STATE BANK OF MAURITIUS LTD, MUMBAI V. ADDL DIT (IT) RG 2(1), MUMBAI

ITA 8943/MUM/2010

• Counselvise Citation: 894319914 RSA 2010
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 06-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 22-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDER KUMAR
• Assessee Lawyers: NIRAJ SHETH
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI , ! '# $## #% , & ! ' BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 8943 / / 2010, 2007-08 ITA NO. : 8943/MUM/2010 (ASSESSMENT YEAR: 2007-08) ------------------------------------------ STATE BANK OF MAURITIUS LTD., 101, RAHEJA CENTRE, FREE PRESS JOURNAL ROAD, NARIMAN POINT, MUMBAI -400 021 PAN: AABCS 4465 K VS ADIT(IT)-RANGE -2(1), SCINDIA HOUSE, BALLARD ESTATE, N.M. ROAD, MUMBAI -400 038 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NIRAJ SHETH RESPONDENT BY : SHRI NARENDER KUMAR /DATE OF HEARING : 06-08-2013 / DATE OF PRONOUNCEMENT : 14-08-2013 + O R D E R $## #% , : PER VIVEK VARMA, JM: INSTANT APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORD ER OF DISPUTE RESOLUTION PANEL U/S 144C(5) OF THE INCOME TAX ACT , WHEREIN THE FOLLOWING GROUNDS HAVE BEEN TAKEN: 1:0 RE.: DISALLOWANCE U/S 14A : 1:1 THE ASSESSING OFFICER/THE DISPUTE RESOLUTION PA NEL HAS ERRED IN DISALLOWING A SUM OF RS. 41,41,868/- U/S 14A. 1:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT NO D ISALLOWANCE U/S 14A OF THE INCOME-TAX ACT, 1961 IS CALLED FOR. 1:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R/THE DISPUTE RESOLUTION PANEL BE DIRECTED TO DELETE THE DISALLOW ANCE SO MADE BY HIM AND TO RECOMPTUE ITS TOTAL INCOME ACCORDINGLY. 2:0 RE.: DEDUCTION U/S 44C VIS--VIS HEAD OFFICE EX PENSES ATTRIBUTABLE TO INDIAN OPERATIONS : 2:1 THE ASSESSING OFFICER/THE DISPUTE RESOLUTION PA NEL HAS ERRED IN APPLYING THE PROVISIONS OF SECTION 44C OF THE INCOM E-TAX ACT, 1961 IN ALLOWING A DEDUCTION IN RESPECT OF HEAD OFFICE EXP ENDITURE. STATE BANK OF MAURITIUS LTD. ITA NO. 8943/MUM/2010 2 2:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND IN LAW PREVAILING ON THE SUBJECT IT IS ENTITLED TO A DEDUCTION OF A SUM OF RS. 62,37,174/- BEING THE HEAD OFFICE E XPENSES ATTRIBUTABLE TO ITS INDIAN OPERATIONS THE ASSESSING OFFICER/THE DISPUTE RESOLUTION PANEL OUGHT TO HAVE ALLOWED THE SAME. 2:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R/ THE DISPUTE RESOLUTION PANEL BE DIRECTED TO ALLOW THE DEDUCTION IN RESPECT OF THE HEAD OFFICE EXPENDITURE IN ACCORDANCE WITH ARTICLE 7 (3) OF THE DOUBLE TAX AVOIDANCE AGREEMENT ENTERED INTO AND SUBSISTING BETWEEN INDIA AND MAURITIUS. 2. AT THE TIME OF HEARING, THE AR SUBMITTED THAT BOTH THE ISSUES INVOLVED IN THE INSTANT APPEAL ARE COVERED BY THE DECISION OF THE ITAT IN THE ASSESSEES OWN CASE IN ITA NO. 5778/MUM/2011 FO R ASSESSMENT YEAR 2008-09. 3. GROUND NO. 1 AND ITS SUB-GROUNDS ARE WITH RESPECT O F DISALLOWANCE U/S 14A. 4. THE AR SUBMITTED THAT IN THE IMPUGNED ISSUE HAS BEEN IN DISPUTE SINCE ASSESSMENT YEAR 2003-04 (AS MENTIONED IN I TA NO. 5778/MUM/2011) AND THE ISSUE HAS BEEN RESTORED TO THE AO FOR READJUDICATION ON THE ISSUE OF DISALLOWANCE U/S 14A, AS THE ASSESSEE ONLY HAS SIT AND NO INVESTMENT AND WHATEVER EXEMPT INCOME HAS BEEN DERIVED, IS, ON ACCOUNT OF SIT. THE AR POINTED OUT THAT TH E BASIS ITSELF HAS NOT BEEN FINALLY ARRIVED BY THE AO. HE, THEREFORE, SUBMITTED THAT A S HELD IN ITA NO. 5778/MUM/2011, THE ISSUE TO BE RESTORED TO THE AO, AS IN PARA 5.9 OF THE ORDER, WHICH READS, WE NOTE THAT THE ASSESSING OFFICER HAS NOT GIVEN A CONCLUSIVE FINDING ABOUT THE USE OF BORROWED FUNDS BY THE ASSESSEE; BUT HAS EXPR ESSED THE DIFFICULTIES IN ACCEPTING THE CONTENTION OF THE ASSESSEE ON THIS PO INT. THEREFORE, ALL THESE ASPECTS REQUIRE A PROPER VERIFICATION AND EXAMINATI ON OF THE FACTS. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE RECORD OF THE ASSESSI NG OFFICER TO EXAMINE AND VERIFY THE NECESSARY RELEVANT RECORDS TO ASCERTAIN THE REAL NATURE OF THE TRANSACTIONS WHETHER THESE SECURITIES ARE ACQUIRED BY THE ASSESSEE AS INVESTMENT OR TOCK IN TRADE AND SECONDLY WHETHER TH E ASSESSEE HAS USED INTEREST BEARING FUNDS FOR ACQUIRING THESE BONDS AN D SHARES. IN ORDER TO FIND THE REAL NATURE OF THE TRANSACTION, IT IS NECESSARY TO CONSIDER THE FACT WHETHER THE ASSESSEE HAS OFFERED THE INCOME ARISING FROM SA LE/TRANSFER OF THESE SECURITIES AS BUSINESS INCOME OR CAPITAL GAIN AND W HETHER THE SAME WAS ACCEPTED BY THE ASSESSING OFFICER OR ANY OTHER TREA TMENT WAS GIVEN TO THE SAME. THE ASSESSING OFFICER IS DIRECTED TO CARRY OU T THE NECESSARY ENQUIRIES AND VERIFICATION AND THEN DECIDE THE ISSUE AS PER L AW. STATE BANK OF MAURITIUS LTD. ITA NO. 8943/MUM/2010 3 5. THE DR ACCEPTED THAT THE ISSUE HAS YET TO BE FINALIZE D AND SINCE THE SUBSEQUENT YEAR TOO HAS BEEN RESTORED, THE ISSUE BE RESTORED TO THE FILE OF THE AO. 6. AFTER HEARING THE PARTIES BEFORE US, WE ALSO THINK THAT IN THE INTEREST OF JUSTICE, THE AO MUST FIRST ARRIVE AT THE BASIC FACT, BEFORE COMPUTING THE DISALLOWANCE U/S 14A. SINCE THE ISSUE IN SUB SEQUENT YEAR, HAS BEEN RESTORED, IN OUR OPINION, THE ISSUE IN QUEST ION MUST BE RESTORED TO THE FILE OF THE AO TO GET A CONSISTENT FINDING AND ADJUDICATION. 7. WE, THEREFORE, SET ASIDE THE ORDER OF DRP/AO ON THIS IS SUE AND DIRECT THE AO, AS DONE IN PARA 5.9 OF ITA NO. 5778/MUM/20 11 IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09. 8. THE GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO. 2 PERTAINS TO ALLOWANCE OF EXPENSES AS PE R SECTION 44C. 10. THE AR POINTED OUT THAT THE ISSUE IN QUESTION IS DEA LT WITH BY THE ITAT IN ITA NO. 5778/MUM/2011 IN ASSESSEES OWN CA SE IN PARA 8, WHEREIN RELIANCE WAS PLACED ON THE DECISION OF THE ITAT IN ASSESSMENT YEAR 1999-2000 AND EXTRACT OF THE ORDER WAS REPRODUC ED. THE ITAT IN ITA NO. 5778/MUM/2011 CONCLUDED, 8.1 IT IS CLEAR FROM THE FINDING OF THE TRIBUNAL F OR THE ASSESSMENT YEAR 1999- 00 THAT BECAUSE OF THE LANGUAGE EMPLOYED IN ARTICLE 7(3), DEDUCTION OF EXPENSES INCURRED FOR THE PURPOSE OF BUSINESS OF TH E PE ARE ALLOWABLE AND THEREFORE, THE PROVISIONS OF SEC 44B ARE NOT AP PLICABLE. 8.2 AS OBSERVED BY THE TRIBUNAL IN PARA 4.12, RESTR ICTION PROVIDED ON THE DEDUCTION OF HO EXPENDITURE U/S 44C IS ALSO SUBJECT ED TO THE DEDUCTIBILITY OF THE EXPENDITURE AS PER ARTICLE 7(3 ) OF THE TREATY. THUS, WHEN THERE IS NO RESTRICTION CLAUSE IN THE TREATY T HEN THE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS OF THE PE HAS TO BE ALLOWED IN FULL. 8.3 FOLLOWING THE EARLIER YEARS ORDER OF THE TRIBUN AL IN ASSESSEES OWN CASE, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSE E AND AGAINST THE REVENUE. STATE BANK OF MAURITIUS LTD. ITA NO. 8943/MUM/2010 4 11. RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BEN CH IN THE ASSESSEES OWN CASE IN ASSESSMENT YEAR 2008-09, W E ALLOW THE GROUND AS RAISED BY THE ASSESSEE. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH AUGUST, 2013. SD/- SD/- ( ) ( $## #% ) ! ! (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 14 TH AUGUST, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE DIT-II, PUNE/ MUMBAI CONCERNED .. PUNE/MUMBAI. 4) ' '# /DIT/CIT, MUMBAI / THE DIT/CIT, MUMBAI 5) $%& ' , ' ' , ()* / THE D.R. L BENCH, MUMBAI. 6) &+ , COPY TO GUARD FILE. '-./ / BY ORDER / / TRUE COPY / / [ 0 / 1 )2 ' ' , ()* DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *451 . . * CHAVAN, SR. PS