TMI Blog2016 (10) TMI 1336X X X X Extracts X X X X X X X X Extracts X X X X ..... ome earned by the Malaysian branch of the assessee-company is taxable in India and not taxable in Malaysia. In view of the decision of this Tribunal in the assessee's own case for the assessment year 2000- 01, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Expenditure incurred by the assessee in Malaysian branch - HELD THAT:- This Tribunal found that the income from Malaysian branch has to be classified as income from other sources and it cannot be said to be arising from business, therefore, there cannot any question of allowing the expenditure against the business income. In view of this order of the Tribunal, the CIT(Appeals) is not justified in allowing the claim of the assessee. In fact, this order of the Tribunal was not brought to the notice of the CIT(Appeals). Interest under Section 234B - HELD THAT:- Payment of advance tax was increased due to inclusion of income of Malaysian branch in India. The assessee claims that there was a bona fide belief that the Malaysian income would not form part of total income of the assessee in India. The assessee-company is not making investme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment - HELD THAT:- This Tribunal for assessment year 2000-01, in the assessee's own case, found that the Malaysian branch of the assessee-company cannot constitute a permanent establishment and the assessee s Malaysian branch is not doing any business other than making investments. Therefore, income from Malaysian branch is taxable India. In view of the finding of this Tribunal for assessment year 2000-01 that the income escaped assessment, therefore, the Assessing Officer has rightly reopened the assessment under Section 147 of the Act. On identical situation, for assessment years 2002-03 and 2003-04, this Tribunal confirmed the order of the Assessing Officer for reopening assessment. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Classification of interest income and dividend income - assessee, submitted that the business of the assessee is investment, therefore, the interest income earned by the assessee from investments and dividend income have to be classified as income from business - HELD THAT:- It is not in dispute that the assessee has invested in one M/s Goldsman S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lower authority and accordingly the same is confirmed. Disallowance u/s 14A - HELD THAT:- As rightly submitted by assessee, Rule 8D of Incometax Rules, 1962 is not applicable for assessment year 2007-08. This Tribunal is uniformly taking a view that 2% of the exempt income has to be taken as expenditure for earning that income. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Expenses incurred on bank guarantee - HELD THAT:- It is not in dispute that the assessee borrowed loan from HDFC Bank on the basis of the bank guarantee given by M/s Goldsman Sachs. It is also not in dispute that the assessee has paid lower rate of interest. Therefore, the expenditure incurred by the assessee in giving bank guarantee is for business purpose. Therefore, the CIT(Appeals) has rightly allowed the same. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. - ITA No.1873/Mds/2008, ITA No.456/Mds/2009, ITA No.1102/Mds/2011, ITA Nos.115 & 1936/Mds/2012, ITA No.1954/Mds/2008, ITA Nos.1438, 1465 & 1654/Mds/2009, & C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-company was registered as a separate company in Malaysia, therefore, it has to be constitute a permanent establishment in Malaysia, hence the income earned by the Malaysian branch of the assessee-company by making investment from the assets of Malaysian branch has to be treated as income of the Malaysian branch and liable for taxation under Mayalsian Income Tax Act, therefore, the same cannot be subject matter of taxation in India. The Ld.counsel further submitted that the business of the Malaysian branch of the company is investment, therefore, the income earned by the assessee in investments in Malaysia has to be treated as business income. since the assessee has permanent establishment in Malaysia, the CIT(Appeals) is not justified in placing reliance on the order of this Tribunal for assessment year 2000-01 in holding that the income is taxable in India. 5. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the assesseecompany had a branch in Malaysia. The assessee invested its funds through Malaysian branch in Malaysia. The decision to make investment was taken at Chennai. In fact, all the directors of the assessee-company were res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ai. This Tribunal, for the assessment year 2000-01, examined entire nature of investments made by the assessee7 company in Malaysia and found that the interest / income earned by the assessee from investments in Malaysia has to be construed as income from other sources . The loss suffered by the assessee on sale of shares and investments cannot be allowed to set off against the capital gain. This Tribunal further found that the income earned by the Malaysian branch of the assessee-company is taxable in India and not taxable in Malaysia. In view of the decision of this Tribunal in the assessee's own case for the assessment year 2000- 01, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 9. The next issue arises for consideration is expenditure incurred by the assessee in Malaysian branch. This issue arises for consideration in the Revenue s appeal for assessment year 2001- 02. 10. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that this Tribunal in the assessee's own case for assessment year 2003-04 found that the expenditure cannot be allowed while computing the total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is set aside and that of the Assessing Officer is restored. 14. Next issue arises for consideration is interest under Section 234B of the Act. This was raised by the Revenue in I.T.A. No. 1438/Mds/2009 for assessment year 2001-02. 15. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the Assessing Officer levied interest under Section 234B of the Act. The Assessing Officer found that the income of Malaysian branch of the assessee-company has to be taxed in India. However, the CIT(Appeals) allowed the claim of the assessee on the ground that the assessee-company would not have anticipated the foreign income would be held to be taxable in India. Referring to Section 234B of the Act, the Ld. D.R. submitted that when the assessee is liable to pay advance tax and the advance tax paid by the assessee was less than 90% of the assessed tax, the assessee has to pay a simple interest at the rate of 1% every month or part of a month comprised in the period. In this case, it is not in dispute that the assessee is liable to pay advance tax and the advance tax paid by the assessee is less than 90% of assessed tax, therefore, the Assessing Officer has rightly levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law that the global income of the resident company is liable for taxation in India unless otherwise it was excluded by Double Taxation Avoidance Agreement between two sovereign countries. 19. In the case before us, this Tribunal in the assessee's own case, for assessment year 2000-01, after examining the Double Taxation Avoidance Agreement, and the investment said to be made by the Malaysian branch, found that the assessee is not doing any business in Malaysia other than making investments in M/s Goldman Sachs. The assessee-company is not making investments in any another companies. The other company M/s Goldman Sachs was doing business. The decision to make investment was taken in India, therefore, the Malaysian branch cannot be construed a permanent establishment. In those factual circumstances, this Tribunal found for the assessment year 2000- 01, in the assessee's own case, that the income earned on investments by Malaysian branch of the assessee-company is taxable in India. The taxability of income at Malaysian branch is not because of any legislative change brought in subsequently. Therefore, it cannot be said that the assessee was under the bona fide belief. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excess amount refunded in view of the judgment of Madras High Court in Infrastructure Development Finance Co. Ltd. (supra). By respectfully following the judgment of Madras High Court in Infrastructure Development Finance Co. Ltd. (supra), the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored. 23. Now coming to the cross-objection of the assessee for assessment year 2001-02, the first issue raised by the assessee is with regard to reopening of assessment. 24. Dr. Anita Sumanth, the Ld.counsel for the assessee, submitted that the Malaysian branch of the assessee-company constitutes a permanent establishment in terms of Article 5 of Double Taxation Avoidance Agreement between India and Malaysia. Therefore, the income of Malaysian branch is not liable for taxation. Hence, according to the Ld. counsel, the Assessing Officer is not justified in reopening the assessment. 25. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the income of the assessee escaped assessment, therefore, the Assessing Officer has rightly reopened the assessment by issuing notice under Section 148 of the Act. Referring to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s simply invested in Malaysia in M/s Goldsman Sachs through Malaysian branch and earned interest income and dividend income. In fact, the business was done by M/s Goldsman Sachs. Therefore, according to the Ld. D.R., the interest income received by the assessee on investment in M/s Goldsman Sachs and dividend income have to be necessarily classified as income from other sources under Indian Income-tax Act. The entire investment made by the assessee in M/s Goldsman Sachs was treated as mere investment and not as stock-in-trade. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly found that the income has to be classified as income from other sources . 30. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the assessee has invested in one M/s Goldsman Sachs through its Malaysian branch. The assessee has not done any other business other than making investment in M/s Goldsman Sachs. In those circumstances, this Tribunal is of the considered opinion that the income by way of interest and dividend income received from M/s Goldsman Sachs have to be classified as income from other sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny reason to interfere with the order of the lower authority and accordingly the same is confirmed. 35. The next ground of appeal is with regard to provision for diminution in the value of current investment. 36. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the assessee-company invested in various investments and the same was classified as current investment and permanent investment . The assessee has valued the investments at cost or market value, whichever is less, on the date of the balance sheet. The difference between the opening value or the cost price of the previous year and the market value on the last day of financial year was chargeable to Profit Loss account. The statement showing the computation of amount claimed as provision for diminution in the value of current investment was claimed as deduction. The Assessing Officer disallowed the claim of the assessee on the ground that it is only a provision. However, on appeal by the assessee, the CIT(Appeals) allowed the claim of the assessee on the ground that diminution in the value of investment claimed as deducted in the Profit Loss account is permissible deduction under the Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has rightly allowed the claim of the assessee. 42. We have considered the rival submissions on either side and perused the relevant material available on record. The investment made by the assessee has been continuously valued either at market price or at cost, whichever is lower, as per the provisions of Section 145 of the Act. Therefore, the diminution in the value of investment is ascertainable at the end of the financial year. Hence, the CIT(Appeals) has rightly allowed the claim of the assessee. This Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 43. The next ground of appeal is with regard to disallowance made under Section 14A of the Act. 44. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the Assessing Officer disallowed the expenditure for earning the exempt income by applying the provisions of Rule 8D of the Income-tax Rules, 1962. However, the CIT(Appeals) restricted the disallowance to 2% of the exempt income. Since Rule 8D is mandatory, according to the Ld. D.R., the CIT(Appeals) is not justified in restricting the disallowance at 2%. 45. On the contrary, D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal one. The Uttarakhand High Court in ONGC case (supra) examined the issue and found that the gain is only a notional one and it is not taxable in the hands of the assessee. Since the CIT(Appeals) has followed the judgment of Uttarakhand High Court, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. 51. The next ground of appeal is with regard to expenses incurred on bank guarantee to the extent of ₹ 5,45,500/-. 52. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the assessee has paid a sum of ₹ 5,45,500/- to M/s Goldsman Sachs for the purpose of issuing a bank guarantee to HDFC bank. According to the Ld. D.R., the expenditure incurred by the assessee is not relatable to business of the assessee. Therefore, the CIT(Appeals) is not justified in allowing the claim of the assessee. 53. On the contrary, Dr. Anita Sumanth, the Ld.counsel for the assessee, submitted that the bank guarantee was given for installation of windmill by the assessee. In fact, the guarantee was taken from bank since the interest rate chargeable by HDFC bank was very lower. Therefore, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
