TMI Blog2005 (11) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... ree issues identified above, the first two issues emerge out of the grievances raised by the assessee, as set out in the memorandum of appeal, which are as follows : "The learned Commissioner (Appeals) erred in confirming the action of the Assessing Officer in computing the tax on the interest income at the rate of 48% as against 20% as specified in section 115A of the Income-tax Act, 1961. The learned Commissioner (Appeals) erred in holding that the Indian branch of Nova Scotia is not an Indian concern within the meanings of section 115A. The learned Commissioner (Appeals) erred in not directing the Assessing Officer to follow the Circular No. 740 dated 17th April, 1996 issued by the Central Board of Direct Taxes. The learned Commissioner (Appeals) erred in confirming the levy of interest under section 234B of Rs. 5,99,404. The Commissioner (Appeals) ought to have deleted the interest levied under section 234B." 3. The third main issue, as identified by us, emerges out of the additional ground of appeal filed by way of letter dated 20th July, 2005 which was as follows : The learned Joint CIT erred in treating the interest income of Rs. 42,76,580 received by the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that it must be a concern rooted to the Indian soil, must have residential status in India" and that ". . . in a taxing statute, one has to find out the intention of the Legislature and here the intention is definitely an Indian concern alias an Indian company and certainly not the branch of a foreign company". Learned CIT(A) then reproduced an extract from the State of Tamil Nadu v. Kodikanal Motor Union (P.) Ltd. [1986] 3 SCC 91 referring to Lord Denning s observation to the effect that it would be idle to expect every statutory provision to be drafted with divine prescience and perfect clarity and Justice Hand s words that we must not make a fortress out of a dictionary but remember that statutes must have some purpose or object whose imaginative discovery is judicial craftsmanship. The CIT(A) was of the view that in the light of these observations, "the learned counsel should not make a fortress of dictionary meaning and should continue himself to the legislative intent as explained above". The plea of the assessee regarding applicability of section 115A on the facts of this case was thus dismissed by the CIT(A) as well. As regards the appeal against levy of interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of the Act, total income of a non-resident includes all income, from whatever source derived, which is ( i ) received or is deemed to be received in India by or on behalf of such non-resident; or ( ii ) accrues or arises or is deemed to accrue or arise in India. It is important to bear in mind the fact that interest income arising in India is deemed to be accrue or arise in India by virtue of section 9(1)( v ) of the Act which provides as follows : "(1) The following income shall be deemed to accrue or arise in India : ****** ( v )income by way of interest payable by ( a ) the Government; or ( b )a person who is resident, except when the interest is payable in respect of any debt incurred, or moneys borrowed and used for the purpose of business or profession carried on by such person outside India or for the purpose of making or earning any income outside India; ( c )a person who is non-resident, where the interest is payable by in respect of any debt incurred, or moneys borrowed and used, for the purpose of a business or profession carried on by such person in India." A plain reading of the above deeming provision makes it unambiguously clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the context in which it is used. If we are to see the context, it is in respect of business carried on by the assessee, and not the residential status of the assessee, that interest income is deemed to accrue or arise in India. In the case of Dr. J.M. Mokashi ( supra ), Hon ble Bombay High Court had an occasion to deal with the scope of the expression concern though in the context of section 64(1)( iii ) of the Act. Their Lordships observed that "the word concern is of wide import and it conveys different ideas or meanings depending upon the context and setting in which it appears" and that it "takes within its sweep and ambit all organizations or establishments engaged in business or profession; whether owned by a company, partnership, individual or any other entity". This observation by the Hon ble Bombay High Court makes it clear that there can be a distinction between a company and a concern, and that a company can be larger than a concern, inasmuch as a company can own a concern. In this view of the matter, merely because Indian branch office of the Bank of Nova Scotia is fully owned by a non-resident company, i.e., the Bank of Nova Scotia, it could not be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CBDT in the aforesaid circular. It is also to be noted that, in this very circular, the Board has taken a stand that interest paid by branch of a foreign company/concern will be governed by the provisions of section 115A of the Act. No doubt this circular is in the context of interest paid by the branches to the head office but once revenue takes a stand that the branch and head office are required to be treated as separate taxable entities, it does not make a difference whether the interest is paid to the head office or to any other person. In any event, what is important from the point of view of section 115A is whether the payment is made by an Indian concern to a non-resident or not. Once the Board takes the stand that the interest payable by the branch office of a foreign concern/company to its head office/overseas branches is entitled to be taxed under section 115A, it cannot be open to the Assessing Officer to decline application of section 115A to the assessee only for the reason that the interest is paid by Indian branch of a foreign bank. It is only elementary in the scheme of things under the Income-tax Act that beneficial circular is binding on the revenue author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icable on the income earned by the assessee, by way of interest earned on foreign currency deposits with the Bank of Nova Scotia s Mumbai branch, will be 20%. The plea of the assessee is correct and meets our approval. The first issue is thus decided in favour of the assessee. 11. Ground Nos. 1, 2 and 3 are thus allowed. 12. The next issue that we are required to adjudicate is whether or not the levy of interest under section 234B of the Income-tax Act can be made when entire income of the non-resident assessee was liable to the deduction of tax at source under section 195 of the Act. 13. The CIT(A) dismissed this grievance of the assessee as not maintainable by observing that "no appeal lies against charging of interest, and that "however, the appellant company will get consequential relief". That stand certainly cannot be approved in the light of settled legal position now. Having heard the rival contentions on this issue, however, we are of the considered view that the CIT(A) ought to have admitted the ground of appeal and decided the same on merits. In this view of the matter, we deem it fit and proper to remit the matter to the file of the CIT(A) for adjudication o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t facts have not been scrutinized by the Assessing Officer or the CIT(A). If at all we decide to admit the ground, this issue can at best be remitted to the file of the Assessing Officer or the CIT(A) for fresh adjudication after ascertainment of the facts. 18. We are not inclined to uphold, based on the facts found by the authorities below, the plea of the assessee, or even examine, at this stage, the evidences filed in support of the contention that the acceptance of such deposits by the scheduled bank was approved by the Reserve Bank of India. The evidences which are now filed by the assessee were not before any of the authorities below for the purposes of examining whether or not the conditions laid down under section 10(15)( iv )( fa ) was fulfilled or not. In fact, this aspect of the matter has not been considered at all. However, as we have admitted the appeal on this important legal issue, we deem it fit and proper to remit the matter to the file of the Assessing Officer for adjudication on this plea by way of a speaking order, in accordance with the law and after giving due and fair opportunity of hearing to the assessee. 19. As we are restoring this issue to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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