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2017 (2) TMI 1422 - AT - Income TaxDisallowance of provision towards liability arising on of wage revision payable to employees - as per assessee provision had been made based on a reasonable estimate of the imminent liability consequent on the bipartite settlement talks that were being-held between the Indian Banks Association (IBA) and various Employee Unions - whether CIT(A) failed to appreciate that once liability for an expenditure which is contractual in nature is foisted on appellant the same is allowable as deduction though the same could be quantified based on reasonable estimate only? - HELD THAT - As decided in assessee's own case 2015 (12) TMI 1283 - ITAT MUMBAI in case of salary/wage revision, what is important is not the date of signing the agreement nor the date of approval granted by the DRE, what is important is the effective date of commencement. The Tribunal, while relying upon the decision of the Hon'ble Supreme Court in the case of Bharat Earth vs. CIT 2000 (8) TMI 4 - SUPREME COURT held that in such a case the incurring of liability was certain and the same could also be estimated with reasonable certainty, although, the actual quantification may not be possible. In the case in hand also as per the agreement and the policy, the wage revision was certain and it could have been reasonably estimated also. Hence, the provision made by the assessee towards wage revision was allowable - Decided in favour of assessee Disallowance u/s 14 A - HELD THAT - As decided in assessee's own case we find that facts and circumstances of the case in the present year are similar except that learned counsel of the assessee has submitted that several more decisions have come which have upheld the view that disallowance under section 14 A is not required when the investment is held as stock in trade. In our considered opinion we should follow the doctrine of stare decisis. Accordingly following the same directions as above we remit this issue to the file of the assessing officer. Assessing officer is directed to consider the issue in light of the directions as above after giving the assessee adequate opportunity of being heard. Assessee is at liberty to canvas further case laws as it deems appropriate. Exclusion of income of foreign branches situated in countries where there is a Double tax Avoidance Agreement based on Article 7 of the respective agreements which provides that the business profits is to be taxed in the respective countries - HELD THAT - On this issue Ld. Counsel of the assessee fairly agreed that this issue is covered against is the assessee by Tribunal decision in assessee s appeal. Income accrued in India - income of the branches of assessee situated abroad - HELD THAT - Income of the foreign branches of the assessee shall also be taxable in India that is it would be included in the return income filed by the assessee in India and whatever taxes have been paid by the branches in the other countries credit of such taxes shall be given. We find that the Tribunal as above has not held that it is only that income of the foreign branches which was taxed in that foreign country which is to be included in the return of income filed by the assessee. Hence, we are in agreement with the revenue plea that Ld. CIT-A has not properly followed the Tribunal decision as referred by him. A reading of the notification canvassed by the Ld. Counsel by the assessee also does not help the case of assessee. The notification also does not support the direction of Ld. CIT-A. The doctrine of stare dicisis mandates that we follow the coordinate bench decision as above and hold that the income of the branches of assessee situated abroad shall also be taxable in India and whatever tax have been paid by the branches in the foreign country, credit of such taxed shall be given. Accordingly, we allow the ground raised by the revenue.
Issues Involved:
1. Disallowance of provision towards liability arising on wage revision payable to employees. 2. Disallowance under Section 14A of the Income Tax Act. 3. Exclusion of income of foreign branches. 4. Taxability of Management fee and Dividend from foreign subsidiaries. Issue-wise Detailed Analysis: 1. Disallowance of Provision Towards Liability Arising on Wage Revision Payable to Employees: - The assessee argued that the provision for wage revision was based on a reasonable estimate of imminent liability due to ongoing bipartite settlement talks between the Indian Banks Association (IBA) and various Employee Unions. The CIT(A) upheld the disallowance, considering it a contingent liability as no final settlement was reached by the end of the financial year. - The Tribunal, however, referred to its earlier decision in the assessee's case for the assessment year 2008-09, where it was held that the provision for wage revision was allowable since the liability was certain and could be reasonably estimated. Following this precedent, the Tribunal set aside the orders of the authorities below and decided the issue in favor of the assessee. 2. Disallowance Under Section 14A of the Income Tax Act: - The assessee had disallowed 0.5% of average investment income exempt under Section 10 of the Act. However, the Assessing Officer (AO) applied Rule 8D and made a higher disallowance. - The Tribunal noted that in the earlier assessment year, it was adjudicated that the AO should not apply Rule 8D without considering the assessee's computation. The Tribunal also highlighted that if the assessee had sufficient own funds, no interest disallowance should be made. Additionally, shares held as stock in trade should not be considered for disallowance under Rule 8D. - Following these principles, the Tribunal remitted the issue back to the AO to decide afresh, considering the judicial pronouncements and giving the assessee an opportunity to present its case. 3. Exclusion of Income of Foreign Branches: - The CIT(A) held that only the income of foreign branches taxed in the respective countries should be included in the total income, contrary to the ITAT's earlier decision that all income of foreign branches should be taxable in India with credit for taxes paid abroad. - The Tribunal reiterated its earlier decision, stating that the income of the foreign branches should be included in the return filed in India, and credit for taxes paid in foreign countries should be allowed. The Tribunal found that the CIT(A) did not properly follow this decision and directed that the income of all foreign branches be taxable in India, allowing credit for taxes paid abroad. 4. Taxability of Management Fee and Dividend from Foreign Subsidiaries: - The assessee contended that the management fee and dividend from foreign subsidiaries should be taxed at 10% as per the Double Tax Avoidance Agreement (DTAA), instead of 30% as per Section 91. - The Tribunal upheld the CIT(A)'s decision, noting that the assessee did not provide substantial arguments to support its claim. Consequently, the Tribunal dismissed this ground. Conclusion: - The appeal by the assessee was partly allowed for statistical purposes, and the appeal by the revenue was allowed. The Tribunal directed the AO to reconsider the disallowance under Section 14A and upheld the inclusion of all foreign branch income in the total income taxable in India, providing credit for taxes paid abroad.
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