2013 (11) TMI 932 - AT - Income Tax

Deduction u/s 80M - Discrimination with foreign bank - DTAA with France - Held that - Assessee cannot claim a deduction under section 80M without fulfilling the conditions as required under the said section. Assessee before us admittedly does not fulfill the conditions prescribed under section 80M and therefore, cannot claim deduction under section 80M - Since there is only one direct decision given by a Coordinate Bench interpreting the non discrimination clause in the case of foreign Bank in the case of Credit Llyonnais (2004 (2) TMI 279 - ITAT BOMBAY-J) and as there is no other contradictory decision under the same DTAA, we are of the view that the Coordinate Bench decision has to be followed. Even when there is a diversion of views by the different Benches on same issue, then the decision which laid down the principles more elaborately and logically after considering the latest statutory provisions as applicable has to be followed - reduction of tax rate way back in 1976 itself is after withdrawing the deduction under section 80M specifically to the foreign companies and further allowance of deduction as contested by assessee would result in a reverse discrimination of the Indian company vis- -vis tax rate of foreign company, in our view does not come under the definition of non discrimination. We are not convinced with the contention of assessee with reference to the reduction rate under section 80M - no reason to constitute a Special Bench on this issue when there is no other contradictory order analyzing the Indo-French DTAA particularly invoking non- discrimination clause while taxing dividends under section 115A at a reduced rate - Decided against assessee.

Issues Involved:
1. Deduction under Section 80M of the Income Tax Act.
2. Provision for interest on bad and doubtful debts.
3. Expenditure on repairs and maintenance of flats and premises.
4. Verification of call money and securities transactions.
5. Allowability of certain expenses under various sections of the Income Tax Act for AY 1994-95.

Detailed Analysis:

Issue 1: Deduction under Section 80M of the Income Tax Act
The primary issue was whether the appellant, a foreign company, could claim a deduction under Section 80M of the Income Tax Act, 1961, which is typically available to domestic companies. The appellant argued that under Article XXI of the Double Taxation Avoidance Agreement (DTAA) between India and France, the non-discrimination clause should allow them to claim this deduction. The Tribunal considered various arguments and precedents, including the case of Standard Chartered Bank v. IAC and the interpretation of terms like "national" and "domestic company."

The Tribunal concluded that the deduction under Section 80M is not applicable to foreign companies, as the law specifically provides this benefit to domestic companies only. The Tribunal also noted that the appellant did not fulfill the conditions required under Section 80M, and therefore, the claim was not allowable. The decision was supported by the case of Credit Llyonnais v. Dy. CIT, which held that non-discrimination clauses do not apply to tax rate differences between domestic and foreign companies. Consequently, the Tribunal dismissed the appellant's claim for deduction under Section 80M.

Issue 2: Provision for Interest on Bad and Doubtful Debts
The appellant contested the disallowance of Rs. 42,47,986 made by the Assessing Officer (AO) concerning the provision for interest on bad and doubtful debts. The appellant argued that the accounting for these revenues/expenses was in accordance with the RBI Circular, which states that interest on bad and doubtful debts should be accounted for on a cash basis.

The Tribunal restored the issue to the AO for fresh examination, directing that a consistent stand be taken in line with previous years and the principles laid down by the Supreme Court in UCO Bank v. Commissioner of Income-tax.

Issue 3: Expenditure on Repairs and Maintenance of Flats and Premises
The AO disallowed Rs. 11,38,183 as capital expenditure, but the CIT(A) allowed Rs. 4,99,182 while disallowing Rs. 6,39,000, which was considered a provision and not an actual liability incurred during the year. The appellant argued that the liability to pay had arisen in the year under consideration, supported by the case of CIT v. United Motors (India) Ltd.

The Tribunal restored the issue to the AO for re-examination, directing the appellant to furnish necessary bills and details of the repairs undertaken.

Issue 4: Verification of Call Money and Securities Transactions
The appellant raised issues regarding the verification of call money and securities transactions. The Tribunal noted that the appellant did not press these grounds during the arguments, and thus, these grounds were dismissed.

Issue 5: Allowability of Certain Expenses under Various Sections of the Income Tax Act for AY 1994-95
The appellant contested the disallowance of expenses under Rules 6D, 6B, Section 37(2), Section 43B, and payments to clubs. The CIT(A) had set aside the issue to the AO to apply the decision of the Authority for Advance Ruling (AAR) in the appellant's case.

The Tribunal agreed with the appellant's contention that the DTAA, which is more beneficial, should be applied, and disallowances under the Income Tax Act should not be made while allowing general and administrative expenses. The Tribunal followed the precedent set in the case of Abu-Dhabi Commercial Bank and allowed the appellant's claim, modifying the orders of the AO and the CIT(A).

Conclusion:
The Tribunal dismissed the appellant's claim for deduction under Section 80M, restored the issue of provision for interest on bad and doubtful debts to the AO, directed re-examination of the expenditure on repairs, dismissed the grounds related to call money and securities transactions, and allowed the appellant's claim regarding the allowability of certain expenses under various sections of the Income Tax Act for AY 1994-95.

← Previous Next →