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2019 (4) TMI 855 - AT - Income TaxApplicability of of MAT on banking company - assessee being a banking company maintaining its accounts under the Banking Regulations Act, 1949, hence provision contained u/s 115JA will not apply - HELD THAT - Section 115JA provides for computation of total income chargeable to tax to be an amount equal to 30% of the book profit in case such income is less than 30% of the book profit. However, sub section (2) of section 115JA of the Act mandates that the company for the purpose of section 115JA of the Act has to prepare its Profit Loss Account in accordance with the provisions of Part II III of Schedule VI of the Companies Act, 1956. Undisputedly, the assessee being governed under the Banking Regulations Act, 1949, is not required to prepare its Profit Loss Account under the provisions of Part II III of Schedule VI of the Companies Act, 1956. That being the case, the provisions of section 115JA of the Act are not applicable to the assessee. Deduction u/s 44C - assessee had claimed that amount being expenditure incurred by the head office in the nature of general, administrative expenses - India U.K. Tax Treaty - HELD THAT - Since the assessee has not contested the applicability of section 44C of the Act either before the Assessing Officer or before Commissioner (Appeals) and has raised it for the first time before us, in our considered opinion, the Department should be given a fair opportunity to examine assessee s claim with regard to applicability or otherwise of section 44C qua Article 26 of India U.K. Tax Treaty. Therefore, we consider it fair and reasonable to restore the issue to the Assessing Officer for examining assessee s claim with regard to the applicability of section 44C of the Act keeping in view the relevant provisions of India U.K. Tax Treaty and the judicial precedents dealing with the issue. - Ground is allowed for statistical purpose. Deduction u/s 44C - Revenue appeal - The Assessing Officer after examining the nature of expenses held that the aforesaid expenditure claimed by the assessee being part of Head Office expenses is eligible for deduction under section 44C , hence, cannot be claimed as deduction separately. - HELD THAT - such expenditures are incurred by the assessee exclusively for the purpose of business of the assessee in India and are not in the nature of Head Office expenses covered u/s 44C. Disallowance on account of Guest House expenses - HELD THAT - While the Assessing Officer has disallowed the guest house expenses by invoking the provision of section 37(4) of the Act, learned Commissioner (Appeals) has allowed assessee s claim relying upon his own decision for the assessment year 1996 97. However, as agreed before us by appearing for the rival parties, the issue has now been settled by virtue of the decision of the Hon'ble Supreme Court in case of Britannia Industries Ltd. 2005 (10) TMI 30 - SUPREME COURT , wherein it is held that in view of the provisions of section 37(4) of the Act such expenditure is not allowable. In view of the aforesaid, we reverse the decision of Commissioner (Appeals) on the issue and restore the addition made by the Assessing Officer. Disallowance of interest expenditure attributable to earning of exempt income - assessee has claimed interest income received on tax free bonds as exempt under section 10(15)(iv) - HELD THAT - As could be seen, learned Commissioner (Appeals) has recorded a categorical factual finding that the interest bearing funds have no nexus with the investment made in tax free bonds. Further, he has also recorded a finding of fact that the assessee had sufficient own fund to make investment in tax free bonds. The aforesaid factual finding of the first appellate authority has not been controverted by the Revenue through any substantive evidence brought on record.
Issues Involved:
1. Computation of income under section 115JA of the Income-tax Act, 1961. 2. Applicability of section 44C of the Income-tax Act, 1961, in light of Article 26 of the India–U.K. Double Taxation Avoidance Agreement (DTAA). 3. Deduction of expenses incurred outside India. 4. Deduction of broken period interest paid on purchase of securities. 5. Deduction of guest house expenses. 6. Disallowance of interest expenditure attributable to earning exempt income. Issue-wise Detailed Analysis: 1. Computation of Income under Section 115JA: The assessee, a foreign company operating in India, contested the computation of income under section 115JA of the Income-tax Act, 1961, arguing that only business profits directly attributable to Indian branches could be taxed in India as per the India–U.K. DTAA. The Assessing Officer (AO) and the Commissioner (Appeals) upheld the applicability of section 115JA, but the Tribunal found that the assessee, being a banking company regulated under the Banking Regulations Act, 1949, was not required to prepare its Profit & Loss Account under the Companies Act, 1956. Therefore, section 115JA was deemed inapplicable to the assessee, aligning with precedents where similar provisions were not applied to banking companies. 2. Applicability of Section 44C in Light of Article 26 of DTAA: The assessee claimed that section 44C, which restricts the deduction of head office expenses, should not apply due to the non-discrimination clause in Article 26 of the India–U.K. DTAA. The Tribunal admitted this additional ground, noting that it did not require fresh fact investigation and should be examined by the AO. The AO was instructed to consider the applicability of section 44C in light of Article 26 and relevant judicial precedents. 3. Deduction of Expenses Incurred Outside India: The AO disallowed expenses incurred outside India, treating them as head office expenses under section 44C. The Commissioner (Appeals) allowed the deduction under section 37(1), noting that similar disallowances in previous years were overturned. The Tribunal upheld this decision, referencing consistent rulings in favor of the assessee in past assessments. 4. Deduction of Broken Period Interest Paid on Purchase of Securities: The AO disallowed the deduction of broken period interest, treating it as part of the capital cost. The Commissioner (Appeals) allowed the deduction, citing favorable decisions by the Tribunal and the Jurisdictional High Court. The Tribunal confirmed this, referencing consistent judicial support for the assessee's position in previous years. 5. Deduction of Guest House Expenses: The AO disallowed guest house expenses under section 37(4). The Commissioner (Appeals) allowed the deduction based on a previous decision. However, the Tribunal reversed this, citing the Supreme Court's decision in Britannia Industries Ltd. v/s CIT, which disallowed such expenses under section 37(4). 6. Disallowance of Interest Expenditure Attributable to Earning Exempt Income: The AO disallowed a portion of the interest expenditure claimed as exempt under section 10(15)(iv), arguing a nexus with interest-bearing funds. The Commissioner (Appeals) found no such nexus and noted sufficient own funds for the investment. The Tribunal upheld this, as the Revenue did not provide substantive evidence to counter the factual findings. Conclusion: Both appeals were partly allowed, with specific issues being remanded for further examination by the AO and others being settled in favor of the assessee based on consistent judicial precedents and factual findings.
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