9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2013 (9) TMI 126 - AT - Income TaxExpenditure incurred on bidding for exploration - Capital expenditure or revenue expenditure - Exploration and production of oil and gases as revenue expenditure -the assessee were not in the nature of an independent business, but it was part of the existing business carried on by it under the control and supervision of the same management - The activities were inter-connected and there was no inter-lacing of funds and resources - The activities were carried out as inseparable from the existing line of business - Therefore, in the light of the decisions of the Supreme Court in the cases of Produce Exchange Corporation Ltd. v. CIT 1970 (4) TMI 18 - SUPREME Court , these expenses need to be allowed as revenue in nature - the impugned expenditure incurred during the previous year for setting up refinery - Following decision of Deputy Commissioner of Income-tax 5(1) Versus Essar Oil Ltd. 2011 (8) TMI 428 - ITAT MUMBAI - Decided in favour of assessee. DTAA - Tax liability - Residential status - There is no dispute that the assessee is having a permanent establishment in Oman and is clearly liable to tax under the provisions of Income-tax law in Oman - the provisions of DTAA override the provisions of the Income-tax Act - In the light of the ratio of the decision laid down by Hon ble Supreme Court in CIT v. P.V.A.L. Kulandagan Chettiar 2004 (5) TMI 8 - SUPREME Court , the income earned by the assessee from its Oman Branch cannot be added as income for computing the taxable income in India - Do not find any infirmity in the order of learned CIT(A) - Held that the income from business carried on at Oman and Qatar cannot be subjected to tax in India. Interpretation of provisions of DTAA - The expression used in Article 7 of the DTAA between India and Oman is may be taxed , while the words used in Article 7 of India Qatar DTAA is may also be taxed . Could there be different consequences because of the above difference in the language of the DTAA? - it cannot be said that the expression may also be taxed used in the DTAA gave option to the other Contracting States to tax such income. As laid down in the decision in the case of Pooja Bhatt 2008 (10) TMI 251 - ITAT BOMBAY-L contextual meaning has to be given to such expression. - the contention of the revenue that the expression may also be taxed in other State giving the option to the other State and the State of residence is not precluded from taxing such income cannot be accepted. The phrase may be taxed is not appearing in the statute, but it is appearing in the agreement and therefore, the interpretation as understood and intended by the negotiating parties should be adopted. Here one of the parties i.e., Government of India has clearly specified the intent and the object of this phrase. If phrase is used in a statute, then any interpretation given by the High Court or the Supreme Court is binding on all the subordinate Courts and has to be reckoned as law of the land. However, the meaning assigned by Government of India for a phrase or term used in the agreement through notification will prevail at least from the assessment year 2004-05. Because, while interpreting the treaty, the intention of the parties to the agreement has to be given primacy and has to be understood in that manner only. Therefore, the notification is not contrary to the provisions of the Act. Consequently, the earlier judgments rendered in assessee s case prior to assessment year 2004-05, will not have binding precedence in this year or subsequent years The business income from P.E. in Oman and Qatar and also the capital gain from sale of assets in these countries will be included in the total income of the assessee in India and Credit of taxes paid there will be given as per the relevant Article of the DTAA. Interest under section 36(1)(iii) - It is not in dispute that the assessee company had been using the jetty purchased for the purpose of the marketing business and that income earned there from was also offered for tax - The CIT(A) has found that there was no evidence of use of own funds for purchase of jetty - The revenue has itself allowed depreciation on jetty in the past -deduction on account of interest allowed. Disallowance of interest from escrow account - Held that - The basic condition for grant of loan was that the assessee has to make deposits in the escrow account and based on these deposits, the assessee was to receive funds for setting-up of its refinery project. It can be very well be held that the said deposits were directly linked with the purpose of the assessee s business - The findings recorded by the learned Commissioner (Appeals) that deposit in the escrow account was essentially a security to the bank in order to effect the financing the refinery project and is akin to margin money that banks ordinarily required for granting of loans is absolutely correct and, therefore, any interest earned thereon is also directly related to the business - Following decision of CIT v/s Bokaro Steels Ltd. 1998 (12) TMI 4 - SUPREME Court - Decided in favour of assessee. Once the dispute has been settled between the parties and the balance has not been received by the assessee, it definitely has become bad in this year only. All the other conditions laid down in section 36(1)(vii) and 36(2) has been fulfilled and the claim of bad debt has to be allowed. There is no reason to deviate from the legal and factual findings given by the learned Commissioner (Appeals) and accordingly the same is affirmed. Nature of advance given to various employees is not clear. Once it has been accepted that the conditions laid down in section 36(2) are not fulfilled, then it has to be examined from the angle, whether it is a business expenditure or business loss. Once it is not in dispute that these advances were made during the course of carrying on the business, the non-recoverability of such amounts have to be allowed as business loss. Since the facts are not clear before us, therefore, we are of the considered opinion that this issue needs to be restored to the file of the Assessing Officer for examination afresh - Decided in favour of assessee.
Issues Involved:
1. Treatment of expenditure for exploration and production of oil and gases. 2. Taxability of profits from Oman and Qatar branches. 3. Taxability of long-term capital gains from the sale of branches in Oman and Qatar. 4. Allowance of proportionate interest corresponding to the investment in jetty. 5. Treatment of interest received from suppliers and employees. 6. Capitalization of interest received from the escrow account. 7. Allowance of bad debt related to Niko Resources Ltd. 8. Disallowance of bad debt on account of advances given to various parties and employees. Detailed Analysis: 1. Treatment of Expenditure for Exploration and Production of Oil and Gases: The Revenue challenged the deletion of expenditure of Rs. 1,48,71,588 incurred by the assessee for exploration and production of oil and gases as revenue expenditure. The Tribunal found that this issue was identical to the one decided in the assessee's favor in earlier years (1996-97 to 1998-99). The Tribunal upheld the deletion, following the precedent set by the High Court and Supreme Court, which had dismissed the Revenue's appeals on this issue. 2. Taxability of Profits from Oman and Qatar Branches: The Revenue contended that the profits from Oman and Qatar branches should be taxed in India. The Tribunal noted that the assessee had established branches in Oman and Qatar, filed returns, and paid taxes in those countries. The Tribunal followed the High Court's decision in the assessee's earlier years, which held that income from Oman and Qatar projects is not taxable in India under Article 7 of the DTAA. The Tribunal dismissed the Revenue's appeal on this ground. 3. Taxability of Long-Term Capital Gains from the Sale of Branches in Oman and Qatar: The Revenue argued that long-term capital gains from the sale of branches in Oman and Qatar should be taxed in India. The Tribunal relied on the interpretation of Article 15(2) of the Oman DTAA and Article 13(2) of the Qatar DTAA, which state that such gains "may be taxed" in the other contracting state. The Tribunal concluded that the capital gains arising from the sale of assets in Oman and Qatar are not taxable in India, following the precedent set by the High Court and Supreme Court. 4. Allowance of Proportionate Interest Corresponding to the Investment in Jetty: The Revenue challenged the allowance of proportionate interest on the investment made in jetty. The Tribunal upheld the learned Commissioner (Appeals)'s decision to allow the interest on a proportionate basis, following the precedent set in the assessee's earlier years. 5. Treatment of Interest Received from Suppliers and Employees: The Revenue contended that interest received from suppliers and employees should be treated as income from other sources. The Tribunal upheld the learned Commissioner (Appeals)'s decision that the interest received from suppliers and employees is directly related to the setting up of the refinery and should be capitalized and adjusted against the cost of the project. 6. Capitalization of Interest Received from the Escrow Account: The Revenue argued that interest received from the escrow account should be treated as income from other sources. The Tribunal upheld the learned Commissioner (Appeals)'s decision that the interest earned on the escrow account, which was directly linked to the setting up of the refinery project, should be capitalized and adjusted against the cost of the project. 7. Allowance of Bad Debt Related to Niko Resources Ltd.: The Revenue challenged the allowance of bad debt related to Niko Resources Ltd. The Tribunal upheld the learned Commissioner (Appeals)'s decision to allow the bad debt, as the amount had become irrecoverable due to a settlement between the parties. 8. Disallowance of Bad Debt on Account of Advances Given to Various Parties and Employees: The assessee contended that the advances given to various parties and employees, which had become irrecoverable, should be allowed as a business loss. The Tribunal set aside the learned Commissioner (Appeals)'s order and restored the issue to the Assessing Officer to examine whether the irrecoverable amounts were advanced during the course of business and could be allowed as a business loss. Conclusion: - The Tribunal upheld the deletion of expenditure for exploration and production of oil and gases as revenue expenditure. - Profits from Oman and Qatar branches were held to be not taxable in India. - Long-term capital gains from the sale of branches in Oman and Qatar were held to be not taxable in India. - Proportionate interest corresponding to the investment in jetty was allowed. - Interest received from suppliers and employees was capitalized and adjusted against the cost of the project. - Interest received from the escrow account was capitalized and adjusted against the cost of the project. - Bad debt related to Niko Resources Ltd. was allowed. - The issue of bad debt on account of advances given to various parties and employees was restored to the Assessing Officer for fresh examination.
|
