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2017 (2) TMI 630 - AT - Income TaxNature of receipt of Credits - capital receipt OR revenue receipt - Aircraft were acquired on lease - On delivery of aircrafts fitted with the engines supplied by the IAE, the assessee was allowable to get some credits from IAE. Similarly, suppliers of other components of aircrafts also extended credits to the assessee. - Held that - Credits received by the appellant from IAE are capital in nature. TDS u/s 195 - disallowance of supplementary lease rents exempted under section 10(15A) - Held that - Assessee was not required to deduct TDS on supplementary lease rental being exempt under section 10(15A) of the Act. Accordingly, the disallowance made under section 40(a)(i) of the Act is deleted .See Jet Light (India) Ltd. 2015 (11) TMI 304 - DELHI HIGH COURT Disallowance u/s 14A - Held that - The computation of disallowance made by the Assessing Officer under Rule 8D of the Rules, cannot be accepted. Accordingly, we restore the issue to the file of the Assessing Officer to examine the submission of the assessee in respect of interest specific to loans and compute the disallowance under Rule 8D in view of the ratio laid down by the Hon ble High Court in the case of Bharti Overseas Private Limited (2015 (12) TMI 1423 - DELHI HIGH COURT ).
Issues Involved:
1. Classification of credits from suppliers as revenue or capital receipts. 2. Jurisdiction of the Commissioner of Income-tax (Appeals) to enhance assessed income. 3. Disallowance of Supplementary Lease Rent due to non-deduction of tax at source. 4. Exemption of Supplementary Lease Rent under section 10(15A) and the Double Taxation Avoidance Agreement. 5. Disallowance under section 14A of the Income-tax Act. Detailed Analysis: 1. Classification of Credits from Suppliers: The assessee argued that credits received from suppliers of aircraft engines and components should be treated as capital receipts, not liable to tax. The Tribunal referred to its earlier decision for the assessment year 2007-08, where it was held that such credits are capital in nature. The Commissioner of Income-tax (Appeals) had enhanced the addition by treating these credits as revenue receipts, considering them as commissions for fixing sales orders. However, the Tribunal reversed this finding, holding that the credits were capital receipts, thus deleting the addition. 2. Jurisdiction of the Commissioner of Income-tax (Appeals): The assessee challenged the jurisdiction of the Commissioner of Income-tax (Appeals) to enhance the assessed income. The Tribunal did not specifically address this issue separately but allowed the grounds related to the classification of credits, which indirectly addressed the jurisdictional challenge. 3. Disallowance of Supplementary Lease Rent: The Assessing Officer disallowed the Supplementary Lease Rent under section 40(a)(ia) for non-deduction of tax at source under section 195. The Tribunal referred to its earlier decision and the Delhi High Court's ruling in Jet Lite (India) Ltd., which held that Supplementary Lease Rent was exempt under section 10(15A) and thus not liable for TDS. Consequently, the Tribunal deleted the disallowance. 4. Exemption under Section 10(15A) and Double Taxation Avoidance Agreement: The Tribunal found that the payments made for Supplementary Lease Rent vis-a-vis lease agreements executed before April 1, 2007, were exempt under section 10(15A). For agreements executed after this date, the Tribunal upheld the exemption under the Double Taxation Avoidance Agreement between India and Ireland, following the earlier Tribunal and High Court decisions. 5. Disallowance under Section 14A: The Assessing Officer had disallowed ?48,77,850 under section 14A, invoking Rule 8D. The Tribunal noted that the assessee had attributed a portion of the salary expenses to investment activities and argued that the interest expenses were for specific purposes not related to earning dividend income. The Tribunal, referring to the Delhi High Court's decision in Bharti Overseas Private Limited, held that the computation of disallowance under Rule 8D should exclude interest directly attributable to taxable income. The issue was restored to the Assessing Officer for recomputation in line with the High Court's ruling. Conclusion: The appeals for both assessment years were partly allowed for statistical purposes, with significant relief granted to the assessee on the primary issues of classification of credits and disallowance of Supplementary Lease Rent. The Tribunal's decisions were consistent with its earlier rulings and relevant High Court judgments, ensuring uniform application of the law. The decision was pronounced on November 18, 2016.
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