DBS BANK LTD, MUMBAI V. DDIT (IT) RG 1(2), MUMBAI

ITA 8671/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8083 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 05-12-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 13-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Double taxation relief; Rule of consistency
• Section: 37

Judgement Text

ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH L, MU MBAI BEFORE SHRI D.KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.8671/MUM/2010 FOR (ASSESSMENT YEAR: 2005-06) DBS BANK LIMITED, 3 RD FLOOR, FORT HOUSE, 221, DR. D.N. ROAD, FORT, MUMBAI- 400001 PAN: AAACT4652J VS. THE DEPUTY COMMISSIONER OF INCOME TAX -(INTERNATIONAL TAXATION), RANGE -1(2), 1 ST FLOOR SCINDIA HOUSE, N.M. MARG , BALLARD ESTATE, MUMBAI -400038 (APPELLANT) (RESPONDENT) ITA NO.434/MUM/2011 FOR (ASSESSMENT YEAR: 2005-06) C.O. NO. 250/M/2012 IN ITA NO. 434/M/2011AY 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX -(INTERNATIONAL TAXATION), RANGE - 1(2), 1 ST FLOOR SCINDIA HOUSE, N.M. MARG , BALLARD ESTATE, MUMBAI -400038 VS. DBS BANK LIMITED, 3 RD FLOOR, FORT HOUSE, 221, DR. D.N. ROAD, FORT, MUMBAI- 400001 PAN: AAACT4652J (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. PERCY J. PA RDIWALLA SR. ADVOCATE ALONG WITH SH. MADHUR AGGARWAL ADVOCATE REVENUE BY : SH. JASBIR CHAUHAN (SR CIT- DR) DATE OF HEARING : 05.12.2016 DATE OF PRONOUNCEMENT : 03.03.2017 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER: ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 2 1. THESE TWO CROSS APPEALS AND CROSS OBJECTION ARE DIR ECTED AGAINST THE ORDER OF COMMISSIONER (APPEALS)-10, DATED 05.10.2010 FOR ASS ESSMENT YEAR 1994-95. BOTH THE APPEALS AND CROSS OBJECTION ARE ARISING OF THE SAME ORDER THUS CLUBBED TOGETHER, HEARD AND ARE DECIDED BY COMMON ORDER TO AVOID THE CONFLICTING DECISION. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: (1) THE COMMISSIONER (APPEALS) ERRED IN UPHOLDING THE D ISALLOWANCE OF RS.1,87,79,288/- BEING INTEREST PAID TO HEAD OFFIC E/OVERSEAS BRANCHES. (2) THE COMMISSIONER (APPEALS) ERRED IN UPHOLDING THE D ISALLOWANCE OF RS.28,503/- BEING INTEREST PAID TO NOSTRO ACCOUNTS . (3) THE COMMISSIONER (APPEALS) ERRED IN UPHOLDING THE A MOUNT OF RS.79,47,690/- CLAIMED FOR PROVISION OF STANDARD ASSET WRITTEN BA CK. (4) THE COMMISSIONER (APPEALS) ERRED IN UPHOLDING THE 1/5 TH OF FEE PAID FOR CORPORATE CLUB MEMBERSHIP. (5) THE COMMISSIONER (APPEALS) ERRED IN UPHOLDING OF TA XING THE CAPITAL GAIN OF RS.10,69,688/-PERTAINING TO DBS FII OPERATIONS IN I NDIA AS BUSINESS INCOME IN THE HAND OF APPELLANT. (6) (A) IN ALTERNATIVE, THE ASSESSEE RAISED PLEA THAT I N THE EVENT OF LOSS OF RS. 6,74,26,015/- FOR AY 2005-06 IS DISALLOWED, THE SAM E MAY BE REDUCED WHILE COMPUTING THE TOTAL INCOME FOR THE ASSESSMENT YEAR 2006-07, BEING THE YEAR OF REVERSAL. (B) FURTHER IN ALTERNATIVE, THE ASSESSEE TASTEFULLY THAT IN THE EVENT OF LOSS OF RS. 9 519 9815/-BEING LOSS ON REVALUATION OF UNMATURED FOREIGN FOREX EXCHANGE CONTRACT AS ON 31 ST OF MARCH 2004 PERTAINING TO THE ASSESSMENT YEAR 20 04-05 IS DISALLOWED, THE SAME MAY BE REDUCED WHILE COMPUT ING THE TOTAL INCOME FOR THE ASSESSMENT YEAR 2005-06, BEING THE YEAR OF REVE RSAL . IN CROSS APPEAL THE REVENUE HAS RAISED FOLLOWIN G GROUNDS OF APPEAL: (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, WHETHER THE LD COMMISSIONER (APPEALS) WAS JUSTIFIED IN HOLDING THA T THE CLAIM OF LOSS ON REVALUATION OF UNMATURED FORWARD EXCHANGE CONTRACT IS AN ALLOWABLE DEDUCTION WITHOUT APPRECIATING THAT SUCH LOSS IS A NOTIONAL IN NATURE AND WITHOUT APPRECIATING THAT FORWARD EXCHANGE CONTRACT S CANNOT BE CONSTRUED AS STOCK IN TRADE. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, WHETHER THE LD COMMISSIONER (APPEALS) WAS JUSTIFIED IN APPLYING TH E DECISION IN THE CASE OF CIT VERSUS WOODWARD GOVERNOR (P) LIMITED TO THE FAC TS OF THE CASE. THE APPELLANT PRAYS AND SUBMIT THAT THE DECISION IN THE CASE OF CIT VERSUS WOODWARD GOVERNOR INDIA PRIVATE LIMITED (2009) 223 CTR 001SC WAS RENDERED IN THE FACTUAL CONTEXT WHERE LIABILITY FOR EXPENDITURE WAS ALREADY INCURRED BUT THE QUANTUM WAS CONTINGENT AND DEPENDE NT ON THE FLUCTUATION OF RATE OF EXCHANGE. THE ISSUE WHICH ACCORDINGLY AROSE WAS WHETHER SUCH VARYING AMOUNTS WOULD QUALIFY FOR DEDUCTION AS EXP ENDITURE UNDER SECTION 37 OF THE INCOME TAX ACT. THIS IS DISTINGUISHABLE F ROM THE PRESENT CASE WHERE THE LOSS WAS NOTIONAL IN NATURE, AS THERE WAS NO AC CRUAL. ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 3 (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW WHETHER LEARNED COMMISSIONER (APPEALS) WAS JUSTIFIED IN HOLDING THA T THE ASSESSING OFFICER HAS WRONGLY APPLIED THE PROVISION OF SECTION 44C I N ALLOWING HEAD OFFICE EXPENSES OF RS. 68,81,733/- IN CROSS OBJECTION THE ASSESSEE BANK HAS RAISED FOL LOWING GROUNDS OF APPEAL: (1) THE COMMISSIONER (APPEALS) OUGHT TO HAVE DIRECTED T HE ASSESSING OFFICER TO GRANT REFUND OF TAX DEDUCTED AT SOURCE ON THE INTER EST PAID TO HEAD OFFICE/OVERSEAS BRANCHES. (2) THE COMMISSIONER (APPEALS) OUGHT TO HAVE HELD THAT INTEREST OF RS.14,22,021/- RECEIVED BY THE INDIAN BRANCH FROM H EAD OFFICE SHOULD BE EXCLUDED WHILE COMPUTING TAXABLE INCOME OF THE BRAN CH IN INDIA . 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A NON- RESIDENT BANKING COMPANY IN INDIA BEING A BRANCH OF DBS BANK LTD SINGAPORE. THE ASSESSEE FILED RETURN OF INCOME FOR RELEVANT ASSESSMENT YEAR ON 31 ST OCTOBER 2005 DECLARING TOTAL LOSS OF RS. 28,58,789/-. THE ASSESSMENT WAS COMPLETED ON 23 DECEMBER 2008 UNDER SECTION 143(3). THE ASSESSING OFFICER WHILE FRAMING ASSESSMENT ORDER BESIDES THE OTHER ADDITION AND DISALLOWANCE, DISALLOWED INTERES T EXPENSES OF RS.1,87,79,288/- ON ACCOUNT OF HEAD OFFICE/OVERSEA S BRANCH, DISALLOWED INTEREST EXPENSES OF RS. 28,503/-ON ACCOUNT OF NOSTRO ACCOUN TS, DISALLOWED NOTIONAL LOSS OF RS. 6,74,26,015/- ON REVALUATION OF UNMATUR ED OUTSTANDING FORWARD FOREIGN EXCHANGE CONTRACTS, DISALLOWED THE HEAD OFF ICE EXPENSES OF RS.68,81,733/-, DISALLOWED DEDUCTION UNDER SECTION 44C ON HEAD OFFICE EXPENSES OF RS. 40,13,250/-, DISALLOWED RS. 7947690/- CLAIM FOR PROVISION FOR STANDARD ASSET WRITTEN BACK , ALLOWED ONLY RS. 6 LAKH OUT OF 1/5 OF RS. 30 LAKHS FOR ENTRANCE FEES PAID FOR CORPORATE CLUB MEMBERSHIP, T AXED THE CAPITAL GAIN OF RS. 10,69,688 /- . ON APPEAL BEFORE COMMISSIONER (APPEA LS) THE CLAIM OF LOSS ON REVALUATION OF UNMATURED FORWARD EXCHANGE CONTRACT AND HEAD OFFICE EXPENSES OF RS.68,81,733/- WAS ALLOWED. RESTS OF THE DISALLOWAN CE WERE SUSTAINED. ACCORDINGLY, BOTH THE PARTIES FILED APPEAL AGAINST THE ORDER OF LD COMMISSIONER (APPEAL). THE ASSESSEE FILED APPEAL AGAINST THE SUS TAINING THE VARIOUS DISALLOWANCE IS CLAIMED UNDER VARIOUS GROUNDS OF AP PEAL. SIMILARLY, THE REVENUE HAS CHALLENGED THE DELETION OF HEAD OFFICE EXPENSES AND ALLOWING THE CLAIM OF LOSS ON REVALUATION OF UNMATURED FORWARD EXCHANGE C ONTRACT. THE ASSESSEE BANK ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 4 FURTHER FILED CROSS OBJECTION FOR APPROPRIATE DIREC TION TO THE ASSESSING OFFICER TO GRANT REFUND ON TAX DEDUCTED AT SOURCE ON THE INTER EST PAID TO HEAD OFFICE AND THAT INTEREST OF RS. 14,22,021/- RECEIVED BY INDIAN BRAN CH FROM HEAD OFFICE SHOULD BE EXCLUDED WHILE COMPUTING TAXABLE INCOME OF THE BRAN CH IN INDIA. 3. WE HAVE HEARD THE LD AR OF THE ASSESSEE AND THE LD DR FOR THE REVENUE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND N O.1 RELATES TO THE INTEREST DISALLOWANCE OF RS.1,87,79,288/- PAID TO HEAD OFFI CE/OVERSEAS BRANCHES. THE LEARNED AR OF THE ASSESSEE ARGUED THAT THIS GROUND IS COVERED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 IN ITA NO. 248/M/2007. THE LD AND AR FOR REVENUE NOT DISPUTED THE CONTENTION OF AR FOR ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND SEEN THAT SIMILAR DISALLOWANCE WAS MADE IN ASSESSMENT YEAR 2003-04 AN D THE ASSESSEE BANK FILED APPEAL BEFORE THE TRIBUNAL VIDE ORDER DATED 07.10.2 013IN ITA NO. 248/M/2007 PASSED THE FOLLOWING ORDER: 2.3 WE HAVE PERUSED THE RECORD AND CONSIDERE D THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DEDUCTION ON ACCOUNT OF INTERE ST PAID BY THE ASSESSEE, BEING AN INDIAN BRANCH TO THE HEAD OFFICE OF THE BANK. WE FIND THAT THE SAME ISSUE HAD BEEN CONSIDERED BY THE LARGER SPECIAL BENCH OF TRIB UNAL IN CASE OF SUMITOMO MITSUI BANKING CORPORATION VERSUS DCIT(136 ITD66) A ND THE SPECIAL BENCH IN THAT CASE HELD THAT UNDER THE DOMESTIC LAW THE INTE REST PAID BY THE INDIAN BRANCH TO THE HEAD OFFICE WAS NOT ALLOWABLE AS DEDU CTION AS THIS WAS PAYMENT TO SELF. FURTHER IT WAS ALSO HELD THAT THE INTEREST PA YMENT WAS ALLOWABLE AS DEDUCTION WHILE DETERMINING THE PROFIT ATTRIBUTABLE TO THE PE BEING THE INDIAN BRANCH UNDER THE PROVISIONS OF ARTICLE 7(2) AND 7(3 ) OF INDO JAPANESE TREATY READ WITH PARAGRAPH 8 OF THE PROTOCOL. THE SPECIAL BENCH ALSO HELD THAT THE SAID INTEREST CANNOT BE TAXED IN THE HANDS OF THE ASSESS EE BANK IN INDIA UNDER THE DOMESTIC LAW AS IT WAS PAYMENT TO SELF. THERE WAS N O EXPRESS PROVISION IN THE RELEVANT TAX TREATY WHICH WAS CONTRARY TO THE DOMES TIC LAW. THEREFORE, INTEREST PAYMENT WAS NOT TAXABLE IN THE HANDS OF THE BANK AN D THUS THERE WAS NO QUESTION OF ANY TAX DEDUCTED AT SOURCE. THE ISSUE I S THUS COVERED IN FAVOUR OF THE ASSESSEE AND WE ACCORDINGLY SET ASIDE THE ORDER OF CIT(A) AND ALLOW THE CLAIM OF EXPENDITURE ON ACCOUNT OF INTEREST. 5. CONSIDERING THE DECISION OF COORDINATE BENCH IN ASS ESSEES OWN CASE WE FIND THAT THE GROUNDS OF APPEAL RAISED BY ASSESSEE IS FU LLY COVERED IN FAVOUR OF ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 5 ASSESSEE, THUS RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL THE GROUND NO,1 OF APPEAL IS ALLOWED. 6. GROUND NO. 2 RELATES TO DISALLOWANCE OF RS.28,503/- INTEREST PAID TO NOSTRO ACCOUNTS. THE LD AR OF THE ASSESSEE ARGUED THAT THA T DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION ASSESSEE HAVE PAID INTEREST ON NOSTRO ACCOUNT OVERDRAWN. THE INTEREST HAS BEEN DIRECTLY DEBITED FROM THE OVERSEAS BANK I.E. BANK OF NEW YORK USA AND IT PER TAINS TO THE BRANCH IN INDIA. THE LD AR EXPLAINED THAT NOSTRO ACCOUNT IS A N ACCOUNT MAINTAINED BY AN INDIAN BANK INCLUDING FOREIGN BANKS BRANCH IN IN DIA, WHICH IS DENOMINATED IN FOREIGN CURRENCY. THE INDIAN BANK CHARGED INTERE ST IF THE NOSTRO ACCOUNT HAS OVERDRAWN BALANCES. INTEREST PAID BY THE ASSESS EE ON OVERDRAWN ON NOSTRO ACCOUNT ARE ON THE BANKS ACCOUNT MAINTAINED WITH FOREIGN BANKS AND NOT WITH NOSTRO ACCOUNT MAINTAINED WITH THE HEAD O FFICE/OVERSEAS BRANCHES OF THE ASSESSEE. THUS, CONSIDERATION BY COMMISSIONE R (APPEALS) BY PLACING RELIANCE ON THE BASIS OF GROUND NO. 1 IS FACTUALLY INCORRECT. IN ALTERNATIVE IT WAS ARGUED THAT IF THE DEDUCTION ON ACCOUNT OF INTEREST PAID TO HEAD OFFICE IS ALLOWABLE THEN THE DEDUCTION ON NOSTRO ACCOUNT IS A LSO ALLOWABLE DEDUCTION. ON THE OTHER HAND THE LD DR FOR THE REVENUE SUPPORT ED THE ORDER OF AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFICER DISALLOWED THE INTEREST PAID TO NOSTRO ACCOUNT HOLDING THAT INTEREST PAID CAN BE CL AIM ONLY BY THE HEAD OFFICE OF THE BANK. THE LD CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER HOLDING THAT INTEREST PAID ON NOSTRO ACCOUNT OVERDRAWN IS A PAYMENT BY THE ASSESSEE BANK TO OVERSEAS BRANCH, ACCORDINGLY, DECIDED IN AC CORDANCE WITH DISALLOWANCE OF CLAIM OF DEDUCTION OF INTEREST PAID TO HEAD OFFI CE. IN OUR VIEW THE DISALLOWANCE OF INTEREST PAID ON ACCOUNT OF NOSTRO NOT SUSTAINABLE, THE ASSESSEE BANK HAS TO MAINTAIN AN ACCOUNT ABROAD, TH IS IS TO BE DENOMINATED IN FOREIGN CURRENCY. THE BANK CHARGED WITH INTEREST I F THE NOSTRO ACCOUNT HAS OVERDRAWN BALANCES. THUS, WE ARE FULLY CONVINCED WI TH THE SUBMISSION OF LD AR ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 6 OF THE ASSESSEE THAT THE INTEREST ON NOSTRO ACCOUNT OVERDRAW MAINTAINED WITH FOREIGN BANK I.E. BANK OF NEW YORK U.S.A. IS PERTAI NS TO BRANCH IN INDIA. THE ALTERNATIVE PLEA OF THE LD AR FOR THE ASSESSEE IS A LSO ACCEPTABLE ONE AS DEDUCTION HAS TO BE ALLOWED IN VIEW OF THE GROUND NO.1 ALLOWE D IN FAVOUR OF ASSESSEE. HENCE, THE GROUND NO. 2 RAISED BY ASSESSEE IS ALL OWED. 8. GROUND NO. 3 RELATES TO DISALLOWANCE OF PROVISION F OR STANDARD ASSET WRITTEN BACK OF RS. 79,47,690/- THE LD AR OF THE ASSESSEE ARGUED THAT THE ASSESSEE HAVE BEEN FOLLOWING THE CONSISTENT POLICY OF OFFERING TO TAX THE PROVISIONS MADE FOR STANDARD ASSETS IN ALL YEARS AND, CONSEQUENTLY, EXC LUDED FROM INCOME SUCH PROVISION FOR STANDARD ASSET WRITTEN BACK. IT WAS F URTHER SUBMITTED THAT THE DETAILS OF PROVISION FOR STANDARD ASSET FOR ASSESSMENT YEAR 2002-03 TO 2005-06 WERE PROVIDED TO THE LOWER AUTHORITIES AND COPIES OF ALL THOSE EVIDENCES ARE PLACED ON RECORD. THE ASSESSEE WAS CONSISTENTLY OFFERING TO T AX THE PROVISIONS MADE FOR STANDARD ASSETS AND CLAIMING AS DEDUCTION THE PROVI SIONS RETURN BACK. THE PROVISIONS OF WRITTEN BACK DURING THE YEAR REPRESEN TS AMOUNTS WHICH WERE DISALLOWED IN EARLIER ASSESSMENT YEAR AND THEREFORE SHOULD BE ALLOWABLE IN THE YEAR OF WRITTEN BACK. THE LD AR IN SUPPORT OF SUBM ISSION RELIED UPON THE DECISION OF DELHI HIGH COURT IN CASE OF STEEL AND G ENERAL MILLS CO LTD(96 ITR 438) AND MADHYA PRADESH HIGH COURT IN CASE OF NATHA BHAI DESABHAI (130 ITR 238). ON THE OTHER HAND THE LEARNED DR FOR THE REVE NUE SUPPORTED THE ORDER OF AUTHORITIES BELOW. 9. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND FURTHER GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFI CER DISALLOWED THE PROVISIONS FOR STANDARD ASSET WRITTEN BACK HOLDING THAT ASSESS EE HAS FAILED TO FURNISH THE INFORMATION AS TO WHAT EXTENT SUCH INCOME HAD BEEN OFFERED IN THE EARLIER YEARS FOR WHICH WRITE BACK HAS BEEN CLAIMED. THE LEARNED COMMISSIONER (APPEALS) CONFIRMED THE DISALLOWANCE HOLDING THAT AO HAS NO A LTERNATIVE TO ADD BACK IN ABSENCE OF ANY DETAIL. WE HAVE SEEN THAT THE ASSES SEE BANK HAVE BEEN CONSISTENTLY OFFERING TO TAX THE PROVISIONS MADE FO R STANDARD ASSET AND CLAIMING AS DEDUCTION THE PROVISION WRITTEN BACK (AS SHOWN O N PAGE 50 TO 113 OF PB). THE ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 7 LD AR FOR THE ASSESSEE MADE THE SUBMISSION THAT PRO VISION WRITTEN BACK DURING THE YEAR REPRESENTS AMOUNTS WHICH WERE DISALLOWED I N EARLIER YEARS AND THEREFORE SHOULD BE ALLOWED IN THE YEAR OF WRITTEN BACK. IN O UR VIEW THE CONTENTION RAISED BY THE ASSESSEE REQUIRE CONSIDERATION BY ASSESSING OFFICER, THEREFORE, THIS GROUND OF APPEAL IS REMANDED TO THE ASSESSING OFFICER TO APPRECIATE AND CONSIDER THE ABOVE FACT AND PASS THE ORDER AFRESH IN ACCORDANCE WITH LAW. IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE . 10. GROUND NO. 4 RELATES TO ENTRANCE FEES PAID FOR CORP ORATE CLUB MEMBERSHIP. THE LD AR OF THE ASSESSEE ARGUED THAT THIS GROUND OF AP PEAL IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF ALL BUILT SUPREME COURT IN CASE OF UNITED GLASS MGF COMPANY AND IN TAPARIA TOOLS LTD(2015) 231 TAXMAN 5 (SC). PER CONTRA THE LANDED AR FOR THE REVENUE IS DEFENDED THE ORDER OF AUTHORITIES BELOW. 11. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND FIND THAT THE GROUND OF APPEAL UNDER CONSIDERATION IS SQUARELY COVERED B Y THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS UNITED GLASS MGF LT D IN SLP (C) NO. 30146 OF 2008 DATED 12 SEPTEMBER 2012 WHEREIN IT WAS HELD THAT CLUB MEMBERSHIP FEES FOR EMPLOYEES INCURRED BY THE ASSESSEE IS BUSI NESS EXPENSES UNDER SECTION 37 OF THE INCOME TAX ACT. THUS, RESPECTFULLY FOLLOW ING THE DECISION OF HONBLE SUPREME COURT THIS GROUND OF APPEAL IS ALLOWED IN F AVOUR OF ASSESSEE. 12. GROUND NO.5 RELATES TO TAXABILITY OF CAPITAL GAIN O F RS. 10,69,688/- PERTAINING TO DBS FII OPERATION IN INDIA AS BUSINESS INCOME. THE LEARNED AND AR OF THE ASSESSEE ARGUED THAT DBS IS SEPARATELY REGISTERED W ITH SECURITY AND EXCHANGE BOARD OF INDIA (SEBI) AS A FOREIGN INSTITUTIONAL IN VESTORS (FII) VIDE REGISTRATION NO (IN-SG-FD -0940-04). DBS INVESTMENT INTO INDIAN SECURITIES UNDER ITS FII REGISTRATION ARE UNDERTAKEN DIRECTLY FROM SINGAPORE OFFICE AND ARE ENTIRELY DEPENDENT ON THE OPERATION OF DBS BRANCH IN INDIA . THE INCOME EARNED BY DBS IN THE CAPACITY OF AN FII DO NOT FORM PART OF B USINESS PROPERTY OF ITS BRANCH IN INDIA, THUS, THE INCOME AND BY DBS IN THE CAPACI TY OF AN FII IS NOT DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THE BRANCH IN INDIA AS P ER THE PROVISIONS OF INDIA- SINGAPORE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA ) CAPITAL GAINS ON FII ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 8 INVESTMENT IS NOT CHARGEABLE TO TAX IN INDIA. THE L D AR OF THE ASSESSEE FURTHER SUBMITTED THAT ACTIVITIES OF THE INDIAN PERMANENT E STABLISHMENT (PE) ARE INDEPENDENT OF THE ACTIVITIES OF FII. HENCE, IT IS ERRONEOUS TO CONCLUDE THAT BECAUSE OF THE INDIAN BRANCH IS ALSO HOLDING INVEST MENTS AND IS SHOWING BUSINESS INCOME, GAIN ON INVESTMENT MADE BY FII WOULD ALSO B E TAXABLE IN THE HANDS OF INDIAN BRANCH AS BUSINESS INCOME. IN SUPPORT OF T HE SUBMISSION THE LD AR OF THE ASSESSEE RELIED UPON THE REGISTRATION CERTIFICA TE OBTAINED BY FII AND ARTICLE 13 OF INDIA-SINGAPORE DTAA. IT WAS ALSO ARGUED THAT AS PER SEBI REGULATIONS 1995, FIIS CAN ONLY MAKE INVESTMENT IN INDIAN SECUR ITIES AND SO CANNOT AND BUSINESS INCOME. THE RBI GUIDELINES ALSO PROVIDE TH AT A FII SHOULD USE THEIR FUNDS FOR PURPOSE AS ENUMERATED IN THE SEBI REGULAT IONS. THE LD AR OF THE ASSESSEE FINALLY SUBMITS THAT THE DRP VIDE ORDER DA TED 16 SEPTEMBER 2010 FOR ASSESSMENT YEAR 2006-07 AND THE ASSESSING OFFICER V IDE ORDERS DATED 14 TH FEB 2011 FOR ASSESSMENT YEAR 2007-08 DATED 2 ND FEB 2012 FOR ASSESSMENT YEAR 2008- 09 DATED 26 MARCH 2014 FOR THE ASSESSMENT YEAR 2010 -11 DATED 18 TH MARCH 2016 FOR ASSESSMENT YEAR 2012-13, IN ASSESSEES OWN CAS E HAVE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AND HELD THAT CAPITAL GAINS ARISING ON THE SALES OF SECURITIES BY DBS FII IS NOT TAXABLE IN INDIA AS PE R ARTICLE 13 OF DTAA. ON THE OTHER HAND THE LD DR FOR THE ASSESSEE HONESTLY SUPP ORTED THE ORDER OF AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES. FURTHER, WE HAVE CONSIDERED THE CONTENTION OF LD AR OF THE ASSESSEE THAT DRP VIDE ORDER DATED 16 SEPTEMBER 2010 HELD THAT CAPITAL GAIN ARISING ON TH E SALE OF SECURITIES BY DBS FII IS NOT TAXABLE IN INDIA AS PER ARTICLE 13 INDIA -SINGAPORE DTAA. FURTHER, THE REVENUE HAS NOT TAX THE CAPITAL GAINS ON SALE OF SE CURITIES BY DBS FII FOR ASSESSMENT YEAR 2006-07 TO 2012-13. CONSIDERING, TH E FACTUAL POSITION NARRATED ABOVE, WE DIRECT THE ASSESSING OFFICER TO ALLOW THE SIMILAR RELIEF TO THE ASSESSEE AFTER VERIFICATION IF THE CAPITAL GAIN ON SALE OF S ECURITIES BY DBS FII IS NOT TAX FOR ASSESSMENT YEAR 2006-07 TO 2012-13. HENCE, THIS GROUND OF APPEAL IS ALLOWED IN FAVOUR OF ASSESSEE. ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 9 14. GROUND NO. 6 RELATES TO LOSS OF REVALUATION OF UNMA TURED FORWARD FOREIGN EXCHANGE CONTRACTS. THE REVENUE HAS ALSO RAISED GRO UND NO. 1 AND 2 IN ITS CROSS APPEAL. THUS, THE GROUND NO. 6 OF ASSESSEES APPEAL AND GROUND NO.1 & 2 RAISED BY REVENUE IN ITS CROSS APPEAL ARE TAKEN TOGETHER. THE LD AR OF THE ASSESSEE ARGUED THAT THESE GROUNDS OF APPEAL ARE COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF MUMBAI TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003- 04 IN ITA NO. 744/M/2007. THE LEARNED DR FOR THE RE VENUE RELIED UPON THE DECISION OF LOWER AUTHORITIES. 15. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES. WE HAVE SEEN THAT IN ASSESSMENT YEAR 2003-04, THE ASSESSING OFFICER NOT ALLOWED THE SIMILAR RELIEF TO THE ASSESSEE; HOWEVER ON APPEAL BEFORE COMMISSIONER (APPEALS) THE RELIEF WAS GRANTED. AGGRIEVED BY THE ORDER OF COMMISSIONER (AP PEALS) THE REVENUE FILED APPEAL BEFORE THE TRIBUNAL. IN APPEAL BEFORE TRIBUN AL THE ORDER OF COMMISSIONER (APPEALS) WAS SUSTAINED BY ORDER DATED 7 OCTOBER 20 13IN ITANO.248/M/2007. THE TRIBUNAL PASSED THE FOLLOWING ORDER: 4.2 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABI LITY OF LOSS ON ACCOUNT OF REVALUATION OF FOREIGN EXCHANGE CONTRACTS WHICH HAD NOT MATURED DURING THE YEAR ON THE BALANCE-SHEET DATE. THE AO H AD DISALLOWED THE LOSS AS CONTINGENT IN NATURE AS CONTRACT HAD NOT MA TURED AND ALSO HELD THAT IT WAS NOTIONAL. CIT(A ) HAS ALLOWED THE CLAIM FOLLOWING SOME DECISION OF TRIBUNAL. WE FIND THE ISSUE IS COVERED BY THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF CIT VERSUS WOODWAR D GOVERNOR INDIA PRIVATE LIMITED (312 ITR 224) IN WHICH IT HAS BEEN HELD THAT ADJUSTMENTS ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUAT ION CAN BE MADE ON EACH BALANCE-SHEET IN RESPECT OF ANY FORWARD FOREIG N EXCHANGE CONTRACT PENDING ACTUAL PAYMENT AND ANY LOSS ARISING THEREFR OM HAS TO BE ALLOWED AS AN ITEM OF EXPENDITURE UNDER SECTION 37( 1). WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN ALLOWING THE CLAIM OF LOSS OF THE ASSESSEE. THE ORDER OF CIT(A) IS, THEREFORE, UP HELD ON THIS ISSUE. 16. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2003-04 AND KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY THE GR OUND NO.6 OF ASSESSEES APPEAL IS ALLOWED AND THE GROUND NO.1&2 RAISED IN R EVENUES APPEAL IS DISMISSED. ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 10 17. GROUND NO. 3 IN REVENUES APPEALS RELATES TO APPLIC ABILITY OF PROVISIONS OF SECTION 44C IN ALLOWING HEAD OFFICE EXPENSES. THE LD DR FOR THE REVENUE SUPPORTED THE ORDER OF ASSESSING OFFICER AND ARGUED THAT LD CIT(A) WRONGLY ALLOWED THE RELIEF TO THE ASSESSEE. ON THE OTHER HA ND THE LD AR OF THE ASSESSEE ARGUED THAT ASSESSEE HAS SUBMITTED THE DETAILS OF E XPENSES AGGREGATING TO RS. 68,81,733/-, WHICH ARE AVAILABLE AT ANNEXURE-III OF TRANSFER PRICING REPORT, COPY OF WHICH IS PLACED ON RECORD. THE EXPENSES CON SISTING OF REIMBURSEMENT TO THE HEAD OFFICE/BRANCHES FOR SPECIFIC REVENUE EXPEN SES AND THE COST OF STAFF. THE LEARNED AR FOR THE ASSESSEE FURTHER SUBMITTED THAT THE EXPENSES ARE INCURRED SPECIFICALLY FOR THE PURPOSE OF BUSINESS OPERATION CARRIED OUT IN INDIA AND IN VIEW OF ARTICLE 7(3) OF TAX TREATY BETWEEN INDIA-SINGAPO RE; THESE EXPENSES ARE ALLOWABLE AS A DEDUCTION IN COMPUTING THE TOTAL INC OME. IN SUPPORT OF SUBMISSION THE LEARNED AR OF THE ASSESSEE RELIED ON THE DECISI ON OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 1999 -00 TO 2001-02 DA TED 20 APRIL 2011 AND ASSESSMENT YEAR 2002-03 DATED 17 MAY 2013. 18. WE HAVE CONSIDERED THE RIVAL CONTENTION OF THE PART IES AND FOUND THAT SIMILAR DISALLOWANCE IS WAS MADE BY ASSESSING OFFICER FOR A SSESSMENT YEAR 1999-00 TO 2002-03 AND THE MATTER TRAVEL UP TO TRIBUNAL AND TH E DISALLOWANCE WAS ALLOWED IN FAVOUR OF ASSESSEE VIDE ORDER DATED 20 APRIL 201 1 FOR ASSESSMENT YEAR 1999- 00 & 2001-02 AND VIDE ORDER DATED 17 MAY 2013 FOR A SSESSMENT YEAR 2002- 03.CONSIDERING THE CONTENTION OF THE LD AR FOR THE ASSESSEE THAT THE GROUND OF APPEAL IS COVERED BY THE DECISION OF COORDINATE BEN CH OF TRIBUNAL IN ASSESSEES AS REFERRED ABOVE. THE ORDER OF THE TRIBUNAL ARE SU BSEQUENT TO THE IMPUGNED ORDER DATED 05.10.2010. THE ASSESSING OFFICER AND T HE LD CIT(A) HAVE NOT BENEFIT OF THE FINDING OF THE TRIBUNAL. THUS, IN ALL FAIRNE SS THE ASSESSING OFFICER IS DIRECTED TO VERIFY THE FACT AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. NEEDLESS, TO ORDER THAT THE ASSESSING OFFICER SHALL GRANT THE OPPORTUNITY TO ASSESSEE BEFORE PASSING THE ORDER. THUS, THIS GROUND OF APPEAL IS A LLOWED FOR STATISTICAL PURPOSES. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY A LLOWED. CROSS OBJECTION NO.250/M/2012 BY ASSESSEE IN ITA NO .434/M/2011 ITA NO.8671/M/2010, ITA NO. 434/M/2011 CO NO.250/M/2012 D.B.S. BANK LTD. 11 19. THE LD AR FOR THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING THE GROUNDS OF APPEAL RAISED IN CROSS OBJECTION. THE LD DR HAS NO OBJECTION IF THE GROUNDS RAISED IN CO ARE DISMISSED. CONSIDERING THE CONTENT IONS OF BOTH THE PARTIES THE CROSS OBJECTIONS FILED BY THE ASSESSEE IN REVENUES APPEAL ARE DISMISSED. 20. IN THE RESULT THE APPEAL FILED BY ASSESSEE IS ALLOW ED, AND THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND THE CROSS OBJECTIONS OF THE ASSESSEE IS DISMISSED. ORDER ANNOUNCED IN THE OPEN COURT ON 03 DAY OF MARC H 2017. SD/- SD/- (D.KARUNAKARA RAO) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 03/03/2017 COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/