TMI Blog2012 (10) TMI 1063X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the DTAA between India and Thailand which clearly states that the quantum of credit to be allowed is that any amount which would have been payable as Thai tax for any year . Hence only the eligible DITR of ` 1,08,25,780/- was allowed and not the entire claim of ` 2,86,74,470/-. 4. The learned CIT(Appeals) has erred in directing the assessing officer to allow interest on any amount including interest u/s 244A. 5. It is submitted that in the decision of the Hon'ble Supreme Court in the case of Sandvik Asia Ltd. Vs. CIT(280 ITR 643) relied on by the CIT(A) , the Court has allowed only compensation at 9% on the amount due to the assessee. The learned CIT(Appeals) has failed to note that the word refund means an amount previously paid by an assessee and does not relate to an amount payable by the Revenue by way of interest on such sums. There is no provision in the Incometax Act to allow compensation as suggested by the learned CIT(Appeals) based on the decision of the Hon'ble Supreme Court. 6. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (appeals) be set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s claimed by the assessee without any restriction. 8. The learned CIT(A) has failed to note the fact that where the profits or income has been subjected to tax both in India and in Thailand, there shall be allowed as a credit in the form of DITR Relief against the Indian tax payable in respect of such profits or income earned in Thailand. It is amply made clear vide article 23(3) of DTAA that the quantum of credit to be allowed is that any amount which would have been payable as Thai tax for any year . 9. For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the learned Commissioner of Income Tax (appeals) be set aside and that of the Assessing Officer. 2. Ground No.1 in all the appeals is common and needs no adjudication. 3. ITA No. 213/Mds/2010: Grounds 2 and 3 relate to Double Taxation Relief in respect of the income from Bangkok branch. The assessee is a banking company and has claimed DITR in respect of foreign income taxed in India at the rate of tax in India. During the course of the original assessment proceedings the Assessing Officer observed that the assessee bank had claimed DITR in respect of fore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above that where the profits or income has been subjected to tax both in India and in Thailand, there shall be allowed as a credit in the form of DITR Relief against the Indian tax payable in respect of such profits or income earned in Thailand. It is amply clear made clear vide article 23(3) of DTAA that the quantum of credit to be allowed is that any amount which would have been payable as Thai tax for any year . In this case, the assessee s Bangkok income suffering tax in India was ` 3,60,85,934/-. Thai Tax on ` 3,60,85,934/- at 30% works outto ` 1,08,25,780/-. This is the credit available to the assessee against the Indian Tax payable in respect of Thai income. Accordingly, the Assessing Officer allowed a sum of ₹ 1,08,25,780/- as DITR relief. 7. On being aggrieved, the assessee carried the matter before the CIT(Appeals). It was submitted before the learned CIT(Appeals) that the order of the Tribunal dated 30-11-2004 in ITA Nos. 299, 300, 301 605/Mds/2001, supra, directed the Assessing Officer to enquire into the existence of DTAA between India and Bangkok. The Assessing Officer was only to enquire whether there is a DTAA between India and Bangkok and re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit was given in India. Therefore, the assessee has no grievance. He relied on the decision of the Tribunal in the case of ITO v. M/s. Data Software Research Co. P. Ltd. in ITA No. 2072/Mds/2006 dated 27- 11-2007, wherein it was held that as per the Treaty between India and USA, the tax which the assessee did pay in the USA be deducted from the income computed on global basis. The Tribunal held that as such the Assessing Officer had rightly followed the tax credit method for elimination of double taxation. The Tribunal therefore decided the issue in favour of the Revenue and against the assessee. Relying on the above order of the Tribunal it was submitted by the learned DR that in the present case the tax credit method for elimination of double taxation adopted by the Assessing Officer is correct and justified. So far as the merits of the case is concerned, he submitted that the issue involved in this appeal is squarely covered by the decision of the Delhi Bench of the Tribunal in the case of M/s. Telecommunications Consultants India Ltd. v. Addl. CIT in ITA Nos. 1293 1294/Del/2009 dated 29-03-2012. 9. On the other hand, the learned counsel for the assessee has submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f there is a DTAA, the Assessing Officer has to allow the relief claimed by the assessee. That being so, in our opinion, the Tribunal need not refer it to the Assessing Officer as well just to see and pass an order. The Tribunal clearly directed the Assessing Officer to enquire into the existence of a DTAA between India and Bangkok. Enquiry means to investigate and apply the same. In our opinion, the Assessing Officer has rightly investigated and applied the same and decided the issue. We therefore hold that the finding given by the learned CIT(Appeals) is not correct. Accordingly, we reverse the order passed by the learned CIT(Appeals) on this count and uphold the order of the Assessing Officer. 11. Insofar as other aspect is concerned, the assessee having accepted the tax credit method only, the assessee s grievance that the tax rate payable in India is to be allowed, we are unable to understand on what basis the assessee is making this claim. Therefore, we hold that the Assessing Officer has rightly decided the issue as per Article 23(3) of the DTAA between India and Thailand. Even as per the departmental circular No. 91/2008 dated 28-08-2008, supra, the Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or (c) accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Thus, the sub-clause (c) of clause (1) to section 5 provides that the total income of any previous year of a person who is a resident includes all income from whatever source derived which accrues or arises to him outside India during such year. As per the provisions of Income-tax Act, the assessee is a resident of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as non-exclusive right to tax of business income attributable to permanent establishment. In view of this, such income may be taxed as per the domestic laws. This non-exclusive right of state of source does not extinguish the inherent right of state of residency to tax global income of its residents. In the circumstances, where the state of the residents of the taxpayer had given up its inherent right to tax the global income, in such situation, the phrase used in Article 7 of the DTAA is shall be taxable only . Since all the DTAA applicable in the case of assessee the phrase used may be taxed , therefore, inherent right of taxation of global business income in India is not lost. 21.1 Case laws relied upon by assessee are basically based on the decision of Hon'ble Supreme Court in the case of CIT vs. P.V.A.L. Kulandagan Chettiar, cited supra. In the case, Hon'ble Apex Court had stated general principles governing taxation of global income. In this case, Hon'ble Apex Court had upheld the decision of Hon'ble High Court where High Court took a view that Indian Tax authorities could not tax the income of the applicant on the test of close personal and economic r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be a resident of a Contracting State where his personal and economic relations are closer, then his residence in India will become irrelevant. The Treaty will have to be interpreted as such and prevails over ss. 4 and 5 of the Act. Therefore, we are of the view that the High Court is justified in reaching its conclusion, though for different reasons from those stated by the High Court. The contention put forth by the learned Attorney General that capital gains is not income and, therefore, is not covered by the Treaty cannot be accepted at all because for purposes of the Act capital gains is always treated as income arising out of immovable property though subject to different kind of treatment. Therefore, the contention advanced by the learned Attorney General that it is not a part of the Treaty cannot be accepted because in the terms of Treaty wherever any expression is not defined, the expression defined in the IT Act would be attracted. The definition of income would, therefore, include capital gains. Thus, capital gains derived from immovable property is income and, therefore, art. 6 would be attracted. Hon'ble Supreme Court s conclusions rest on the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributive Rules under which taxing rights allocated between contracting state with respect to various kinds of income; and the second rule is to put state of residence under an obligation to give either credit for taxes paid in the source state or to exempt the income which is taxed in source state. These two rules have also been explained in para 19 of OECD Commentary which reads as under :- 19. For the purpose of eliminating double taxation, the Convention establishes two categories of rules. First, Articles 6 to 21 determine, with regard to different classes of Income, the respective rights to tax of the State of source or situs and of the State of residence, and Article 22 does the same with regard to capital. In the case of a number of items of income and capital, an exclusive right to tax is conferred on one of the Contracting States. The other Contracting State is thereby prevented from taxing those items and double taxation is avoided. As a rule, this exclusive right to tax is conferred on the State of residence. In the case of other items of income and capital, the right to tax is not an exclusive one. As regards two classes of income (dividends and interest), altho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses of international shipping, inland waterways transport, and international air transport (cf. paragraph 23 below); - income from the activities of artistes and sportsmen exercised in that State, irrespective of whether such income accrues to the artiste or sportsman himself or to another person (Article 17) ; - directors' fees paid by a company that is a resident of that State (Article 16); - remuneration in respect of an employment in the private sector, exercised in that State, unless the employee is present therein for a period not exceeding 183 days in any twelve month period commencing or ending in the fiscal year concerned and certain conditions are met; and remuneration in respect of an employment exercised aboard a ship or aircraft operated internationally or aboard a boat, if the place of effective management of the enterprise is situated in that State (Article 15); - subject to certain conditions, remuneration and pensions paid in respect of government service (Article 19). 22. The following are the classes of income that may be subjected to limited taxation in the State of source: - dividends: provided the holding in respect of which the dividends are paid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per these Model of Convention, the word may be taxed and may also be taxed gives simultaneous taxing rights to state of source. If, in the DTAA, an item of income is may be taxed in state of source and nothing is mentioned about taxing right of state of residence in convention itself, then state of residence is not precluded from taxing such income and can tax such income using inherent right of state of residence to tax such global income of its resident. Only in the case of phrase shall be taxed only used, then only the state of residence is precluded from taxing it. In such cases, where the phrase may be taxed used, the state of residence has been given its inherent right to tax. In the assessee s case, the claim of the assessee is for income taxable in foreign countries and it should not be taxed in India, cannot be accepted as the phrase used is may be taxed and in such cases, the state of residence has inherent power to tax such income which has been clearly provided in the DTAA itself. Domestic law also provides for taxing such income. Therefore, there is no contradiction between the provisions of DTAA and the domestic tax laws. As we have already stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee s case. 21.4 In the case of L.G. Cable vs. DDIT(International Taxation) reported in 314 ITR (AT) 301 (Delhi), the facts are different. In that case, the assessee was a non-resident company of Korea. The assessee (non-resident) entered into two contracts with Power Grid Corporation of India, one for onshore excavation of fibre optics project and second for offshore supply of equipment. The income for onshore was offered for tax. The contract for offshore supply of equipment was carried out in Korea. The bill of lading was issued in Korea in favour of Power Grid Corporation of India. The payments were remitted directly to Korea through an irrecoverable letter of credit. In that situation, it was held that no part of income arising from supply of offshore equipment was assessable in India. Thus, facts of the case are completely at variance to the facts of assessee s case. 21.5 In the case of Manpreet Singh Gambhir vs. DCIT 119 TTJ 615, the issues and facts are completely different in comparison to assessee s case. In that case, issue was of salary earned in USA and also in India and issue as tax credit which was decided as under :- We are therefore of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee has submitted that the Assessing Officer is adopting two different methods while calculating the tax, i.e interest on tax rate for the assessee adopting a different method and so far as refund is concerned the Assessing Officer is adopting another method. The learned counsel for the assessee relied on the decision of the Hon'ble Supreme Court in the case of Sandvik Asia Limited v. CIT (280 ITR 643). 17. We have heard both the sides, perused the records and gone through the orders of the authorities below. There is nothing on record to verify how the Assessing Officer and the learned CIT(Appeals) calculated the interest. Relevant material facts are not available on record to decide this issue. We therefore direct the Assessing Officer to examine the entire facts and decide the issue afresh keeping in view the decisions relied on by both the sides, after providing reasonable opportunity to the assessee of being heard. 18. In the circumstances, ITA No. 213/Mds/2010 filed by the Revenue is partly allowed for statistical purposes. 19. ITA No. 214/Mds/2010: In this appeal the only issue involved relates to section 244A. This issue has already been remitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso. The decision of the Special Bench, Cochin in the case of Catholic Syrian Bank (supra) also support the contentions of the appellant. Therefore, as contended by the appellant, the deduction under section 36(1)(vii) is required to be worked out by first arriving at the balance in the provision for bad and doubtful debt consisting solely of rural branches. Bad debt written off relating to rural branches have to be allowed to the extent it exceeded the credit balance. As far as non rural bad debts are concerned, the same have to be allowed in full. 2.4 This decision was followed by my learned predecessor for the assessment years 2004-05 and 2005-06. As held by my learned predecessors, the credit balance has to be worked out by considering the balance in the provision for bad and doubtful debt account consisting solely of rural branches. In respect of bad debts written off relating to non rural branches the jurisdictional ITAT in appellant s own case cited above had held that debts actually written off which do not arise out of rural advances are not affected by the proviso to section 36(1)(vii)A . Respectfully following the said decision, I hold that the bad debts written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tments as Held to Maturity which is relatively long term investment which may not be considered as stock in trade. Notwithstanding with the above, and by giving due respect of the above decisions, I propose to disallow the loss on revaluation of investment since it is learnt that the issue has been taken by the department in the Honourable Madras High Court and the issue is not yet decided. Therefore ` 27,76,08,025/- is disallowed and added to the total income of the assessee. 26. The assessee carried the matter before the CIT(Appeals). Before the learned CIT(Appeals) the assessee has relied on the decisions in the cases of UCO Bank v. CIT (240 ITR 355) (SC) and CIT v. City Union Bank Ltd. (292=1 ITR 144) (Mad). The assessee also relied on the decision in the assessee s own case in ITA No. 239/Mds/2001 dated 7-1- 2005 for the assessment year 1994-95. The learned CIT(Appeals) after considering all the decisions observed as under : 5.2 I have carefully considered the facts pertaining to the case on the various submissions made by the learned AR. I find that this issue has been elaborately discussed by my learned predecessor in the assessment year 2005-06, where after con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that investment held by bank had to be valued at lower of cost or market price. A bank by virtue of Banking Regulation Act, has to maintain its accounts as per Section 29 and 30 thereof and Schedule III mentioned thereunder, gives the assessee an option to give the value of investment at cost or market price. Hence, in our opinion, differentiation attempted by ld. CIT(Appeals) between permanent and current categories of investments was not warranted. In taking this view, we are fortified by the decision of co-ordinate Bench of this Tribunal in the case of Bharat Overseas Bank Ltd. (supra). On the same issue, after considering arguments of both parties, the Tribunal at para 11 held as under:- 11. After considering the rival submissions and relevant material on record, we find force in the contentions of the learned authorized representative of the assessee. The Hon'ble Supreme Court in the case of United Commercial Bank v. CIT supra, had clearly held that even if the securities are valued at cost in the Balance Sheet in accordance with the statutory provision, this action would not disentitle the assessee by submitting the income-tax returns on the real taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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