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2016 (7) TMI 562 - AT - Income TaxTDS u/s 195 - non deduction of tax at source on payment to Centre for Investment and Business Advisory, Indonesia as fees for technical services (FTS) under section 9(1)(vii) - Disallowance of expenses under section 40(a)(ia) - India-Indonesia DTAA - Held that - As contended by the learned A.R. for the assessee, a perusal of the impugned order shows that the learned CIT(A), in coming to the finding he did, has not examined the India-Indonesia DTAA and adjudicated thereon while passing the impugned order which the assessee claims is favourable to it and ought to have been applied. In these circumstances, in the interest of equity and justice, we restore this issue to the file of the learned CIT(A) to examine the assessee s claim in this regard with respect to the India-Indonesia DTAA and to allow the assessee the benefit of that which is favourable to it, i.e. the DTAA or the Act, in accordance with law and after affording the assessee adequate opportunity of being heard and to submit details/submissions in this regard. It is accordingly ordered. - Decided in favour of assessee for statistical purposes. Disallowance of Expenses incurred for GDRs - revenue or Capital Expenditure - Held that - Hon ble Apex Court in the case of Brook Bond India Ltd. (1997 (2) TMI 11 - SUPREME Court ) has held that even though the increase in capital results in expansion of the capital base of the company and incidentally that would help the business of the company and may also help in profit making, the expenses incurred in that connection still retains the character of capital expenditure since the expenditure is directly related to the expensing of the capital base of the company. In that view of the matter, the aforesaid expenditure incurred by the assessee in the case on hand for listing of GDRs is capital expenditure and the assessee s claim that the said expenditure be allowed under section 37(1) of the Act is not legally tenable as the share capital of the assessee has increased consequent to the issue of GDRs and the said expenditure incurred is clearly capital in nature. We, therefore, finding no infirmity in the impugned order of the learned CIT(A) uphold the finding therein that the said expenditure of ₹ 49,01,024/- paid to Linklaters, U.K. in respect of listing of GDRs is capital expenditure and the same is not allowable under section 37(1) of the Act. - Decided against assessee Disallowance under section 14A r.w. Rule 8D - Held that - It is seen that the case on hand is not one where no exempt income was earned by the assessee. In such circumstances, various Coordinate Benches of this Tribunal have observed that in such cases certain percentage of exempt income can constitute the basis for a reasonable estimate for making the disallowance under section 14A of the Act for assessment years prior to A.Y. 2008-09. Such a view; that a disallowance of 5% of exempt income under section 14A of the Act was reasonable has been taken in the case of VFC Securities Pvt. Ltd. vs. ITO 2010 (8) TMI 998 - ITAT MUMBAI and in DCIT vs. Alka Securities Ltd. 2012 (7) TMI 982 - ITAT MUMBAI for A.Y. 2007-08 by Coordinate Benches of this Tribunal. Following the ratio of the aforesaid decisions of this Tribunal (supra), we direct the AO to instruct the disallowance under section 14A of the Act for this year to 5% of the exempt income earned by the assessee - Decided partly in favour of assessee Disallowance of Expenditure on FCCB issue - Held that - Following the ratio of the decision of the Coordinate Bench of this Tribunal in the case of Prime Focus Ltd. (2016 (5) TMI 360 - ITAT MUMBAI ), we hold that, in the facts and circumstances of the case on hand, the expenditure incurred by the assessee in connection with the issue of FCCBs was correctly held to be revenue in nature by the learned CIT(A), being expenses incurred in connection with the raising of debts and allowable expenditure under section 37(1) of the Act. - Decided in favour of assessee TDS u/s 195 - non deduction of tds on payment of legal and professional fees, L/C Commission, arranger fees, etc.- Held that - The issue under consideration is covered by the decision of the Coordinate Bench of this Tribunal in the case of Raymond Ltd. vs. DCIT (2002 (4) TMI 891 - ITAT MUMBAI ) wherein it was held that neither management commission nor underwriting commission nor selling commission would amount to FTS within the meaning of the DTAA with U.K. and consequently there was no obligation on the part of the assessee-company to deduct tax under section 195 of the Act. Following the decision of the Coordinate Bench, we hold that there is no liability case on the assessee in the case on hand to withhold tax under section 195 of the Act on the said payments which, inter alia, constitute payment of legal and professional fees, L/C Commission, arranger fees, etc., incurred in connection with the issue of FCCBs and therefore no disallowance under section 40(a)(i) of the Act is called for. - Decided in favour of assessee Disallowance of STCL on Loan Assignment - Held that - Following the decision of the Coordinate Bench of this Tribunal in the case of Siemens Nixdorf Informations systeme GmbH (2016 (4) TMI 384 - ITAT MUMBAI) we uphold the order of the learned CIT(A) in allowing the assessee s claim for STCL on assignment of loan to M/s. Western Power Alliance Ltd. - Decided in favour of assessee
Issues Involved:
1. Disallowance of expenses under section 40(a)(i) due to non-deduction of tax at source. 2. Disallowance of professional fees as capital expenditure. 3. Disallowance under section 14A r.w. Rule 8D. 4. Disallowance of expenses on issue of Foreign Currency Convertible Bonds (FCCB). 5. Disallowance of short-term capital loss (STCL) on loan assignment. Issue-wise Detailed Analysis: 1. Disallowance of Expenses under Section 40(a)(i) due to Non-Deduction of Tax at Source: The assessee contested the disallowance of ?7,31,115 paid to Centre for Investment and Business Advisory, Indonesia. The payment was for tax due diligence services in Indonesia. The assessee argued that the payment was not liable to tax in India under the India-Indonesia DTAA, and thus no tax was deductible under section 195. The Tribunal noted that the CIT(A) did not consider the DTAA and restored the issue to the CIT(A) for examination under the DTAA provisions, allowing the assessee to benefit from the DTAA or the Act, whichever is favorable. 2. Disallowance of Professional Fees as Capital Expenditure: The assessee contested the disallowance of ?49,01,024 paid as professional fees for listing Global Depository Receipts (GDRs). The CIT(A) upheld the AO's decision, treating the expenditure as capital in nature, relying on the Supreme Court's decision in Brook Bond India Ltd., which held that expenses related to expanding the capital base are capital expenditures. The Tribunal found no infirmity in the CIT(A)'s order and dismissed the assessee's appeal on this ground. 3. Disallowance under Section 14A r.w. Rule 8D: The assessee contested the disallowance of administrative expenses under section 14A. The CIT(A) directed the AO to work out the disallowance at 6% of the average weighted investment in tax-free securities. The Tribunal noted that Rule 8D was applicable from A.Y. 2008-09 and not for A.Y. 2007-08. It directed the AO to restrict the disallowance to 5% of the exempt income earned by the assessee, following the precedent set by various Tribunal decisions. Consequently, the assessee's appeal was partly allowed on this ground. 4. Disallowance of Expenses on Issue of FCCB: The Revenue contested the deletion of the disallowance of ?28,58,28,246 incurred on the issue of FCCBs, arguing that the expenses were capital in nature. The CIT(A) held that FCCBs are akin to debentures, and the expenses were allowable under section 37(1). The Tribunal upheld this view, citing the decision in Prime Focus Ltd., which treated FCCB issue expenses as revenue in nature. Additionally, the Tribunal found that there was no obligation to deduct tax at source on these payments under section 195, as supported by the decision in Raymond Ltd. Consequently, the Revenue's appeal on this ground was dismissed. 5. Disallowance of STCL on Loan Assignment: The Revenue contested the deletion of the disallowance of STCL of ?17,75,67,418 on the assignment of a loan to M/s. Western Alliance Power Ltd. The CIT(A) allowed the claim, holding that the loan constituted a capital asset and its assignment resulted in a capital loss. The Tribunal upheld this view, referencing the decision in Siemens Nixdorf Informationssysteme GmbH, which treated similar transactions as resulting in a short-term capital loss. Consequently, the Revenue's appeal on this ground was dismissed. Conclusion: The Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, providing detailed reasoning for each issue based on applicable legal precedents and interpretations of the Income Tax Act and relevant DTAA provisions.
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