DDIT (INT.) 3(2), MUMBAI v. M/s. BANK OF BAHRAIN & KUWAIT BSC, MUMBAI

ITA 7160/MUM/2004 | 2001-2002
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 716019914 RSA 2004
Assessee PAN AAACB2140F
Bench Mumbai
Appeal Number ITA 7160/MUM/2004
Duration Of Justice 6 year(s) 3 month(s) 22 day(s)
Appellant DDIT (INT.) 3(2), MUMBAI
Respondent M/s. BANK OF BAHRAIN & KUWAIT BSC, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted L
Tribunal Order Date 28-01-2011
Date Of Final Hearing 20-01-2011
Next Hearing Date 20-01-2011
Assessment Year 2001-2002
Appeal Filed On 06-10-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI R.S. SYAL (AM) & SHRI V. DURGA RAO ((JM ) I.T.A.NOS.5666 7160/MUM/2004 & 3681/MUM/2009 (A.YS. 2000-01 2001-02 & 2005-06) DDIT/ADIT (IT)-3(2) SCINDIA HOUSE R.NO.132 1 ST FLOOR N.M. ROAD MUMBAI-38. VS. BANK OF BAHRAIN & KUWAIT GR.FLOOR JOLLY CHAMBERS MAKER-II 225 NARIMAN POINT MUMBAI-400 021. PAN: AAACB2140F APPELLANT RESPONDENT ASSESSEE BY S/SHRI F.V. IRANI & K.K. VED. DEPARTMEMT BY SHRI NARENDER SINGH. O R D E R PER R.S.SYAL : THIS BATCH OF THREE APPEALS BY THE REVENUE RELATES TO THE ASSTT. YEARS 2000-01 2001-02 & 2005-06. SINCE SOME OF THE ISSUES RAISED IN THESE APPEALS ARE COMMON WE ARE THEREFORE PROCEEDI NG TO DISPOSE THEM OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVE NIENCE. ASSTT. YEAR : 2000-01 : 2. THE FIRST GROUND OF THE REVENUES APPEAL IS AGAI NST THE INTEREST INCOME ARISING FROM SECURITIES HELD BY THE LD. CIT( A) TO BE TAXABLE ON DUE BASIS AND NOT ON DAY TO DAY BASIS ON ACCRUAL. 2.1 AT THE VERY OUTSET THE LD. COUNSEL FOR THE ASS ESSEE CONTENDED THAT A SPECIAL BENCH WAS CONSTITUTED IN ASSESSEES OWN CAS E FOR ASSTT. YEAR 1998- 99 AND 1999-2000 WHICH HAS DISPOSED OF THE APPEALS VIDE ITS ORDER DATED ITA 6731 6605 5666 7160 &3681/M/06. 2 13-02-2010. PLACING ON RECORD A COPY OF THE ORDER THE LD. AR SUBMITTED THAT THE SPECIAL BENCH HAS DECIDED THIS ISSUE IN AS SESSEES FAVOUR. THE LD. D.R. FAIRLY ACCEPTED THE POSITION STATED ON BEHALF OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE PRECEDENT WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 3. GROUND NO.2 IS AGAINST THE DELETION OF DISALLOWA NCE ON ACCOUNT OF BROKEN PERIOD INTEREST. HERE ALSO BOTH THE SIDES A RE IN AGREEMENT THAT THE SPECIAL BENCH OF THE TRIBUNAL IN THE AFORENOTED CAS E HAS DECIDED THIS ISSUE IN ASSESSEES FAVOUR. RESPECTFULLY FOLLOWING THE SA ME WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND IS NOT AL LOWED. 4. THE THIRD GROUND IS AGAINST THE DELETION OF ADDI TION ON ACCOUNT OF DEFERRED GUARANTEE COMMISSION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE ALSO CAME UP BEFORE THE S PECIAL BENCH IN THE AFORENOTED CASE AND THE SAME HAS BEEN RESTORED TO T HE FILE OF AO WITH A DIRECTION TO EXAMINE WHETHER THE COMMISSION WAS REF UNDABLE ON THE REVOCATION OF GUARANTEE. IF IT IS FOUND OUT TO BE S O THEN THE COMMISSION SHOULD BE SPREAD OVER THE PERIOD FOR WHICH THE GUAR ANTEE IS GIVEN; OTHERWISE IT IS TO BE TAXED IN THE YEAR THE GUARANT EE WAS GIVEN IRRESPECTIVE OF THE PERIOD FOR WHICH IT WAS SPREAD OVER. THE LD. COUNSEL FOR THE ASSESSEE CONTENDED THAT HE HAS NO OBJECTION TO THE RESTORATI ON OF THE ISSUE IN ACCORDANCE WITH THE VIEW TAKEN BY THE SPECIAL BENCH BUT IT SHOULD BE CLARIFIED THAT IF THE AMOUNT OF DEFERRED GUARANTEE COMMISSION IS HELD TO BE TAXABLE IN THE YEAR IN WHICH GUARANTEE WAS GIVEN T HEN THE AMOUNT ALREADY OFFERED FOR TAXATION ON THE BASIS OF SPREAD ING OVER THE PERIOD OF GUARANTEE SHOULD NOT BE TAXED AGAIN. THE LD. D.R. CANDIDLY ACCEPTED THAT ITA 6731 6605 5666 7160 &3681/M/06. 3 THIS ISSUE WAS DECIDED BY THE SPECIAL BENCH OF THE TRIBUNAL RESTORING THE MATTER TO THE FILE OF AO IN THE TERMS SUBMITTED BY THE LD. A.R. HE HOWEVER DID NOT RAISE ANY OBJECTION TO THE PRAYER MADE BY THE LD. A.R. FOR NOT DOUBLY TAXING THE SAME INCOME FIRSTLY IN THE Y EAR IN WHICH THE GUARANTEE WAS GIVEN AND SECONDLY WHEN THE AMOUNT W AS VOLUNTARILY OFFERED BY THE ASSESSEE OVER THE PERIOD OF GUARANTE E. 4.1 HAVING HEARD BOTH THE SIDES ON THE ISSUE AND PE RUSING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE SPECIAL BENCH OF THE TRIBUNAL HAS RESTORED THE MATTER TO THE FILE OF AO WITH THE DIRE CTIONS CONTAINED IN PARA- 25 OF ITS ORDER. RESPECTFULLY FOLLOWING THE SAME W E REMIT THE MATTER TO THE FILE OF AO IN THE YEAR UNDER CONSIDERATION ALSO FOR TAKING A FINAL DECISION AS PER THE DIRECTION GIVEN BY THE SPECIAL BENCH IN THE AFORENOTED DECISION. HOWEVER IT IS MADE CLEAR THAT IF A PARTI CULAR SUM IS TAXED BY THE AO IN THE YEAR IN WHICH GUARANTEE WAS ACTUALLY GIVE N AS PER THE DIRECTION OF THE SPECIAL BENCH THEN THE SAME AMOUNT VOLUNTAR ILY OFFERED BY THE ASSESSEE IN SUBSEQUENT YEARS DEPENDING UPON THE PERIOD FOR WHICH GUARANTEE WAS GIVEN SHOULD BE EXCLUDED FROM THE T OTAL INCOME OF THE ASSESSEE FOR SUCH YEARS. IF THIS IS NOT DONE IT WO ULD AMOUNT TO DOUBLE TAXATION OF THE SAME INCOME FIRSTLY IN THE YEAR IN WHICH GUARANTEE WAS GIVEN AND SECONDLY IN THE YEARS OVER WHICH IT IS SP READ OVER. WITH THESE OBSERVATIONS WE REMIT THE MATTER TO THE FILE OF AO FOR A FRESH DECISION. 5. GROUND NO. 4 IS AGAINST THE DELETION OF ADDITION U/S.14A BEING THE EXPENDITURE INCURRED IN EARNING THE INCOME CLAIMED TO BE EXEMPT U/S.10(33). THE LD. COUNSEL SUBMITTED THAT THE SPEC IAL BENCH OF THE ITA 6731 6605 5666 7160 &3681/M/06. 4 TRIBUNAL IN ASSESSEES OWN CASE RESTORED THE MATTER TO THE FILE OF AO FOR TAKING A DECISION IN ACCORDANCE WITH THE SPECIAL B ENCH ORDER IN THE CASE OF DAGA CAPITAL MANAGEMENT (117 ITD 169). IT WAS H OWEVER SUBMITTED THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF GODREJ & BOYCE MFG. LTD. VS. DCIT (2010) 328 ITR 81 (BOM.) HAD DEC IDED THE QUESTION OF DISALLOWANCE U/S.14A OF THE ACT. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD WE FIND THAT THE ISSUE RAISED I N THIS GROUND IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIO NAL HIGH COURT IN GODREJ & BOYCE MFG. LTD. VS. DCIT (2010) 328 ITR 81 (BOM.) IN WHICH IT HAS BEEN HELD THAT DISALLOWANCE IS CALLED FOR U/ S.14A IN SUCH CIRCUMSTANCES. HOWEVER THE MANNER OF COMPUTATION O F SUCH DISALLOWANCE HAS BEEN RESTORED TO THE FILE OF AO FOR MAKING ON S OME REASONABLE BASIS. IT HAS FURTHER BEEN HELD IN THIS CASE THE PROVISION S OF RULE 8D ARE NOT APPLICABLE AS THESE ARE PROSPECTIVE. RESPECTFULLY F OLLOWING THE PRECEDENT WE SET ASIDE THE IMPUGNED ORDER AND DIRECT THE AO T O COMPUTE DISALLOWANCE U/S.14A IN ACCORDANCE WITH THE RATIO L AID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFORENOTED CASE OF GODREJ & BOYCE LTD. 7. THE LAST GROUND IS AGAINST THE ACTION OF THE LD. CIT(A) FOR ALLOWING EXPENDITURE INCURRED FOR THE INDIAN BRANCHES U/S.3 7(1) OF THE ACT AND NOT TO RESTRICT IT U/S.44C OF THE ACT. BRIEFLY STATED F ACTS OF THIS GROUND ARE THAT THE ASSESSEE CLAIMED DEDUCTION FOR HEAD OFFICE EXP ENSES AMOUNTING TO RS.1 41 56 295/- AND RS.28 46 520/- IN THE COMPUTAT ION OF INCOME FILED WITH REVISED RETURN OF INCOME. IN THE SECOND REVISE D RETURN THE ASSESSEE ITA 6731 6605 5666 7160 &3681/M/06. 5 CLAIMED DEDUCTION FOR FURTHER EXPENSES OF RS.1 67 2 7 212/-. THE AO OPINED THAT DEDUCTION FOR HEAD OFFICE EXPENSES WAS TO BE ALLOWED AS PER THE PARAMETERS SET OUT IN SEC.44C OF THE ACT. HE HOWEVER HELD THAT THESE EXPENSES WHICH WERE NOT INCORPORATED IN THE B OOKS OF ACCOUNT WERE TO BE TREATED AS HEAD OFFICE EXPENSES AND TO BE CON SIDERED FOR DEDUCTION U/S.44C. THE DEDUCTION CLAIMED BY THE ASSESSEE U/S. 37(1) IN RESPECT OF THESE EXPENSES WAS DENIED AND THE SAME WAS ALLOWED AS PER THE PRESCRIPTION OF SECTION 44C OF THE ACT. THE LD. CI T(A) NOTED THAT THE EXPENDITURE OF RS.1 72 14 616/- WAS INCURRED BY THE HEAD OFFICE FOR SOLICITING DEPOSITS FROM NRIS. IN HIS OPINION THIS EXPENDITURE WAS DEDUCTIBLE IN FULL U/S.37(1) AND WAS NOT LIABLE TO BE CONSIDERED ALONG WITH OTHER HEAD OFFICE EXPENSES U/S.44C. RELYING ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. EMIRAT ES COMMERCIAL BANK LTD. [262 ITR 55 (BOM.)] AND OTHER DECISIONS THE LD. CI T(A) ACCEPTED THE ASSESSEES CLAIM AND DIRECTED FOR ALLOWING A SUM OF RS.1.72 CRORES TOWARDS EXPENSES SPECIFICALLY INCURRED FOR INDIAN BRANCHES U/S.37(1) OF THE ACT AND NOT RESTRICTING IT U/S.44C OF THE ACT. 8. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REL EVANT MATERIAL ON RECORD. IT HAS NOT BEEN CONTROVERTED BY THE LD. DR THAT THE SAID SUM OF RS.1.72 CRORES WAS INCURRED BY THE HEAD OFFICE SPEC IFICALLY FOR SOLICITING DEPOSITS FROM NRIS FOR ITS INDIAN BRANCH. SECTION 44C DEALS WITH DEDUCTION OF HEAD OFFICE EXPENSES IN THE CASE OF NO N-RESIDENTS. THIS SECTION HAS BEEN ENSHRINED TO GET RID OF THE DIFFIC ULTY IN SCRUTINIZING THE DEDUCTIBILITY OF COMMON EXPENSES INCURRED BY THE HE AD OFFICE. SO IT SERVES THE DUAL PURPOSE VIZ. OBVIATING THE HARDSHIP IN A LLOCATING THE CORRECT ITA 6731 6605 5666 7160 &3681/M/06. 6 PROPORTION TO THE INDIAN BRANCH AS WELL AS RESTRICT ING THE AMOUNT OF EXPENDITURE ALLOWABLE ON ACCOUNT OF HEAD OFFICE EXP ENSES. HOWEVER THIS SECTION APPLIES ONLY TO COMMON EXPENSES AND DOES NO T EXTEND ITS APPLICATION TO SPECIFIC EXPENSES INCURRED FOR THE I NDIAN BRANCH. IN OTHER WORDS IF ANY EXPENSES ARE PARTICULARLY INCURRED FO R INDIAN BRANCH AND ARE NOT PART OF COMMON EXPENDITURE INCURRED BY THE HEAD OFFICE FOR ITS BRANCHES THEN THE DEDUCTIBILITY OF SUCH EXPENSES I S GOVERNED BY THE OTHER PROVISIONS AND NOT SEC.44C.THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF EMIRATES COMMERCIAL BANK (SUPRA) HAS LAID D OWN TO THIS EXTENT. AS THE EXPENSES IN QUESTION WERE UNDISPUTEDLY INCURRED BY THE HEAD OFFICE FOR SOLICITING NRI DEPOSITS FOR ITS INDIAN BRANCHES THR OUGH NRI DESK AND DO NOT CONTAIN ANY APPORTIONMENT OF EXPENSES THEIR DEDUCT IBILITY IS RIGHTLY CONSIDERABLE U/S.37(1). AS THIS MUCH EXPENDITURE WA S INCURRED BY THE HEAD OFFICE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF THE ASSESSEE AND THE SAME IS OF THE REVENUE NATURE IT WILL FIND DEDUCTI ON U/S 37(1) AS HAS BEEN HELD BY THE LD. CIT(A). WE THEREFORE UPHOLD THE I MPUGNED ORDER TO THIS EXTENT. IT IS HOWEVER MADE CLEAR THAT IF BY VIR TUE OF THIS ORDER OF THE TRIBUNAL THE BASE AMOUNT ON WHICH DEDUCTION U/S.4 4C IS ALLOWED GETS INCREASED OR REDUCED THE AMOUNT OF EXPENDITURE ACT UALLY ALLOWED BY THE AO U/S.44C IS TO BE SUITABLY AMENDED. WE THEREFOR E UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND IS NOT AL LOWED. 9. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ASSTT. YEAR 2001-02 : 10. BOTH THE SIDES ARE IN AGREEMENT THAT ALL THE GR OUNDS RAISED IN THIS APPEAL TOGETHER WITH THE FACTS AND CIRCUMSTANCES OF THIS YEAR ARE MUTATIS ITA 6731 6605 5666 7160 &3681/M/06. 7 MUTANDIS SIMILAR TO THOSE OF ASSTT. YEAR 2000-01. F OLLOWING THE VIEW TAKEN HEREINABOVE WE DISMISS GROUND NOS.1 2 AND 5. GROU ND NOS.3 & 4 ARE RESTORED TO THE FILE OF AO FOR A FRESH DECISION IN ACCORDANCE WITH OUR ABOVE OBSERVATIONS. 11. IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ASST.YEAR 2005-06 : 12. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THE APPEAL BY THE REVENUE FOR ASSTT. YEAR 2005-06 A RE SIMILAR TO THOSE OF ASSTT. YEAR 2002-03 AND THE DISPUTE IS ONLY IN RESP ECT OF HEAD OFFICE AND NRI DESK EXPENSES. IT IS SEEN THAT THE LD. CIT(A) H AS FOLLOWED THE VIEW TAKEN BY HIM IN ASSTT. YEAR 2002-03. TODAY WE HAVE PASSED A SEPARATE ORDER FOR THE SAID A.Y. 2002-03. AS THE FACTS FOR T HE INSTANT YEAR ARE SIMILAR TO THOSE FOR A.Y. 2002-03 WE SET ASIDE THE IMPUGNED ORDER TO THIS EXTENT AND RESTORE THE MATTER TO THE FILE OF A.O. F OR DECIDING IT AFRESH IN ACCORDANCE WITH OUR DIRECTIONS IN THE AFORENOTED YE AR. 13. IN THE RESULT THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED ON THE 28TH DAY OF JANUARY 2 011. SD/- SD/- (V. DURGA RAO) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 28TH JANURAY 2011. NG: COPY TO : 1. DEPARTMENT. ITA 6731 6605 5666 7160 &3681/M/06. 8 2.ASSESSEE. 3 CIT(A)-XXXII MUMBAI. 4 DIT(INTERNATIONAL TAXATION) MUMBAI. 5.DR L BENCH MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER AS ST.REGISTRAR ITAT MUMBAI. ITA 6731 6605 5666 7160 &3681/M/06. 9 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 20-01-11 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 24-01-11 SR.PS/ 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO AR 10 DATE OF DISPATCH OF ORDER *