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2016 (5) TMI 453 - AT - Income TaxTaxability of dividend income received from Bank of Barhad , Malaysia - Held that - , it could be safely be concluded that the new treaty is effective only from 1.4.2004 and hence not applicable for Asst Year 2004-05. Accordingly, for Asst Year 2004-05, the taxability of foreign dividend income would be governed only by the old treaty entered into on 25.10.1976. - Dividend received from foreign company in Malaysia by the assessee is not liable to be taxed in India.
Issues:
1. Disallowance of bad debts written off in respect of non-rural advances claimed u/s 36(1)(vii) of the Act. 2. Disallowance of provision for bad and doubtful debts claimed u/s 36(1)(viia) of the Act in excess of provisions created in the books. 3. Disallowance of provision for bad and doubtful debts claimed under second proviso to section 36(1)(viia) of the Act. 4. Disallowance of prior period expenses. 5. Disallowance u/s 14A of the Act. 6. Exclusion of profit on sale of investment and inclusion of profit/loss as per investment trading account. 7. Taxability of dividend received from Bank of Barhad, Malaysia in terms of DTAA between India and Malaysia. 8. Disallowance of loss on amortization of investment. 9. Addition towards gain on account of securitization. 10. Disallowance of provision for leave encashment u/s 43B of the Act. 11. Granting relief u/s 91 of the Act in respect of MAT payable u/s 115JB of the Act. 12. Applicability of provisions of section 115JB of the Act to assessee bank. 13. Disallowance of various provisions while computing book profits u/s 115JB of the Act. 14. Disallowance u/s 14A of the Act under section 115JB of the Act. Detailed Analysis: 1. Disallowance of Bad Debts Written Off in Respect of Non-Rural Advances Claimed u/s 36(1)(vii) of the Act: The assessee claimed deduction towards bad debts written off u/s 36(1)(vii) of the Act. The AO held that the assessee, being a bank, is entitled to deduction towards provision for bad and doubtful advances u/s 36(1)(viia) of the Act, and granting deduction u/s 36(1)(vii) would result in double deduction. The Tribunal found that the issue is covered in favor of the assessee by the decision of the Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd vs CIT. The Tribunal set aside the issue to the AO for verification of figures. 2. Disallowance of Provision for Bad and Doubtful Debts Claimed u/s 36(1)(viia) of the Act in Excess of Provisions Created in the Books: The assessee argued that the deduction should not be restricted to the provision made in the books but should be allowed at the rates specified in the Act. The Tribunal held that the deduction u/s 36(1)(viia) is limited to the provision made in the books, following the decision of the Hon’ble Punjab and Haryana High Court in State Bank of Patiala vs CIT. The Tribunal dismissed the ground. 3. Disallowance of Provision for Bad and Doubtful Debts Claimed under Second Proviso to Section 36(1)(viia) of the Act: The assessee did not press this ground during the hearing. Hence, the ground was dismissed as not pressed. 4. Disallowance of Prior Period Expenses: The assessee did not press this ground during the hearing. Hence, the ground was dismissed as not pressed. 5. Disallowance u/s 14A of the Act: The assessee objected to the disallowance u/s 14A, arguing that the shares were held as stock in trade. The Tribunal held that disallowance u/s 14A applies regardless of whether shares are held as investments or stock in trade. The Tribunal directed the AO to disallow 1% of the exempt income, following the decision of the Hon’ble Calcutta High Court in CIT vs M/s R.R.Sen & Brothers P Ltd. 6. Exclusion of Profit on Sale of Investment and Inclusion of Profit/Loss as per Investment Trading Account: The assessee claimed exclusion of profit on sale of investments and deduction for loss on sale of investment. The Tribunal found that the issue is covered by the Hon’ble Supreme Court's decision in the assessee’s own case, where it was held that the assessee is entitled to show its real income by taking into account the market value of investments. The Tribunal allowed the grounds. 7. Taxability of Dividend Received from Bank of Barhad, Malaysia in Terms of DTAA Between India and Malaysia: The assessee claimed exemption for dividend income from Bank of Barhad, Malaysia. The Tribunal held that the new treaty between India and Malaysia is effective only from 1.4.2004 and is not applicable for AY 2004-05. The Tribunal followed the Hon’ble Supreme Court's decision in DCIT vs Torqouise Investment & Finance Ltd & Ors, holding that the dividend is not taxable in India. The ground was allowed. 8. Disallowance of Loss on Amortization of Investment: The assessee did not press this ground during the hearing. Hence, the ground was dismissed as not pressed. 9. Addition Towards Gain on Account of Securitization: The assessee did not press this ground during the hearing. Hence, the ground was dismissed as not pressed. 10. Disallowance of Provision for Leave Encashment u/s 43B of the Act: The assessee claimed deduction for provision for leave encashment. The Tribunal noted that the issue is covered by the Hon’ble Calcutta High Court's decision in Exide Industries Ltd vs Union of India. The Tribunal set aside the issue to the AO to pass orders based on the outcome of the appeal pending before the Hon’ble Supreme Court. The ground was allowed for statistical purposes. 11. Granting Relief u/s 91 of the Act in Respect of MAT Payable u/s 115JB of the Act: The assessee claimed relief u/s 91 for taxes paid outside India. The Tribunal held that section 91 does not distinguish between normal provisions and section 115JB, following the decision of the Mumbai Tribunal in Hindustan Construction Co Ltd vs CIT. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the revenue's ground. 12. Applicability of Provisions of Section 115JB of the Act to Assessee Bank: The Tribunal held that section 115JB is not applicable to the assessee bank, following its decision in the assessee’s own case for AY 2002-03. The Tribunal allowed the additional grounds raised by the assessee. 13. Disallowance of Various Provisions While Computing Book Profits u/s 115JB of the Act: In view of the decision that section 115JB is not applicable to the assessee bank, the grounds raised by the assessee and revenue became infructuous and academic. The Tribunal allowed the assessee's grounds and dismissed the revenue's grounds. 14. Disallowance u/s 14A of the Act under Section 115JB of the Act: In view of the decision that section 115JB is not applicable to the assessee bank, the ground raised by the assessee became infructuous and academic. The Tribunal allowed the ground. Summary: The appeals were partly allowed for statistical purposes, with some grounds dismissed as not pressed and others allowed based on judicial precedents and the Tribunal's findings. The revenue's appeal was dismissed.
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