TMI Blog2020 (3) TMI 1170X X X X Extracts X X X X X X X X Extracts X X X X ..... income to work out the rate of tax. The word used whole amount of income denotes the income which signifies after the expenses. The word gross receipts have not been used therein. Even under the normal parlance, the income denotes only to the net profit i.e. gross receipts minus the expenses. Thus in our considered view, it is the only profit which should be considered while determining the rate of tax in the foreign country and the same needs to be compared with the rate of tax in India. In the case on hand, we also note that the assessee has not given any working about the expenses incurred in the foreign country against the gross receipts. Thus in the absence of sufficient details, the AO had no alternate except to work out the proportionate amount of income eligible for relief under section 91 of the Act. Accordingly we do not find any infirmity in the order of the authorities below. We note that there is force in the alternate argument of the learned AR for the assessee claiming for the deduction of the taxes paid in the foreign country as expenditure under section 37(1) of the Act. The amount of tax paid in a foreign country which is not eligible for benefit under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing of the appeal. 2. The 1st issue raised by the assessee is that the learned CIT-A erred in confirming the part disallowance of interest expenses for ₹ 5 lakh out of the total disallowance of ₹ 9,97,000/- made by the AO on account of diversion of interestbearing fund under section 36(1)(iii) of the Act. 3. The facts as culled out from the orders of the authorities below are that the assessee in the present case is a public limited company and engaged in the business of customized software development and maintenance. The assessee in the year under consideration has made investment in the office space for ₹ 2,43,00,000/- only. The payment for such investment was made by the assessee from the HDFC OD account. However the assessee during the assessment proceedings claimed that, it has sufficient own fund exceeding the amount of investment. 3.1 However, the AO disbelieved the contention of the assessee by observing that the assessee has not furnished day to day fund flow statements to justify that the borrowed fund has not been diverted for the impugned investments. Accordingly the AO determined the amount of interest relatable to such investments for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. Rs. 1. EQUITY AND LIABILITIES 1.Shareholder s funds a.Share capital b.Reserves and surplus 1 2 48,450,000.00 17,727,486.13 66,177,486.13 48,450,000.00 13,376,310.55 61,826,310.55 In view of the above, it can be presumed that the investment was made by the assessee for ₹ 2.43 crores out of its own funds despite the fact that the payment was made by the assessee out of the HDFC OD account as discussed above. In holding so we place our reliance on the judgment of the Hon ble Gujarat High Court in the case of CIT vs. Amod Stamping (P.) Ltd. reported in 45 Taxamnn.com 427 wherein it was held as under: In the case of Reliance Utilities Power Ltd. (supra), the Bombay High Court has held that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments and therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 91 of the Act have referred the income and not overseas net profit, net income or proportionate income. Therefore the rate of tax in the foreign country should be worked out after considering the gross receipts and the amount of TDS deducted which comes out at 7% which is lower than the rate of tax in India. Accordingly the assessee claimed the foreign tax credit of ₹ 23,17,075.00 under section 91 of the Act. 10.2 However, the AO disagreed with the contention of the assessee by observing that the tax in the foreign country cannot be applied to the amount of gross receipts. As such, the amount of income which is getting tax twice should be worked out for determining the rate of tax in the foreign country and the same needs to be compared with the rate of tax in India. Accordingly the AO held that the expenses incurred by the assessee against the gross income from foreign countries needs to be adjusted for determining the rate of tax in the foreign country. But the assessee has not furnished the detailed computation of allowable tax credit of foreign countries. 10.3 The AO further found that the assessee has already incurred expenses in India and abroad for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee of ₹ 21,88,147/- - (23,17,075 1,28,928) is hereby disallowed in view of the provisions of section 91 of the Act. Aggrieved assessee preferred an appeal to the learned CIT (A) 11. The assessee before the learned CIT (A) submitted that the gross foreign income which is being taxed in India should only be considered as doubly taxed income and not the element of profit on which tax has been paid. 12. However, the learned CIT (A) disregarded with the contention of the assessee by observing that the relief under section 91 of the Act is available to the assessee with respect to the doubly taxed income. The doubly taxed income shall be construed with respect to the net amount of receipts i.e. gross receipts minus the expenses. Thus the learned CIT (A) confirmed the order of the AO. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 13. The learned AR before us submitted that the assessee has paid the tax in the foreign country @ 7% which is less than the rate of tax in India. Therefore, the assessee should be given relief for the entire amount of tax paid in the foreign country. The learned AR in support of his contention p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mechanism for determining the rate of tax in the foreign country. It requires that the income tax/super tax actually paid in the foreign country as per the laws prevailing therein and dividing the same by the whole amount of income as assessed in the foreign country. The relevant extract of the clause (iii) to explanation of section 91 of the Act reads as under: Explanation.-In this section,- (i) *********** (ii) ********* (iii) the expression rate of tax of the said country means income-tax and super-tax actually paid in the said country in accordance with the corresponding laws in force in the said country after deduction of all relief due, but before deduction of any relief due in the said country in respect of double taxation, divided by the whole amount of the income as assessed in the said country; 15.2 From the above, it is revealed that the amount of tax/super tax needs to be divided by the whole amount of income to work out the rate of tax. The word used whole amount of income denotes the income which signifies after the expenses. The word gross receipts have not been used therein. Even under the normal parlance, the income denotes only to the n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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