Abu Dhabi Commercial Bank Ltd, V. The DDIT (IT) - 1,

CO 115/MUM/2004

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7489 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 1 month(s) 13 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 28-12-2011
• Assessment Year: misc
• Appeal Filed On: 07-06-2004
• Court: TRIBUNAL
• Assessee Lawyers: ARAVIND SONDE
• Keywords: Business income; Depreciation; Double taxation relief; Retrospective amendment; Permanent establishment; Bad and doubtful debts
• Section: 244A; 90; 154

Judgement Text

1 ABU DHABI COMMERCIAL BANK L TD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO.3462/M/2010 (AY: 1995-1996) I.T.A. NO.3857/M/2010 (AY: 1996-1997) I.T.A. NO.4022/M/2010 (AY: 1997-1998) I.T.A. NO.1996/M/2004 (AY: 1998-1999) I.T.A. NO.2851/M/2004 (AY: 1999-2000) I.T.A. NO.4304/M/2004 (AY: 2000-2001) ABU DHABI COMMERCIAL BANK LTD., 75B REHMAT MAZIL, VEER NARIMAN RD, MUMBAI-4010 020. PAN NO.AAACA4216B VS. ADIT (IT)-1(1), MUMBAI 400 038. (APPELLANT) (RESPONDENT) I.T.A. NO.2205/M/2004 (AY: 1998-1999) I.T.A. NO.3925/M/2004 (AY: 1999-2000) I.T.A. NO.5017/M/2004 (AY: 2000-2001) ADIT (IT)-1(1), MUMBAI 400 038. VS. ABU DHABI COMMERCIAL BANK LTD., 75B REHMAT MAZIL, VEER NARIMAN RD, MUMBAI- 4010 020. PAN NO.AAACA4216B (APPELLANT) (RESPONDENT) C.O. NO.115/M/2004 (AY:1998-1999) (ARISING OUT OF IT A NO.2205/M/2004) C.O. NO.414/M/2004 (AY:1999-2000) (ARISING OUT OF IT A NO.3925/M/2004) C.O. NO.48/M/2005 (AY:2000-2001) (ARISING O UT OF ITA NO.5017/M/2004) ABU DHABI COMMERCIAL BANK LTD., 75B REHMAT MAZIL, VEER NARIMAN RD, MUMBAI-4010 020. PAN NO.AAACA4216B VS. ADIT (IT)-1(1), MUMBAI 400 038. (CROSS OBJECTOR)(ASSESSEE) (REVENUE) ASSESSEE BY : MR. ARAVIND SONDE REVENUE BY : MR. MAHESH KUMAR DATE OF HEARING: 16.05.2012 DATE OF ORDER:20.07.2 012 O R D E R PER BENCH: THESE ARE BUNCH OF CROSS APPEALS AND CROSS OBJECTI ONS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 1995-1996 TO 2000 -2001. SINCE THE 2 ABU DHABI COMMERCIAL BANK L TD. ISSUES IN ALL THE APPEALS ARE COMMON, THEREFORE, FO R THE SAKE OF CONVENIENCE, ALL THESE APPEALS ARE BEING DISPOSED OF BY THIS CON SOLIDATED ORDER. ITA NO.3462/M/2010 (AY: 1995-1996) (BY ASSESSEE) :- 2. IN THIS APPEAL THE ASSESSEE IS AGGRIEVED BY THE ORDER DATED 8-2-2010, PASSED BY THE CIT(A)-10, MUMBAI ON THE FOLLOWING GR OUNDS :- 1. THE COMMISSIONER OF INCOME-TAX(APPEALS)-10, MUMB AI [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN CO NFIRMING THE ACTION OF ASSESSING OFFICER (AO) OF RESTRICTING THE DEDUCTION FOR HEAD OFFICE EXPENSES BY APPLYING THE PROVISIONS OF SECTION 44C OF THE ACT, AS AGAINST THE APPELLANTS CLAIM THAT THE ENTIRE AMOUNT OF RS. 40,04,788 ALLOCATED TO THE INDIAN BRANCHES SHOULD BE ALLOWED AS A DEDUCTIO N AS PER THE PROVISION OF ARTICLE 7(3) OF THE CONVENTION BETWEEN THE GOVT OF UAE AND THE GOVERNMENT OF INDIA (HEREINAFTER REFERRED TO AS THE TAX TREATY). THE APPELLANTS SUBMIT THAT IN COMPUTING THE TAXABLE BUSINESS INCOME IN INDIA, THE TREATY ALLOWS A DEDUCTION FOR ALL EXPENSES WHEREVER INCURRED AND REASONABLY ALLOCABLE TO THE PERMANENT ESTABLISHMENT, INCLUDING ITS SHARE OF EXECUTIVE AND GENERAL ADMINI STRATIVE EXPENSES. AS THE TREATY OVERRIDES THE DOMESTIC LAW, THE AMOUNT A LLOCATED BY THE HEAD OFFICE SHOULD BE ALLOWED AS A DEDUCTION IN FULL. 3 . BRIEFLY STATED THE RELEVANT FACTS OF THE CASE FOR ADJUDICATION OF THE SOLITARY ISSUE INVOLVED IS THAT THE ASSESSEE IS A B ANKING COMPANY INCORPORATED IN UAE AND IS HAVING TWO BRANCHES IN I NDIA I.E. IN MUMBAI AND BANGALORE. THE INCOME FROM BANKING OPERATIONS IN IN DIA IS OFFERED FOR TAX IN INDIA. THE GOVERNMENT OF UAE AND GOVERNMENT OF INDI A HAVE ENTERED INTO DTAA, WHICH IS APPLICABLE FROM THIS YEAR I.E., FROM ASSESSMENT YEAR 1995- 1996. THE BUSINESS PROFIT OF THE BANK RELATED TO IT S INDIAN OPERATIONS REQUIRED 3 ABU DHABI COMMERCIAL BANK L TD. TO BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 7 OF THE CONVENTION. IN COMPUTING THE TOTAL INCOME, THE ASSE SSEE AFTER TAKING INTO CONSIDERATION THE PROVISIONS OF ARTICLE 7(3), HAD T AKEN A STAND IN THE RETURN OF INCOME THAT THE VARIOUS PROVISIONS OF INCOME TAX RE LATING TO COMPUTATION OF BUSINESS INCOME WHICH RESTRICTS THE ALLOWANCE OF EX PENSES, WILL NOT BE APPLICABLE. IN SHORT THE ASSESSEES CONTENTION IS T HAT THE PROVISION OF SECTION 44C WILL NOT BE APPLICABLE. THE ASSESSEE HAD CLAIME D HEAD OFFICE EXPENSES OF ` 40,04,788, WHICH WERE INCURRED AND WERE ATTRIBUTAB LE TO INDIAN OPERATION. THE ADMINISTRATIVE COST INCURRED BY THE HEAD OFFICE WAS THUS, ALLOCATED TO ITS BRANCHES. THE ASSESSING OFFICER VIDE ORDER DATED 20 -2-1998, ASSESSED THE HEAD OFFICE EXPENSES BY APPLYING THE PROVISIONS OF SECTION 44C OF THE INCOME TAX ACT. HOWEVER, THE LEARNED CIT(A), VIDE ORDER DA TED 12TH JUNE, 2000, ALLOWED THE ENTIRE EXPENDITURE OF RS .40,04,788/-, AFTER FOLLOWING THE JURISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF CIT VS. DEUTSCHE BANK A.G., REPORTED 284 ITR 463 AND ALSO VARIOUS TRIBUNALS ORDERS RENDERED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1984-1 985 TO 1992-1993. AGAINST THE SAID ORDER, THE REVENUE CAME IN APPEAL BEFORE THE ITAT. THE TRIBUNAL VIDE ORDER DATED 14-2-2007, RESTORED THE M ATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION ON THE GRO UND THAT THE AMENDMENT IN SECTION 44C HAS COME IN THE STATUTE W.E.F 1-4-1993 AND ALL THE JUDGMENTS RENDERED WERE PRIOR TO THE ASSESSMENT YEARS IN QUES TION AND, THEREFORE, WILL NOT BE APPLICABLE. THUS, THE MATTER WAS RESTORED BA CK TO DECIDE THIS ISSUE AFRESH AS PER THE AMENDED PROVISIONS OF SECTION 44C AND IN ACCORDANCE WITH THE PROVISIONS OF LAW. 4 ABU DHABI COMMERCIAL BANK L TD. 4. BEFORE THE ASSESSING OFFICER IN THE SET ASIDE PROC EEDINGS, THE ASSESSEE CLAIMED THAT THE DEDUCTION FOR HEAD OFFICE EXPENSES, WHICH WAS ATTRIBUTABLE TO INDIAN BRANCHES SHOULD BE ALLOWED I N FULL, IN VIEW OF THE ARTICLE 7(3) OF THE TREATY BETWEEN INDIA AND UAE. THE ASSES SING OFFICER OBSERVED THAT THERE IS NO DISPUTE THAT THIS DEDUCTION FOR HE AD OFFICE EXPENSES SHOULD BE ALLOWED TO THE PERMANENT ESTABLISHMENT, ALBEIT WITH IN THE LIMITS SPECIFIED UNDER THE INCOME TAX ACT I.E. UNDER SECTION 44C. TH E ASSESSING OFFICER WHILE ARRIVING TO THIS CONCLUSION, REFERRED TO COMMENTARI ES OF UN MODEL CONVENTION AND OECD CONVENTION THAT THE INTENTION OF THE ARTIC LE 7 IS TO ENSURE THE CORRECT PROFIT IS BROUGHT TO TAX. HE ALSO REFERRED TO CBDT CIRCULAR NO.202, WHICH WAS RENDERED AT THE TIME OF INTRODUCTION OF S ECTION 44C BY THE FINANCE ACT, 1976. LASTLY, HE EXTENSIVELY REFERRED AND RELI ED UPON THE DECISION OF CIT(A) RENDERED IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1997- 1998 VIDE ORDER DATED 18-1-2001. FOLLOWING THE SAI D DECISION, HE HELD THAT HEAD OFFICE EXPENSES WILL BE ALLOWED ONLY AS PER THE LIMIT PRESCRIBED UNDER SECTION 44C. 5 . BEFORE THE CIT(A), THE ASSESSEE MADE ELABORATE SU BMISSIONS, CONTENDING, INTER ALIA, THAT THE TOTAL INCOME OF TH E PE SHOULD BE COMPUTED AS PER THE PROVISIONS OF ARTICLE 7(3), WHERE THERE IS NO RESTRICTION CLAUSE FOR APPLYING THE TAX LAWS OF THE CONTRACTING STATE. IT WAS FURTHER SUBMITTED THAT SUCH A RESTRICTION IN ARTICLE 7(3) HAS COME BY WAY OF THE AMENDMENT BROUGHT THROUGH PROTOCOL DATED 3-10-2007 WITH EFFECT FROM 1 ST APRIL, 2008. THUS, PRIOR TO THE AMENDMENT SUCH A RESTRICTION CLAUSE CANNOT B E READ INTO. THE ASSESSEE ALSO RELIED UPON THE DECISION OF ITAT MUMB AI BENCH IN THE CASE OF BANK INTERNATIONAL INDONESIA, MUMBAI ITA NO.303/M/2 001 (VIDE ORDER 5 ABU DHABI COMMERCIAL BANK L TD. DATED 14.1.2004) AND METCHEM CANADA INC. 100 ITD 25 1 (MUM.) , WHEREIN THE TRIBUNAL CAME TO A VIEW IN THE LIGHT OF NON-DIS CRIMINATION CLAUSE IN DTAA, THAT THE ENTIRE HEAD OFFICE EXPENSES ARE PERMISSI BLE AS DEDUCTION. THE CBDT CIRCULAR NO.202 AS HAVE BEEN RELIED UPON BY THE ASS ESSING OFFICER WOULD BE APPLICABLE WHERE THE CLAIM HAS BEEN MADE UNDER THE IT ACT AND NOT IN THOSE CASES, WHERE THE PROVISIONS OF DTAA ARE APPLICABLE, WHICH OVERRIDES THE PROVISIONS OF INCOME TAX ACT. 6. THE LD. CIT(A) AFTER CONSIDERING THE FINDING OF T HE ASSESSING OFFICER AND THE SUBMISSION OF THE ASSESSEE, HELD THAT EVEN THOUGH ARTICLE 7(3) OF INDO-UAE TREATY, DOES NOT CONTAIN ANY EXPRESS PROVI SION FOR APPLYING INDIAN TAXATION LAW FOR COMPUTING OF PROFITS OF PE, HOWEV ER, THE PROVISIONS OF ARTICLE 25(1) OF THE TREATY RELATING TO ELIMINATION OF DOUBLE TAXATION WOULD PREVAIL AND, THEREFORE, IN VIEW OF SUCH ARTICLE, LA WS IN FORCE IN INDIA SHOULD CONTINUE TO GOVERN THE TAXATION OF INCOME OF PE SIT UATED IN INDIA. FURTHER HE HELD THAT THE AMENDMENT BROUGHT BY PROTOCOL DATED 3 -10-2007 W.E.F. 1-4- 2008, STRENGTHENS THE DEPARTMENTS CASE, AS IT HAS CLARIFIED THE MATTER THAT EXPENSES PERTAINING TO EXECUTIVE AND ADMINISTRATIVE ARE TO BE ALLOWED IN ACCORDANCE WITH THE PROVISIONS OF DOMESTIC LAW ONLY . THUS, THE PROVISION CONTAINED IN ARTICLE 25(1) HAS BEEN RATIFIED BY THI S AMENDMENT. FOLLOWING THE CIT (A)S ORDER FOR THE ASSESSMENT YEARS 1998-1999 TO 2003-2004, HE THUS, UPHELD THE FINDING OF THE ASSESSING OFFICER AND DIS MISSED THE ASSESSEES GROUND ON THIS SCORE. 7 . LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED BEFORE US THAT IN ABSENCE OF LIMITATION C LAUSE IN ARTICLE 7(3), THE 6 ABU DHABI COMMERCIAL BANK L TD. PROVISION OF SECTION 44C CANNOT BE APPLIED IN THE A SSESSEES CASE. THE AMENDMENT BROUGHT BY WAY OF PROTOCOL IN THE INDO-UA E TREATY W.E.F. 1-4- 2008 ONLY STRENGTHENS THE ASSESSEES CASE THAT EARL IER SUCH A LIMITATION CLAUSE CANNOT BE READ INTO IN ARTICLE 7(3). ON THE ISSUE THAT THE LIMITATION CLAUSE CAN BE SAID TO BE IMPORTED BY VIRTUE OF ARTI CLE 25(1), HE SUBMITTED THAT IT IS A GENERAL ARTICLE DEALING WITH ELIMINATION OF DOUBLE TAXATION AND CREDIT OF TAXES AND DOES NOT PROVIDE ANY RESTRICTION TO ARTIC LE 7(3). HE REFERRED TO SIMILAR PROVISIONS IN VARIOUS TREATIES AND THEIR INTERPRETA TION AS PER OECD CONVENTION, UN MODEL ETC. HE SUBMITTED THAT WHEREVER THERE IS A LIMITATION CLAUSE, THIS HAS BEEN EXPRESSLY PROVIDED IN THE ARTICLE 7 AND AR TICLES SIMILAR TO ARTICLE 25 THAT HAS ALSO BEEN DEFINED WITH REGARD TO MODE OF G IVING CREDIT OF TAXES IN VARIOUS TREATIES. HE CITED EXAMPLE OF INDO-GERMAN D TAA AND INDO-JAPAN DTAA, WHEREIN ARTICLE 23(3) AND 23(1), WHICH IS SIM ILAR TO ARTICLE 25(3) OF INDO- UAE TREATY HAVE BEEN INTERPRETED TO BE NOT PROVIDIN G ANY CLAUSE OF LIMITATION IN ARTICLE 7(3). IN SUPPORT OF HIS CONTENTION THAT VIEW TAKEN BY ITAT IN MITSUI BANK PSC (SUPRA) HAS BEEN IMPLIEDLY OBSERVED BY REC ENT DECISION OF ITAT MUMBAI SPECIAL BENCH IN THE CASE OF M/S SUMITOMO MITSUI BANKING CORPORATION VS. DDIT (IT), PASSED IN ITA NO.5402/M/ 2006, VIDE ORDER DATED 30-3-2012 AND DREW OUR ATTENTION, SPECIFICALLY TO PARAS 60 T O 63. LASTLY, HE SUBMITTED THAT IN A LATEST DECISION BY THE ITAT AHMEDABAD BENCH IN THE CASE OF ADIT(IT) VS. M/S DALMA ENERGY LLC, PASSED IN ITA NO.1664/AHD/2008, VIDE ORDER DATED 23-4-2012 , HAVE DISCUSSED THIS ISSUE OF ARTICLE 7(3), 25(1) OF INDO-UAE TREATY WITH SPEC IFIC REFERENCE TO AMENDMENT BROUGHT BY WAY OF PROTOCOL W.E.F. 1-4-2008 AND SUBM ITTED THAT IN THIS CASE IT 7 ABU DHABI COMMERCIAL BANK L TD. HAS BEEN HELD THAT THE AMENDMENT WOULD BE APPLICABL E PROSPECTIVELY AND NOT RETROSPECTIVELY. 8. PER CONTRA, LEARNED CIT DR SUBMITTED THAT THIS ISSU E IS SQUARELY COVERED BY THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF MASHREQBANK PSC. VS. DDIT(IT), PASSED IN 2153/MUM/01, VIDE ORDE R DATED 13-4-2007 . HE SUBMITTED THAT IN THIS CASE, THE TRIBUNAL HAS CA TEGORICALLY HELD THAT IN VIEW OF THE PROVISION OF ARTICLE 25(1) OF INDO-UAE TREAT Y, LIMITATION CLAUSE GETS APPLICABLE IN ARTICLE 7(3). THE TRIBUNAL HAS ANALYS ED THE PROVISIONS GIVEN IN ARTICLES 7(3) AND 25(1) IN A GREAT DETAIL, AFTER RE FERRING TO VARIOUS COMMENTARIES. HE FURTHER SUBMITTED THAT THE DECISIO N OF SPECIAL BENCH IN THE CASE OF M/S SUMITOMO MITSUI BANKING CORPORATION (SUPRA) , IS ENTIRELY DISTINGUISHABLE ON FACTS AND WAS RENDERED IN ALTOGE THER ON A DIFFERENT ISSUE AND THE DECISION OF THE SPECIAL BENCH DOES NOT OVER RULE THE DECISION OF CASE OF MASHREQBANK PSC.(SUPRA) . HE ALSO BROUGHT TO OUR NOTICE THAT THE ASSESSEE HAD EARLIER FILED A MISCELLANEOUS APPLICAT ION AGAINST THE ORDER OF THE ITAT DATED 14-2-2007, WHEREIN THE MATTER WAS REMAND ED BACK TO THE ASSESSING OFFICER, THE TRIBUNAL, IN ITS ORDER PASSE D IN M.A., HAS DISCUSSED THIS ISSUE AND THE MATTER WAS DECIDED AGAINST THE A SSESSEE. HE ALSO TRIED TO DISTINGUISH THE DECISION OF THE ITAT AHMEDABAD BENC H IN THE CASE OF M/S DALMA ENERGY LLC (SUPRA) , ON THE GROUND THAT IMPACT OF ARTICLE 25(1) HAS NOT BEEN CONSIDERED AT ALL. ON THE ISSUE THAT AMEND MENT WAS ONLY CLARIFICATORY, HE RELIED UPON THE DECISION OF ITAT WHICH HAS BEEN REPORTED IN 13 SOT 95 , WHEREIN IT WAS HELD THAT AMENDMENT IN ARTICLE 4, WAS CLARIFICATORY, AND THEREFORE, THE SAME LOGIC SHOULD BE IMPORTED TO ARTICLE 7(3) VIS--VIS PROTOCOL BROUGHT WITH EFFECT FROM 1 ST OF APRIL, 2008. LASTLY, HE EXTENSIVELY 8 ABU DHABI COMMERCIAL BANK L TD. REFERRED TO FINDINGS AND THE REASONING GIVEN BY THE CIT(A) AND THE ASSESSING OFFICER. 9 . IN REJOINDER, LEARNED SENIOR COUNSEL SUBMITTED TH AT PURPOSE OF ARTICLE 25(1) OF INDO-UAE TREATY, WHICH IS SIMILAR TO ARTIC LE 23(3) OF INDO-JAPAN TREATY HAS BEEN SPECIFICALLY INTERPRETED BY THE SPE CIAL BENCH IN THE CASE OF M/S SUMITOMO MITSUI BANKING CORPORATION (SUPRA) . HE REFERRED TO VARIOUS PARAGRAPHS IN THE SAID JUDGMENT WHEREIN THIS ISSUE HAS BEEN CLARIFIED. REGARDING THE CASE OF MASHREQBANK PSC.(SUPRA) AS RELIED UPON BY THE LEARNED CIT DR HE SUBMITTED THAT IN VIEW OF THE SPE CIAL BENCH DECISION, MASHREQBANK PSC.(SUPRA) CANNOT BE HELD TO BE GOOD LAW AS ON DATE. HE FURTHER SUBMITTED THAT THIS DECISION WAS RENDERED P RIOR TO THE AMENDMENT BROUGHT BY WAY OF PROTOCOL W.E.F. 1-4-2008. ONCE TH E PROTOCOL HAS BEEN BROUGHT FROM A SPECIFIC PERIOD, NO HIDDEN MEANING C AN BE ASSIGNED IN THE ARTICLE 7(3) AND IT CAN NEVER BE HELD THAT IT HAS A RETROSPECTIVE EFFECT. HE CITED EXAMPLES OF VARIOUS PROTOCOL WHEREIN CHARGEABILITY OF A TAX FROM A PARTICULAR DATE, CANNOT BE SAID TO BE RETROSPECTIVE. REGARDING ORDER OF THE TRIBUNAL IN MISCELLANEOUS APPLICATION, HE SUBMITTED THAT WHEN T HE MISCELLANEOUS APPLICATION HAS BEEN DISMISSED, IT IS DISMISSED IN TOTO, WHICH INTER ALIA, MEANS ORIGINAL ORDER STANDS AS IT IS AND IT DOES NOT AMEN D THE ORIGINAL ORDER. LASTLY, HE SUBMITTED THAT THE CASE OF M/S DALMA ENERGY LLC (SUPRA) , WHICH HAS CONSIDERED THAT THE PROTOCOL SHOULD BE APPLIED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. HERE IN THIS CASE, THE ENTIRE CONTROVERS Y IS WHETHER IN DETERMINING THE PROFITS OF PE IN INDIA, THE EXPENSES INCURRED F OR THE PURPOSE OF PE IS TO BE 9 ABU DHABI COMMERCIAL BANK L TD. COMPUTED BY APPLYING THE PROVISIONS OF SECTION 44C OF THE ACT (I.E., UNDER THE DOMESTIC LAW IN WHICH PE IS SITUATED) ON AN INTERPR ETATION OF ARTICLE 7(3) R/W ARTICLE 25(1) OF THE INDIA-UAE DTAA AS WAS PREVALEN T IN THE RELEVANT ASSESSMENT YEAR. THE OTHER COROLLARY TO THIS ISSUE ARE:- I) WHETHER ON A TRUE AND CORRECT INTERPRETATION OF ARTICLE 7(3), (AT THE RELEVANT TIME), THE LIMITATION CLAUSE OF APPLICABIL ITY OF DOMESTIC LAWS OF THE STATE IN WHICH PE SITUATED, (HEREIN IN THIS CASE, I NDIA), SHOULD BE CONSTRUED TO BE AVAILABLE FROM ARTICLE 25(1); (II) WHETHER THE LIMITATION CLAUSE INSERTED IN ARTI CLE 7(3), BY WAY OF AMENDMENT BROUGHT BY PROTOCOL VIDE NOTIFICATION NO. 282/2007 , DATED 28-11- 2007, W.E.F. 1.04.2008, REGARDING APPLICABILITY OF DOMESTIC LAW, CAN BE SAID TO HAVE COME INTO FORCE, W.E.F. 1 ST DAY OF APRIL, 2008 OR CAN BE HELD TO BE CLARIFICATORY IN THE NATURE, HENCE, TO HAVE RETROSP ECTIVE EFFECT. 10.1. THE DEPARTMENTS CASE HAS BEEN, WHEREVER, THE RE HAS BEEN NO SPECIFIC PROVISION IN ARTICLE 7(3) FOR COMPUTING THE PROFIT OF PE AS PER DOMESTIC LAWS, THE SAME SHOULD BE INTERPRETED IN VIEW OF THE PROVI SIONS OF ARTICLE 25(1) OF THE DTAA WHICH PROVIDES THAT THE LAWS IN FORCE IN EITHE R OF THE CONTRACTING STATES SHALL CONTINUE TO GOVERN THE TAXATION OF INCOME IN THE RESPECTIVE CONTRACTING STATE EXCEPT FOR EXPRESSLY PROVIDED IN THE AGREEMEN T. THE LD. CIT(A) HAS OBSERVED THAT MOST OF THE TREATIES ENTERED INTO BY INDIA WITH VARIOUS COUNTRIES, IT HAS BEEN SPECIFICALLY PROVIDED THAT C OMPUTATION OF PROFIT OF PE IN ARTICLE 7(3) WOULD BE AS PER DOMESTIC LAWS OF THAT STATE IN WHICH PE IS SITUATED AND WHEREVER THERE IS NO SUCH SPECIFIC PRO VISION, ARTICLE 25(1) ENABLES THE APPLICABILITY OF THE DOMESTIC LAW. HE H AS REFERRED TO COMMENTARY BY KLAUS VOGEL, WHEREIN HE MENTIONS THAT WHILE E XPLAINING THE PROVISION OF ARTICLE 7(1) OF THE OECD/UN MODEL CONVENTION THAT T HE MEANING OF TERM PROFIT OF A PERMANENT ESTABLISHMENT AND HOW THE PROFITS AR E DETERMINED IS ALWAYS GOVERNED BY THE DOMESTIC LAWS OF THE CONTRACTING ST ATE CONCERNED, THOUGH IT 10 ABU DHABI COMMERCIAL BANK L TD. MAY HAPPEN SOMETIMES THAT CERTAIN PROVISIONS OF DOM ESTIC LAW DO NOT APPLY TO THE FOREIGN PERMANENT ESTABLISHMENT. HE ALSO RE LIED UPON THE CBDT CIRCULAR NO.202, WHICH LAYS DOWN INTENTION BEHIND I NTERPRETATION OF SECTION 44C. THE PROTOCOL DATED 3-10-2007, WHICH HAS AMENDE D THE ARTICLE 7(3) W.E.F. 1-4-2008 ONLY CLARIFIES THE DEPARTMENTS STAND THAT THE EXPENSES PERTAINING TO EXECUTIVE AND ADMINISTRATIVE NATURE ARE TO BE ALLOW ED IN ACCORDANCE WITH THE PROVISIONS OF DOMESTIC LAW I.E. 44C AND THIS AMENDM ENT IS ONLY CLARIFICATORY IN NATURE. THE ASSESSEES STAND ON THE OTHER HAND, HAS BEEN THAT IN THE RELEVANT ASSESSMENT YEAR, THE ARTICLE 7(3) AS IT STOOD, CANN OT BE INTERPRETED IN SUCH A MANNER THAT THE LIMITATION CLAUSE OF APPLICABILITY OF DOMESTIC LAW SHOULD BE READ INTO. THE PROTOCOL AMENDING ARTICLE 7(3) HAS B EEN BROUGHT W.E.F. 1-4- 2008 WHICH CANNOT HAVE A RETROSPECTIVE EFFECT. BEFO RE US, BOTH THE PARTIES HAVE GIVEN DECISION OF ITAT IN THEIR FAVOUR ON THIS POINT. THE DEPARTMENT HAS HEAVILY RELIED UPON THE JUDGMENT OF MASHREQBANK PSC(SUPRA) , AND THE ASSESSEE HAS RELIED UPON THE CASE OF M/S DALMA ENERGY LTD. (SUPRA) . 11. THE RELEVANT PROVISIONS CONTAINED IN ARTICLE 7(3) OF INDO-UAE DTAA PRIOR TO 1-4-2008 WHICH WAS BASED ON OECD MODEL, RE ADS AS UNDER :- 3. IN DETERMINING THE PROFITS OF A PERMANENT ESTAB LISHMENT, THERE SHALL BE ALLOWED AS DEDUCTIONS EXPENSES WHICH ARE INCURRE D FOR THE PURPOSES OF THE BUSINESS OF THE PERMANENT ESTABLISHMENT, INC LUDING EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES SO INCURRED, WH ETHER IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT IS SITUATED OR ELSEWHERE. FROM THE ABOVE, IT IS APPARENT THAT IN DETERMINING THE PROFITS OF PE, 11 ABU DHABI COMMERCIAL BANK L TD. I) ALL EXPENSES INCURRED FOR THE PURPOSES OF THE B USINESS OF THE PE SHALL BE ALLOWED AS A DEDUCTION IN DETERMINING PROFITS OF PE ; II) SUCH EXPENSES INCLUDE EXECUTIVE AND GENERAL ADM INISTRATIVE EXPENSES; AND III) SUCH EXPENSES COULD BE INCURRED WITHIN OR OUT SIDE THE STATE IN WHICH THE PE IS SITUATED. THUS, THERE IS NO RESTRICTION ON ALLOWING OF HEAD OFFICE EXPENSES AND OTHER EXPENSES ATTRIBUTABLE TO PE. THE SAID ARTICLE HAS NOW BEEN AMENDED BY THE PROTOCOL ENTERED INTO BY THE INDIA-UAE ON 3-10- 2007 WHICH HAS BEEN NOTIFIED ON 28-11-2007, EFFECTIVE FROM 1 ST APRIL, 2008. THE ARTICLE 2 OF THE PROTOCOL, HAS AMENDED THE ARTICLE 7(3),WHICH READS AS UNDER : 3. IN DETERMINING THE PROFITS OF A PERMANENT ESTA BLISHMENT, THERE SHALL BE ALLOWED AS DEDUCTIONS EXPENSES WHICH ARE I NCURRED FOR THE PURPOSES OF THE BUSINESS OF THE PERMANENT ESTABLISH MENT, INCLUDING EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES SO IN CURRED, WHETHER IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT IS S ITUATED OR ELSEWHERE, IN ACCORDANCE WITH THE PROVISIONS OF AND SUBJECT TO THE LIMITATIONS OF THE TAX LAWS OF THAT STATE . 11.1. NOW, WITH THE INSERTION OF PHRASE, IN ACCORDANCE WITH THE PROVISIONS OF AND SUBJECT TO THE LIMITATIONS OF THE TAX LAWS O F THAT STATE , THE MANDATE OF APPLICABILITY OF THE DOMESTIC LAW HAS BE EN PROVIDED, IN ALLOWING THE DEDUCTION OF EXPENSES OF THE PE AND DETERMINATI ON OF PROFIT UNDER THE INCOME TAX ACT. CONSEQUENTLY SECTION 44C BECOMES AP PLICABLE. THE ISSUE BEFORE US IS, WHETHER SUCH A LIMITATION CLAUSE CAN BE SAID TO HAVE RETROSPECTIVE EFFECT. IT IS A CARDINAL PRINCIPLE, W HEN TWO SOVEREIGN NATIONS 12 ABU DHABI COMMERCIAL BANK L TD. ENTER INTO AN AGREEMENT AND HAVE COME TO AN UNDERST ANDING REGARDING THE TERMS, VIEWS EXPRESSED IN THE AGREEMENT, SUCH TERMS CANNOT BE UNILATERALLY CHANGED. ONCE THE GOVERNMENT OF INDIA AND GOVERNMEN T OF UAE HAD NOT USED THE LIMITATION CLAUSE OF APPLICABILITY OF DOME STIC LAW IN DETERMINING THE PROFITS AND DEDUCTION OF EXPENSES OF PE UNDER ARTIC LE 7(3), THE SAME CANNOT BE READ INTO EVEN IMPLIEDLY, THAT SUCH A PROVISION EXISTED. ONE HAS TO SEE THE MERITS OF THE WORD AND ITS MEANING UNDERSTOOD WHEN THE TWO HIGH CONTRACTING PARTIES, HEREIN IN THIS CASE, TWO SOVEREIGN NATIONS ENTERED INTO AN AGREEMENT. WHEN A PARTICULAR PROVISIONS IN THE AGREEMENT HAS B EEN BROUGHT FROM A PARTICULAR DATE, IT HAS TO BE, PRIMA FACIE, TAKEN TO BE PROSPECTIVE IN OPERATION, UNLESS IT IS EXPRESSLY OR BY NECESSARY IMPLICATION PROVIDED OR MADE TO HAVE RETROSPECTIVE OPERATION, BECAUSE THE PARTIES INTERP RETING SUCH AGREEMENT GETS VESTED RIGHT UNDER SUCH EXISTING AGREEMENT AND ANY SUCH INTERPRETATION GIVING RETROSPECTIVE EFFECT NOT ONLY IMPAIRS THE VE STED RIGHT BUT ATTRACTS THE NEW DISABILITY IN RESPECT OF TRANSACTIONS ALREADY E NTERED IN THE PAST. HERE IN THIS CASE, IF ANY SUCH INTERPRETATION IS GIVEN FOR RETROSPECTIVE OPERATION OF THIS ARTICLE, IT CREATES NEW OBLIGATION AND DISTURBS THE ASSESSABILITY OF THE PROFIT OF THE PE. THE RETROSPECTIVE OPERATION CANNOT BE TAKEN TO BE INTENDED UNLESS BY NECESSARY IMPLICATION IT HAS BEEN MADE TO HAVE THE RETROSPECTIVE EFFECT. THUS, THE AMENDMENT BROUGHT IN ARTICLE 7(3) W.E.F. 1-4-20 08, WILL NOT APPLY RETROSPECTIVELY, PRIOR TO SUCH DATE AS IT WOULD IMP OSE A NEW OBLIGATION OR A LIABILITY TO TAX WHICH WAS NOT MADE BY THE TWO CONT RACTING STATES. 12. A LOT OF STRESS HAS BEEN GIVEN BY THE DEPARTMENT AN D THE LEARNED DR THAT SUCH AN EXCEPTION ALREADY EXISTED BY VIRTUE OF ARTICLE 25(1) WHICH PROVIDES THAT, 13 ABU DHABI COMMERCIAL BANK L TD. THE LAWS IN FORCE IN EITHER OF THE CONTRACTING ST ATES SHALL CONTINUE TO GOVERN THE TAXATION OF INCOME AND CAPITAL IN THE RE SPECTIVE CONTRACTING STATES EXCEPT WHERE EXPRESS PROVISIONS TO THE CONTR ARY ARE MADE IN THIS AGREEMENT. ARTICLE 25 WHICH IS SIMILAR TO ARTICLE 23 OF OTHER TREATIES, DEALS WITH THE ELIMINATION OF DOUBLE TAXATION AND IT IS FOR THIS P URPOSE, IT HAS BEEN PROVIDED THAT THE LAWS IN FORCE IN EITHER OF THE CONTRACTI NG STATES SHALL CONTINUE TO GOVERN THE TAXATION OF THE INCOME UNLESS EXPRESS PR OVISION TO THE CONTRARY ARE MADE IN THIS AGREEMENT. FURTHER PARAGRAPHS OF ARTIC LE 25 PROVIDE FOR DEDUCTIONS OR CREDIT OF THE TAXES PAID IN EITHER OF THE STATES. VARIOUS COUNTRIES IN THEIR AGREEMENTS BASED ON DIFFERENT MODELS HAVE ADOPTED DIFFERENT METHOD OF CREDIT OF TAXES OR DEDUCTIONS OR EXEMPTIONS TO E LIMINATE THE INCIDENTS OF DOUBLE TAXATION IN THEIR DOMESTIC LAWS. ARTICLE 25 PER SE DOES NOT PROVIDE ANY RULES ON THE MECHANISM FOR COMPUTING RELIEF. HENCE FOR THIS PURPOSE, THE DOMESTIC LAWS MAY HAVE TO BE REFERRED. INTERPRETATI ON OF ARTICLE 25 THAT IT EXTENDS TO ARTICLE 7 FOR APPLICABILITY OF DOMESTIC LAW WILL NOT BE CORRECT. IF A COMPUTATION OF PROFIT HAS BEEN PROVIDED IN A CERTA IN MANNER IN ARTICLE7, RESTRICTIONS CANNOT IMPORTED THEREIN BY VIRTUE OF A RTICLE25. 13. THE CASE OF MASHREQBANK PSC(SUPRA) , WHICH HAS BEEN RELIED UPON HEAVILY BY THE DEPARTMENT, FIRST OF ALL, WAS RENDER ED PRIOR TO THE AMENDMENT BROUGHT BY THE PROTOCOL. HOWEVER IN THIS CASE IT HA S BEEN INTERPRETED THAT ARTICLE 25(1) OF INDO-UAE TREATY SHOULD BE READ IN ARTICLE 7(3) FOR APPLICABILITY OF DOMESTIC LAW. AFTER DETAIL ANALYSIS AND DISCUSSI ON, THE RELEVANT OBSERVATIONS GIVEN IN THE SAID DECISION ARE AS UNDE R :- 14 ABU DHABI COMMERCIAL BANK L TD. 21. IN VIEW OF THE ABOVE DISCUSSIONS, AND PARTICUL ARLY BEARING IN MIND THE PROVISIONS OF ARTICLE 25(1) OF THE INDIA U AE TAX TREATY, WE ARE OF THE CONSIDERED VIEW THAT THE LIMITATIONS UNDER T HE DOMESTIC TAX LAWS ARE TO BE TAKEN INTO ACCOUNT FOR THE PURPOSES OF CO MPUTING PROFITS OF A PE UNDER ARTICLE 7(3) OF THE INDIA UAE TAX TREATY. THE PLEA OF THE ASSESSEE IS INCOMPATIBLE WITH OVERALL SCHEME OF THE TAX TREATIES, PARTICULARLY INDIA UAE TAX TREATY. ACCORDINGLY, THE CONCLUSION ARRIVED AT BY THE CIT(A) MEETS OUR APPROVAL. WE CONFIRM THE SA ME AND DECLINE TO INTERFERE IN THE MATTER. THIS VIEW OF MASHREQBANK PSC(SUPRA) , STANDS IMPLIEDLY OVERRULED BY THE LATEST DECISION OF ITAT SPECIAL BENCH IN THE CASE O F M/S SUMITOMO MITSUI BANKING CORP.(SUPRA) , WHEREIN WHILE INTERPRETING A SIMILAR PROVISION OF ARTICLE 23(1) OF INDO-JAPAN DTAA, WHICH IS MATERIA TO ARTIC LE 25(1) OF INDO-UAE TREATY, HAS OBSERVED AND HELD AS UNDER :- 60. FIRST WE SHALL DEAL WITH THE ARGUMENTS OF SHRI GIRISH DAVE BASED ON THE RELEVANT PROVISIONS OF THE INDO-JAPANESE TREATY . HE HAS, INTER ALIA, RELIED ON ARTICLE 23 OF INDO-JAPANESE TREATY WHICH PROVIDES THAT THE LAWS IN FORCE IN EITHER OF THE CONTRACTING STATE SH ALL CONTINUE TO GOVERN THE TAXATION OF INCOME IN RESPECTIVE CONTRACTING ST ATE EXCEPT WHERE EXPRESS PROVISIONS TO THE CONTRARY ARE MADE IN THE CONVENTION. ACCORDING TO HIM, ARTICLE 11 READ WITH ARTICLE 7 OF THE TREATY CONTAINS SUCH EXPRESS PROVISION AND MAKE THE INTEREST PAYABL E BY THE PE IN INDIA TO THE GE ABROAD THE INCOME OF THE GE CHARGEABLE TO TAX IN INDIA. BEFORE WE CONSIDER THIS ARGUMENT OF SHRI GIRISH DAV E IN THE LIGHT OF THE RELEVANT PROVISIONS OF THE ARTICLE 7 AND 11 OF THE INDO-JAPANESE TREATY, IT IS PERTINENT TO DISCUSS CERTAIN BASIC ASPECTS OF THE MATTER WHICH ARE RELEVANT IN THIS CONTEXT. 15 ABU DHABI COMMERCIAL BANK L TD. 61. SECTION 90(2) OF THE INCOME-TAX ACT, 1961 PROVI DES THAT WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO AN AGREEMENT WI TH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA OR SPECIFIC TERRITORY OUTSIDE INDIA, AS THE CASE MAY BE, SECTION (1) FOR GRANTING RELIEF OF TAX, OR AS THE CASE MAY BE, AVOIDANCE OF DOUBLE TAXATION, THEN , IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, THE PROVIS IONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSESSEE. THIS SPECIFIC PROVISION CONTAINED IN SECTION 90(2) MAKES IT ABUNDANTLY CLEAR THAT IN RELATION TO THE ASSESSEE LIKE THE ONE IN TH E PRESENT CASE TO WHOM THE DOUBLE TAX AVOIDANCE TREATY ENTERED INTO B Y THE INDIAN GOVERNMENT APPLIES, THE PROVISIONS OF INCOME-TAX AC T SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO HIM. IT, THEREFO RE, FOLLOWS THAT IF THE PROVISIONS OF THE DOMESTIC LAW ARE MORE BENEFICIAL TO THE ASSESSEE THAN THE PROVISIONS OF THE RELEVANT TAX TREATY, THE PROV ISIONS OF THE DOMESTIC LAW SHALL OVERRIDE AND PREVAIL OVER THE PROVISIONS OF THE TREATY. ARTICLE 23 OF THE INDO-JAPANESE TREATY THEREFORE CANNOT BE INTERPRETED IN A WAY AS SOUGHT BY SHRI GIRISH DAVE BECAUSE IF SUCH INTER PRETATION IS ASSIGNED TO ARTICLE 23 AND THE INTEREST INCOME WHICH IS OTHE RWISE NOT TAXABLE IN INDIA AS PER THE DOMESTIC LAW IS HELD TO BE TAXABLE RELYING ON THE PROVISIONS OF THE TREATY, THE SAME WILL RUN CONTRAR Y TO THE PROVISIONS OF SECTION 90(2). SUCH INTERPRETATION, THEREFORE, CANN OT BE ASSIGNED TO ARTICLE 23 AND THE ONLY INTERPRETATION WHICH, IN OU R OPINION, CAN BE ASSIGNED TO THE SAID ARTICLE SO AS TO MAKE THE PROV ISIONS THEREOF IN CONSONANCE WITH SECTION 90(2) OF THE DOMESTIC LAW I S THAT IF THERE IS AN EXPRESS PROVISION MADE IN THE CONVENTION GIVING BEN EFIT TO THE ASSESSEE WHICH IS CONTRARY TO THE DOMESTIC LAW, THEN THE PRO VISIONS OF TREATY CAN BE RELIED UPON WHICH SHALL OVERRIDE AND PREVAIL OVE R THE PROVISIONS OF THE DOMESTIC LAW TO GIVE ANY BENEFIT EXPRESSLY GIVE N TO THE ASSESSEE UNDER THE TREATY. THE DECISION OF HONBLE SUPREME C OURT IN THE CASE OF AZADI BACHAO ANDOLAN (SUPRA) FULLY SUPPORTS THIS VI EW. 13.1 THE VIEW TAKEN BY THE SPECIAL BENCH IN A WAY NEGAT ES THE VIEW OF MASHREQ BANKS CASE. IF SUCH AN INTERPRETATION OF AR TICLE 25(1) IS TO BE GIVEN IN 16 ABU DHABI COMMERCIAL BANK L TD. ARTICLE 7(3), THEN THERE WAS NO NEED OF BRINGING TH E AMENDMENT BY WAY OF PROTOCOL FROM A PARTICULAR DATE. THE AMENDMENT ITSE LF SHOWS THERE WAS NO SUCH INTENTION BY THE TWO CONTRACTING STATES AT THE TIME WHEN THEY ENTERED INTO THE AGREEMENT. THIS AMENDMENT BY WAY OF PROTOC OL AND ARTICLE 7(3) HAS BEEN DULY CONSIDERED BY THE ITAT AHMEDABAD BENCH IN THE CASE OF DALMA ENERGY LLC (SUPRA) , WHEREIN THE APPLICABILITY OF SECTION 44C IN ARTIC LE 7(3) FOR THE EARLIER ASSESSMENT YEARS HAS BEEN INTERPRET ED IN THE FOLLOWING MANNER :- 14. TO CONCLUDE THE LEGAL ASPECT OF THIS ISSUE, WE HAVE ALREADY REPRODUCED ARTICLE 7 (IN PARA 12.1 ABOVE) AND ON CA REFUL PERUSAL, WE HAVE NOTED THAT IN DETERMINING THE PROFITS OF A PE THE EXPENSES WHICH ARE INCURRED FOR THE PURPOSES OF THE BUSINESS OF TH E SAID PE, INCLUDING GENERAL ADMINISTRATIVE EXPENSES IS TO BE ALLOWED. AT THIS STAGE OF ARGUMENT, WE HAVE CATEGORICALLY RAISED A QUESTION T HAT IF EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES OF A PE IS TO B E ALLOWED HAVING BEEN INCURRED FOR THE PURPOSES OF THE BUSINESS OF A PE, THEN WHAT IS THE UTILITY OF THE INTRODUCTION OF SECTION 44C OF T HE IT ACT. LD. AR MR. MILIN MEHTA HAS ANSWERED THAT KEEPING IN MIND THE C ONTROVERSY AN AMENDMENT TOOK PLACE IN THE ARTICLES AND VIDE A PRO TOCOL AMENDING THE AGREEMENT BETWEEN THE GOVERNMENT OF THE REPUBLI C OF INDIA AND THE GOVERNMENT OF UNITED ARAB EMIRATES VIDE NOTIFIC ATION NO.282/2007, DATED 28/11/2007 WHICH IS EFFECTIVE FR OM 1 ST DAY OF APRIL, 2008, PARAGRAPH 3 OF ARTICLE 7 (BUSINESS PRO FITS) HAS BEEN REPLACED BY THE FOLLOWING :- 3. IN DETERMINING THE PROFITS OF A PERMANENT ESTAB LISHMENT, THERE SHALL BE ALLOWED AS DEDUCTIONS EXPENSES WHICH ARE I NCURRED FOR THE PURPOSES OF THE BUSINESS OF THE PERMANENT ESTABLISH MENT, INCLUDING EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES SO IN CURRED, WHETHER IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT I S SITUATED OR ELSEWHERE, IN ACCORDANCE WITH THE PROVISIONS OF AND SUBJECT TO THE LIMITATIONS OF THE TAX LAWS OF THAT STATE. (EMPH ASIS GIVEN) 17 ABU DHABI COMMERCIAL BANK L TD. 14.1 IN VIEW OF THE AFORESAID AMENDMENT, NOW THE A DMITTED LEGAL POSITION IS THAT THE ADMISSIBILITY OF EXPENDITURE I S TO BE GOVERNED BY ARTICLE 7(3) OF THE TREATY UPTO THE DATE FROM WHICH THE NEW AMENDED PROVISIONS OF THE TREATY SHALL BE APPLICABLE I.E. W .E.F. 1.4.2008. IT CAN, INTER ALIA, BE SUMMED-UP THAT THE CONTRACTING STATE S AND TO AVOID ANY CONFLICT IN THE PROVISIONS OF THE TAX LAWS VIS--VI S THE PROVISIONS OF TREATY, AS ALSO TO STREAMLINE THE APPLICABLE PROVIS IONS OF LAW, IT WAS DECIDED TO INCORPORATE THAT, FOR THE PURPOSES OF DE TERMINING THE PROFITS OF A PERMANENT ESTABLISHMENT, THERE SHALL BE ALLOW ED DEDUCTION OF EXPENSES INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE PERMANENT ESTABLISHMENT INCLUDING GENERAL ADMINISTRATIVE EXPE NSES BUT IN ACCORDANCE WITH THE PROVISIONS AND ALSO SUBJECT TO THE LIMITATIONS OF THE TAX LAWS OF THAT STATE. THEREFORE, BY THIS AMENDMEN T IN THE ARTICLE THE APPLICABILITY OF PROVISION OF SECTION 44C HAS BEEN ENFORCED, NEVERTHELESS WITH EFFECT FROM 1 ST DAY OF APRIL, 2008. 14. THUS, IN VIEW OF OUR ABOVE FINDING, WE HOLD THAT, FIRSTLY , IN THE ASSESSMENT YEAR INVOLVED, LIMITATION CLAUSE OF APPL ICABILITY OF INCOME-TAX ACT WILL NOT APPLY IN ARTICLE 7(3) AND CONSEQUENTLY PRO VISIONS OF SECTIONS 44C WILL NOT BE APPLICABLE; SECONDLY , THE AMENDMENT BROUGHT BY WAY OF PROTOCOL BY WHICH ARTICLE 7(3) HAS BEEN AMENDED AND LIMITATION CLAUSE HAS BEEN BROUGHT IN, WILL APPLY FROM 1 ST APRIL, 2008 AND WILL NOT HAVE ANY RETROSPECTIVE EF FECT; THIRDLY , THE JUDGMENT OF MASHREQBANK PSC(SUPRA) , IS NO LONGER RELEVANT IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE CA SE OF M/S SUMITOMO MITSUI BANKING CORP.(SUPRA) .AND LASTLY , FROM THE ABOVE CONCLUSIONS, IT IS HELD THAT COMPUTATION OF INCOME AND DISALLOWANCE OF EXPENSES RELATING TO HEAD OFFICE CANNOT BE MADE BY INVOKING THE PROVISIO NS OF SECTION 44C OF IT ACT. THUS, IN VIEW OF THE ABOVE CONCLUSIONS, WE HOL D THAT INCOME OF THE PE OF THE ASSESSEE SHOULD BE COMPUTED AS BUSINESS INCOME AFTER ALLOWING ALL THE 18 ABU DHABI COMMERCIAL BANK L TD. EXPENSES ATTRIBUTABLE TO ITS BUSINESS IN INDIA INCL UDING THE HEAD OFFICE EXPENSES. 15. IN THE RESULT, GROUNDS TAKEN BY THE ASSESSEE IS AL LOWED. ITA NO.3857/M/2010 (AY:1996-97) (BY ASSESSEE): 16. THIS APPEAL HAS BEEN FILED AGAINST THE ORDER DA TED 5.3.2010 PASSED BY CIT (A)-10, MUMBAI. 17. IN GROUND NO.1 ASSESSEE HAS CHALLENGED THE REST RICTION OF DEDUCTION FOR HEAD OFFICE EXPENSES BY APPLYING THE PROVISIONS OF SEC. 44C OF THE ACT AS AGAINST THE ASSESSEES CLAIM THAT THE ENTIRE AMOUNT OF RS. 39,47,623/- ALLOCATED TO THE INDIAN BRANCHES SHOULD BE ALLOWED AS DEDUCTION AS PER PROVISION OF ARTICLE 7(3) OF INDIA-UAE DTAA. 18. THIS ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR O F THE ASSESSEE IN THE AFORESAID APPEAL FOR THE ASSESSMENT YEAR 1995-96 IN ITA NO.3462/M/2010. THE FINDING GIVEN IN THE ABOVE APPEAL APPLIES MUTAD IS-MUTANDIS IN THIS GROUND ALSO. THUS, GROUND NO.1 AS RAISED BY THE ASSESSEE STANDS ALLOWED. 19. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED CAL CULATION OF INTEREST U/S 244A IN THE FOLLOWING MANNER: 2(A) THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO R ECOMPUTED INTEREST UNDER SECTION 244A AT RS. 1,17,83,506/- (P ER COMPUTATION ENCLOSED) AS AGAINST RS. 85,50,458/- (INCORRECTLY M ENTIONED AS RS. 8,55,05,458/- BY THE CIT(A) IN THE ORDER DATED 5 TH MARCH, 2010 FOR THE ASSESSMENT YEAR 1996-97) BEING INTEREST GRANTED BY THE AO VIDE ORDER UNDER SECTION 154 DATED 3 RD DECEMBER, 2008. 19 ABU DHABI COMMERCIAL BANK L TD. (B) THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO REC OMPUTED THE INTEREST UNDER SECTION 244A BASED ON THE OUTCOME OF THE APPEAL. THE APPELLANTS PRAY THAT THE AO BE DIRECTED TO RECOMPUT ED THE INTEREST UNDER SECTION 244A. (C) THE CIT(A) OUGHT TO HAVE DIRECTED THE AO TO GR ANT INTEREST UP TO DATE OF RECEIPT OF REFUND BY THE APPELLANTS. (D) THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT T HAT INTEREST UNDER SECTION 244A SHOULD BE COMPUTED ON THE TAX RE FUND EXCLUDING INTEREST ALREADY GRANTED TO THE APPELLANTS. 20. THE LD CIT (A) HAS REJECTED THE ASSESSEES GROU ND ON THE SCORE THAT THIS ISSUE IS NOT ARISING OUT OF ORDER IMPUGNED BEF ORE HIM BUT FROM ORDER U/S 154. 21. AT THE VERY OUTSET, LEARNED SR. COUNSEL ON BEHA LF OF THE ASSESSEE SUBMITTED THAT THIS ISSUE STANDS COVERED BY THE DEC ISION OF ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1990-91 PASSED IN ITA NO.5136/M/2009 VIDE ORDER DATED 2.7.2010. HE ALSO REFERRED TO CAL CULATION OF INTEREST WHICH HAS BEEN GIVEN IN THE PAPER BOOK FROM PAGES 98 TO 1 02. ON THE OTHER HAND, LD CIT-DR SUBMITTED THAT THE ISSUE OF INTEREST U/S 244A IS ARISING OUT OF THE ORDER U/S 154 PASSED BY THE AO AND, THEREFORE, THE SAME CANNOT BE ADJUDICATED UPON. 22. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIO NS AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE OF INTER EST U/S 244A IS A PART OF WORKING OF DEMAND DETERMINED BY THE AO IN PURSUANCE OF THE ASSESSMENT ORDER. THEREFORE, SAME CAN VERY WELL BE CHALLENGED IN THE PRESENT APPELLATE 20 ABU DHABI COMMERCIAL BANK L TD. PROCEEDINGS. AS STATED BY THE LEARNED COUNSEL, THI S ISSUE HAS COME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN ASSESSMENT YE AR 1990-1991 WHEREIN THIS ISSUES WAS DECIDED IN FAVOUR OF THE ASSESSEE AFTER OBSERVING AND HOLDING AS UNDER: WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEV ANT RECORD. IT IS EVIDENT FROM THE ORDERS OF THE LOWER AUTHORITIES TH AT THE AO HAS CALCULATED THE INTEREST U/S 244A BY REDUCING THE RE FUND OF TAX ALREADY GRANTED TO THE ASSESSEE. IN THE AMOUNT OF REFUND T HE INTEREST WHICH WAS GRANTED EARLIER OCCASIONS ALSO INCLUDED. THERE FORE, THE AO HAS REDUCED THE TOTAL REFUND GRANTED WHICH CONSISTS REF UND OF TAX AND INTEREST ALREADY GRANTED U/S 244A. THEREFORE, WE F IND FORCE IN THE CONTENTION OF THE LEARNED AR THAT WHILE COMPUTING T HE INTEREST U/S 244A, THE AO HAS REDUCED BOTH THE REFUND OF TAX AS WELL AS INTEREST GRANTED U/S 244A FROM THE REFUND DUE TO THE ASSESSE ES. IN ORDER TO COMPUTE THE INTEREST U/S 244A, THE AMOUNT BALANCE R EFUND DUE TO THE ASSESSEE HAS TO BE DETERMINED AFTER DEDUCTING THE A MOUNT OF THAT TAX ALREADY REFUNDED AND NOT AMOUNT OF INTEREST ALREADY GRANTED U/S 244A. THUS THE INTEREST COMPONENT IN THE REFUND AL READY GRANTED SHOULD BE EXCLUDED WHILE THE SAME IS TO BE REDUCED FROM THE REFUND DUE TO THE ASSESSEE FOR THE3 PURPOSES OF SECTION 24 4A FOR FUTURE INTEREST ON THE BALANCE REFUND DUE AMOUNT. ACCORDI NGLY, WE ARE OF THE VIEW THAT THE METHOD ADOPTED BY THE AO SUFFERED FROM GRAVE ERROR AS THE SAME HAS RESULTED THE REDUCTION OF INT EREST PAYABLE TO THE ASSESSEE BECAUSE THE PRINCIPLA AMOUNT IS REDUCE D BY INTEREST COMPONENT ALREADY GRANTED AND THEN FUTURE INTEREST IS COMPUTED. THE INTEREST ALREADY GRANTED UP TO A DATE IS RELEVA NT ONLY FOR EXCLUSION OF PERIOD FOR WHICH IT IS GRANTED AND THE FUTURE INTEREST HAS TO BE GRANTED FROM THE SUBSEQUENT PERIOD. THEREFOR E, THE INTEREST ALREADY GRANTED CANNOT REDUCE THE PRINCIPLE REFUND DUE TO THE ASSESSEE BUT THE AMOUNT WHICH REPRESENTS THE TAX AL READY REFUNDED HAS TO BE REDUCED FROM THE TOTAL REFUND DUE TO THE ASSESSEE FOR COMPUTATION OF INTEREST U/S 244A. WE NOTE THAT THE CIT (A) HAS DECIDED THE ISSUE IN PARA 2.2 OF THE IMPUGNED ORDER AS UNDER: 21 ABU DHABI COMMERCIAL BANK L TD. 2.2 I HAVE CONSIDERED THE APPELLANTS REQUEST AND EXAMINED THE FACTS. IN VIEW OF THE FACTS ABOVE, I FIND THAT THE ISSUE RELATES TO CALCULATION METHOD ADOPTED BY THE DEPARTMENT AND AS SESSEE. IT IS SEEN THAT METHOD ADOPTED BY THE AO IS BEING CONSIST ENTLY FOLLOWED IN RESPECT OF ALL ASSESSEES. THEREFORE, I AM OF THE V IEW THAT METHOD ADOPTED BY THE AO AS PER PROVISIONS OF THE ACT CANN OT BE FAULTED. I THEREFORE, INCLINED TO AGREE WITH THE COMPUTATION M ETHOD ADOPTED BY THE AO. ACCORDINGLY, THE GROUND UNDER APPEAL IS DIS MISSED. FROM THE ABOVE IT IS CLEAR THAT THE CIT (A) HAS NO T GONE INTO THE QUESTION OF CORRECTNESS OF METHOD ADOPTED BY THE AO BUT DECIDED THE ISSUE ON THE GROUND THAT THE METHOD ADOPTED BY THE AO IS BEING CONSISTENTLY FOLLOWED IN RESPECT OF ALL ASSESSEES. THEREFORE, THE IMPUGNED ORDER OF THE CIT (A) QUA THIS ISSUE IS NOT SUSTAINABLE IN LAW AND LIABLE TO BE SET ASIDE. WE ACCORDINGLY DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND DIRECT THE AO TO CALCULATE THE INT EREST ON THE REFUND DUE TO THE ASSESSEE WITHOUT REDUCING THE INTEREST U NDER SECTION 244A WHICH IS PART OF THE REFUND EARLIER GRANTED FROM TH E REFUND DUE. 23. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECI SION, WE DIRECT THE AO TO CALCULATE THE INTEREST ON THE REFUND DUE TO THE ASS ESSEE WITHOUT REDUCING THE INTEREST U/S 244A WHICH IS A PART OF THE REFUND EAR LIER GRANTED FROM THE REFUND DUE. THE AO IS ALSO REQUIRED TO EXAMINE THE CALCUL ATION OF INTEREST AS SUBMITTED BY THE ASSESSEE. 24. THUS, THIS GROUND IS RESTORED BACK TO THE AO TO GIVE CONSEQUENTIAL RELIEF IN CALCULATION OF INTEREST U/S 244A. IN THE RESULT, THIS GROUND IS TREATED AS ALLOWED, BUT FOR STATISTICAL PURPOSES. 22 ABU DHABI COMMERCIAL BANK L TD. ITA NO.4022/M/2010 (AY: 1997-98) (BY ASSESSEE): 25. IN THIS APPEAL, GROUND NO.1 IS SIMILAR TO GROUN D NO.1 IN ITA NO.3462/M/2010 DEALING WITH APPLICABILITY OF SEC.44 C VIS.A.VIS ARTICLE 7(3). THE ISSUE RAISED IN THIS GROUND HAS BEEN DISCUSSED IN DETAIL IN THE ASSESSMENT YEAR 1995-1996 IN ITA NO.3462/M/2010 AND THE FINDING GIVEN THEREIN, SQUARELY APPLIES IN THIS YEAR ALSO. THUS GROUND NO.1 AS RAISED BY THE ASSESSEE IS ALLOWED. 26. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCES IN RESPECT OF THE FOLLOWING EXPENSES. (A) TRAVELLING EXPENSES UNDER RULE 6D RS. 51,943 /- (B) ENTERTAINMENT RS.241,664/- (C) 43 B RS.115,472/- 27. THE LD CIT (A) HAS HELD THAT ISSUE OF DISALLOWA NCE OF THESE EXPENSES ARE NOT BORNE OUT FROM THE ITATS ORDER DATED 14.2. 2007AND NEITHER ANY DETAILS HAVE BEEN FILED NOR EXAMINED BY THE AO AS T O HOW THESE EXPENSES ARE NOT PART OF SECTION 44C OF THE ACT. ON THIS REASON ING, HE DISMISSED THE ASSESSEES GROUND. 28. AFTER PERUSING THE RECORDS IT IS SEEN NEITHER T HE AO NOR THE CIT (A) HAVE PROPERLY EXAMINED THIS ISSUE. THEREFORE, IN T HE INTEREST OF JUSTICE, THIS MATTER IS RESTORED BACK TO THE FILE OF AO, WHO WILL EXAMINE THESE EXPENSES AFRESH AFTER CALLING FOR THE NECESSARY RECORDS AND EVIDENCE FROM THE ASSESSEE IN SUPPORT OF ITS CLAIM. IN THE RESULT, THIS GROUN D IS ALLOWED FOR STATISTICAL PURPOSES. 23 ABU DHABI COMMERCIAL BANK L TD. 29. IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE COMPUTATION OF INTEREST U/S 244A ON THE REFUND GRANTED BY THE AO. SIMILAR MATTER HAS BEEN DECIDED IN ASSESSEES APPEAL FOR THE ASSESSMENT YEA R 1996-1997 IN ITA NO.3857/M/2010 WHEREIN AFTER RELYING UPON THE TRIBU NALS ORDER FOR THE ASSESSMENT YEAR 1990-1991, MATTER HAS BEEN SENT BAC K TO THE ASSESSING OFFICER AS PER DIRECTIONS GIVEN THEREIN. IN VIEW O F THE FINDINGS GIVEN THEREIN, THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL P URPOSES. ITA NO.1996/M/2004 (AY:1998-1999) (BY ASSESSEE): 30. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAI NST ORDER DATED 19.12.2003 PASSED BY CIT (A)-XXXI, MUMBAI. 31. IN THIS APPEAL, GROUND NO.1 IS SIMILAR TO GROU ND NO.1 IN ITA NO.3462/M/2010 THAT IS, APPLICABILITY OF SEC. 44C I S COMPUTING THE PROFITS AND DEDUCTION OF EXPENSES VIS.A.VIS ARTICLE 7(3). THE ISSUE RAISED IN THIS GROUND HAS BEEN DISCUSSED IN DETAIL IN THE ASSESSMENT YEAR 1995-1996 IN ITA NO.3462/M/2010 AND THE FINDING GIVEN THEREIN SQUARE LY APPLIES IN THIS YEAR ALSO. THUS GROUND NO.1 AS RAISED BY THE ASSESSEE I S ALLOWED. 32. IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE AOS ACTION FOR APPLYING THE TAX RATE OF 48% TO THE ASSESSEES BUSI NESS INCOME INSTEAD OF 35%. THE CIT (A) TOO HAS CONFIRMED THE ACTION OF T HE AO AFTER GIVING DETAILED REASONING IN PARA NOS. 6.4 TO 6.7 OF THE ORDER. 33. AT THE OUTSET, LEARNED COUNSEL SUBMITTED THAT T HIS ISSUE STANDS COVERED AGAINST THE ASSESSEE BY THE ORDER OF ITAT IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEARS 1995-1996, 1996-1997 AND 1997-1998 . 24 ABU DHABI COMMERCIAL BANK L TD. 34. AFTER GONE THROUGH THE AFORESAID DECISIONS OF T HE ITAT PASSED IN ITAT NOS.4316 & 4317/M/2000, WE FIND THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE AFTER OBSERVING AND HOLDING AS UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGMENTS CITED BY BOTH SIDES. WE FIND THAT THIS I SSUE IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF THE TRIBUNA L RENDERED IN THE CASE OF ABN AMRO BANK NV VS. JCIT REPORTED IN TTJ ( CAL) (TM)1041. IN THAT CASE ALSO, CONTENTION WAS ADVANCED ON BEHA LF OF THE ASSESSEE THAT THIS EXPLANATION TO SECTION 90 IS UN- IMPLEMENTABLE BECAUSE OF INAPPROPRIATE LANGUAGE. BUT, IT WAS HEL D BY THE TRIBUNAL THAT THIS CONTENTION OF THE ASSESSEE CANNOT BE ACCE PTED. RELEVANT PARA OF THIS TRIBUNAL JUDGMENT I.E. PARANO.56 IS BE ING REPRODUCED HERE: THE CONTENTION ADVANCED ON BEHALF OF THE ASSESSEE THAT THE SAID EXPLANATION TO SECTION 90 IS UN-IMPLEMENTABLE BECAU SE OF INAPPROPRIATE LANGUAGE DOES NOT APPEAL TO US. THE EXPLANATION IN OUR VIEW PROVIDES FOR TWO EVENTUALITIES. ONE IS THE CHA RGE OF TAX IN RESPECT OF A FOREIGN COMPANY VIS--VIS AND INDIA COMPANY (I .E. A DOMESTIC COMPANY). THE SECOND CATEGORY AS PER EXPLANATION I S THE FOREIGN COMPANY VIS--VIS THE DOMESTIC COMPANY OTHER THAN I NDIAN COMPANY. IT IS NOTEWORTHY THAT THE DOMESTIC COMPANY IS DEFIN ED UNDER THE FINANCE ACT. FOR THE SAKE OF REFERENCE WE MAY QUOT E THE DEFINITION OF THE DOMESTIC COMPANY AS PER THE FINANCE (NO.2) ACT, 1996. DOMESTIC COMPANY MEANS AND INDIAN COMPANY, OR AN Y OTHER COMPANY WHICH IN RESPECT OF ITS INCOME LIABLE TO IN COME TAX UNDER THE IT ACT FOR THE ASSESSMENT YEAR COMMENCING ON THE 1 ST APRIL, 1996, HAS MADE THE PRESCRIBED ARRANGEMENTS FOR THE DECLARATIO N AND PAYMENT WITHIN INDIA OF THE DIVIDENDS (INCLUDING DIVIDENDS ON PREFERENCE SHARES)PAYABLE OUT OF SUCH INCOME IN ACCORDANCE WIT H THE PROVISIONS OF SECTION 194 OF THE ACT. 25 ABU DHABI COMMERCIAL BANK L TD. THUS EVEN UNDER THE FINANCE ACT THE DOMESTIC COMPA NY IS RECOGNIZED AS INDIAN COMPANY AND ANY OTHER COMPANY HAVING MADE ARRANGEMENT FOR DECLARATION OF DIVIDENDS PAYABLE ON SUCH INCOME. WE, THEREFORE, DO NOT FIND THE LANGUAGE OF EXPLANAT ION TO SECTION 90 AS INAPPROPRIATE. MOREOVER, INSOFAR AS THERE IS NO DO UBT THE CATEGORY OF THE FOREIGN COMPANY VIS--VIS INDIAN COMPANY HAVING BEEN SPECIFIED IN THE EXPLANATION, ONE NEED TO ASCERTAIN AS TO WHETHE R IN ANY CASE THE SECOND CATEGORY OF THE COMPANIES WOULD AT ALL EXIST . WE, THEREFORE, DO NOT FIND MERIT IN THE CONTENTIONS ADVANCED ON BE HALF OF THE ASSESSEE IN THIS REGARD. 35. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECI SION, GROUND NO.2 IS DECIDED AGAINST THE ASSESSEE AND STANDS DISMISSED. 36. IN GROUND NO.3, ASSESSEE HAS CHALLENGED THE AO S ACTION OF TAXING THE INTEREST SECURITIES ON ACCRUED BASIS AS AGAINST DUE BASIS. 37. AT THE OUTSET, LEARNED COUNSEL SUBMITTED THAT T HIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLIER ASSESSMENT YE ARS BY THE ITAT RIGHT FROM AY 1990-1991 TO AY 1997-1998. 38. AFTER GOING THROUGH THE JUDGMENTS OF THE ITAT, WE FIND THAT THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRI BUNAL IN THE ASSESSMENT YEAR 1995-1996 TO 1997-1998 IN ITA NOS. 4316 & 4317 /M/2000 AND ITA NO.2116/M/2001 WHEREIN THE TRIBUNAL AFTER FOLLOWING THE EARLIER YEARS ORDERS AND VARIOUS OTHER DECISIONS HAS OBSERVED AND HOLD A S UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS ON RECORD AND HAVE GONE THROUGH THE TRIBUNAL JUDGMENTS RELIED UPON BY 26 ABU DHABI COMMERCIAL BANK L TD. LEARNED COUNSEL OF THE ASSESSEE. WE FIND THAT THIS ISSUE HAS BEEN DECIDED B THE TRIBUNAL IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT RENDERED IN THE CASE OF EASTERN INVESTMENTS INDIA REPORTED IN 213 ITR 334 A ND TRIBUNAL JUDGMENT IN THE CASES OF CANARA BANK LTD REPORTED I N 84 ITD 310. IT IS ALSO NOTED BY THE TRIBUNAL THAT THE DEPARTMENTS SL P IS SINCE BEEN REJECTED BY HONBLE APEX COURT IN THE CASE OF CANAR A BANK LTD. AS PER 201 ITR (STATUTE) 51. LEARNED DR OF THE REVENUE COULD NOT POINT OUT ANY DIFFERENCE IN FACTS; AND HENCE, RESPECTFULLY FOLLOWING THE PRECEDENT, TH IS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. THESE GROUNDS OF THE REVEN UE STAND REJECTED. 39. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DECI SION, THIS GROUND STANDS ALLOWED IN FAVOUR OF THE ASSESSEE. ITA NO.2205/M/2004 (AY:1998-99) ( BY DEPARTMENT): 40. IN GROUND NO.1 OF THIS APPEAL, THE DEPARTMENT H AS CHALLENGED ALLOWING OF EXEMPTION U/S 10(15) OF THE ACT, IN RESPECT OF GROSS RECEIPTS AND NOT IN RESPECT OF THE NET INCOME ARISING TO THE ASSESSEE . 41. AT THE OUTSET, LEARNED COUNSEL SUBMITTED THAT T HIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESS EES OWN CASE IN ASSESSMENT YEAR 1997-1998 IN ITA NO.2116/M/2001 AND CATENA OF OTHER DECISIONS PASSED BY THE ITAT, MUMBAI BENCH. AFTER GONE THROUGH THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1997-1998, WE FIND THAT THIS ISSUE STANDS ALLOWED IN FAVOUR OF THE ASSESSEE AFTER OBSE RVING AND HOLDING AS UNDER: 27 ABU DHABI COMMERCIAL BANK L TD. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. WE FIND THAT IN THE CASE OF STATE BANK OF INDI (SUPRA), THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE BY HOLDING THAT FOR EXEMPTION U/S 10(15), GROSS INTERE ST HAS TO BE CONSIDERED. WHILE HOLDING SO, THE TRIBUNAL HAS FOL LOWED THE JUDGMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE O F CIT VS. NEW GREAT INSURANCE CO. LTD., 90 ITR 348 AND ALSO ON TH E JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF RAJASTHA N WAREHOUSING CORPORATION, 242 ITR 450. IN THE CASE OF JCIT VS. MASHREQU BANK PSC (SUPRA), THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASS ESSEE BY FOLLOWING THE TRIBUNAL JUDGMENT RENDERED IN THE CASE OF STATE BANK OF INDIA (SURPA). IN THE CASE OF BRITISH BANK OF MIDDLE EAST (SUPRA) ALSO, THE ISSUE HAS BEEN DECIDED BY FOLLOWING THE TRIBUNAL JU DGMENT IN THE CASE OF STATE BANK OF INDIA (SUPRA ) AND IT HELD TH AT PROVISIONS OF SECTION 10(15)(IV) ARE VERY CLEAR AND UNAMBIGUOUS A ND WHAT IS EXEMPT UNDER THE SAID SECTION IS INTEREST PAYABLE AND NOT THE INCOME BY WAY OF THE INTEREST; AND HENCE, THE REVENUES GR IEVANCE IS DEVOID OF ANY SUBSTANCE AND THE SAME WAS REJECTED. RESPEC TFULLY FOLLOWING THE PRECEDENT, THIS ISSUE IS DECIDED IN FAVOUR OF T HE ASSESSEE AND THIS GROUND OF THE REVENUE IS REJECTED. 42. THUS, RESPECTFULLY FOLLOWING THE AFORESAID DEC ISION, THIS GROUND IS DECIDED AGAINST THE DEPARTMENT AND IN FAVOUR OF THE ASSESSE E. IN THE RESULT, GROUND NO.1 IS DISMISSED. 43. IN GROUND NO.2, THE DEPARTMENT HAS CHALLENGED T HE DELETION OF ADDITION OF RS.75,07,484/- MADE BY THE AO IN RESPECT OF GUAR ANTEE COMMISSION. 28 ABU DHABI COMMERCIAL BANK L TD. 44. THE ASSESSEES CASE BEFORE THE CIT (A) AS WELL AS BEFORE THE AO HAS BEEN THAT IT HAS BEEN FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING FOR ACCOUNTING THE GUARANTEE COMMISSION. IF THE GUARANT EE COMMISSION IS FOR THE GUARANTEE GIVEN FOR A PERIOD OF 5 YEARS, THEN THE C OMMISSION RECEIVED AND TAKEN TO THE PROFIT IS ONLY 1/5 TH IN A YEAR. SINCE, THE ASSESSEE HAS BEEN FOLLOWING MERCANTILE SYSTEM AND HAVE BEEN OFFERING THE TAX ON GUARANTEE COMMISSION, DURING THE CURRENCY OF THE PERIOD OF GU ARANTEE, THERE IS NO JUSTIFICATION TO TAX THE SAME ON RECEIPT BASIS. SUC H A SYSTEM OF ACCOUNTING HAD BEEN FOLLOWED CONSISTENTLY AND THE SAME HAS BEE N ACCEPTED BY THE DEPARTMENT IN THE PAST. RELIANCE WAS PLACE ON THE DECISION OF SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORPORATION (225 ITR 8 02) AND BOMBAY HIGH COURT JUDGMENT IN TAPARIA TOOLS LTD. (2 60 ITR 102). ON THE OTHER HAND, THE ASSESSING OFFICERS CASE IS THAT TH E TRANSACTION INVOLVING BANK GUARANTEE IS ONLY IN THE YEAR IN WHICH GUARANTEE IS GIVEN. THE ASSESSEE BANK RECEIVES NO RIGHT IN SUBSEQUENT YEAR FOR ANY GUARAN TEE COMMISSION. THAT IS AN ADVANCE COMMISSION RECEIVED, THEREFORE, THERE IS NO QUESTION OF DEFERRING THE SAME TO FUTURE YEARS. LD CIT (A) AGREED WITH T HE CONTENTION OF THE ASSESSEE AND ALLOWED THE ASSESSEES GROUND AFTER OB SERVING AND HOLDING AS UNDER. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT ALONG WITH THE CONTENTION OF THE AO AND I HAVE NO HESITATION I N SAYING THAT THE AO HAS MISCONSTRUED THE CONCEPT OF ACCRUAL IN THE P RESENT CASE. MERE RECEIPT OF INCOME IS NOT THE SOLE TEST CHARGEABILIT Y. RECEIPT OF INCOME REFERS TO THE FIRST OCCASION WHEN THE RECIPIENT GET S THE MONEY UNDER HIS OWN CONTROL. ACCORDING TO THE OXFORD ENGLISH D ICTIONARY, THE MEANING OF THE WORD ACCRUE IS TO FALL AS A NATUR AL WORTH OR INCREMENT; TO COME AS AN ACCESSION OR ADVANTAGE. THE WORD ARSE IS 29 ABU DHABI COMMERCIAL BANK L TD. DEFINED AS TO SPRING UP, TO COME INTO EXISTENCE. THE WORDS ACCRUE AND ARISE DO NOT MEAN ACTUAL RECEIPT OF PROFITS O R GAINS. BOTH THESE WORDS ARE USED IN CONTRADISTINCTION TO THE WORD RE CEIVE AND INDICATE A RIGHT TO RECEIVE. THUS, IT IS MANIFEST THAT IF A NY ASSESSEE ACQUIRES A RIGHT TO RECEIVE INCOME, THE INCOME CAN BE SAID TO ACCRUE TO HIM THOUGH IT MAY BE RECEIVED LATER ON. UNLESS AND UNT IL THERE IS CREATED IN FAVOUR OF AN ASSESSEE A DEBUT DUE BY SOMEBODY, IT C ANNOT BE SAID THAT INCOME HAS ACCRUED TO HIM. A MERE CLAIM TO INCOME WITHOUT AN ENFORCEABLE RIGHT THERETO CANNOT BE REGARDED AS ACC RUED INCOME FOR THE PURPOSE OF INCOME-TAX ACT. WHEN THE BANK GIVES A GUARANTEE, ITS OBLIGATION EXTENDS TO THE ENTIRE PERIOD FOR WHICH G UARANTY IS GIVEN. IN EXCHANGE OF THIS OBLIGATION, THE BANK RECEIVES A CO MMISSION. IT IS WRONG TO SAY THAT SUCH COMMISSION ACCRUES TO THE FU LL EXTENT THE MOMENT WHEN THE BANK STANDS AS A GUARANTOR. SINCE THE OBLIGATION IS SPREAD OVER A PERIOD OF TIME, SO SHOULD BE THE GUAR ANTEE COMMISSION. ONE CAN PERHAPS DRAW A PARALLEL ON THIS ISSUE WITH THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTR IAL INVESTMENT CORPORATION LTD. VS. CIT (225 ITR 802), WHERE DEALI NG WITH THE ISSUE OF ALLOWABILITY OF DISCOUNT ON DEBENTURES, THE HON BLE COURT HELD THAT THE ENTIRE DISCOUNT LIABILITY CANNOT BE ALLOWED AS A DEDUCTION IN ONE YEAR AND AUTHORISED SPREAD OVER OF THE COMMITTED OB LIGATION TO BE DISCHARGED IN LATER YEARS. FURTHER, THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. BANK OF TOKYO LTD. (71 TAXMAN 85), WHERE ALSO THE ASSESS EE WAS A NON- RESIDENT BANKING COMPANY AND THE GUARANTEE COMMISSI ON THAT PERTAINED TO UNEXPIRED PERIOD WAS NOT OFFERED T TAX IN THE YEAR OF RECEIPT. THE ASSESSING OFFICER TAXED THE ENTIRE GU ARANTEE COMMISSION IN THE YEAR OF RECEIPT. ON APPEAL, THE CIT (A) DEL ETED THE ADDITION AND THE TRIBUNAL ALSO UPHELD THE CIT(A)S ORDER. ON FU RTHER APPEAL TO THE HIGH COURT, THE HONBLE CALCUTTA HIGH COURT UPHELD THE TRIBUNALS ORDER. THE HIGH COURT HELD AS UNDER: THE REVENUE CONTENDS THAT THE RIGHT TO RECEIVE THE COMMISSION BEING A ONE-TIME RIGHT, ITS ACCRUAL SHALL COINCIDE WITH T HE COMMENCEMENT OF THE SERVICE RENDERED BY WAY OF GUARANTEEING THE DEB T REPAYMENT; IT IS 30 ABU DHABI COMMERCIAL BANK L TD. IMMATERIAL THAT THE REPAYMENT COVERS MORE THAN ONE PREVIOUS YEAR. THEREFORE, THE ENTIRETY OF THE COMMISSION ACCRUES A T A TIME. THE ASSESSEE-BANK, ON THE OTHER HAND, SUBMITS THAT THE SERVICE HAVING A SPREAD OF YEARS, THE ACCRUAL SHOULD BE YEAR BY YEAR . THE REVENUES CONTENTION THAT THE ACCRUAL OF THE ENTIRE COMMISSIO N IS A POINT OF TIME ACCRUAL IS NOT TENABLE. THE CONTESTING SUBMISSIONS BOIL DOWN TO ONE QUESTION. WHETHER ACCRUAL IS CO-EVAL WITH THE PLAY ABILITY, THE SAME MAY BE PAYABLE BUT MAY NOT BE APPORTIONABLE UNTIL T HE HAPPENING OF AN EVENT; IN THE PRESENT CASE THE EXPIRY OF THE PE RIOD OF GUARANTEE COMPRISED IN THE PREVIOUS YEAR. THE RIGHT TO RECEI VE FOR UNEXPIRED PERIOD, FOR, THE GUARANTEE BEYOND THE EXPIRY DATE O F THE PREVIOUS YEAR REMAINS IN A SUSPENSE. IT MAY OR MAYNOT FRUCTIFY I NTO AN ACTUAL RIGHT TO RECEIVE FOR THE SUBSEQUENT PERIOD OF THE TERM OF THE GUARANTEE AS THE SOONER DETERMINATION OF THE GUARANTEE IS A CONT INGENCY NOT RULED OUT BY THE AGREEMENT. IT IS ONLY UPON CERTAIN COND ITIONS BEING FULFILLED, VIZ, THE GUARANTEE RUNNING THE FULL COURSE OR PERIO D OF THE DEBT GUARANTEED, THAT THE RIGHT TO THE ENTIRETY OF THE C OMMISSION CAN BE SAID TO HAVE ACCRUED. THEREFORE, IN VIEW OF THE ABOVE, THIS GROUND OF APP EAL IS ALLOWED AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADD ITION OF RS. 75,07,484/- MADE IN RESPECT OF GUARANTEE COMMISSION . IN VIEW OF MY ABOVE DECISION THE ALTERNATIVE SUBMISSION MADE BY T HE APPELLANTS DOES NOT SURVIVE FOR CONSIDERATION. 45. LD CIT-DR RELIED UPON THE FINDINGS OF THE AO AN D ON THE OTHER HAND LEARNED SR. COUNSEL RELIED ON THE FINDINGS OF THE C IT (A). 46. AFTER CAREFULLY CONSIDERING THE SUBMISSIONS MAD E BY THE PARTIES AND THE FINDINGS GIVEN BY THE AO AS WELL AS CIT (A), WE FIND THAT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MADRAS INDUSTRIAL INVESTMENT CORPORATION (SUPRA) AND THE BOMBAY HIGH COURT DECISION IN THE 31 ABU DHABI COMMERCIAL BANK L TD. CASE OF TAPARIA TOOLS LTD. (SUPRA), THE FINDING AND THE REASONING GIVEN BY THE CIT (A) IS LEGALLY CORRECT AND WE DO NOT FIND ANY R EASON TO DEVIATE FROM SUCH REASONING. THUS, THE FINDING OF THE CIT (A) IS UPH ELD. IN THE RESULT, THE GROUND TAKEN BY THE DEPARTMENT IS DISMISSED. 47. IN GROUND NO.3, THE DEPARTMENT HAS CHALLENGED T HE DELETION OF ADDITION OF RS. 1,37,75,000/- MADE IN THE COMPUTATION OF TOT AL INCOME OF THE ASSESSEE ON ACCOUNT OF DIFFERENCE BETWEEN COST AND BOOK VALU E OF INVESTMENT. 48. THE ASSESSEES CASE BEFORE THE ASSESSING OFFICE R AS WELL AS THE CIT (A) HAS BEEN THAT THE ASSESSEE BANK NORMALLY VALUES ITS SECURITIES AT COST OR MARKET VALUE WHICHEVER IS LOWER AND DURING THE ACCO UNTING YEAR 1994-1995, THE BANK HAD PURCHASED ZERO COUPON BONDS FOR RS. 4, 33,01,000/-. IN THE ACCOUNTING YEAR ENDED 31.3.1996 RELEVANT TO ASSESSM ENT YEAR 1996-1997, IT ERRONEOUSLY RE-VALUED THESE BONDS AT THE MARKET VAL UE OF RS. 5,44,81,000/- AND ACCORDINGLY OFFERED TO TAX AN AMOUNT OF RS. 1,1 1,80,000/- WHICH WAS TAXED AT THE RATE OF 55%. IN THE YEAR ENDED 31.3.1 998, THIS MISTAKE WAS REALISED AND THE ENTRY WAS CORRECTED AND THE DIFFER ENTIAL WHICH WAS ERRONEOUSLY TAXED WAS CLAIMED AS DEDUCTION AT THE R ATE OF TAX BEING 48% IN THE ASSESSMENT YEAR 1998-1999 AND, THEREFORE, THE D EPARTMENT HAS GAINED MORE TAX. SIMILARLY, HUDCO BONDS WERE PURCHASED BY THE BANK FOR RS. 4,59,77,000/-, WHICH TOO WAS WRONGLY VALUED BY THE BANK IN THE ACCOUNTING YEAR ENDED 31.3.1996 AT MARKET VALUE OF RS. 5,50,00 ,000/- RESULTING IN OFFERING TO TAX ERRONEOUSLY AT RS. 90,23,000/- IN T HE ASSESSMENT YEAR 1996- 1997 @ 55%. THIS ERROR WAS REALISED AND WAS CORRECT ED AFTER REVERSING THE AMOUNTS FOR YEAR ENDING 31.3.1997 AND 31.3.1998. I N THE ASSESSMENT YEAR 32 ABU DHABI COMMERCIAL BANK L TD. 1997-1998, THE AO ALLOWED THE ASSESSEES CLAIM WITH RESPECT TO THE AMOUNT REVERSED IN THE ASSESSMENT YEAR 1997-1998. IN THIS YEAR THE ASSESSEE HAS ONLY CLAIMED BALANCE AMOUNT. LD CIT (A) ALLOWED TH E ASSESSEES CLAIM AFTER FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF BARODA REPORTED IN 2003 (262 ITR 334) AFTER OBSERVING AND HOLDING AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE AND THE MA TERIAL ON RECORD AND I AM OF THE VIEW THAT THE CLAIM OF THE APPELLAN T IN THIS REGARD IS FAIR AND DOES NOT RESULT IN ANY DISADVANTAGE TO THE DEPARTMENT. ON THE OTHER HAND, THE ACCEPTANCE OF THE CLAIM RESULTS IN A GAIN TO THE DEPARTMENT. FURTHER THE AO HAS HIMSELF ACCEPTED A CLAIM WITH RESPECT TO THIS VERY TRANSACTION IN THE IMMEDIATELY PRECEDING YEAR. IN ANY EVENT, THE ISSUE CAN ALSO BE CONSIDERED FROM A DIFFERENT ANGLE THAT THE ASSESSEE WOULD BE ENTITLED TO VALUE THE ST OCKS AT COST OR MARKET VALUE WHICHEVER IS LOWER. AS THE COST IN TH E INSTANT CASE IS LOWER, THE APPELLANT WOULD BE ENTITLED TO ADOPT THE SAME AND CLAIM THE DIFFERENCTIAL AS LOSS ON REVALUATION. THIS WOUL D BE IN ACCORDANCE WITH THE BOMBAY HIGH COURT DECISION IN THE CASE OF BANK OF BARODA (262 ITR 334). ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS. 1,37,75,000/- MADE BY HIM IN COMPUTING THE T OTAL INCOME OF THE APPELLANT ON THIS ISSUE. 49. AFTER CAREFULLY CONSIDERING THE ISSUE INVOLVED AND THE FINDING OF THE AO AS WELL AS CIT (A), IT IS AN UNDISPUTED FACT THAT T HE METHOD OF VALUATION FOLLOWED BY THE ASSESSEE TO VALUE ITS INVESTMENT WA S COST OR MARKET VALUE WHICHEVER WAS LOWER. THE ASSESSEE HAD SHOWN A HIGH ER VALUE AND PAID THE TAX AT A HIGHER RATE IN THE ASSESSMENT YEAR 1996-19 97. SUCH VALUATION WAS REVERSED AS PER ITS METHOD OF ACCOUNTING AND THE DI FFERENTIAL AMOUNT HAS BEEN CLAIMED AS LOSS. THUS, SUCH A CLAIM IS DULY ALLOWA BLE IN VIEW OF THE DECISION 33 ABU DHABI COMMERCIAL BANK L TD. OF HONBLE BOMBAY HIGH COURT IN THE CASE OF BANK OF BARODA (SUPRA) AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF UN ITED COMMERCIAL BANK LTD. VS. CIT REPORTED IN 1999 (240 ITR 355). THUS, THE FINDINGS GIVEN BY THE LD CIT (A) IS PERFECTLY CORRECT AND WE DO NOT FIND ANY REASON TO DEVIATE FROM THE SAME. IN THE RESULT, GROUND NO.3 IS DISMISSED . C.O. NO.115/M/2004 (AY:1998-199) (BY THE ASSESSEE): 50. THIS CROSS OBJECTION ARISING OUT OF ITA NO.2205 /M/2004. THE ASSESSEE HAS TAKEN AN ALTERNATIVE PLEA TO GROUND NO .2 RAISED BY THE DEPARTMENT AS UNDER: IN THE EVENT, THE ASSESSING OFFICERS (A) ACTION O F BRINGING TO TAX THE DEFERRED PAYMENT GUARANTEE COMMISSION OF RS. 75,07, 484/- IN THE YEAR UNDER APPEAL IS UPHELD, THEN THE AO BE DIRECTED TO EXCLUDE THE AMOUNT OFFERED TO TAX IN THE SUBSEQUENT ASSESSMENT YEARS. 51. SINCE, GROUND NO.2 IN DEPARTMENTS APPEAL STAND S DISMISSED, THIS GROUND BECOMES INFRUCTUOUS. 52. IN THE RESULT, THE GROUNDS TAKEN IN THE CROSS O BJECTION STAND DISMISSED BEING INFRUCTUOUS. ITA NO.2851/M/2004 (AY: 1999-2000) (BY THE ASSESSEE ): 53. IN THIS APPEAL, GROUND NO.1 IS SIMILAR TO GROUN D NO.1 IN ITA NO.3462/M/2010. THE ISSUE RAISED IN THIS GROUND HA S BEEN DISCUSSED IN DETAIL IN THE ASSESSMENT YEAR 1995-1996 IN ITA NO.3 462/M/2010 AND THE 34 ABU DHABI COMMERCIAL BANK L TD. FINDING GIVEN THEREIN SQUARELY APPLIES IN THIS YEAR ALSO. THUS, GROUND NO.1 AS RAISED BY THE ASSESSEE IS ALLOWED. 54. GROUND NO.2 IS SIMILAR TO GROUND NO.2 IN ITA NO .1996/M/2004 FOR THE ASSESSMENT YEAR 1998-1999. IN VIEW OF THE FINDING GIVEN THEREIN, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. IN THE RESULT, GROUN D NO.2 IS DISMISSED. ITA NO.3925/M/2004 (AY:1999-2000) (BY THE DEPARTME NT): 55. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLO WING GROUNDS. 1(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN LAW, THE CIT (A) ERRED IN HOLDING THAT, EXEMPTION OF SEC. 10(15) OF THE IT ACT, 1961 WAS TO BE ALLOWED IN RESPECT OF THE GROSS RECEIPT AND NOT IN RESPECT OF THE NET INCOME ARISING TO THE ASSESSEE. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITIO N OF RS. 28,97,893/- MADE IN RESPECT OF GUARANTEE COMMISSION. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITIO N OF RS. 3,53,000/- MADE IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE BEING THE DEPRECIATION CLAIMED BY THE ASSESSEE, REPRESENTING THE DIFFERENCE BETWEEN COST AND MARKET VALUE THEREOF. (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO ALLOW BAD DEBTS OF RS. 2,53,64,316/- WITHOUT SETTING OF THE PROVISION FOR BAD DEBTS OF R S. 75,73,458/- MADE DURING THE YEAR AND CLAIMED AS DEDUCTION U/S 36(1)( VIIA). 35 ABU DHABI COMMERCIAL BANK L TD. 56. GROUND NO. 1(I) IS SIMILAR TO GROUND NO.1 OF TH E DEPARTMENTAL APPEAL FOR THE ASSESSMENT YEAR 1998-1999 IN ITA NO.2205/M/2004 . IN VIEW OF THE FINDING GIVEN THEREIN, THIS GROUND IS DISMISSED. 57. GROUND NO. 1(II) IS SIMILAR TO THE GROUND NO. 2 OF THE DEPARTMENTAL APPEAL FOR THE ASSESSMENT YEAR 1998-1999. IN VIEW OF THE FINDING GIVEN THEREIN, THIS ISSUE STANDS DECIDED AGAINST THE ASSE SSEE. AS A RESULT, THIS GROUND IS DISMISSED. 58. GROUND NO. 1(III) IS SIMILAR TO GROUND NO.3 OF THE DEPARTMENTAL APPEAL FOR THE ASSESSMENT YEAR 1998-1999. THUS, IN VIEW O F THE FINDINGS GIVEN THEREIN, THIS GROUND IS TOO DECIDED AGAINST THE DEP ARTMENT AND ACCORDINGLY THIS GROUND IS DISMISSED. 59. IN GROUND NO. 1(IV), DEPARTMENT HAS CHALLENGED ALLOWABILITY OF BAD DEBTS OF RS. 2,53,64,316/- WITHOUT SETTING OF THE P ROVISION FOR BAD DEBTS OF RS. 75,73,458/- MADE DURING THE YEAR. THE ASSESSEE HAS CLAIMED DEDUCTION FOR BAD DEBTS OF RS. 2,53,64,316/- AFTER SETTING OFF OP ENING PROVISION OF RS. 2,11,60,709/-. THE ASSESSING OFFICER WHILE COMPUTI NG THE TOTAL INCOME HAS ALLOWED DEDUCTION OF RS. 1,77,90,858/- AFTER SETTIN G OFF THE CLOSING PROVISION OF RS. 75,73,458/-. 60. BEFORE THE CIT (A) IT WAS SUBMITTED THAT CLOSIN G PROVISION OF RS. 75,73,458/- MADE U/S 36(1)(VIIA) OUGHT NOT TO HAVE BEEN SET OFF AGAINST THE AMOUNT OF RS. 2,53,64,316/-. IN SUPPORT OF THE ABO VE CONTENTION, THE ASSESSEE HAS RELIED UPON THE DECISION OF ITAT, MUMB AI BENCH IN THE CASE OF OMAN INTERNATIONAL BANK IN ITA NO.6043/M/1996 RELATING TO ASSESSMENT YEAR 1993-1994 DATED 27.11.2003. THE LD CIT (A) BY FOLLOWING THE SAID ORDER 36 ABU DHABI COMMERCIAL BANK L TD. OF THE ITAT, DIRECTED THE AO TO ALLOW BAD DEBTS OF RS. 2,53,64,316/- WITHOUT SETTING OFF CLOSING PROVISION OF RS. 75,73,458/-. 61. THE LEARNED SR. COUNSEL SUBMITTED THAT THE VIEW TAKEN BY THE CIT (A) IN CONSONANCE WITH SEVERAL DECISIONS OF THE ITAT IN CLUDING IN THE CASE OF OMAN INTERNATIONAL BANK (92 ITD 76) AND IN HOST OF OTHER CASES. ON THE OTHER HAND, LD CIT-DR RELIED UPON THE FINDINGS OF THE AO. 62 . WE HAVE CAREFULLY, CONSIDERED THE RIVAL SUBMISSIONS AND ALSO GONE THROUGH THE DECISIONS RELIED UPON BY THE LEARNED CO UNSEL AND THE FINDINGS OF THE CIT (A). THE TOTAL INCOME OF THE ASSESSEE CAN BE COMPUTED AT THE END OF THE PREVIOUS YEAR AND IN COMPUTATION OF SUCH INCOME DEDUCTION U/S 36(1)(VIIA) HAS TO BE ALLOWED. IF BAD DEBTS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNT DURING THE COURSE OF THE PREVIOUS YEAR, SUCH BAD DEBTS MUS T BE DEDUCTED AS ADMISSIBLE U/S 36(1)(VIIA). APPARENTLY, THE DEDUCT ION ALLOWABLE UNDER CLAUSE (VIIA) IN RESPECT OF BAD DEBTS WILL HAVE TO BE TAXE D AGAINST THE OPENING CREDIT BALANCE IN THE PROVISION OF ACCOUNT TO ARRIVE AT TH E QUANTUM OF DEDUCTION ALLOWABLE WHILE COMPUTING THE TOTAL INCOME. THE DE CISION OF OMAN INTERNATIONAL BANK VS. DCIT (92 ITD 76) IS ALSO IN SUPPORT OF THE CASE OF THE ASSESSEE. WE THUS FIND NO INFIRMITY IN THE REASONI NG GIVEN BY THE CIT (A) FOR ALLOWING THE ASSESSEES CLAIM. 63. IN THE RESULT, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY THIS GROUND IS DECIDED AGAINST THE DEPA RTMENT. C.O.NO.414/M/2004 (AY: 1999-2000) (BY THE ASSESSEE) : 64. THE ASSESSEE HAS MADE AN ALTERNATIVE PLEA WITH REGARD TO ISSUE OF GUARANTEE COMMISSION AND DEPRECIATION CLAIMED BY TH E ASSESSEE 37 ABU DHABI COMMERCIAL BANK L TD. REPRESENTING THE DIFFERENCE BETWEEN COST AND MARKET VALUE OF THE SHARES. SINCE THIS ISSUE IN THE DEPARTMENT APPEAL HAS BEEN ALLOWED IN FAVOUR OF THE ASSESSEE, GROUNDS RAISED IN THIS CROSS OBJECTION HA S BECOME INFRUCTUOUS AND, THEREFORE, SAME ARE BEING DISMISSED AS INFRUCT UOUS. ITA NO.4304/M/2004 (AY: 2000-2001) (BY THE ASSESSEE ): 65. IN THIS APPEAL, GROUND NO.1 IS SIMILAR TO GROUN D NO.1 IN ITA NO.3462/M/2010. THE ISSUE RAISED IN THIS GROUND HA S BEEN DISCUSSED IN DETAIL IN THE ASSESSMENT YEAR 1995-1996 IN ITA NO.3 462/M/2010 AND THE FINDING GIVEN THEREIN SQUARELY APPLIES IN THIS YEAR ALSO. THUS GROUND NO.1 AS RAISED BY THE ASSESSEE IS ALLOWED. 66. GROUND NO.2 IS SIMILAR TO GROUND NO.2 IN ITA NO .1996/M/2004 FOR THE ASSESSMENT YEAR 1998-1999. IN VIEW OF THE FINDING GIVEN THEREIN, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. IN THE RESULT, GROUN D NO.2 IS DISMISSED. ITA NO.5017/M/2004 (AY:2000-2001) ( BY THE DEPARTME NT): 67. IN THIS APPEAL, THE REVENUE HAS TAKEN THE FOLLO WING TWO GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN HOLDING THAT, EXEMPTION OF SEC TION 10(15) OF THE IT ACT, 1961, WAS TO BE ALLOWED IN RESPECT OF THE GRO SS RECEIPTS AND NOT IN RESPECT OF THE NET INCOME ARISING TO THE ASSESSEE . 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING THE AO TO DELETE THE ADDITION OF RS. 16,54,257/- MADE IN RESPECT OF GUARANTEE COMMISSION . 38 ABU DHABI COMMERCIAL BANK L TD. 68. GROUND NO.1 IS SIMILAR TO GROUND NO.1 OF DEPART MENTS APPEAL IN ITA NO.2205/M/2004. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION GIVEN THEREIN, THIS GROUND IS DISMISSED. 69. GROUND NO.2 IS SIMILAR TO GROUND NO.2 OF DEPART MENTS APPEAL IN ITA NO.2205/M/2004. THEREFORE, IN VIEW OF THE DECISION GIVEN THEREIN, THIS ISSUE IS DECIDED AGAINST THE DEPARTMENT AND ACCORDINGLY T HIS GROUND IS DISMISSED. C.O.NO.48/M/2005 (AY: 2000-2001) (BY THE ASSESSEE): 70. THE ASSESSEE HAS RAISED THIS CROSS OBJECTION BY WAY OF ALTERNATIVE GROUND TO THE ISSUE ON GUARANTEE COMMISSION. SINCE, DEPARTMENTS GROUND ON THIS SCORE HAS BEEN DISMISSED AND, THEREFORE, THIS GROUND HAS BECOME INFRUCTUOUS. 71. IN THE RESULT, THE CROSS OBJECTION IS DISMISSED AS IN FRUCTUOUS. 72. AS A RESULT, ALL THE ABOVE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AND THE DEPARTMENTAL APPEALS AND CROSS OBJE CTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JULY, 2012. SD/- SD/- (P.M. JAGTAP) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE : 20.07.2012 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR L, BENCH, ITAT, MUMBAI. 39 ABU DHABI COMMERCIAL BANK L TD. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI