9911796707
TMI Blog2012 (10) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... sent appeals, we want to make it clear that the cross appeals in the case of the present assessee for the A.Y. 1999-2000 in ITA Nos. 2254/M/2005 and 3995/M/2005 were simultaneously heard. We have passed a separate order in respect of such A.Y. 1999-2000 drawing the following conclusions :- 1. Higher rate of tax as applicable to normal non-resident companies shall apply. 2. Expenditure on purchase of fixed assets is not admissible deduction. 3. Provisions of section 43B are not applicable in the context of computation of business profits as per Article 7 and accordingly bonus payable is an allowable deduction. 4. Disallowance of expenses in relation to exempt income, though loosely referred to as disallowance u/s 14A, is sustainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected their grievance by addressing this disallowance as having been made u/s 14A, for the sake of simplicity, we will also refer to it accordingly though we make it clear that in the context of the DTA it should be considered only as disallowance in relation to expenses incurred for earning exempt income. 8. The facts of these grounds are that the assessee was found to have earned exempt income from tax free bonds. On being called upon to explain as to why proportionate expenditure in relation to funds borrowed for the purposes of investment in tax free bonds should not be disallowed, the assessee tendered the same reply which was given for assessment year 1999-2000. The A.O. observed that the gross income as per Profit and loss account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x free bonds and its co-relation with the borrowed funds, if any, we restore the matter to the file of A.O. for computing the disallowance u/s 14A on the interest component after verification of the necessary details after allowing a reasonable opportunity of being heard to the assessee. 10. Insofar as the sustenance of addition on account of administrative and management expenses in relation to exempt income is concerned, it is observed that the learned CIT(A) has restricted such disallowance towards at 2% of the dividend received. It is further observed that the Assessing Officer has made disallowance u/s 14A towards management / administrative expenses at 2% of exempt income for assessment year 2004-2005, which year is also in appeal in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord, we find that Article 7(3) does not talk of limiting the deduction of expenses incurred for the business of the permanent establishment subject to the limitations contained in the Act. While discussing this issue for assessment year 1999-2000 in the context of section 43B, we have held that the restriction contained in specific sections cannot apply in the light of the language of Article 7(3) of the DTA. In that view of the matter, the restriction contained in section 44C for allowing the head office expenditure can also not apply. Resultantly the direction given by the learned CIT(A) to modify the adjusted total income as per section 44C becomes infructuous as section 44C itself cannot apply. This ground is allowed. 13. In the resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided against the assessee. 21. Ground no.2 about disallowance of expenditure on purchase of fixed assets is also decided against the assessee. 22. Ground no.3 about the disallowance of bonus expenses is allowed. 23. Ground no.5 about the deduction u/s 44C is allowed. 24. Ground no.4 of the assessee's appeal and ground no.1 of the Revenue's appeal are against the disallowance u/s 14A. We direct the AO to apply our decision taken for the assessment year 2001-2002 for computing disallowance u/s 14A both in respect of interest and also management/administrative expenses. The impugned order is, therefore, set aside to this extent. 25. In the result, the assessee's appeal is partly allowed and that of the Revenue is partly allowed for stati ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
