Muthoot Exchange Co P. Ltd, Cochin V. The ACIT, Cochin

ITA 91/COCH/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3878 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 08-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 03-02-2015
• Court: TRIBUNAL
• Department Lawyers: A DHANARAJ
• Keywords: Business income; Earning of tax free income; Deemed to accrue or arise in india; Permanent establishment; Commercial expediency
• Section: 143(3); 14A; 37(1)

Judgement Text

ITA NO.91/COCH/2015 1 , IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN . . , ., ! ! ! ! BEFORE S/SHRI B. P. JAIN, AM & GEORGE GEORGE K., JM ' ' ' ' ./ I.TA NO.91/COCH/2015 ( #$ % /ASSESSMENT YEAR :2011-12 ) M/S. MUTHOOT EXCHANGE CO. PVT. LTD. MUTHOOT CHAMBERS, BANERJI ROAD, KOCHI-682 018 VS THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(2),KOCHI. ( &' &' &' &' /ASSESSEE APPELLANT) ( ( (( ( ) ) ) ) &' &'&' &' /REVENUE -RESPONDENT) & . . ' ./PAN NO. AADCM 3244L &' * + /ASSESSEE BY SHRI R. SREENIVASAN, FCA ( ) &' * + /REVENUE BY SHRI A. DHANARAJ, SR. DR ,- * ./ / DATE OF HEARING 08/09/2016 0 % * ./ /DATE OF PRONOUNCEMENT 26/09/2016 1 1 1 1 /ORDER PER B.P. JAIN, AM: THIS APPEAL OF THE ASSESSEE ARISES FROM THE O RDER OF THE LD. CIT(A)-II, KOCHI DATED 15/11/2014 FOR THE AY 2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S OF APPEAL:- 1. THE OFFICERS BELOW ARE NOT JUSTIFIED IN DENYING AND CONFIRMING DISALLOWANCE OF RS.57,51,630/- UNDER THE HEAD BRAND ING EXPENSES PAID TO A COMPANY ESTABLISHED IN THE UNITED KINGDOM AND HAV ING NO PERMANENT ITA NO.91/COCH/2015 2 ESTABLISHMENT IN INDIA, AND ARE IN THE NATURE OF RE IMBURSEMENT OF EXPENSES. 2. THE OFFICERS BELOW FAILED TO APPRECIATE THE FACT TH AT THESE PAYMENTS HAVE BEEN INCURRED FOR SERVICES EXCLUSIVELY RENDERED OUT SIDE INDIA AND THEY DO NOT HAVE ANY BUSINESS PARTNERS OR NON RESIDENTS IN INDIA. 3. FURTHER THESE EXPENDITURE HAVE BEEN PAID DURING THE PREVIOUS YEAR. 4. THE OFFICERS BELOW ARE NOT JUSTIFIED IN INVOKING PR OVISIONS OF SECTION 14A R.W. RULE 8D ESPECIALLY WHEN NO EXEMPTED INCOME HAS BEEN RECEIVED NOR EXEMPTION CLAIMED BY THE ASSESSEE DURING THIS YEAR. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVATIO N IN PARA 6.3.4 THAT THE COST IS INBUILT INTO EVEN SO CALLED PASSIVE INV ESTMENT ARE INCIDENTAL ADMINISTRATIVE EXPENSES ON COLLECTING INFORMATION R ESEARCH ETC. WHICH HELPS IN ARRIVING AT A PARTICULAR INVESTMENT DECISI ON, AND THESE EXPENSES RELATING TO EARNING OF INCOME ARE EMBEDDED IN THE I NDIRECT EXPENSES, ARE DEVOID OF MERITS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSE SSEE IS ENGAGED IN THE BUSINESS OF CURRENCY EXCHANGE AND INWARD MONEY REMITTANCE. FOR THE AY 2011-12, THE ASSESSEE HAS FILED RETURN OF INCOME DECLARING AN IN COME OF RS.3,57,83,210. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORD ER U/S. 143(3) OF THE INCOME TAX ACT DATED 28/02/2014 DETERMINING TOTAL INCOME A T RS.4,21,37,508/-. FOLLOWING ADDITIONS WERE MADE IN THE ASSESSMENT. I) DISALLOWANCE OF BRANDING EXPENSES FOR NON-DEDUCT ION OF TAX 57,51,630/-. II) EXPENSES ATTRIBUTABLE TO EXEMPT INCOME U/S . 14A RS.6,02,669/- 4. THE ASSESSMENT WAS CARRIED IN APPEAL BY THE ASSESSE E BEFORE THE LD. CIT(A) AND BOTH THE ISSUES DISPUTED WERE CONFIRMED BY LD. CIT(A) VIDE ORDER ITA NO.91/COCH/2015 3 DATED 15/11/2014. THE ADDITION OF RS.57,51,613 U/S . 40(A)(IA) WAS CONFIRMED. FURTHERMORE, THE ADDITION U/S. 14A WAS ALSO CONFIRM ED. 5. DURING THE RELEVANT AY, THE ASSESSEE HAS DEBITED BU SINESS PROMOTION EXPENSE OF RS.57,51,613/- TO THE PROFIT AND LOSS A/ C. ON ENQUIRY ON THE NATURE OF THE EXPENSE, THE ASSESSEE EXPLAINED THAT THESE ARE PAYMENTS TO A SISTER CONCERN BY NAME M/S. MUTHOOT GLOBAL TRANSFERS PVT. LTD. UK IN THE NATURE OF BRANDING EXPENSES INCURRED OUTSIDE INDIA. THE ASSES SEE WAS ASKED TO FURNISH COPY OF WRITTEN AGREEMENT. THE ASSESSEE EXPLAINED T HAT THERE WAS NO WRITTEN AGREEMENT FOR THESE SERVICES. SO THE ASSESSEE WAS ASKED TO FURNISH COPY OF BILL RAISED BY MUTHOOT GLOBAL (PHOTOCOPY ENCLOSED AT PAG E 22 OF PAPER BOOK 1) ACCORDING TO THE ASSESSING OFFICER, IT IS APPARENT THAT FOR A BILL OF 78000 POUNDS (I.E., RS.57,51,603), THERE IS MERELY SINGLE PHASE CRYPTIC ENTRY (BRANDING/BUSINESS PROMOTION EXPENSES). THE BILL DOES NOT CARRY ANY R EGISTRATION NO. OF THE MUTHOOT GLOBAL. IT IS MERELY IN THE FORMAT OF A LETTER IN L ETTERHEAD. THEREFORE, THE AUTHENTICITY OF THE EXPENDITURE IS UNDER QUESTION. 6. FURTHER THE ASSESSEE ALSO FURNISHED THE BASIS OF THE BILLING AS FOLLOWS: NOTE ON BRANDING EXPENSES PAID BY M/S. MUTHOOT GLO BAL TRANSFERS PVT. LTD., U.K. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF FOREIGN CURRENCIES AND ALSO INWARD AND OUTWARD MONEY TRANSF ER BUSINESS. DURING THE FY THE COMPANY HAS EARNED AN INCOME OF RS.3.71 CRORES FROM MONEY TRANSFER ITA NO.91/COCH/2015 4 SERVICES ITSELF. AS A LARGE NUMBER OF INDIANS ARE L IVING IN UNITED KINGDOM, THE COMPANY HAS ENGAGED M/S. MUTHOOT GLOBAL TRANSFERS P VT. LTD., UK FOR THE WIDE PUBLICITY FOR MUTHOOT BRAND AND TO CREATE AWARENESS AMONG THEM THE FOREX AND MONEY TRANSFER SERVICES PROVIDED BY MUTHOOT EXC HANGE COMPANY THROUGH A LARGE NETWORK OF BRANCHES AND FRANCHISES ALL OVER INDIA. THE COMPANY HAS REIMBURSED GBP 78,000 (RS.57,41,379/-) TO M/S. MUTH OOT GLOBAL TRANSFERS PVT. LTD., UK TOWARDS EXPENSES INCURRED BY THEM FOR THE ABOVE MENTIONED ACTIVITIES, AS PER INVOICE ISSUED BY THEM. 7. DETAILS OF MARKETING ACTIVITIES PERFORMED B Y MUTHOOT GLOBAL TRANSFERS, UK ARE:- ABOUT THE PRODUCTS AND SERVICES OF MUTHOOT EXCHANG E COMPANY PVT. LTD., INDIA. MONEY TRANSFER SERVICES AVAILABLE TO INDIA THROUGH MUTHOOT EXCHANGE BRANCHES BOTH INWARD AND OUTWARD REMITTANCES. FOREIGN EXCHANGE SERVICES. PAYMENT OF EDUCATIONAL EXPENSES/FEE FROM INDIA TO U K TARGETED CUSTOMERS. NRIS RESIDING IN THE UNITED KINGDOM IMMIGRANT INDIAN WORKERS IN THE UK. FOREIGNERS AND INDIANS TRAVELLING TO INDIA AND UK ITA NO.91/COCH/2015 5 DIFFERENT MODES OF MARKETING DONE DURING THE F.Y. 2 010-11 DIRECT MARKETING TO THE CUSTOMERS OF MUTHOOT GLOBAL TRANSFERS DISTRIBUTED THE BROCHURES EXPLAINING THE PRODUCTS A ND SERVICES OF MUTHOOT EXCHANGE INDIA. SPONSORED VARIOUS ASSOCIATION PROGRAMS ORGANIZED BY INDIAN COMMITTEES IN THE UK AND GAVE WIDE PUBLICITY ABOUT MONEY TRANS FER AND FOREX SERVICES PROVIDED BY MUTHOOT EXCHANGE. MUTHOOT GLOBAL STAFF ATTENDED THE EVENTS AND EXPLAI NED THE PRODUCTS AND SERVICES OF MUTHOOT EXCHANGE INDIA. 8. ACCORDING TO THE ASSESSING OFFICER, THE BASIS OF BILLING IS REIMBURSEMENT OF EXPENSE INCURRED. THE LEAST MINIMUM EXPECTED IS THA T THE ASSESSEE SHOULD HAVE INSISTED SPLIT UP OF EXPENDITURE INCURRED, PROOF FO R HAVING SPENT IT ETC. THEREFORE ASSESSEE WAS ASKED TO FURNISH PROOF OF EXPENDITURE INCURRED BY MUTHOOT GLOBAL ON BEHALF OF THE ASSESSEE,. DESPITE CALLING FOR INFORMATION, THE ASSESSEE HAS NOT BEEN ABLE TO FURNISH ANY SUCH PROOF FROM TH E SISTER CONCERN. IT IS APPARENT THAT THE BILLING PARTY BEING A SISTER CONC ERN, THE ASSESSEE HAS NOT INSISTED ON PROOF. THE TRANSACTION APPEARS TO HAVE OCCURRED WAY SHORT OF ARMS LENGTH FOR REASONS OTHER THAN COMMERCIAL EXPEDIENCY . 9. THE ASSESSEE WAS ALSO ASKED TO MENTION AS TO HOW IT WAS ABLE TO MONITOR THE ACTIVITIES OF MUTHOOT GLOBAL WHICH IN ITSELF WAS A FLEDGLING COMPANY AND BY NO MEANS AN ESTABLISHED PLAYER IN UK. THE BRAND PROMO TION, SERVICES RENDERED BY IT COULD NOT BE ACCEPTED AT FACE VALUE. THE ASSESS EE MENTIONED THAT IT HAD NO ITA NO.91/COCH/2015 6 EMPLOYEE/AGENT/INDEPENDENT MONITORING AGENCY TO MON ITOR THE PERFORMANCE OF MUTHOOT GLOBAL BEFORE PAYING THE REBRANDING EXPE NSES. 10. THE ASSESSEE WAS ASKED TO FURNISH COUNTRY W ISE REMITTANCE OF INCOME AND CURRENCY EXCHANGE INCOME FIGURES FOR F.Y. 2009-10, FY. 2010-11 AND FY 2011-12. THE INTENTION BEING IF THERE IS A DEFINITIVE POSITI VE REVENUE IMPACT ATTRIBUTABLE TO THESE BRAND PROMOTION EXPENSES, THE AUTHENTICITY OF THE EXPENDITURE MAY BE CONSIDERED. BUT THE ASSESSEE EXPRESSED INABILITY ST ATING THAT ITS REMITTANCE BUSINESS IN INDIA IS PRIMARILY AS AN AGENT FOR MAJO R REMITTERS LIKE WESTERN UNION ETC. AND NO SUCH DATA IS AVAILABLE IN ITS CUSTODY. THE ASSESSEE HAD IDENTIFIED THAT UK IS A PROSPECTIVE MARKET FOR ITS INWARD REMI TTANCE BUSINESS AND APPARENTLY SPENT 78000 POUNDS FOR BRAND PROMOTION E XPENSES. IT IS BUT NATURAL FOR ANY BUSINESS TO ATTEMPT AT CORRELATING ITS REVE NUE FROM A REGION VIS-AVIS THE MONEY SPENT ON BUSINESS PROMOTION ACTIVITIES. THE ASSESSEE APPEARS TO HAVE NOT UNDERTAKEN SUCH AN EXERCISE. BESIDES IT HAS NO T BEEN ABLE TO FURNISH THE NECESSARY INFORMATION DESPITE REPEATED REQUESTS AND GRANTING SUFFICIENT TIME PERIOD. 11. ACCORDINGLY, THE ASSESSING OFFICER CONCLUDED THAT EXPENSES WERE NOT PAID OUT OR EXPENDED FOR THE PURPOSE OF BUSINESS AND THE REFORE THIS IS NOT PERMISSIBLE FOR DEDUCTION UNDER SECTION 37(1) OF THE INCOME TAX ACT. THAT APART ACCORDING TO THE ASSESSING OFFICER SINCE TAX WAS NOT DEDUCTED AT SOURCE THE BRANDING ITA NO.91/COCH/2015 7 EXPENSES PAID TO NON-RESIDENT COMPANY AMOUNTING TO RS.57.52 LAKHS IS TO BE DISALLOWED U/S. 40(A)(IA) ALSO. 12. THE LEARNED CIT(A) HELD THAT THE RECIPIENT C OMPANY, REGISTERED IN UK IS A GROUP COMPANY OF THE ASSESSEE AND IS MAINLY WORKING FOR BUILDING BRAND NAME MUTHOOT, A COMPANY WHOSE BUSINESS OPERATIONS ARE LO CATED IN INDIA. THERE IS A BUSINESS CONNECTION TO THE COMPANY IN INDIA. ACCOR DING TO HER, THE ASSESSEE HAS NOT PRODUCED ANY DETAILED BREAK UP OF ANY KIND OF BUSINESS PROMOTION EXPENSES AND IT IS A CONSOLIDATED PAYMENT OF 78,000 UK POUNDS THAT WERE PAID. THE ASSESSEE COMPANY HAS CLAIMED TO HAVE PAID THIS AMOUNT FOR BRAND BUILDING, BUT IN THE REMITTANCE FORM SUBMITTED TO BANK FOR MA KING THIS PAYMENT, THIS AMOUNT HAS BEEN SHOWN AS ONLY SOME OTHER REMITTANC E TO THE COMPANY IN UK AND NOT ANY PAYMENT OF PROFESSIONAL FEE FOR BRAND B UILDING OR ANY KIND OF REIMBURSEMENT OF BUSINESS PROMOTION EXPENSES. SHE C ONCLUDED THAT IN VIEW OF THE DETAILED REASONING BROUGHT OUT BY THE ASSESSING OFFICER, SHE AGREED WITH THE ANALYSIS THAT EXPLANATION (I) OF SECTION 9(1) R.W.S 5(2)(B) IS APPLICABLE TO THE ASSESSEE AND HENCE THE BUSINESS INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA AS IT CAN BE ATTRIBUTABLE TO THE BUSINESS CONNECTIO NS AND OPERATIONS CARRIED OUT IN INDIA AND HENCE TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE WHILE MAKING PAYMENT TO SUCH COMPANY. ACCORDINGLY, SHE HAS CONF IRMED THE ADDITION OF RS.57.51 LAKHS. ITA NO.91/COCH/2015 8 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE FACTS OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THAT THE CO MPANY HAS BEEN REGISTERED UNDER LAWS OF UK. MERELY BECAUSE IT IS A GROUP COM PANY IT CANNOT BE STATED THAT THERE IS A BUSINESS CONNECTION IN INDIA. HE F URTHER SUBMITTED BEFORE US THE COPIES OF BALANCE SHEET AS ON 31/03/2011 OF THE COM PANY AND DREW OUR ATTENTION TO PROFIT AND LOSS SCHEDULE 5 WHICH DEALS WITH THE INVESTMENT IN OVERSEAS COMPANY. IT HAS BEEN CLEARLY MENTIONED TH EREON THAT THE INVESTMENT ARE IN 2 COMPANIES ONE AT LONDON IN UK IN SHARE CAP ITAL BY NAME MUTHOOT GLOBAL TRANSFERS PVT. LTD. AND THE OTHER OVERSEAS C OMPANY AT USA BY NAME ROYAL EXCHANGE INC (USA) THE TOTAL INVESTMENT IN SH ARES AT RS.6,81,00,672/-. ACCORDING TO HIM, M/S. MUTHOOT GLOBAL MONEY TRANSFE R LOCATED AT UK IS THE ASSESSEE COMPANYS SERVICE PROVIDER THROUGH EXCHANG E BRANCH FOR BOTH INWARD AND OUTWARD REMITTANCE, FOREIGN EXCHANGE SERVICES, PAYMENT OF EDUCATIONAL EXPENSES/FEE FROM INDIA TO UK. THE TARGETED CUSTOME RS ARE NRIS RESIDING IN THE UNITED KINGDOM IMMIGRANT INDIAN WORKERS IN THE UK FOREIGNERS AND INDIANS TRAVELLING TO INDIA AND UK. 14. HE FURTHER SUBMITTED THAT THE ENTIRE SERVICE OF M/S. MUTHOOT GLOBAL TRANSFERS IS CENTRED IN UK AND IT IS ONLY FOR THESE SERVICES, ACTUAL EXPENSES ARE REIMBURSED. ITA NO.91/COCH/2015 9 THE ASSESSMENT OF COMPANY IS IN UK AND THEY HAVE NO PERMANENT ESTABLISHMENT IN INDIA. ACCORDING TO THE REPRESENTATION, THE AMO UNT PAID TO THE OVERSEAS COMPANY IS NOT TAXABLE UNDER THE LAWS OF INDIAN INC OME TAX, SO MUCH SO THERE IS NO LIABILITY TO DEDUCT TAX ON THAT PRINCIPLE. HE F URTHER SUBMITTED THAT THE LD. CIT(A) MISCONSTRUCTED THAT THERE ARE SHAREHOLDERS O F THE OVERSEAS COMPANY IN INDIA. 15. HE ALSO DREW OUR ATTENTION TO PARA 23 TO 30 OF PAPER BOOK NO. 1 FILED WHICH CONTAINS THE APPLICATION OF DECLARATION FORM UNDER FEMA ACT, SEEKING PERMISSION TO REMIT THE PAYMENT TO OVERSEAS. AT P2 7 OF THE SAID PAPER BOOK ATTENTION WAS ALSO DRAWN TO COL 14 (A) & (C) WHEREI N THE FACT THAT TDS WAS NOT LIABLE TO BE DEDUCTED ON ACCOUNT OF AMOUNT NOT CHAR GEABLE TO TAX IN INDIA HAS BEEN STATED. IT WAS ONLY AFTER THAT DEPARTMENT HAS ISSUED PERMISSION IN FORM 15C. NOW THEY HAVE TAKEN A DIFFERENT STAND WHEN IT COMES TO THE ASSESSMENT. REFERENCE WAS ALSO DRAWN TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. DLF COMMERCIAL PROJECT WHEREIN IT H AS BEEN HELD THAT THERE IS NO OBLIGATION TO DEDUCT TAX AT SOURCE ON REIMBURSEMENT OF EXPENSES SINCE IT DOES NOT HAVE THE CHARACTER OF INCOME. ACCORDINGLY. HE SUBMITTED THAT THERE WAS NO CASE OF THE ASSESSING OFFICER OR THE LD. CIT(A) TO DISALLOW SUCH EXPENDITURE AND ALSO CONFIRM THE SAME. ITA NO.91/COCH/2015 10 16. AS REGARDS THE SECOND DISALLOWANCE PERTAINI NG TO INVOCATION OF SECTION 14A R.W.R. 8D BEING EXPENDITURE ATTRIBUTED TO EXEMP TED INCOME, THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER ISSUE THE ASSE SSEE DID NOT HAVE ANY EXEMPTED INCOME AND FURTHER NO EXPENDITURE HAVE BEE N INCURRED TOWARDS INVESTMENT FOR EARNING EXEMPTED INCOME. SO MUCH SO , NO DISALLOWANCE IS CALLED FOR U/S. 14A. 17. ACCORDING TO THE ASSESSING OFFICER EXPENDITURE INCURRED HAVE TO BE DIVIDED INTO 2 CATEGORIES WHICH ARE RELATED TO THE EXEMPTED STREAM OF INCOME AND OTHER RELATED TO TAXABLE STREAM OF INCOME. THE ASS ESSING OFFICER IS OF THE VIEW THAT IT IS NOT NECESSARY THAT THERE WOULD BE EXEMPT ED INCOME EARNED DURING THE YEAR. ACCORDING TO HIM EXEMPTED INCOME APPEARIN G IN SEC. 14A INCLUDES POSITIVE INCOME, NIL INCOME AND NEGATIVE INCOME (LO SS). THEREFORE, THE PROVISIONS OF SECTION 14(2) AND (3) READ WITH RULE 8D ARE APPLICABLE AND HE HAS PROCEEDED TO DISALLOW RS.6,02,559/- ON THIS ISSUE. 18. ACCORDING TO THE LD. CIT(A) AS PER SECTION 1 4A, IF AN EXPENDITURE HAS A RELATION OR CONNECTION WITH OR PERTAINS TO EXEMPT I NCOME, IT CANNOT BE ALLOWED AS DEDUCTION EVEN IF IT OTHERWISE, QUALIFIES UNDER THE OTHER PROVISIONS OF SAID ACT. SHE IS OF THE VIEW THAT THE ASSESSEE HAD NOT BEEN A BLE TO ESTABLISH AND SHOW THAT THE INVESTMENTS WERE MADE FROM THE OWN INTERES T FREE FUND. THE ASSESSEE ALSO COULD NOT ESTABLISH HIMSELF THAT THERE IS NO N EXUS BETWEEN THE EXPENDITURE ITA NO.91/COCH/2015 11 AND THE INVESTMENT MADE WITH RELATION TO ANY SEQUEN TIAL CASH FLOW ALONG WITH ANY IDENTIFIABLE BANKING TRANSACTION. ACCORDINGLY, SHE CONCLUDED THAT THE PROVISIONS OF SEC. 14A ARE ATTRACTED. 19. ON BEHALF OF THE ASSESSEE , RELIANCE WAS PLA CED ON THE JUDGMENT OF HONBLE HIGH COURT OF PUNJAB AND HARYANA IN CIT VS . LAKHANI MARKETING COMPANY TO THE EFFECT THAT DISALLOWANCE U/S. 14A C ANNOT BE MADE IF THERE IS NO EXEMPTED INCOME EARNED DURING THE YEAR. REFEREN CE WAS ALSO MADE TO THE DECISION OF SAME COURT IN CIT VS. WINSOME TEXTILES LTD. REPORTED IN 319 ITR 204 (COPY FILED P5 TO P14 OF PAPER BOOK NO. 1). RELIANC E WAS ALSO MADE ON THE DECISION OF HONBLE ITAT COCHIN BENCH DATED 20.11. 2015 IN THE CASE OF KAIRALI STEELS AND ALLOYS VS. JCIT(OSD) CIR.1(2) KOCHI IN I .T.A. NO. 254/COCH/2015 COPY OF THE DECISION WAS ALSO FILED. SPECIFIC REFERENCE WA S MADE TO P20 WHEREIN CONCLUSION OF HONBLE BENCH IS GIVEN. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE RECORDS. THE FIRST ISSUE IS WITH REGARD TO ALLOWABILTIY OF BRANDING EX PENSE INCURRED OUTSIDE INDIA. THE LEARNED REPRESENTATIVE FINALLY CONCLUDED TO DRA W OUR ATTENTION TO AN ARTICLE ISSUED BY THE IT DEPARTMENT ON TAX TREATMENT OF DIV IDEND FROM FOREIGN COMPANY WHICH HAS BEEN ANNEXED ON P1 AND P2 OF PAPER BOOK N O. 2; DIVIDEND RECEIVED FROM AN INDIAN COMPANY WHICH HAS SUFFERED DIVIDEND DISTRIBUTION TAX IS EXEMPT FROM TAX U/S. 10(34). EXEMPTION UNDER SECTI ON 10(34) IS GRANTED TO ITA NO.91/COCH/2015 12 DIVIDEND RECEIVED FROM AN INDIAN COMPANY AND NOT TO A DIVIDEND RECEIVED FROM A FOREIGN COMPANY. THUS DIVIDEND FROM FOREIGN COMPANY RECEIVED BY AN INDIAN RESIDENT IS TAXABLE. IN THIS PART YOU CAN G AIN KNOWLEDGE ABOUT TAX TREATMENT OF DIVIDEND RECEIVED FROM A FOREIGN COMPA NY. DIVIDEND RECEIVED FROM A FOREIGN COMPANY IS CHARGED TO TAX IN INDIA A S WELL AS IN THE COUNTRY TO WHICH THE FOREIGN COMPANY BELONGS. IF THE FOREIGN D IVIDEND HAS SUFFERED DOUBLE TAXATION, THEN THE TAX PAYER CAN CLAIM DOUBLE TAXAT ION RELIEF EITHER AS PER THE PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT ( IF ANY) ENTERED INTO WITH THAT COUNTRY (IF ANY) BY THE GOVERNMENT OF INDIA OR CAN CLAIM RELIEF AS PER SECTION 91 (IF NO SUCH AGREEMENT EXISTS). 21. IT WAS POINTED OUT THAT THE ASSESSEE HAS IN VESTMENT OF RS.6.81 CRORES IN THE SHARES OF FOREIGN COMPANY AS SHOWN IN SCHEDULE 5 OF BALANCE SHEET. SINCE THE DIVIDENDS IF ANY RECEIVED FROM THESE INVESTMENTS WI LL BE TAXABLE IN THE HANDS OF ASSESSEE THERE IS ALSO NO QUESTION OF EXEMPTION AND THEREFORE DISALLOWANCE U/S. 14A R.W. RULE 8D IS NOT APPLICABLE. 22. NO DOUBT THE BRANDING EXPENSE HAS BEEN INC URRED OUTSIDE INDIA AND AS IS EVIDENT FROM VARIOUS RECORDS AVAILABLE AND ALSO THE APPLICATION MADE UNDER THE FEMA REGULATION IN FORM 15CA. IT IS ALSO NOT THE C ASE OF THE ASSESSING OFFICER THAT THIS HAS BEEN INCURRED IN INDIA. THE RECIPIEN T MUTHOOT GLOBAL TRANSFERS PVT. LTD. BEING A FOREIGN COMPANY REGISTERED UNDER THE U K LAWS, CANNOT BE HELD TO ITA NO.91/COCH/2015 13 HAVE ANY BUSINESS CONNECTIONS IN INDIA, THOUGH THEY ARE CARRYING OUT THE SERVICE FOR SOME OF THE GROUP CONCERNS. IT IS ALSO NOT THE CASE OF THE DEPARTMENT THAT THEY ARE HAVING ANY PERMANENT ESTABLISHMENT IN INDI A. AS STATED BY THE LD. COUNSEL IF AT ALL THEY ARE TAXABLE IT WILL BE UNDER THE UK LAWS. 23. THEREFORE, IN OUR CONSIDERED VIEW, THE ASSES SEE COMPANY IS NOT LIABLE TO DEDUCT TAX ON THE PAYMENT MADE. THE ASSESSEE COMPA NY HAS ALSO BEEN EARNING INCOME AND INCURRING EXPENSE WHICH WOULD ES TABLISH THAT THE EXPENSES HAVE BEEN LAID OUT AND EXPENDED IN THE COURSE OF CA RRYING ON OF THE BUSINESS. ACCORDINGLY, WE HEREBY DELETE THE DISALLOWANCE OF R S.57.51 LAKHS. 24. COMING TO THE SECOND ISSUE OF INVOKING SEC. 14A R.W.R. 8D, IT IS A FACT THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING TH E YEAR. THESE INVESTMENTS HAVE BEEN EXCLUSIVELY IN THE SHARES OF FOREIGN COMP ANIES AS EVIDENCED BY SCHEDULE 5 OF THE AUDITED BALANCE SHEET PRODUCED. R ESPECTFULLY FOLLOWING THE DECISIONS CITED OF HONBLE PUNJAB AND HARYANA HIGH COURT AND ALSO OUR OWN DECISION IN THE CASE OF KARIALI STEELS AND ALLOYS ( P) LTD. VS. JCIT AND ALSO FOR THE REASON THAT THE INVESTMENTS ARE MADE IN FOREIGN COM PANIES, WE HOLD THAT SECTION 14A R.W.R. 8D HAS NO APPLICABILITY TO THE F ACTS OF THIS CASE. ACCORDINGLY, THE ADDITION OF RS.6,02,559/- IS HEREBY DE LETED. ITA NO.91/COCH/2015 14 25. IN THE RESULT, THE APPEAL OF THE ASSESSEE I S ALLOWED. PRONOUNCED IN THE OPEN COURT ON 26 -09-2016. SD/- S D/- ( . ) (GEORGE GEORGE K.) ( . . ) (B. P. JAIN) /JUDICIAL MEMBER /ACCOUNTANT MEMBER & /PLACE: /COCHIN 2 /DATED: 26 TH 09/ 2016 GJ/ 1 * (.3 43%. /COPY TO: 1. &' /M/S. MUTHOOT EXCHANGE CO. PVT. LTD., MUTHOOT CHAMB ERS,BANERJI ROAD, KOCHI-682 018 2. () &' /THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1 (2),KOCHI. 3. ,5 . ( )/THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 4. ,5 . /THE COMMISSIONER OF INCOME-TAX, 5. 367 (. , /THE DR/ITAT, COCHIN BENCH. 6. 79 :- /GUARD FILE. 1, /BY ORDER ; /ASSISTANT REGISTRAR - .