TMI Blog2012 (12) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... was hither to capitalized came to be considered as deduction in the year of purchase. This changed method has been undisputedly followed by the assessee consistently in subsequent years. Considering the earlier order passed by the Tribunal in assessee's own case for AY 1991-92, the Tribunal decided it in favour of the assessee by holding that interest paid on broken period was liable to be allowed as deduction against the interest received in respect of the broken period - in favour of assessee. Interest on NOSTRO account - CIT(A) deleted charging of interest & enhancement to the tune of Rs. 27,31,95,602 u/s 14A - Held that:- Following the precedent for assessment year 1997-98 the interest of Rs. 3.98 crore on NOSTRO account is chargeable to tax and resultantly the disallowance u/s 14A made to the tune of Rs. 27.31 crore is deleted - grounds raised by the assessee as well as Revenue in this regard are allowed. Taxability of income at the rate of 48% as applicable to non-resident company - Held that:- The assessee fairly admitted that this issue has been decided against the assessee in earlier years - The impugned order on this issue for the current year as well and dismiss th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se price so paid has to be taken as such by disregarding the assessee's view point that the premium on purchase of securities should be amortized over the life of investment. To this extent the view taken by the CIT(A) approved with a little modification that not only when the securities are not only sold but also even when these get matured, income from then should be computed with reference to the cost of purchase of securities. Deduction independent of the provisions of section 44C - CIT(A)deleted the expenses claimed by the assessee on account of HO expenses independent of the provisions of section 44C - Held that:- Facts and circumstances of this ground are similar to those prevailing in the earlier years in which it has been held that the deduction has to be allowed independent of the provisions of section 44C - if during the fresh examination, the AO finds that the expenses of Rs. 1.06 crore or any part thereof represent apportionment of HO expenses as per Explanation to section 44C, such allocated expenses will not be allowed as deduction independent of section 44C. To the extent the expenses are found to be exclusively incurred by HO for the assessee, they will not fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that neither any interest/commission received by the Indian PE from HO/other overseas branches can be charged to tax, nor there can be any deduction towards interest/commission expenditure incurred by the assessee towards HO /overseas branches. We have restored the matter to the file of Assessing Officer with a direction to exclude the amount of interest/commission received by the Indian PE from its HO/overseas branches and also not to grant deduction in respect of interest/commission received from the overseas HO/branches. Following the precedent, we set aside the impugned order and restore the matter to the file of A.O. for deciding this issue accordingly. 4. Ground no.2 is against the disallowance of Rs. 64,76,781 being broken period interest on PSU bonds. The facts apropos this ground are that up to assessment year 1993-94 the assessee was following the practice of including broken period interest paid on the purchase of all securities and bonds in the cost of the security and computing its gain/loss on sale of securities accordingly. In the previous year relevant to the assessment year under consideration, the assessee modified its accounting policy in relation to val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntly in subsequent years. In view of these facts we find no reason to disturb the view canvassed by the learned CIT(A) on this issue. Rather such view is supported by the Tribunal order passed for the earlier years in assessee's own case. This ground is not allowed. 6. Cross objection of the assessee for the year is only in support of the order passed by the learned CIT(A). 7. In the result, the appeal of the Revenue is partly allowed for statistical purposes and the cross objection of the assessee is dismissed as infructuous. Assessment Year 1998-99 8. Ground no.1 of the Revenue's appeal is against the direction of the learned CIT(A) to delete the charging of interest on NOSTRO account amounting to Rs. 3.98 crore. Ground nos.1 to 4 of the assessee's appeal are against the enhancement by the learned CIT(A) to the tune of Rs. 27,31,95,602 u/s 14A in respect of the interest income of Rs. 3.98 crore which was held by him to be not chargeable to tax. Both the sides are in agreement that the facts and circumstances of these grounds are mutatis mutandis similar to those for assessment year 1997-98. This issue has been discussed by the Tribunal for assessment year 1997-98 in paras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of interest to its Profit and loss account. It was, therefore, prayed that the assessee be allowed to argue this ground even though it does not arise out of the impugned order. The learned Departmental Representative opposed the taking up of this ground. 13. Having regard to the facts and circumstances of the case it is found that the issue of non-taxability of interest/commission received by Indian PE from its overseas branches/HO is consistently arising in all the earlier years which has been decided in assessee's favour. Since the adjudication of this ground does not require any fresh investigation of facts, we admit this ground for disposal on merits. The case of the assessee is that the interest of Rs. 11.02 crore received from branches should not be charged to tax as it is a transaction with self. In principle, we agree with this contention, which view has consistently been taken in earlier years. Since the exact amount of interest received by the assessee from its HO/overseas branches is not emanating from record, we direct the Assessing Officer to find out such amount of interest received from HO/overseas branches and exclude it from the computation of total income. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s liable to be allowed as deduction. 16. At this juncture, the learned Departmental Representative argued that if this loss of Rs. 1 in the hypothetical example is to be allowed in this year, then in the subsequent year when the contract actually matured, the loss should be computed at Rs. 3 (Rs. 46 - 43) and not at Rs. 4 (Rs. 46 - 42). The learned Departmental Representative raised an oral ground in this regard for suitable direction to be given for the subsequent year that the loss allowed in the current year amounting to Rs. 7.14 crore should be taken into consideration while computing the loss. The learned Counsel for the assessee was fair enough to admit that if the loss of Rs. 7.14 crore is allowed in this year then suitable amendment be made in the assessment order for the subsequent year so that the assessee does not get deduction of Rs. 7.14 crore twice. 17. In the light of the afore-noted Special Bench order in the case of Bank of Bahrain Kuwait (supra) it is apparent that the assessee is entitled to deduction of Rs. 7.14 crore towards loss on revaluation of unmatured forward foreign exchange contract for the year under consideration. It is observed from the order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee out of interest free funds available at its disposal. Such contention has remained oncontroverted by the learned Departmental Representative. Following the precedent we sustain the impugned order on this issue by holding that exemption u/s 10(15) is to be allowed on gross interest. The further contention raised by the learned Departmental Representative about the disallowance u/s 14A is not acceptable in view of the detailed reasons given in our order for assessment year 1997-98. 21. Ground no.4 of the Revenue's appeal is against the direction of the learned CIT(A) to disregard the refund while calculating the interest u/s 234B of the Act. The learned CIT(A) vide para 9.3 of the impugned order held that section 234D was brought into the statute by the Finance Act, 2003 with effect from 01.06.2003 and as such the Assessing Officer was not justified in charging interest u/s 234B with reference to the fund issued u/s 143(1)(a) earlier. 22. Having heard the rival submissions and perused the relevant material on record it is observed that the learned CIT(A) has rightly considered the mandate of sections 234B and 234D. Obviously, the interest u/s 234B is required to be calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Departmental Representative in this regard. This ground is not allowed. 27. In the result, both the appeals are partly allowed. Assessment Year 1999-2000 28. First ground of the Revenue's appeal is against the deletion of charging of interest on NOSTRO account amounting to Rs. 92,69,377 and first four grounds raised by the assessee are on account of enhancement made by the learned CIT(A) amounting to Rs. 5.11 crore u/s 14A in respect of such interest income. Both the sides are in agreement that the facts and circumstances of these grounds are similar to those for the earlier years. Following the view consistently taken by us from the assessment years 1997-98 onwards, we hold that the interest of Rs. 92.69 lakh is chargeable to tax and at the same time no disallowance u/s 14A amounting to Rs. 5.11 crore is warranted. The grounds raised by the assessee as well as Revenue in this regard are allowed. 29. Ground no.5 of the assessee's appeal is about taxability of its income at the rate of 48% as applicable to non-resident company. The facts and circumstances of this ground are also similar to those disposed off earlier. Following the view taken hereinabove, we dismiss this grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only sold but also even when these get matured, income from then should be computed with reference to the cost of purchase of securities. We are agreeable with this contention. The obvious reason is that the securities can be sold or mature over the period. Once the amortization is not allowed, purchase price is to be taken as such irrespective of the fact whether the securities are sold or get matured. The direction given by the learned CIT(A) to the alternative plea of the assessee, is accordingly modified. 32. Second ground of the Revenue's appeal is against the direction of the learned CIT(A) to allow broken period interest paid of Rs. 2,77,10,645 as an expense. 33. We find that the issue raised in this ground has been dealt with by us in earlier year as well. We have held that such interest is allowable as deduction. In the absence of any distinguishing feature having been brought to our notice, we approve the view taken by the learned CIT(A) on this issue. This ground is not allowed. 34. Ground no.3 of the Revenue's appeal is against the granting of exemption on gross interest u/s 10(15). The learned Departmental Representative fairly conceded that the facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). The learned Departmental Representative has not brought any material on record to indicate that the expenses claimed by the assessee as allowed by the learned CIT(A) independent of section 44C were specific to Indian operations. In view of these facts we are of the considered opinion that the learned CIT(A) was justified in directing to allow the deduction of Rs. 3.50 crore independent of the provisions of section 44C. 38. Ground no.5 of the Revenue's appeal is against the direction of the learned CIT(A) to reduce the taxable income by Rs. 13,37,157 being the amount of gain on Forex Contract. This issue has been discussed by us in an earlier para of the order. In the said earlier year, there was loss on the Forex unmatured contract. We have held that such loss is to be allowed as deduction as the assessee is consistently following this practice of valuing unmatured foreign exchange contracts at the prevailing rate of exchange at the year end. Though in the earlier year there was a loss which has been held to be allowable, in the current year there is a profit on the unmatired Forex contract. Following the view and by adopting the principle of consistency, the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e earlier part of this order. Following the view taken hereinabove we hold that the assessee is entitled to deduction of loss of Rs. 1.56 crore against the income for the current year. At the same time, the A.O. is directed not to allow such loss of Rs. 1.56 crore in the succeeding year when the Forex contract get matured. As the learned AR has agreed to forego its claim of deduction of Rs. 1.56 crore in the succeeding year subject to the condition of allowability of such loss in the current year, we direct the Assessing Officer to allow deduction for this Forex loss in the current year and make corresponding addition in the subsequent year. 45. Ground no.10 about the application of rate of 48% is not allowed in view of similar stand taken in earlier part of this order. The impugned order is upheld on this issue. 46. Ground no.1 of the Revenue's appeal is against the direction of the learned CIT(A) to allow exemption u/s 10(15) on gross interest. Both the sides are in agreement that the facts and circumstances of this ground are similar to those for earlier years. Following the view taken hereinabove, we hold that the gross interest is eligible for exemption u/s 10(15). Further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Act, 1961. Once section 44C is there, there can be no escape unless it is proved that the expenses incurred are not covered within the mandate of section 44C of the Act. The term "head office expenses" has been defined in Explanation to section 44C to mean "executive and general administration expenditure incurred by the assessee outside India". It is axiomatic that where HO incurs expenses exclusively for its Indian PE, those are to be allowed as deduction independent of section 44C. Where, however the expenses of the nature defined in Explanation to section 44C are allocated or apportioned to the assessee, then such apportioned expenses would fall within the ambit of section 44C. Unless it is proved that the expenses incurred by the HO were exclusively for the assessee and thus apportioned, these will be covered by section 44C. Since the assessee could not adduce any detail in this regard nor produce a copy of its letter dated 19th March, 2003 claimed to be containing details of expenses, we are of the considered opinion that the impugned order on this issue cannot be upheld. We, therefore, set aside the impugned order and restore the matter to the file of A.O. for deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X
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