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M/s. Tej Quebcor Printing Ltd. Versus Joint Commissioner Of Income Tax

2017 (2) TMI 695 - DELHI HIGH COURT

Applicability of provisions of Section 40(a)(i) r.w.p. of Section 10 (15)(iv)(c) - need for approval of the Central Govt. for approving the loan amount, rate of interest and the mode of repayment - Held that:- Section 10(15)(iv)(c) provision clearly bears the fact that its approval of the Central Government which is necessary – not with respect to the transaction per se but with regard to the rate of interest. Given this objective factor, and the fact that the Revenue does not appear to have not .....

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given the fact that in the present case, the Department of Revenue did not express any contrary opinion in its approval dated 15.01.1999. In this context, the Court holds the Revenue’s arguments - that the amounts mentioned in the Department of Revenue’s approval do not tally with the approval granted by the Department of Economic Affairs utterly unsubstantial. What the Department of Economic Affairs has approved is the transaction and the rate of interest. That the assessee availed a lesser am .....

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I WAZIRI JJ. Appellant Through: Dr. Rakesh Gupta, Mr. T.R. Talwar and Ms. Monika Ghai, Advocates. Respondent Through: Mr. Ashok K. Manchanda and Mr. Raghvendra Singh, Advocates. S. RAVINDRA BHAT, J. (OPEN COURT):- 1. The questions of law framed in this case on 08.02.2005 are as follows:- "(i) Whether the Tribuna1 was correct in law in holding that on the facts and in the circumstances of the case, provisions of Section 40(a)(i) of the I .....

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of the Income Tax Act? 2. The assessee was at the relevant time engaged in the business of printing and binding of telephone directories. For its business, it imported machinery from a foreign supplier i.e. M/s. Quebecor Printing Ltd. Inc., Canada on deferred credit to the tune of Canadian dollars 25,74,537 equivalent to ₹ 5,94,86,535/-. It sought the benefit of Section 10(15)(iv)(c) of the Income Tax Act, 1961 (hereinafter to be referred as the Act ) by seeking approval of the .....

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Government or India, Ministry of Finance, Department of Economic Affairs, for your obtaining a Supplier's Credit from M/s. Quebecor Printing Inc., Canada, for financing the import of capital goods, on the following terms and conditions: a) Loan Amount : Canadian Dollar 2,574,536.79/- b) Rate of interest : 8.3359% p.a. c) Repayment Terms : In 10 equal semi-annual instalments commencing from June 1997. 2. No other charges in foreign currency or India .....

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s being assumed under the arrangements. 5. Kindly note that in case the credit is required to be guaranteed by a Bank/Development Financial Institution (DFI), the same shall be provided by scheduled commercial bank(s) or DFI(s) in India. The counter guarantee from a foreign bank or confirmation of a scheduled bank or DFI's guarantee by a foreign bank will not be permitted under any circumstances. The guarantee issuance, however, would be subject to the authorization of Industrial .....

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copies of the agreement are not made available to this Department within 3 months of the date of issue of this sanction letter, the approval for External Commercial Borrowings contained herein shall automatically lapse unless specifically extended by this Department. Yours faithfully, Sd/- (D.J. Pandian) Deputy Secretary (ECB) 3. In these circumstances, the assessee claimed a deduction in its returns filed on 30.11.1996. This was disallowed .....

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below for the purpose of section 10(15)(iv)(c) of the Income-tax Act, 1961. Foreign Lender : M/s Quebecor Printing Inc., Canada Amount of Loan : Canadian dollar 2,277,422.77 Rate of interest : 8.3359% p.a. Arrangement Fee : - Management Fee : - Agency Fee : - Commitment Fee : - Please intimate early the date of payment and amount of payment of the interest and the country to which the amount was remitted.

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tances of the case since the assessee had already obtained the approval of the Department of Economic Affairs and subsequently of the RBI (the latter with respect to the foreign exchange of loan) and most crucially, since the approval referred to in the provision related to the rate of interest, there was compliance with the statutory conditions. 5. The Income Tax Appellate Tribunal ( ITAT ), to which the Revenue appealed, upset the order of the CIT(A). The ITAT was of the opinion th .....

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assessee points out that Section 10(15)(iv)(c) of the Act merely talks of approval of the Central Government viz-a-viz the rate of interest. Given that the Department of Economic Affairs is also a part of the Central Government and that it had granted such approval without, in any manner, indicating that the Department of Revenue was the concerned agency but merely cautioned to obtain the RBI s approval on account of the foreign exchange remittance, the denial of relief was unwarranted. He comm .....

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oach, it had already filed the return. Given these circumstances, the invocation of Section 40(a)(i) of the Act was not unjustified, the assessee would very well availed its opportunity of approaching the AO under Section 195 of the Act, which it did not at the relevant point of time. 7. Section 10(15)(iv)(c) of the Act reads as follows:- (15)(iv) interest payable - (c) by an industrial undertaking in India on any moneys borrowed or debt incurred by it in a forei .....

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