DDIT(IT) 3(2), V. M/s. Mashreq Bank PSC,

ITA 5799/MUM/2004

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9145 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 11-12-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 11-08-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI .. , ! '# $% , & !, ' BEFORE SHRI R.S.SYAL, AM AND SHRI AMIT SHUKLA, JM ./ ITA NOS.3556 & 5799/MUM/2004 ( &) * &) * &) * &) * / / / / ASST YEARS : 1998-1999 & 1999-2000) THE ASST.DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 3(1) MUMBAI. M/S.MASHREQ BANK PSC AIR INDIA BUILDING, NARIMAN POINT MUMBAI 400 021. PAN : AAACA4303M. ( +, / // / APPELLANT) ) ) ) ) / VS. ( -.+,/ RESPONDENT) +, / // / 0 0 0 0 / APPELLANT BY : SHRI MAHESH KUMAR -.+, / 0 / 0 / 0 / 0 / RESPONDENT BY : S/SHRI P.J.PARDIWALLA & MADHUR AGAR WAL ) / # / / / / DATE OF HEARING : 13.12.2012 12* / # / DATE OF PRONOUNCEMENT : 14.12.2012 !$ !$ !$ !$ / / / / O R D E R PER R.S.SYAL, AM : THESE TWO APPEALS BY THE REVENUE RELATE TO ASSESSME NT YEAR 1998-99 AND 1999-2000. SINCE SOME OF THE ISSUES RAI SED IN THESE APPEALS ARE COMMON, WE ARE, THEREFORE, PROCEEDING T O DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONV ENIENCE. ASSESSMENT YEAR 1998-99 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE DELETION OF ADDITION OF ` 53,29,772 IN RESPECT OF DEFERRED PAYMENT GUARANTEE COMMISSION. BRIEFLY STATED THE FACTS OF THE CASE AR E THAT THE ASSESSEE IS A FOREIGN BANK HAVING ITS HEAD OFFICE IN DUBAI. IT RECEIVED A SUM OF ITA NO.3556 &5799/MUM/2004 M/S.MASHREQ BANK PSC. 2 ` 53,59,772 AS GUARANTEE COMMISSION BUT THE SAME WAS NOT OFFERED FOR TAXATION BY CLAIMING IT AS UNEARNED INCOME. TH E ASSESSEE HOWEVER OFFERED GUARANTEE COMMISSION ON ACCRUAL BAS IS BASED ON THE GUARANTEE PERIOD FOR THE YEAR. THE ASSESSING OFFICE R HELD THAT THE GUARANTEE COMMISSION IS LIKE A FEE AND IS NOT CONTI NGENT UPON ANY FURTHER EVENT. IT WAS, THEREFORE, HELD THAT THE ENT IRE AMOUNT ACCRUED AT THE TIME OF ISSUANCE OF BANK GUARANTEE. RESULTANTLY , THE DEFERRED PAYMENT GUARANTEE COMMISSION OF ` 53.59 LAKH RECEIVED BY THE ASSESSEE AND CREDITED TO THE PROFIT AND LOSS ACCOUN T NOT OFFERED FOR TAXATION WAS INCLUDED IN THE TOTAL INCOME. 3. IT WAS ARGUED BEFORE THE LEARNED CIT(A) THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING THE PRACTICE OF OFFERING GUA RANTEE COMMISSION TO TAX RELEVANT TO THE PERIOD UNDER CONSIDERATION O N ACCRUAL BASIS. THE ASSESSEE ALSO EXPLAINED THAT THE BENEFICIARY MAY RE TURN THE ORIGINAL GUARANTEE BOND BEFORE THE EXPIRY DATE OF THE GUARAN TEE IN WHICH CASE THE BANK IS REQUIRED TO REFUND THE COMMISSION UP TO 50% FOR THE UNEXPLAINED PERIOD. THE LEARNED CIT(A) GOT CONVINCE D WITH THE ASSESSEES SUBMISSIONS AND OVERTURNED THE ASSESSMEN T ORDER ON THIS POINT. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE SPECI AL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT (INTERNATIONAL TAXATION) V. BANK OF BAHRAIN AND KUWAIT [(2010) 132 TTJ (MUM.) (SB) 505] HAS HELD THAT ITA NO.3556 &5799/MUM/2004 M/S.MASHREQ BANK PSC. 3 IF THE GUARANTEE COMMISSION IS REFUNDABLE ON THE RE VOCATION OF GUARANTEE, THEN IT CANNOT BE SAID THAT THE ABSOLUTE RIGHT TO THE COMMISSION HAS ACCRUED IN FAVOUR OF THE ASSESSEE AT THE TIME OF EXECUTION OF THE CONTRACT FOR FURNISHING THE GUARAN TEE AND THE COMMISSION IS TO BE SPREAD OVER THE PERIOD FOR WHIC H THE GUARANTEE IS GIVEN. IN ALL OTHER CASES IT IS TO BE TAXED IN WHIC H THE GUARANTEE HAS ACTUALLY BEEN GIVEN IRRESPECTIVE OF PERIOD FOR WHIC H IT WAS SPREAD. RESPECTFULLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF A.O. FOR DECIDING THE TAXABILITY OF DEFERRED PAYMENT GUARANTEE COMMISSION IN THE YEAR UNDER CONSIDERATION ON THE BASIS OF PRINCIPLE LAID DOWN BY THE SPECIAL BENCH IN THE AFORE-NOTED CASE. ASSESSMENT YEAR 1999-2000 5. FIRST GROUND OF THIS APPEAL IS AGAINST THE DIREC TION OF THE LEARNED CIT(A) TO ALLOW EXPENDITURE ON VRS AS REVENUE IN NA TURE. THE ASSESSING OFFICER DISALLOWED THE CLAIM MADE FOR COM PENSATION OF ` 2,09,88,340 ON ACCOUNT OF VOLUNTARY RETIREMENT SCHE ME PAID DURING THE YEAR TO EMPLOYEES AS PER THE APPROVED VRS AFTER ALLOWING DEDUCTION OF ` 12,34,607 AGAINST THE TOTAL CLAIM OF ` 2,22,22,947. THE LEARNED CIT(A) OVERTURNED THE ASSESSMENT ORDER ON T HIS POINT. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ISSUE RAISED IN THIS GROUND IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ GE, A COPY OF WHICH ITA NO.3556 &5799/MUM/2004 M/S.MASHREQ BANK PSC. 4 HAS BEEN PLACED BY THE LEARNED AR ON RECORD. THE LE ARNED DEPARTMENTAL REPRESENTATIVE WAS FAIR ENOUGH TO CONC EDE THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE BOMBAY HIGH C OURT AGAINST THE REVENUE IN THIS JUDGMENT. RESPECTFULLY FOLLOWI NG THE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. THIS GR OUND IS NOT ALLOWED. 7. SECOND GROUND IS AGAINST THE DIRECTION OF THE LE ARNED CIT(A) THAT NO DISALLOWANCE SHOULD BE MADE WHILE COMPUTING DISALLOWANCE U/S 14A OF THE ACT TO THE EXTENT OF INTEREST EXPEN SES / OTHER EXPENSES PERTAINING TO THE INVESTMENTS MADE OUT OF ITS OWN F UNDS. BRIEFLY STATED THE FACTS OF THIS GROUND ARE THAT THE ASSESS EE EARNED CERTAIN INCOME WHICH WAS EXEMPT U/S 10(33) OF THE ACT. THE ASSESSING OFFICER, INVOKING THE PROVISIONS OF SECTION 14A, CO MPUTED DISALLOWANCE ON ACCOUNT OF INTEREST COST AT ` 1,50,336. THE ASSESSEE FURNISHED DETAILS BEFORE THE LEARNED FIRST APPELLAT E AUTHORITY AND CONTENDED THAT THERE WERE SUFFICIENT INTEREST FREE FUNDS AVAILABLE AT THE ASSESSEES DISPOSAL FOR MAKING INVESTMENTS IN T HE SECURITIES FROM WHICH EXEMPT INCOME WAS EARNED. THE LEARNED CIT(A) DIRECTED THE ASSESSING OFFICER TO VERIFY THE FACTS FROM THE REC ORD AND NO DISALLOWANCE SHOULD BE MADE TO THE EXTENT OF INTERE ST EXPENSES / OTHER EXPENSES PERTAINING TO INVESTMENTS MADE OUT OF ITS OWN FUNDS. THE REVENUE IS AGGRIEVED AGAINST THIS DIRECTION. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE LEARN ED CIT(A) HAS NOT ITA NO.3556 &5799/MUM/2004 M/S.MASHREQ BANK PSC. 5 DECIDED THE ISSUE IN ASSESSEES FAVOUR AGAINST WHIC H THE REVENUE HAS COME UP IN APPEAL BEFORE US. HE HAS SIMPLY DIRECTED THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE INVESTMENTS WAS MADE IN SECURITIES OUT OF ITS OWN FUNDS OR OTHERWISE AND THEN COMPUTE THE DISALLOWANCE ACCORDINGLY. THE DIRECTION IS ONLY FOR MAKING NO D ISALLOWANCE TO THE EXTENT THE INTEREST PERTAINS TO INVESTMENTS MADE OU T OF ITS OWN FUNDS. IT IS BUT NATURAL THAT IF THE INVESTMENT IS MADE IN EXEMPT INCOME YIELDING SECURITIES / BONDS OUT OF THE ASSESSEES OWN CAPITAL, THEN THERE CAN BE NO QUESTION OF ANY DISALLOWANCE U/S 14 A TOWARDS INTEREST EXPENDITURE. FINDING NO FAULT WITH THE DIR ECTION OF THE LEARNED CIT(A) ON THIS ISSUE, WE DISMISS THIS GROUND OF APP EAL. 9. GROUND NO.3 IS AGAINST THE ALLOWING OF CLAIM OF ` 14,09,306 AS DEFERRED PAYMENT GUARANTEE COMMISSION NOT OFFERED B Y THE ASSESSEE FOR TAXATION. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THIS GROUND ARE MUTATIS MUTANDIS SIMILAR TO THOSE FOR THE SOLITARY GROUND RAISED FOR ASSESSMENT YEAR 1998 -99. WE HAVE DISPOSED OFF THE REVENUES APPEAL FOR ASSESSMENT YE AR 1998-99 ABOVE. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF A.O. FOR DECIDING THIS ISSUE ACCORDINGLY. 10. IN THE RESULT, THE APPEAL FOR ASSESSMENT YEAR 1 998-99 IS ALLOWED FOR STATISTICAL PURPOSES AND APPEAL FOR ASSESSMENT YEAR 1999-2000 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.3556 &5799/MUM/2004 M/S.MASHREQ BANK PSC. 6 ORDER PRONOUNCED ON THIS 14 TH DAY OF DECEMBER, 2012. !$ / 12* 3!)4 2 / 5 SD/- SD/- (AMIT SHUKLA) (R.S.SYAL) & ! & ! & ! & ! / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER MUMBAI ; 3!) DATED : 14 TH DECEMBER, 2012. DEVDAS* !$ / -&#'6 76*# !$ / -&#'6 76*# !$ / -&#'6 76*# !$ / -&#'6 76*#/ COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. 8 () / THE CIT(A)-XXXII, MUMBAI. 4. 8 / CIT 5. 6;5 -&#&) , , / DR, ITAT, MUMBAI 6. 5< = / GUARD FILE. !$) !$) !$) !$) / BY ORDER, .6# -&# //TRUE COPY// > > > >/ // /? @ ? @ ? @ ? @ ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI