2015 (11) TMI 407 - HC - Income Tax

Disallowance of guest house expenses - ITAT allowed the claim - Held that - The appeal by the Revenue to the Tribunal was dismissed in view of the fact that sub-section (4) of section 37 of the Act was deleted from the Act with effect from April 1, 1988. Thus, disallowance of the guest house expenses for the assessment year 1999-2000 in the absence of section 37(4) of the Act was not proper. Thus in view of the clear and self-evident position of law during the subject assessment year, viz., absence of section 37(4) of the Act, no fault can be found with the impugned order. Thus, no substantial question of law arises. - Decided against revenue. Non deduction of TDS - payment to master card international and visa card international - disallowance under section 40(a)(i) - Indo-US DTAA - Held that - In allowing its appeal, the Tribunal rightly followed its decision in the case of Central Bank of India v. Deputy CIT 2010 (9) TMI 661 - ITAT MUMBAI wherein on similar facts, it was held that even if no TDS is deducted, the payments made to visa card international and master card international on account of fees could not be disallowed in view of article 26(3) of the Indo-US Double Taxation Avoidance Agreement (DTAA).- Decided against revenue. Notional loss arising from unmatured foreign exchange contracts - whether allowable when the loss is neither a definite liability nor a legal liability as held by ITAT ? - Held that - o ground made out in the appeal memo or in any affidavit as to why the Revenue is preferring an appeal against the impugned order on the above issue when an identical question decided by the Special Bench of the Tribunal in Bank of Baharain and Kuwait (2010 (8) TMI 578 - ITAT, MUMBAI ) has been accepted by the Revenue. - Decided against revenue.

Summary

Issues:
1. Allowability of guest house expenses under section 37(1) of the Income-tax Act, 1961.
2. Disallowance of fees remitted to master card international and visa card international under section 40(a)(i) of the Act.
3. Allowability of notional loss from unmatured foreign exchange contracts.

Analysis:

Issue 1: Allowability of guest house expenses under section 37(1)
The respondent-assessee claimed deduction for guest house expenses, which the Assessing Officer disallowed citing section 37(4) of the Act. However, the CIT(A) deleted the disallowance as section 37(4) was removed from the Act with effect from April 1, 1988. The Tribunal upheld this decision, stating that the absence of section 37(4) during the assessment year 1999-2000 justified the allowance. The High Court concurred, emphasizing the clear legal position and dismissed the appeal on this issue.

Issue 2: Disallowance of fees remitted to master card international and visa card international
The Assessing Officer disallowed fees remitted to master card international and visa card international due to non-deduction of tax at source under section 40(a)(i). The CIT(A) upheld this disallowance, asserting that the entities had a permanent establishment in India, making the income taxable in India. However, the Tribunal allowed the appeal, citing the Indo-US DTAA's article 26(3). The High Court noted that the Tribunal's decision aligned with a previous case and emphasized the importance of consistent application of law. As the Revenue failed to provide reasons for appealing against the consistent decisions, the High Court dismissed the appeal on this issue.

Issue 3: Allowability of notional loss from unmatured foreign exchange contracts
The Tribunal allowed the question raised by the Revenue concerning notional loss from unmatured foreign exchange contracts based on a decision by its Special Bench. The Revenue did not appeal against this decision, and no valid grounds were presented for appealing against the impugned order. Moreover, the High Court highlighted previous rejections of similar appeals by the court, indicating a consistent stance in favor of the assessee. Consequently, the High Court dismissed the appeal on this issue as well.

In conclusion, the High Court upheld the Tribunal's decisions on all three issues, emphasizing the importance of consistent application of law and dismissing the appeal by the Revenue.