2019 (8) TMI 1615 - HC - Income Tax

Disallowance of expenses on the issue of Foreign Currency Convertible Bond - expenses incurred for the issue of FCCB as in capital in nature? - HELD THAT - It is an agreed position between the parties that this issue raised herein now stands concluded in favour of the Assessee and against the Revenue by the decision of this Court in CIT v/s. M/s. Faze Three Ltd. 2017 (3) TMI 1390 - BOMBAY HIGH COURT as placed reliance upon the decision of Secure Meters Ltd. 2008 (11) TMI 66 - HIGH COURT RAJASTHAN and Havells India Ltd. 2012 (5) TMI 449 - DELHI HIGH COURT to hold that the expenses incurred on issue of FCCB is an expense for raising a loan, therefore, the expense is revenue in nature. It observed that the Revenue has not shown any reasons as to why this Court should take different view in this case from the view taken by the various High Courts in the country on an identical issue. Addition of assignment of loan claimed as short term capital loss - loss arise because of lesser capital amount received and not on sale of capital gain and so cannot be equated to the short term capital loss - ITAT deleted the addition - HELD THAT - It is an agreed position between the parties that the above decision passed today in case of M/s. Siemens Nixdorf 2019 (9) TMI 199 - BOMBAY HIGH COURT would apply to the present facts - No substantial question of law. Disallowance u/s.14A to 5% of the exempt income earned by the assessee - HELD THAT - Tribunal restricted the disallowance on the reasonable basis as mandated by Section 14A of the Act to 5% of the exempt income - This view of the Tribunal being in accord with the view of the Apex Court in Essar Teleholdings 2018 (2) TMI 115 - SUPREME COURT the question as framed does not give rise to any substantial question of law. Thus, not entertained. Appeal admitted on question B - Disallowance of expenses on the issue of Foreign Currency Convertible Bond on the interpretation of DTAA

Summary

Issues:
1. Disallowance of expenses on the issue of Foreign Currency Convertible Bond.
2. Interpretation of Double Taxation Avoidance Agreement (DTAA) regarding expenses on the issue of Foreign Currency Convertible Bond.
3. Addition arising from the assignment of a loan claimed as short-term capital loss.
4. Disallowance under Section 14A of the Income Tax Act.

Analysis:

1. Disallowance of expenses on the issue of Foreign Currency Convertible Bond:
The Tribunal dismissed the Revenue's appeal on this issue, relying on decisions from the Delhi High Court and Rajasthan High Court. The expenses incurred for the issue of FCCB were considered revenue in nature as they were for raising a loan. The Court, based on previous judgments, concluded that the expenses were not capital in nature. As the issue was already settled in favor of the Respondent-Assessee in a previous case, the question did not give rise to any substantial question of law and was not entertained.

2. Interpretation of DTAA regarding expenses on the issue of Foreign Currency Convertible Bond:
The Tribunal deleted the disallowance of expenses on the issue of FCCB based on the interpretation of the DTAA. The decision of a coordinate bench in a similar case was relied upon, and the Tribunal dismissed the Revenue's appeal. The Court, having passed a similar order in another appeal related to the same issue, found no substantial question of law and did not entertain the question.

3. Addition arising from the assignment of a loan claimed as short-term capital loss:
The Tribunal dismissed the Revenue's appeal on this issue, citing a decision from a coordinate bench. The Court had previously passed an order on a similar issue in another case and dismissed the Revenue's appeal. The decision in the other case was deemed applicable to the present facts, and as no substantial question of law arose, the question was not entertained.

4. Disallowance under Section 14A of the Income Tax Act:
The Tribunal restricted the disallowance under Section 14A to 5% of the exempt income, based on the retrospective application of Rule 8D of the Income Tax Rules. The Court upheld this view, considering it in line with the decision of the Supreme Court. As the Tribunal's decision aligned with the Supreme Court's ruling, no substantial question of law was found to arise, and the question was not entertained.

The appeal was admitted on the reframed substantial question of law as mentioned above, and the Registry was directed to communicate the order to the Tribunal for further proceedings.