KBC Bank NV., V. The ADIT (IT) 3(1),

CO 129/MUM/2004

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7699 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 3 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 17-11-2011
• Assessment Year: misc
• Appeal Filed On: 16-06-2004
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Permanent establishment; Non-deduction of tax; Tax effect
• Section: 143(3); 28

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI . .. . . . . . , ,, , , ! '# ! '# ! '# ! '# , ,, , $ $ $ $ % % % % BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 2785/MUM./2004 ( $& ' (' / ASSESSMENT YEAR : 200001 ) KBC BANK N.V. 702, KESAR SOLITAIRE PLOT NO.5, SECTOR19 PALM BEACH ROAD, SANPADA NAVI MUMBAI 400 705 .. )* / APPELLANT & V/S JT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)3(1) SCINDIA HOUSE, BALLARD ESTATE NAROTTAM MORARJEE MARG MUMBAI 400 038 .... +,)* / RESPONDENT ) . / PERMANENT ACCOUNT NUMBER AAACK8909K . / ITA NO. 2275/MUM./2004 ( $& ' (' / ASSESSMENT YEAR : 200001 ) ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)3(1) SCINDIA HOUSE, BALLARD ESTATE NAROTTAM MORARJEE MARG MUMBAI 400 038 .. )* / APPELLANT & V/S KBC BANK N.V. 702, KESAR SOLITAIRE PLOT NO.5, SECTOR19 PALM BEACH ROAD, SANPADA NAVI MUMBAI 400 705 .... +,)* / RESPONDENT ) . / PERMANENT ACCOUNT NUMBER AAACK8909K KBC BANK N.V. 2 +,% . / C.O. NO. 129/MUM./2004 ( . 2275/MUM./2004 ./! 0 ) (ARISING OUT OF ITA NO. 2275/MUM./2004 ) ( $& ' (' / ASSESSMENT YEAR : 200001 ) KBC BANK N.V. 702, KESAR SOLITAIRE PLOT NO.5, SECTOR19 PALM BEACH ROAD, SANPADA NAVI MUMBAI 400 705 .. +,% / CROSS OBJECTOR & V/S ASSTT. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)3(1) SCINDIA HOUSE, BALLARD ESTATE NAROTTAM MORARJEE MARG MUMBAI 400 038 .... +,)* / RESPONDENT ) . / PERMANENT ACCOUNT NUMBER AAATG2361E $& '1! 2 3 / ASSESSEE BY : MR. NIRAJ SHETH 4 2 3 / REVENUE BY : MS. NEERAJA PRADHAN & 2 ! / DATE OF HEARING 18.09.2012 ' 56( 2 ! / DATE OF ORDER 28.09.2012 ' ' ' ' / ORDER ! '# ! '# ! '# ! '# , ,, , $ $ $ $ 7 7 7 7 / PER AMIT SHUKLA, J.M. THE CROSS APPEALS ARE DIRECTED AGAINST THE IMPUGNED ORDER DATED 6 TH JANUARY 2004, PASSED BY THE LEARNED COMMISSIONER (A PPEALS)XXXIII, MUMBAI, IN THE QUANTUM OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT), FOR ASSESSMENT YEAR 200001. THE ASSESSEE HAS ALSO PREFERRED A CROSS OBJECTION, WHIC H IS ARISING OUT OF THE APPEAL PREFERRED BY THE REVENUE. SINCE THESE ARE TH E CROSS APPEALS, THEREFORE, AS A MATTER OF CONVENIENCE, ALL THESE AP PEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDA TED ORDER. KBC BANK N.V. 3 WE FIRST TAKE UP ASSESSEES APPEAL IN ITA NO.2785/MUM./2004 , FOR ASSESSMENT YEAR 200001. THE GROUNDS RAISED BY THE ASSESSEE, READ AS UNDER: 1. THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN BRINGING TO TAX INTEREST OF ` 61,91,784, RECEIVED FROM OVERSEAS BRANCHES AS FORMING PART OF THE TAXAB LE INCOME. THE APPELLANT SUBMIT THAT INTEREST RECEIVED BY THE APPELLANTS FROM OVERSEAS BRANCHES CANNOT BE TREATED AS INCOME SINCE IT IS AMOUNT RECEIVED FROM SELF. THE APPELLANTS PRAY THAT THE A.O. BE DIRECTED SUITA BLY IN THE MATTER. 2. WITHOUT PREJUDICE TO (1) ABOVE AND IN ANY EVENT IT IS SUBMITTED THAT IF INTEREST RECEIVED FROM OVERSEAS BRANCHES IS NOT ALLOWED AS A DEDUCTION, INTEREST OF ` 2,48,388, PAID TO OVERSEAS BRANCHES SHOULD BE EXCLUDED WHILE COMPUTING THE TOTAL INCOME FOR THE Y EAR UNDER APPEAL. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A BANK INCORPORATED IN BELGIUM UNDER THE RELEVANT BELGIUM LEGISLATION AND IS A NONRESIDENT BANKING COMPANY. DURING THE COURSE OF THE ASSESSMEN T PROCEEDINGS, THE ASSESSING OFFICER, FROM THE STATEMENT OF COMPUTATIO N OF INCOME, NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF IN TEREST RECEIVED FROM BRANCHES AMOUNTING TO ` 61,91,754. IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER TO JUSTIFY THE SAME, THE ASSESSEE SUBMITTED AS UNDER: DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 200001 INTEREST OF ` 61,91,784 WAS RECEIVED FROM OVERSEAS BRANCHES. THI S INTEREST HAS BEEN EARNED ON PLACEMENT OF FUNDS WITH OVERSEAS BRANCHES / HEAD OFFICE FOR SHORT PERIODS FROM TIME TO TIME. INTEREST RECEIVED FROM OVERSEAS BRANCHES / HEAD OFF ICE BEING A PAYMENT RECEIVED FROM SELF CANNOT BE TREATED AS INC OME AND HAS THEREFORE BEEN DEDUCTED WHILE COMPUTING THE TOTAL I NCOME FOR THE ABOVE YEAR. INCOME CAN ARISE TO THE ASSESSEE ONLY W HEN HE DEALS WITH ANOTHER ENTITY. IN VIEW OF THE ABOVE IT IS SUBMITTE D THAT THE INTEREST RECEIVED FROM OVERSEAS OF ` 61,91,784 SHOULD NOT BE INCLUDED IN THE COMPUTATION OF TOTAL INCOME. WITHOUT PREJUDICE AND IN ANY EVEN IT IS SUBMITTED T HAT IF INTEREST FROM BRANCHES IS NOT ALLOWED AS A DEDUCTION, INTEREST OF ` 2,48,388 PAID TO BRANCHES SHOULD BE EXCLUDED WHILE COMPUTING THE TOT AL INCOME FOR THE ABOVE YEAR. KBC BANK N.V. 4 3. THE ASSESSING OFFICER DISAGREED WITH THE SAID SUBMI SSIONS AND HELD THAT THE ASSESSEE COMPANY IS ONE OF THE BRANCHES OF KBC BANK OPERATING IN INDIA AND HAS THE PERMANENT ESTABLISHMENT (P.E) IN INDIA, THEREFORE, ALL THE PROFITS APPLICABLE TO P.E. WILL BE TAXED IN INDIA. ACCORDINGLY, THE INTEREST INCOME IS ALSO TAXABLE IN INDIA. 4. THE ASSESSEE, BEING AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, CARRIED THE MATTER IN FIRST APPEAL WHEREIN BEFORE THE LEARNED COMMISSIONER (APPEALS) IT WAS SUBMITTED THAT THE IN TEREST WHICH IS BEING RECEIVED FROM THE BRANCHES IS FROM SELF ONLY AND, T HEREFORE, NOT CHARGEABLE TO TAX. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN BETTS HARTLEY HUETT AND CO. LTD. V/S CIT, [1979] 116 ITR 425 (CAL.) . ALTERNATIVELY, IT WAS PLEADED THAT IF THE INTERES T RECEIVED FROM OVERSEAS BRANCHES IS BROUGHT TO TAX, THE INTEREST PAID TO OVERSEAS BRANCHES SHOULD BE ALLOWED AS DEDUCTION IN COMPUTING THE TOTAL INCOME. THE LEARNED COMMISSIONER (APPEALS) REJECTED THE SAID SUBMISSIONS OF THE ASSESSEE AFTER OBSERVING AND HOLDING AS UNDE R: 5.3 ON A CAREFUL CONSIDERATION OF THE ABOVE FACTS, I AM OF THE IEW THAT ORDINARILY INTEREST PAYMENT IS AN ALLOWABLE EX PENSES. BUT IN THE PRESENT CASE NO NEXUS HAS BEEN ESTABLISHED THAT THE INTEREST EXPENSES CLAIMED AS DEDUCTION IS RELATABLE TO THE INTEREST R ECEIVED FROM THE OVERSEAS BRANCHES. BESIDES THIS, THE ASSESSEE IS NO T ABLE TO EXPLAIN AS TO WHY THE DEDUCTION IS BEING CLAIMED SEPARATELY. U NDER THE CIRCUMSTANCES AND FACTS OF THE CASE THE CLAIM OF TH E ASSESSEE IS REJECTED AND DISALLOWANCE MADE BY THE A.O. IS CONFI RMED. APPELLANTS APPEAL ON THIS GROUND IS DISMISSED. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TR IBUNAL. 5. BEFORE US, AT THE OUTSET, BOTH THE PARTIES AGREED T HAT THE ISSUE INVOLVED IS SQUARELY COVERED BY THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL IN SUMITOMO MITSUI BANKING CORPORATION V/S DCIT, [2012 ] 19 TAXMAN.COM 364 (SB)(MUM.) . KBC BANK N.V. 5 6. WE HAVE CAREFULLY CONSIDERED THE ABOVE DECISION OF THE SPECIAL BENCH AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE ISSUE FOR OUR ADJUDICATION IS NOW STANDS SQUARELY COVERED BY THE MUMBAI SPECIAL BENCH DECISION IN SUMITOMO MITSUI BANKING CORPORATION (SUPRA) , WHEREIN, IT HAS BEEN OBSERVED AND HELD AS UNDER: 49. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL PLACED ON RECORD BEFORE US AND THE JUDICIAL PRONOUN CEMENTS CITED AT THE BAR BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES. THE ASSESSEE IN THE PRESENT CASE, VIZ. M/S SUMITOMO MITSUI BANKI NG CORPORATION IS A FOREIGN BANKING COMPANY WHICH IS INCORPORATED IN AN D CONTROLLED FROM JAPAN AND IS A TAX RESIDENT OF THAT COUNTRY. IT CAR RIES ON BANKING BUSINESS IN INDIA THROUGH BRANCH OFFICES AT MUMBAI AND NEW DELHI WHICH CONSTITUTE ITS PERMANENT ESTABLISHMENT IN IND IA IN TERMS OF THE RELEVANT ARTICLE OF THE INDO-JAPANESE TREATY. THE O THER ASSESSEE ALSO IS A FOREIGN BANKING COMPANY WHICH IS A TAX RESIDENT O F BELGIUM AND CARRIES ON BANKING BUSINESS IN INDIA THROUGH ITS BR ANCH AT MUMBAI WHICH CONSTITUTES ITS PERMANENT ESTABLISHMENT IN IN DIA IN TERMS THE RELEVANT ARTICLE OF THE INDIA-BELGIUM TAX TREATY. I N THE CASE OF BOTH THESE ASSESSEES, ADVANCES WERE GIVEN BY THE OVERSEA S HEAD OFFICES TO THE BRANCHES IN INDIA ON WHICH INTEREST WAS PAYABLE BY THE BRANCHES IN INDIA. THE DISPUTE THAT HAS ARISEN IN THEIR CASES IS RELATING TO DEDUCTIBILITY OF INTEREST SO PAYABLE IN THE HANDS O F PE IN INDIA AND CHARGEABILITY OF THE SAID INTEREST TO TAX IN INDIA IN THE HANDS OF FOREIGN GE. THESE ISSUES ARE REFERRED FOR CONSIDERATION OF THE SPECIAL BENCH IN THE FORM OF TWO QUESTIONS WHICH ARE ALREADY INDICAT ED AT THE BEGINNING OF THIS ORDER. AT THE OUTSET, WE MAY NOTE THAT THE RELEVANT PROVISIONS OF THE TAX TREATIES ENTERED INTO BY INDIA WITH JAPA N AND BELGIUM ARE SIMILAR AND IN THE ABSENCE OF ANY MATERIAL DIFFEREN CE THEREIN, WE SHALL BE GENERALLY REFERRING TO THE RELEVANT PROVISIONS O F THE INDO-JAPANESE TAX TREATY FOR THE SAKE OF CONVENIENCE . 50. AS REGARDS THE DEDUCTION OF INTEREST PAYABLE TO THE HEAD OFFICE IN THE HANDS OF INDIAN PE FOR THE PURPOSE OF COMPUTING PROFITS ATTRIBUTABLE TO THE SAID PE, THERE IS NO DISPUTE TH AT SUCH DEDUCTION IS NOT PERMISSIBLE UNDER THE INDIAN INCOME-TAX ACT (DO MESTIC LAW) BEING THE PAYMENT MADE TO SELF. BOTH THE INDIAN PE AND TH E FOREIGN GE OF WHICH IT IS A PART ARE NOT SEPARATE ENTITIES FOR TH E PURPOSE OF TAXATION UNDER THE DOMESTIC LAW AND THE SAME BEING ONE AND T HE SAME ENTITY RECOGNIZED AS ONE ASSESSEE UNDER THE DOMESTIC LAW, INTEREST PAYABLE BY INDIAN PE TO FOREIGN GE OF WHICH IT IS A PART, C ANNOT BE TREATED AS EXPENDITURE ALLOWABLE AS DEDUCTION BEING PAYMENT TO SELF. THIS POSITION WHICH IS WELL SETTLED UNDER THE DOMESTIC L AW HAS NOT BEEN DISPUTED EVEN BY THE LEARNED REPRESENTATIVES OF THE ASSESSEES DURING THE COURSE OF HEARING BEFORE US. THEY, HOWEVER, HAV E RELIED ON THE RELEVANT TAX TREATIES IN SUPPORT OF THE ASSESSEES CLAIM FOR DEDUCTION ON ACCOUNT OF INTEREST PAYABLE TO GE WHILE COMPUTIN G THE PROFITS ATTRIBUTABLE TO PE IN INDIA AS PER ARTICLE 7(2) AND 7(3) READ WITH PARAGRAPH NO. 8 OF THE PROTOCOL.. IT IS, THEREFORE, PERTINENT TO REFER TO KBC BANK N.V. 6 THE SAID TWO ARTICLES AND PARAGRAPH NO. 8 OF THE PR OTOCOL WHICH ARE REPRODUCED BELOW : 7(2) SUBJECT TO THE PROVISIONS OF PARAGRAPH 3, WHE RE AN ENTERPRISE OF A CONTRACTING STATE CARRIES ON BUSINESS IN THE OTHE R CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, THERE SHALL IN EACH CONTRACTING STATE BE ATTRIBUTED TO THAT PERMAN ENT ESTABLISHMENT THE PROFITS WHICH IT MIGHT BE EXPECTED TO MAKE IF I T WERE A DISTINCT AND SEPARATE ENTERPRISE ENGAGED IN THE SAME OR SIMILAR ACTIVITIES UNDER THE SAME OR SIMILAR CONDITIONS AND DEALING WHOLLY INDEP ENDENTLY WITH THE ENTERPRISE OF WHICH IT IS A PERMANENT ESTABLISHMENT . (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 PERMANENT ESTABLISHMENT, INCLUDING EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES SO INCURRED, WHETHE R IN THE CONTRACTING STATE IN WHICH THE PERMANENT ESTABLISHM ENT IS SITUATED OR ELSEWHERE. PARAGRAPH NO. 8 OF THE PROTOCOL: 8. WITH REFERENCE TO PARAGRAPH 3 OF ARTICLE 7 OF T HE CONVENTION, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF AMOUNTS PA ID OR CHARGED (OTHER THAN REIMBURSEMENT OF ACTUAL EXPENSES) BY A PERMANENT ESTABLISHMENT OF AN ENTERPRISE TO THE HEAD OFFICE O F THE ENTERPRISE OR ANY OTHER OFFICES THEREOF, BY WAY OF : (A) ROYALTIES, FEES OR OTHER SIMILAR PAYMENTS IN RE TURN FOR THE USE OF PATENTS OR OTHER RIGHTS, OR FOR THE USE OF KNOW-HOW ; (B) COMMISSION OR OTHER CHARGES, FOR SPECIFIC SERVI CES PERFORMED OR FOR MANAGEMENT; AND (C) INTEREST ON MONEYS LENT TO THE PERMANENT ESTABL ISHMENT; EXCEPT WHERE THE ENTERPRISE IS A BANKING INSTITUTION. 52. A COMBINED READING OF ARTICLE 7(2) AND 7(3) OF THE TREATY AND PARAGRAPH NO.8 OF THE PROTOCOL THUS MAKES IT CLEAR THAT FOR THE PURPOSE OF COMPUTING THE PROFITS ATTRIBUTABLE TO THE PE IN INDIA, THE SAID PE IS TO BE TREATED AS A DISTINCT AND SEPARATE ENTITY WHI CH IS DEALING WHOLLY INDEPENDENTLY WITH THE GENERAL ENTERPRISE OF WHICH IT IS A PART AND DEDUCTION HAS TO BE ALLOWED FOR ALL THE EXPENSES WH ICH ARE INCURRED FOR THE PURPOSE OF PE WHETHER IN INDIA OR ELSEWHERE BAR RING THE AMOUNT PAID BY A PERMANENT ESTABLISHMENT TO THE HEAD OFFIC E OF GE OR ANY OTHER OFFICES THEREOF, INTER ALIA, BY WAY OF INTERE ST ON MONEYS LENT TO THE PERMANENT ESTABLISHMENT EXCEPT WHERE THE ENTERP RISE IS A BANKING INSTITUTION. IN THE CASE OF A BANKING ENTERPRISE LI KE THE ASSESSEE IN THE PRESENT CASE, PROFIT ATTRIBUTABLE TO THE PE IN INDI A THUS IS TO BE COMPUTED TREATING THE SAME AS A DISTINCT AND SEPARA TE ENTITY WHICH IS DEALING WHOLLY INDEPENDENTLY WITH THE GE OF WHICH I T IS A PART AND DEDUCTION IS TO BE ALLOWED FOR ALL THE EXPENSES WHI CH ARE INCURRED FOR KBC BANK N.V. 7 THE PURPOSE OF PE, WHETHER INCURRED IN INDIA OR ELS EWHERE, INCLUDING THE INTEREST PAID OR PAYABLE BY A PE TO THE HEAD OF FICE OR ANY OTHER OFFICES OF THE GE BY WAY OF INTEREST ON MONEYS LENT TO THE PE. IN THE PRESENT CASE, THE INTEREST IN QUESTION IS PAYABLE B Y THE PE IN INDIA TO THE HEAD OFFICE OF THE GE ABROAD ON THE MONEYS LENT TO IT AND THE SAME BEING UNDISPUTEDLY THE EXPENDITURE INCURRED FO R THE PURPOSE OF PE, WE HAVE NO HESITATION TO HOLD THAT THE SAME IS ALLOWABLE AS DEDUCTION WHILE COMPUTING THE PROFITS OF THE PE IN INDIA FOR THE PURPOSE OF TAXATION IN INDIA AS PER ARTICLE 7(2) AN D 7(3) OF THE TREATY READ WITH PARAGRAPH NO. 8 OF THE PROTOCOL. AS A MAT TER OF FACT, THE AO HAS NOT DISPUTED THIS POSITION AND EVEN SHRI GIRISH DAVE HAS NOT RAISED ANY MATERIAL CONTENTION AT THE TIME OF HEARING BEFO RE US TO DISPUTE THIS POSITION. 56. IN SO FAR AS THE TAXABILITY OF INTEREST PAYABLE BY PE IN INDIA IN THE HANDS OF GE UNDER THE DOMESTIC LAW IS CONCERNED, IT IS RELEVANT TO NOTE THAT THE PE IN INDIA AND THE GE ABROAD OF WHICH THE SAID PE IS PART ARE NOT INDEPENDENT PERSONS UNDER THE DOMESTIC LAW I.E. INDIAN INCOME- TAX ACT AND THEY ARE NOT ASSESSED TO TAX SEPARATELY IN INDIA. THE TAXABLE ENTITY IS ONLY ONE I.E. THE OVERSEAS GE WHI CH IS THE ASSESSEE BANK IN THE PRESENT CASE WHO IS A NON RESIDENT IN I NDIA AND THE PE IN INDIA IS PART OF THAT ENTITY WHICH IS A TAXABLE ENT ITY IN INDIA EVEN IN RESPECT OF INCOME ATTRIBUTABLE TO THE PE IN INDIA. THERE IS THUS ONLY ONE PERSON ASSESSABLE TO TAX I.E. GE AND PE IS NOT AN INDEPENDENT PERSON WHO IS ASSESSED TO TAX SEPARATELY IN INDIA. IT IS A PART OF THE GE AND ITS INCOME IS CHARGEABLE TO TAX IN THE HANDS OF GE WHICH ALONE IS THE PERSON ASSESSABLE TO TAX IN INDIA . 88. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND T HE LEGAL POSITION EMANATING FROM THE INTERPRETATION OF THE RELEVANT P ROVISIONS OF DOMESTIC LAW AS WELL AS THAT OF THE TREATY AS DISCU SSED ABOVE, WE ARE OF THE VIEW THAT ALTHOUGH INTEREST PAID TO THE HEAD OFFICE OF THE ASSESSEE BANK BY ITS INDIAN BRANCH WHICH CONSTITUTE S ITS PE IN INDIA IS NOT DEDUCTIBLE AS EXPENDITURE UNDER THE DOMESTIC LA W BEING PAYMENT TO SELF, THE SAME IS DEDUCTIBLE WHILE DETERMINING T HE PROFIT ATTRIBUTABLE TO THE PE WHICH IS TAXABLE IN INDIA AS PER THE PROV ISIONS OF ARTICLE 7(2) & 7(3) OF THE INDO-JAPANESE TREATY READ WITH PARAGR APH 8 OF THE PROTOCOL WHICH ARE MORE BENEFICIAL TO THE ASSESSEE. THE SAID INTEREST, HOWEVER, CANNOT BE TAXED IN INDIA IN THE HANDS OF A SSESSEE BANK, A FOREIGN ENTERPRISE BEING PAYMENT TO SELF WHICH CANN OT GIVE RISE TO INCOME THAT IS TAXABLE IN INDIA AS PER THE DOMESTIC LAW. EVEN OTHERWISE, THERE IS NO EXPRESS PROVISION CONTAINED IN THE RELEVANT TAX TREATY WHICH IS CONTRARY TO THE DOMESTIC LAW IN IND IA ON THIS ISSUE. THIS POSITION APPLICABLE IN THE CASE OF INTEREST PAID BY INDIAN BRANCH OF A FOREIGN BANK TO ITS HEAD OFFICE EQUALLY HOLDS GOOD FOR THE PAYMENT OF INTEREST MADE BY THE INDIAN BRANCH OF A FOREIGN BAN K TO ITS BRANCH OFFICES ABROAD AS THE SAME STANDS ON THE SAME FOOTI NG AS THE PAYMENT OF INTEREST MADE TO THE HEAD OFFICE. AT THE TIME OF HEARING BEFORE US, THE LEARNED REPRESENTATIVES OF BOTH THE SIDES HAVE ALSO NOT MADE ANY SEPARATE SUBMISSIONS ON THIS ASPECT OF THE MATTER S PECIFICALLY. HAVING HELD THAT THE INTEREST PAID BY THE INDIAN BRANCH OF THE ASSESSEE BANK TO ITS HEAD OFFICE AND OTHER BRANCHES OUTSIDE INDIA IS NOT CHARGEABLE TO KBC BANK N.V. 8 TAX IN INDIA, IT FOLLOWS THAT THE PROVISIONS OF SEC TION 195 WOULD NOT BE ATTRACTED AND THERE BEING NO FAILURE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT OF INTEREST MADE BY THE PE, THE QUESTI ON OF DISALLOWANCE OF THE SAID INTEREST BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) DOES NOT ARISE. ACCORDINGLY WE ANSWER QUESTION NO.1 REFE RRED TO THIS SPECIAL BENCH IN THE NEGATIVE I.E. IN FAVOUR OF THE ASSESSE E AND QUESTION NO.2 IN AFFIRMATIVE I.E. AGAIN IN FAVOUR OF THE ASSESSEE . 7. THUS, RESPECTFULLY FOLLOWING THE AFORESAID RATIO LA ID DOWN BY THE MUMBAI SPECIAL BENCH OF THE TRIBUNAL, WE SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED COMMISSIONER (APPEALS) AND HO LD THAT THE INTEREST OF ` 61,91,074, RECEIVED FROM THE OVERSEAS BRANCHES DOE S NOT FORM PART OF THE TAXABLE INCOME. CONSEQUENTLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 8. 1 !8 $& '1! 2 ! 9 2 4! :; < 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. WE NOW TAKE UP REVENUES APPEAL IN ITA NO.2275/MUM./2004 , FOR ASSESSMENT YEAR 200001. THE GROUNDS RAISED BY THE REVENUE, READ AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DIRECTING THE A.O. TO ALLOW BROKEN PERIOD INTEREST OF ` 1,33,36,472 . 9. THE ASSESSEE, BEFORE THE AUTHORITIES BELOW, HAS CLA IMED THE DEDUCTION FOR BROKEN PERIOD INTEREST OF ` 1,33,36,432, PAID ON SECURITIES PURCHASED DURING THE YEAR BY TREATING THE SAME AS CAPITAL IN NATURE. BEFORE THE ASSESSING OFFICER, RELIANCE WAS PLACED ON THE JUDGM ENT OF JURISDICTIONAL HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V/S CIT, [2002] 258 ITR 601 (BOM.) . HOWEVER, THE ASSESSING OFFICER TRIED TO DISTINGUISHED THE SAID JUDGMENT AND AFTER ANALYZING IN DETAIL, HELD THAT THE CONTENTIONS OF THE ASSESSEE ARE NOT TENABLE IN VIEW OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN VIJAYA BANK LTD. V/S ACIT, [2002] 258 ITR 601 (SC) AND, ACCORDINGLY, DECIDED THE ISSUE AGAINST THE AS SESSEE ON THE GROUND THAT THE ISSUE DECIDED BY THE JURISDICTIONAL HIGH C OURT IN AMERICAN EXPRESS KBC BANK N.V. 9 INTERNATIONAL BANKING CORPORATION (SUPRA) HAS NOT A CCEPTED BY THE DEPARTMENT AND THE ISSUE HAS TO BE KEPT ALIVE TILL THE MATTER IN SLP AGAINST THE ORDER ATTAINS FINALITY. 10. THE LEARNED COMMISSIONER (APPEALS), FOLLOWING THE J UDGMENT OF JURISDICTIONAL HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA) , ALLOWED THE ASSESSEES GROUND AFTER OBSERVING AND HOLDING AS UNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF AMERICAN EXPRESS I NTERNATIONAL BANKING CORPORATION V/S CIT (177 CTR 442), HAS DIST INGUISHED THE JUDGMENT OF THE SUPREME COURT IN VIJAYA BANKS CASE ON FACTS HELD THAT WE FIND THAT THE ASSESSEES METHOD OF ACCOUNTING DO ES NOT RESULT IN LOSS OF TAX / REVENUE FOR THE DEPARTMENT. THAT T HERE WAS NO NEED TO INTERFERE WITH THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE BANK. THAT THE JUDGMENT IN THE CASE OF VIJAYA BANK LTD. ( SUPRA) HAS NO APPLICATION TO THE FACTS OF THE CASE. THAT HAVING A SSESSED THE INCOME UNDER SECTION 28, THE DEPARTMENT OUGHT TO HAVE TAXE D INTEREST FOR BROKEN PERIOD INTEREST RECEIVED AND THE DEPARTMENT OUGHT TO HAVE ALLOWED DEDUCTION FOR BROKEN PERIOD INTEREST PAID . ACCORDINGLY, THE JURISDICTION COURT BEING THE HIGH COURT OF BOMBAY IN THE ABOVE CASE, HELD THAT ONCE BROKEN PERIOD INTERE ST RECEIVED BY THE ASSESSEE WAS CHARGED TO TAX AS BUSINESS INCOME UNDE R SECTION 28 OF THE ACT, A DEDUCTION FOR PAYMENT MADE FOR BROKEN PE RIOD INTEREST AT THE TIME OF PURCHASE OF THESE SECURITIES COULD NOT BE DENIED WHEN THE ASSESSEES METHOD OF ACCOUNTING DID NOT RESULT IN L OSS OF REVENUE FOR THE REVENUE AUTHORITIES. HOWEVER, SINCE THE INTERES T INCOME OF THE APPELLANTS BANK HAS BEEN TAXED BY THE DEPARTMENT O N ACCRUAL BASIS, INTEREST EXPENDITURE RELATABLE TO THE SAID INCOME I S ONLY TO BE ALLOWED. THE A.O. IS THEREFORE DIRECTED TO ALLOW BROKEN PERI OD INTEREST EXPENDITURE ONLY RELATABLE TO INTEREST INCOME TAXED ON ACCRUAL BASIS FOR THE YEAR UNDER CONSIDERATION. THE A.O. IS THEREFORE , DIRECTED TO VERIFY AND ALLOW THE SAME ACCORDINGLY. APPELLANTS APPEAL ON THIS GROUND IS ALLOWED SUBJECT TO VERIFICATION. 11. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE JUDGMENT OF RAJASTHAN HIGH COURT IN CIT V/S BANK OF RAJASTHAN LTD., [2009] 316 ITR 391 (RAJ.) , WHEREIN THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA) HAS BEEN KBC BANK N.V. 10 DISSENTED FROM. SHE STRONGLY RELIED ON THE FINDINGS GIVEN BY THE ASSESSING OFFICER. 12. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUBMITTED THAT THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA) HAS NOW BEEN UPHELD BY THE HON'BLE SUPREME COURT IN CIT V/S CITI BANK N.A., IN CIVIL APPEAL NO.1549/200 6, VIDE JUDGMENT DATED 12 TH AUGUST 2008 , WHEREIN IT HAS BEEN HELD THAT THE CASE OF VIJAY BANK LTD. (SUPRA), HAVE NO APPLICATION. THUS, HE SUBMITTED THAT THE JUDGMENT OF RAJASTHAN HIGH COURT WILL NOT BE APPLIC ABLE AS THE HON'BLE SUPREME COURT, IN THE LATER JUDGMENT, HAS UPHELD TH E JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN AMERICAN EXPRESS INTER NATIONAL BANKING CORPORATION (SUPRA). 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AV AILABLE ON RECORD AND THE CASE LAW CITED BEFORE US. WE FIND THAT THIS ISSUE F OR OUR ADJUDICATION IS NOW STANDS COVERED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HON'BLE SUPREME COURT IN CITI BANK N.A. (SUPRA) , WHEREIN THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION (SUPRA) HAS BEEN UPHELD AFTER OBSERVING AND HOLDING AS UNDER: WE MAY POINT OUT THAT IN AMERICAN EXPRESS (SUPRA), THE BOMBAY HIGH COURT DISTINGUISHED THE DECISION IN VIJAYA LTD. (SU PRA) BY OBSERVING THUS: BEFORE GOING FURTHER WE MAY MENTION AT THE VERY OU TSET THAT THE SECURITY IN THIS CASE WAS OF THE FACE VALUE OF RS.5 LAKHS. WAS BOUGHT FOR A LESSER AMOUNT OF RS.4,92,000. THE DIFFERENCE WAS OF RS.8,000. THE ASSESSEE HAS REVALUED THE SECURITY. THE ASSESSE E OFFERED THE NOTIONAL PROFIT FOR TAXATION, AS EXPLAINED HEREINAB OVE, ON ACCRUAL BASIS IN THE APPROPRIATE ASSESSMENT YEAR DURINQ WHICH THE ASSESSEE HELD THE SECURITY. THIS DIFFERENCE COULD HAVE BEEN TREATED B Y THE DEPARTMENT AS INTEREST ON SECURITIES UNDER SECTION 18. HOWEVER, I N THE INSTANT CASE, THE DEPARTMENT HAS ASSESSED THE SAID DIFFERENCE UND ER SECTION 28 UNDER THE HEAD BUSINESS AND NOT UNDER THE HEAD I NTEREST ON SECURITIES. HAVING TREATED THE DIFFERENCE UNDER TH E HEAD BUSINESS, THE ASSESSING OFFICER DISALLOWED THE BROKEN PERIOD INTEREST PAYMENT, KBC BANK N.V. 11 WHICH GAVE RISE TO THE DISPUTE. IT WAS OPEN TO THE DEPARTMENT TO ASSESS THE ABOVE DIFFERENCE UNDER THE HEAD INTERES T ON SECURITIES UNDER SECTION 18. HOWEVER, THEY CHOSE TO ASSESS THE INTEREST UNDER THE HEAD BUSINESS AND, WHILE DOING SO, THE DEPART MENT TAXED BROKEN PERIOD INTEREST RECEIVED, BUT DISALLOWED BROKEN PER IOD INTEREST PAYMENT. IT IS IN THIS LIGHT THAT ONE HAS TO READ T HE JUDGMENT OF THE KARNATAKA HIGH COURT AND THE SUPREME COURT IN VIJAY A BANK LTDS CASE [1991] 187 ITR 541. IN THAT CASE, THE FACTS WERE AS FOLLOWS. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, VIJAYA BANK EN TERED INTO AN AGREEMENT WITH JAYALAKSHMI BANK LIMITED, WHEREBY VI JAYA BANK TOOK OVER THE LIABILITIES OF JAYALAKSHMI BANK. THEY ALSO TOOK OVER ASSETS BELONGING TO JAYALAKSHMI BANK. THESE ASSETS CONSIST ED OF TWO ITEMS, VIZ., RS.58,568 AND RS.LL,630.00. THE SAID AMOUNT O F RS.58,568 REPRESENTED INTEREST, WHICH ACCRUED ON SECURITIES T AKEN OVER BY VIJAYA BANK FROM JAYALAKSHMI BANK AND RS.]L, 630 WAS THE I NTEREST WHICH ACCRUED UP TO THE DATE OF PURCHASE OF SECURITIES BY THE ASSESSEEBANK FROM THE OPEN MARKET. THESE TWO AMOUNTS WERE BROUGH T TO TAX BY THE ASSESSING OFFICER UNDER SECTION 18 OF THE INCOMETA X ACT. THE ASSESSEE--BANK CLAIMED THAT THESE AMOUNTS WERE DEDU CTIBLE UNDER SECTIONS 19 AND 20. THIS WAS ON THE FOOTING THAT TH E DEPARTMENT HAD BROUGHT TO TAX, THE AFORESTATED TWO AMOUNTS AS INTE REST ON SECURITIES UNDER SECTION 18. IT IS IN THE LIGHT OF THESE FACTS THAT ONE HAS TO READ THE JUDGMENT IN VIJAYA BANK LTD. S CASE [1991] 187 ITR 541 (SC). IN THE LIGHT OF THE ABOVE FACTS, IT WAS HELD THAT THE OUTLAY ON PURCHASE OF INCOME-- BEARING ASSET WAS IN THE NATURE OF CAPITAL OUTLAY AND NO PART OF THE CAPITAL OUTLAY CAN BE SET OFF AS EXPENDITURE AGAINST INCOME ACCRUI NG FROM THE ASSET IN QUESTION. IN OUR CASE, THE AMOUNT WHICH THE ASSESSEE RECEIVED HAS BEEN BROUGHT TO TAX UNDER THE .HEAD BUSINESS UNDER SECTION 28. THE AMOUNT IS NO T BROUGHT TO TAX UNDER SECTION 18 OF THE INCOMETAX A CT. AFTER BRINGING THE AMOUNT TO TAX UNDER THE HEAD BUSINESS, THE DEPARTMENT TAXED THE BROKEN PERIOD INTEREST RECEIVED ON SALE, BUT AT THE SAME TIME, DISALLOWED BROKEN PERIOD INTEREST PAYMENT AT THE TI ME OF PURCHASE AND THIS LED TO THE DISPUTE. HAVING ASSESS ED THE AMOUNT RECEIVED BY THE ASSESSEE UNDER SECTION 28, T HE ONLY LIMITED DISPUTE WASWHETHER THE IMPUGNED ADJUSTMENTS IN THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE HANK SHOULD BE DISCARDED. THEREFORE, THE JUDGMENT IN VIJAYA BANK LTD.S CASE [1991] 187 ITR 541 (SC> HAS NO APPLICATION TO THE FACTS OF THE PRESENT CASE. IF THE DEPARTMENT HAD BROUGHT TO TAX, THE AMOUNTS RECEIVED BY THE ASSESSEE--BANK UNDER SECTION 18, TH EN VIJAYA BANK LTD.S CASE [1991] 187 ITR 541 (SC) WAS APPLICABLE. BUT, IN THE PRESENT CASE, THE DEPARTMEN T BROUGHT TO TAX SUCH AMOUNTS UNDER SECTION 28 RIGHT FROM THE INCEPTION. THEREFORE, THE TRIBUNAL WAS RIGHT IN COMING TO THE CONCLUSION THAT T HE JUDGMENT IN VIJAYA BANK LTD.S CASE [1991] 187 ITR 541 (SC) DID NOT APPLY TO THE F ACTS KBC BANK N.V. 12 OF THE PRESENT CASE. HOWEVER, BEFORE US, IT WAS ARG UED. ON BEHALF OF THE REVENUE, THAT IN VIEW OF THE JUDGM ENT IN VIJAYA BANK LTD.S CASE [1991] 187 ITR 541 (SC), EV EN IF THE SECURITIES WERE TREATED AS PART OF THE TRADING ASSETS, THE INCOME THEREFROM HAD TO HE ASSESSED UNDER SECTI ON 18 OF THE ACT AND NOT UNDER SECTION 28 OF THE ACT A S INCOME FROM SECURITIES CAN ONLY COME WITHIN SECTION 18 AND NOT UNDER SECTION 28. WE DO NOT FIND ANY MERIT IN THIS ARGUMENT. FIRSTLY, AS STATED ABOVE, VIJAYA BANK LTD .S CASE [1991] 187 ITR 541 (SC) HAS NO APPLICATION TO THE FACTS OF THIS CASE. SECONDLY, IN THE PRESENT CASE, THE TRIBUNAL HAS FOUND THAT THE SECURITIES WERE HELD AS TRADING ASSETS. THIRDLY, IT HAS BEEN HELD BY THE SU PREME COURT IN THE SUBSEQUENT DECISION REPORTED IN THE CA SE OF CIT V. COCANADA RADLIASWARNI BANK LTD. [1965] 57 IT R 306, THAT INCOME FROM SECURITIES CAN ALSO COME UNDE R SECTION 28 AS INCOME FROM BUSINESS. THIS JUDGMENT I S VERY IMPORTANT. IT ANALYSES THE JUDGMENT OF THE SUP REME COURT IN UNITED COMMERCIAL BANK LTD.S CASE [1957] 32 ITR 688, WHICH HAS BEEN FOLLOWED BY THE SUPREME COU RT IN VIJAYA BANK LTD.S CASE [1991] 187 ITR 541. IT I S TRUE THAT ONCE AN INCOME FALLS UNDER SECTION 18, IT CANN OT COME UNDER SECTION 28. HOWEVER, AS LAID DOWN BY THE SUPREME COURT IN COCANADA RADHASWARNI BANK LTD. S CASE [1965] 57 ITR 306, INCOME FROM SECURITIES TREA TED AS TRADING ASSETS CAN COME UNDER SECTION 28. IN THE PRESENT CASE, THE DEPARTMENT HAS TREATED INCOME FRO M SECURITIES UNDER SECTION 28. LASTLY, THE FACTS IN T HE CASE OF UNITED COMMERCIAL BANK LTD. [1957] 32 ITR 688 (SC), ALSO SUPPORT OUR VIEW IN THE PRESENT CASE. IN UNITE D COMMERCIAL BANK LTD.S CASE [1957] 32 ITR 688 (SC), THE ASSESSEEBANK CLAIMED A SETOFF UNDER SECTION 24(2) OF THE INDIAN INCOMETAX ACT, 1922 (SECTION 71(1) OF T HE PRESENT ACT), AGAINST ITS INCOME FROM INTEREST ON SECURITIES UNDER SECTION 8 OF THE 1922 ACT (SIMILAR TO SECTION 18 OF THE PRESENT ACT) . IT WAS HELD THAT U NITED COMMERCIAL BANK WAS NOT ENTITLED TO SUCH A SET-OFF AS THE INCOME FROM INTEREST ON SECURITIES CAME UNDER SECTI ON 8 OF THE 1922 ACT. THEREFORE, EVEN IN UNITED COMMERCI AL BANK LTD.S CASE [1957] 32 ITR 688 (SC), THE DEPART MENT HAD ASSESSED INCOME FROM INTEREST ON SECURITIES RIG HT FROM THE INCEPTION UNDER SECTION 8 OF THE 1922 ACT AND, THEREFORE, THE SET-OFF WAS NOT ALLOWED UNDER SECTIO N 24(2) OF THE ACT. THEREFORE, UNITED COMMERCIAL BANK LTD. A CASE [1957] 32 ITR 688 (SC), HAS ALSO NO APPLICATIO N TO THE FACTS OF THE PRESENT CASE IN WHICH THE ASSESSEE S INCOME FROM INTEREST ON SECURITIES IS ASSESSED UNDE R SECTION 28 RIGHT FROM INCEPTION. IN FACT, IN UNITED COMMERCIAL BANK LTD.S CASE [1957] 32 ITR 688 (SC), THE MATTER WAS REMITTED HACK AS IT WAS CONTENDED ON BEH ALF OF UNITED COMMERCIAL BANK THAT THE SECURITIES IN QU ESTION WERE A PART OF THE TRADING ASSETS HELD BY THE ASSES SEE IN KBC BANK N.V. 13 THE COURSE OF ITS BUSINESS AND THE INCOME BY WAY OF INTEREST ON SUCH SECURITIES WAS ASSESSEE UNDER SECT ION 10 OF THE INDIAN INCOME TAX ACT, 1922 (SIMILAR TO SECT ION 28 OF THE PRESENT ACT). IT IS FOR THIS REASON THAT IN THE SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN THE CAS E OF COCANADA RADHASWAMI BANK LTD. [1965] 57 ITR 306, TH E SUPREME COURT HAS OBSERVED, AFTER READING UNITED COMMERCIAL BANK LTD. S CASE [1957] 32 ITR 688 (SC) , THAT WHERE SECURITIES WERE PART OF TRADING ASSETS, INCOME BY WAY OF INTEREST ON SUCH SECURITIES COULD COME UN DER SECTION 10 OF THE INDIAN INCOMETAX ACT, 1922. IN T HE LIGHT OF WHAT WE HAVE DISCUSSED HEREINABOVE, WE FIN D THAT THE ASSESSEES METHOD OF ACCOUNTING DOES NOT RESULT IN LOSS OF TAX/REVENUE FOR THE DEPARTMENT. THAT, THERE WAS NO NEED TO INTERFERE WITH THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE HANK. THAT, THE JUDGMENT I N THE CASE OF VIJAYA BANK LTD. [1991] 187 ITR 541 (SC ), HAD NO APPLICATION TO THE FACTS OF THE CASE. THAT, HAVING ASSESSED INCOME UNDER SECTION 28, THE DEPARTMENT OU GHT TO HAVE TAXED INTEREST FOR THE BROKEN PERIOD INTERE ST RECEIVED AND THE DEPARTMENT OUGHT TO HAVE ALLOWED DEDUCTION FOR THE BROKEN PERIOD INTEREST PAID. THE FACTS IN THE PRESENT CASE ARE SIMILAR TO THE FA CTS IN AMERICAN EXPRESS (SUPRA) . AGREEING WITH THIS VIEW AND ACCEP TING THE DISTINCTION POINTED OUT BY THE BOMBAY HIGH COURT, THIS COURT DI SMISSED THE TWO SPECIAL LEAVE PETITIONS FILED BY THE REVENUE, ONE O F WHICH WAS DISMISSED BY A THREE JUDGE BENCH. AFTER GOING THROU GH THE FACTS WHICH ARE SIMILAR TO THE FACTS IN AMERICAN EXPRESS (SUPRA ) , SINCE THE TAX EFFECT IS NEUTRAL, THE METHOD OF COMPUTATION ADOPTE D BY THE ASSESSEE AND ACCEPTED BY THE REVENUE CANNOT HE INTERFERED WI TH. WE AGREE WITH THE VIEW EXPRESSED BY THE BOMBAY HIGH COURT IN AMER ICAN EXPRESS (SUPRA) THAT ON THE FACTS OF THE PRESENT CASE, THE JUDGMENT IN VIJAYA BANK LTD. (SUPRA) WOULD HAVE NO APPLICATION. FOR THE REASONS GIVEN ABOVE, THE QUEST ION POSED BE FORE US IS ANSWERED IN THE AFFIRMATIVE I.E. IN FAVOUR OF THE A SSESSEE AND AGAINST THE REVENUE THE APPEAL IS DISMISSED ACCORDINGLY. PA RTIES TO BEAR THEIR OWN COSTS . 14. THUS, RESPECTFULLY FOLLOWING THE AFORESAID JUDGMENT OF THE HON'BLE SUPREME COURT, WE UPHOLD THE ORDER PASSED BY THE LE ARNED COMMISSIONER (APPEALS) AND DISMISS THE GROUND RAISED BY THE REVE NUE. 15. 1 !8 4 2 14 2 4! :; < 16. IN THE RESULT, REVENUES APPEAL IS DISMISSED. KBC BANK N.V. 14 WE NOW TAKE UP ASSESSEES CROSS OBJECTION IN C.O. NO.129/MUM./2004 , WHICH IS ARISING OUT OF REVENUES APPEAL IN ITA NO. 2275/MUM./2004, FOR ASSESSMENT YEAR 200001. THE GROUND RAISED IN THE CROSS OBJECTION, READS AS UNDER: THE RESPONDENTS SUBMIT THAT IN CASE THE ASSESSING O FFICERS ACTION OF TREATING THE BROKEN PERIOD INTEREST PAID ON PURCHAS E OF SECURITIES OF ` 1,33,36,472 AS CAPITAL IN NATURE IS UPHELD, THEN CO NSISTENT WITH THE DEPARTMENTS STAND, THE VALUE OF OPENING STOCK OF T HE SECURITIES IN THE SUBSEQUENT YEAR SHOULD BE INCREASED BY THE AMOUNT O F THE BROKEN PERIOD INTEREST PAID IN RESPECT OF SUCH SECURITIES WHICH HAS BEEN TREATED AS NATURE BY THE ASSESSING OFFICER. 16. KEEPING IN VIEW OUR FINDINGS GIVEN IN REVENUES APP EAL VIDE PARAS13 AND 14 ABOVE, THE GROUND RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION BECOMES INFRUCTUOUS. CONSEQUENTLY, THE SAME IS TREA TED AS DISMISSED. 17. 1 !8 $& '1! 2 +,% 14 2 4! :; < 18. IN THE RESULT, ASSESSEES CROSS OBJECTION IS DI SMISSED. 18. $& '= '> , $& '1! 2 ! 9 2 4! :; < 4 2 14 2 4! :; $& '1! 2 +,% 14 2 4! :; < 19. TO SUM UP, ASSESSEES APPEAL IS ALLOWED, REVENU ES APPEAL IS DISMISSED AND ASSESSEES CROSS OBJECTION IS DISMISS ED. ' 2 6( ? @&8 28 TH SEPTEMBER 2012 6 2 A < ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER 2012 SD/- . .. . . . . . R.S. SYAL ACCOUNTANT MEMBER SD/- ! ! ! ! '# '# '# '# $ $ $ $ AMIT SHUKLA JUDICIAL MEMBER MUMBAI, @& @& @& @& DATED: 28 TH SEPTEMBER 2012 KBC BANK N.V. 15 ' 2 +$! B CB(! / COPY OF THE ORDER FORWARDED TO : (1) $& '1! / THE ASSESSEE; (2) 4 / THE REVENUE; (3) D () / THE CIT(A); (4) D / THE CIT, MUMBAI CITY CONCERNED; (5) BGA +$!$& , , / THE DR, ITAT, MUMBAI; (6) AH' I / GUARD FILE. ,B! +$! / TRUE COPY '& / BY ORDER + 4. JK / PRADEEP J. CHOWDHURY 1L $&4 J / SR. PRIVATE SECRETARY . / : 4 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI