2019 (1) TMI 1346 - HC - Income Tax

Addition on account of unmatured forwarded foreign exchange transaction being an unascertained liability - Held that - The issue arising herein stands concluded against the Revenue and in favour of the respondent - assessee by the decision of this Court in the case of Director of Income Tax (IT)-1, Vs. Deutsche Bank 2016 (11) TMI 1600 - BOMBAY HIGH COURT rendered wherein an identical question raised by the Revenue was dismissed by following the earlier decision of this Court in the case of CIT Vs. Bank of India 1995 (11) TMI 78 - BOMBAY HIGH COURT . Thus, this question as proposed does not give rise to any substantial question of law, hence, not entertained. Non-resident assessee exercise an option to be assessed under provisions of the Income Tax Act (or) as the came may be the provisions contained in the applicable DTAA - whether the non-resident assessee can exercise this option for each issue / item of income separately or he has to exercise the option for all the contents of income together? - Held that - This question does not arise from the impugned order of the Tribunal. Mr. Tejveer Sing, the learned counsel for the Revenue is unable to point out consideration of this question by the Tribunal. It appears that this question was not even urged before the Tribunal. Thus, no occasion to consider the aforesaid question, hence, not entertained. Appeal is admitted only on Question No. 1 which is a substantial question of law - Whether on the facts and circumstances of the case and in law, the Tribunal was correct in holding that Section 44C is not applicable in respect of Head Office Expenses and such expenses are to be dealt with as per Article 7?

Summary

Issues:
1. Interpretation of Section 44C vs. Article 7 for Head Office Expenses
2. Treatment of disallowed addition on estimate basis for unmatured foreign exchange transaction
3. Non-resident assessee's option to be assessed under Income Tax Act or DTAA

Analysis:
1. Interpretation of Section 44C vs. Article 7 for Head Office Expenses:
The primary issue in this case revolves around the interpretation of Section 44C vis-a-vis Article 7 concerning Head Office Expenses. The Tribunal held that Section 44C is not applicable to these expenses and should be dealt with under Article 7. The appellant challenged this decision, questioning its correctness on factual and legal grounds. The court noted that a similar issue had been addressed in a previous case involving the Director of Income Tax and Deutsche Bank, where the court dismissed the Revenue's appeal based on a previous ruling in the CIT vs. Bank of India case. Consequently, the court found that the question raised by the Revenue did not present a substantial question of law and thus was not entertained.

2. Treatment of disallowed addition on estimate basis for unmatured foreign exchange transaction:
The second issue pertains to the addition of ?1.54 crore claimed on an estimate basis for an unmatured forwarded foreign exchange transaction, which was disallowed by the Assessing Officer due to it being deemed an unascertained liability. The Tribunal directed the deletion of this addition, prompting the appellant to challenge this decision. However, the court did not delve into this issue as it was not entertained, given that it did not arise from the impugned order of the Tribunal. The court highlighted that the question was not raised before the Tribunal, and as a result, there was no occasion to consider it.

3. Non-resident assessee's option to be assessed under Income Tax Act or DTAA:
The final issue concerns a non-resident assessee's choice to be assessed under the Income Tax Act or the applicable Double Taxation Avoidance Agreement (DTAA). The appellant raised a question regarding whether the non-resident assessee could exercise this option separately for each issue or item of income or whether it had to be applied to all income components collectively. However, the court did not entertain this question as it was not considered by the Tribunal, and there was no indication that it was raised during the proceedings. As a result, the court admitted the appeal solely on the substantial question of law related to the interpretation of Section 44C versus Article 7 for Head Office Expenses.

In conclusion, the High Court of Bombay focused its analysis on the interpretation of relevant provisions and their applicability to the specific issues raised by the appellant. The judgment emphasized the need for questions to be substantial and arising from the impugned order for consideration, highlighting the importance of adherence to procedural requirements in legal proceedings.