M/s. STANDARD CHARTERED BANK, MUMBAI V. JT. CIT. SPL. Rg. 27, MUMBAI

ITA 7891/MUM/2004

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8423 (ITAT-MUMBAI)
• Duration Of Justice: 14 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Assessment Year: 1997-1998
• Appeal Filed On: 04-11-2004
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Double taxation relief; Opportunity of being heard; Earning of tax free income; Permanent establishment; Advance ruling; Revenue expenditure
• Section: 115JB; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER ITA NO. 7891 / MUM . /20 0 4 ( ASSESSMENT YEAR : 1997 98 ) STANDARD CHARTERED BANK TAXATION DEPARTMENT 23 25, M.B. ROAD, 3 RD FLOOR FORT, MUMBAI 400 001 PAN AABCS4681D . APPELLANT V/S JT. COMMISSIONER OF INCOME TAX SPECIAL RANGE 27, MUMBAI . RESPONDENT ITA NO. 9229 /MUM. /2004 ( ASSESSMENT YEAR : 1997 98 ) DY. DIRECTOR OF INCOME TAX (I.T) RANGE 2(1), MUMBAI . APPELLANT V/S STANDARD CHARTERED BANK 4 TH FLOOR, NEW EXCELSIOR BUILDING A.K. NAIK MARG, MUMBAI 400 001 PAN AABCS4681D . RESPONDENT ASSESSEE BY : SHRI P.J. PARDIWALA A/W SHRI MADHUR AGRAWAL REVENUE BY : SHRI MANOJ KUMAR DATE OF HEARING 1 4 . 01 .201 9 DATE OF ORDER 12.04.2019 2 STANDARD CHARTERED BANK O R D E R PER SAKTIJIT DEY. J.M. THESE CROSS APPEALS ARISE OUT OF THE ORDER DATED 27 TH SEPTEMBER 2004, PASSED BY THE LEARNED COMMISSIONER (APPEALS) XXXI, MUMBAI, PERTAINING TO THE ASSESSMENT YEAR 1997 98. ITA NO.7891/MUM./2004 ASSESSEES APPEAL 2 . SHRI P.J. PARDIWALA, LEARNED SR. COUNSEL, APPEARING FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE ISSUE S RAISED IN GROUNDS NO.1 AND 2, HAVE BECOME INFRUCTUOUS AS THE ASSESSEE HAS BEEN GRANTED CONSEQUENTIAL RELIEF IN ASSESSMENT YEAR 1999 2000 AND 2005 06 RESPECTIVELY. IN VIEW OF THE AFORESAID SUBMISSIONS OF THE LEARNED SR. COUNSEL FOR THE ASSE SSEE, GROUNDS NO.1 AND 2 ARE DISMISSED AS INFRUCTUOUS. 3 . IN GROUND NO.3, THE ASSESSEE HAS CHALLENGED THE COMPUTATION OF INCOME UNDER SECTION 115JA OF THE INCOME - TAX ACT, 1961 (FOR SHORT 'THE ACT' ). 4 . BRIEF FACTS ARE, THE ASSESSEE IS A FOREIGN COMPANY INCORP ORATED BY THE ROYAL CHARTER UNDER THE L AWS OF ENGLAND AND WALES. IT CARRIES ON BUSINESS OF BANKING, FINANCIAL SERVICE AND ALLIED ACTIVITIES. THE 3 STANDARD CHARTERED BANK ASSESSEE COMPANY OPENED B RANCH ES IN INDIA TO CARRY ON SUCH ACTIVITIES WITH THE PERMISSION OF RESERVE BANK OF IN DIA (RBI) UNDER THE BANKING REGULATIONS ACT, 1949. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE FILED ITS RETURN OF INCOME ON 28 TH NOVEMBER 1997, DECLARING TOTAL INCOME OF ` 2,54,830. IN THE COURSE OF ASSESSMENT PROCEEDING WHEN THE ASSESSING OFFICER PROPOSED TO COMPUTE ASSESSEES TAX LIABILITIES UNDER SECTION 115JA OF THE ACT, IT WAS CONTENDED BY TH E ASSESSEE THAT AS PER ARTICLE 7 OF INDIA U.K. DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) ONLY BUSINESS PROFIT DIREC TLY ATTRIBU TABLE TO THE INDIAN B RANCH ES CAN BE TAXED IN INDIA. THUS, IT WAS SUBMITTED , THE ASSESSEE HAS NO LIABILITY UNDER THE PROVISIONS OF SECTION115JA OF THE ACT. IT WAS SUBMITTED , THE PROVISIONS OF THE ACT WOULD APPLY TO THE ASSESSEE ONLY TO THE EXTENT THEY ARE B ENEFICIAL TO IT AS PROVIDED UNDER SECTION 90(2) OF THE ACT. IN THIS CONTEXT, THE ASSESSEE ALSO RELIED UPON CBDT CIRCULAR NO.333, DATED 12 TH APRIL 1982. THUS, IN SUM AND SUBSTANCE, IT WAS SUBMITTED BY THE ASSESSEE THAT WHEN THE INDIA U.K. TAX TREATY SPECIFI CALLY PROVIDES MODE OF COMPUTATION OF PROFIT, IT WILL OVERRIDE THE PROVISIONS OF SECTION 115JA OF THE ACT. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT UNDER THE ARTICLE 7 OF THE TAX TREATY NO SPECIFIC METHOD OF COM PUTATION FOR CALCULATION OF TAX HAS BEEN PROVIDED. HE OBSERVED , THE SAID ARTICLE ONLY PROVIDES FOR TAXABILITY OF BUSINESS PROFIT DIRECTLY 4 STANDARD CHARTERED BANK ATTRIBUTABLE TO BANK S B RANCHES IN INDIA. WHEREAS, WHAT SECTION 115JA OF THE ACT SEEKS TO TAX IS NOTHING BUT THE PROFI TS DERIVED BY THE ASSESSEE SHOWN IN THE PROFIT & LOS S ACCOUNT IN RESPECT OF INDIAN B RANCHES. THUS, ULTIMATELY, HE HELD THAT THE ASSESSEE IS LIABLE TO PAY TAX UNDER SECTION 115JA OF THE ACT AND COMPUTED THE TAX ACCOR DINGLY UNDER THE SAID PROVISION . THE ASSE SSEE CHALLENGED THE AFORESAID DECISION OF THE ASSESSING OFFICER BEFORE THE FIRST APPELLATE AUTHORITY. 5 . L EARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND MERIT IN THEM. RELYING UPON A DECISION OF THE AUTHORITY FOR ADVANCE RULING REPORTED IN 234 ITR 335, HE HELD THAT THE PROVISIONS OF SECTION 115JA OF THE ACT WOULD APPLY TO A NON RESIDENT COMPANY. ACCORDINGLY, HE UPHELD THE DECISION OF THE ASSESSING OFFICER INSOFAR AS APPLICABILITY OF SECTION 115JA OF THE ACT IS CON CERNED. 6 . L EARNED SR. COUNSEL FOR THE ASSESSEE DRAWING OUR ATTENTION TO THE PROVISIONS CONTAINED UNDER SECTION 115JA OF THE ACT SUBMITTED , AS PER SUB SECTION (2) OF SECTION 115JA OF THE ACT, THE COMPANIES WHOSE PROFIT & LOSS ACCOUNT IS PREPARED IN ACCORDAN CE WITH THE PROVISIONS OF PART I & II OF SCHEDULE VI TO THE COMPANIES ACT, 1956, ARE AMENABLE TO THE PROVISIONS OF SECTION 115JA OF THE ACT. HE SUBMITTED , ASSESSEE HAS TO PREPARE ITS ACCOUNTS AS PER BANKING REGULATIONS ACT AND NOT AS 5 STANDARD CHARTERED BANK PER THE COMPANIES ACT. HE SUBMITTED , CLAUSE (E) TO EXPLANAT ION TO SECTION 115JA OF THE ACT FURTHER MAKES IT CLEAR TH AT THE PROVISION OF SECTION 115 JA OF THE ACT IS APPLICABLE ONLY TO DOMESTIC COMPANIES AS IT SPEAKS OF INCREASING THE INCOME BY THE AMOUNT OF DIVIDEND PAID OR PROP OSED. L EARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , SECTION 115JB OF THE ACT , WHICH IS PARI MATERIAL TO SECTION 115JA OF THE ACT , AN AMENDMENT WAS MADE BY FINANCE ACT, 2012, EFFECTIVE FROM 1 ST APRIL 2013, MAKING IT MANDATORY FOR ALL COMPANIES INCLUDING BANKING COMPANIES TO PREPARE THEIR PROFIT & LOSS ACCOUNT AS PER SCHEDULE VI OF THE COMPANIES ACT, 1956. HE SUBMITTED , THE SAID AMENDMENT WOULD BE APPLICABLE FORM ASSESS MENT YEAR 2012 13 ONWARDS. L EARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , NO SUCH CORRESPONDING AMENDMENT LIKE SECTION 115JB(2)(B) OF THE ACT WAS MADE TO THE PROVISIONS OF SECTION 115JA OF THE ACT. THUS, HE SUBMITTED , THE PROVISIONS OF SECTION 115JA OF THE ACT CANNOT BE APPLIED TO THE ASSESSEE. IN SU PPORT OF HIS CONTENTION, LEARNED SR. COUNSEL RELIED UPON THE FOLLOWING DECISIONS: I ) ICICI LOMBARD GENERAL INSURANCE CO. LTD. V/S ACIT, 54 SOT 538 (MUM.); II ) UCO BANK V/S DCIT, 156 ITD 146 (KOL.); III ) STATE BANK OF HYDERABAD V/S DCIT, 58 SOT 278 (HYD.) ; IV ) DCIT V/S ROYAL BANK OF SCOTLAND, 76 TAXMANN.COM 91 ; AND 6 STANDARD CHARTERED BANK V ) BANK OF TOKYO MITSUBISHI UFJ LTD. V/S ADIT, 49 TAXMANN.COM 441. 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , SINCE THE ASSESSEE HAS A PERMANENT ESTABLISHMENT (PE) IN INDIA, ITS ACCOUNTS HAVE TO B E MAINTAINED AS PER THE PROVISIONS OF THE ACT. I N THIS CONTEXT, HE STRONGLY RELIED UPON THE OBSERVATIONS OF LEARNED COMMISSIONER (APPEALS). 8 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE MAIN PLANK OF ASSESSEES ARGUMENT AGAINST APPLICABILITY OF SECTION 115JA OF THE ACT IS, ASSESSEE BEING A BANKING COMPANY MAINTAINING ITS ACCOUNTS UNDER THE BANKING REGUL ATIONS ACT, 1949, THE PROVISION CONTAINED UNDER SECTION 115JA OF THE ACT WILL NOT APPLY. UNDISPUTEDLY, THE ASSESSEE IS A BANKING COMPANY AND HAS OPENED I TS B RANCHES IN INDIA AFTER OBTAINING PERMISSION OF THE RBI. T HEREFORE, THE ASSESSEE IS GOVERNED UNDER THE BANKING REGULATIONS ACT, 194 9. SECTION 115JA OF THE ACT PROVIDES FOR COMPUTATION OF TOTAL INCOME CHARGEABLE TO TAX TO BE AN AMOUNT EQUAL TO 30% OF THE BOOK PROFIT IN CASE SUCH INCOME IS LESS THAN 30% OF THE BOOK PROFIT. HOWEVER, SUB SECTION (2) OF SECTION 115JA OF THE ACT MANDATES TH AT THE COMPANY FOR THE PURPOSE OF SECTION 115JA OF THE ACT HAS TO PREPARE ITS PROFIT & LOSS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II & III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. UNDISPUTEDLY, THE ASSESSEE BEING 7 STANDARD CHARTERED BANK GOVERNED UNDER THE BANKING RE GULATIONS ACT, 1949, IS NOT REQUIRED TO PREPARE ITS PROFIT & LOSS ACCOUNT UNDER THE PROVISIONS OF PART II & III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. THAT BEING THE CASE, THE PROVISIONS OF SECTION 115JA OF THE ACT ARE NOT APPLICABLE TO THE ASSESSEE. T HE TRIBUNAL, MUMBAI BENCH, IN KRUNG T HAI BANK (SUPRA) HAS HELD THAT THE PROVISIONS OF SECTION 115JB OF THE ACT , WHICH IS MORE OR LESS PARI MATERIA TO SECTION 115JA OF THE ACT , CAN ONLY CO ME INTO PLAY WHEN THE ASSESSEE IS REQUIRED TO PREPARE ITS PROFIT & LO SS ACCOUNT IN ACCORDANCE WITH THE PROVISIONS OF PART II & III OF SCHEDULE VI OF THE COMPANIES ACT, 1956. IT WAS OBSERVED BY THE BRANCH THAT THE STARTING POINT OF COMPUTATION OF MINIMUM ALTERNATE TAX (MAT) IS THE RESULT SHOWN BY SUCH PROFIT & LOSS ACCOUNT. SINCE , IN CASE OF BANKING COMPANY, THE PROVISIONS OF SCHEDUL E VI OF THE COMPANIES ACT, 1956 ARE NOT APPLICABLE, AS, THEY ARE REQUIRED TO PREPARE THEIR ACCOUNTS UNDER THE PROVISIONS OF BANKING REGULATIONS ACT, THE PROVISION OF SECTION 115JB WILL NOT BE APPL ICABLE. THE OTHER DECISIONS CITED BY THE LEARNED SR. COUNSEL FOR THE ASSESSEE ALSO SUPPORT THIS VIEW. FURTHER, THE TRIBUNAL, MUMBAI BENCH, IN MSEB (SUPRA), HAS HELD THAT SINCE THE ASSESSEE IS NOT CONSTITUTED AS A COMPANY UNDER THE COMPANIES ACT, 1956, THE PROVISIONS OF SECTION 115JA OF THE ACT CANNOT BE APPLIED. WHILE DOING SO, THE BENCH FURTHER OBSERVED THAT SINCE THE ASSESSEE CORPORATION IS NOT REQUIRED TO DISTRIBUTE ANY DIVIDEND, IT CANNOT BE 8 STANDARD CHARTERED BANK CONSIDERED TO BE A COMPANY UNDER THE COMPANIES ACT, 1956. THE FACTS INVOLVED IN ASSESSEES CASE ARE MORE OR LESS IDENTICAL TO THE FACTS OF MSEB (SUPRA). IN VIEW OF THE AFORESAID, WE HOLD THAT THE PROVISIONS OF SECTION 115JA OF THE ACT ARE N OT APPLICABLE TO THE ASSESSEE. THIS G ROUND IS ALLOWED. 9 . IN ADDITION TO THE ORIGINAL GROUNDS RAISED IN THE MEMORANDUM OF APPEAL, THE ASSESSEE HAS RAISED FOLLOWING ADDITIONAL GROUNDS VIDE LETTER DATED 9 TH MAY 2011, SUBSEQUENT TO THE FILING OF THE PRESENT APPEAL BEFORE THE TRIBUNAL. 1. THE LEARNED JOINT COMMISSIONER OF INCOME - TAX, SPECIAL BENCH 27, MUMBAI (JCIT) ERRED IN RESTRICTING THE CLAIM OF HEAD OFFICE EXPENDITURE OF RS.28,87,23,772/ - TO RS. 5,91,00,313/ - BEING 5% OF THE 'ADJUSTED TOTAL INCOME' UNDER THE PROVISIONS OF SECTION 44C OF THE INCOME TAX ACT, 1961 (THE ACT) HAVING FAILED TO APPRECIATE THAT SECTION 44C HAS NO APPLICATION TO THE APPELLANT'S CASE. THE LEARNED JCIT OUGHT TO HAVE HELD THAT IN VIEW OF ARTICLE 26 OF THE DOUBLE TAX AVOIDANCE AGREEMENT BETWEEN INDIA AND THE UNITED KINGDOM ('THE DTAA'), SECTION 44C COULD NOT HAVE BEEN APPLIED IN COMPUTING THE APPELLANT'S INCOME FOR THE PURPOSES OF THE ACT. IT IS RESPECTFULLY SUBMITTED THAT THE IN VIEW OF EXPRESS PROVISIONS OF ARTICLE 26 OF THE DTAA, SECTION 44C WILL HAVE NO APPLICATION SINCE THE PROVISIO NS OF SECTION 44C ARE DISCRIMINATORY IN FAVOUR OF AN INDIAN ENTERPRISE VIS - - VIS PERMANENT ESTABLISHMENT OF A UK ENTERPRISE. IN THIS CONNECTION, RELIANCE IS PLACED ON THE MUMBAI TRIBUNAL'S DECISION IN METCHEM CANADA INC. V/S. DCIT [284 ITR (A.T.) 196]. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER AND/OR AMEND ONE OR MORE OF THE ABOVE GROUNDS OF APPEAL. 3. THE APPELLANT PRAYS FOR APPROPRIATE RELIEF. 9 STANDARD CHARTERED BANK 10 . IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD CLAIMED THAT AMOUNT OF ` 28,87,23,772, BEING EXPENDITURE INCURRED BY THE HEAD O FFICE IN THE NATURE OF GENERAL, ADMINISTRATIVE EXPENSES, IS ALLOWABLE AS DEDUCTION UNDER SECTION 44C OF THE ACT. IN SUPPORT OF SUCH CLAIM, THE ASSESSEE FURNISHED DOCUMENTARY EVIDENCE S PROVIDING DE TAILS OF ALLOCATION OF EXPENDITURE. HOWEVER, IT WAS SUBMITTED BY THE ASSESSEE THAT SINCE IT DID NOT HAD ANY POSITIVE INCOME, NO DEDUCTION HAS BEEN CLAIMED UNDER SECTION 44C OF THE ACT. HOWEVER, IT WAS SUBMITTED THAT IN CASE OF POSITIVE INCOME, DEDUCTION UN DER SECTION 44C OF THE ACT COULD BE GRANTED. THE ASSESSING OFFICER, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND VERIFYING THE EVIDENCES FURNISHED, ACCEPTED ASSESSEES CLAIM THAT DIRECT EXPENDITURE AS WELL AS EXPATRIATE SALARIES AND BONUS SHOULD B E CONSIDERED FOR DEDUCTION UNDER SECTION 44C OF THE ACT. ACCORDINGLY, OUT OF THE COMMON HEAD OFFICE EXPENSES OF ` 28,87,23,772, THE ASSESSING OFFICER ALLOWED DEDUCTION OF ` 5,91,00,313, UNDER SECTION 44C OF THE ACT . THIS DECISION OF THE ASSESSING OFFICER W AS ACCEPTED BY THE ASSESSEE. HOWEVER, BEFORE US, THE ASSESSEE HAS CONTESTED THE APPLICABILITY OF SECTION 44C OF THE ACT BY RAISING THE AFORESAID ADDITIONAL GROUND. 11 . L EARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , SINCE , THE ASSESSEE IS GOVERNED BY INDIA U .K. TAX TREATY, IT IS ELIGIBLE TO CLAIM 10 STANDARD CHARTERED BANK BENEFIT UNDER THE SAID TAX TREATY. HE SUBMITTED , AS PER ARTICLE 26 OF THE INDIA U.K. TAX TREATY, THE ASSESSEE CANNOT BE SUBJECTED TO THE RESTRICTION IMPOSED UNDER SECTION 44C OF THE ACT SINCE SUCH RESTRICTION IS NOT APPLICABLE TO AN INDIAN ENTERPRISES. HE SUBMITTED , NON DISCRIMINATION CLAUSE UNDER ARTICLE 26 OF INDIA U.K. TAX TREATY WILL BE APPLICABLE TO THE ASSESSEE, HENCE, THE HEAD OFFICE EXPENDITURE INCURRED CANNOT BE CURTAILED BY APPLYING PROVISIONS OF SECTION 44C OF THE ACT. IN SUPPORT OF SUCH CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) RAJEEV SURESHBHAI GAJWANI V/S ACIT, 129 ITD 145; II ) STANDARD CHARTERED BANK V/S IAC, 39 ITD 145; III ) METCHEM CANADA INC. V/S DCIT, 284 ITR (AT) 196; IV ) ROLLS ROYCE INDL. POWER LTD. V/S ACIT, 42 SOT 264; AND V ) DAIMLER CHRYSLER INDIA, 29 SOT 502. 12 . THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOSING ADMISSION OF THE ADDITIONAL GROUND SUBMITTED , ASSESSEE HAVING CLAIMED DEDUCTION UNDER SECTION 44C OF THE ACT AND HAVING NOT CONT ESTED THE ISSUE EITHER BEFORE THE ASSESSING OFFICER OR BEFORE THE LEARNED COMMISSIONER (APPEALS) , CANNOT RAISE THE ISSUE AT THIS LATE STAGE BEFORE THE TRIBUNAL , SINCE , THE ISSUE RAISED BY THE ASSESSEE REQUIRES INVESTIGATION INTO FRESH FACTS. WITHOUT PREJUD ICE TO THE AFORESAID, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THE PROVISIONS OF 11 STANDARD CHARTERED BANK SECTION 44C OF THE ACT BEING NON DISCRIMINATORY, ASSESSEES CLAIM OF BENEFIT UNDER ARTICLE 26 OF THE INDIA U.K. TAX TREATY IS NOT ACCEPTABLE. 13 . WE HAVE CONSIDERED RIV AL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. UN DISPUTEDLY, THE ASSESSEE ITSELF IN THE RETURN OF INCOME HAD CLAIMED DEDUCTION UNDER SECTION 44C OF THE ACT. ACCEPTING ASSESSEES CLAIM THE ASSESSING OFFICER HAS COMPUTED DEDUCTION OF HEAD OFFICE EXPENSES UND ER SECTION 44C OF THE ACT. FURTHER, THE COMPUTATION OF DEDUCTION UNDER SECTION 44C OF THE ACT WAS NOT CONTESTED BEFORE THE LEARNED COMMISSIONER (APPEALS). SUBSEQUENT TO FILING OF THE PRESENT APPEAL, THE ASSESSEE HAS RAISED THE ADDITIONAL GROUND CHALLENGING THE APPLICABILITY OF SECTION 44C OF THE ACT ON THE GROUND THAT IN VIEW OF ARTICLE 26 OF THE INDIA U.K. TAX TREATY, SECTION 44C OF THE ACT WILL NOT BE APPLICABLE TO THE ASSESSEE , SINCE , IT IS DISCRIMINATORY TO THE NON RESIDENT COMPANIES. IN SUPPORT OF SUCH CONTENTION, LEARNED SR. COUNSEL FOR THE ASSESSEE HAS RELIED UPON CERTAIN JUDICIAL PRECEDENTS. 14 . AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE VIEW THAT THE ISSUE RAISED IN THE ADDITIONAL GROUND, DOES NOT REQUIRE INVESTIGATION INTO FRESH FACT S AND CAN BE DECIDED ON THE BASIS OF FACTS AVAILABLE ON RECORD. THEREFORE, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE DESERVES TO BE ADMITTED KEEPING IN VIEW THE RATIO LAID DOWN 12 STANDARD CHARTERED BANK IN NATIONAL THERMAL POWER CORPORATION V/S CIT, 229 ITR 383 AND CIT V/S PRITHVI BRO KERS AND SHAREHOLDERS, 349 ITR 336. HOWEVER, SINCE THE ASSESSEE HAS NOT CONTESTED THE APPLICABILITY OF SECTION 44C OF THE ACT EITHER BEFORE THE ASSESSING OFFICER OR BEFORE LEARNED COMMISSIONER (APPEALS) AND HAS RAISED IT FOR THE FIRST TIME BEFORE US, IN OU R CONSIDERED OPINION, THE DEPARTMENT SHOULD BE GIVEN A FAIR OPPORTUNITY TO EXAMINE ASSESSEES CLAIM WITH REGARD TO APPLICABILITY OR OTHERWISE OF SECTION 44C OF THE ACT QUA ARTICLE 26 OF INDIA U.K. TAX TREATY. THEREFORE, WE CONSIDER IT FAIR AND REASONABLE T O RESTORE THE ISSUE TO THE ASSESSING OFFICER FOR EXAMINING ASSESSEES CLAIM WITH REGARD TO THE APPLICABILITY OF SECTION 44C OF THE ACT KEEPING IN VIEW THE RELEVANT PROVISIONS OF INDIA U.K. TAX TREATY AND THE JUDICIAL PRECEDENTS DEALING WITH THE ISSUE. NEED LESS TO MENTION, THE ASSESSING OFFICER MUST PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 15 . IN THE RESULT, APPEAL IS PARTLY ALLOWED. ITA NO.9229/MUM./2004 REVENUES APPEAL 16 . IN GROUND NO.1, THE DEPARTMENT HAS CHALLENGED THE DELETION OF DISALLOWANCE OF EXPENSES AMOUNTING TO ` 24,85,49,931. 13 STANDARD CHARTERED BANK 17 . BRIEF FACTS ARE, IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF EXPENDITURE INCURRED OUTSIDE INDIA AMOUNTED TO ` 24,8 5,49,931 COMPRISING OF SALARIES OF EXPATRIATE EMPLOYEES, DIRECT EXPENDITUR E ATTRIBUTABLE TO INDIAN B RANCH ES AND NRI EXPENSES. THE ASSESSING OFFICER AFTER EXAMINING THE NATURE OF EXPENSES HELD THAT THE AFORESAID EXPENDITURE CLAIMED BY THE ASSESSEE BEING PART OF HEAD OFFICE EXPENSES IS ELIGIBLE FOR DEDUCTION UNDER SECTION 44C OF THE ACT, H ENCE, CANNOT BE CLAIMED AS DEDUCTION SEPARATELY. BEING AGGRIEVED WITH THE AFORESAID DECISION OF THE ASSESSING OFFICER, ASSESSEE PREFERRED APPEAL BEF ORE THE FIRST APPELLATE AUTHORITY. 18 . LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACT S AND MATERIALS ON RECORD FOUND THAT IDENTICAL DISALLOWANCE MADE BY THE ASSESSING OFFICER IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 1994 95 TO 1996 97 WAS DELETED BY HIS PREDECESSOR IN OFFICE BY HOLDING THAT SUCH EXPENDITURES ARE INCURRED BY THE ASSESSEE EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE IN INDIA AND ARE NOT IN THE NATURE OF HEAD OFFICE EXPENSES CO VERED UNDER SECTION 44C OF THE ACT. FOLLOWING THE DECISION OF HIS PREDECESSOR IN OFFICE, LEARNED COMMISSIONER (APPEALS) DELETED THE DISALLOWANCE BY HOLDING THAT THE EXPENDITURE IS ALLOWABLE UNDER 14 STANDARD CHARTERED BANK SECTION 37(1) OF THE ACT WITHOUT IMPOSING RESTRICTIONS CONTA INED UNDER SECTION 44C OF THE ACT. 19 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIA L ON RECORD. L EARNED COUNSEL S APPEARING FOR THE PARTIES HAVE AGREED BEFORE US THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1994 95 AND 1995 96 WHILE DISPOSING OFF REVENUES APPEAL IN ITA NO.1683/MUM./2003, DATED 11 TH OCTOBER 2007 AND ITA NO.1769/ MUM./2003, DATED 18 TH NOVEMBER 2011 RESPECTIVELY. FOLLOWING THE CONSISTENT VIEW OF THE CO ORDINATE BENCH AS REFERRED TO ABOVE, WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THE ISSUE. GROUND IS DISMISSED. 20 . IN GROUND NO.2, THE REVENUE HAS CHAL LENGED DELETION OF ADDITION MADE OF ` 9,03,97,100, ON ACCOUNT OF BROKEN PERIOD INTEREST PAID ON PURCHASE OF SECURITIES. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 9,03,97,100, TOWARD S PAYMENT OF BROKEN PERIOD INTEREST ON SECURITIES CALLED FOR NECESSARY DETAILS AND AFTER REJECTING THE SUBMISSIONS OF THE ASSESSEE HELD THAT BROKEN PERIOD INTEREST BEING PART OF CAPITAL COST CANNOT BE ALLOWED AS REVENUE EXPENDITURE. WHILE DECIDING ASSESSEE S APPEAL ON THE ISSUE, LEARNED COMMISSIONER (APPEALS) ALLOWED ASSESSEES CLAIM HAVING FOUND THAT IDENTICAL ISSUE 15 STANDARD CHARTERED BANK WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL AND THE HON'BLE JURISDICTIONAL HIGH COURT. 21 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND P ER USED MATERIAL ON RECORD. L EA R NED COUNSELS APPEARING FOR THE PARTIES HAVE AGREED BEFORE US THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON'BLE JURISDICTIONAL HIGH COURT WHILE DECIDING THE REFERENCE APPLICATION FILED BY THE DEPARTMENT IN ASSESSMENT YEAR 1985 86 AND 1986 87 AS WELL AS BY THE TRIBUNAL IN SUBSEQUENT ASSESSMENT YEARS. 22 . HAVING CONSIDERED RIVAL SUBMISSIONS WE FIND THAT THE ALLOWABILITY OF BROKEN PERIOD INTEREST IS A RECURRING DISPUTE BETWEEN THE PARTIES SINCE LONG. THE HON'BLE JURISDICTIONAL HIGH COURT WHILE DECIDING INCOME TAX REFERENCE NO.87/1996, FOR THE ASSESSMENT YEAR 1985 86 AND 1986 87, VIDE ORDER DATED 16 TH JULY 2003, HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. SUBSEQUENTLY, THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM WHILE DECIDING APPEALS FOR THE ASSESSMENT YEAR S 1989 90 TO 1995 96 WHICH IS EVIDENT FROM THE APPEAL OR DERS PLACED IN THE LEGAL PAPER BOOK. FACTS BEING IDENTICAL, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT AND THE TRIBUNAL IN ASSESSEES OWN CASE IN PRECEDING ASSESSMENT YEAR S , WE UPHOLD THE DECISION OF LEARNED COMMISSIONER (A PPEALS ) BY DISMISSING THE GROUND RAISED. 16 STANDARD CHARTERED BANK 23 . IN GROUND NO.3, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF ` 6,78,011, ON ACCOUNT OF GUEST HOUSE EXPENSES. 24 . AT THE OUTSET, LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE HAS TO BE DECIDED AGAINST THE ASSESSEE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN BRITANNIA INDUSTRIES LTD. V/S CIT, 2 78 ITR 546 (SC). 25 . THE LEARNED DEPARTMENTAL REPRESENTATIVE AGREED WITH THE AFORESAID SUBMISSION OF LEARNED SR. COUNSEL. 26 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. IT IS OBSERVED , WHILE THE ASSESS ING OFFICER HAS DISALLOWED THE GUES T H OUSE EXP ENSES BY INVOKING THE PROVISION OF SECTION 37(4) OF THE ACT , LEARNED COMMISSIONER (APPEALS) HAS ALLOWED ASSESSEES CLAIM RELYING UPON HIS OWN DECISION FOR THE ASSESSMENT YEAR 1996 97. HOWEVER, AS AGREED BEFORE US BY LEARNED COUNSELS APPEARING FO R THE RIVAL PARTIES, THE ISSUE HAS NOW BEEN SETTLED BY VIRTUE OF THE DECISION OF THE HON'BLE SUPREME COURT IN CASE OF BRITANNIA INDUSTRIES LTD. (SUPRA), WHEREIN IT IS HELD THAT IN VIEW OF THE PROVISIONS OF SECTION 37(4) OF THE ACT SUCH EXPENDITURE IS NOT A LLOWABLE. IN VIEW OF THE AFORESAID, WE REVERSE THE DECISION OF LEARNED COMMISSIONER (APPEALS) ON THE ISSUE AND RESTORE THE ADDITION MADE BY THE ASSESSING OFFICER. 17 STANDARD CHARTERED BANK 27 . IN GROUND NO.4, THE REVENUE HAS CHALLENGED THE DISALLOWANCE OF INTEREST EXPENDITURE ATTRIBUTA BLE TO EARNING OF EXEMPT INCOME. DU RING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED INTEREST INCOME OF ` 4,43,41,446, RECEIVED ON TAX FREE BONDS AS EXEMPT UNDER SECTION 10(15)(IV) OF THE ACT. HE FURTHER FOUND THAT THE ASSESSEE HAS PAID INTEREST AMOUNTING TO ` 352.98 CRORE. WHEREAS, THE TOTAL INTEREST INCOME EARNED BY THE ASSESSEE AMOUNTED TO ` 548.61 CRORE. THEREFORE, HE DISALLOWED A PART OF EXEMPTION CLAIMED ON THE INTEREST INCOME . BEING AGGRIEVED OF SUCH DISALLOW ANCE, ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 28 . L EARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASS ESSEE HAVING FOUND THAT THERE IS NO NEXUS BETWEEN THE INTEREST BEARING FUNDS AND THE INVESTMENT MADE IN TAX FR EE BONDS AND FURTHER , THE ASSESSEE HAD SUFFICIENT OWN FUND TO FINANCE INVESTMENT IN TAX FREE BONDS , DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE. 29 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. AS COULD BE SEEN, LEARNED COMMISSIONER (APPEALS) HAS RECORDED A CATEGORICAL FACTUAL FINDING THAT THE INTEREST BEARING FUNDS HAVE NO NEXUS WITH THE INVESTMENT MADE IN TAX FREE BONDS. FURTHER, 18 STANDARD CHARTERED BANK HE HAS ALSO RE CORDED A FINDING OF FACT THAT THE ASSESSEE HAD SUFFICIENT OWN FUND TO MAKE INVESTMENT IN TAX FREE BONDS. THE AFORESAID FACTUAL FINDING OF THE FIRST APPELLATE AUTHORITY HA S NOT BEEN CONTROVERTED BY THE REVENUE THROUGH ANY SUBSTANTIVE EVIDENCE BROUGHT ON REC ORD. THAT BEING THE CASE, WE DO NOT FIND ANY VALID GROUND TO INTERFERE WITH THE DECISION OF LEARNED COMMISS IONER (APPEALS) ON THE ISSUE THE ISSUE. ACCORDINGLY, THE GROUND RAISED IS DISMISSED . 30 . IN THE RESULT, APPEAL IS PARTLY ALLOWED. 31 . TO SUM UP, BOTH THE AP PEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI