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2017 (3) TMI 807 - AT - Income TaxInterest paid to NOSTRO account - disallowance of claim as interest paid can be claim only by the head office of the Bank - Held that - The disallowance of interest paid on account of NOSTRO not sustainable, the assessee Bank has to maintain an account abroad, this is to be denominated in foreign currency. The bank charged with interest if the NOSTRO account has overdrawn balances. Thus, we are fully convinced with the submission of ld AR of the assessee that the interest on NOSTRO account overdraw maintained with foreign Bank i.e. Bank of New York U.S.A. is pertains to Branch in India. The alternative plea of the ld AR for the assessee is also acceptable one as deduction has to be allowed in view of the Ground No.1 allowed in favour of assessee. Hence, the ground No. 2 raised by assessee is allowed. Disallowance of provision for standard asset written back - Held that - We have seen that the assessee bank have been consistently offering to tax the provisions made for standard asset and claiming as deduction the provision written back. The ld AR for the assessee made the submission that provision written back during the year represents amounts which were disallowed in earlier years and therefore should be allowed in the year of written back. In our view the contention raised by the assessee require consideration by assessing officer, therefore, this ground of appeal is remanded to the assessing officer to appreciate and consider the above fact and pass the order afresh in accordance with law. In the result this ground of appeal is allowed for statistical purpose. Entrance fees paid for Corporate Club membership - Held that - The ground of appeal under consideration is squarely covered by the decision in case of CIT Vs United Glass MGF Ltd 2012 (9) TMI 914 - SUPREME COURT wherein it was held that Club membership fees for employees incurred by the assessee is business expenses under section 37 of the Income Tax Act. Taxability of Capital Gain pertaining to DBS FII operation in India as business income - Held that - As considered the contention of ld AR of the assessee that DRP vide order dated 16 September 2010 held that Capital Gain arising on the sale of securities by DBS FII is not taxable in India as per Article 13 India-Singapore DTAA. Further, the revenue has not tax the Capital Gains on sale of securities by DBS FII for Assessment Year 2006-07 to 2012-13. Considering, the factual position narrated above, we direct the assessing officer to allow the similar relief to the assessee after verification if the Capital Gain on sale of securities by DBS FII is not tax for Assessment Year 2006-07 to 2012-13. Hence, this ground of appeal is allowed in favour of assessee. Revaluation of unmatured forward foreign exchange contracts - Held that - Considering the decision of Tribunal in assessee s own case for AY 2003-04 and keeping in view the principle of consistency the ground No.6 of assessee s appeal is allowed as held issue is covered by the judgment in case of CIT versus Woodward Governor India Private Limited (2009 (4) TMI 4 - SUPREME COURT ) in which it has been held that adjustments on account of foreign exchange fluctuation can be made on each balance-sheet in respect of any forward foreign exchange contract pending actual payment and any loss arising therefrom has to be allowed as an item of expenditure under section 37(1). We, therefore, see no infirmity in the order of CIT(A) in allowing the claim of loss of the assessee. Applicability of provisions of section 44C in allowing head office expenses - Held that - Similar disallowance was allowed in favour of assessee for assessment year 1999- 00 & 2001-02.The assessing officer and the ld CIT(A) have not benefit of the finding of the Tribunal. Thus, in all fairness the assessing officer is directed to verify the fact and decide the issue in accordance with law. Needless, to order that the assessing officer shall grant the opportunity to assessee before passing the order. Thus, this ground of appeal is allowed for statistical purposes. Appeal of the revenue is partly allowed.
Issues Involved:
1. Disallowance of interest paid to head office/overseas branches. 2. Disallowance of interest paid to NOSTRO accounts. 3. Disallowance of provision for standard asset written back. 4. Disallowance of fee paid for Corporate Club membership. 5. Taxability of Capital Gain as business income. 6. Loss on revaluation of unmatured forward foreign exchange contracts. 7. Applicability of provisions of section 44C in allowing head office expenses. 8. Refund of tax deducted at source on interest paid to head office/overseas branches. 9. Exclusion of interest received by Indian branch from head office in taxable income. Detailed Analysis: 1. Disallowance of Interest Paid to Head Office/Overseas Branches: The Tribunal found that the issue of disallowance of ?1,87,79,288/- interest paid to the head office/overseas branches was covered in favor of the assessee based on the assessee's own case for the Assessment Year 2003-04. The Tribunal held that under domestic law, the interest paid by the Indian branch to the head office was not allowable as it was a payment to self. However, under Article 7(2) and 7(3) of the Indo-Japanese treaty, the interest payment was allowable while determining the profit attributable to the PE. Therefore, the Tribunal allowed the claim of expenditure on account of interest. 2. Disallowance of Interest Paid to NOSTRO Accounts: The Tribunal noted that the interest paid on NOSTRO accounts pertains to the branch in India and is maintained with foreign banks, not with the head office/overseas branches. The Tribunal found the disallowance by the authorities below unsustainable and allowed the deduction of ?28,503/- interest paid on NOSTRO accounts. 3. Disallowance of Provision for Standard Asset Written Back: The Tribunal remanded this issue back to the Assessing Officer for verification. The assessee claimed that the provision written back during the year represented amounts disallowed in earlier years and should be allowed in the year of written back. The Tribunal directed the Assessing Officer to consider the details and pass an order afresh. 4. Disallowance of Fee Paid for Corporate Club Membership: The Tribunal allowed the deduction of the corporate club membership fee, following the decision of the Supreme Court in the case of CIT Vs United Glass MGF Ltd, which held that club membership fees for employees incurred by the assessee is a business expense under section 37 of the Income Tax Act. 5. Taxability of Capital Gain as Business Income: The Tribunal directed the Assessing Officer to allow the relief after verification, noting that the capital gains on the sale of securities by DBS FII were not taxable in India as per Article 13 of the India-Singapore DTAA. The Tribunal referenced previous orders in the assessee’s favor for the assessment years 2006-07 to 2012-13. 6. Loss on Revaluation of Unmatured Forward Foreign Exchange Contracts: The Tribunal allowed the assessee's appeal and dismissed the revenue's cross-appeal, following the decision in the assessee's own case for the Assessment Year 2003-04. The Tribunal upheld that the loss on revaluation of unmatured forward foreign exchange contracts is allowable as an item of expenditure under section 37(1), as per the Supreme Court judgment in CIT versus Woodward Governor India Private Limited. 7. Applicability of Provisions of Section 44C in Allowing Head Office Expenses: The Tribunal remanded this issue back to the Assessing Officer for verification, directing that the expenses aggregating to ?68,81,733/- should be considered as allowable deductions under Article 7(3) of the India-Singapore tax treaty. The Tribunal referenced decisions in the assessee’s favor for previous assessment years. 8. Refund of Tax Deducted at Source on Interest Paid to Head Office/Overseas Branches: The assessee did not press this ground in the cross-objection, and the Tribunal dismissed it accordingly. 9. Exclusion of Interest Received by Indian Branch from Head Office in Taxable Income: Similarly, the assessee did not press this ground in the cross-objection, and the Tribunal dismissed it. Conclusion: The Tribunal allowed the assessee's appeal on the major grounds while remanding some issues back to the Assessing Officer for verification and fresh consideration. The revenue's appeal was partly allowed, and the cross-objections filed by the assessee were dismissed.
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