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2012 (5) TMI 665 - AT - Income TaxLevying tax @ 48% applicable to non-resident companies as against levy of tax @ 35% to Indian companies - issue is covered against the assessee by orders of the Tribunal(supra) in assessee s own case, we confirm the action of authorities below by rejecting ground No.1 of appeal taken by the assessee. Disallow foreign exchange loss on outstanding foreign exchange transactions considering the same as notional loss and not the actual loss to the assessee - Held that - Increase depreciation are allowable on additional liability arising out of fluctuation in rate of exchange and actual payment was not a condition precedent for making necessary adjustment in the carrying cost of the fixed asset acquired in foreign currency. In view of above, we allow ground No.2 of appeal in favour of the assessee TDS liability - Interest charged by head office and overseas offices to its Indian offices - chargeable to tax in India - Having held that the interest paid by the Indian branch of the assessee Bank to its head office and other branches outside India is not chargeable to tax in India, it follows that the provisions of section 195 would not be attracted and there being no failure to deduct tax at source from the said payment of interest made by the PE, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) does not arise. Addition u/s 14A - Held that - We agree with ld CIT(A) that AO has not proved that investment in shares has been made by the assessee out of interest bearing funds but on the other hands sufficient funds to finance the shares is available with assessee. However, we do not agree with ld A.R. that there was no administrative cost incurred by the assessee for maintaining portfolio of the shares against which assessee has received dividend income of ₹ 13,11,750 which is exempted u/s.10(33) of the Act. We consider it prudent to estimate ₹ 25,000 as cost on account of administrative expenses towards maintaining shares portfolio by the assessee to earn dividend income which is exempted from income tax. Hence, we restrict the disallowance under section 14A of the Act to ₹ 25,000 by modifying the orders of authorities below. Ground No.1 is allowed in part. Addition of liabilities towards long outstanding DD/cheques - Held that - Provisions of section 41(1) of the Act will be applicable only when assessee has obtained, whether in cash or in other manner whatsoever an amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him. Since in the case before us, assessee has not obtained any benefit and the liability is outstanding, we agree that the provisions of section 41(1) of the Act does not attract. Tax deducted at source in accordance with the Korean laws is also part of assessee s total income for the assessment year under consideration - Held that - Decided in favour of revenue
Issues Involved:
1. Levy of tax rate on non-resident companies. 2. Disallowance of foreign exchange loss. 3. Deductibility and taxability of interest charged by head office and overseas offices. 4. Levy of interest under section 234B and 234D. 5. Disallowance under section 14A. 6. Addition of long outstanding DD/cheques under section 41(1). 7. Inclusion of tax deducted at source in Korea in total income. 8. Deduction under section 44C and 36(1)(viia). Detailed Analysis: 1. Levy of Tax Rate on Non-Resident Companies: Issue: The assessee contested the levy of tax at 48% applicable to non-resident companies, arguing for a 35% rate applicable to Indian companies under the DTAA between India and Japan. Judgment: The Tribunal upheld the levy of 48%, referencing the ITAT's previous decisions in similar cases, including the assessee's own case for earlier years. The Tribunal confirmed that taxing the foreign company at a higher rate than the domestic company does not amount to discrimination under Article 24 of the Indo-Japan DTAA. 2. Disallowance of Foreign Exchange Loss: Issue: The assessee disputed the disallowance of Rs. 6,01,94,000 as foreign exchange loss on outstanding transactions, which the AO considered notional. Judgment: The Tribunal allowed the assessee's claim, referencing its own previous decision and the Supreme Court's ruling in the case of Woodward Governor India Pvt Ltd., holding that the loss due to currency rate fluctuation is allowable in the year the rate changes. 3. Deductibility and Taxability of Interest Charged by Head Office and Overseas Offices: Issue: The assessee contested the non-deductibility of interest paid to its head office and overseas branches and the taxability of such interest in India. Judgment: The Tribunal reversed the orders of the lower authorities, following the ITAT Special Bench decision in the assessee's own case for AY 2003-04, which held that such interest is deductible in computing the PE's profits in India and is not taxable in India as it constitutes payment to self. 4. Levy of Interest Under Section 234B and 234D: Issue: The assessee disputed the levy of interest under sections 234B and 234D. Judgment: For section 234B, the Tribunal restored the issue to the CIT(A) to decide in accordance with the Bombay High Court's decision in NGC Network Asia LLC. For section 234D, the Tribunal followed the Bombay High Court's decision in Bajaj Hindustan Ltd., holding that section 234D has no retrospective effect and cannot be charged on refunds granted prior to 1.6.2003. 5. Disallowance Under Section 14A: Issue: The department contested the deletion of disallowance under section 14A related to tax-free dividend income. Judgment: The Tribunal partially allowed the department's appeal, estimating Rs. 25,000 as administrative expenses for maintaining the shares portfolio, modifying the CIT(A)'s order. 6. Addition of Long Outstanding DD/Cheques Under Section 41(1): Issue: The department contested the deletion of addition of Rs. 5,89,796 towards long outstanding DD/cheques. Judgment: The Tribunal upheld the CIT(A)'s deletion, agreeing that the amounts represent liabilities held in a fiduciary capacity and do not constitute income under section 41(1). 7. Inclusion of Tax Deducted at Source in Korea in Total Income: Issue: The assessee disputed the inclusion of Rs. 59,85,368, being tax deducted at source in Korea, in its total income. Judgment: The Tribunal upheld the CIT(A)'s order, referencing the Bombay High Court's decision in Madhavrao J Scindia, which held that gross income, including tax deducted at source abroad, is taxable. 8. Deduction Under Section 44C and 36(1)(viia): Issue: The assessee contested the non-allowance of deductions under sections 44C and 36(1)(viia). Judgment: The Tribunal noted that the CIT(A) had directed the AO to grant eligible deductions under these sections, and thus, there was no grievance for the assessee. Final Pronouncement: The appeals of both the assessee and the department for assessment years 2000-01 and 2001-02 were allowed in part.
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