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2020 (12) TMI 862 - AT - Income TaxIncome accrue in India - exclusion/inclusion of profits of foreign branches from taxable income in India - HELD THAT - The notification deals with connotations of the expression may be taxed , appearing in the tax treaties entered into by India, and there is absolutely no basis whatsoever to support the proposition that the effect of the notification has to be restricted in its application to non-business income only. No such differentiation in treatment of business and non-business income is envisaged in the said notification, nor to do we see any justification for inferring the same Assessee does not have any material whatsoever in support of the proposition canvassed by him, nor does this proposition make any sense on the first principles- inasmuch as once the notification is issued without any such specific restriction for application to business income, we cannot infer a restriction in its application. We, therefore, reject the plea of the assessee, and thus decline to interfere in the matter. We uphold the action of the Assessing Officer in including the profits of the assessee s overseas branches in its taxable income in India. Tax credit for the taxes paid abroad - Assessee has not given specific details of the taxes so paid abroad in respect of which tax credit is sought. On a perusal of the material before us, we find that the assessee has claimed a deduction of ₹ 46,96,14,034 in connection with the taxes paid abroad which has been granted by the Assessing Officer, though under section 91. It is not clear whether this tax credit is in respect of the income of the overseas branches in question of the assessee, or in respect of some other income. We, therefore, direct that in case the assessee furnishes the requisite details of the taxes paid abroad in respect of the profits of these branches, no tax credit has been claimed in respect of the same so far, and in case the claim so made is admissible in terms of the provisions of the related double taxation avoidance agreement, the AO will allow the tax credit, to the extent admissible, for the taxes so paid abroad on incomes of the branches abroad earned in tax jurisdictions with which India has entered into double taxation avoidance agreement. While granting the tax credit, the Assessing Officer will examine the provisions of the respective tax treaty, and compute the admissible tax credit separately for each jurisdiction in accordance with the scheme of related treaty. With these directions, the matter stands restored back. Levy of Minimum Alternate Tax u/s 115 JB - whether or not the assessee bank is liable to subjected to Minimum Alternate Tax under section 115 JB - whether the income of the foreign branches and, provision for bad doubtful debts is required to be excluded from the computation of book profits computed under section 11JB - HELD THAT - So far as the issue regarding alleged inapplicability of Section 115JB on the assessee is concerned, we reject the plea of the assessee in principle. So far as the computation of book profits for levy of MAT is concerned, we have upheld one of the grievances of the assessee and remitted the matter to the file of the CIT(A) for factual verification. Addition u/s 40(a)(ia) - education cess and higher and secondary education cess - HELD THAT - The issue is covered, in favour of the assessee in the case of Sesa Goa Ltd 2020 (3) TMI 347 - BOMBAY HIGH COURT but as the related facts have not been examined at any stage, the matter can be remitted to the file of the Assessing Officer for examination de novo in accordance with the law, including the above cited judicial precedent. We accept this suggestion, and, therefore, remit the matter to the file of the Assessing Officer for fresh adjudication as above. Taxability of broken period interest - HELD THAT - CIT(A) is correct in upholding that the broken period interest paid is taxable on due basis instead of accrual basis. Provision for Wage revision - CIT-A allowed the claim - HELD THAT - Learned representatives fairly agree that this issue is covered by several decisions of the coordinate benches in assessee s own case, and that is a fact noted by the learned CIT(A) in the impugned order itself as well. There is no good reason, nor has any reason been pointed to us, to take a different view of the matter. Respectfully following the esteemed views of the coordinate bench, and particularly as no contrary view by a higher judicial forum, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. Amortization of premium of investments - CIT-A allowed the claim - HELD THAT - This issue is covered by several decisions of the coordinate benches in assessee s own case, and that is a fact noted by the learned CIT(A) in the impugned order itself as well. respectfully following the esteemed views of the coordinate bench, and particularly as Hon ble jurisdictional High Court, in the case of CIT Vs HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT has taken the same view, we approve the conclusions arrived at by the learned CIT(A) Deductibility of interest on perpetual bonds - Perpetual Bonds cannot be compared to the equity/ share capital of the banks - CIT(A) reversed the action of the Assessing Officer and allowed the said deduction - HELD THAT - Perpetual bonds issued by the assessee are in nature of borrowings only as interest on these bonds are paid at pre fixed rate, the interest so paid is classified only under schedule -15 - Interest expended in the financial statements. Further, interest paid on these bonds are also subjected to TDS, and that even though the bonds are stated to be perpetual, the bank has an option of issuing call option after a period of 10 years. None of these submissions, however, address the core issue regarding the bonds having an element of refund or repayment. How the interest is shown in the boks of accounts, and whether or not the tax is deducted at source will not govern the issue of deductibility of these amounts, or addresses the issue raise in the judicial precedent in question. The judicial precedent relied upon by the revenue authorities cannot simply br brushed aside; the issue needs to be addressed. In none of the orders of the authorities below the terms on which the perpetual bonds have been issued are discussed in adequate detail, and there is no material before us to come to a categorical finding one way or the other. In these circumstances, in our considered view, the right course of action will be to remit the matter to the file of the Commissioner (Appeals) for adjudication de novo.
Issues Involved:
1. Exclusion of income from foreign branches from taxable income in India. 2. Applicability of Minimum Alternate Tax (MAT) under section 115JB. 3. Disallowance under section 14A read with Rule 8D. 4. Amortization of lease premium. 5. Deductibility of education cess and higher and secondary education cess. 6. Taxability of broken period interest. 7. Provision for wage revision. 8. Amortization of premium on investments. 9. Classification of perpetual bonds as equity or debt. 10. Disallowance under section 14A for book profit computation. Detailed Analysis: 1. Exclusion of Income from Foreign Branches: The primary issue was whether the income of the assessee bank from its foreign branches should be excluded from taxable income in India. The Tribunal observed that under the scheme of the law, particularly section 90(3) read with notification no. SO 2123(E) dated 28th August 2008, the global income of an Indian resident is taxable in India. Relief for double taxation is provided through tax credits rather than exemption. The Tribunal upheld the Assessing Officer's decision to include the income from foreign branches in the taxable income of the assessee but directed the Assessing Officer to allow tax credits for taxes paid abroad, if admissible under the respective tax treaties. 2. Applicability of MAT under Section 115JB: The Tribunal examined whether the assessee bank is liable to MAT and if so, whether the income of foreign branches and provisions for bad debts should be excluded from book profits. The Tribunal held that the assessee bank, being an Indian company under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970, is subject to MAT. The Tribunal rejected the plea to exclude the income of foreign branches from book profits but remitted the issue of adding back provisions for bad debts to the CIT(A) for factual verification, following the Gujarat High Court's judgment in Vodafone Essar Gujarat Ltd. 3. Disallowance under Section 14A read with Rule 8D: The Tribunal remitted the issue of disallowance under section 14A to the Assessing Officer for fresh adjudication, considering the facts and binding judicial precedents, consistent with the decision for the preceding assessment year. 4. Amortization of Lease Premium: The Tribunal noted that the issue is covered against the assessee by decisions of coordinate benches. The assessee did not press the issue further, and the grounds were dismissed as not pressed. 5. Deductibility of Education Cess and Higher and Secondary Education Cess: The Tribunal admitted the additional ground regarding the deductibility of education cess and higher and secondary education cess, noting that the issue is covered in favor of the assessee by the Bombay High Court's judgment in Sesa Goa Ltd. The matter was remitted to the Assessing Officer for fresh adjudication. 6. Taxability of Broken Period Interest: The Tribunal upheld the CIT(A)'s decision to tax broken period interest on a due basis, relying on the Bombay High Court's decision in State Bank of India. 7. Provision for Wage Revision: The Tribunal upheld the CIT(A)'s decision to allow the provision for wage revision, noting that the issue is covered by several decisions of coordinate benches in the assessee's favor. 8. Amortization of Premium on Investments: The Tribunal upheld the CIT(A)'s decision to allow the amortization of premium on investments, following the Bombay High Court's decision in CIT v. HDFC Bank Ltd. 9. Classification of Perpetual Bonds as Equity or Debt: The Tribunal remitted the issue of whether perpetual bonds should be treated as equity or debt to the CIT(A) for fresh adjudication, directing a detailed examination of the terms of the bonds and the element of refund or repayment. 10. Disallowance under Section 14A for Book Profit Computation: The Tribunal upheld the CIT(A)'s decision to exclude disallowance under section 14A from the computation of book profits under section 115JB, following the Special Bench decision in ACIT v. Vireet Investments Pvt Ltd. Conclusion: Both appeals were partly allowed, with specific issues remitted for fresh adjudication and others upheld or dismissed based on existing judicial precedents and detailed analysis of the applicable legal provisions.
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