TMI Blog2015 (12) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... person liable to tax in India in accordance with the provisions of the Act, and then allow relief as per the terms of the tax treaty entered with the other contracting country where the income has suffered double taxation. Article 25 of the DTAA between India and Singapore deals with relief to be granted in respect of double taxed income. The said Article restricts the allowability of credit to an amount not exceeding the tax payable in India in respect of such income from Singapore. In similar circumstances, the Mumbai Bench of the Tribunal in the case of JCIT vs Digital Equipments India Ltd [2004 (3) TMI 711 - ITAT MUMBAI ], has observed that credit of tax paid in USA cannot exceed the income tax liability payable in India in view of clause 25(2)(a) of DTAA between India and USA. Thus we remit this issue in dispute to the file of the Assessing Officer for reconsideration. Addition towards loss on foreign exchange derivatives transactions - Hel that:- We remit this issue back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh in the light of the above order of this Tribunal in Deputy Commissioner Of Income Tax Company Circle-I (1) , Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments made to non-residents in respect of which tax deduction has been made at lower rates without obtaining a certificate u/s 195(2)- Held that:- Assessee was right in effecting deduction of tax at source considering se 44BB of the Act. The disallowance was rightly deleted by the ld. CIT (Appeals) Disallowance u/s 40(a)(i) in respect of dry-docking charges paid to Fair Mount Marine BV Netherlands - Held that:- The assessee took the plea for the first time that the said service was covered under Article 8A of DTAA before the CIT(A) and there was no such claim made before the Assessing Officer. In our opinion, the Assessing Officer has to examine the issue whether Article 8A of India-Netherlands DTAA is applicable to the assessee's case or not. Accordingly, this issue is remitted back to the file of the Assessing Officer for fresh consideration. - I.T.A.No.1159/Mds/2012, I.T.A.No.1343/Mds/2012 - - - Dated:- 31-12-2015 - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER For The Assessee : Shri Vikram Vijayaraghavan, Advocate For The Department : Dr Milind Madhukar Bhusari, CIT ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer to compute the tax liability on the income of ₹ 5,16,93,732/- at the normal rates and allow relief u/s 90 equivalent to the tax determined thereon. Against this, the assessee is in appeal before us. 5. We have considered the rival submissions on either side and also perused the material available on record. The provisions of sec. 90 of the Act and clauses of DTAA between India and Singapore clarify that tax credit to the extent of income derived in Singapore and offered to tax in India should be granted. Relief from double taxation is provided by abatement on the basis of mutual agreement between the two States concerned whereby the assessee is given relief by credit in a particular manner even though he is taxed in both the countries. Relief can be in the form of credit for tax payable in another country or by charging tax at lower rate. The procedure to be adopted by the Assessing Officer for granting relief is to determine in the first place, the total income of the person liable to tax in India in accordance with the provisions of the Act, and then allow relief as per the terms of the tax treaty entered with the other contracting country where the income has suff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A entered into by the Central Govt. with the Govt. of any other country provides that any income of a resident of India may be taxed in the other country, such income shall be included in his total income chargeable to tax in India in accordance with the provisions of the Income Tax Act, 1961 and relief shall be granted in accordance with the method for elimination or avoidance of double taxation provided in such agreement. This meaning assigned to the term may be taxed has changed its complexion; ii) The notification dated 28th August 2008, reflects a particular intent and objective of the Government of India, as understood during the course of negotiations leading to formalization of treaty. Therefore, such a notification has to be reckoned as clarificatory in nature and hence interpretation given by govt. of India through this notification will be effective from 1st April 2004, i.e., from the date when provision of section 90(3) was brought in the statute, giving a Legal frame work for clarifying the intent of one of the negotiating parties; iii) The phrase may be taxed is not appearing in the statute, but it is appearing in the agreement and therefore, the interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifference between the purchase price and the value as on the valuation date (31.3.2008) in the profit and loss account is a notional loss as no sale/ conclusion/ hedging/ settlement of contract has taken place and the asset continues to be owned by the company as on 31.3.2008. It was not definite that the assessee would have to incur such notional expenditure for sure in the future, as the value of foreign exchange could go higher subsequent to the valuation date and even give profit to the assessee as against the loss booked. She further stated that the notional loss arising all account of outstanding forward contracts are neither in the nature of expenditure nor accrued liability as the said contracts were not concluded as on 31.3.2008. Further, the assessee has also option to hedge the said contracts subsequently. The Assessing Officer made the addition by observing that the loss of ₹ 6,96,00,000/- being notional in nature is disallowed and cannot be allowed to be set off against real income of the assessee. The assessee can claim any loss for allowance at the conclusion of respective forward contract. However, the CIT(A) has decided the issue in favour of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have the same treatment as far as application of Explanation to sec.73 is concerned. Therefore, aggregation of the share trading profit and loss from derivative transactions should be done before the Explanation to sec.73 is applied. The above view has been taken by Special Bench of this Tribunal, Mumbai Bench, in the case of CIT v. Concord Commercial Pvt. Ltd. (2005) 95 ITD 117 (Mum)(SB). In this case, the Special Bench held that : Before considering whether the assessee s case is hit by the deeming provision of Explanation to Sec. 73 of the Act, the aggregate of the business profit / loss has to be worked out based on the non-speculative profits; either it is from share delivery or from share derivative . 8. From the above, it is concluded that both trading of shares and derivative transactions are not coming under the purview of Section 43(5) of the Act which provides definition of speculative transaction exclusively for purposes of section 28 to 41 of the Act. Again, the fact that both delivery based transaction in shares and derivative transactions are non-speculative as far as section 43(5) is concerned goes to confirm that both will have same treatment as reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the bu9siness of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase. In order to resolve the issue before us, the section has to be read in the manner as follows: Explanation : Where any part of the business of a company ( . . . .. .. .. .. .. .. .. . .. .. . ) consist in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. It would, thus, appear that where an assessee, being the company, besides dealing in other things also deals in purchase and sale of shares of other companies, the assessee shall be deemed to be carrying on a speculation business. The assessee, in the present case, principally is a share broker, as already indicated. The assessee is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble High Court of Calcutta in the matter of Gourepore Co. Ltd ,onus was on the assessee to prove that the transactions in question were not of a speculative nature. ITAT was of the opinion that it had failed to discharge the onus cast upon him by the statute. It was also not able to contradict the finding of fact that booking and cancellation of FC of foreign exchange were not in respect of specified export or import. Besides, finding of fact given by the Revenue Authorities remained un-contravened that loss in question, shown by it pertained to those FC transactions, against which no actual delivery of foreign exchange was made. On appreciation of the facts surrounding the transaction ITAT had reached at the conclusion that transactions entered in to by the assessee were speculative in nature and the case of the assessee is not covered by proviso(a) of the section 43(5) of the Act. Disputed transactions were speculative and not hedging transaction, that the assessee could not relate any single bill to any of the contract and it had not provided detail of any purchase order relatable to specific transaction, during the assessment or appellate proceedings. Thus, the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered as business transaction and it is to be considered as speculative transaction. 12. In view of the above order of the Tribunal, we remit this issue back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh in the light of the above order of this Tribunal after giving adequate opportunity to the assessee. 13. The next ground of appeal is that the CIT(A) erred in directing the Assessing Officer to allow relief u/s 90 equal to the tax liability on the income of ₹ 5,16,93,732/- at normal rates. 14. In assessee s appeal while dealing with this issue, we have remitted this issue back to the file of the Assessing Officer for deciding afresh in conformity with the decision of the Mumbai Bench of the Tribunal in the case of Bank of Baroda (supra). Therefore, this ground does not require any specific adjudication. 15. The next ground is with regard to deletion of disallowance of interest u/s 14A r.w Rule 8D(2)(ii). 16. The facts of this issue are that the Assessing Officer stated that the assessee had received dividend income of ₹ 12,53,16,214/- on investments in shares and mutual funds but claimed the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l/2005), Maxopp Investments Ltd v. ACIT (ITA No.183/Del/2005) and Cheminvest v. DCIT (ITA No.2048/Del/2005) and applied rule 8D to make the disallowance. The interest expenses not directly attributable to any particular income or receipt is taken at ₹ 1,11,59,568/- and % of value of investment is taken at ₹ 1,00,58,278/-. The Assessing Officer computed the amount of disallowance u/s 14A r.w.rule 8D at ₹ 2, 12, 17,846/-. She allowed credit of ₹ 2,17,015/- being the amount disallowed by the assessee and disallowed the balance amount of ₹ 2, 1 0,00,831/- (Rs. 2, 12, 17,846 ₹ 2, 17,015). 17. After hearing both parties, we are of the opinion that the assessment year involved is 2008-09 and Rule 8D cannot be applied. Being so, it is appropriate to disallow only 5% of the exempt income as expenditure towards earning the exempted income in view of the earlier order of the Tribunal in assessee s own case for assessment year 2007-08 in I.T.A.No.90/Mds/2012 wherein held as under: 16. On hearing both the parties and on perusal of para 11.2.4 of the CIT(A) s order, for completeness of the order, we find it relevant to reproduce the same as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than 5% of the exempted income, the same has to be sustained. Ordered accordingly. This ground of appeal is partly allowed. 18. The next ground is that the CIT(A) erred in deleting the disallowance of depreciation of ₹ 3,74,198/- u/s 32 of the Act. 19. Facts of this issue are that the Assessing Officer stated that the assessee had claimed depreciation on windmills of ₹ 3,74,198/- @80% on the opening WDV as on 1.4.2007 of ₹ 4,67,748/-. This claim of depreciation made by the assessee was related to the windmills used by them for its business purposes through lease and later purchased by terminating lease at a fixed value. This issue has been decided in favour of the assessee by the CIT(A) by following the order of the Tribunal in assessee s own case for assessment years 2003-04 to 2006-07. 20. In our opinion, this issue is squarely covered in favour of the assessee by the order of the Tribunal in assessee s own case for assessment year 2007-08 in I.T.A.No.90/Mds/20212 dated 26.6.2015 which was decided in conformity with the order of the Tribunal for assessment years 2003-04, 2005-06 and 2006-07. In Para 4 and 5 of its order, the Tribunal has held as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part of the cost of Aban Rig VII on sale to M/s Aban 7 Pte Ltd., Singapore and the amount has been recovered from them. The Assessing Officer disallowed the preference share issue expenses of ₹ 3,74,53,336/-. She relied on the decisions of the Hon'ble Supreme Court in the cases of Brooke Bond India Limited v. CIT (225 ITR 798) and Punjab State Industrial Development Corporation Ltd vs CIT, 225 ITR 792. On appeal, the CIT(A) has decided the issue in favour of the assessee against which the Revenue is in appeal before us. 23. We have heard both the parties and perused the material on record. This issue is squarely covered by the judgment of the Supreme Court in the case of Brooke Bond India Ltd vs CIT, 225 ITR 798, wherein it was held that the expenses which increase the share capital of the assessee-company and it brings enduring benefit has to be considered as capital expenditure. Regarding deduction u/s 35D, the issue is squarely covered by the order of the Tribunal in assessee s own case for assessment year 2006-07 in I.T.A.No. 1382/Mds/2010, dated 15.7.2011, wherein the Tribunal held as under: 50. We have perused the orders and heard the rival contentions. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub-section (1) thereof which allows amortization of expenses related to issue of share capital, as it stood at the relevant point of time is reproduced hereunder:- 35D. (1) Where an assessee, being an Indian company or a person. (other than a company) who is resident in India incurs, after the 31 st day of March, 1970, any expenditure specified in sub-section (2), - (i) before the commencement of his business, or (ii) after the commencement of his business, in connection with the extension of his industrial undertaking or in connection with his setting up a new unit, the assessee shall, in accordance with and subject to the provisions of this section, be allowed a deduction of an amount equal to one-tenth of such expenditure for each 0f the ten successive previous years beginning with the previous year in which the business commences or, as the case may be, the previous year in which the extension of the industrial undertaking is completed or the new unit commences production or operation: [Provided that where an assessee incurs after the 31st day of March, 1998, any expenditure specified in subsection (2), the provisions of this sub-section shall have effects as if f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue are that on perusal of the details of payments made to non-residents, the Assessing Officer found that the assessee company had deducted TDS applying the provisions of sec 44BB in many cases and in respect of certain amounts, it had not deducted TDS at all. The Assessing Officer stated that as per sec 195, TDS on payments to non-residents was deductible @ 40%. If the nonresidents are residents of a particular country and if there is a DTAA between India and that country, then the TDS is deductible at the rate prescribed under the said agreement. However, the assessee had deducted TDS u/s 195 only @ 4% as against the prescribed rate of 40% in many cases. Further, it had not deducted any TDS in relation to certain payments made to non-residents claiming that the payments were made from their Dubai branch. The assessee suo motu determined the rate of 4% by itself applying sec 44BB on the payee without making application to the AO u/s 195(2). The Assessing Officer disallowed ₹ 52,23,98,481/- u/s 40(a)(i). She relied on the decision of the Hon'ble Supreme Court in the case of Transmission Corporation of AP Ltd v. CIT (239 ITR 587), decision of the Delhi ITAT in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... co-ordinate Bench in I.T.A.No.200/Mds/2009 for assessment year 2004-05 where also one of the party was same Frontier Offshore Exploration (India) Ltd. A very similar issue was involved in that case. Tribunal examined the aspect of deduction of tax at source on payments made to a nonresident, falling under Section 44BB of the Act and whether an assessee could make deduction at lower rate taking 10% as the income of such non-resident entity. After considering its earlier decision for assessment year 2003-04, it was held at paras 6 and 7 of the order dated 4th February, 2011, as under:- 6. We have considered the rival submissions. At the outset .. we are primarily to decide as to whether to follow the decision of the co-ordinate Bench of this Tribunal in the assessee's own case for the assessment year 2003-04, supra, or to differ from the same. After a perusal of the decision of the Hon'ble Supreme Court in the case: of GE India Technology Centre (P) Ltd. as also taking into consideration the views expressed by the Hon'ble jurisdictional High Court in the case of Hi Tech Arai reported in 321 ITR 477 (Mad) we are of the view that the decision of the co-ordinate Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 the words used were any other sums chargeable under the provisions of this Act as against the term any sum used in the other provisions falling in Chapter XVII of the Income Tax Act, 1961. Obviously, what the Assessing Officer is demanding is that TDS is liable to be made under the provisions of section 195 of the Act. If the provisions of sec. 195 are to be invoked, it is only such sum which is chargeable to tax under the Income-tax Act, 1961 on which TDS can be made. A question now. arises as to how much of the amounts paid by the assessee to the nonresident is the income chargeable to tax under the Income Tax Act, 1961 for the purpose of section 195. It is true that the assessee cannot quantify the income of the non-resident. This is where the special provision of sec. 44BB comes into play. Where the statute has provided a special provision for dealing with a special type of income such a provision would exclude a general provision dealing with the income accruing or arising out of any business connection. This view of ours finds support from the decision of the Hon' ble jurisdictional High Court in the case of Copes Vulcan Inc., referred to supra. Section 44BB is a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is confirmed. 31. The next ground is that the CIT(A) erred in deleting the disallowance u/s 40(a)(i) in respect of payments made to nonresidents from Dubai Branch without deduction of TDS. 32. As discussed in the earlier paragraphs, this issue is covered by the order of this Tribunal in assessee s own case in I.T.A.No.90/Mds/2012, dated 26.6.2015 for assessment year 2007-08 wherein the issue was remitted back to the file of the Assessing Officer for fresh consideration by observing as follows: 25. On hearing both parties, as discussed in the open court, we are of the opinion that this matter needs to be remanded to the file of the Assessing Officer for fresh consideration of the facts of the assessee s case in the light of the Hon'ble Bombay High Court judgment cited (supra). The Assessing Officer is directed to pass a speaking order on this issue after considering the above decision and after granting reasonable opportunity of being heard to the assessee as per the principles of natural justice. Accordingly, this ground is allowed for statistical purposes. 33. In view of the above order of the Tribunal, we remit this issue back to the file of the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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