ABN Amro Bank N.V., Kolkata V. DDIT, International Taxation - 1(1), Kolkata, Kolkata

ITA 1738/KOL/2009

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5001 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 6 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 01-03-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 12-10-2009
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJANA CIT L
• Assessee Lawyers: R N BAJRORIA SR ADOCATE LD
• Keywords: Business income; Depreciation; Double taxation relief; Permanent establishment; Revenue expenditure
• Section: 143(3); 5(2); 32

Judgement Text

ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI MAHAVIR SINGH, JUDICIAL MEMBER , AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NOS.1738/KOL/2009, 1926/KOL/2010 & 519/KOL/201 1 A.YS: 2005-06, 2006-07 & 2007-08 THE ROYAL BANK OF SCOTLAND N.V VS. DEPUTY DIRECTO R OF INCOME TAX (FORMERLY KNOWN AS ABN AMRO BANK N.V) INTERNATION AL TAXATION 1(1), KOLKATA. PAN: AACCA6818K (APPELLANT) (RESPONDENT) ITA NO. 1805/KOL/2012 A.Y: 2008-09 THE ROYAL BANK OF SCOTLAND N.V VS. DEPUTY COMMIS SIONER OF INCOME-TAX ( FORMERLY KNOWN AS ABN AMRO BANK N.V) INTERNATIONAL TAXATION 1(1), KOLKATA PAN: AACCA6818K (APPELLANT) ( RESPONDENT) FOR THE APPELLANT/ASSESSEE: SHRI R.N . BAJRORIA, SR. ADOCATE, LD.AR FOR THE RESPONDENT/DEPARTMENT: S HRI G. MALLIKARJANA, CIT, LD.DR DATE OF HEARING: 01-03-2016 DATE OF PRONOUNCEMENT: 13 - 4 - 2016 ORDER SHRI M.BALAGANESH, AM THESE APPEALS OF THE ASSESSEE ARISE OUT OF SEPARA TE ORDERS OF LEARNED CIT(A)- XII, KOLKATA/LD. DRP IN APPEAL NO.630/XII/08-09 DA TED 28.07.2009 FOR ASST YEAR 2005-06 ; APPEAL NO. NIL DATED 27-08-2010 FOR AS ST YEAR 2006-07 ; APPEAL NO. NIL DATED 10-03-2011 FOR ASST YEAR 2007-08 AND APPEAL NO. NIL DATED 14-09-2012 FOR ASST YEAR 2008-09 AGAINST THE ORDERS OF ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 2 2. AS MOST OF THE ISSUES INVOLVED ARE IDENTICAL IN NATURE , THEY ARE TAKEN UP TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. RATE OF TAX APPLICABLE TO THE BANK GROUND NO. 1 IN ASST YEAR 2005-06 GROUND NO. 1 IN ASST YEAR 2006-07 GROUND NO. 1 IN ASST YEAR 2007-08 GROUND NO. 1 IN ASST YEAR 2008-09 THE FACTS IN ASSESSMENT YEAR 2005-06 ARE STATED HER EIN AND THEY REMAIN THE SAME FOR OTHER ASSESSMENT YEARS ALSO EXCEPT CHANGE IN FIGURE S AND TAX RATES. THE ASSESEE BANK IS INCORPORATED IN NETHERLANDS AND IS ENGAGED IN BANKING OPERATIONS ACROSS THE GLOBE THROUGH VARIOUS BRANCHES WORLDWIDE , INCLUDING INDIA. IN INDIA, THE ASSESSEE (BRANCHES / PERMANENT ESTABLISHMENT) IS RE GISTERED AS A SCHEDULED BANK IN TERMS OF SCHEDULE II OF THE RESERVE BANK OF INDIA A CT, 1034. ARTICLE 7 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) PROVIDES FOR TA XATION IN INDIA OF A FOREIGN ENTERPRISE IN RESPECT OF PROFITS ATTRIBUTABLE TO IT S PERMANENT ESTABLISHMENT (PE) IN INDIA. SINCE THE ASSESSEE (THE ROYAL BANK OF SCOTL AND ) IS HAVING A PE IN INDIA, THE ASSESSEE IS LIABLE TO TAX IN RESPECT OF INCOME ATTR IBUTED TO THE PE. THE ASSESSEE CHARGED TAX AT 36.5925% ON ITS PROFITS ON THE GROUN D THAT IN VIEW OF ARTICLE 24 OF DTAA WITH NETHERLANDS, THE TAX RATE APPLICABLE TO I T IS THE RATE APPLICABLE TO DOMESTIC COMPANIES I.E AT 36.5925%. HOWEVER, THE LEARNED AO HELD THAT ASSESSEE BEING NON- RESIDENT FOREIGN COMPANY, THE APPLICABLE TAX RATE A S PER THE RELEVANT FINANCE ACT WOULD BE 40% PLUS SURCHARGE. THIS ACTION WAS UPHEL D BY THE LEARNED CIT(A) IN FIRST APPEAL. ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 3 3.1. BEFORE US, THE LEARNED AR FAIRLY AGREED THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR ASST YEAR 2004-05 IN ITA NO. 1762/KOL/2008 DATED 30.6.2010. RESPECTFULL Y FOLLOWING THE SAME, THIS GROUND FOR VARIOUS ASST YEARS (SUPRA) IS DISMISSED. 4. DISALLOWANCE OF OFFSHORE REMUNERATION GROUND NO. 2 IN ASST YEAR 2005-06 GROUND NO. 2 IN ASST YEAR 2006-07 THE FACTS IN ASST YEAR 2005-06 ARE STATED HEREIN AN D THEY REMAIN THE SAME FOR ASST YEAR 2006-07 ALSO EXCEPT CHANGE IN FIGURES. DURING THE ASST YEAR UNDER CONSIDERATION, THE HEAD OFFICE OF THE ASSESSEE PAID A SUM OF RS. 32,21,980/- AS OFFSHORE REMUNERATION TO THE EXP ATRIATE EMPLOYEES RENDERING SERVICES IN INDIAN BRANCHES OF THE ASSESSEE. THE L EARNED AO HAS REFERRED TO THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWNCASE FOR THE A.Y. 1992-93 TO 1995-96 WHEREIN IT HAS BEEN PRINCIPALLY HELD THAT SUCH PAYM ENT OF REMUNERATION TO EXPATRIATE EMPLOYEES IS AN ALLOWABLE DEDUCTION SUBJECT TO THE CONDITION THAT SUCH CLAIM OF REMUNERATION HAS NOT BEEN TAKEN INTO ACCOUNT WHILE WORKING OUT THE DEDUCTION U/S 44C OF THE ACT BY THE BRANCH OFFICE. THE LEARNED AO HE LD THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE EVIDENCES TO SUBSTANTIATE THAT THE CLAIM OF REMUNERATION HAS NOT BEEN TAKEN INTO ACCOUNT WHILE WORKING OUT THE DEDUCTION U/S 44C OF THE ACT. BEFORE THE LEARNED CITA, THE ASSESSEE REPLIED THAT THE OFFSHOR E REMUNERATION PERTAINS TO THE EXPATRIATE WORKING WHOLETIME IN INDIA AND THE SAME HAS BEEN INCLUDED IN TAXABLE SALARY OF THE EXPATRIATE IN INDIA AND EVEN IN RESPE CT OF SUCH COMPONENT OF SALARY PAID TO HIM IN THE NETHERLANDS. THE EXPENSE INCURRED ON EXPATRIATES REMUNERATION IS SPECIFICALLY FOR THE INDIAN BRANCH AND THUS ARE SPE CIFIC EXPENSES INCURRED FOR THE INDIAN ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 4 OPERATIONS. ARTICLE 7(2) AND 7(3) OF INDIA NETHERL ANDS DTAA SPECIFY THE MANNER IN WHICH THE PROFITS OF THE PE ARE TO BE COMPUTED AND THEREBY PROVIDE THAT EXPENSES WHICH ARE INCURRED FOR THE PURPOSE OF PE ARE TO BE COMPUTED AND THEREBY PROVIDE THAT EXPENSES WHICH ARE INCURRED FOR THE PURPOSE OF PE WHETHER IN INDIA OR ELSEWHERE ARE TO BE ALLOWED AS A DEDUCTION IN DETERMINING PROFITS OF THE PE. IT WAS FURTHER STATED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE BY THIS TRIBUNAL FROM ASST YEARS 1992-93 TO 1996-97. THE LEARNED CITA HOWEVER FOUN D THAT THIS ISSUE HAS BEEN HELD AGAINST ASSESSEE FOR THE ASST YEARS 1999-2000 TO 20 02-03 & 2004-05 AND ACCORDINGLY UPHELD THE ACTION OF THE LEARNED AO. AGGRIEVED, TH E ASSESSEE IS IN APPEAL BEFORE US. 4.1. BEFORE US, THE LEARNED AR STATED THAT THIS IS SUE IS COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASST YEAR 2004- 05 IN ITA NO. 1762/KOL/2008 DATED 30.6.2010. WE HAVE GONE THROUGH THE SAID TR IBUNAL ORDER, WHEREIN IT WAS HELD AS UNDER:- 6. BOTH THE LEARNED REPESENTATIVES OF THE PARTIES A GREED THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE ITAT , KOLKATA BENCH IN ASSESSE ES OWN CASE IN ITA NO. 579/KOL/2006 DT 9.3.2007 AND FOLLOWED IN ITA NO. 31 5/KOL/2007 DT 10.7.2007 PERTAINING TO THE ASSESSMENT YEARS 2002-03 AND 2003 -04 RESPECTIVELY, WHEREIN THE ITAT BY FOLLOWING EARLIER ORDER OF THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE SUBJECT TO VERIFICATION WHETHER THE EXPEND ITURE WAS INCLUDED FOR THE PURPOSES OF SECTION 44C. IN THIS VIEW OF THE MATTE R, BY FOLLOWING THE EARLIER ORDERS OF THE TRIBUNAL (SUPRA), WE REMIT THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSE E SUBJECT TO VERIFICATION WHETHER THE EXPENDITURE WAS INCLUDED FOR THE PURPOS ES OF SECTION 44C OF THE ACT . WE FIND THAT THE SAME DIRECTION IS REQUIRED TO BE G IVEN FOR THE ASST YEARS UNDER APPEAL BEFORE US. RESPECTFULLY FOLLOWING THE AFORESAID TR IBUNAL ORDER, THIS GROUND FOR VARIOUS ASST YEARS (SUPRA) IS ALLOWED FOR STATISTICAL PURPO SES. ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 5 5. INTEREST PAID TO HEAD OFFICE GROUND NO. 3 IN ASST YEAR 2005-06 GROUND NO. 3 IN ASST YEAR 2006-07 GROUND NO. 2 IN ASST YEAR 2007-08 THE FACTS IN ASST YEAR 2005-06 ARE STATED HEREIN AN D THEY REMAIN THE SAME FOR OTHER YEARS ALSO EXCEPT CHANGE IN FIGURES AND TAX RATES. THE LEARNED AO OBSERVED THAT THE ASSESSEE HAS DEBIT ED ITS PROFIT AND LOSS ACCOUNT WITH A SUM OF RS. 86,43,870/- REPRESENTING INTEREST PAID TO HEAD OFFICE AND OTHER BRANCHES OUTSIDE INDIA AND CLAIMED THE SAME AS DEDUCTION. A CCORDING TO LEARNED AO, THE ASSESSEE BEING A DISTINCT AND SEPARATE ENTITY, THE REMITTANCE OF INTEREST TO OVERSEAS BRANCHES AND HEAD OFFICE BY THE ASSESSEE IS A PAYME NT OF INTEREST BY ONE PERSON TO ANOTHER AND THUS BY NOT DEDUCTION TAX AT SOURCE ON SUCH PAYMENTS, THE ASSESSEE VIOLATED THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THE LEARNED AO ALSO RELIED ON THE CBDT CIRCULAR NO. 740 DATED 17.4.96 THAT THE BR ANCH OF A FOREIGN COMPANY IN IDNIA IS A SEPARATE ENTITY FOR THE PURPOSES OF TAXA TION. THE LEARNED AO ALSO OBSERVED THAT THIS ISSUE HAS BEEN HELD AGAINST THE ASSESSEE BY THE SPECIAL BENCH OF KOLKATA TRIBUNAL FOR ASST YEARS 1997-98 & 1998-99 IN ASSESS EES OWN CASE AND ACCORDINGLY DISALLOWED THE CLAIM OF DEDUCTION MADE THEREON. TH IS ACTION OF THE LEARNED AO WAS UPHELD BY THE LEARNED CIT(A). AGGRIEVED, THE ASSES SEE IS IN APPEAL BEFORE US. 5.1. BEFORE US, THE LEARNED AR STATED THAT THIS IS SUE IS COVERED BY THE ORDER OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE REPORTED IN (2012) 343 ITR 81 (CAL) DATED 23.12.2010 . IT WAS STATED THAT THE SPECIAL LEAVE PETITION FIL ED BY THE REVENUE AGAINST THIS ORDER HAS BEEN DISMISSED V IDE ORDER DATED 3.8.2012. THE LEARNED AR FURTHER STATED THAT NO DISALLOWANCE WAS MADE BY THE LEARNED AO FROM ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 6 ASST YEAR 2009-10 ONWARDS. IN RESPECT OF DISALLOWA NCE MADE IN ASST YEAR 2008-09, THE SAME WAS DELETED BY THE HONBLE DISPUTE RESOLUT ION PANEL (DRP). IN RESPONSE TO THIS, THE LEARNED DR FAIRLY CONCEDED THAT THE IS SUE IS COVERED BY THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN ASSESSEES OWN CASE REPORTED SUPRA. 5.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE CALCUTA HIGH COURT ( SUPRA) WHEREIN THE FACTS AND QUESTIONS RAISED BEFORE THE HONBLE CALCUTTA HIGH C OURT AND THE DECISION RENDERED THEREON ARE AS BELOW:- UNDER ARTICLE 5(2) OF THE DOUBLE TAXATION AVOIDANC E AGREEMENT BETWEEN INDIA AND THE NETHERLANDS, DEFINING PERMANENT ESTAB LISHMENT, A BRANCH IS TO BE TAKEN AS A PERMANENT ESTABLISHMENT AND IF IT IS FURTHER READ WITH ARTICLE 7, THIS PERMANENT ESTABLISHMENT OR BRANCH I S TO BE TREATED AS A SEPARATE UNIT. ARTICLE 7(2) SPECIFICALLY STATES THA T IT IS TO BE CONSIDERED AS A DISTINCT AND SEPARATE ENTERPRISE AND ITS PROFITS AR E TO BE SO COMPUTED AS PROFIT PROPERLY ATTRIBUTABLE TO SUCH A PERMANENT ES TABLISHMENT. IN THE CALCULATION OF SUCH PROFIT BY A BANKING ENTERPRISE INTEREST PAID CAN BE TAKEN AS A DEDUCTION BY VIRTUE OF ARTICLE 7(3) READ WITH ARTICLE 11 (7). THE ASSESSEE WAS A NETHERLANDS COMPANY AND IT S PRINCIPAL BRANCH OFFICE WAS IN INDIA. IN THE COURSE OF ITS BANKING A CTIVITIES, THE BRANCH OFFICE IN INDIA REMITTED SUBSTANTIAL FUNDS TO ITS HEAD OF FICE AS INTEREST. ON APPEAL, TWO QUESTIONS WERE RAISED (I) WHETHER INTEREST PAYM ENT MADE BY THE BRANCH OFFICE IN INDIA TO ITS HEAD OFFICE ABROAD WAS TO BE ALLOWED AS A DEDUCTION IN COMPUTING THE PROFITS OF THE ASSESSEE'S BRANCH IN I NDIA, AND (II) WHETHER IN MAKING SUCH PAYMENTS TO THE HEAD OFFICE, THE BRANCH OFFICE IN INDIA WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE LNCOME-TAX ACT; 1961. HELD, ALLOWING THE APPEAL, THAT THERE IS NO CONFLIC T BETWEEN THE AGREEMENT BETWEEN INDIA AND THE NETHERLANDS AND THE ACT : THE ASSESSEE'S BRANCH OFFICE IN INDIA AND THE HEAD OFFICE IN THE NETHERLA NDS HAD TO BE TAKEN AS SEPARATE ENTITIES FOR ALL PURPOSES. BUT IN THE MAKI NG OF PAYMENT OF INTEREST, NO TAX HAD TO BE DEDUCTED UNDER SECTION 195(1) FOR THE REASON THAT THE HEAD OFFICE WAS NOT CHARGEABLE TO TAX ON SUCH INTEREST P AYMENTS BY VIRTUE OF THE AGREEMENT BETWEEN INDIA AND THE NETHERLANDS. HENCE, THERE WAS NO OBLIGATION ON THE BRANCH OFFICE IN INDIA TO DEDUCT TAX WHILE MAKING INTEREST ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 7 REMITTANCE TO ITS HEAD OFFICE OR ANY OTHER FOREIGN BRANCH. IF NO TAX HAD DEDUCTED UNDER SECTION 195(1) SECTION 40(A)(I) HAD NO APPLICATION. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, THIS GROUND FOR VARIOUS ASST YEARS (SUPRA) IS ALLOWED. 6. CLAIM OF REFUND OF TAX DEDUCTED AT SOURCE ON IN TEREST PAYMENTS MADE TO HEAD OFFICE AND OTHER BRANCHES ADDITIONAL GROUND NO.1 FOR ASST YEAR 2005-06 ADDITIONAL GROUND NO.1 FOR ASST YEAR 2006-07 ADDITIONAL GROUND NO.1 FOR ASST YEAR 2007-08 GROUND NO. 3 FOR ASST YEAR 2008-09 THIS GROUND PERTAINS TO THE CLAIM OF REFUND OF TAX DEDUCTED AT SOURCE FOR THE VARIOUS ASST YEARS IN RESPECT OF INTEREST PAYMENTS MADE BY THE ASSESSEE (INDIAN BRANCH) TO ITS HEAD OFFICE AND VARIOUS BRANCHES OUTSIDE INDIA ON I NTER BANK BORROWINGS. THE ASSESSEE CLAIMED THAT DUE TAX HAS BEEN DEDUCTED AT SOURCE AND REMITTED TO THE ACCOUNT OF THE CENTRAL GOVERNMENT ON THESE INTEREST PAYMENT S, EVEN THOUGH THE HONBLE CALCUTTA HIGH COURT IN ASSESSEES OWN CASE REPORTED IN (2012) 343 ITR 81 (CAL) DATED 23.12.2010 HAD HELD THAT NO TAX NEED TO BE DEDUCTED AT SOURCE ON THE SAID PAYMENTS. THE LEARNED AR ALSO PRAYED FOR ADMISSION OF THE ADD ITIONAL GROUND RAISED FOR THE ASST YEARS 2005-06 TO 2007-08 AS OTHERWISE THE ASSESSEE WOULD LOSE ITS LEGITIMATE CASH FLOW AND GOVERNMENT WOULD BE UNJUSTLY ENRICHED. TH E LEARNED DR STATED THAT NO TAX HAS BEEN DEDUCTED BY THE ASSESSEE AND HENCE THE QUE STION OF GRANTING REFUND OF TDS DOES NOT ARISE. IN RESPONSE TO THIS, THE LEARNED A R ARGUED THAT LET THE FACT AS TO WHETHER THE ASSESSEE BRANCH HAD INDEED DEDUCTED THE TDS AND REMITTED THE SAME COULD BE VERIFIED BY THE LEARNED AO AND ON THIS COUNT, HE PRAYED FOR SET ASIDE TO THE FILE OF THE LEARNED AO. HE ALSO STATED THAT THIS ISSUE HA S BEEN HELD IN FAVOUR OF THE ASSESSEE ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 8 BY THE HONBLE DRP FOR THE ASST YEARS 2009-10 TO 20 11-12 BY ALLOWING THE RELIEF FOR TDS CLAIM. 6.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE HONBLE CALCUTTA HIGH COURT HAD HELD IN ASESSSEES OWN CASE REPORTED IN 3 43 ITR 81 THAT NO TAX NEED TO BE DEDUCTED ON INTEREST PAYMENTS MADE BY THE ASSESSEE (INDIAN BRANCH) TO ITS HEAD OFFICE AND VARIOUS BRANCHES OUTSIDE INDIA. WE FEEL THAT T HE ASSESSEE HAD DULY MADE OUT OF A CASE FOR ADMISSION OF ITS ADDITIONAL GROUND AND HEN CE THE SAME ARE ADMITTED HEREIN FOR ADJUDICATION. HOWEVER, IN CASE THE ASSESSEE HAD DE DUCTED TAXES THEREON AND REMITTED TO THE ACCOUNT OF CENTRAL GOVERNMENT, THEN THE ASSE SSEE IS RIGHTLY ENTITLED FOR REFUND OF THE SAME. HOWEVER, AS CONCEDED BY THE LEARNED AR, THIS LIMITED ASPECT REQUIRES FACTUAL VERIFICATION BY THE LEARNED AO AS LEARNED D R HAD RAISED A DOUBT ABOUT THE SAME. HENCE WE DEEM IT FIT AND APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE LEARNED AO FOR THE LIMITED ASPECT OF VERIFICATION OF DEDUCTION OF TAX AT SOURCE AND REMITTANCE THEREON BY THE ASSESSEE. RESPECTFULLY F OLLOWING THE DECISION OF THE HONBLE CALCUTTA HIGH COURT (SUPRA) , WE HOLD THAT THERE IS NO NEED TO DEDUCT TAX AT SOURCE ON INTEREST PAYMENTS MADE BY THE ASSESSEE. ACCORDIN GLY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE FOR THE ASST YEARS 2005-06 TO 2007- 08 AND GROUND NO. 3 RAISED BY THE ASSESSEE FOR ASST YEAR 2008-09 ARE ALLOWED SUBJECT TO THE DIRECTIONS CONTAINED HEREINABOVE. 7. INTEREST RECEIVED FROM HEAD OFFICE GROUND NO. 4 IN ASST YEAR 2005-06 GROUND NO. 4 IN ASST YEAR 2006-07 GROUND NO. 3 IN ASST YEAR 2007-08 THE LEARNED AR FAIRLY CONCEDED THAT THIS GROUND IS INTERLINKED WITH THE GROUND RAISED ON INTEREST PAID TO HEAD OFFICE (DISCUSSED HEREINAB OVE AT PARA 5). HE STATED THAT IN ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 9 CASE THE AFORESAID GROUND IS HELD IN FAVOUR OF THE ASSESSEE, THEN THIS GROUND MAY BE TREATED AS NOT PRESSED. THE LEARNED DR ALSO ACCEPT ED TO THE SAME. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT IN GROUND NO.5 , WE HAVE HELD THAT INTEREST PAID TO HEAD OFFICE AND VARIOUS BRANCHES O UTSIDE INDIA ARE ALLOWABLE AS DEDUCTION WHILE COMPUTING THE PROFITS ATTRIBUTABLE TO PE IN INDIA. HENCE AS AGREED BY THE LEARNED AR , THE GROUND NO. 4 RAISED FOR ASST Y EARS 2005-06 & 2006-07 AND GROUND NO. 3 RAISED FOR ASST YEAR 2007-08 ARE DISMI SSED AS NOT PRESSED. 8. HIGHER RATE OF DEPRECATION ON ATMS GROUND NO. 5 IN ASST YEAR 2005-06 GROUND NO. 5 IN ASST YEAR 2006-07 THE ASSESSEE CLAIMED DEPRECIATION ON ATM AT 60% BEI NG THE RATE OF DEPRECIATION PRESCRIBED UNDER THE SUB-HEADING COMPUTERS INCLUDI NG COMPUTER SOFTWARE AS GIVEN IN IT RULES. THE LEARNED AO CLASSIFIED ATM MACHINE S AS OTHER OFFICE MACHINES AND APPLIED THE DEPRECIATION RATE OF 25% BEING THE RATE OF DEPRECIATION ON PLANT AND MACHINERY. THE LEARNED AO FURTHER OBSERVED THAT S IMILAR DISALLOWANCE WAS MADE IN ASST YEARS 2002-03 TO 2004-05. ON FIRST APPEAL, TH E LEARNED CIT(A) UPHELD THE ACTION OF THE LEARNED AO AS THE TRIBUNAL IN ASSESSES OWN CASE FOR ASST YEAR 2004-05 HAD HELD THIS ISSUE AGAINST THE ASSESSEE. AGGRIEVED, T HE ASSESSEE IS IN APPEAL BEFORE US. 8.1. THE LEARNED AR STATED THAT THOUGH THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN ASST YEAR 2004-05 BY THIS TRIBUNAL, HE ARGUED THAT THE SAME ISSUE HAS BEEN HELD IN FAVOUR OF THE ASSESSEE BY THE FOLLOWING DEC ISIONS:- DECISION OF DELHI TRIBUNAL IN THE CASE OF DCIT VS G LOBAL TRUST BANK LIMITED IN ITA NO. 474/DEL/2009 DATED 20.4.2011 ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 10 DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS SARASWAT INFOTECH LTD IN ITA NO. 1243 OF 2012 DATED 15.1.201 3 DECISION OF MUMBAI TRIBUNAL IN THE CASE OF SARASWAT INFOTECH LTD VS CIT IN ITA NO. 3606/MUM/2011 DATED 14.3.2012 HENCE HE PRAYED THAT THE DECISION OF BOMBAY HIGH CO URT BE FOLLOWED WHICH IS ALSO BINDING ON THIS TRIBUNAL. IN RESPONSE TO THIS, TH E LEARNED DR ARGUED THAT THE ISSUE BEFORE THE DELHI TRIBUNAL WAS TOTALLY DIFFERENT FRO M THE FACT BEFORE US. HE FURTHER ARGUED THAT ATM IS ONLY AN ELECTRONIC TELECOMMUNIC ATION DEVICE. IT IS NOT SIMILAR TO COMPUTERS. HE ALSO PRESENTED THE PICTORIAL REPRESE NTATION OF FUNCTIONING OF ATM AND COMPUTER. HE STATED THAT THE ATM DOES NOT CONTAIN MOTHER BOARD. HE STATED THAT ONCE THE ATM CARD IS INSERTED , ON READING THE MAGN ETIC CODE THEREON, IT GETS VERIFIED FROM BACK END PROCESSING CENTRE , WHEREAS, THE COMP UTER DOES IT AUTOMATICALLY. HENCE ATM CANNOT BE CONSTRUED AS SOFTWARE. HE FURTH ER RELIED ON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF HDFC BANK LTD DATED 7.1.2010. IN DEFENCE, THE LEARNED AR STATED THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT HAD BEEN RENDERED ON 15.1.2013 WHICH IS AFTER THE DECISION O F MUMBAI TRIBUNAL IN HDFC BANK LTD CASE AND HENCE PLEADED FOR FOLLOWING THE HIGH C OURT DECISION. 8.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIN D THAT THE ATM MACHINES ARE NOTHING BUT COMPUTERS AS THEY DEAL WITH THE FUNCTIO NS OF DECODING THE INFORMATION, PROCESSING THE SAME AND GIVING THE OUTPUT. THE LEA RNED AR SUBMITTED THAT ATM IS A COMPUTER TERMINAL ACTIVATED BY A MAGNETICALLY ENCOD ED DEBIT CARD THAT ALLOWS A PERSON TO MAKE DEPSOITS TO AND WITHDRAWALS FROM HIS ACCOUN TM PAY BILLS, TRANSFERS MONEY BETWEEN HIS ACCOUNT AT ANY TIME. THE INBUILT COMPU TER SOFTWARE THEREIN ALLOWS THE PERSON TO MAKE FINANCIAL TRANSACTIONS AND CHECK THE ACCOUNT BALANCES. IT WAS THE SUBMISSION OF THE LEARNED AR THAT INSIDE EVERY ATM THERE IS A COMPUTER WHICH IS NOT VERY DIFFERENT FROM ANY OTHER PERSONAL COMPUTER BUT THE BASIC FUNCTION OF CONNECTING A PERSON TO THE BANK ATM NETWORK AND ACCESSING HIS AC COUNT INFORMATION ARE DONE BY ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 11 THE ATM AND THE SOFTWARE USED IN THE ATM IS ALSO TH E SAME SOFTWARE WHICH IS USED IN THE COMPUTER. WE ALSO FIND THAT SIMILAR ISSUE HAS BEEN ADDRESSED BY THE SPECIAL BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DCIT VS DAT ACRAFT INDIA LTD REPORTED IN (2010) 40 SOT 295 WHEREIN THE DEFINITION OF COMPUTER GIVEN BY THE INFORMATION TECHNOLOGY ACT, 2000 HAS BEEN DISCUSSED AND IT HAS BEEN HELD THAT THE COMPUTER IS TO PERFORM LOGICAL, ARITHMETICAL AND MEMORY FUNCTIONS ON DATA ETC AND IT IS NOT ONLY THE EQUIPMENT WHICH PERFORM SUCH FUNCTIONS THAT COULD B E CALLED AS COMPUTER BUT INCLUDES ALL INPUT AND OUTPUT DEVICES WHICH ARE CONNECTED TO OR RELATED TO IT. THE SPECIAL BENCH ACCORDINGLY HELD THAT ROUTERS AND SWITCHES AR E ALSO TO BE INCLUDED IN THE BLOCK OF COMPUTERS ENTITLED TO DEPRECIATION AT THE RATE O F 60%. WE FIND THAT THE ATM MACHINE IS DOING THE LOGICAL, ARITHMETIC AND MEMORY FUNCTIONS BY MANIPULATIONS OF ELECTRONIC MAGNETIC OR OPTICAL IMPULSES GIVING DEBI T OR CREDIT CASH AND THEREAFTER DISPENSES THE CASE AND GIVES A PRINTED RECEIPT AND HENCE IT COULD BE SAFELY CONCLUDED THAT COMPUTER IS AN INTEGRAL PART OF ATM MACHINE AN D ON THE BASIS OF THE INFORMATION PROCESSED BY THE COMPUTER IN THE ATM MACHINE ONLY, THE MECHANICAL FUNCTIONS OF THE DISPENSATION OF CASH OR DEPOSIT OF CASH IS DONE. 8.2.1. WE FIND THAT THE ISSUE IS DEALT WITH BY THE CO-ORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF DCIT VS GLOBAL TRUST BANK LTD IN ITA NO. 474/DEL/2009 DATED 20.4.2011 , WHEREIN IT WAS HELD THAT :- 7. ATM IS THE COMPUTERIZED TELECOMMUNICATION DEVICE THAT ALLOWS BANKS CUSTOMERS TO ACCESS THE BANK AT PLACES OTHER THAN T HE NORMAL BANK WITHOUT HAVING TO TAKE THE TROUBLE TO GO TO THE BANK IN PER SON AND COLLECT THE CASH AS IS DONE UNDER THE CONVENTIONAL METHOD OF WITHDRAWING M ONEY FROM THE BANK. THE ATM MACHINES ARE COMPUTERIZED MACHINES WHICH NOT ON LY ALLOW THE CUSTOMERS TO WITHDRAW MONEY BUT THEY CAN CHECK THE ACCOUNT BA LANCE, PAY BILLS, PURCHASE GOODS AND SERVICES, AND THEREFORE, UNLESS IT IS COM PUTERIZED AND LINKED WITH THE MAIN SERVER, IT IS NOT POSSIBLE TO OPERATE THE ATM. ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 12 10. IN THIS CONNECTION, A REFERENCE IS ALSO INVITE D TO THE INFORMATION TECHNOLOGY ACT, 2000 WHEREIN SECTION 2(I) DEFINES T HE TERM COMPUTERS WHICH ALSO INCLUDES COMPUTER NETWORK. THE TERM COMPUT ER NETWORK MEANS THE INTERCONNECTION OF ONE OR MORE COMPUTERS THROUGH TH E USE OF SATELLITE, MICROWAVE, TERRESTRIAL LINE OR OTHER COMMUNICATION MEDIA AND TERMINALS OR A COMPLEX CONSISTING OF TWO OR MORE INTERCONNECTED C OMPUTERS WHETHER OR NOT THE INTERCONNECTION IS CONTINUOUSLY MAINTAINED. FR OM THIS ANGLE ALSO, LOCAL AREA NETWORK (LAN) , WIDE AREA NETWORK (WAN) AND AT M WOULD UNDOUBTEDLY FORM A PART OF COMPUTER. 11. IN THE LIGHT OF THE VIEW WE HAVE TAKEN ABOVE, W E DIRECT THE AO TO ALLOW DEPRECIATION AT THE RATE OF 60% ON LAN, WAN AND ATM EQUIPMENTS. WE ORDER ACCORDINGLY. 8.2.2. WE FIND THAT THE IMPUGNED ISSUE BEFORE US IS COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SAR ASWAT INFOTECH LTD IN ITA NO. 1243 OF 2012 DATED 15.1.2013, WHEREIN THE QUESTION RAISED BEFORE THEIR LORDSHIPS AND DECISION RENDERED THEREON ARE AS BELOW:- A) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE ITAT WAS RIGHT IN HOLDING THAT DEPRECIATION ON UPS IS ALLOWABLE @ 60% IGNORING THE FACT THAT UPS IS AN ELECTRICAL APPLIANCE FOR TEMPORARY SUPPLY OF ELECTRICITY THEREFORE IS IN NATURE OF PLANT AND MACHINERY AND THEREFORE, DEPRECIATION SHOULD BE PROVIDED @ 15%? B) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE ITAT WAS RIGHT IN HOLDING THAT DEPRECIATION ON ATM IS ALLOWABLE @ 60% IGNORING THE FACT THAT ATM IS A CASH DISPENSING MACHINE WITH A PROJECTOR A ND THEREFORE IS IN NATURE OF PLANT AND MACHINERY AND THEREFORE DEPRECIATION SHOU LD BE PROVIDED @ 15%? C) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE THE ITAT WAS RIGHT IN HOLDING THAT DEPRECIATION ON PURCHASE OF SOFTWARE I S TO BE ALLOWED IGNORING THE FACT THAT ASSESSEE HAS FAILED TO PROVE THAT ASSESSE E HAS PHYSICALLY RECEIVED THE LICENCE BY 31/3/2008? THE HIGH COURT OBSERVED THAT THE TRIBUNAL HAD HELD THAT SIMILARLY, SO FAR AS ATMS ARE CONCERNED, THE TRIBUN AL ON FINDING OF FACT CONCLUDED THAT ATM CANNOT FUNCTION WITHOUT THE HELP OF COMPUTER AND WOULD BE A PART OF THE COMPUTER USED IN THE BANKING INDUSTRY. RELIANCE WAS PLACED BY THE TRIBUAL UPON THE DECISION OF THE DELH I BENCH OF TRIBUNAL IN THE MATTER OF DCIT VS GLOBAL TRUST BANK (ITA NO. 47 4/D/09) WHEREIN IT HAS BEEN HELD THAT ATM WAS A COMPUTER EQUIPMENT AND DEP RECIATION @ 60% WAS ALLOWED. ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 13 HELD THAT WE NOTE THAT THE TRIBUNAL HAS ARRIVED A T A FINDING OF FACT ON ALL THE THREE QUESTIONS. THE REVENUE HAS NOT BEEN ABLE TO SHOW THAT THE ABOVE FINDING OF FACT IS PERVERSE. THUS, WE DO NOT SEE A NY REASON TO ENTERTAIN QUESTION (I), (II) AND (III) ABOVE. ACCORDINGLY, THE APPEAL IS DISMISSED WITH NO ORDER AS TO COSTS. 8.2.3. IN RESPECT OF THE CASE RELIED ON BY THE LEA RNED DR ON THE DECISION RENDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASST YEAR 2004-05, WE FIND THAT THIS DECISION WAS RENDERED ON 30.6.2010 AND THEREAFTER MUCH WATER HAS FLOWN ON THE IMPUGNED ISSUE BY THE DECISIONS OF DELHI AND MUMBAI TRIBUNAL AND THE DECISION OF BOMBAY HIGH COURT. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECEDENTS, WE HAVE NO HESITATION IN DIRECTING THE LEARNED AO TO ALLOW DEP RECIATION AT THE RATE OF 60% ON ATMS. ACCORDINGLY, THE GROUND NO. 5 RAISED BY THE ASSESSEE FOR THE ASST YEARS 2005- 06 AND 2006-07 ARE ALLOWED. 9. DISALLOWANCE OF LEASE RENTALS ON VEHICLES GROUND NO. 6 IN ASST YEAR 2005-06 GROUND NO. 6 IN ASST YEAR 2006-07 GROUND NO. 4 IN ASST YEAR 2007-08 GROUND NO. 2 IN ASST YEAR 2008-09 THE FACTS IN ASST YEAR 2005-06 ARE STATED HEREIN AN D THEY REMAIN THE SAME FOR OTHER YEARS ALSO EXCEPT CHANGE IN FIGURES. THE ASSESSEE HAS OBTAINED VEHICLES ON LEASE AND PAI D LEASE RENTAL AMOUNTING TO RS. 3,73,53,644/- DURING THE SUBJECT ASSESSMENT YEAR. OUT OF TOTAL AMOUNT OF LEASE RENTALS OF RS. 3,73,53,644/-, LEASE RENTALS AMOUNTING TO RS . 46,28,067/- WERE ALREADY CHARGED TO PROFIT AND LOSS ACCOUNT AS THEY PERTAINED TO THE PERIOD PRIOR TO THE INTRODUCTION OF ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 14 ACCOUNTING STANDARD 19 (AS-19) ISSUED BY THE INSTIT UTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI). HOWEVER, LEASE RENTALS AMOUNTING TO RS. 3,27,25,577/- WERE SEPARATELY CLAIMED BY THE ASSESSEE AS DEDUCTION IN THE COMPUTA TION OF INCOME AS FAIR VALUE OF VEHICLES FOR SUCH LEASE WERE CAPITALIZED IN THE BOO KS AS PER AS 19. FOR INCOME TAX PURPOSES, THE ASSESSEE HAS NOT CAPITALIZED THE FAIR VALUE OF THE LEASED VEHICLES IN THE ADDITIONS TO THE BLOCK OF ASSETS AND THUS NO TAX DE PRECIATION WAS CLAIMED THEREON. INSTEAD, THE ENTIRE LEASE RENTALS WERE CLAIMED AS A REVENUE DEDUCTION IN VIEW OF THE CBDT CIRCULAR NO. 2 DATED 9.2.2001. HOWEVER, THE LEARNED AO HELD THAT THE PRINCIPAL COMPONENT OF LEASE WAS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION. THE LEARNED AO ALSO OBSERVED THAT THE VEHICLES ARE REGISTERED IN THE NAME OF THE ASSESSEE THROUGH WHICH OWNERSHIP RIGHTS ARE BESTOWE D ON THE ASSESSEE. ACCORDING TO LEARNED AO, THE ASSESSEE REMAINS BOTH THE LEGAL AND BENEFICIAL OWNER OF THE LEASED VEHICLES REGARDLESS OF WHATEVER CLAUSES TO THE CONT RARY WERE CONTAINED IN THE LEASE AGREEMENT. THIS ACTION OF THE LEARNED AO WAS UPHEL D BY THE LEARNED CIT(A) IN FIRST APPEAL. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US. 9.1. THE LEARNED AR STATED THAT THOUGH THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE IN ASST YEAR 2004-05 BY THIS TRIBUNAL VIDE ITS ORDER DATED 30.6.2010, HE ARGUED THAT THE SAME ISSUE HAS BEEN HELD IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF I.C.D.S. LTD VS C IT REPORTED IN (2013) 29 TAXMANN.COM 129 (SC) . HE ALSO STATED THAT THE HONBLE DRP VIDE ITS ORDER DATED 23.12.2013 ON APPRECIATING THE SAID JUDGEMENT OF HO NBLE APEX COURT HAD DIRECTED THE LEARNED AO TO DELETE THE DISALLOWANCE ON THIS A CCOUNT FOR ASST YEAR 2009-10 . HE FURTHER STATED THAT THE LEARNED AO HIMSELF HAD NOT MADE ANY DISALLOWANCE ON THIS ISSUE FROM ASST YEAR 2010-11 ONWARDS PRESUMABLY APP RECIATING THE JUDGEMENT OF THE HONBLE APEX COURT (SUPRA). IN RESPONSE TO THIS, THE LEARNED DR STATED THAT THE ASSESSEE BEFORE THE HONBLE APEX COURT WAS A LEASIN G COMPANY, WHEREAS THE ASSESSEE BEFORE US IS A BANKING COMPANY AND ARGUED THAT THE SAID DECISION MAY NOT BE MADE ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 15 APPLICABLE TO THE CASE BEFORE US. HE FURTHER ARGU ED THAT THE ISSUE BEFORE THE APEX COURT WAS WHO IS THE LEGAL OWNER OF THE ASSET . ACCORD ING TO HIM, THE APEX COURT DID NOT RENDER ANY JUDGEMENT ON WHETHER LEASE RENTAL IS A C APITAL OR REVENUE EXPENDITURE. IN DEFENCE, THE LEARNED AR ARGUED THAT THERE IS ABSOLU TELY NO DIFFERENCE WHETHER THE ASSESSEE IS A BANKING COMPANY OR A LEASING COMPANY. HE PLEADED THAT THE RATIO DECIDENDI OF SUPREME COURT (SUPRA) WOULD BE SQUAREL Y APPLICABLE TO THE FACTS BEFORE US. HE REFERRED TO THE RELEVANT CLAUSES OF THE LEASE DE ED WHEREIN THE PROPERTY REVERTS BACK TO LESSOR IN THE EVENT OF DEFAULT BY THE ASSESSEE ( LESSEE) AND ALSO STATED THAT THE ASSESSEE HEREIN DOES NOT GET ANY CHANCE TO RETAIN T HE OWNERSHIP OF THE VEHICLES AT THE END OF THE LEASE PERIOD BY PAYING A NOMINAL VALUE F OR THE ASSET. HE STATED THAT THE LEASE DEED DOES NOT CONTAIN ANY CLAUSE TO THIS EFFE CT. HE PRAYED FOR ALLOWANCE OF LEASE RENTALS AS A REVENUE EXPENDITURE. 9.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, WE FIND THAT THIS ISSUE HAS BEEN HELD AGAINST ASSESSEE IN ASSESSEES OWN CASE FOR ASST YEAR 2004-05 VIDE ORDE R OF THIS TRIBUNAL DATED 30.6.2010. HOWEVER, THE HONBLE APEX COURT DECISION IN THE CAS E REFERRED SUPRA DATED 14.1.2013 HAD BEEN RENDERED AFTER THE DECISION OF THIS TRIBUN AL IN ASST YEAR 2004-05. WE HAVE GONE THROUGH THE RELEVANT CLAUSES IN THE LEASE DEED AND WE FIND THAT THE ASSESSEE HEREIN (LESSEE) DOES NOT HAVE POWER TO RETAIN THE ASSETS B EYOND THE LEASE PERIOD BY PAYING A NOMINAL VALUE. IN THE CASE BEFORE THE HONBLE APE X COURT (SUPRA), THERE WAS A CLAUSE TO RETAIN THE ASSETS AT THE END OF THE LEASE BY ALL OWING THE LESSEE TO PAY 1% OF ORIGINAL COST OF VEHICLE AS CONSIDERATION. THE CONSPICUOU S ABSENCE OF THIS CLAUSE IN THE LEASE DEED ITSELF CLEARLY PROVES THAT THE ASSESSEE HAD TO RETURN THE VEHICLES ON EXPIRY OF LEASE PERIOD TO THE LESSOR. MOREOVER, THE LESSOR HAS GOT EVERY RIGHT TO RECOVER THE VEHICLES DURING THE TENURE OF THE LEASE IF THE LESSEE DEFAUL TS IN PAYMENT OF LEASE RENTALS. ALL THESE FACTS CLEARLY PROVE THAT THE ASSESSEE CANNOT CLAIM OWNERSHIP (BOTH LEGAL AND BENEFICIAL) OF THE VEHICLES AT ANY COST. EFFECTI VELY THE ASSESSEE HEREIN GETS ONLY RIGHT ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 16 TO USE THE ASSETS FOR WHICH LEASE RENTALS ARE PAID. THE FACT OF REGISTRATION OF VEHICLES IN THE NAME OF ASSESSEE UNDER MOTOR VEHICLES ACT IS ON LY RELEVANT FOR THE PURPOSE OF MOTOR VEHICLES ACT AND NOT OTHERWISE. UNDER GENERA L LAW, THE OWNERSHIP OF THE VEHICLES VESTS ONLY WITH THE LESSOR. IT DOES NOT MATTER HOW THE ASSESSEE TREATS THE COST OF VEHICLES IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE HAS BEEN TREATING THE LEASE RENTALS AS REVENUE EXPENDITURE FOR TAX PURPOSES. WE FIND THA T THE CBDT CIRCULAR NO. 2/2001 DATED 9.2.2001 HAS CLARIFIED THAT THE AS-19 WILL HA VE NO IMPLICATION ON THE ALLOWANCE OF DEPRECIATION ON ASSETS UNDER THE PROVISIONS OF I T ACT. HENCE THE SAME ANALOGY COULD BE APPLIED FOR LEASE RENTALS ALSO. HENCE TRE ATMENT GIVEN IN BOOKS TO COMPLY WITH AS 19 ISSUED BY ICAI IS OF NO RELEVANCE. WE FIND T HAT CIRCULAR NO. 2/2001 DATED 9.2.2001 STIPULATES THAT IN A LEASE TRANSACTION, TH E OWNER OF THE ASSETS IS ENTITLED TO DEPRECIATION. IN THE INSTANT CASE, THE LESSOR BEI NG THE OWNER HAD THE RIGHT TO CLAIM DEPRECIATION AND THE ASSESSEE HAS NOT CLAIMED ANY D EPRECIATION ON THE SAME FOR TAX PURPOSES. THE ASSESSEE HAD CLAIMED THE ENTIRE LEA SE RENT AS DEDUCTIBLE EXPENDITURE. IT IS WELL SETTLED THAT THE CBDT CIRCULARS ARE BINDING ON THE REVENUE AUTHORITIES. 9.2.1. IT IS ALSO NOT IN DISPUTE THAT THE HONBLE DRP VIDE ITS ORDER DATED 23.12.2013 ON APPRECIATING THE SAID JUDGEMENT OF HONBLE APEX COU RT HAD DIRECTED THE LEARNED AO TO DELETE THE DISALLOWANCE ON THIS ACCOUNT FOR ASST YEAR 2009-10 . IT IS ALSO NOT IN DISPUTE THAT THE LEARNED AO HIMSELF HAD NOT MADE AN Y DISALLOWANCE ON THIS ISSUE FROM ASST YEAR 2010-11 ONWARDS. 9.2.2. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION 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 SECTION 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 ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 17 SO ASSESSED. HENCE, IT FULFILLED THE REQUIREMENT O F SECTION 32 OF THE ACT, THAT THE ASSET MUST BE USED IN THE COURSE OF BUSINESS. THE ASSESSEE DID USE THE VEHICLES IN THE COURSE OF ITS LEASING BUSINESS. THE FACT THAT THE TRUCKS THEMSELVES WERE NOT USED B Y THE ASSESSEE WAS IRRELEVANT 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 PERIOD, THE O WNERSHIP OF THE VEHICLE WAS TRANSFERRED TO THE LESSEE AT A NOMINAL VALUE DID NOT MAKE THE ASSESSEE IN EFFECT A FINANCIER. NO INFERENCE CO ULD BE DRAWN FROM THE REGISTRATION CERTIFICATE AS TO OWNERSHIP OF THE LEGAL TITLE OF THE VEHICLE. IF THE LESSEE WAS IN FACT THE OWNER, HE WO ULD HAVE CLAIMED DEPRECIATION ON THE VEHICLES, WHICH, AS SPECIFICALL Y 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 ENTIRE LEAS E RENT PAID BY THE LESSEE BEEN TREATED AS DEDUCTIBLE REVENUE EXPENDITU RE IN THE HANDS OF THE LESSEE. THIS REAFFIRMED THE POSITION THAT THE ASSESSEE WAS IN FACT THE OWNER OF THE VEHICLE, IN SO FAR AS SECTION 32 O F 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 ITS BUSINESS, SATISFYING BOTH REQUIREMENTS OF SECTION 32 OF THE ACT AND, HEN CE, WAS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF ADDITIONS 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 'PURPO SES OF BUSINESS', USED IN SECOND PROVISO TO SECTION 32(1) OF THE ACT WOULD NOT BE ANY DIFFERENT FROM THAT ASCRIBED TO IT UNDER SECTION 3 2(1) OF THE ACT. THEREFORE, THE ASSESSEE FULFILLED EVEN THE REQUIREM ENTS FOR A CLAIM OF A HIGHER RATE OF DEPRECIATION AND WAS ENTITLED THER ETO. 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 ALL OWABILITY OF LEASE RENTALS IN THE HANDS OF THE ASSESSEE (LESSEE). ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 18 9.2.3. WE ALSO FIND THAT THE ISSUE IS SQUARELY COVE RED 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 THAT AFTER COMPLETION OF LEASE PERIOD, IF ONE PER CENT. OF TH E TOTAL CONSIDERATION OF THE TRUCKS WAS PAID, THE LESSEE WOULD BE THE O WNER OF THOSE TRUCKS. HOWEVER, THE AGREEMENT DEALT WITH THE OWNE RSHIP OF THE TRUCKS UNDER THE AGREEMENT. THERE WAS A CLEAR PROVI SION THAT THE SAID MACHINERY SHALL AT ALL TIMES REMAIN SOLE AND EXCLUSIVE PROPERTY OF THE LESSOR AND THE LESSEE SHALL HAVE NO RIGHT, TITLE OR INTEREST THEREON. IT FURTHER THAT IRRECOVERABLE U NDERTAKING OF THE LESSEE THAT AT NO TIME DURING THE CURRENCY OF THE LEASE AGREEMENT, WHICH SHALL BE NON-CANCELLABLE, WOULD THE LESSEE A TTEMPT TO CAPITALISE THE LEASED ASSETS IN ITS BALANCE-SHEET. AS PER CLAUSE 8, IT HAD BEEN AGREED THAT THE OWNERSHIP OF THE SAID AS SETS DURING THE TENURE OF THE LEASE AND INCLUSIVE OF ANY RENEWAL OPTIONS THAT THE LESSOR MAY CONCUR INDISPUTABLY RESTED WITH THE L ESSOR. SO IN CLEAR TERMS, THE AGREEMENT PROVIDED THAT DURING THE LEAS E PERIOD, ONLY THE LESSOR SHALL BE TREATED AS OWNER OF THE TRUCKS AND NOT THE LESSEE. MOREOVER, THE LESSOR HAD BEEN ALLOWED DEPRECIATION ON THE TRUCKS. THEREFORE, CONSIDERING THE TERMS AND CONDITIONS OF THE LEASE AGREEMENT AND THE FACT THAT DEPRECIATION ON THESE T RUCKS HAD BEEN ALLOWED TO THE LESSOR, THE LEASE RENT WAS DEDUCTI BLE 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 TERMINATION OF THE LEASE AGREEMENT. IN THE INSTANT CASE, THE ASSESSEE (LESSEE) FALLS IN A BETTER FOOTING , I N AS MUCH AS THERE IS NO CLAUSE IN THE LEASE AGREEMENT, ENABLING THE LESSEE TO BUY BACK TH E ASSETS ON TERMINATION OF THE LEASE ARRANGEMENT. 9.2.4. IN VIEW OF THE AFORESAID FACTS AND FINDINGS AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOL D THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION TOWARDS LEASE RENTALS. ACCORDINGLY, THE G ROUND NO. 6 RAISED FOR ASST YEARS ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 19 2005-06 & 2006-07 ; GROUND NO. 4 RAISED FOR ASST YE AR 2007-08 AND GROUND NO. 2 RAISED FOR ASST YEAR 2008-09 ARE ALLOWED. 10. DISALLOWANCE OF OFFSHORE EXPENSES GROUND NO. 7 IN ASST YEAR 2005-06 GROUND NO. 7 IN ASST YEAR 2006-07 GROUND NO. 5 IN ASST YEAR 2007-08 DURING THE COURSE OF HEARING, THE LEARNED AR STATED THAT THE ASSESSEE IS NOT WILLING TO PRESS THIS GROUND. THE SAME IS TAKEN AS THE STATEM ENT FROM THE BAR. HENCE THE GROUND NOS. 7 RAISED BY THE ASSESSEE FOR ASST YEARS 2005- 06 & 2006-07 AND GROUND NO. 5 FOR ASST YEAR 2007-08 RAISED BY THE ASSESSEE ARE DISMIS SED AS NOT PRESSED. 11. ADDITION OF OFFSHORE EXPENSES U/S 28(IV) OF TH E ACT GROUND NO. 8 IN ASST YEAR 2005-06 GROUND NO. 8 IN ASST YEAR 2006-07 GROUND NO. 6 IN ASST YEAR 2007-08 DURING THE COURSE OF HEARING, THE LEARNED AR STATED THAT THE ASSESSEE IS NOT WILLING TO PRESS THIS GROUND. THE SAME IS TAKEN AS THE STATEM ENT FROM THE BAR. HENCE THE GROUND NOS. 8 RAISED BY THE ASSESSEE FOR ASST YEARS 2005- 06 & 2006-07 AND GROUND NO. 6 FOR ASST YEAR 2007-08 RAISED BY THE ASSESSEE ARE DISMIS SED AS NOT PRESSED. 12. LEVY OF INTEREST U/S 234B, 234C, 234D AND PENA LTY PROCEEDINGS U/S 271(1)(C ) OF THE ACT ON ACCOUNT OF OFFSHORE EX PENSES GROUND NOS. 9 TO 11 IN ASST YEAR 2005-06 GROUND NOS. 9 & 10 IN ASST YEAR 2006-07 ITA NOS. 1738/K/09, 1926/K/2010,519/K/11 & 1805/K/12 ABN AMRO BANK N.V THE ROYAL BANK OF SCOTLAND N.V C-AM 20 GROUND NOS. 7 TO 10 IN ASST YEAR 2007-08 GROUND NOS. 4 & 5 IN ASST YEAR 2008-09 THESE GROUNDS ARE ONLY CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE SEPARATE ADJUDICATION. 13. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 13-4- 2 016 1.. THE APPELLANT/ASSESSEE: M/S. ABN AMRO BANK N.V /M/S. THE ROYAL BANK OF SCOTLAND N.V (FORMERLY KNOWN AS ABN AMRO BANK N.V AZIMGANJ HOUSE, 7 CAMAC STREET, UNIT 3,4 & 5 KOLKATA-17 2 THE RESPONDENT/DEPARTMENT: DEPUTY DIRECTOR OF INC OME TAX/DY. COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION 1(1), AAYKAR BHAWAN P-7 CHOWRINGHEE SQUARE, KOL-69. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS SD/- ( MAHAVIR SINGH, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE: DATE 13-4 -2016 COPY OF THE ORDER FORWARDED TO:-