2013 (2) TMI 712 - HC - Income Tax

Whether the Tribunal is correct in upholding the decision of CIT(A) in deleting the addition made by the A.O. on account of expenditure incurred in earning exempt income without appreciating the fact that assessee did not demonstrate before the A.O. that the funds used for acquiring shares of LVL were its own funds and also that section 10 of the Act provides for a deduction of net income and not gross income? - Held that - Tribunal in the impugned order upheld the finding of the CIT(A) wherein a finding of fact has been reached that the dividend earned on shares by the respondent assessee is from its investments in shares out of the respondent-assessee s own funds. Consequently, the question of invoking Section 14A of the Income Tax Act,1961 to disallow expenditure would not arise. Before the Tribunal, the revenue did not challenge the finding of fact recorded by the CIT(A) in the impugned order. In this view of the matter, we see no reason to entertain question (b). Whether the Tribunal is correct in upholding the decision of CIT(A) in directing the A.O. to accept the method followed by the assessee without considering the fact that the commission received is in nature of a fee for issuance of guarantee and is not a contingent receipt and thus not returnable at the end of guarantee period? - Held that - Decision of the Tribunal in upholding the order of the CIT(A) is a conclusion based on a finding of fact and hence, we do not see any reason to entertain question (c). Appeal admitted on question (a) - Whether the ITAT is correct in deleting the addition made by the A.O. on account of interest paid by Indian Branch of the assessee bank to its head office and other overseas branch without considering the fact that the payments made by the branch to the Head office is considered interest and such interest is taxable under Article 13? -

Summary

Issues:
1. Whether ITAT correctly deleted addition on interest paid by the Indian Branch of the assessee bank without considering tax implications under Article 13?
2. Whether Tribunal correctly upheld deletion of addition on expenditure for earning exempt income?
3. Whether Tribunal correctly upheld the method followed by the assessee for commission received for issuance of guarantee?

Analysis:

Issue 1:
The first issue raised in the appeal questions the correctness of ITAT's decision to delete the addition made by the Assessing Officer (A.O.) on account of interest paid by the Indian Branch of the assessee bank to its head office and other overseas branches. The concern is whether these payments should be considered as interest and taxable under Article 13. The High Court found that the Tribunal's decision on this matter warranted further examination, and thus, the appeal was admitted for consideration.

Issue 2:
The second issue pertains to the deletion of an addition made by the A.O. on account of expenditure incurred in earning exempt income. The CIT(A) and the Tribunal both upheld the deletion, as they found that the dividend earned on shares was from the assessee's own funds, and therefore, the disallowance under Section 14A of the Income Tax Act did not apply. The High Court concurred with this finding, stating that since the revenue did not challenge this factual determination before the Tribunal, there was no basis to entertain this issue further.

Issue 3:
The third issue revolves around the method followed by the assessee for the commission received for providing guarantees. The CIT(A) directed the A.O. to accept the method followed by the assessee, which was upheld by the Tribunal. The High Court noted that the commission received was in the nature of a fee for issuance of guarantees and was not returnable at the end of the guarantee period. The Tribunal's decision was based on factual findings regarding the treatment of guarantee commissions over the guarantee period, following a precedent set by the Calcutta High Court. Consequently, the High Court found no reason to interfere with this issue, as it was a conclusion based on established facts.

In conclusion, the High Court admitted the appeal for consideration on the first issue, while declining to entertain the second and third issues based on the factual findings and legal interpretations provided by the lower authorities.