2013 (2) TMI 757 - HC - Income Tax

Whether Tribunal is correct in holding that the addition has been wrongly made without appreciating the fact that the PE in India has to be treated as separate entity and the interest payable by the said PE is to be taxed in India in the hands of GE as income ? - Held YES - The question as framed is in respect of payment of interest by PE to GE when issue is interest earned by the PE from its head office. The Tribunal by the impugned order allowed the respondent-assessee s claim for deduction on the ground that one cannot earn income from oneself. Whether Tribunal is correct in holding that the addition is wrongly made without appreciating the fact that the proviso to Section 36(1)(viia) states clearly that deduction of bad debts shall be limited to the amount by which such debt exceeds the balance in the provision account made u/s.36(1)(viia) ? - Held YES - instructions issued by the Central Board of Direct Taxes (CBDT) being instruction No.17/2008 dated 26th November, 2008 covers the issue in favour of the respondent-assessee. Whether Tribunal is correct in holding that interest expenses claimed by the assessee is not a deduction but it is an expenditure and it is not the case of the revenue that these expenditures are not allowable in the regular course of business of the assessee without appreciating the fact that there are no provisions in the Act which allow change in computation of income by the assessee by reasons of modification of account, otherwise than by filing revised return ? - Held YES Whether the Tribunal is correct in holding that section 44C is not applicable and these expenses are allowable u/s.37(1) of the I.T. Act - Held YES - See Commissioner of Income-Tax Versus Emirates Commercial Bank Ltd. 2003 (4) TMI 2 - BOMBAY HIGH COURT

Summary

Issues:
1. Taxation of interest payable by Permanent Establishment (PE) in India.
2. Deduction of bad debts under Section 36(1)(viia).
3. Treatment of claimed amount as deduction or expenditure.
4. Applicability of Section 44C for travelling expenses incurred by head office personnel.

Analysis:

1. Taxation of interest payable by PE in India:
The High Court clarified that the issue of interest payment by PE to General Entity (GE) was misconceived. The Tribunal allowed the deduction claim of the respondent-assessee based on the principle that one cannot earn income from oneself. Therefore, the court decided not to entertain this question as framed.

2. Deduction of bad debts under Section 36(1)(viia):
The court noted that the Central Board of Direct Taxes (CBDT) instruction No.17/2008 favored the respondent-assessee on this issue. Consequently, the court decided not to entertain this question based on the instructions provided.

3. Treatment of claimed amount as deduction or expenditure:
Regarding the dispute over interest expenses, the court examined whether the expenses should be allowed when accrued or when discharged by actual payment. The Tribunal found that the expenses were allowable and incurred in the regular course of business. Referring to relevant case law, the court concluded that even if a deduction was not claimed initially, it could still be raised in appeal before the appellate authorities. The Tribunal directed the assessing officer to consider the claim of deduction of additional interest payable during the assessment year in question, leading the court to dismiss this question as proposed.

4. Applicability of Section 44C for travelling expenses:
The court observed that the Tribunal's decision aligned with a previous ruling in the case of CIT v/s. Emirates Commercial Bank Ltd. Consequently, the court decided not to entertain this question as proposed.

In conclusion, the High Court dismissed the appeal by the revenue for the assessment year 1996-97, based on the analysis and conclusions drawn for each of the raised questions. The judgment provided detailed reasoning for each issue, relying on legal principles and precedents to reach its decision.