TMI Blog2013 (8) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... eld disallowance @ 2% of exempt income. Rate of Tax - Article 26 of the DTAA with France - claim of the assessee that tax to imposed as per rate of tax applicable to Indian Banks - Permanent establishment (PE) - Held that:- CIT(A) has sustained the order of the AO by applying rate of tax @ 48%, instead of 35% as asked for by the assessee. Now that the assessee has accepted that the coordinate Bench of Kolkata has dealt with the issue and for the reasons mentioned therein, the AR accepts the rate as applied by the AO. - Decided against the assessee. Allowance of broken period interest as expenditure – Held that:- Similar issue was there in the appeal for the immediately preceding year and the Tribunal, following its decision for assessment year 1991-92, has decided this issue against the Revenue. In view of the fact that the facts and circumstances for the previous year relevant to the assessment year under consideration are similar and no distinguishing feature has been brought to our notice by the learned Departmental Representative, respectfully following the precedent, impugned order on this issue is upheld, by directing that the interest paid in respect of the broken p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... latable to income to which the provisions of Section 14A are applicable. Your appellants submit that on a proper appreciation of the facts, the CIT(A) should have held that only a part of the interest, if at all, is attributable to income to which the provisions of Section 14A are applicable. Your appellants submit that in any event, the CIT(A) ought to have made a fair estimate in the matter. Your appellants pray that the AO be directed accordingly. 4. The CIT(A) erred in holding that the AO was justified in invoking the provisions of Section 14A of the Act and thereby allocating an amount of Rs. 36,64,040 out of the general administration expenses on the ground that the expenditure is relatable to income to which the provisions of Section 14A are applicable. Your appellants submit that on a proper appreciation of the facts, the CIT(A) should have held that only a part of the expenses, if at all, is attributable to income to which the provisions of Section 14A are applicable. Your appellants submit that in any event, the CIT(A) ought to have made a fair estimate in the matter. Your appellants pray that the AO be directed accordingly. 5. The CIT(A) erred in holding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the provisions of Article 26 of the AADT. Your appellants crave to leave to add to, amend, alter, vary, omit or substitute the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised". 3. Ground no. 1 is general. 4. Ground no. 2 to 4 pertain to disallowance of Rs. 4,21,73,860/- and Rs. 36,64,040/- under section 14A with regard to expenditure incurred in relation to interest income on NOSTRO balances with Bankers Trust Company(BTC) and general administration expenses on NOSTRO balances with BTC. 5. Before the revenue authorities, it was explained that the assessee has its head office at Paris and the entire branch network, maintained NOSTRO account with BTC in USD, which remained as a floating account available with the assessee to be drawn, whenever required. Indian branch also maintained its account in FCNR-B deposit in foreign currency. Due to high costs on forward dealings, Indian Branch did not convert its funds into INR till such time, it was economically feasible, to convert the same for its business of lending. BTC paid interest on the credit balances @ 2% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the enhancement done by the learned CIT(A) for Rs. 32.79 crore by invoking the provisions of section 14A are also consequently allowed". 8. In the instant year, the facts are identical, and the assessee, has agreed to have the interest income chargeable to tax, the issue of computing the disallowance under section 14A comes to a naught. 9. Consequentially, the disallowance of Rs. 4,21,73,860/- and Rs. 36,64,040/- become infructuous, hence, are directed to be deleted. 10. Grounds no. 2 to 4 are, therefore, allowed. 11. Grounds no. 5 6 pertain to interest/commission of Rs. 10,74,965/- and Rs. 6,08,00,028/- received from HO and other overseas branches. 12. The issue also has been in dispute earlier and it is now settled in ITA no. 6615/Mum/2003, by the coordinate Bench in Mumbai in assessee's own case. 13. The AR contended that though similar grounds in the preceding year have been decided in favour of the assessee, but for this year the said grounds were not being pressed, thereby allowing the order of the CIT(A) be upheld. In view of this concession, we uphold the impugned order on this issue and decide these grounds in favour of the Revenue. Further, since the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ored to the file of the AO. We order accordingly and direct the AO to consider the deductibility or otherwise of such amount by treating it as head office expenses. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings. 19. The ground is allowed for statistical purposes. 20. Ground no. 9 pertains to the claim of the assessee that tax to imposed as per rate of tax applicable to Indian Banks. 21. The issue has been decided by the CIT(A), wherein the CIT(A) has held, "12. At the outset, it needs to be emphasized that the Indian Income Tax Act does not in any way conflict with the provisions of Article 26 of the D.T.A.A. with France, which is one of the uniform clauses in most of the tax treaties. The assessee bank is allowed the same deductions as other Indian banks and the profits of the bank are also computed and assessed by adopting the same methods and procedures. Certain provisions, such as provisions for bad debt at a certain percentage of a total income, irrespective of the actual amount of bad debts, are allowed to the assessee bank as to all other banks. The underlying intention of Article 26, which corresponds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of social responsibility, which also has a dampening effect on their profits. Considering the totality of the tax structure, the non-resident companies enjoy certain concessions over their Indian counterparts and so the higher rate of tax cannot be said to be a discrimination. As illustrated above, the conditions under which they operate cannot be said to be the 'same'. Thus, the claim for equal treatment is not justified. The provisions of the DTAA are also not contravened either. In this context it needs to be highlighted here, once again, at the risk of repetition, that strictly speaking there is no assessee in India which is engaged in 'same' business as the assessee. 12.5 The commentary on Article 24(4) of the OECD Model convention, regarding the insertion of the qualifying clause 'same conditions', states as follows: "... the second sentence of paragraph 4 specifies the conditions under which the principle of equal treatment set forth in the first sentence should be applied to individuals who are residents of a contracting state and have a permanent establishment in the other state. It is designed mainly to ensure that such persons do not obtain greater advantages than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or legal and technical reasons, of domestic application only. The State where the permanent establishment is situated could claim the right not to tax such profits at the reduced rate, as generally it does not tax the dividends distributed by the company to which the permanent establishment belongs. Moreover, a State which has adopted a split rate system usually has other economic policy objectives, such as the promotion of the capital market, by encouraging resident companies to distribute dividends. The extension of the reduced rate to the profits of the permanent establishment would not serve such a purpose at all, as the company distributing the dividends is not a resident of the State concerned." 12.6 The issue raised by the assessee was also the subject matter of an appeal by the Bank of Tokyo Mitsubishi Ltd. before the ld. ITAT, Calcutta which was decided on 31/3/1997. The applicant had questioned the tax rates for non-residents, vis a vis the provisions of Article 24(1) of the Treaty with Japan regarding non-discrimination, which is identical to the provisions of Article 26 of the Indo-France Treaty. The Tribunal in a detailed order rejected the appeal of the assessee hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hensive view after taking into consideration all other aspects has to be taken. Article 24 of the Indo-Japanese treaty is similar to Article 26 of the Indo France treaty. Therefore, the observations at' the Tribunal are directly applicable to the case of the applicant. 12.8 This context, it is further necessary to highlight here that Finance Act, 2001 has inserted an Explanation to sec.90(2) of the Income Tax Act, 1961 with retrospective effect from 01-04-1962. This explanation is reproduced below, for ready reference: Explanation: - For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company, where such foreign company has not made the prescribed arrangement for declaration and payment within India, of the dividends (including dividends on preference shares) payable out of its income in India. Our assessee is a permanent establishment in India of its Head Office. This FE does not declare, and pay dividends, within India, out of the income arising to it from it's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HO and other branches is not chargeable to tax in India. Section 195 would not be attracted". 26. Having heard the rival submissions and perused the relevant material on record, it is seen that the amount in question has been taxed in the assessment of the assessee firstly as the income of the head office and then as the income of the PE. The Special Bench of the ITAT, in the case of Sumitomo (supra) has held that the taxation of the same amount twice is not possible. Respectfully following the precedent, we delete the taxability of this amount as the income of the head office. 27. This additional ground is allowed. The appeal, filed by the assessee is, thus, partly allowed. ITA no. 4965/Mum/2005 : Department appeal : 28. Ground no. 1 pertains to allowance of exemption of gross interest u/s 10(15) and 10(33). 29. The DR argued that the issue is covered by the assessee's own case in 1997-98 by the coordinate Bench, but at that time, provisions relating to section 14A was not there, hence, disallowance has to be made on equitable basis. 30. The AR on the other hand submitted that in assessment year 2001- 02, in the case of Credit Lyonanis 2% disallowance has been made, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The issue has been dealt with by the coordinate Bench, wherein they relied upon the decision of JCIT vs American Express Bank Ltd., reported in 24 taxman.com50. and held, "12. Last ground of the Revenue's appeal is against the direction given by the learned CIT(A) to allow deduction of Rs. 48,60,08 independent of the provisions of section 44C of the Act. On this issue as well, the learned Departmental Representative was fair enough to concede that it was covered against the Revenue. We find that the Mumbai Bench of the Tribunal in the case of American Express Bank Ltd.(supra) has also taken similar view on this issue in favour of the assessee. In view of these facts we uphold the impugned order on this issue. This ground is not allowed". 36. Respectfully following the order in the assessee's own case, we sustain the order of the CIT(A). 37. The ground, therefore, rejected. 38. Ground no. 4 pertains to the allowability of Rs. 5,76,81,812/-, being the amount reincorporated in the books. 39. Before the revenue authorities it was submitted that the claim of Rs. 5,76,81,812/- written off as bad debts have been written back as provisions incorporated, which was rejected by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting to Rs. 17,93,96,844 was added back in computing business income for that assessment year. Further, we enclose at Annexure 3 a copy of computation of total income for assessment year 2000-01. It will be noted therefrom that, provision for doubtful debts was added back at Rs. 62,84,82,300. We also enclose at Annexure 4 party-wise details of provision for doubtful debts disclosing year wise charge to the Profit and Loss Account and the amounts written back out of such provision during the year under appeal. 41. The CIT(A), on consideration of the above submissions, held, 10.5 I have carefully considered the facts of the case and the submissions of the appellant on this issue. On verification, I find the contention of the appellant that all the above provisions were offered for tax in the respective year of provision as acceptable. Therefore, when the provisions for doubtful debts were added back in the computation of income in the respective years, there is no question of taxing them again in the year when they are written back. The A.O. is directed to delete the addition of Rs. 5,76,81,812/- in respect of provisions reincorporated in the accounts". 42. The CIT(A), t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
