2015 (6) TMI 1084 - AT - Income Tax

Allowability of FCB issue expenses - Held that - CIT(A) granted relief to the assessee relying on the binding Hon ble Supreme Court s decision in the case of India Cements Ltd vs CIT 1965 (12) TMI 22 - SUPREME Court , which is relevant for the proposition that the expenditure incurred for obtaining the loan is meant for securing the use of money for a certain period and is always treated as revenue expenditure irrespective of the purpose for which the funds are raised. The expenses which are incurred for obtaining the loan is a revenue expenditure and the Hon ble Madras High Court judgment in the case of South India Corporation (Agencies) Ltd 2006 (8) TMI 153 - MADRAS High Court , is relevant. Disallowance of preference share issue expenses u/s 35D - Held that - In view of the decision of the Hon ble ITAT for A.Y.2006-07, it is clear that the assessee was not eligible for deduction u/s 35D for A.Y 2006-07. However, the appellant has completed the refurbishment and installation works during the previous year relevant to the subject assessment year. In fact, the rig was surveyed by the American Bureau of Shipping on 27.05.2006 and certificate of classification was also issued on 26.06.2006. Hence, the appellant is eligible for deduction in respect of the Rig Aban VII which is complete in all respects. The appellant had also been awarded a contract to drill in the East Coast of India by Hindustan Oil Exploration Ltd. Accordingly, the appellant got the rig moving from Texas Shipyard towards India. The fact that it was sold subsequently to a different company would not blot out the factum of completion of extension of the industrial undertaking of the appellant. Hence, I am of the considered opinion that the appellant is eligible for deduction u/s 350 in respect of the total expenditure incurred towards share issue. Disallowance u/s 14A - Held that - We are of the opinion that the Revenue has brought nothing on record to say that the provisions of Rule 8D are applicable to the year under consideration and the said disallowance of 5% of the exempt income is on the lower side. Further, the Hon ble Bombay High Court in the case of Godrej Agrovet 2014 (8) TMI 457 - BOMBAY HIGH COURT has approved 2% disallowance of the exempt income for the years prior to assessment year 2008-09. Therefore, the findings of the CIT(A) is fair and reasonable and does not call for any interference. Disallowance u/s 40(a)(i) on payments made to non-residents - Held that - Bombay High Court judgment in the case of DIT vs Ishikawjima Harima Heavy Inds. Co. Ltd, 2013 (1) TMI 214 - BOMBAY HIGH COURT the impugned payments are neither royalty nor FTS and therefore, not taxable in India. The said judgment was delivered prior to the aforementioned amendment to section 9(1) of the Act. The Assessing Officer is directed to pass a speaking order on this issue after considering the above decision and after granting reasonable opportunity of being heard to the assessee as per the principles of natural justice. Accordingly, this ground is allowed for statistical purposes.

Issues Involved:
1. Disallowance of depreciation on windmills.
2. Disallowance under section 40(a)(ia) on catering charges.
3. Allowability of FCB issue expenses.
4. Disallowance of preference share issue expenses under section 35D.
5. Disallowance under section 14A read with Rule 8D.
6. Disallowance under section 40(a)(i) on payments made to non-residents.
7. Payment by Dubai Branch to non-residents.

Detailed Analysis:

1. Disallowance of Depreciation on Windmills:
The first issue pertains to the disallowance of depreciation on windmills. The CIT(A) adjudicated this issue in favor of the assessee, following the Tribunal's previous orders for the assessment years 2003-04, 2005-06, and 2006-07. The CIT(A) noted that this was a recurring issue already decided by the Tribunal in favor of the assessee. The Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's ground on this issue.

2. Disallowance under Section 40(a)(ia) on Catering Charges:
The second issue involves the disallowance under section 40(a)(ia) of the Act on catering charges. The CIT(A) had previously decided this issue in favor of the assessee for the assessment years 2005-06 and 2006-07. The Tribunal, following its earlier decisions, dismissed the Revenue's ground, confirming the CIT(A)'s order.

3. Allowability of FCB Issue Expenses:
The third issue relates to the allowability of FCB issue expenses. The CIT(A) granted relief to the assessee, relying on the Hon'ble Supreme Court's decision in India Cements Ltd vs CIT, which treated such expenses as revenue expenditure. The CIT(A) also referred to other judgments supporting this view. The Tribunal, considering the settled nature of this issue and the Supreme Court's ratio, upheld the CIT(A)'s order, allowing the expenses as revenue expenditure.

4. Disallowance of Preference Share Issue Expenses under Section 35D:
The fourth issue is the disallowance of preference share issue expenses under section 35D. The CIT(A) noted that similar issues were adjudicated in the assessee's favor for the assessment year 2006-07. The Tribunal, following its earlier decision, confirmed the CIT(A)'s order, allowing the deduction under section 35D for the expenditure incurred towards share issue.

5. Disallowance under Section 14A read with Rule 8D:
The fifth issue concerns the disallowance made by the Assessing Officer under section 14A read with Rule 8D. The CIT(A) held that Rule 8D was not applicable for the assessment year 2007-08 and restricted the disallowance to 5% of the exempt income, relying on the Hon'ble Bombay High Court's judgment in Godrej & Boyce Mfg. Co. Ltd vs DCIT. The Tribunal found the CIT(A)'s order fair and reasonable, dismissing the Revenue's ground.

6. Disallowance under Section 40(a)(i) on Payments Made to Non-Residents:
The sixth issue involves the disallowance under section 40(a)(i) on payments made to non-residents. The CIT(A) granted relief to the assessee, relying on the Tribunal's previous decisions for the assessment years 2005-06 and 2006-07. The Tribunal, following its earlier rulings, upheld the CIT(A)'s order, dismissing the Revenue's ground.

7. Payment by Dubai Branch to Non-Residents:
The last issue relates to payments made by the Dubai Branch to non-residents. The CIT(A) held that the payments were not in the nature of royalty or fees for technical services and were made for services rendered outside India. Therefore, the provisions of section 40(a)(i) were not applicable. The Tribunal, considering the Hon'ble Bombay High Court's judgment in DIT vs Ishikawjima Harima Heavy Inds. Co. Ltd and the recent amendments to section 9, remanded the matter to the Assessing Officer for fresh adjudication.

Conclusion:
In conclusion, the Tribunal partly allowed the Revenue's appeal for statistical purposes, confirming the CIT(A)'s orders on most issues while remanding the last issue for fresh consideration. The order was pronounced in the open court on 26th June 2015, at Chennai.

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