2011 (1) TMI 1206 - AT - Income Tax

Income, Expenditure incurred in relation to income not includible in total income, Business expenditure

Summary

Issues:
1. Taxability of interest income on securities.
2. Disallowance of broken period interest.
3. Addition on account of deferred guarantee commission.
4. Disallowance under section 14A for exempt income.
5. Deduction of head office expenses under section 37(1) vs. section 44C.

Analysis:

Issue 1: Taxability of Interest Income on Securities (Asst. Year 2000-01):
The Revenue appealed against the interest income taxability on a due basis. The Special Bench had ruled in favor of the assessee in a previous case. The Tribunal upheld the impugned order based on the precedent, denying the Revenue's appeal on this ground.

Issue 2: Disallowance of Broken Period Interest (Asst. Year 2000-01):
The Revenue's appeal against the deletion of disallowance on broken period interest was dismissed as the Special Bench had previously ruled in favor of the assessee. The Tribunal upheld the impugned order on this issue as well.

Issue 3: Addition on Account of Deferred Guarantee Commission (Asst. Year 2000-01):
The Tribunal remitted the matter to the Assessing Officer (AO) for a final decision in accordance with the Special Bench's directions regarding the deferred guarantee commission. It was clarified that double taxation of the same income should be avoided.

Issue 4: Disallowance under Section 14A for Exempt Income (Asst. Year 2000-01):
The Tribunal directed the AO to compute disallowance under section 14A in accordance with the High Court's judgment, specifying that Rule 8D was not applicable prospectively. The Tribunal set aside the impugned order and directed a reassessment based on the High Court's ruling.

Issue 5: Deduction of Head Office Expenses under Section 37(1) vs. Section 44C (Asst. Year 2000-01):
The Tribunal upheld the deletion of addition under section 37(1) for head office expenses incurred for Indian Branches, distinguishing them from common expenses under section 44C. The Tribunal agreed with the CIT(A)'s decision to allow the deduction under section 37(1) for specific expenses incurred for the Indian Branches.

Asst. Year 2001-02:
The Tribunal dismissed some grounds as mutatis mutandis similar to the previous year, while others were restored to the AO for a fresh decision.

Asst. Year 2005-06:
The Tribunal set aside the impugned order and restored the matter to the AO for fresh consideration based on the facts and circumstances similar to the previous year.

In conclusion, the Tribunal partially allowed the appeals for statistical purposes across the assessed years, addressing various taxability and deduction issues in each case.