT(Appeals) has followed the judgment of Uttarakhand High Court, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Provision for diminution in the value of current investment - HELD THAT:-As rightly submitted by the Ld.counsel for the assessee, the assessee continuously valuing the current investments at cost or market price, whichever is lower Therefore, as on the last day of the financial year, the quantum of diminution in the value of current asset can be ascertained. Hence, as rightly submitted by the Ld.counsel for the assessee, it is not a provision. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Diminution in the value of stocks - DR submitted that the profit on sale of investments was found to be a capital gain by this Tribunal for assessment years 2002-03 and 2003-04. Therefore, diminution in the value cannot be allowed as deduction - HELD THAT:- The investment made by the assessee has been continuously valued either at market price or at cost, whichever is lower, as per the provisions of Section 145 of the Act. Therefore, the diminution in the value of investment is ascertainable at the end of the financial year. Hence, the CIT(Appeals) has rightly allowed the claim of the assessee. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Disallowance u/s 14A - HELD THAT:- As rightly submitted by assessee, Rule 8D of Incometax Rules, 1962 is not applicable for assessment year 2007-08. This Tribunal is uniformly taking a view that 2% of the exempt income has to be taken as expenditure for earning that income. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Expenses incurred on bank guarantee - HELD THAT:- It is not in dispute that the assessee borrowed loan from HDFC Bank on the basis of the bank guarantee given by M/s Goldsman Sachs. It is also not in dispute that the assessee has paid lower rate of interest. Therefore, the expenditure incurred by the assessee in giving bank guarantee is for business purpose. Therefore, the CIT(Appeals) has rightly allowed the same. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
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