EIH Limited, Kolkata V. DCIT, Cir-8(1)Kol., Kolkata

ITA 117/KOL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6291 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 23-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K SRIHARI
• Keywords: Capital asset; Business income; Depreciation; Transfer pricing; Double taxation relief; International transaction; Earning of tax free income; Proportionate interest; Retrospective amendment; Permanent establishment; Cost of acquisition; Wholly owned subsidiary; Non-deduction of tax; Bad and doubtful debts; Corroborative evidences; Arm length price; Revised return; Revenue expenditure; Capital expenditure
• Section: 92B; 14A; 32; 263

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 117 / KOL / 20 17 ASSESSMENT YEAR :2012-13 EIH LTD 4, MANGOE LANE, KOLKATA-700 001 [ PAN NO.AAACE 6898 B ] V/S . DCIT, CIRCLE-8(1), AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI RAVI SHARMA, AR /BY RESPONDENT SHRI P.K. SRIHARI, CIT-DR /DATE OF HEARING 27-02-2018 /DATE OF PRONOUNCEMENT 16-05-2018 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF DISPUTE RESOLUTION PANEL-2, (DRP FOR SHORT) DATED 17.10.201 6. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-8(1), KOLKATA U/S 144C(13)/1 43(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 29.11.2016 FOR ASSESSMENT YEAR 2012-13 AND GROUNDS RAISED BY A SSESSEE READ AS UNDER:- 1.0 DETERMINATION OF ARM'S LENGTH PRICE FOR CORPORA TE GUARANTEE FEES 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LEARNED TRANSFER PRICING OFFICER (HEREINAFTER REFERRED TO A S 'LD, TPO') AND ACCORDINGLY LEARNED ASSESSING OFFICER (HEREINAFTER REFERRED TO AS 'LD. AO') ERRED IN TREATING THE CORPORATE GUARANTEE EXTENDED BY THE AP PELLANT TO ITS ASSOCIATED ENTERPRISE (AE) AS INTERNATIONAL TRANSACTION AND DI SPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO AS 'LD, PANEL') ERRED IN C ONFIRMING THE SAME AS AN INTERNATIONAL TRANSACTION WITHOUT APPRECIATING THE FACT THAT IT DOES NOT FALL WITHIN THE AMBIT OF ' INTERNATIONAL TRANSACTION ' U/S 92B OF THE ACT. 1.2 THE LD.AO/TPO AND THE LD. PANEL FAILED TO APPRE CIATE THE FACT THAT CORPORATE GUARANTEE HAS BEEN ADVANCED BY THE APPELL ANT AS A MATTER OF COMMERCIAL PRUDENCE TO PROTECT THE BUSINESS INTERES T OF THE GROUP BY FULFILLING ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 2 THE SHAREHOLDER'S OBLIGATION AS ANY FINANCIAL INCAP ACITATION WOULD JEOPARDIZE THE INVESTMENT OF THE APPELLANT. 1.3 WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO /TPO AND LD. PANEL FAILED TO APPRECIATE THE CORPORATE GUARANTEE EXTENDED BY THE APPELLANT IS PART AND PARCEL OF THE MANAGEMENT AGREEMENT ENTERED INTO WIT H THE AE AND THEREFORE, THE LD. AO/TPO ERRED IN DEMANDING AN ADDITIONAL CHA RGE ON THE CORPORATE GUARANTEE AND LD. PANEL IN CONFIRMING THE SAME. 1.4 WITHOUT PREJUDICE TO THE ABOVE, THE LD. PANEL E RRED IN ARBITRARILY CONFIRMING THE ARM'S LENGTH GUARANTEE COMMISSION RATE OF 3%, W HEN A NOMINAL GUARANTEE COMMISSION RATE OF 0.3%-0.5% WOULD MEET THE ARM'S L ENGTH CRITERIA BASED ON VARIOUS LEGAL JURISPRUDENCE ON THE MATTER. 2.0 DETERMINATION OF ARM'S LENGTH INTEREST RATE FOR LOAN PROVIDED TO AE 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL FAILED TO APPRECIATE THAT THE LOAN WAS ADVANCED BY THE APPELLANT TO ITS AE IN THE CAPACITY OF A SHAREHOLDER/PROM TO PROTECT ITS I NVESTMENT IN AE AND CONSEQUENTLY ERRED IN CONFIRMING ADJUSTMENT ON ACCO UNT OF INTEREST ON LOAN GIVEN TO ITS AES. 2.2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. AO/TPO AND THE LD. PANEL FAILED TO APPRECIATE THAT THAT THE LOAN WAS A DVANCED BY THE APPELLANT TO ITS AE OUT OF ITS OWN FUND, HAS NOT INCURRED ANY CO ST FOR GRANTING SUCH LOAN. 3.0 DISALLOWANCE U/S 14.A READ WITH RULE BD 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL ERRED IN CONFIRM DISALLOWANCE OF RS. 3,51,52,181/- PROPOSED BY THE LD. AO UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF T HE INCOME TAX RULES IN COMPUTING INCOME UNDER NORMAL PROVISIONS OF THE ACT . 3.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL AS WELL AS THE ERRED IN NOT APPRECIATING THAT THE P ROVISIONS OF SECTION 14A OF THE ACT CAN BE INVOKED OR THE CONDITIONS LAID DOWN UNDER SUB SECTION (1) OF SECTION 14A OF T HE ACT HAVE BEEN SATISFIED. 3.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE& IN LAW, THE LD. PANEL ERRED IN CO DISALLOWANCE OF RS. 3,51,52,181/- U/S 1 4A PROPOSED BY THE LD. AO BASED ON SURMISE AND CONJECTURE WITHOUT HAVING RECO RDED ANY REASONED SATISFACTION UNDER SECTION 14A(2) OF THE ACT AGAIN ST THE SUO-MOTO DISALLOWANCE MADE BY THE APPELLANT. 3.4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL ERRED IN CONFIRMING DISALLOWANCE OF RS.3,51,52,181/ - U/S 14A PROPOSED BY THE LD. AO WITHOUT APPRECIATING THAT THE LD. AO DID NOT BRING ANY EVIDENCE ON RECORD OF ANY EXPENDITURE BEING INCURRED OVER AND A BOVE THE AMOUNT IDENTIFIED AND OFFERED TO TAX BY THE APPELLANT. 35 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW AND WITHOUT PREJUDICE TO GROUNDS TAKEN HERE-IN-ABOVE, THE LD. P ANEL AS WELL AS LD. AO WHILE COMPUTING ALLEGED DISALLOWANCE UNDER RULE 8D (II) AND RULE 8D (III) OUGHT TO HAVE EXCLUDED:- - INVESTMENTS ON WHICH NO EXEMPT DIVIDEND INCOME WAS EARNED DURING THE YEAR; ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 3 - STRATEGIC INVESTMENTS MADE IN SUBSIDIARIES/ GROUP C OMPANIES OUT OF BUSINESS EXIGENCIES AND CONSEQUENTLY ERRED IN CONFI RMING THE DISALLOWANCE OF RS. 3,51,52,181/- IN THE PRESENT CA SE. 3.6 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE& IN LAW AND WITHOUT PREJUDICE TO GROUNDS TAKEN HERE-IN-ABOVE, THE LD. P ANEL AS WELL AS THE LD. AO GROSSLY ERRED IN IGNORING THE DECISION OF KOLKATA T RIBUNAL IN THE APPELLANT'S OWN CASE IN DCIT -VS- EIH LIMITED (2015) I.T.A. NO. 426/KO1/2006 AND DISALLOWING PROPORTIONATE INTEREST COST UNDER SECTI ON 14A READ WITH RULE 8D(2)(II) WITHOUT APPRECIATING THAT VARIOUS INVESTM ENTS ON WHICH EXEMPT INCOME WAS EARNED WERE MADE IN PAST YEARS OUT OF OW N/SURPLUS FUNDS AND NO EVIDENCE WAS BROUGHT TO PROVE ANY NEXUS BETWEEN THE BORROWED FUNDS AND THE AMOUNT INVESTED. 37 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE & IN LAW AND WITHOUT PREJUDICE TO GROUNDS TAKE HEREIN ABOVE, THE LD. PAN EL AS WELL AS THE LD. AO ERRED IN NOT ALLOWING NETTING OFF OF INTEREST EXPEN DITURE WITH INTEREST INCOME WHILE COMPUTING DISALLOWANCE OF PROPORTIONATE INTER EST COST UNDER SECTION 14A READ WITH RULE 8D(2)(II). 4.0 DISALLOWANCE OF PRINCIPAL REPAYMENT OF FINANCE LEASE 4.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE& IN LAW, THE LD. PANEL ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 8,85,68 ,539/- PROPOSED BY THE LD. AO ON ACCOUNT OF LEASE RENTAL AS CAPITAL EXPENDITUR E. 41 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 8,85,68,539/- PROPOSED BY THE LD. AO ON ACCOUNT OF LEASE RENTAL HAVING ADJUDI CATED IDENTICAL ISSUE IN FAVOUR OF APPELLANT IN ITS OWN CASE IN AY 2011-12 O N THE MERE PRETEXT THAT THERE WAS A CHANGE IN LEGAL POSITION FROM AY 2012-1 3 AND SINCE THE REVENUE WAS NOT ALLOWED TO CHALLENGE THE DRP DIRECTIONS, SI MILAR RELIEF CANNOT BE ALLOWED IN THE RELEVANT ASSESSMENT YEAR. 43 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE & IN LAW, THE LD. PANEL AS WELL AS THE LD. AO WHILE DENYING THE DEDUCTION O F PRINCIPAL PART OF LEASE RENTAL GROSSLY ERRED IN NOT APPLYING THE RATIO DECI DENDI LAID DOWN IN THE DECISION OF THE SUPREME COURT IN THE CASE OF M/S. I .C.D.S. LTD. - VS.- CIT (2013) 350 ITR 527 (SC) WHICH WAS SQUARELY APPLICAB LE IN THE CASE OF THE APPELLANT. 4.4 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE & IN LAW AND WITHOUT PREJUDICE TO GROUNDS TAKE HEREIN ABOVE, THE LD. PAN EL AS WELL AS THE LD. AO WHILE MAKING THE DISALLOWANCE OF PRINCIPAL REPAYMEN T OF LEASE RENTAL ERRED IN NOT ALLOWING DEPRECIATION U/S 32 OF THE ACT ON LEAS E ASSETS CONSIDERED AS CAPITAL IN NATURE. 50 AD-HOC DISALLOWANCE OF AIRCRAFT MAINTENANCE EX PENSES 51 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL ERRED IN CONFIRMING THE AD-HOC DISALLOWANCE PROPOSE D BY THE LD. AO OF EXPENDITURE INCURRED ON RUNNING AND MAINTENANCE OF AIRCRAFTS INCLUDING DEPRECIATION TO THE EXTENT OF RS. 53,32,210/- BEING 10% OF THE TOTAL EXPENDITURE OF RS. 5,33,22,099/- IGNORING THE DECIS ION OF HON'BLE KOLKATA TRIBUNAL IN APPELLANT'S OWN CASE IN DCIT -VS- EIH L IMITED (2015) I.T.A. NO. 426/KO1/2006 FOR AY 2002-03 ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 4 6.0 NON-GRANT OF SET OFF OF LONG TERM CAPITAL LOSS AGAINST DEEMED SHORT TERM CAPITAL GAIN 6.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN NOT ALLOWING SET-OFF U/S 74 OF LONG TERM CAPITAL LOSS AMOUNTING TO RS. 1AO,51,830/ -WITH DEEMED SHORT TERM CAPITAL GAIN COMPUTED AS PER SECTION 50(1) OF THE A CT. 6.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL WHILE CONFIRMING THE ACTION OF LD. AO IN DENYING SE T-OFF U/S 74 FAILED TO APPRECIATE THAT SECTION 50 BEING A DEEMING PROVISIO N ITS SCOPE EXTENDED ONLY UP TO COMPUTATION OF CAPITAL GAIN, HOWEVER SUCH GAI N ARISING FROM TRANSFER OF LONG TERM CAPITAL ASSETS, RETAINED THE CHARACTER OF LONG TERM CAPITAL GAIN FOR ALL OTHER PROVISIONS AND IS ELIGIBLE FOR SET OFF U/S 74 AGAINST BROUGHT FORWARD LOSS FROM LONG TERM CAPITAL ASSET. 6.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL WHILE CONFIRMING THE ACTION OF LD. AO GROSSLY ERRED IN NOT APPLYING THE RATIO DECIDENDI LAID DOWN IN THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT - VS.- DEMPO COMPANY LIMITED [CIVIL APPEAL NO. 4797/2 008 - SC] APPLICABLE IN THE CASE OF THE APPELLANT. 7.0 DISALLOWANCE U/S 40(A)(I) OF THE ACT 7.1 ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE& IN LAW, THE LD. AO WHILE GIVING EFFECT TO THE DIRECTION OF THE LD. PANEL ERR ED IN CONFIRMING THE DISALLOWANCE U/S 40(A)(I) OF THE ACT OF RS. 5,30,91 ,623/- FOR ALLEGED NON DEDUCTION OF TAX U/S 195. 7.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. AO GROSSLY ERRED IN CONFIRMING DISALLOWANCE TO THE EXT ENT OF RS. 5,30,91,623/- U/S 40(A)(I) OF THE ACT WITHOUT PROVIDING SUFFICIENT OP PORTUNITY TO THE APPELLANT AND DISREGARDING THE SUBSTANTIVE DETAILS, DOCUMENTS AND LEGAL SUBMISSIONS FILED IN THE COURSE OF ASSESSMENT ON THE ALLEGED GROUND THAT THE SAME WERE MERE GENERAL SUBMISSIONS. 7.2 ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. AO GROSSLY ERRED IN CONFIRMING DISALLOWANCE U/S 40(A)(I) OF TH E ACT WITHOUT APPRECIATING THAT THE VARIOUS REMITTANCES WERE NOT TAXABLE IN IN DIA EITHER UNDER THE PROVISIONS OF THE INCOME TAX ACT OR UNDER THE BENEF ICIAL PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). 8.0 DISALLOWANCE OF EMPLOYEE'S CONTRIBUTION TO PF A ND ESI MADE BEYOND DUE DATE 8.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. AO WHILE GIVING EFFECT TO THE DIRECTION OF THE LD. PAN EL ERRED IN CONFIRMING THE DISALLOWANCE U/S 36(1)(VA) OF RS.59,598/- ON ACCOUN T OF DELAYED DEPOSIT OF EMPLOYEE'S CONTRIBUTION TO PF AND ESI BEYOND THE ST ATUTORY DUE DATE OF THE RELEVANT ACT BUT BEFORE DUE DATE OF RETURN FILING A S PER THE PROVISIONS OF SECTION 139(1) OF THE ACT. 9.0. DENIAL OF DEDUCTION OF PROVISION FOR BAD AND D OUBTFUL DEBTS WRITTEN BACK 9.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANEL ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN NOT ALLOWING DEDUCTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS WRITTEN BACK A MOUNTING TO RS.51,77,916/- UNDER NORMAL PROVISIONS AS WELL AS COMPUTATION OF B OOK PROFIT WHICH WAS INADVERTENTLY CLAIMED AT A LESSER AMOUNT IN THE RET URN OF INCOME. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 5 9.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE & IN LAW, THE LD. PANELGROSSLY ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN NOT ALLOWING DEDUCTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS W RITTEN BACK ON THE ALLEGED GROUND THAT THE SAME WAS NOT CLAIMED IN CORRECT FOR UM OR METHOD BY WAY OF TIMELY REVISION OF RETURN IGNORING THE FACT THAT TH E SAME DID NOT TANTAMOUNT TO LODGING OF FRESH CLAIM FOR DEDUCTION BUT FOR ALLOWI NG CORRECT AMOUNT OF PROVISION WRITTEN BACK INADVERTENTLY CLAIMED AT A L ESSER AMOUNT IN THE RETURN OF INCOME. 9.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND WITHOUT PREJUDICE TO GROUNDS TAKEN HEREIN ABOVE, IN ANY EVENT, THE HON'B LE ITAT MAY PLEASE CONSIDER AND ALLOW THE CLAIM OF THE APPELLANT MADE ON ACCOUNT OF PROVISION FOR BAD AND DOUBTFUL DEBTS WRITTEN BACK OF RS. 51,77,91 6/- ON THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT OF INDIA IN THE C ASE OF NATIONAL THERMAL POWER CORPORATION LIMITED (SUPRA). 10.0 SHORT GRANT OF CREDIT FOR TAX DEDUCTED AT SOUR CE AND TAX COLLECTED AT SOURCE 10.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, LD. AO ERRED IN NOT GRANTING TDS/TCS CREDIT TO THE EXTENT OF RS.1,18,60 ,966/- WITHOUT ASSIGNING ANY REASONS. 11.0 DIVIDEND DISTRIBUTION TAX 11.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. AO ERRED IN CALCULATING DIVIDEND DISTRIBUTION TAX ON GROSS DIVI DEND OF RS. 51,44,12,473/- WITHOUT EXCLUDING DIVIDEND RECEIVED FROM SUBSIDIARY COMPANIES EXEMPT U/S 1150(1A) OF THE ACT AMOUNTING TO RS. 7,43,40,000/- 12.0 MAT CREDIT SET OFF 12.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. AO ERRED IN NOT GRANTING SET OFF OF MAT CREDIT BROUGHT FORWARD FROM AY 2011-12 WITHOUT ASSIGNING ANY REASONS. 13.0 THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND TO ALTER, AMEND, RESCIND OR MODIFY THE GROUNDS RAISED HEREINABOVE BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. SHRI RAVI SHARMA, LD. AUTHORIZED REPRESENTATIVE APP EARED ON BEHALF OF ASSESSEE AND SHRI P.K. SRIHARI, LD. DEPARTMENTAL RE PRESENTATIVE APPEARED ON BEHALF OF REVENUE. 2. FIRST ISSUE RAISED BY ASSESSEE IN GROUND NO.1 IS THAT LD. DRP ERRED IN CONFIRMING THE ORDER OF TPO BY TREATING THE CORPORA TE GUARANTEE PROVIDED BY ASSESSEE TO ITS ASSOCIATED ENTERPRISE (AE FOR SHORT ) AS INTERNATIONAL TRANSACTION. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 6 2.1 FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAD PROVIDED CORPORATE GUARANTEE TO THE LENDER BANK, SO THAT LOA N COULD BE DISBURSED TO ITS 100% SUBSIDIARY I.E. M/S. EIH FLIGHT FOR THE PURPOS E OF BUSINESS. HOWEVER THE TPO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ACT OF THE ASSESSEE PROVING THE CORPORATE GUARANTEE IS INTERNA TIONAL TRANSACTION BUT THE ASSESSEE HAD NOT CHARGED ANY FEE FROM ITS AE FOR PROVIDING SUCH GUARANTEE. WHEREAS ACCORDING TO THE ASSESSEE, THERE WAS NO INT ERNATIONAL TRANSACTION BETWEEN IT & ITS AE ON ACCOUNT OF PROVIDING THE COR PORATE GUARANTEE. ACCORDINGLY THE SAME WAS NOT REPORTED AS AN INTERNA TIONAL TRANSACTION. THE CONTENTION OF THE ASSESSEE WAS DISREGARDED BY THE T PO AND ACCORDING HELD THAT THE ARRANGEMENT BETWEEN THE COMPANY AND ITS SU BSIDIARY WAS IN THE NATURE OF PROVIDING SERVICES TO AE. THEREFORE IT HA S TO BE CATEGORIZED AS INTERNATIONAL TRANSACTION. THEREAFTER, THE TPO APP LIED THE CUP METHOD AS THE MOST APPROPRIATE METHOD (MAM) FOR BENCHMARKING THE GUARANTEE FEE AND HELD THAT THE GUARANTEE FEE RATE OF 3% TO BE THE ARMS LE NGTH FOR BENCH MARKING THE TRANSACTIONS OF RECEIPT OF CORPORATE GUARANTEE FROM THE SUBSIDIARY AND THUS MADE AN ADDITION OF RS. 2,56,49,228/- ONLY TO THE T OTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED ASSESSEE FILED OBJECTIONS BEFORE THE L D DRP WHO UPHELD THE ORDER OF TPO. BEING AGGRIEVED BY THE ORDER OF THE LD. DRP AND THE FINAL ORDER OF THE AO, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. AR CONTENDED THAT THE IMPUGNED ISSUE HAS BEEN DECIDED BY THE JURISDICTIONAL ITAT IN THE OWN CASE OF THE ASSESSEE IN ITA NO.110/KOL/2016 VIDE ORDER DATED 12.01.2018. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED T HE ORDER OF AUTHORITIES BELOW. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 7 5. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIE S AND PERUSED THE MATERIALS AVAILABLE ON RECORDS. AT THE OUTSET WE N OTE THAT THE IMPUGNED ISSUE HAS ALREADY BEEN DECIDED IN FAVOUR OF ASSESSEE BY T HIS TRIBUNAL IN ITS OWN CASE IN ITA NO. 110/KOL/2016 FOR THE AY 2011-12 VID E ORDER DATED 12.1.2018. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BEL OW : 12.10. WE NOTE THAT M/S. EIH FLIGHT IS A STARTUP C OMPANY, IT REQUIRED FUNDS PRIMARILY FOR ACQUISITION OF CAPITAL ASSETS FOR SETTING UP ITS OP ERATION AND GUARANTEE FACILITIES GIVEN BY THE ASSESSEE/ASSESSEE COMPANY TO THE LENDER BANK IS NOR MAL BUSINESS PRACTICE AND OBLIGATION TOWARDS A SUBSIDIARY. SINCE THE AE WAS A STARTUP C OMPANY, THE ASSESSEE EXTENDED CORPORATE GUARANTEE TO THE THIRD PARTY BORROWERS AS A MATTER OF COMMERCIAL PRUDENCE TO PROTECT ITS INTEREST BY FULFILLING THE SHAREHOLDERS OBLIGATION. WE AGREE WITH THE CONTENTION OF THE LD AR THAT THE CORPORATE GUARANTEE AS PROVIDED BY THE ASS ESSEE WAS A MATTER OF COMMERCIAL PRUDENCE TO PROTECT AND BY FULFILLING THE SHAREHOLD ER OBLIGATION, AS ANY FINANCIAL INCAPACITATION OF THE SUBSIDIARY WOULD JEOPARDIZE T HE INVESTMENT OF THE ASSESSEE. FOR THAT WE RELY ON THE ORDER OF THE COORDINATE BENCH OF THIS T RIBUNAL IN THE CASE OF TEGA INDUSTRIES LTD. VS DCIT (ITA NO.1912/KOL/2012 WHEREIN IT WAS HELD T HAT THE PROVISION OF CORPORATE GUARANTEE IS IN THE NATURE OF SHAREHOLDER ACTIVITY AND HENCE, NO TP ADJUSTMENT ON ACCOUNT OF CORPORATE GUARANTEE IS REQUIRED. IN THE SAID CASE, THIS TRIBUNAL HAD HELD THAT THE ASSESSEES EXPECTATION FROM PROVISION OF GUARANTEE WAS NOT THA T OF A GUARANTOR I.E. TO EARN A GUARANTEE FEE, RATHER, THE EXPECTATION WAS OF A SHAREHOLDER T O PROTECT ITS INVESTMENT INTEREST, TO HELP IT ACHIEVE THE ASSESSEES BUSINESS OBJECTIVE. THUS, W E AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THE OBJECTIVE OF THE ASSESSEE FOR PROVIDING GU ARANTEE WAS NOT TO EARN GUARANTEE FEE BUT TO EARN RETURNS IN THE FORM OF APPRECIATION IN INVESTM ENT VALUE AND RECEIVE DIVIDENDS AND, THEREFORE, NO TP ADJUSTMENT OUGHT TO HAVE BEEN MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 12.11. COMING TO THE ALTERNATE PLEA OF THE ASSESSEE THAT, IN THE FACTS AND CIRCUMSTANCES THE CORPORATE GUARANTEE IS NOT AN INTERNATIONAL TRANSAC TION U/S. 92B OF THE ACT, WE NOTE THAT TERM 'GUARANTEE' WAS INSERTED IN THE DEFINITION OF 'INTE RNATIONAL TRANSACTION' IN SECTION 92B BY INSERTING AN EXPLANATION IN THE FINANCE ACT, 2012 W ITH RETROSPECTIVE EFFECT FROM 01/04/2002. THE EXPLANATION STATES THAT- 'FOR THE REMOVAL OF DOUBTS, IT IS HEREBY CLARIFIED THAT (I) THE EXPRESSION 'INTERNATIONAL TRANSACTION' SHALL INCLUDE .... (C) CAPITAL FINANCING, INCLUDING ANY TYPE OF LONG-T ERM OR SHORT-TERM BORROWING, LENDING OR GUARANTEE, PURCHASE OR SALE OF MARKETABLE SECURITIE S OR ANY TYPE OF ADVANCE, PAYMENTS OR DEFERRED PAYMENT OR RECEIVABLE OR ANY OTHER DEBT AR ISING DURING THE COURSE OF BUSINESS.' THE EXPLANATION STATES THAT IT IS CLARIFICATORY IN NATURE AND IS 'FOR THE REMOVAL OF DOUBTS'. THUS, IT DOES NOT ALTER THE BASIC CHARACTER OF DEFI NITION OF 'INTERNATIONAL TRANSACTION' UNDER THE MAIN SECTION 92B. UNDER THIS EXPLANATION, FIVE CATE GORIES OF TRANSACTIONS HAVE BEEN CLARIFIED TO HAVE BEEN INCLUDED IN THE DEFINITION OF 'INTERNA TIONAL TRANSACTIONS'. CLAUSES (A) (B) AND (D) DO NOT COVER GUARANTEE, LENDING OR LOANS. OTHER TWO , (C) AND (E) DEAL WITH (I) CAPITAL FINANCING, AND (II) BUSINESS RESTRUCTURING OR REORG ANIZATION. CLAUSE (C ) REFERS TO LENDING OR GUARANTEE. BUT THE EXPLANATION WHICH IS FOR REMOVAL OF DOUBTS OR IS CLARIFICATORY, CANNOT BE READ INDEPENDENT OF SECTION 92B(1). SECTION 92B(1), PROVIDES THOSE TRANSACTIONS AS INTERNATIONAL TRANSACTIONS WHICH ARE IN THE NATURE OF PURCHASE, SALE OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY (EXPLAINED BY CLAUSES (A) AND ( B) OF THE EXPLANATION), OR PROVISION OF SERVICES, (EXPLAINED BY CLAUSE (D) OF THE EXPLANATI ON), OR LENDING OR BORROWING MONEY (EXPLAINED BY CLAUSE (C) OF EXPLANATION). THE PLAI N READING OF PROVISIONS OF SEC. 92B(1) OF THE ACT INDICATE THAT THE VARIOUS TRANSACTIONS MENT IONED IN SECTION 92B(1) OF THE ACT, (I.E. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 8 PURCHASES, SALES, PROVISION FOR SERVICES, LENDING O R BORROWING OR ANY OTHER TRANSACTION) SHOULD HAVE BEARING ON THE PROFITS, INCOMES, LOSSES OR ASSETS OF SUCH ENTERPRISES. IN OUR OPINION, THE CONDITION PRECEDENT OF A TRANSACTION H AVING A BEARING ON PROFITS, INCOMES, LOSSES, OR ASSETS WOULD APPLY TO EACH OF THE AFORESAID TRAN SACTIONS NAMELY PURCHASE, SALE, OR LEASE OF TANGIBLE OR INTANGIBLE PROPERTY OR PROVISION OF SER VICES, OR LENDING OR BORROWING MONEY OR ANY SUCH TRANSACTION. THIS UNDERSTANDING OF OURS GE TS FURTHER CLARIFIED BY WAY OF INSERTION OF EXPLANATION IN SECTION 92B(1) BY THE FINANCE ACT 20 12 WITH RETROSPECTIVE EFFECT FROM 01.04.2002 VIDE CLAUSE (A) TO (D). WE FIND THAT IN THE SAID EXPLANATION, CLAUSE (E) ALONE HAS BEEN CARVED OUT AS AN EXCEPTION WHEREIN, THE TRANSA CTION THEREON HAS BEEN SPECIFICALLY MANDATED TO BE AN INTERNATIONAL TRANSACTION WHERE A TRANSACTION OF BUSINESS RESTRUCTURING OR REORGANIZATION, ENTERED INTO BY AN ENTERPRISE WITH AN AE IRRESPECTIVE OF THE FACT THAT IT HAS BEARING ON THE PROFITS, INCOMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES AT THE TIME OF TRANSACTION OR AT ANY FUTURE DATE. 12.12. THUS, WE HOLD THAT WHEN A PARENT COMPANY EXT ENDS AN ASSISTANCE TO THE SUBSIDIARY, BEING ASSOCIATED ENTERPRISE, SUCH AS CORPORATE GUAR ANTEE TO A FINANCIAL INSTITUTION FOR LENDING MONEY TO THE SUBSIDIARY, WHICH DOES NOT COST ANYTHI NG TO THE PARENT COMPANY, AND WHICH DOES NOT HAVE ANY BEARING ON ITS PROFITS, INCOME, LOSSES OR ASSETS, IT WILL BE OUTSIDE THE AMBIT OF INTERNATIONAL TRANSACTION UNDER SECTION 92B(1) OF T HE ACT. IN THIS REGARD, WE WOULD LIKE TO HOLD THAT ISSUANCE OF CORPORATE GUARANTEE BY THE AS SESSEE TO ITS AE WOULD HAVE INFLUENCE ON THE PROFITS , INCOMES, LOSSES OR ASSETS OF ENTERPRI SE BUT NOT NECESSARILY HAVE ANY IMPACT ON THE PROFITS, INCOMES, LOSSES OR ASSETS AS ADMITTED LY NO CONSIDERATION WAS RECEIVED BY THE ASSESSEE IN RESPECT OF THIS CORPORATE GUARANTEE FRO M ITS AE. WE FIND THAT THE AHMEDABAD TRIBUNAL IN THE CASE OF MICRO INK IN ITA NO. 2873/A HD/2010 HAD OBSERVED THAT IF A SUBSIDIARY (AE IN THE INSTANT CASE) COULD NOT BORROW MONEY FRO M THIRD PARTY SOURCES ON ITS OWN STANDING AND THE GUARANTEE PROVIDED BY THE PARENT (ASSESSEE IN THE INSTANT CASE) ENABLES IT TO MAKE SUCH BORROWING, THEN THE GUARANTEE COULD BE SAID TO BE A SHAREHOLDER FUNCTION, NOT WARRANTING A GUARANTEE FEE. THIS RATIO WOULD SQUAR ELY BE APPLICABLE TO THE FACTS OF THE INSTANT CASE BEFORE US. 12.13. THE LD. CIT, DRS RELIANCE IN THE CASE OF EV EREST KANTO CYLINDER LTD. (SUPRA) WOULD NOT COME TO THE RESCUE OF REVENUE BECAUSE IN THAT C ASE, THE PARENT COMPANY CHARGED A FEE OF 0.5% ON THE AE FOR RENDERING THIS SERVICE. ON THIS FACTUAL ASPECT, THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURT HELD THAT IT IS AN INTERNATIONAL TRANSACTION. SINCE IN THE CASE IN HAND, THE ASSESSEE HAS NOT CHARGED A PENNY FROM THE AE, SO TH E FACTS OF THE CASE ARE DIFFERENT AND CASE LAW IS DISTINGUISHABLE AND, THEREFORE, THE HONBLE HIGH COURTS ORDER CANNOT COME TO THE RESCUE OF THE REVENUE. WE FIND THAT THE LD. AR POIN TED OUT THAT IN THE SAID CASE, THE HONBLE BOMBAY HIGH COURT DID NOT ANSWER THE SPECIFIC QUEST ION AS TO WHETHER THE ISSUANCE OF CORPORATE GUARANTEE IS INHERENTLY WITHIN THE AMBIT OF DEFINITION OF INTERNATIONAL TRANSACTION IRRESPECTIVE OF WHETHER OR NOT SUCH TRANSACTIONS HA VE ANY BEARING ON PROFITS, INCOME, LOSSESS OR ASSETS OF SUCH ENTERPRISES U/S. 92B OF THE ACT. WE ALSO NOTE THAT THE AHMEDABAD BENCH OF THIS TRIBUNAL SUPRA AFTER CONSIDERING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN EVEREST KANTO CYLINDER LTD. (SUPRA) OBSERVED AS UND ER: WE ARE UNABLE TO SEE, IN THE JUDGMENT OF HONBLE BO MBAY HIGH COURT, ANY SUPPORT TO THE PROPOSITION THAT ISSUANCE OF CORPORATE GUARANTE E IS INHERENTLY WITHIN THE AMBIT OF DEFINITION OF INTERNATIONAL TRANSACTION UNDER SEC TION 92B IRRESPECTIVE OF WHETHER OR NOT SUCH TRANSACTIONS HAVE ANY BEARING ON PROFITS INC OMES, LOSSES, OR ASSETS OF SUCH ENTERPRISES. REVENUE, THEREFORE, DOES NOT DERIVE ANY HELP FROM THE SAID DECISION. 12.14. THE LD CIT DR WOULD HAVE HAD A CASE WHERE A FEE HAS BEEN CHARGED FOR THE INTRA SERVICE WHICH HAS BEEN RENDERED (IN THE CONTEXT OF CORPORATE GUARANTEE), AND, THEREFORE, THE ASSESSEE OR THE COURT HAS TREATED IT AS AN INTERNAT IONAL TRANSACTION, THEN THE CHARGE OF CORPORATE GUARANTEE HAS TO BE IN ACCORDANCE WITH AR M'S LENGTH PRINCIPLE. THIS MEANS THAT THE ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 9 PRICE FOR CORPORATE GUARANTEE SHOULD BE THAT WHICH WOULD HAVE BEEN PAID AND ACCEPTED BY INDEPENDENT ENTERPRISES IN COMPARABLE CIRCUMSTANCES . IN THAT CASE TRANSFER PRICING ADJUSTMENTS ARE REQUIRED. IN THAT CASE, IT HAS TO B E DETERMINED WHAT WILL BE THE ALP OF CORPORATE GUARANTEE COMMISSION PAID BY ASSOCIATE EN TERPRISE TO THE PARENT COMPANY PROVIDING CORPORATE GUARANTEE. SINCE THAT IS NOT T HE CASE BEFORE US, WE NEED NOT GO INTO IT. 12.15. WE ALSO FIND THAT THIS VERY SAME ISSUE CAME UP FOR ADJUDICATION BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2010-11 IN IT A NO. 530/KOL/2015 DATED 9.6.2017 , WHEREIN BY PLACING RELIANCE ON THE DECISION OF CO-O RDINATE BENCH OF MUMBAI TRIBUNAL IN THE CASE OF A) MARICO LTD VS ACIT REPORTED IN (2016) 70 TAXMANN .COM 214 (MUMBAI TRIB) WHEREIN IT WAS HELD THAT CORPORATE GUARANTEE WAS NOT AN INTERNATIO NAL TRANSACTION ; AND B) SIRO CLINPHARM P LTD VS DCIT IN ITA NO. 2618/MUM /2014 DATED 31.3.2016 , WHEREIN IT WAS HELD THAT THE EXPLANATION INTRODUCED BY FINANCE ACT 2012 CAN BE MADE APPLICABLE ONLY FROM ASST YEAR 2013-14 ONWARDS. 12.16. MOREOVER, WE FIND THAT THOUGH THE EXPLANATIO N WAS INTRODUCED BY FINANCE ACT 2012, THE RULES WERE NOTIFIED ONLY ON 10.6.2013. HENCE THE ASSESSEE CANNOT BE EXPECTED TO REPORT THIS TRANSACTION ALSO AS AN INTERNATIONAL TRANSACTI ON IN ITS TRANSFER PRICING STUDY AND THE AUDIT REPORT THEREON . 12.17. IN VIEW OF THE AFORESAID FINDINGS AND RESPEC TFULLY FOLLOWING THE VARIOUS JUDICIAL PRECEDENTS, WE ALLOW THE GROUNDS 1.1. TO 1.4 RAISED BY THE ASSE SSEE. RESPECTFULLY FOLLOWING THE SAME WE REVERSE THE ORDE R OF AUTHORITIES BELOW AND ALLOW THE GROUND OF APPEAL FILED BY THE ASSESSEE. 6. NEXT ISSUE RAISE BY ASSESSEE IN THIS APPEAL IS T HAT LD. DRP ERRED IN CONFIRMING THE ORDER OF TRANSFER PRICING OFFICER (T PO FOR SHORT) ON ACCOUNT OF INTEREST ON LOAN GIVEN BY THE ASSESSEE TO ITS AE. 7. THE ASSESSEE TO EXTEND THE FINANCIAL HELP TO ITS SUBSIDIARY COMPANY NAMELY M/S. EIH FLIGHT SERVICE LTD. MAURITIUS HAS A DVANCED LOAN WITHOUT INTEREST. THE REASON FOR NOT CHARGING THE INTEREST WAS SUBMITTED BY THE ASSESSEE THAT THE LOAN WAS PROVIDED BY IT IN THE CA PACITY OF SHAREHOLDER TO PROTECT THE INVESTMENT OF ITS AE. THE ASSESSEE ALSO SUBMITTED THAT THE LOAN AMOUNT WAS SUBSEQUENTLY CONVERTED INTO EQUITY SHARE S IN PART. HOWEVER THE TPO REJECTED THE CONTENTION OF ASSESSEE AND CONSIDE RED THE TRANSACTION ENTERED BETWEEN THE ASSESSEE AND EIH FLIGHT AS AN I NTERNATIONAL TRANSACTION. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 10 ACCORDINGLY THE TPO WAS OF THE VIEW THAT THE ASSESS EE SHOULD HAVE EARNED AN ARM'S LENGTH INTEREST RATE FROM ITS AE FOR THIS TRANSACTION. THUS THE TPO USED THE LIBOR RATE PLUS 400 BPS TO DETERMINE THE I NTEREST AMOUNT ON THE LOAN PROVIDED TO THE AE. THE AVERAGE LIBOR FOR THE YEAR UNDER CONSIDERATION WAS WORKED OUT AT 0.9211% ONLY. THUS THE COST OF FU NDS COMES TO 4.92% (0.92%+4%) AND ACCORDINGLY ARM LENGTH INTEREST WAS COMPUTED AT 8.92% (4.92%+400BPS). THUS THE TPO WORKED OUT THE ARM LEN GTH OF INTEREST AMOUNT FOR THE OPENING BALANCE OF LOAN AMOUNT @ 17.75% AND FOR THE FRESH LOAN GIVEN DURING THE YEAR @ 8.92% WHICH COMES IN AGGREGATE TO RS. 3,32,83,015.00. ACCORDINGLY THE TPO WORKED OUT TRANSFER PRICING ADJ USTMENT AMOUNTING TO INR 3,32,83,015.00 ONLY. 8. AGGRIEVED BY THE ORDER OF THE TPO, THE ASSESSEE FILED OBJECTIONS BEFORE THE LD. DRP. THE LD DRP CONFIRMED THE ORDER OF THE LD TPO AND HELD THAT INTEREST FREE LOAN PROVIDED ITS AE WAS NOT IN THE N ATURE OF SHAREHOLDER ACTIVITY. THEREFORE THE ASSESSEE WAS ENTITLED FOR THE INTERES T ON THE AMOUNT OF LOAN PROVIDED TO ITS AE. THUS THE LD. DRP UPHELD THE ORD ER OF TPO. BEING AGGRIEVED BY THE FINAL ORDER OF THE AO, THE A SSESSEE IS IN APPEAL BEFORE US. 9. THE LD. AR FOR THE ASSESSEE BEFORE US SUBMITTED THAT ONLY LIBOR SHOULD BE USED AS THE RATE OF INTEREST TO DETERMINE THE ARM'S LENGTH INTEREST RATE FOR THE LOAN. THE LD. AR IN SUPPORT OF ASSESSE ES ARGUMENT RELIED ON THE ORDER OF HONBLE RAJASTHAN HIGH COURT IN THE CASE O F CIT VS. VAIBHAV GEMS LTD. REPORTED IN 88 TAXMANN.COM 12. 9.1 THE LD. AR ALSO SUBMITTED THAT THE HONBLE AHMA DABAD TRIBUNAL HAS DECIDED THE SPREAD BASED IN THE CASE OF SOMA TEXTIL E & INDUSTRIES LIMITED VS ACIT (I.T.A. NO.: 262 (AHD) OF 2012) AT LIBOR + 200 BPS. THEREFORE IN THE ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 11 INSTANT CASE LIBOR +200 BPS SHOULD USED IN DETERMIN ING THE ARM LENGTH PRICE. ON THE OTHER HAND THE LD. DR VEHEMENTLY SUPPORTED T HE ORDER OF THE LOWER AUTHORITIES. 10. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LIMITED ISSUE ARI SES FOR OUR CONSIDERATION TO DECIDE THE BASIS POINTS FOR DETERMINING THE COST OF INTEREST ON THE INTERNATIONAL TRANSACTION IN RESPECT OF INTEREST TO BE CHARGED ON THE LOAN ADVANCED TO AE. IN THIS REGARD WE ARE OF THE VIEW THAT FOR THE PURPOSE OF CREDIT RATING OF THE ASSESSEE AS WELL AS THE CREDIT RATING OF THE AE SHO ULD BE TAKEN INTO ACCOUNT. IN SIMILAR FACTS & CIRCUMSTANCES IN THE OWN CASE OF THE ASSESSEE IN ITA NO. 153/KOL/2016 & 110/KOL/2016 FOR THE AY 2011-12 VIDE ORDER DATED 12-1-2018, THE MATTER WAS REMANDED BACK TO THE FILE OF TPO FOR FRESH CONSIDERATION BY OBSERVING AS UNDER 13.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND ARE O F THE OPINION THAT THE LIBOR AND BASIS POINTS SHOULD BE THE CRITERIA FOR MEETING THE COST OF INTEREST ON THE INTERNATIONAL TRANSACTION IN RESPECT OF INTEREST TO BE CHARGED ON THE LOAN ADVANCED TO AE. FOR THIS PURPOSE THE CREDIT RATING OF THE ASSES SEE AS WELL AS THE CREDIT RATING OF THE AE SHOULD BE TAKEN INTO ACCOUNT. ACCORDINGLY WE DEEM IT FIT TO REMAND THE ISSUE TO THE LD. TPO TO DETERMINE THE BASIS POINTS ON THE BA SIS OF THE AFORESAID PARAMETERS AND SUCH OTHER RELEVANT PARAMETER IN ACCORDANCE TO LAW. THEREFORE, WE REMAND THIS ISSUE FOR THIS LIMITED PURPOSE BACK TO THE LD TPO / LD AO AND TO DETERMINE THE ISSUE AS DIRECTED BY US. ACCORDINGLY, THE GROUNDS 2.1. & 2.2. RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES AND GROUND 1 RAISE D BY THE REVENUE IS DISMISSED. RESPECTFULLY FOLLOWING THE SAME WE RESTORE THE ISSU E TO THE FILE OF TPO/AO FOR THE FRESH ADJUDICATION ACCORDING TO LAW AND IN THE LIGHT OF ABOVE STATED DISCUSSION. THUS THE GROUND OF APPEAL OF THE ASSESS EE IS ALLOWED FOR STATISTICAL PURPOSES. 11. NEXT ISSUE RAISED BY ASSESSEE IN THIS APPEAL IS THAT LD. DRP ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 3,51,52,181/- U/S. 14A R.W.S. RULE 8D OF THE INCOME TAX RULE, 196 2. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 12 12. THE ASSESSEE DURING THE YEAR HAS EARNED DIVIDEN D INCOME OF 19,07,36,227/- WHICH WAS CLAIMED EXEMPTED U/S 10(34 ) OF THE ACT. THE ASSESSEE IN RELATION TO SUCH INCOME HAS SUO MOTU DISALLOWED THE EXPENSE OF 29,20,022/- ONLY. THE DETAILS OF DISALLOWANCE MADE BY THE ASSESSEE AT ITS OWN IN RELATION TO DIVIDEND INCOME STAND AS UNDER:- SL.NO. PARTICULARS AMOUNT 1. DEMAT CHARGES 496/- 2. 10% OF DIRECTORS FEES 76,000/- 3. 5% OF H.O STAFF MAINTENANCE EXPENSE 5,45 ,463/- ENGAGED IN THE MAINTENANCE ACCOUNTS 4. 7% TRAVELLING, CONVEYANCE, PRINTING, POST AGE GENERAL CHARGES ETC. 22,98,063/- HOWEVER, AO DURING THE COURSE OF ASSESSMENT PROCEED INGS OBSERVED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENSE OF 53,49,40,020/- WHICH HAS NOT BEEN CONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT. ACCORDINGLY, AO INVOKED THE PROVISION OF RULE 8D OF IT RULES, 1962 AND MADE THE FOLLOWING DISALLOWANCE:- SL.NO. PARTICULARS RULE AMOUNT 1 DIRECT EXPENSE 8D(2)() 4,96/- 2 INTEREST EXPENSE 8D(2)(II) 2,85,20,257/- 3 ADMINISTRATIVE EXPENSE 8D(2)(III) 95,51,450/- IN VIEW OF ABOVE, THE AE MADE THE DISALLOWANCE OF 3,51,52,181/- AFTER ADJUSTING THE DISALLOWANCE ALREADY MADE BY THE ASSE SSEE FOR 29,20,022/- AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 13. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. DRP. THE ASSESSEE BEFORE LD. DRP SUBMITTED THAT THE PROVISIO N OF SECTION 14A R.W.R. 8D OF THE IT RULES, 1962 HAS BEEN INVOKED WITHOUT R ECORDING THE SATISFACTION FOR THE DISALLOWANCE OF THE EXPENSE MADE BY THE ASS ESSEE IN ITS INCOME TAX ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 13 RETURNS. IT WAS MANDATORY FOR THE AO TO RECORD HIS DISSATISFACTION IN PURSUANCE TO PROVISION OF SECTION 14A OF THE ACT. THE ASSESSEE ALSO SUBMITTED THAT THE AO FAILED TO E XCLUDE THE INVESTMENT MADE IN FOREIGN COMPANIES IN RESPECT OF WHICH THE D IVIDEND INCOME WAS TAXABLE. THE AO ALSO FAILED IN NOT EXCLUDING THE STRATEGIC I NVESTMENT MADE BY THE ASSESSEE IN ITS GROUP COMPANIES WHILE MAKING THE DI SALLOWANCE U/S 14A OF THE ACT. THE ASSESSEE ALSO CLAIMED TO HAVE MADE INVESTMENT O UT OF ITS OWN SURPLUS FUND. THEREFORE NO DISALLOWANCE ON ACCOUNT OF INTER EST EXPENSE CAN BE MADE BY THE AO. THE AO ALSO ERRED IN NOT NETTING OF THE INTEREST IN COME WITH THE INTEREST COST WHILE MAKING THE DISALLOWANCE U/S 14A OF THE ACT. 13.1 HOWEVER, THE LD. DRP AFTER CONSIDERING THE SUB MISSIONS OF ASSESSEE CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- DRP DIRECTIONS: THE ASSESSEE HAS FLED ELABORATE SUBMISSIONS WHICH H AVE BEEN CONSIDERED BY THE PANEL. IN COMPLIANCE TO THE PROVISIONS OF LAW, A PART OF HIS EXPENSES WOULD NECESSARILY HAVE TO BE DISALLOWED UNDER SECTION 14A READ WITH RULE 8D IF FUNDS HAVE BEEN BORROWED AT A COST AND IF THE TAXPA YER HAS INVESTMENTS IN SHARES OR MUTUAL FUNDS, THE INCOME FROM WHICH, WHEN RECEIVED, WOULD BE TAX FREE. THE OWNED FUNDS OF THE ASSESSEE WOULD NOT MER IT ANY DISTINCTION IN THESE CIRCUMSTANCES AS THE ALTERNATIVE USAGE OF FUN DS IS INTO MAIN BUSINESS ACTIVITY OF THE ASSESSEE THAT WOULD BEER TAXABLE RE TURNS. EITHER WAY THE STATUTE INTENDS TO LOWER THE TAX ADVANTAGE CONFERRED ON THE ASSESSEE WHERE THE EXPENSE ON EARNING EXEMPT INCOME ARE DIRECTLY OR IN DIRECTLY LOADED ON TO THE TAXABLE INCOME TO LOWER THE TAX BURDEN THEREOF. THE RE ARE VARIOUS DECISIONS OF DELHI ITAT AND OTHER AUTHORITIES OF MORE RECENT JUD GMENTS WHEREIN THESE ASPECTS HAVE BEEN COVERED: I) (2014) 47 TAXMAN.COM 237 (*DEL-TRIB.) IN THE CAS E OF GEBR PFEIFFER (I) PVT. LTD. II) (2014) 49 TAXMANN.COM 527 (DELHI-TRIB.) IN THE CASE OF EAST WEST RESCUE (P) LTD. VS. DCIT, CIRCLE-3(1), NEW DELHI III) (2014) 50 TAXMAN.COM 271 (DELHI-TRIB) IN THE C ASE OF JOINT INVESTMENT PVT. LTD. VS. ACIT CIRCLE-4(1) THE ABOVE CITATIONS ENUMERATE CIRCUMSTANCES ON INVO KING RULE 8D WHILE MAKING DISALLOWANCES U/S. 14A AND ARE CLEARLY TO BE APPLIED IN CASE OF THE APPELLANT. BESIDES, THE ELABORATE SUBMISSIONS MADE ABOUT OWN FUNDS BEING USED DO NOT FURTHER THE CASE OF THE APPELLANT AS TH E APPELLANT HAS AVAILED OF ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 14 LOANS. THE CONTENTION OF THE ASSESSEE IS ACCORDINGL Y NOT TENABLE AS THE FUNDS AVAILABLE FOR SPECIFIC PURPOSES HAVE TO BE USED AS SUCH AND ABSENCE OF RELEVANT CORROBORATIVE EVIDENCE DOES NOT HELP THE C ASE OF THE ASSESSEE. THE DOCTRINE OF MERGER OF FUNDS AND MONEY HAVING NO CO LOUR GO AGAINST THE CONTENTIONS ON BEHALF OF APPELLANT AS THE OPPORTUN ITY COST FOREGONE IN SUCH A SCENARIO IS TO BE VIEWED IN FORM OF DISALLOWANCE UN DER RULE 8D. IN VIEW OF THE INTENT & PURPOSE OF THE SECTION 14A, THE FOREGOING AND THE JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, THE ADDITION MAD E BY THE AO IS UPHELD. BEING AGGRIEVED BY THIS ORDER OF DRP, ASSESSEE IS I N SECOND APPEAL BEFORE US. 14. LD. AR FOR THE ASSESSEE FILED PAPER BOOK WITH C ASE LAWS WHICH IS RUNNING PAGES FROM 1 TO 100 AND ALSO FILED WRITTEN STATEMENT. HE REITERATED THE SAME ARGUMENTS THAT WERE PLACED BEFORE DRP WHEREAS LD. DR VEHEMENTLY SUBMITTED ORDER OF AUTHORITIES BELOW. 15. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE FIN D THAT IMPUGNED ISSUE HAS BEEN ALREADY DECIDED BY CO-ORDINATE BENCH OF THIS T RIBUNAL IN ASSESSEES OWN CASE IN ITA NO.110/KOL/2016 DATED 12.01.2018. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW:- 2.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE. WE FIND FROM PAGE 745 OF THE PAPER BOOK THAT THE ASSESSEE H AS SUFFICIENT OWN FUNDS TO THE EXTENT OF RS 2587,79,74,512/- FOR MAKING INV ESTMENTS. HENCE THERE CANNOT BE ANY DISALLOWANCE OF INTEREST UNDER RULE 8 D(2)(II) OF THE RULES BY APPLYING THE RATIO LAID DOWN IN THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LT D REPORTED IN (2009) 313 ITR 340 (BOM) WHEREIN IT WAS HELD THAT THE PRESUMPTION WOULD GO IN FAVOUR OF THE ASSESSEE IF THE INTEREST FREE FUNDS ARE MORE THAN T HE LOANS TAKEN BY THE ASSESSEE , THEN IT WOULD BE PRESUMED THAT THE INVES TMENTS WERE MADE OUT OF OWN FUNDS OF THE ASSESSEE. THE SAID RATIO WOULD S QUARELY APPLY TO THE FACTS OF THE INSTANT CASE. HENCE WE HOLD THAT THE DISALL OWANCE MADE UNDER THE SECOND LIMB OF RULE 8D(2)(II) OF THE RULES IS HEREB Y DIRECTED TO BE DELETED. 2.2. WITH REGARD TO THE THIRD LIMB OF RULE 8D(2)(II I) OF THE RULES, WE HOLD THAT THE ASSESSEE HAS GOT INVESTMENTS IN FOREIGN COMPANI ES , THE DIVIDEND EARNED FROM WHICH WOULD BE TAXABLE INCOME AND HENCE SHOULD BE OUTSIDE THE AMBIT OF DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8 D OF THE RULES. SIMILARLY, INVESTMENTS MADE IN SUBSIDIARY COMPANIES WOULD HAVE TO BE RECKONED AS STRATEGIC INVESTMENTS AND HENCE THE SAME SHOULD BE EXCLUDED WHILE WORKING OUT THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE R ULES. SIMILARLY, THE INVESTMENTS WHICH HAD YIELDED DIVIDEND INCOME ALONE , ARE TO BE CONSIDERED ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 15 WHILE WORKING OUT THE DISALLOWANCE UNDER RULE 8D(2) (III) OF THE RULES AS HAS BEEN HELD BY THE DECISION OF THIS TRIBUNAL IN THE C ASE OF REI AGRO LTD REPORTED IN 144 ITD 141. BUT WE FIND THAT IF THE DISALLOWAN CE MADE UNDER SECOND LIMB OF RULE 8D(2) OF THE RULES IS DELETED, THEN THE DIS ALLOWANCE MADE BY THE LD AO WOULD REMAIN AT RS 23,77,882/- AND WHEREAS THE A SSESSEE ITSELF HAD VOLUNTARILY DISALLOWED RS 42,48,850/-. HENCE WE DIR ECT THE LD AO TO ADOPT THE DISALLOWANCE FIGURE OF RS 42,48,850/- WHICH HAD ALR EADY BEEN DISALLOWED BY THE ASSESSEE AND HENCE NO FURTHER DISALLOWANCE IN T HAT REGARD IS TO BE MADE. RESPECTFULLY FOLLOWING THE SAME, WE REVERSE THE ORD ER OF DRP AND DIRECT THE AO TO DELETE THE SAME. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 16. NEXT ISSUE RAISE BY ASSESSEE IN GROUND NO.4 IS THAT LD. DRP ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO FOR 8,85,68,539/- ON ACCOUNT OF LEASE RENTAL EXPENSES AS CAPITAL EXPENDITURE. 17. THE ASSESSEE DURING THE YEAR HAS INCURRED RENTA L EXPENSE ON ACCOUNT OF ACQUISITION OF MACHINERIES ON FINANCIAL LEASE BA SIS. THE ASSESSEE CLAIMED THAT THE DEPRECIATION CHARGED IN RESPECT OF SUCH MA CHINERIES WAS ADDED BACK IN THE COMPUTATION OF INCOME AND LESSOR HAS CLAIMED DEPRECIATION IN RESPECT OF SUCH MACHINERIES. HOWEVER, THE AO OBSERVED THAT THE RENTAL CHARGES PAID BY THE ASSESSEE WAS INCLUSIVE OF THE PAYMENT OF THE PRINCIPAL FOR 8,85,68,539/- ONLY. AS PER THE AO, THE REPAYMENT OF PRINCIPAL AMOUNT FOR THE ACQUISITION OF THE MACHINERIES WAS CAPITAL IN NATUR E AND THEREFORE SAME CANNOT BE ALLOWED AS DEDUCTION. ACCORDINGLY, AO DIS ALLOWED A SUM OF 8,85,68,539/- AND ADDED TO THE TOTAL INCOME OF ASSE SSEE. 18. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. DRP. THE ASSESSEE BEFORE LD. DRP SUBMITTED THAT THE AO ERRED IN NOT APPLYING THE RATIO DECIDENDI OF THE PRINCIPLE LAID DOWN BY HON'BLE SUPREME COUR T IN THE CASE OF ICDS VS. CIT (2013) 350 ITR 527 (SC). AS PER THE ASSESSEE THE R EPAYMENT OF PRINCIPAL AMOUNT WAS ELIGIBLE FOR DEDUCTION. 19. THE ASSESSEE ALTERNATIVELY SUBMITTED THAT IN CA SE REPAYMENT OF PRINCIPAL AMOUNT IS DISALLOWED THEN IT MAY BE ALLOW ED DEPRECIATION U/S. 32 OF ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 16 THE ACT ON THE VALUE OF MACHINERIES ACQUIRED ON LEA SE. HOWEVER, LD. DRP AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE CONFI RMED THE ORDER OF AO BY OBSERVING AS UNDER:- DRP DIRECTIONS: THE PANEL HAD ALLOWED RELIEF ON THIS GROUND. THE LE GAL POSITION HAS NOW CHANGED AS THE DEPARTMENT CANNOT CHALLENGE THE DIRE CTIONS OF DRP. THE ASSESSEE REPAID RS.88568539/- UNDER THE LEASE F INANCE ARRANGEMENT. THE ASSESSEE CAPITALIZED THE LEASED ASSET IN ITS BA LANCE SHEET. THE ASSESSEE HAD RELIED ON THE CASE OF M/S ICDS LTD VS. CIT [2013] 350 ITR 527 (SC). THE AO HAS DISTINGUISHED IT ON THE FACTS FOR THIS PERIOD. ICDS LTD. IA THE LESSOR IN THIS CASE WHILE THE ASSESSEE IS A LES SEE HENCE FACTUALLY IT IS DIFFERENT. THE AO HAS PLACED RELIANCE ON THE CASE O F RIO TINTO INDIA (P) LTD /VS- ACIT-15(1), NEW DELHI [2012] TAXMANN.COM 124 ( DEL TRIBUNAL] INVOLVING A CASE OF FINANCE LEASE (HERE THE LESSEE USES THE ASS ET FOR SUBSTANTIALLY THE WHOLE OF ITS USEFUL LIFE AND THE LEASE PAYMENTS ARE CALCULATED TO COVER THE FULL COST TOGETHER WITH INTEREST CHARGES). IT IS THUS AN INGENIOUS WAY OF ASSET ACQUISITION. BASIS ABOVE, THE AO HAS CONCLUDED- THUS, KEEPING IN VIEW THE AFORESAID LEASING ARRANG EMENT BETWEEN THE ASSESSEE AND M/S ORIX AND L&T, THE ACTION OF THE AS SESSEE REGARDING CAPITALIZATION OF THE CONCERNED ASSETS IN THE BALAN CE SHEET AND IN VIEW OF THE DECISION OF THE HON'BLE TRIBUNAL CITED SUPRA , IT IS QUITE CLEAR THAT THE PRINCIPAL REPAYMENT OF THE LEASE RENTAL IS NOTH ING BUT PAYMENT OF COST OF PURCHASE IN INSTALLMENT AND HAS TO BE TREAT ED AS A CAPITAL EXPENDITURE THAT THE LEASED ASSETS ARE NOT CAPITALI ZED FOR INCOME TAX DEPRECIATION PURPOSES BY THE ASSESSEE IS NOT GOOD E NOUGH A REASON FOR NOT TREATING THE PRINCIPAL REPAYMENT IN THE INS TANT CASE AS A CAPITAL EXPENDITURE. IT IS QUITE EVIDENT THAT UNDER A MUTUA L UNDERSTANDING THE LESSOR HAS ALREADY CLAIMED INCOME TAX DEPRECIATION ON THE IMPUGNED ASSETS. IN THE LIGHT OF THE ABOVE DISCUSSIONS, IT IS HELD THAT THE PRINCIPAL REPAYMENT OF RS.8,85,68,539/- IS A CAPITAL EXPENDIT URE IN THE HAND OF THE ASSESSEE AND IS HENCE DISALLOWED FOR DE DUCTION. A SUM OF RS.8,85,68,539/- IS THUS, ADDED BACK IN COMP UTING THE INCOME OF THE ASSESSEE. THE DIRECTIONS IN THE EARLIER PERIOD BEING FOR A DI FFERENT FINANCIAL PERIOD ARE NOT FOLLOWED IN VIEW OF CHANGED LEGAL POSITION IN THE C URRENT PERIOD AND THE DISCUSSIONS SUPRA. THE OBJECTION IS ACCORDINGLY DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. DRP ASSESSEE I S IN SECOND APPEAL BEFORE US. 20. LD. AR FOR THE ASSESSEE REITERATED THE SAME ARG UMENTS THAT WERE MADE BEFORE LD. DRP WHEREAS LD. DR FOR THE REVENUE VEHEM ENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 17 21. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE NOT E THAT THE ISSUE HAS ALREADY BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN ASSESSEES OWN CASE IN ITA NO.110/KOL/2016 (SUPRA) AND THE RELEVAN T EXTRACT OF THIS ORDER IS REPRODUCED BELOW:- 11.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIN D THAT THE ISSUE UNDER DISPUTE IS SETTLED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASST YEAR 2008-09 IN ITA NO. 529/KOL/2013 DATED 19. 2.2016 IN FAVOUR OF THE ASSESSEE. THOUGH THIS DECISION WAS RENDERED IN THE CONTEXT OF VALIDITY OF SECTION 263 PROCEEDINGS OF THE LD CIT, THIS TRIBUNA L HAD ADJUDICATED THE ISSUE ON MERITS ALSO AND HENCE THE RELIANCE PLACED ON THE SAME IS WELL FOUNDED. THE OPERATIVE PORTION OF THE SAID JUDGEMENT IS AS U NDER :- 4.4.1. ON MERITS OF THE ISSUE, ON PERUSAL OF THE V ARIOUS CLAUSES IN THE LEASE DEED (WHICH ARE NOT REPRODUCED HEREIN FOR THE SAKE OF BREVITY) FORMING PART OF THE PAPER BOOK VIDE PAGES 87 TO 98, WE FIND THAT THE OWNERSHIP / TITLE ON THE VEHICLES ALW AYS LIES WITH M/S ORIX AUTO INFRASTRUCTURE SERVICES LIMITED (LESSOR) DURING THE SUBSISTENCE OF THE LEASE VIDE CLAUSE 8 OF THE LEASE DEED. WE FIND THAT DURING THE SUBSISTENCE OF THIS LEASE ARRANGEME NT AND TILL THE VEHICLES ARE DELIVERED BACK TO THE LESSOR, THE LESS EE SHALL INSURE THE VEHICLES WITH THE LESSORS NAME AS THE OWNER VI DE CLAUSE 11 OF THE LEASE DEED. CLAUSE 15 OF THE LEASE DEED CLEAR LY SPECIFIES THAT UPON EXPIRATION OR EARLIER TERMINATION OF THE LEASE, THE LESSEE SHALL DELIVER TO THE LESSOR THE SAID VEHICLES AT A PLACE DESIGNATED BY THE LESSOR. WE HOLD THAT SINCE THE OWNERSHIP DO ES NOT VEST WITH THE ASSESSEE AT ANY POINT OF TIME DURING THE S UBSISTENCE OF THE LEASE, THE CLAIM OF ALLOWABILITY OF DEPRECIATIO N U/S 32 OF THE ACT AS OWNER OF THE VEHICLES, DOES NOT ARISE. WE HOLD THAT THE LEASE ARRANGEMENT CANNOT BE CONSIDERED AS ONE OF HIRE PUR CHASE AS PER CIRCULAR NO. 9/1943 NO. 9 [R.DIS.NO. 27(4)-IT/43] D ATED 23.3.1943, SINCE THE TERMS OF THE AGREEMENT DOES NO T PROVIDE THAT THE EQUIPMENTS SHALL EVENTUALLY BECOME THE PROPERTY OF THE HIRER OR CONFER ON THE HIRER AN OPTION TO PURCHASE THE EQ UIPMENTS. WE HOLD THAT MERELY BECAUSE THE LEASE ARRANGEMENT HAS BEEN CONSIDERED AS FINANCE LEASE FOR THE PURPOSE OF AS 1 9, THAT ITSELF DOES NOT RENDER THE LESSEE (ASSESSEE HEREIN) AS THE OWNER OF ASSET FOR IT ACT FOR CLAIMING DEPRECIATION. WE FIND THAT AS 19 PROVIDES FOR VARIOUS SITUATIONS IN ORDER TO DECIDE AS TO WHETHER THE LEASE CAN BE CONSIDERED AS FINANCE LEASE OR OPERATI NG LEASE FOR THE LIMITED PURPOSE OF SUCH AS 19. WE FIND THAT T HE ASSESSEE HAD DULY COMPLIED WITH THE CIRCULARS LAID DOWN IN T HIS REGARD MORE SO WHEN THE CBDT HAS ITSELF CLARIFIED VIDE CIRCULAR NO. 2/2001 DATED 9.2.2001 THAT THE AS 19 WILL HAVE NO IMPLICAT ION ON THE ALLOWANCE OF DEPRECIATION ON ASSETS UNDER THE PROVI SIONS OF IT ACT. IT IS WELL SETTLED THAT THE CBDT CIRCULARS AR E BINDING ON THE REVENUE. AS PER THIS CIRCULAR NO. 2/2001 DATED 9.2 .2001, IN A LEASE TRANSACTION, THE OWNER OF THE ASSETS IS ENTIT LED TO ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 18 DEPRECIATION. IN THE INSTANT CASE, THE LESSOR (ORI X AUTO) BEING THE OWNER HAD THE RIGHT TO CLAIM DEPRECIATION AND THE A SSESSEE HAS NOT CLAIMED ANY DEPRECIATION AS PER THE PROVISIONS OF THE IT ACT AND INSTEAD HAD CLAIMED THE ENTIRE LEASE RENTAL AS REVENUE EXPENDITURE. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF I.C.D.S. LTD VS CIT RE PORTED IN (2013) 350 ITR 527 (SC) WHEREIN IT WAS HELD THAT :- HELD, AFFIRMING THE DECISION OF THE TRIBUNAL, (I) THAT THE ASSESSEE WAS A LEASING COMPANY WHICH LEASED OUT THE TRUCKS T HAT IT PURCHASED. THEREFORE, ON A COMBINED READING OF SECT ION 2(13) AND (24) OF THE ACT THE INCOME DERIVED FROM LEASING OF THE TRUCKS WOULD BE BUSINESS INCOME, OR INCOME DERIVED IN THE COURSE OF BUSINESS, AND HAD BEEN SO ASSESSED. HENCE, IT FULF ILLED THE REQUIREMENT OF SECTION 32 OF THE ACT, THAT THE ASSE T MUST BE USED IN THE COURSE OF BUSINESS. THE ASSESSEE DID USE THE VEHICLES IN THE COURSE OF ITS LEASING BUSINESS. THE FACT THAT T HE TRUCKS THEMSELVES WERE NOT USED BY THE ASSESSEE WAS IRRELE VANT FOR THE PURPOSE OF SECTION. (II) THAT A SCRUTINY OF THE MATERIAL FACTS AT HAND RAISED A PRESUMPTION OF OWNERSHIP IN FAVOUR OF THE ASSESSEE. THE VEHICLE, ALONG WITH ITS KEYS, WAS DELIVERED TO THE ASSESSEE UPON WHICH, THE LEASE AGREEMENT WAS ENTERED INTO BY THE ASSESSEE WI TH THE CUSTOMER. THE FACT THAT AT THE END OF THE LEASE PER IOD, THE OWNERSHIP OF THE VEHICLE WAS TRANSFERRED TO THE LES SEE AT A NOMINAL VALUE DID NOT MAKE THE ASSESSEE IN EFFECT A FINANCIER. NO INFERENCE COULD BE DRAWN FROM THE REGISTRATION CERT IFICATE AS TO OWNERSHIP OF THE LEGAL TITLE OF THE VEHICLE. IF THE LESSEE WAS IN FACT THE OWNER, HE WOULD HAVE CLAIMED DEPRECIATION ON TH E VEHICLES, WHICH, AS SPECIFICALLY RECORDED IN THE ORDER OF THE TRIBUNAL, WAS NOT THE CASE. (III) THAT THE ENTIRE LEASE RENT RECEIVED BY THE AS SESSEE WAS ASSESSED AS BUSINESS INCOME IN ITS HANDS AND THE EN TIRE LEASE RENT PAID BY THE LESSEE BEEN TREATED AS DEDUCTIBLE REVENUE EXPENDITURE IN THE HANDS OF THE LESSEE. THIS REAFF IRMED THE POSITION THAT THE ASSESSEE WAS IN FACT THE OWNER OF THE VEHICLE, IN SO FAR AS SECTION 32 OF THE ACT IS CONCERNED. (IV) THAT, THEREFORE, THE ASSESSEE WAS THE OWNER OF THE VEHICLES. AS THE OWNER, IT USED THE ASSETS IN THE COURSE OF I TS BUSINESS, SATISFYING BOTH REQUIREMENTS OF SECTION 32 OF THE A CT AND, HENCE, WAS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF AD DITIONS MADE TO THE TRUCKS, WHICH WERE LEASED OUT. (V) THAT FOR PURPOSES OF THE ASSESSEE'S CLAIM TO TH E HIGHER RATE OF DEPRECIATION, THE INTERPRETATION OF THE TERM ' PURPOSES OF BUSINESS ', USED IN SECOND PROVISO TO SECTION 32(1) OF THE A CT ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 19 WOULD NOT BE ANY DIFFERENT FROM THAT ASCRIBED TO IT UNDER SECTION 32(1) OF THE ACT. THEREFORE, THE ASSESSEE FULFILLED EVEN THE REQUIREMENTS FOR A CLAIM OF A HIGHER RATE OF DEPREC IATION AND WAS ENTITLED THERETO. THOUGH THIS DECISION HAS BEEN RENDERED ON THE ALLOW ABILITY OF DEPRECIATION ON LEASED ASSETS FROM THE ANGLE OF THE LESSOR, THE PRINCIPLE LAID DOWN COULD BE MADE VERY MUCH APPLICABLE TO THE FACTS OF THE INSTANT CASE FOR ALLOWABILITY OF LEASE RENTALS IN THE HANDS OF THE ASSESSEE (LESSEE). WE ALSO FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT (JAIPUR BENCH) IN THE CASE OF RAJSHREE ROADWAYS VS UNION OF INDIA & ORS REPORTED IN (2003) 263 ITR 206 (RAJ) WHEREIN IT WAS HELD THAT :- HELD, THAT UNDER THE AGREEMENT THERE WAS A CLAUSE T HAT AFTER COMPLETION OF LEASE PERIOD, IF ONE PER CENT. OF THE TOTAL CONSIDERATION OF THE TRUCKS WAS PAID, THE LESSEE W OULD BE THE OWNER OF THOSE TRUCKS. HOWEVER, THE AGREEMENT DEALT WITH THE OWNERSHIP OF THE TRUCKS UNDER THE AGREEMENT. THERE WAS A CLEAR PROVISION THAT THE SAID MACHINERY SHALL AT ALL TI MES REMAIN SOLE AND EXCLUSIVE PROPERTY OF THE LESSOR AND THE LESSEE SHALL HAVE NO RIGHT, TITLE OR INTEREST THEREON. IT FURTHER THAT I RRECOVERABLE UNDERTAKING OF THE LESSEE THAT AT NO TIME DURING TH E CURRENCY OF THE LEASE AGREEMENT, WHICH SHALL BE NON-CANCELLABL E, WOULD THE LESSEE ATTEMPT TO CAPITALISE THE LEASED ASSETS IN ITS BALANCE- SHEET. AS PER CLAUSE 8, IT HAD BEEN AGREED THAT T HE OWNERSHIP OF THE SAID ASSETS DURING THE TENURE OF THE LEASE AND INCLUSIVE OF ANY RENEWAL OPTIONS THAT THE LESSOR MAY CONCUR INDISPUT ABLY RESTED WITH THE LESSOR. SO IN CLEAR TERMS, THE AGREEMENT P ROVIDED THAT DURING THE LEASE PERIOD, ONLY THE LESSOR SHALL BE T REATED AS OWNER OF THE TRUCKS AND NOT THE LESSEE. MOREOVER, THE LES SOR HAD BEEN ALLOWED DEPRECIATION ON THE TRUCKS. THEREFORE, CONS IDERING THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT AND TH E FACT THAT DEPRECIATION ON THESE TRUCKS HAD BEEN ALLOWED TO T HE LESSOR, THE LEASE RENT WAS DEDUCTIBLE AS REVENUE EXPENDITURE- IN THE AFORESAID CASE, THERE WAS A CLAUSE IN THE LE ASE AGREEMENT GIVING AN OPTION TO THE LESSEE TO BUY BACK THE ASSET ON TE RMINATION OF THE LEASE AGREEMENT. IN THE INSTANT CASE, THE ASSESSEE (LESS EE) FALLS IN A BETTER FOOTING, IN AS MUCH AS THERE IS NO CLAUSE IN THE LE ASE AGREEMENT, ENABLING THE LESSEE TO BUY BACK THE ASSETS ON TERMI NATION OF THE LEASE ARRANGEMENT. WE FIND THAT THE CASE LAW RELIED UPON BY THE LEARNE D DR ON THE DECISION OF DELHI TRIBUNAL NEED NOT BE DISCUSSED AS THE ISSU E IS SQUARELY COVERED BY THE HIGH COURT AND SUPREME COURT IN FAVOUR OF TH E ASSESSEE. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 20 RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, WE FIND NO INFIRMITY IN THE ORDER OF THE LD CITA IN THIS REGARD. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE REVENUE IS DISMISSED. RESPECTFULLY TAKING THE CONSISTENT VIEW OF THIS TRI BUNAL AS DISCUSSED ABOVE, WE REVERSE THE ORDER OF LD. DRP AND DIRECT THE AE T O DELETE THE SAME. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 22. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.5 IS THAT LD. DRP ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF AIRCRAFT MAINTENANCE CHARGES INCLUDING THE DEPRECIATION FOR 5,33,22,000/-. 23. THE ASSESSEE HAS CLAIMED THE EXPENSES OF 2,06,28,623/- TOWARDS RUNNING, REPAIRS, MAINTENANCE OF TWO AIRCRAFTS. THE ASSESSEE ALSO CLAIMED DEPRECIATION FOR 3,26,93,476/- ONLY IN RESPECT OF AIRCRAFTS. HOWEVER , AO HELD THAT 10% OF SUCH EXPENSES ARE NOT CONNECTED WITH TH E BUSINESS OF THE ASSESSEE. ACCORDINGLY, HE MADE THE DISALLOWANCE OF 53,32,210/- INCLUDING THE DEPRECIATION FOR 10% OF TOTAL EXPENDITURE AND A DDED TO THE TOTAL INCOME OF ASSESSEE. 24. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. DRP WHO CONFIRMED THE ORDER OF AE BY OBSERVING AS UNDER :- DRP DIRECTIONS: THE ELEMENT OF PERSONAL OR NON-BUSINESS USAGE CANNO T BE RULED OUT. THE PRECEDENTS ARE THERE IN CASE OF THE ASSESSEE. THE P ANEL DECLINES TO INTERFERE ON THIS COUNT AND THE OBJECTION IS ACCORDINGLY DISM ISSED. BEING AGGRIEVED BY THIS ORDER OF LD. DRP ASSESSEE I S IN SECOND APPEAL BEFORE US. 25. LD. AR FOR THE ASSESSEE REITERATED THE SAME ARG UMENTS THAT WERE PLACED BEFORE LD. DRP WHEREAS LD. DR FOR THE REVENU E VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 21 26. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE FIN D THAT SAME ISSUE HAS ALREADY BEEN DECIDED BY THE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.110/KOL/2016 (SUPRA). THE RELEVANT EXTRACT OF THIS ORDER IS REPRODUCED BELOW:- 4.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK OF THE ASSESSEE. WE FIND THAT THE ASSESSEE OWNS THE AIRCRAFTS AND WERE USED FOR PROVI DING SERVICES TO THE TOURISTS OF THE ASSESSEE COMPANY AS WELL AS OTHERS WHO CHARTERED THEM ACCORDING TO THEIR REQUIREMENTS. THESE AIRCRAFTS WE RE UTILIZED FOR CHARTERING FLIGHTS ALSO AND ASSESSEE HAD DERIVED CHARTERING IN COME ALSO WHICH ARE REFLECTED AS INCOME IN THE PROFIT AND LOSS ACCOUNT WHICH EVIDENCES THE BUSINESS NEXUS OF USE OF AIRCRAFTS. WE ALSO FIND TH AT THE ASSESSEE HAD STATED THAT SOMETIMES THE DIRECTORS OF THE ASSESSEE COMPAN Y HAD TO USE THE AIRCRAFTS FOR THE PURPOSE OF URGENT BUSINESS MEETIN GS IN DIFFERENT LOCATIONS AND NO PERSONAL EXPENSES HAVE BEEN CHARGED TO REVENUE. THE CHARTERING REVENUE OFFERED BY THE ASSESSEE HAS BEEN ACCEPTED BY THE RE VENUE AND HENCE IT CAN SAFELY BE CONCLUDED THAT THE AIRCRAFTS ARE USED FOR THE PURPOSE OF ITS BUSINESS. WE HOLD THAT ASSESSEE COMPANY BEING A NON-NATURAL PERSON CANNOT HAVE PERSONAL ELEMENT THEREON AND ALL THE EXPENDITURE IN CURRED THEREON HAD TO BE CONSTRUED ONLY FOR BUSINESS PURPOSES. EVEN IF THER E WAS ANY PERSONAL ELEMENT INVOLVED IN THE AFORESAID EXPENDITURE, THE SAME HAVE TO BE TAXED AS PERQUISITE IN THE HANDS OF THE DIRECTORS OR EMPLOYE ES AND IT IS ONLY FOR THE LD TDS OFFICER TO LOOK INTO THE ALLEGED VIOLATIONS, IF ANY, ON THE SAME AND THE LD AO CANNOT RESORT TO MAKE ANY DISALLOWANCE OF EXPEND ITURE ON THAT COUNT ON AN ESTIMATED BASIS. WE ALSO DRAW SUPPORT FROM THE D ECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IRON AND E NGINEERING CO VS CIT REPORTED IN 253 ITR 749 (GUJ) IN THIS REGARD. BASED ON THESE FINDINGS AND JUDICIAL PRECEDENT RELIED UPON, WE HOLD THAT NO DIS ALLOWANCE OF EXPENDITURE ON MAINTENANCE OF AIRCRAFTS NEED TO BE MADE ON AN ESTI MATED BASIS TOWARDS EXPENDITURE INCURRED FOR NON-BUSINESS PURPOSES. HE NCE THE ISSUE OF MAINTENANCE OF AIRCRAFTS BEING UTILIZED FOR BUSINES S PURPOSES ARE PROVED BEYOND DOUBT AND THERE IS NO QUESTION OF MAKING ANY DISALLOWANCE ON THAT COUNT. ONCE IT IS ESTABLISHED THAT THE AIRCRAFTS W ERE USED ONLY FOR BUSINESS PURPOSES, THERE IS NO QUESTION OF DISALLOWANCE OF D EPRECIATION, BEING PROPORTIONATE OR OTHERWISE, ON THE SAME. HENCE THE PROVISIONS OF SECTION 38(2) OF THE ACT ARE NOT AT ALL APPLICABLE TO THE F ACTS OF THE INSTANT CASE. WE ALSO FIND THAT SIMILAR ISSUE HAD CROPPED UP FOR THE ASST YEARS 2007-08 TO 2009-10 IN ASSESSEES OWN CASE ITA NOS. 1431/1557/K OL/2011 ; ITA NOS. 932 & 866/KOL/2012 AND ITA NOS. 352& 191/KOL/2013 RESPE CTIVELY WHEREIN IT WAS HELD THAT :- 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS SQU ARELY CONVEYED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASST YEAR 2006-07 IN ITA NO. 314 & 318/KOL /2011 DATED 1.6.2016 WHEREIN IT WAS HELD THAT :- ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 22 9.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS I SSUE IS SQUARELY COVERED IN ASSESSEES OWN CASE FOR THE ASST YEARS 2 003-04, 2004-05 & 2005-06 IN ITA NO. 57/KOL/2007 ; 1846/KOL /2007 AND 299/KOL/2010 DATED 9.12.2015 RESPECTIVELY, WHEREIN IT WAS HELD THAT :- 6.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THI S ISSUE IS SQUARELY COVERED BY THE DECISION OF THE CO-ORDIN ATE BENCH DECISION OF THIS TRIBUNAL IN ASSESSEES OWN C ASE FOR ASST YEAR 2002-03 IN ITA NO. 316/KOL/2006 DATED 11.9.2015 IN PARA 4.4 HAD HELD AS UNDER:- IT IS SEEN THAT THE NET EXPENDITURE TOWARDS RUNNIN G AND MAINTENANCE OF AIRCRAFTS DEBITED IN PROFIT AND LOSS ACCOUNT IS ONLY RS. 95,64,995/- AND HENCE THE PREMISE OF TH E LEARNED AO THAT A SUM OF RS. 2,14,04,416/- IS DEBI TED TO PROFIT AND LOSS ACCOUNT IS GROSSLY INCORRECT. IT I S OBSERVED THAT ULTIMATELY THE ASSESSEE HAD DERIVED SURPLUS OF RS. 1,07,87,457/- BEING THE DIFFERENCE BETWEEN THE CHARTERING INCOME OF RS. 2,02,52,452/- AND MAINTENA NCE AND RUNNING OF AIRCRAFTS EXPENDITURE TO THE TUNE OF RS. 95,64,995/-, EVEN THOUGH DERIVING SURPLUS THEREON I S NOT A PRE-REQUISITE FOR ALLOWANCE OF EXPENDITURE INCURRED . WE ALSO FIND THAT COMPLETE DETAILS OF THE ENTIRE EXPEN DITURE TOWARDS RUNNING AND MAINTENANCE OF AIRCRAFTS TOGETH ER WITH THE LOG BOOK HAS BEEN FILED BEFORE THE LEARNED AO AND HENCE THERE IS ABSOLUTELY NO CASE FOR THE LEARN ED AO TO REJECT THE SAME AND PROCEED TO MAKE DISALLOWANCE ON ESTIMATED BASIS TO BE IN LINE WITH THE DISALLOWANCE S MADE IN EARLIER YEARS. WE ALSO FIND THAT THE EARLIER Y EARS ITAT ORDER ON THIS ISSUE NEED NOT BE FOLLOWED FOR THE AS ST YEAR UNDER APPEAL AS IN THIS YEAR, THE ENTIRE DETAILS WE RE VERY MUCH BEFORE THE LEARNED AO. WE ALSO FIND LOT OF FO RCE IN THE ARGUMENTS OF THE LEARNED AR THAT THE ASSESSEE COMPANY BEING A NON-NATURAL PERSON CANNOT HAVE ANY PERSONAL ELEMENT THEREON AND ALL THE EXPENDITURE INCURRED THEREON HAD TO BE CONSTRUED ONLY FOR BUSIN ESS PURPOSES. TO THIS EXTENT, THE RELIANCE ON THE GUJAR AT HIGH COURT DECISION IN 253 ITR 749 IS WELL PLACED AND SU PPORTS THE CASE OF THE ASSESSEE. WE ALSO FIND LOT OF FOR CE IN THE ARGUMENTS OF THE LEARNED AR THAT IF AT ALL THERE IS ANY PERSONAL ELEMENT INVOLVED IN THE AFORESAID EXPENDIT URE, THE SAME HAVE TO BE TAXED AS PERQUISITE IN THE HAND S OF THE DIRECTORS AND IT IS ONLY FOR THE TDS OFFICER TO LOOK INTO THE VIOLATIONS, IF ANY, ON THE SAME AND HENCE ON TH AT GROUND ALSO, NO DISALLOWANCE OF EXPENDITURE COULD B E APPRECIATED. WE FIND THAT THE LEARNED AO HAD MADE T HE ENTIRE ADDITION BASED ON SURMISES AND CONJECTURES A ND MADE ON AD HOC BASIS. IT IS WELL FOUNDED PROPOSIT ION THAT WHAT IS APPARENT IS REAL AND THE ALLEGATION TO PROV E THE ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 23 CONTRARY IS ON THE PERSON MAKING SUCH ALLEGATION. THE FOLLOWING DECISIONS SUPPORT OUR VIEW IN THIS REGARD :- CIT VS DAULAT RAM RAWATMULL (1973) 87 ITR 349 (SC) SUKHDAYAL RAMBILAS VS CIT (1982) 136 ITR 414 MADURA KNITTING CO VS CIT (1956) 30 ITR 764 (MAD) IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AN D RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS THEREON, WE HAVE NO HESITATION IN DELETING THE ADDITION MADE IN THE SUM OF RS.42,8 0,883/- ON AN ESTIMATED BASIS. ACCORDINGLY, THE GROUND NO. 4 RAI SED BY THE ASSESSEE IS ALLOWED. IN VIEW OF THE AFORESAID FACTS OF THE CASE AND RESP ECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION (SUPRA), WE HOLD THAT NO ADDITION NEED TO BE MADE ON AN ESTIMATED BASIS T OWARDS RUNNING AND MAINTENANCE OF AIRCRAFTS. ACCORDINGLY, THE GROUND NOS. 6 & 7 RAISED BY THE ASSESSEE ARE ALLOWED. 3.4. RESPECTFULLY FOLLOWING THE SAID DECISION, WE H OLD THAT NO ADDITION COULD BE MADE ON AN ESTIMATED BASIS TOWARDS RUNNING AND MAINTENANCE OF AIRCRAFTS. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD FOR VARIOUS ASSESSMENT YEAR S ARE ALLOWED AND GROUNDS RAISED BY THE REVENUE IN THIS REGARD ARE DI SMISSED. 4.2. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE HOLD THAT NO DISALLOWANCE COULD BE MADE ON AN ESTIMATED BASIS TO WARDS RUNNING, REPAIRS & MAINTENANCE OF AIRCRAFTS INCLUDING DEPRECIATION THE REON. ACCORDINGLY, THE GROUND NO. 4.1 RAISED BY THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE DECISION OF THIS CO-ORDI NATE BENCH OF THIS TRIBUNAL WE REVERSE THE ORDER OF LD. DRP AND DIRECT THE AE T O DELETE THE SAME. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED. 27. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.6 IS THAT LD. DRP ERRED IN CONFIRMING THE ORDER OF AO BY NOT ALLOWING SET OFF OF LONG TERM CAPITAL LOSS AGAINST THE SHORT-TERM CAPITAL GAINS (STCG FOR SHOR T) U/S 74 OF THE ACT. 28. THE ASSESSEE DURING THE YEAR EARNED STCG U/S 50 OF THE ACT WHICH WAS SET OFF BY AN AMOUNT OF 1,40,51,830/- AGAINST THE BROUGHT FORWARD LONG TERM CAPITAL LOSS. HOWEVER, AO WAS OF THE VIEW THAT SUCH BROUGHT FORWARD LONG TERM CAPITAL LOSS CANNOT BE SET OFF AGAINST TH E SHORT TERM CAPITAL INCOME. ACCORDINGLY, AO DISALLOWED THE SAME AND ADDED TO TH E TOTAL INCOME OF ASSESSEE. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 24 29. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. DRP. THE ASSESSEE BEFORE LD. DRP SUBMITTED THAT THE DEPRECIA BLE ASSET WAS HELD BY IT FOR A PERIOD MORE THAN 36 MONTHS. THEREFORE, STCG E ARNED U/S 50 OF THE ACT WAS IN THE NATURE OF LTCG. BUT THE SAME WAS TREATED AS SHORT TERM BY VIRTUE OF DEEMING PROVISION SPECIFIED U/S 50 OF THE ACT. A S SUCH, STCG CAN BE SET OFF AGAINST THE BROUGHT FORWARD CAPITAL LOSS. AFTER CON SIDERING THE SUBMISSIONS OF ASSESSEE LD. DRP DISREGARD THE CONTENTION OF ASSESS EE AND CONFIRMED THE ORDER OF AE BY OBSERVING AS UNDER:- DRP DIRECTIONS: THE ASSESSEE COMPANY CLAIMED SET OFF OF LONG TERM C APITAL LOSS AMOUNTING TO RS.1,40,51,830. THE AO HAS TO FOLLOW THE CLASSIF ICATION AS DONE BY THE ASSESSEE. THE ASSESSEE CANNOT TAKE RECOURSE AS IT S UITS TO THEIR NEEDS TO SHIFTING CLASSIFICATIONS BETWEEN SHORT AND LONG TER M GAINS TO SUIT ITS NEEDS. THIS IS A TYPICAL CASE OF RUNNING WITH HARES AND HU NTING WITH HOUNDS. THIS IS NOT PERMISSIBLE IN THE SCOPE OF THE ACT. THE CONTEN TION OF THE ASSESSEE IS THAT SECTION 50 IS ONLY FOR COMPUTATIONAL PURPOSES WHICH IS A CORRECT INTERPRETATION TO THE EXTENT ONLY. SECTION 50 READS AS UNDER:- [ SPECIAL PROVISION FOR COMPUTATION OF CAPITAL GAINS IN CASE OF DEPRECIABLE ASSETS. 50 . NOTWITHSTANDING ANYTHING CONTAINED IN CLAUSE (42A ) OF SECTION 2, WHERE THE CAPITAL ASSET IS AN ASSET FORMING PART OF A BLOCK OF ASSETS IN RESPECT OF WHICH DEPRECIATION HAS BEEN ALLOWED UNDE R THIS ACT OR UNDER THE INDIAN INCOME-TAX ACT, 1922 (11 OF 1922), THE P ROVISIONS OF SECTIONS 48 AND 49 SHALL BE SUBJECT TO THE FOLLOWING MODIFIC ATIONS:- (1) WHERE THE FULL VALUE OF THE CONSIDERATION RECEI VED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE ASST TOGETHER WI TH THE FULL VALUE OF SUCH CONSIDERATION RECEIVED OR ACCRUING AS A RES ULT OF THE TRANSFER OF ANY OTHER CAPITAL ASSET FALLING WITHIN THE BLOCK OF THE ASSETS DURING THE PREVIOUS YEAR, EXCEEDS THE AGGREG ATE OF THE FOLLOWING AMOUNTS, NAMELY:- (I) EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTIONS WITH SUCH TRANSFER OR TRANSFERS; (II) THE WRITTEN DOWN VALUE OF THE BLOCK OF ASSETS AT THE BEGINNING OF THE PREVIOUS YEAR; AND (III) THE ACTUAL COST OF ANY ASSET FALLING WITHIN T HE BLOCK OF ASSETS ACQUIRED DURING THE PREVIOUS YEAR, SUCH EXCESS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRANSFER OF SHORT-TERM CAPITAL ASSET; (2) WHERE ANY BLOCK OF ASSETS CEASE TO EXIST AS SUC H, FOR THE REASON THAT ALL THE ASSETS INS THAT BLOCK ARE TRANS FERRED DURING THE PREVIOUS YEAR, THE COST OF ACQUISITION OF THE B LOCK OF ASSETS SHALL BE THE WRITTEN DOWN VALUE OF THE BLOCK OF ASS ETS AT THE BEGINNING OF THE PREVIOUS YEAR, AS INCREASED BY THE ACTUAL COST OF ANY ASSET FALLING WITHIN THAT BLOCK OF ASSETS, ACQUIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND THE INCOME RE CEIVED OR ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 25 ACCRUING AS A RESULT OF SUCH TRANSFER OR TRANSFERS SHALL BE DEEMED TO BE THE CAPITAL GAINS ARISING FROM THE TRA NSFER OF SHORT- TERM CAPITAL ASSETS.] THIS IS A NON OBSTANTE CLAUSE AND IT HAS TO HAVE AN OVERRIDING EFFECT ON OTHER PROVISIONS OF THE ACT. THE ASSESSEE HAS RELIED ON S ECTION 74 OF THE IT ACT WHICH DEALS WITH MECHANISM OF COMPUTATION OF CAPITA L GAINS. THIS SECTION CANNOT BE READ IN ISOLATION FROM SECTION 50 NOR CAN IT NULLIFY THE IMPACT OF SECTION 50. LD. AR PLACED RELIANCE ON VARIOUS CASE LAWS IN THIS REGARD. THE SAME ARE NOT APPLICABLE BEING DISTINGUISHABLE ON TH E FACTS. THE LD. AR ALSO VEHEMENTLY RELIED ON THE DECISION OF HON'BLE SUPREM E COURT IN THE CASE OF M/S DEMPO (CA 4797/2008). THE PANEL HAS GONE THROUG H THE SAME. IT IS TO BE NOTED HERE THAT THIS JUDGMENT HAS BEEN RENDERED IN CONTEXT OF SECTION 54E RELATED EXEMPTIONS/REBATES. THE GENESIS AND PURPOSE OF 54E ARE ENTIRELY DIFFERENT HENCE THAT RATIO WILL NOT APPLY IN THIS C ASE WHERE SECTION 50 COMES IN FULL PLY. THE RULING DOES NOT LAY DOWN A RATIO DECI DENDI AND IS A MERE OBITER DICTUM AND DOES NOT BECOME LAW IN RESPECT OF ISSUES WHERE FACTS ARE DIFFERENT. THE PANEL IS NOT IN AGREEMENT WITH THE C ONTENTIONS OF THE ASSESSEE IN THIS REGARD. IN SUCH A SCENARIO THE ACTION OF COMPUTING ALSO INC LUDES THE PROCESS OF SET OFFS AND OTHER ADJUSTMENTS AS PER PROVISIONS OF LAW . IT HAS TO BE A HARMONIOUS INTERPRETATION AND SUCH SET OFF CANNOT BE ALLOWED U NLESS SPECIFICALLY PERMISSIBLE IN THE INCOME DETERMINATIVE SCHEME OF T HE IT ACT 1961. THE AO IS BOUND TO FOLLOW THE ACT AS IT EXISTS. THE OBJECTION IS DISMISSED ACCORDINGLY. AGGRIEVED BY THE ABOVE FINDING OF LD.DRP, THE ASSES SEE IS IN APPEAL BEFORE THE TRIBUNAL. 30. LD. AR FOR THE ASSESSEE BEFORE US REITERATED TH E SAME ARGUMENTS THAT WERE MADE BEFORE LD. DRP WHEREAS LD. DR FOR THE REV ENUE VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 31. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE FIN D THAT THIS ISSUE HAS ALREADY BEEN DECIDED BY THIS CO-ORDINATE BENCH OF THIS TRIB UNAL IN ASSESSEES OWN CASE (SUPRA), THE RELEVANT EXTRACT OF THIS ORDER IS REPRODUCED BELOW:- 5.1. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSET THAT WAS THE SUBJECT MATTER OF TRANSFER WAS A RESIDENTIAL PROPERTY WHICH WAS HELD BY THE ASSESSEE FOR A PERIOD EXCEEDING 36 MONTHS. HENCE THE ASSET HELD WAS A LONG TERM CAPITAL ASSET IN THE HANDS OF THE ASSESSEE. IT IS N OT IN DISPUTE THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE SAID PROPE RTY IN THE RETURNS OF EARLIER YEARS AND HENCE BECOMES DEPRECIABLE ASSET. WE HOLD THAT MERELY BECAUSE THE DEPRECIABLE ASSET HAS BEEN SOLD AND THE SALE CONSIDERATION RECEIVED THEREON EXCEEDS THE WRITTEN DOWN VALUE OF SUCH ASSET, THE CHARACTER OF THE ASSET (I.E BEING A LONG TERM CAPITAL ASSET) DOES NOT UNDERGO ANY CHANGE. MAY BE , IT WOULD BE ELIGIBLE TO TAXED IN TERMS OF DEEMING FICTION U/S ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 26 50 OF THE ACT AS SHORT TERM CAPITAL GAINS ON SALE OF DEPRECIABLE ASSETS. WE HOLD THAT THE DEEMING FICTION CREATED BY SECTION 50 OF THE ACT THAT THE CAPITAL GAIN ARISING ON TRANSFER OF A DEPRECIABLE ASSET SHA LL BE TREATED AS CAPITAL GAIN ARISING ON TRANSFER OF SHORT TERM CAPITAL ASSET IS ONLY FOR THE PURPOSE OF SECTIONS 48 AND 49 OF THE ACT AND NOT FOR THE PURPO SE OF ANY OTHER SECTION. IT IS WELL SETTLED THAT THE DEEMING FICTION AND THE DE EMING PROVISIONS SHOULD BE CONSTRUED VERY STRICTLY AND TO BE APPLIED IN LIMITE D SENSE AND THE SAME CANNOT BE IMPORTED INTO OTHER SECTIONS OF THE ACT UNLESS O THERWISE SPECIFIED. SECTION 74(1)(B) OF THE ACT BEING AN INDEPENDENT SECTION IS NOT BOUND BY THE DEEMING PROVISIONS OF SECTION 50 OF THE ACT. THE NATURE OF CAPITAL ASSET, WHETHER SHORT TERM OR LONG TERM, HAS TO BE DETERMINED APPLYING TH E PROVISIONS OF SECTION 2(42A) AND SECTION 2(29B) OF THE ACT. HENCE WE HOL D THAT THE DEPRECIABLE ASSETS WHICH HAD BEEN HELD FOR MORE THAN 36 MONTHS PRIOR TO ITS SALE, DOES NOT LOSE ITS CHARACTER OF BEING A LONG TERM CAPITAL ASSET, EVEN THOUGH IT MIGHT GET TAXED AS SHORT TERM CAPITAL GAIN IN TERMS OF DE EMING FICTION PROVIDED U/S 50 OF THE ACT. RELIANCE IN THIS REGARD IS PLACED O N THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS V.S.DEMPO COMPA NY LTD REPORTED IN (2016) 74 TAXMANN.COM 15 (SC) WHEREIN IT WAS HELD THAT :- 1. IN THE RETURN FILED BY THE RESPONDENT/ASSESSEE F OR THE ASSESSMENT YEAR 1989-90 THE ASSESSEE HAD DISCLOSED THAT IT HAD SOLD ITS LOADING PLATFORM M.V. PRIYADARSHNI FOR A SUM OF RS. 1,37,25 ,0001- ON WHICH IT HAD EARNED SOME CAPITAL GAINS. ON THE SAID CAPITAL GAINS THE .ASSESSEE HAD ALSO CLAIMED THAT IT WAS ENTITLED FOR EXEMPTION UNDER SECTION 54E OF THE INCOME TAX ACT. ADMITTEDLY, THE ASSET WAS PU RCHASED IN THE YEAR 1972 AND SOLD SOMETIME IN THE YEAR 1989. THUS, THE ASSET IS ALMOST 17 YEARS OLD. GOING BY THE DEFINITION OF LONG TERM CAP ITAL ASSET CONTAINED IN SECTION 2(29B) OF THE INCOME TAX ACT, 1995 (HERE INAFTER REFERRED TO AS 'THE ACT'), IT WAS ADMITTEDLY A LONG-TERM CAPITA L ASSET. FURTHER THE ASSESSING OFFICER REJECTED THE CLAIM FOR EXEMPTION UNDER SECTION 54E OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD CLAI MED DEPRECIATION ON THIS ASSET AND, THEREFORE, PROVISIONS OF SECTION 50 WERE APPLICABLE. THOUGH THIS WAS UPHELD BY THE COMMISSIONER OF INCOM E TAX (APPEALS), THE INCOME TAX APPELLATE TRIBUNAL ALLOWE D THE APPEAL OF THE ASSESSEE HEREIN HOLDING THAT THE ASSESSEE SHALL BE ENTITLED FOR EXEMPTION UNDER SECTION 54E OF THE ACT. THE HIGH CO URT HAS CONFIRMED THE VIEW OF THE COMMISSIONER OF INCOME TAX (APPEALS ) AND DISMISSED THE APPEAL OF THE REVENUE. WHILE DOING SO THE HIGH COURT HAS RELIED UPON ITS OWN JUDGMENT IN THE CASE OF CIT V. ACE BUI LDERS (P.) LTD. [2006] 281 ITR 210/[2005]144 TAXMAN 855 (BORN.). TH E HIGH COURT HAS OBSERVED THAT SECTION 50 OF THE ACT WHICH IS A SPECIAL PROVISION FOR COMPUTING THE CAPITAL GAINS IN THE CASE OF DEPRECIA BLE ASSETS IS NOT ONLY RESTRICTED FOR THE PURPOSES OF SECTION 48 OR S ECTION 49 OF THE ACT AS SPECIFICALLY STATED THEREIN AND THE SAID FICTION CREATED IN SUB-SECTION (L) & (2) OF SECTION 50 HAS LIMITED APPLICATION ONL Y IN THE CONTEXT OF MODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN S ECTIONS 48 AND 49 AND WOULD HAVE NOTHING TO DO WITH THE EXEMPTION THA T IS PROVIDED IN A TOTALLY DIFFERENT PROVISION I.E. SECTION 54E OF THE ACT. SECTION 48 DEALS WITH THE MODE OF COMPUTATION AND SECTION 49 RELATES TO COST WITH REFERENCE TO CERTAIN MODE OF ACQUISITION. THIS ASPE CT IS ANALYSED IN THE ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 27 JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF AC E BUILDERS (P.) LTD. (SUPRA) IN THE FOLLOWING MANNER: 'IN OUR OPINION, THE ASSESSEE CANNOT BE DENIED EXEM PTION UNDER SECTION 54E, BECAUSE, FIRSTLY, THERE IS NOTHING IN SECTION 50 TO SUGGEST THAT THE FICTION CREATED IN SECTION 50 IS N OT ONLY RESTRICTED TO SECTIONS 48 AND 49 BUT ALSO APPLIES T O OTHER PROVISIONS. ON THE CONTRARY, SECTION 50 MAKES IT EX PLICITLY CLEAR THAT THE DEEMED FICTION CREATED IN SUB-SECTION (I) & (2) OF SECTION 50 IS RESTRICTED ONLY TO THE MODE OF COMPUTATION OF CAPITAL GAINS CONTAINED IN SECTION 48 AND 49. SECONDLY, IT IS WEL L ESTABLISHED IN LAW THAT A FICTION CREATED BY THE LEGISLATURE HA S TO BE CONFINED TO THE PURPOSE FOR WHICH IT IS CREATED. IN THIS CON NECTION, WE MAY REFER TO THE DECISION OF THE APEX COURT IN THE CASE OF STATE BANK OF INDIA V. D. HANUMANTHA RAO 1998 (6) SCC 183. IN THAT CASE, THE SERVICE RULES FRAMED BY THE BANK PROVIDED FOR G RANTING EXTENSION OF SERVICE TO THOSE APPOINTED PRIOR TO 19 .07.1969. THE RESPONDENT THEREIN WHO HAD JOINED THE BANK ON 1.7.1 972 CLAIMED EXTENSION OF SERVICE BECAUSE HE WAS DEEMED TO BE APPOINTED IN THE BANK WITH EFFECT FROM 26.10.1965 F OR THE PURPOSE OF SENIORITY, PAY AND PENSION ON ACCOUNT OF HIS PAST SERVICE IN THE ARMY AS SHORT SERVICE COMMISSIONED O FFICER. IN THAT CONTEXT, THE APEX COURT HAS HELD THAT THE LEGA L FICTION CREATED FOR THE LIMITED PURPOSE OF SENIORITY, PAY A ND PENSION CANNOT BE EXTENDED FOR OTHER PURPOSES. APPLYING THE RATIO OF THE SAID JUDGMENT, WE ARE OF THE OPINION, THAT THE FICT ION CREATED UNDER SECTION 50 IS CONFINED TO THE COMPUTATION OF CAPITAL GAINS ONLY AND CANNOT BE EXTENDED BEYOND THAT. THIRDLY, S ECTION 54E DOES NOT MAKE ANY DISTINCTION BETWEEN DEPRECIABLE A SSET AND NON-DEPRECIABLE ASSET AND, THEREFORE, THE EXEMPTION AVAILABLE TO THE DEPRECIABLE ASSET UNDER SECTION 54E CANNOT BE D ENIED BY REFERRING TO THE FICTION CREATED UNDER SECTION 50. SECTION 54E SPECIFICALLY PROVIDES THAT WHERE CAPITAL GAIN ARISI NG ON TRANSFER OF A LONG TERM CAPITAL ASSET IS INVESTED OR DEPOSITED (WHOLE OR ANY PART OF THE NET CONSIDERATION) IN THE SPECIFIED ASS ETS, THE ASSESSEE SHALL NOT BE CHARGED TO CAPITAL GAINS. THE REFORE, THE EXEMPTION UNDER SECTION 54E OF THE LT. ACT CANNOT B E DENIED TO THE ASSESSEE ON ACCOUNT OF THE FICTION CREATED IN S ECTION 50.' 2. WE ARE IN AGREEMENT WITH THE AFORESAID VIEW TAKE N BY THE HIGH COURT. 3. WE ARE INFORMED THAT THE GUJRAT HIGH COURT AS WE LL AS GUAHATI HIGH COURT HAVE ALSO TAKEN THE SAME VIEW IN THE FOLLOWIN G CASES: I) CIT VS. POLESTAR INDUSTRIES [2014] 41 TAXMANN.CO M 237/221 TAXMAN 423 II) CIT VS. ASSAM PETROLEUM INDUSTRIES (P) LTD. [20 03] 262 ITR 587/131 TAXMAN 699 (GAU) ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 28 4. WE ARE ALSO INFORMED THAT AGAINST THE AFORESAID JUDGMENTS NO APPEAL HAS BEEN FILED. 5. IN VIEW OF THE FOREGOING, WE DO NOT FIND ANY MER IT IN THE INSTANT APPEAL WHICH IS, ACCORDINGLY, DISMISSED. 5.2. WE FIND THAT THE RELIANCE PLACED BY THE LD AR ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS MANALI INVE STMENT REPORTED IN (2013) 219 TAXMAN 113 (BOM) WHEREIN IT WAS HELD THAT SHORT TERM CAPITAL GAIN COMPUTED U/S 50 OF THE ACT ON LONG TERM DEPRECIABLE ASSETS CAN BE SET OFF AGAINST LONG TERM CAPITAL LOSS U/S 74 OF THE ACT. 5.3. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HO NBLE SUPREME COURT AND HONBLE BOMBAY HIGH COURT SUPRA, WE HOLD THAT THE A SSESSEE IS INDEED ENTITLED TO SET OFF THE BROUGHT FORWARD LONG TERM C APITAL LOSS OF RS 9,77,54,843/- AGAINST THE DEEMED SHORT TERM CAPITAL GAIN OF RS 7,18,74,000/- IN THE FACTS OF THE CASE. THE LD AO IS ACCORDINGLY DIRECTED TO GIVE BENEFIT OF THE SAME TO THE ASSESSEE BASED ON THE CORRECTNESS OF TH E CLAIM OF BROUGHT FORWARD LOSS FIGURE MADE BY THE ASSESSEE. ACCORDINGLY, THE GROUND NOS. 5.1 & 5.2 RAISED BY THE ASSESSEE ARE ALLOWED FOR ST ATISTICAL PURPOSES AS DIRECTED ABOVE. RESPECTFULLY FOLLOWING THE PROPOSITION LAID DOWN IN THE DECISION OF THIS CO- ORDINATE BENCH OF THIS TRIBUNAL, WE ALLOW THE GROUN D OF APPEAL OF ASSESSEE FOR STATISTICAL PURPOSE IN TERMS OF ABOVE DIRECTION OF THIS TRIBUNAL. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STA TISTICAL PURPOSE. 32. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.7 IS THAT LD. DRP ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 5,30,91,623/- ON ACCOUNT OF NON-DEDUCTION OF TAX U/S 195 OF THE ACT R.W.S. 40(A)(I) OF THE ACT. 33. THE ASSESSEE DURING THE YEAR HAS INCURRED CERTA IN EXPENSES IN FOREIGN CURRENCY FOR 23,20,18,199/- ONLY. THE EXPENSES IN FOREIGN CURREN CY INCLUDE THE FOLLOWING EXPENSES:- I) INSPECTION FEE II) ADVERTISEMENT IN MAGAZINE / WEBSITE LISTING III) RECRUITMENT CHARGES IV) PROFESSIONAL CHARGES V) CONSULTANCY CHARGES VI) MARKETING AND DEVELOPMENT EXPENSES ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 29 OUT OF TOTAL EXPENSES INCURRED IN FOREIGN CURRENCY, ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE (TDS) ON THE AMOUNT OF 5,30,91,623/- ONLY. THE ASSESSEE CLAIMED THAT THE IMPUGNED EXPENSES ARE NOT CHARGEAB LE TO TAX IN INDIA IN VIEW OF THE PROVISION OF DTAA AS WELL AS THERE WAS NO PE OF THE FOREIGN PARTY IN INDIA. HOWEVER, THE AE DISREGARDED THE CONTENTION O F ASSESSEE AND ADDED THE SUM OF 5,30,91,623/- ON ACCOUNT OF NON-DEDUCTION OF TDS T O THE TOTAL INCOME OF ASSESSEE. 34. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD.DRP. THE ASSESSEE BEFORE LD. DRP SUBMITTED THAT THE PAYMENT MADE TO FOREIGN PARTIES WERE NOT TAXABLE IN INDIA IN TERMS OF THE PROVISION OF DTAA, THEREFORE, THE TDS WAS NOT DEDUCTED. HOWEVER, LD. DRP DISREGARDED THE CONTENTION OF ASSESSEE AND CONFIRMED THE ORDER OF AE BY OBSERVING AS UNDER :- DRP DIRECTIONS: THE AO HAS TO FOLLOW THE LAWFUL LIMITS AS PROVIDED IN SECTION 195 IN THIS SCENARIO. THE ASSESSEE HAS MADE THE FOLLOWING PAYME NTS; PARTICULARS AMOUNT (RS IN LACS) PROFESSIONAL AND CONSULTANCY FEES 1,87,92,741 ADVERTISEMENT, PARTICIPATION AND SALES 1,58,99,732 PROMOTION MARKETING & DEVELOPMENT EXPENSES 32,68,660 BUSINESS FAIRS AND EXHIBITION 47,78,397 INSPECTION FEES 11,34,053 TOTAL 5,30,91,353 IT WAS SUBMITTED THAT THE REMITTANCES DID NOT QUALI FY UNDER THE DEFINITION OF ROYALTIES/FTS AS PROVIDED UNDER ARTICLE 12 OR ARTIC LE 13 OF THE APPLICABLE TAX TREATIES AS THE SAME DID NOT PASS THE FILER OF MAKI NG TECHNOLOGY AVAILABLE HENCE THESE COULD NOT BE TAXED. THE AO ALSO COULD NOT TAX THEM UNDER ARTICLE 5 ON ACCOUNT OF ABSENCE OF PE OR UNDER ARTICLE 7 AL SO THERE WAS NO OTHER DETAILS FIELD TO SUBSTANTIATE THE CONTENTION OF THE ASSESSEE. THE LD. AR STATED THAT CERTAIN AGREEMENTS/MATERIAL WAS FILED BEFORE T HE AO IN CONNECTION WITH THE ABOVE REMITTANCES. IN THIS CONTEXT, IT WAS MERE LY SUBMITTED BEFORE THE PANEL THAT ALL THESE OPERATIONS WERE CARRIED OUT OU TSIDE INDIA, IN ACCORDANCE WITH CLAUSE (A) OF EXPLANATION 1 TO SECTION 9(1)(I) , THE VARIOUS REMITTANCES CANNOT BE CONSIDERED TO ACCRUE OR ARISE IN INDIA HE NCE NOT CHARGEABLE TO TAX IN INDIA UNDER SECTION 9(1)(I) OF THE ACT. AO WILL EXAMINE THE NATURE OF SUCH REMITTANCES WITHIN TIME FRAME AVAILABLE AND ONLY SU CH PROCEEDS WHICH FALL WITHIN THE RELEVANT TAXATION STATUTE U/S. 9 R/W 195 ALONG WITH CONCERNED TREATY SHALL BE BROUGHT TO TAX. THE OBJECTION IS THUS DISP OSED OF. AGGRIEVED BY THIS THE ASSESSEE HAS COME UP IN APPEA L BEFORE US. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 30 35. BEFORE US LD. AR FOR THE ASSESSEE REITERATED TH E SAME ARGUMENTS THAT WERE PLACED BEFORE LD. DRP WHEREAS LD. DR FOR THE R EVENUE VEHEMENTLY RELIED ON THE ORDER OF LOWER AUTHORITIES AND REQUES TED THE BENCH TO CONFIRM THE SAME. 36. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FI ND THAT ISSUE UNDER CONSIDERATION HAS ALREADY BEEN DECIDED BY THE CO-OR DINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE (SUPRA) FOR STATIST ICAL PURPOSE. THE RELEVANT EXTRACT OF THIS ORDER IS REPRODUCED BELOW:- 6.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASS ESSEE. WE FIND THAT THE ASSESSEE HAD GIVEN UNIT WISE DETAILS OF VARIOUS EXP ENDITURES INCURRED IN FOREIGN CURRENCY VIDE ITS LETTER DATED 12.3.2015 & 16.3.2015 WITH DETAILED WRITE UP ABOUT THE EACH EXPENDITURE AS UNDER:- EXPENDITURE IN FOREIGN CURRENCY TOWARDS PROFESSIONA L, CONSULTANCY & OTHER MATTERS [CLAUSE 25(A) OF SCHEDULE 24 TO ANNUAL ACCO UNTS] NAME OF THE HOTEL/DIVISION AMOUNT(RS.) THE OBEROI GRAND 4,625,991 THE OBEROI, NEW DELHI 65,397,301 THE OBEROI MUMBAI/TIDENT NARIMAN POINT 35,607,111 TRIDENT BANDRA KURLA, MUMBAI (OPERATIONS) 9,260,22 3 OBEROI FLIGHT SERVICES, MUMBAI 1,081,847 OBEROI AIRPORT SERVICES, MUMBAI 169,761 THE OBEROI, BANGALORE 9,805,671 THE OBEROI VANYAVILAS, RANTHAMBORE 2,113,523 MAIDENS HOTEL, DELHI 3,806 OFS NEW DELHI (NEW PROJECT) 63,794,695 OBEROI CENTRE FOR LEARNING & DEVELOPMENT 10,765 OBEROI FLIGHT SERVICES, CHENNAI 5,000 THE OBEROI UDAIVILAS, UDAIPUR 13,647,420 OBEROI CONTACT CENTRE 3,738,353 HEAD OFFICE, KOLKATA 73,122,322 TOTAL 282,383,789 NATURE OF EXPENDITURE ANNEXURE -1 ROOM RESERVATION COMMISSION ANNEXURE-2 PARTICIPATION/LISTING FEES ANNEXURE-3 INSPECTION FEES ANNEXURE-4 ADVERTISEMENT IN MAGAZINE/WEBSITE LISTI NG ANNEXURE-5 TELEPHONE EXPENSES ANNEXURE-6 MEMBERSHIP/ANNUAL SUBSCRIPTION ANNEXURE-7 REIMBURSEMENT OF EXPENSES AT ACTUAL ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 31 ANNEXURE-8 SALARY/ADVANCE AGAINST SALARY ANNEXURE-9 DOMESTIC PAYMENT ANNEXURE-10 RECRUITMENT CHARGES ANNEXURE-11 MANAGEMENT FEES ANNEXURE-12 AIRCRAFT REPAIR & MAINTENANCE ANNEXURE-13 PROFESSIONAL/CONSULTANCY ANNEXURE-14 MARKETING AND DEVELOPMENT 6.3. ADVERTISEMENT IN MAGAZINES / WEBSITE LISTING THE ASSESSEE EXPLAINED THAT MAGAZINES ARE PRINTED O UTSIDE INDIA AND / OR THE WEBSITES ARE LISTED OUTSIDE INDIA. THE ASSESSEE BE ING IN THE LUXURY HOSPITALITY, ITS BUSINESS HEAVILY DEPENDS ON CLIENT S FROM THE WESTERN WORLD. CONSEQUENTLY, AS IN THE PAST IT SPENT A CONSIDERABL E SUM OF MONEY ON ADVERTISEMENTS BOTH IN THE PRINT AND WEB MEDIA. AS ALREADY EXPLAINED IN THE PAST YEARS, SUCH ADVERTISEMENTS ARE PRINTED MOSTLY IN USA AND SOME IN THE UK ETC. THE SERVERS OF THE WEB ARE ALSO LOCATED OU TSIDE INDIA. AS ALREADY EXPLAINED, THE TARGET FOR THE ADVERTISEMENTS ARE TH E FOREIGN TOURISTS. HENCE, IN THOSE CASES, WHAT IS ENSURED IS THAT THESE FOREIGN ADVERTISEMENTS ARE CIRCULATED IN THE US/ CANADA AND IN UK AND EUROPEAN COUNTRIES. ACCORDINGLY, THE PAYMENTS DO NOT ATTRACT TAX WITHHO LDING U/S 9 SINCE ALL ACTIVITIES RELATING TO THE ADVERTISEMENTS TAKE PLAC E OUTSIDE INDIA AND THE REMITTANCES ARE MADE OUTSIDE INDIA SUCH REMITTANCES SHOULD NOT CALL FOR ANY TAX WITHHOLDING. FURTHER, EVEN UNDER THE RESPECTIV E TREATIES, US / UK ETC, WITH RESTRICTED FTS CLAUSE WITH MAKE AVAILABLE PROVISI ON, NO TDS IS CALLED FOR IN INDIA. 6.4. INSPECTION FEES THE ASSESSEE EXPLAINED THAT FEES PAID TO OVERSEAS P ARTIES FOR CARRYING ON INSPECTIONS OUTSIDE INDIA. TO ENSURE QUALITY ASSUR ANCES, INSPECTION FEES WERE PAID TO VARIOUS AGENCIES MOSTLY FROM THE UK. EVEN IF IT IS ADMITTED THAT THE SERVICES TO PROVIDE SUCH INSPECTION REQUIRES TECHNI CAL EXPERTISE, UNDER THE INDO-UK TAX TREATY, THE FTS CLAUSE IS VERY NARROW. TO QUALIFY FOR AN AMOUNT ALLING UNDER THE FTS CLAUSE, THERE SHOULD BE MAKIN G AVAILABLE OF A TECHNOLOGY. IN CASE OF INSPECTION FEES, THE SERVIC E PROVIDER ONLY PROVIDES THEIR REPORT OR ONLY PROVIDES A QUALITY ASSURANCE. SUCH SERVICES DO NOT FALL UNDER FTS AND HENCE IN THE ABSENCE OF THEIR PES IN INDIA, THERE WAS NO WITHHOLDING TAX REQUIREMENT IN INDIA UNDER THE INDI A UK TREATY. 6.5. RECRUITMENT CHARGES PAYMENTS TOWARDS PROFESSIONAL FEES FOR MANPOWER REC RUITMENT IN HOTELS OUTSIDE INDIA. THE ASSESSEE HAD TO TAKE THE SERVIC ES OF VARIOUS FOREIGN RECRUITMENT AGENTS (SPECIALLY FOR SPAS , CHEFS ETC) . THE SERVICES ARE RENDERED OUTSIDE INDIA AND THE PAYMENTS ARE MADE OU TSIDE INDIA. THEREFORE UNDER THE DOMESTIC LAW, THE REMUNERATION FOR SUCH S ERVICES ARE NOT TAXABLE IN INDIA. EVEN OTHERWISE, THE RECRUITMENT SERVICES PR OVIDERS ARE BASED IN INDONESIA OR THAILAND. BOTH THE COUNTRIES HAVE TRE ATIES WITH INDIA AND DO NOT HAVE ANY FTS CLAUSE AT ALL. NONE OF SUCH SERVICES PROVIDERS HAVE ANY PE IN INDIA. THEREFORE ANY REMITTANCE MADE IN THIS REGAR D IS NOT TAXABLE IN INDIA. 6.6. PROFESSIONAL / CONSULTANCY CHARGES ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 32 THE PAYEES ARE MAINLY FROM THE USA, UK AND AUSTRALI A. THE PROFESSIONAL SERVICES RENDERED DO NOT FALL IN THE CATEGORY OF R OYALTY AS PER THE INDIA- AUSTRALIA TAX TREATY. FURTHER THAT TREATY DOES NOT HAVE ANY EXCLUSIVE FTS CLAUSE. AS REGARDS THE USA AND UK, THE FTS/ INCLUDE D SERVICE DEFINITIONS ARE VERY NARROW. SERVICES RENDERED TO THE ASSESSEE DO NOT FALL UNDER MAKE AVAILABLE CATEGORY. THEREFORE IN THE ABSENCE OF P E IN INDIA, THE PAYMENTS MADE TO THE PAYEES OUTSIDE INDIA DO NOT CALL FOR AN Y TDS. 6.7. MANAGEMENT FEES MANAGEMENT FEES IS PAID TO THE THAI SPA MANAGEMENT FIRM. FOR ARGUMENT SAKE, EVEN IF THE PAYMENT IS CONSIDERED TAXABLE IN INDIA UNDER THE DOMESTIC LAW, THE SAME IS NOT TAXABLE IN INDIA UNDER THE IND IA THAILAND TAX TREATY. AS MENTIONED EARLIER, THE THAI TREATY DOES NOT HAVE AN Y EXCLUSIVE FTS CLAUSE. HENCE IN THE ABSENCE OF ANY PE IN INDIA, THESE PAYM ENTS MADE TO THE SERVICE PROVIDERS DO NOT CALL FOR ANY TDS. 6.8. MARKETING & DEVELOPMENT PAYMENTS ARE MADE TO THE TAX RESIDENTS OF USA / MAU RITIUS. WHILE USA HAS MAKE AVAILABLE CLAUSE IN THE INCLUDED SERVICES A RTICLE , MAURITIUS DOES NOT HAVE ANY EXCLUSIVE FTS CLAUSE. IN VIEW OF THE ABOV E, NO TAX WITHHOLDING IS CALLED FOR. 6.9. APART FROM THIS, THE ASSESSEE HAD GIVEN AN EXC LUSIVE SUBMISSION BEFORE THE LD AO VIDE LETTER DATED 19.11.2015 WITH REGARD TO NON-APPLICABILITY OF WITHHOLDING TAX UNDER DOMESTIC LAW AS WELL AS DTAA OF THE RESPECTIVE COUNTRIES FOR EACH OF THE AFORESAID EXPENDITURE AS UNDER:- ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 33 ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 34 ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 35 1. ADVERTISEMENTS IN MAGAZINES AND WEB SITE LISTING THE ASSESSEE BEING IN THE LUXURY HOSPITALITY, ITS B USINESS HEAVILY DEPENDS ON CLIENTS FOR THE WESTERN WORLD. CONSEQUENTLY, AS IN THE PAST IT SPENT A CONSIDERABLE SUM OF MONEY ON ADVERTISEMENTS BOTH IN THE PRINT AND WEB M EDIA. AS ALREADY EXPLAINED IN THE PAST YEARS, SUCH ADVERTISEMENTS ARE PRINTED MOS TLY IN USA, UK AND EUROPEAN COUNTRIES. THE SERVERS OF THE WEB ARE ALSO LOCATED OUTSIDE INDIA. AS ALREADY EXPLAINED, THE TARGET FOR THE ADVERTISEMENTS ARE TH E FOREIGN TOURISTS. HENCE, IN THOSE CASES, WHAT ENSURED IS THAT THESE FOREIGN ADVERTISE MENTS ARE CIRCULATED IN THE US; CANADA AND IN UK AND EUROPEAN COUNTRIES. TAXABILITY UNDER THE INCOME TAX ACT, 1961 THE SERVICES RENDERED BY FOREIGN VENDORS IN RELATIO N TO ADVERTISEMENT/ WEB LISTING ARE IN THE NATURE OF MARKETING EXPENSES. THESE SERV ICES ARE NOT TAXABLE UNDER THE PROVISION OF INCOME TAX ACT, 1961 FOR THE FOLLOWING REASONS: IT IS NOT RECEIVED OR DEEMED TO BE RECEIVED IN IN DIA. THE INCOME DOES NOT ACCRUES OR ARISES OR DEEMED T O ACCRUE OR ARISE IN INDIA AS THE ADVERTISEMENT IS PUBLISHED/PRINTED/ DISTRI BUTED OUTSIDE INDIA , SINCE ALL THE OPERATIONS OF PAYEE ARE CARRIED OUT OUTSIDE INDIA, IN ACCORDANCE WITH CLAUSE (A) OF EXPLANATION 1 TO SECTION 9(1)(I) , THE VARIOUS REMITTANCES SHOULD NOT BE CONSIDERED AS DEEMED TO ACCRUE OR ARI SE IN INDIA AND ACCORDINGLY SUCH INCOME OUGHT NOT TO BE CHARGEABLE TO TAX IN INDIA UNDER SECTION 9(1)(I) OF THE ACT. THE REMITTANCES MADE ON ACCOUNT OF WERE NOT FOR A NY USE OR RIGHT TO USE OF ANY EQUIPMENT, COPY RIGHT, SCIENTIFIC WORK ETC. AND HENCE SHOULD NOT QUALIFY AS ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. THE SAID REMITTANCE WERE ALSO NOT FOR RENDERING A NY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES AND HENCE SHOULD NOT QUALIFY A S FEES FOR TECHNICAL SERVICE (FTS) UNDER SECTION 9(1)(VII) OF THE ACT. THE ACTIVITY OF ADVERTISEMENT DOES NOT PER SE INVOLVE ANY TECHNICAL EXPERTISE. IT HAS TO BE TREATED AS ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 36 BUSINESS INCOME OF THE SERVICE PROVIDER. IT IS PERT INENT TO NOTE THAT THE LD CIT(A) IN THE CASE OF THE ASSESSEE ITSELF IN THE A. Y.2006-07 FOLLOWED BY SUBSEQUENT YEARS HAS CATEGORICALLY HELD THAT THE PA YMENTS TO FOREIGN PARTIES ON ACCOUNT OF ADVERTISEMENT OUTSIDE INDIA SHOULD NO T BE TAXABLE IN INDIA AS PER THE PROVISIONS OF SECTION 9(1)(VII) OF THE INCO ME TAX ACT. THE RELEVANT EXTRACT OF THE CLT(A) ORDER FOR THE ASSESSMENT YEAR 2006-07 IS REPRODUCED AS FOLLOWS: 'IN MY CONSIDERED VIEW, THE PAYMENTS TO THE FOREIG N PARTIES ON ACCOUNT OF ADVERTISEMENT OUTSIDE INDIA SHOULD NOT BE TAXABLE IN INDIA AS PER THE PROVISIONS OF SECTION 9(1)(VII) OF THE I NCOME TAX ACT, SINCE EARNING THROUGH ADVERTISEMENT ARE NOT IN NATURE OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. IN MY VIEW THE I NCOME AT BEST CAN BE CONSIDERED AS BUSINESS PROFITS IN THE HANDS OF T HE PAYEES. HOWEVER, IN ABSENCE OF PERMANENT ESTABLISHMENT OF T HE PAYEES IN INDIA, THE AMOUNT WOULD NOT BE TAXABLE IN INDIA. SI NCE THE INCOME WAS NOT TAXABLE IN INDIA, THERE WAS NO OBLIGATION ON PA RT OF THE APPELLANT TO WITHHOLD TAX ON SUCH PAYMENTS. THUS, IN THE INSTANT CASE, THE PROVISIONS OF SECTION 40(A)(IA) DO NOT APPLY. (A COPY OF CIT(A) ORDER FOR A.Y.2006-07 IS ATTACHED AS ANNEXURE 15) FURTHER, RELIANCE IN THIS CONNECTION IS PLACED ON T HE DECISION OF SHERATON INTERNATIONAL INC VS DEPUTY DIRECTOR OF INCOME-TAX REPORTED IN (2007) 293 ITR (A.T.) 68 (ITAT)(DEL). THE DELHI IT AT HELD AS FOLLOWS: HELD, (I) THAT THE PAYMENTS IN QUESTION MADE FOR RE NDERING THE SERVICES IN QUESTION COULD BE SAID TO HAVE ACCRUED OR ARISEN IN INDIA BY INVOKING THE DEEMING PROVISIONS OF SECTION' ONLY IF THE SUM WAS PAYABLE BY THE INDIAN HOTELS OR CLIENTS TO THE ASSESSEE BY WAY OF 'ROYALT Y' AS DEFINED IN EXPLANATION 2 BELOW CLAUSE (VI) OF SECTION 9(1) OR BY WAY OF ' FEES FOR TECHNICAL SERVICES ' AS DEFINED IN EXPLANATION 2 BELOW CLAUSE (VII) OF S ECTION 9(1) . THE AGREEMENTS HAD TO BE READ AS A WHOLE. THE MAIN INTE NTION OF BOTH PARTIES TO CONTINUE THEIR ASSOCIATION WAS TO DEVELOP TOURISM O N A WIDE FRONT BY PROVIDING, INTER ALIA, THE BEST HOTEL FACILITIES OF INTERNATIO NAL STANDARDS TO TOURISTS WORLDWIDE BY PROMOTING AND ADVERTISING WORLDWIDE TH E SHERATON CHAIN OF HOTELS FOR MUTUAL BENEFIT. BOTH PARTIES HAD COME TO GETHER WITH THEIR SPECIALIZED INFORMATION, EXPERIENCE AND KNOWLEDGE I N THE FIELD OF HOTEL BUSINESS FOR MUTUAL BENEFIT. THE MAIN INTENTION OR PURPOSE OF THE ASSOCIATION BETWEEN THE ASSESSEE AND ITC WAS TO PUBLISIZE, MARK ET AND PROMOTE THE HOTELS OF THE ITC AND THE ASSESSEE-COMPANY, HAD UN DERTAKEN TO PROVIDE ALL THE SERVICES AS ENUMERATED IN THE VARIOUS ARTICLES TO ACHIEVE THIS MAIN INTENTION OR PURPOSE. IF ALL THE TERMS THEREOF WERE READ TOGETHER AS A WHOLE, IT EXPLICITLY SHOWED THAT THE ASSESSEE IN SUBSTANCE, H AD MAINLY UNDERTAKEN THE JOB OF PUBLICITY, MARKETING AND ADVERTISING OF THE HOTELS OF INDIAN CLIENTS WORLDWIDE AND ALL THE SERVICES TO BE RENDERED BY IT AS ENUMERATED IN THE VARIOUS ARTICLES OF THE AGREEMENT WERE INCIDENTAL O R SUPPLEMENTARY TO CARRYING OUT THIS JOB EFFECTIVELY AND EFFICIENTLY IN THE INT EREST OF ITS BUSINESS OF WHICH THE SAID ACTIVITY OR JOB FORMED A PART. THE SERVICES, T HEREFORE, WERE AN INTEGRAL PART OF THE MAIN WORK UNDERTAKEN BY THE ASSESSEE OF PUBLICITY, MARKETING AND PROMOTION OF THE INDIAN HOT WORLDWIDE. THE SERVICES DESCRIBED IN THE VARIOUS ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 37 ARTICLES OF THE AGREEMENT HAD NOT MUCH SIGNIFICANCE INDEPENDENTLY AND WERE AN INTEGRAL PART OF THE ARRANGEMENT BETWEEN THE ASS ESSEE AND THE INDIAN HOTELS OR CLIENTS FOR PUBLICITY, MARKETING AND ADVE RTISING OF HOTEL BUSINESS. THAT THE PAYMENTS UNDER THE AGREEMENTS BEING ENTIRE LY MADE BY THE INDIAN HOTELS TO THE ASSESSEE-COMPANY FOR THE MAIN SERVICE S, THE INCIDENTAL OR ANCILLARY SERVICES NOT BEING INDEPENDENT OF AND SEP ARABLE FROM THE MAIN JOB UNDERTAKEN BY THE ASSESSEE IN THE PECULIAR FACTS OF THE CASE, IT WAS NEITHER POSSIBLE NOR DESIRABLE TO APPORTION OR ATTRIBUTE AN Y PART OF THE CONSIDERATION RECEIVED BY THE ASSESSEE THERETO. THE VARIOUS SERVI CES RENDERED BY THE ASSESSEE TO ENABLE IT TO COMPLETE EFFICIENTLY AND EFFECTIVELY THE JOB UNDERTAKEN BY IT AS AN INTEGRATED BUSINESS ARRANGEM ENT TO PROVIDE THE SERVICES RELATING TO ADVERTISING , PUBLICITY AND SA LES PROMOTION INCLUDING RESERVATIONS OF THE INDIAN HOTELS WORLDWIDE IN MUTU AL INTEREST COULD NOT BE CONSIDERED IN ISOLATION TO SAY THAT PART OF THE CON SIDERATION RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF ROYALTIES OR FEES FOR TECHNICAL SERVICES DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI) OR TO SECTION 9(1)(VII) OR OF ROYALTIES OR FEES FOR INCLUDED SERVICES AS DEFI NED IN ARTICLE 12(3) AND 12(4) OF THE DTAA BETWEEN INDIA AND THE U.S.A. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE SERV ICES PROVIDED BY THE FOREIGN RESIDENTS IN RELATION TO ADVERTISEMENT IS NOT COVER ED WITHIN THE SCOPE OF ROYALTIES OR FEES FOR TECHNICAL SERVICES UNDER SECT ION 9(1)(VI) OR 9(1)(VII) OF THE INCOME TAX ACT. A) INDIA - AUSTRALIA DTAA IN AUSTRALIA DTAA, FEES FOR TECHNICAL SERVICES (FTS ) IS DEFINED WITHIN THE DEFINITION OF ROYALTY. THE DTAA DEFINE~ FTS AS FOLL OWS: 'THE RENDERING OF ANY SERVICES (INCLUDING THOSE OF TECHNICAL OR OTHER PERSONNEL), WHICH MAKE AVAILABLE TECHNICAL KNOWLEDG E, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVE LOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DESIGN'. THE CONCERNED FOREIGN REMITTANCES ARE NOT COVERED U NDER THE SCOPE OF ROYALTY AS PER ARTICLE 12 SINCE THE CONCERNED SERVICES DOES NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, O R PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR DESIGN. BROADLY SPEAKING, THE TERM ' MAKE AVAILABLE ' MEANS THAT THE PERSON ACQUIRING THE TECHNICAL SERVICE IS ENABLED TO INDEPENDENTLY APPLY THE TECHN OLOGY. 'THE WORD 'ENABLE' IS USED IN THE SENSE THAT THE TECHNICAL SERVICES SHOUL D BE SUCH THAT THEY MAKE THE RECIPIENT ABLE OR WISER IN THE SUBJECT MATTER. THUS, WHERE THE RECIPIENT OF TECHNICAL SERVICES DOES NOT GET EQUIPPED WITH THE K NOWLEDGE OR EXPERTISE AND THE RECIPIENT WOULD NOT BE ABLE TO APPLY IT IN FUTU RE INDEPENDENTLY WITHOUT- SUPPORT FROM THE SERVICE PROVIDER, IT WILL NOT BE A CASE OF TECHNICAL SERVICE HAVING BEEN 'MAD AVAILABLE'. AND IN SUCH CASES THE CONCERNED TRANSACTION WOULD NOT BE TAXABLE IN INDIA AND SUBJECT TO WITHHO LDING TAX IN INDIA. IN SUCH CASES, THE INCOME OF THE RECIPIENT SHALL BE TREATED AS BUSINESS INCOME UNDER THE ARTICLE 7. SINCE THE ENTIRE OPERATION OF THE SE RVICE PROVIDER IS CARRIED ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 38 OUTSIDE INDIA, THERE IS NO EXISTENCE OF ANY PE IN I NDIA AND IN SUCH CASES THE CONCERNED TRANSACTION WOULD NOT BE TAXABLE IN INDIA AND SUBJECT TO WITHHOLDING TAX IN INDIA. RELIANCE IN THIS CONNECTION IS PLACED ON DECISION ' OF ITAT DELHI IN CASE OF SHERATON INTERNATIONAL INC VS. DEPUTY DIRECTOR OF I NCOME-TAX REPORTED IN (2007) 293 ITR (A.T.) 68 (ITAT) (DEL) B) SINGAPORE - ARTICLE 12 THE CONCERNED SERVICES ARE NOT COVERED WITHIN THE S COPE OF FEES FOR TECHNICAL SERVICES' AS DEFINED IN THE ARTICLE 12(4) FOR THE F OLLOWING REASONS: SUCH SERVICES DO NOT INVOLVE ANY MANAGERIAL; TECH NICAL OR CONSULTANCY NATURE. SUCH SERVICES DO NOT INVOLVE APPLICATION OR ENJOY MENT OF THE RIGHT, PROPERTY OR INFORMATION. DOES NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPE RIENCE, SKILL, KNOW-HOW OR PROCESSES WHICH ENABLE THE PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN. THE CONCEPT OF 'MAKE AVAILABLE' HAS BEEN ELABORATELY EXPLAINED HEREIN ABOVE. CONSIST OF DEVELOPMENT AND TRANSFER OF A TECHNICA L PLAN OR TECHNICAL DESIGN BUT EXCLUDES ANY SERVICE DOES NOT ENABLE THE SERVIC E PROVIDER TO APPLY THE TECHNOLOGY CONTAINED THEREIN. RELIANCE IN THIS CONNECTION IS PLACED ON DECISION O F ITAT DELHI IN CASE OF SHERATOR INTERNATIONAL INC VS. DEPUTY DIRECTOR OF I NCOME-TAX REPORTED IN (2007) 293 ITR (A. T.) 68 (ITAT) (DEL). C) UK - ARTICLE -13 THE CONCERNED SERVICES ARE NOT COVERED WITHIN THE S COPE OF 'FEES FOR TECHNICAL SERVICES' AS DEFINED IN THE ARTICLE 13(5) FOR THE F OLLOWING REASONS: . SUCH SERVICES DO NOT INVOLVE RENDERING OF ANY TEC HNICAL OR CONSULTANCY SERVICES; SUCH SERVICES ARE NOT ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT IS RECEIVED BY THE VENDOR. IT IS UNDERSTOOD THAT, IN ORDER FOR A SERVICE TO BE CONSIDERED 'ANCILLARY AND SUBSIDIARY' TO-THE APPLICATION OR EN JOYMENT OF SOME RIGHT, PROPERTY, OR INFORMATION FOR WHICH A PAYMENT IS REC EIVED, THE SERVICE MUST BE RELATED TO THE APPLICATION OR ENJOYMENT OF THE RIGH T, PROPERTY, OR INFORMATION. SUCH SERVICES ARE NOT ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF ANY PROPERTY; DO NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERI ENCE, SKILL KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFE R OF TECHNICAL PLAN OR TECHNICAL DESIGN. THE CONCEPT OF 'MAKE AVAILABLE' H AS BEEN ELABORATELY EXPLAINED HEREIN ABOVE. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 39 RELIANCE IN THIS CONNECTION IS PLACED ON DECISION O F IT A T DELHI IN CASE OF SHERATON INTERNATIONAL INC VS. DEPUTY DIRECTOR OF I NCOME-TAX REPORTED IN (2007) 293 ITR (A.T.) 68 (ITAT) (DEL) D) USA - ARTICLE - 12 THE CONCERNED SERVICES ARE COVERED WITHIN THE SCOPE OF FEES FOR INCLUDED SERVICES AS DEFINED IN THE ARTICLE 12 OF THE DTAA FOR THE FOLLO WING REASONS: SUCH SERVICES ARE NOT ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT IS RECEIVED BY THE VENDOR; DO NOT MAKE: AVAILABLE TECHNICAL KNOWLEDGE, TECHN ICAL KNOWLEDGE, EXPERIENCE, SKILL KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHNICAL DESIGN. THE CONCEPT OF 'MAKE AVAILABLE' HAS BEEN ELABORATELY EXPLAINED HEREIN AB OVE. FURTHER, THE PROTOCOL TO THE TAX TREATY ELUCIDATES THE SITUATION WHERE THE SERVICES CAN BE SAID TO BE MADE AVAILABLE TO THE RECIPIENT O F THE SERVICES. AS PER THE PROTOCOL, GENERALLY SPEAKING, TECHNOLOGY WI LL BE CONSIDERED 'MADE AVAILABLE' WHEN THE PERSON ACQUIRING THE SERV ICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION O F THE SERVICE MAY REQUIRE TECHNICAL INPUT .BY THE PERSON PROVIDING TH E SERVICE DOES NOT PER SE MEAN THAT TECHNICAL KNOWLEDGE, SKILL ETC. AR E MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE. SIMILARLY, THE U SE OF A PRODUCT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSIDERED TO MAKE THE TECHNOLOGY AVAILABLE. . RELIANCE IN THIS CONNECTION IS PLACED ON DECISION OF IT AT DELHI IN CASE OF SHERATOR INTERNATIONAL INC VS. DEPUTY DIRECTOR OF INCOME-TAX REPORTED IN (2007) 293 ITR (A.T.) 68 (ITAT) (DEL) E) BRAZIL IN THE TAX TREATY ENTERED INTO WITH INDIA AND BRA ZIL, PARAS OF ARTICLE 12 OF THE DTAA DEAL WITH THE MEANING OF THE TERM 'ROYA LTIES AND THE RATE AT WHICH SUCH INCOME IS TO BE TAXED. OBVIOUSLY, THE RE IS NO REFERENCE TO THE 'FEES FOR TECHNICAL SERVICES' IN ARTICLE 12 OF THE DTAA. THUS IT IS EVIDENT THAT THE FEE FOR TECHNICAL SERVICES DOES NO T FALL WITHIN THE PURVIEW OF ARTICLE 12. OBVIOUSLY, THE APPLICATION O F ARTICLE 12 IS RULED OUT. IN THAT VIEW OF THE MATTER, SUCH INCOME WOULD REMAIN INCLUDED UNDER ARTICLE :- THE AMOUNT FALLS UNDER ARTICLE 7 A S 'BUSINESS PROFITS' AND IS HENCE NOT CHARGEABLE TO TAX BECAUSE OF THE A BSENCE OF ANY PE IN INDIA. IN THIS CONNECTION, RELIANCE IS PLACED ON THE DECISION OF HON'BLE MUMBAI ITAT IN CASE OF MCKINSEY & COMPANY (THAILAND ) CO. LTD VS DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATI ON) 4(1), MUMBAI IN IT APPEAL NO. 7624 (MUM.) OF 2010 F) BELGIUM - ARTICLE 12 READ WITH PROTOCOL OF THE DTAA AS PER ARTICLE 12(3)(B), THE TERM 'FEES FOR TECHNIC AL SERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR SERVICES OF A ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 40 MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE, INCLUD ING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL FURTHER. T HE PROTOCOL TO THE DTAA PROVIDES THAT IF UNDER ANY CONVENTION OR AGREE MENT BETWEEN INDIA AND A THIRD STATE BEING A MEMBER OR THE OECD WHICH ENTERS INTO FORCE AFTER 1ST JANUARY, 1990, INDIA LIMITS ITS TAX ATION ON ROYALTIES OR FEES FOR TECHNICAL SERVICES TO A RATE LOWER OR A SC OPE MORE RESTRICTED THAN THE RATE OR SCOPE PROVIDED FOR IN THE PRESENT AGREEMENT ON THE SAID ITEMS OF INCOME, THE SAME RATE OR SCOPE AS PRO VIDED FOR IN THAT CONVENTION OR AGREEMENT ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THE PRESENT AGREEMENT WITH EFFECT FROM THE DA TE FROM WHICH THE PRESENT AGREEMENT OR THE SAID CONVENTION OR AGREEME NT IS EFFECTIVE, WHICHEVER DATE IS LATER. SINCE THE NETHERLAND IS ME MBER OF OECD, THE ARTICLE 12 OF INDIA-NETHERLAND DT AA CAN BE APPLIED FOR THE PURPOSE 'OF EXAMINING TAXING RIGHTS AS PER INDIA-BELGIUM DTAA. THE DTAA WITH THE NETHERLAND PROVIDES RESTRICTED SCOPE OF FEES FOR TE CHNICAL SERVICES DUE TO PRESENCE OF 'MAKE AVAILABLE' IN ARTICLE-12 OF DT AA BETWEEN INDIA AND THE NETHERLANDS. SINCE IN THE INSTANT CASE, THE SERVICES DO NOT INVOLVE MAKE AVAILABLE OF TECHNICAL KNOWLEDGE, THE SAME IS OUT OF PURVIEW OF THE FEES FOR TECHNICAL SERVICES WITHIN T HE SCOPE OF DTAA BETWEEN INDIA AND BELGIUM. ACCORDINGLY WITHHOLDING TAX IS NOT APPLICABLE FOR THE SERVICES PERTAINING TO ADVERTISE MENTS. G) FRANCE - ARTICLE 13 READ WITH PROTOCOL OF THE DTAA H) SWITZERLAND - ARTICLE 12 READ WITH PROTOCOL OF THE DTAA. I) SPAIN - ARTICLE 13 READ WITH PROTOCOL OF THE DTAA AS PER ARTICLE 13(4), THE TERM 'FEES FOR TECHNICAL SERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR SERVICES OF A MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE. FURTHE R, THE CLAUSE 7 OF PROTOCOL TO THE DTAA PROVIDES THAT IN RESPECT OF ARTICLE 13 CONCERNING FEES FOR TECHNICAL SERVICES, IF UNDER ANY CONVENTION, AGREEM ENT OR PROTOCOL SIGNED AFTER 01.09.1989, BETWEEN INDIA AND A THIRD STATE W HICH IS A MEMBER OF THE GECD, INDIA LIMITS ITS TAXATION AT SOURCE ON FEES F OR TECHNICAL SERVICES TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OF SCOPE PROVIDED FOR IN THIS CONVENTION, AGREEMENT OR PROTOCOL WITH EFFECT FROM THE DATE ON WHICH THE PRESENT CONVENTION OR THE RELEVANT INDIAN CONVENTIO AGREEMENT OR PROTOCOL ENTERS INTO FORCE, WHICHEVER ENTERS INTO FORCE LATE R. SINCE USA IS MEMBER OF OECD, THE ARTICLE 12 OF INDIA-USA DTAA CAN BE APPLI ED. THE DTAA WITH THE USA PROVIDES RESTRICTED SCOPE OF FEES FOR TECHNICAL SERVICES DUE TO PRESENCE OF 'MAKE AVAILABLE' IN ARTICLE-12 OF THE OTAA. SINC E IN THE INSTANT CASE, THE SERVICES DO NOT INVOLVE MAKE AVAILABLE OF TECHNICAL KNOWLEDGE, THE SAME IS OUT OF PURVIEW OF THE FEES FOR TECHNICAL SERVICES W ITHIN THE SCOPE OF DTAA BETWEEN INDIA AND FRANCE. ACCORDINGLY WITHHOLDING T AX IS NOT APPLICABLE FOR THE SERVICES PERTAINING TO ADVERTISEMENTS. RELIANCE IN .THIS CONNECTION IS PLACED ON THE DECIS ION OF MUMBAI ITAT IN THE CASE OF DDIT VS IATA BSP INDIA REPORTED IN TS-367-I TAT-2014(MUM). THE HON'BLE TRIBUNAL HELD AS FOLLOWS: ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 41 AS PER CLAUSE 7 OF THE PROTOCOL IN THE INDIA-FRAN CE TAX TREATY, IF UNDER ANY CONVENTION, AGREEMENT OR PROTOCOL SIGNED AFTER 1ST SEPTEMBER 1989 BETWEEN INDIA AND A THIRD STATE WHICH IS A MEM BER OF THE OECD, INDIA LIMITS ITS TAXATION AT SOURCE INTER ALIA ON F TS TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OR SCOPE PROVID ED FOR IN THE INDIA- FRANCE TAX TREATY, THE SAME SCOPE AS PROVIDED FOR I N THAT CONVENTION, AGREEMENT OR PROTOCOL ON THE SAID ITEMS OF INCOME S HALL ALSO APPLY UNDER THE INDIA- FRANCE TAX TREATY. ON 12 SEPTEMBER 1989, INDIA HAS ENTERED INTO A TA X TREATY WITH USA, WHICH IS A MEMBER OF OECD AND AS PER ARTICLE 12(4)( B) THEREOF, THE SCOPE OF FIS IS RESTRICTED. INDIA HAS ALSO ENTERED INTO TAX TREATY WITH PORTUGUESE REPUBLIC ON 11 SEPTEMBER 1998 AND AS PER ARTICLE 12(4)(B) THEREOF, THE CONCEPT OF FIS IS FURTHER RES TRICTED TO MEAN THE SERVICES WHICH MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN WHICH ENABLES TH E PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY THEREIN. THIS RESTRICTED SCOPE PROVIDED IN THE INDIA-USA T AX TREATY AND INDIA- PORTUGUESE TAX TREATY IS APPLICABLE TO THE INDIA-FR ANCE TAX TREATY, AS PER CLAUSE 7 OF THE PROTOCOL. IN THIS REGARD, FURTHER RELIANCE IS MADE ON THE DEC ISION OF KOLKATA TRIBUNAL IN CASE OF DCIT VS. ITC REPORTED IN (2002) 82 ITD 239. J) GERMANY-ARTICLE 12 K) IRELAND- ARTICLE 12 L) ITALY- ARTICLE-13 SAME TREATMENT AS PER INCOME TAX ACT. INSPECTION FEE: TO ENSURE QUALITY ASSURANCES, INSPECTION FEES HAS B EEN PAID TO LEADING QUALITY ASSURANCE LTD BASED OUT OF UK. THIS SERVICE IS BEING AVAILED FROM THE SAME SERVICE PROVIDER IN EACH YEAR THE VENDOR CARRI ES ON INDEPENDENT AUDIT ABOUT THE QUALITY STANDARD OF THE HOTELS PERTAINING TO THE ASSESSEE. THE ABOVEMENTIONED SERVICE IS ARE NOT COVERED WITHI N THE SCOPE OF 'FEES FOR TECHNICAL SERVICES' AS DEFINED IN THE ARTICLE 13(5) FOR THE FOLLOWING REASONS: SUCH SERVICES DO NOT INVOLVE RENDERING OF ANY TECHN ICAL OR CONSULTANCY SERVICES WHICH: ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION O R ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT IS RECEIVED BY THE VENDOR. IT IS UNDERSTOOD THAT, IN ORDER FOR A SERVI CE TO BE CONSIDERED 'ANCILLARY AND SUBSIDIARY' TO THE APPLICATION OR EN JOYMENT OF SOME RIGHT, ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 42 PROPERTY, OR INFORMATION FOR WHICH A PAYMENT IS REC EIVED, THE SERVICE MUST BE RELATED TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY, OR INFORMATION. ARE ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF ANY PROPERTY; MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF TECHNICA L PLAN OR TECHNICAL DESIGN. THE CONCEPT OF 'MAKE AVAILABLE' HAS BEEN EL ABORATELY EXPLAINED HEREIN ABOVE. BROADLY SPEAKING, THE TERM 'MAKE AVAI LABLE' MEANS THAT THE PERSON ACQUIRING THE TECHNICAL SERVICE IS ENABL ED TO INDEPENDENTLY APPLY THE TECHNOLOGY. THE WORD 'ENABLE' IS USED IN THE SENSE THAT THE TECHNICAL SERVICES SHOULD BE SUCH THAT THEY MAKE TH E RECIPIENT ABLE OR WISER IN THE SUBJECT MATTER. THUS, WHERE THE RECIPI ENT OF TECHNICAL SERVICES DOES NOT GET EQUIPPED WITH THE KNOWLEDGE O R EXPERTISE AND THE RECIPIENT WOULD NOT BE ABLE TO APPLY IT IN FUTU RE INDEPENDENTLY WITHOUT SUPPORT FROM THE SERVICE PROVIDER, IT WILL NOT BE A CASE OF TECHNICAL SERVICE HAVING BEEN 'MADE AVAILABLE'. AND IN SUCH CASES THE CONCERNED TRANSACTION WOULD NOT BE TAXABLE IN INDIA AND SUBJECT TO WITHHOLDING TAX IN INDIA. IN SUCH CASES, THE INCOME OF THE RECIPIENT SHALL BE TREATED AS BUSINESS INCOME UNDER THE ARTICLE 7. SINCE THE ENTIRE OPERATION OF THE SERVICE PROVIDER IS CARRIED OUTSID E INDIA, THERE IS NO EXISTENCE OF ANY PE IN INDIA AND IN SUCH CASES THE CONCERNED TRANSACTION WOULD NOT BE TAXABLE IN INDIA AND SUBJE CT TO WITHHOLDING TAX IN INDIA. RELIANCE IN THIS CONNECTION IS PLACED ON DECISION O F IT AT DELHI IN CASE 01 SHERATON INTERNATIONAL INC VS. DEPUTY DIRECTOR O F INCOME-TAX REPORTED IN (2007) 293 ITR (A.T.) 68 (ITAT) (DEL) MARKETING AND DEVELOPMENT EXPENSES DURING THE CONCERNED ASSESSMENT YEAR VARIOUS FOREIG N REMITTANCES HAVE BEEN MADE TO FOREIGN VENDORS TOWARDS MARKETING AND DEVELOPMENT SERVICES. THE EXACT NATURE OF SERVICE P ROVIDED BY EACH VENDOR IS EXPLAINED AS FOLLOWS. A) CORNELL UNIVERSITY SCHOOL OF H. ITHACA NEW YORK, 14850, USA THE VENDOR IS AN EDUCATION INSTITUTION AND PROVI DES LEARNING MATERIAL TO THE ASSESSEE FOR DISTANT LEARN ING PROGRAMME. THE EDUCATION INSTITUTION IS SPECIFICALLY EXEMPTED AS PER ARTICLE 12(5)(C) OF THE INDIA- USA DTAA. ACCORDINGLY, THE SERVICES R ENDERED BY VENDOR IS NOT TAXABLE IN INDIA AND NOT SUBJECT TO WITHHOLD ING TAX. B) BLUE LINK - THE PAYMENT TO THE VENDOR HAS BEEN PAID TOWARDS REDEMPTION OF AIRLINE MILES. THE SAME BEING MARKETI NG AND DEVELOPMENT EXPENSES DOES NOT INVOLVE ANY TECHNICAL SKILL, KNOW HOW ETC. ACCORDINGLY, THE SAME IS NOT TAXABLE UNDER THE DOMESTIC LAW AS WELL AS INDIA - FRANCE TAX TREATY. FOR DETAILED EXP LANATION, ANNEXURE 8 OF THE SUBMISSION MAY BE REFERRED. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 43 C) ISLAND RESORT LIMITED - PAYMENT TO THIS VENDOR HAS BEEN MADE TOWARDS STAY OF GUEST UNDER THE ARRANGEMENT WITH TH E ASSESSEE IN ORDER TO PROMOTE THE SALES OF THE ASSESSEE. UNDER T HIS SCHEME, WHEN A GUEST STAYS IN THE HOTELS OF THE ASSESSEE, HE GET S COMPLEMENTARY STAY IN OTHER HOTELS AGAINST WHICH THE PAYMENT IS C LAIMED FROM THE ASSESSEE BY THAT HOTEL. THIS WAY IT PROMOTE THE BUS INESS OF THE ASSESSEE AS A WHOLE. THE PAYMENT .IS TOWARDS STAY CHARGES CANNOT BE COVE RED UNDER THE SCOPE OF FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT. SINCE THE ENTIRE OPERATION OF THE VENDOR IS CARRIED OUTSIDE INDIA, IT IS NOT TAXABLE UNDER THE INCOME TAX ACT AS BUSINESS INCOME AS WELL. SINCE TAX TREATY BETWEEN INDIA AND MAURITIUS DOES N OT HAVE ANY FEES FOR TECHNICAL SERVICE CLAUSE, IN ABSENCE OF 'PERMAN ENT ESTABLISHMENT, THE CONCERNED SERVICE IS NOT TAXABLE IN INDIA. RECRUITMENT CHARGES TAXABILITY UNDER THE INCOME TAX ACT THE ASSESSEE HAD TO TAKE THE SERVICES OF VARIOUS FO REIGN RECRUITMENT AGENTS (SPECIALLY FOR SPAS, CHEFS ETC.). THE SERVIC ES ARE NORMALLY RENDERED OUTSIDE INDIA AND THE PAYMENTS ARE MADE OU TSIDE INDIA AS WELL. FURTHER, SINCE THIS DOES NOT INVOLVE ANY KNOW HOW OR TECHNICAL EXPERTISE, THE SAME IS NOT COVERED WITHIN THE SCOPE OF SECTION 9(1)(VII) OF THE INCOME TAX ACT. THEREFORE UNDER THE DOMESTIC LAW, THE REMUNERATION FOR SUCH SERVICES IS NOT TAXABLE IN IN DIA. TAXABILITY UNDER DTAA WITH INDONESIA AND THAILAND DURING THE YEAR UNDER CONSIDERATION, RECRUITMENT SE RVICE HAS BEEN AVAILED FROM THESE VENDORS BASED OUT OF INDONESIA A ND THAILAND. BOTH THE TREATIES DOES NOT CONTAIN ANY FTS CLAUSE. THUS IT IS EVIDENT THAT THE FEE FOR TECHNICAL SERVICES DOES NOT FALL WITHIN THE PURVIEW OF ARTICLE 12. OBVIOUSLY, THE APPLICATION OF ARTICLE 12 IS RULED O UT. IN THAT VIEW OF THE MATTER, SUCH INCOME WOULD REMAIN INCLUDED UNDER ART ICLE 7. THE AMOUNT FALLS UNDER ARTICLE 7 AS 'BUSINESS PROFITS' AND IS HENCE NOT CHARGEABLE TO TAX BECAUSE OF THE ABSENCE OF ANY PE IN INDIA. IN THIS CONNECTION, RELIANCE IS PLACED ON THE DECISION OF H ON'BLE MUMBAI ITAT IN CASE OF MCKINSEY & COMPANY (THAILAND) CO. LTD VS DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 4(1), MUMBAI IN IT APPEAL NO. 7624 (MUM.) OF 2010. MANAGEMENT FEES PAID TO BANYAN TREE RESORTS &SPAS(T HAILAND CO. LTD.) MANAGEMENT FEES HAS BEEN PAID TO THE THAI SPA MANAG EMENT FIRM. THE TAX TREATIES BETWEEN INDIA AND THAILAND DOES NO T CONTAIN ANY FTS CLAUSE. THUS IT IS EVIDENT THAT THE FEE FOR TECHNIC AL SERVICES DOES NOT FALL WITHIN THE PURVIEW OF ARTICLE 12. OBVIOUSLY, THE AP PLICATION OF ARTICLE 12 IS RULED OUT. IN THAT VIEW OF THE MATTER, SUCH INCO ME WOULD REMAIN INCLUDED UNDER ARTICLE 7. THE AMOUNT FALLS UNDER AR TICLE 7 AS ' BUSINESS PROFITS ' AND IS HENCE NOT CHARGEABLE TO TAX BECAUSE OF THE ABSENCE OF ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 44 ANY PE IN INDIA. IN THIS CONNECTION, RELIANCE IS PL ACED ON THE DECISION OF HON'BLE MUMBAI ITAT IN CASE OF MCKINSEY & COMPANY ( THAILAND) CO. LTD VS DEPUTY DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 4(1), MUMBAI IN IT APPEAL NO:7624 (MUM.) OF 2010 PROFESSIONAL AND CONSULTANCY SERVICES DURING THE UNDER CONSIDERATION, PAYMENT HAS BEEN MA DE TO VARIOUS FOREIGN VENDORS BASED OUT OF UK USA, EGYPT, AUSTRAL IA TOWARDS PROFESSIONAL/ CONSULTANCY SERVICES. THE ASSESSEE HA S DULY DEDUCTED TAX FORM THE PAYMENT MADE TO ZAKI HASEM &T PARTERNE RS. A COPY OF CHALLAN IS ATTACHED AS ANNEXURE 14/1 AND 14/2. FOR THE OTHER VENDORS/PERTAINING TO USA, UK AND AUS TRALIA, THE CONCERNED SERVICES ARE NOT TAXABLE IN INDIA AS THE SERVICE DOES NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOW-HOW OR PROCESSES OR CONSIST OF THE DEVELOPMENT AND TRANSFE R OF TECHNICAL PLAN OR DESIGN. FOR DETAILED EXPLANATION, REFERENCE MAY BE MADE TO ANNEXURE 2,4 AND 5. 6.10. APART FROM THIS, THE ASSESSEE HAD EVEN PROVID E THE CERTIFICATE OF TAX RESIDENCY OF THE PARTIES TO WHOM PAYMENTS WERE MADE IN FOREIGN CURRENCY AND DECLARATION FORM THEM THAT NO PE EXISTED FOR TH EM IN INDIA. THE ASSESSEE HAD EVEN FURNISHED THE COPIES OF AGREEMENT S ENTERED INTO WITH THOSE PARTIES, COPY OF ADVERTISEMENTS, COPY OF INVO ICE, SUBSCRIPTION RENEWAL FORMS ETC. ALL THESE DOCUMENTS ARE ENCLOSED IN PAG ES 822 TO 930 OF THE PAPER BOOK. 6.11. WE FIND THAT IN THE EARLIER YEARS IN ASSESSEE S OWN CASE, THE LD CITA HAD GRANTED RELIEF TO THE ASSESSEE BY PLACING RELIA NCE ON MAKE AVAILABLE CLAUSE PREVAILING IN VARIOUS TAX TREATIES , BUT THE SAME IS NOT DONE BY THE LD AO AND LD DRP IN THE INSTANT CASE. WE FIND THAT TH E ASSESSEE HAD FILED VARIOUS DOCUMENTS WITH DETAILED FACTUAL AND LEGAL S UBMISSIONS WITH SUPPORTING EVIDENCES BEFORE THE LD AO, WHICH HAD NOT BEEN APPR ECIATED BY THE LD AO AND LD DRP IN THE PROPER PERSPECTIVE. HENCE WE DEEM IT FIT AND APPROPRIATE, TO REMAND THIS ENTIRE ISSUE TO THE FILE OF THE LD AO, FOR DE NOVO ADJUDICATION OF THIS ISSUE AFRESH IN ACCORDANCE WITH LAW. THE ASSES SEE IS ALSO DIRECTED TO CO- OPERATE WITH THE LD AO BY PRODUCING THE NECESSARY E VIDENCES IN SUPPORT OF ITS CONTENTIONS. ACCORDINGLY, THE GROUND NOS. 6.1. & 6.2 RAISED BY T HE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY FOLLOWING DECISION OF THIS TRIBUNAL WE ALLOW THE APPEAL FOR STATISTICAL PURPOSE IN TERMS OF ABOVE DIRECTION. TH IS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 37. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.8 IS THAT LD.DRP ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 59,598/- ON ACCOUNT OF DELAYED DEPOSIT OF EMPLOYEES CONTRIBUTI ON TO PF AND ESI. ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 45 38. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDI NGS OBSERVED THAT ASSESSEE FAILED TO DEPOSIT EMPLOYEES CONTRIBUTION T O PF/ESI FOR 59,598/- WITHIN DUE DATE AS PRESCRIBED UNDER THE RELEVANT AC T OF PF/ESI. THEREFORE, AO DISALLOWED THE SAME AND ADDED TO THE TOTAL INCOME O F ASSESSEE. 39. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. DRP. THE ASSESSEE BEFORE LD. DRP SUBMITTED THAT THE AMOUNT O F PF/ESI ON ACCOUNT OF EMPLOYEES CONTRIBUTION WAS DEPOSITED WITHIN THE DU E DATE OF FILING THE INCOME TAX RETURN SPECIFIED U/S 139(1) OF THE ACT. ACCORDI NGLY, LD. DRP DIRECTED THE AO TO VERIFY THE SUBMISSION OF ASSESSEE AND ADJUDIC ATE THE SAME. BEING AGGRIEVED BY THIS ORDER OF LD. DRP ASSESSEE C AME IN APPEAL BEFORE US. 40. LD. AR FOR THE ASSESSEE SUBMITTED THAT THE AMOU NT OF PF/ESI WAS DEPOSITED WITHIN DUE DATE OF INCOME TAX RETURN FILI NG AS SPECIFIED U/S 139(1) OF THE ACT AND ACCORDINGLY IT SHOULD BE ALLOWED AS DED UCTION IN VIEW OF THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF CIT VS. VIJAY SHREE LTD. ITA NO. 245 OF 2011 IN GA NO.2607 OF 2011 DATED 07 .09.2011. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 41. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SETTLED LAW THA T THE EMPLOYEES CONTRIBUTION TOWARDS PF/ESI IS ALLOWABLE DEDUCTION IF IT IS DEPO SITED WITHIN TIME AS SPECIFIED U/S 139(1) OF THE ACT. HOWEVER, THE DISAL LOWANCE WAS MADE BY THE AO FOR 59,598/- ON THE GROUND THAT ASSESSEE FAILED TO FURN ISH THE SUPPORTING EVIDENCE EVIDENCING THAT THE AMOUNT OF PF/ESI HAS B EEN DEPOSITED WITHIN TIME OF INCOME TAX RETURN FILING AS SPECIFIED U/S 1 39(1) OF THE ACT. HOWEVER, IN THE INTEREST OF JUSTICE AND FAIR PLAY WE ARE INCLIN ED TO RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW. ACCORDINGLY, ASSESSEE IS DIRECTED TO PRODUCE NECESS ARY DOCUMENTS JUSTIFYING THAT EMPLOYEES CONTRIBUTION TO PF/ESI HAS BEEN DEP OSITED WITHIN DUE DATE OF INCOME TAX RETURN FILING AS SPECIFIED U/S 139(1) OF THE ACT. HENCE, THIS GROUND ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 46 OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PUR POSE IN TERMS OF ABOVE DIRECTION. 42. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.9 IS THAT LD. DRP ERRED IN CONFIRMING THE ORDER OF AO BY NOT ALLOWING THE DEDU CTION OF PROVISION FOR BAD AND DOUBTFUL DEBTS WRITTEN BACK FOR 51,77,916/- UNDER NORMAL PROVISION AS WELL AS UNDER THE COMPUTATION OF BOOK PROFIT. 43. AT THE OUTSET, LD. AR BEFORE US SUBMITTED THAT THE ASSESSEE OMITTED TO CLAIM THE DEDUCTION ON ACCOUNT OF THE PROVISION FOR BAD AND DOUBTFUL DEBTS WRITTEN BACK FOR 51,77.916/- INADVERTENTLY IN THE INCOME TAX RETURN. HE FURTHER SUBMITTED THAT THE CLAIM WAS MADE BEFORE THE AO VID E LETTER DATED 21.03.2016 BUT SAME WAS NOT CONSIDERED BY THE AO. 44. THE MATTER WAS CARRIED BEFORE THE LD. DRP WHICH ALSO DENIED THE CLAIM MADE BY THE ASSESSEE DURING THE COURSE OF ASSESSMEN T PROCEEDINGS ON THE GROUND THAT SAID CLAIM WAS NOT MADE IN THE INCOME T AX RETURN. BEING AGGRIEVED BY THIS ORDER OF LD. DRP ASSESSEE C AME IN APPEAL BEFORE US. 45. LD. AR FURTHER SUBMITTED THAT ASSESSEE CAN MAKE ADDITIONAL CLAIM DURING THE ASSESSMENT PROCEEDINGS IN VIEW OF THE JU DGMENT REFERRED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD. 349 ITR 336 (BOM). ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTHORITIES BELOW. 46. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; IN CLUDING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON. AT T HE OUTSET, WE NOTE THAT ASSESSEE IS ENTITLED TO MAKE ADDITIONAL CLAIM WITHO UT FILING THE REVISED RETURN OF INCOME. WE FIND GUIDANCE AND SUPPORT IN THE JUDGMEN T OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD. (SUPRA) THE RELEVANT EXTRACT IS REPRODUCED BELOW:- ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 47 24. A DIVISION BENCH OF THE DELHI HIGH COURT DEALT WIT H A SIMILAR SUBMISSION IN CIT V. JAI PARABOLIC SPRINGS LTD. [2008] 306 ITR 42 / 172 TAXMAN 258 . THE DIVISION BENCH, IN PARAGRAPH 17 OF THE JUDGMENT HELD THAT TH E SUPREME COURT DISMISSED THE APPEAL MAKING IT CLEAR THAT THE DECISION WAS LIMITE D TO THE POWER OF THE ASSESSING AUTHORITY TO ENTERTAIN A CLAIM FOR DEDUCTION OTHERW ISE THAN BY A REVISED RETURN AND DID NOT IMPINGE ON THE POWERS OF THE TRIBUNAL. IN P ARAGRAPH 19, THE DIVISION BENCH HELD THAT THERE WAS NO PROHIBITION ON THE POWERS OF THE TRIBUNAL TO ENTERTAIN AN ADDITIONAL GROUND WHICH, ACCORDING TO THE TRIBUNAL, ARISES IN THE MATTER AND FOR THE JUST DECISION OF THE CASE. IN VIEW OF ABOVE PROPOSITION, WE DIRECT THE AO TO A DJUDICATE THE ADDITIONAL FILED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PRO CEEDINGS IN ACCORDANCE WITH LAW. THUS, THIS GROUND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 47. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.10 I S THAT LD DRP ERRED IN NOT GRANTING TDS/TCS CREDIT TO THE EXTENT OF 1,18,60,966/- ONLY. 48. AT THE TIME OF HEARING, LD. AR FOR THE ASSESSE E STATED THAT DURING THE ASSESSMENT PROCEEDINGS, AO ERRED IN NOT GRANTING TD S/TCS CREDIT AND REQUESTED THE BENCH TO DIRECT THE AO TO GRANT TDS/T CS AS PER PROVISION OF LAW. ON THE OTHER HAND, LD. DR RAISED NO OBJECTION. IN THIS REGARD, WE REMIT THIS ISSUE BACK TO THE FILE OF AO WITH A DIRECTION TO ALLOW THE CREDIT OF TDS/TCS AND ADJUDICATE THE SAME AS PER LAW. HENCE, THIS GRO UND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE IN TERMS OF ABOV E DIRECTION. THE ASSESSEE SHOULD CO-OPERATE AT THE TIME OF ASSESSMENT PROCEED INGS. 49. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.11 I S THAT LD. DRP ERRED IN CALCULATING THE DIVIDEND DISTRIBUTION TAX ON THE GR OSS AMOUNT OF 51,44,12,473/- WITHOUT EXCLUDING THE DIVIDEND RECEI PT FROM ITS SUBSIDIARY COMPANY FOR 7,43,40,00. 50. THE PROVISION OF U/S 115-O(1A) OF THE ACT IS RE PRODUCED BELOW :- [(1A) THE AMOUNT REFERRED TO IN SUB-SECTION (1) SH ALL BE REDUCED BY, (I) THE AMOUNT OF DIVIDEND, IF ANY, REC EIVED BY THE DOMESTIC COMPANY DURING THE FINANCIAL YEAR, IF (A) SUCH DIVIDEND IS RECEIVED FROM ITS SUBSI DIARY; (B) THE SUBSIDIARY HAS PAID TAX UNDER THIS S ECTION ON SUCH DIVIDEND; AND ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 48 (C) THE DOMESTIC COMPANY IS NOT A SUBSIDIARY OF ANY OTHER COMPANY : PROVIDED THAT THE SAME AMOUNT OF DIVIDEND SHALL NOT BE TAKEN INTO ACCOUNT FOR REDUCTION MORE THAN ONCE; (II) THE AMOUNT OF DIVIDEND, IF ANY, PAI D TO ANY PERSON FOR, OR ON BEHALF OF, THE NEW PENSION SYSTEM TRUST REFERRED TO IN CLAUSE (44) OF SECTION 10 . EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, A COMPANY SHALL BE A SUBSIDIARY OF ANOTHER COMPANY, IF SUCH OTHER COMPANY, HOLDS MO RE THAN HALF IN NOMINAL VALUE OF THE EQUITY SHARE CAPITAL OF THE COMPANY.] A PLAIN LOOK AT THE ABOVE STATUTORY PROVISION MAKES IT CLEAR THE AO SHOULD CHARGE THE DIVIDEND DISTRIBUTION TAX AFTER EXCLUDIN G THE DIVIDEND INCOME FROM SUBSIDIARY COMPANY. THEREFORE, WE DIRECT THE AO TO ADJUDICATE THE ISSUE OF DIVIDEND DISTRIBUTION TAX AFTER GIVING EFFECT OF TH E AMOUNT OF DIVIDEND RECEIVED FROM SUBSIDIARY COMPANY. HENCE, IN TERMS OF ABOVE, THIS GROUND OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 51. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.12 I S THAT LD. DRP ERRED IN NOT GRANTING SET OFF OF MINIMUM ALTERNATE TAX (MAT FOR SHORT) CREDIT BROUGHT FORWARD FROM ASSESSMENT YEAR 2011-12. 52. AT THE OUTSET, IT WAS OBSERVED THAT THE GRIEVAN CE OF ASSESSEE RELATES TO NON-GRANTING OF SET OFF MAT CREDIT BROUGHT FORWARD FROM AY 2011-12. IN THIS REGARD WE DIRECT THE AO TO GRANT THE MAT CREDIT BRO UGHT FORWARD FROM EARLIER YEARS AS PER THE PROVISION OF LAW. HENCE, THE MATTE R IS REMITTED BACK TO THE FILE OF AO IN TERMS OF ABOVE DIRECTION AND TO ADJUDICATE THE SAME IN ACCORDANCE WITH LAW. 53. IN THE RESULT, ASSESSEES APPEAL STANDS PARTLY ALLO WED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT 16/ 05/2018 SD/- SD/- ($ &) ( &) (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S (- 16 / 05 /201 8 ITA NO.117/KOL/2017 A.Y. 2012-13 EIH LTD. VS. DCIT, CIR-8(1), KOL. PAGE 49 / COPY OF ORDER FORWARDED TO:- 1 . /APPELLANT-EIH LTD., 4, MANGOE LANE, KOLKATA-001 2. /RESPONDENT-DCIT, CIRCLE-8(1), AAYAKAR BHAWAN, P-7, CHOWIRNGHEE SQ. KOL-69 3. 3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5. 7 $$3, 3, / DR, ITAT, KOLKATA 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3,