TMI Blog2012 (12) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be restored to AO to consider liability which has accrued as per Accounting Policy consistently followed by assessee as on 31.3.1998 and accordingly to allow said claim to that extent - appeal is allowed for statistical purposes - ITA No. 7034 & 7254/M/2004 - - - Dated:- 20-1-2012 - SHRI B.R. MITTAL AND SHRI R.K. PANDA, JJ. Assessee by: Shri A.V. Sonde Department by: Ms. Malati Sridharan ORDER PER B.R. MITTAL, JM : These cross appeals are filed by assessee and department for assessment year 2000-01 against order of Ld. CIT(A) dt. 26th July, 2004. 2. Firstly we take up appeal filed by assessee being ITA No. 7254/M/04. The assessee has taken following grounds in its appeal. 1. The Ld. CIT(A) erred in confirming the action of AO in not allowing the appellants claim for bad debts which were claimed in the earlier assessment years and disallowed by him in those years, the details of which are as under: Assessment year Name of party Amount Rs. 1990-91 Bowreah Cotton Mills, Calcutta 1,29,98,835/- 1991-92 Bowreah Cotton Mills, Calcutta 78,47,000/- 1991-92 Shaw Wallace Ltd. 1,75,71,000/- 1991-92 Bi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnational as under: VISA - Rs. 49,83,823/- MASTER CARD - Rs. 32,49,581/- 26. The said payments were made without deducting TDS. The AO stated that assessee made payments to Master Card International and Visa Card International, which fall within the scope of Sec.9(1)(vi) and Article-12 of DTAA. The assessee was required to deduct TDS @ 15% as per Article 12 of DTAA. Since assessee made payments without deducting TDS, AO disallowed deduction of remittance aggregating to Rs. 82,33,404/- made to Visa International and Master Card as per provisions of Sec. 40a(i) of I.T.Act. Being aggrieved, assessee preferred appeal before First Appellate authority. 27. The Ld. CIT(A) stated that Visa International and Master Card International are two USA entities. Ld. CIT(A) stated that both Visa International and Master Card International are having permanent establishments in India. Therefore income generated in India received from bank or other associates is taxable in the territorial jurisdiction of India. Ld. CIT(A) stated that fee paid by assessee bank to these two companies were for services rendered in India and the same is taxable in India. Ld. CIT(A) stated that assessee was requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or fee for technical services, but is a business receipts, the said payment is subject to TDS, and Article 26(3) of Indo-US DTAA will not apply. Ld. DR further submitted that in view of above decisions of ITAT Mumbai Bench in the case of Central Bank of India (supra) will not apply. Ld. DR further submitted that finding given by ITAT Mumbai Bench that provisions of Sec. 40(a)(i) will not be applicable in view of Article 26(3) on account of discrimination is not correct. Ld. DR further submitted that since it is a business receipts of two USA entities from assessee bank, said payment falls in Clause A of Sec. 40(a)(i) of the Act and it is not connected with resident/non-resident status and therefore the finding given by ITAT Mumbai Bench in above case (supra) that said section will not be applicable on account of discrimination, is also not correct. Ld. DR further submitted that Indo US treaty is not applicable to provisions of TDS as TDS is only a mechanism for collection of tax on behalf of payees from the payers out of the payment to be made to them. Ld. DR submitted that order of Ld. CIT(A) be confirmed by rejecting the ground of appeal taken by assessee. 29. However, Ld. AR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, we agree with Ld. AR that after Mutual agreement entered into between India and USA, these two entities namely Visa International and Master Card International are deemed to be having Permanent Establishment in India; but in the relevant assessment year and at the time when assessee made payments to these two entities, said dispute was there and Tribunal considered it in the case of Central Bank of India (supra) vide its order dt. 24th September, 2010. It was held that even if assessee bank failed to deduct TDS on the payments made to Visa International and Master Card International, same could not be disallowed as per provisions of Sec. 40A(i) of the I.T. Act in view of Article 26(3) of Indo US DTAA. Since said decision has not been overruled and no other decision has been brought to our notice contrary to it, we respectfully following the said decision of Co-ordinate Bench of ITAT, Mumbai (supra), delete the disallowance as sustained by Ld. CIT(A) by allowing ground No. 6 of appeal taken by assessee. Since similar issue has been considered in assessee s own case for assessment year 1998-99, after considering submissions of Ld. Representatives of both parties and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar issue has been considered by Special Bench of ITAT Mumbai in the case of Bank of Baharain Kuwait (supra) wherein assessee bank entered into forward contract with clients to buy or sell foreign exchange at an agreed price on a future date in order to hedge against possible future financial loss on account of fluctuation in the rate of foreign currency. Therefore assessee claimed loss on evaluation of unmatured forward foreign exchange contract. The Special Bench has held that deduction is allowable under Income Tax Act in respect of those liabilities which crystallized during the previous year. A contingent liability depends purely on happening or not happening of an event, whereas if an event has already taken place, which, in the present case is of entering into the contract and undertaking of obligation to meet the liability, and only consequential effect of the same is to be determined, then, it cannot be said that it is in the nature of contingent liability. It was further stated that in case of loss/expense, it is the concept of reasonable certainty to meet an existing obligation which comes into play which in legal terminology is said to be crystallization of liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Ld. AR submitted that Ld. CIT(A) has followed earlier year orders and allowed claim of assessee. Ld. DR further submitted that maintenance of guest house is not the expenditure for business purposes particular when assessee has not filed details of expenses. On the other hand Ld. AR submitted that Sec. 37(4) has been deleted w.e.f. 1.4.1998 by Financial Act 1997 and therefore disallowance made by AO for assessee year under consideration is not legal and is unjustifiable. 11. Considering the above submission of Ld. Representatives of parties and also the fact that similar issue was considered by Tribunal in departmental appeal for assessment year 1998-99 in assessee s own case in ITA No. 5300/M/01, we uphold order of Ld. CIT(A) and reject ground No. 1 of appeal taken by department. 12. In respect of ground No. 2 of appeal, Ld. Representatives of parties submitted that similar issue has been considered by Tribunal in assessee s own case for assessment year 1998-99 being ITA No. 5275/M/01 in the appeal filed by assessee and whatever decision be taken by Tribunal in that appeal be followed in the appeal for assessment year under consideration. 13. We have considered the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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