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2024 (7) TMI 499 - AT - Income TaxDisallowance of business loss of discontinued business - assessee was engaged in the business of rendering outsourced housekeeping but AO disallowed the claim, stating the business was discontinued - As argued even though the business was transferred, there were various litigations pertaining to income tax and labour laws which remained unresolved. Assessee had to maintain staff and consultants. Therefore, business loss having arisen due to expenditure incurred towards professional charges, consultancy charges and other expenditure such as ESI arrears and bank charges during the financial year 2020-21 could not be disallowed - HELD THAT - No deduction could be allowed on account of incurring of various impugned expenditure when the assessee did not carry on any business in the relevant assessment year and there is no likelihood of revival of business. If the expenditure incurred to upkeep the business of the assessee, the said expenditure could be allowed. However, in the present case, there was no likelihood of restarting the said business and completely closed down earlier to so many years and now this expenditure cannot be allowed as a business expenditure. It was not incurred to keep its existing business. Thus, expenditure incurred during the period when no business was carried o was not admissible deduction. As decided in case of L.M. Chhabda and Sons 1967 (3) TMI 10 - SUPREME COURT that the claim of allowance of expenditure from an independent business, which was closed down was not allowable against other income of the assessee. Thus, to allow any deduction relating to discontinued business would be a total contradiction and violation of the legal principle upon which section 29 of the Act stands. Among various conditions required for a loss or expenditure to be allowed, the foremost condition is that it should be in the course of business and it should be incidental to the business. On understanding this basic rule, the simplest interference to arrive at is that in the case of discontinued business, there is no question of loss or expenditure incurred in the course of business wholly and exclusively for the purpose of business as the business no longer is in existence. Revenue authorities have taken a correct view of the facts of the case and disallowed the same. Decided against assessee. Tax rates on Interest income - global income earned - status of being a Resident of the contracting state - assessee stayed in New Zealand for 359 days during the year under consideration, he was a Resident of New Zealand and accordingly, his global income was taxable in New Zealand - interest income earned by an assessee being a resident of the other Contracting State to be taxed at a maximum rate of 10% as per Article 11 of the DTAA between India and New Zealand - HELD THAT - As rightly pointed out by assessee, he is a non-resident of India and resident of New Zealand and assessee s global income is taxable in New Zealand. As per the Article 11 of DTAA between India and New Zealand income earned by the assessee being a resident of New Zealand may be taxed subject to at a maximum rate of 10%. Admittedly, DTAA has overriding effect over the Income Tax Act. The department is denying the benefit of lower rate of tax as per Article 11 of DTAA on the reason that assessee s income is not subject to tax in New Zealand. As noted that this income is not taxable in New Zealand as the New Zealand has given a benefit to the assessee of temporary exemption for a period of 4 years being the transactional tax recipient. Thus, it was not taxable in New Zealand. Because it was not taxable in New Zealand, the assessee is not disentitled to take the benefit of Article 11 of DTAA, which is the beneficial provision and it would be granted and the rate of the tax to be applied in respect of business income in accordance with Article 11 of DTAA. The various judgements relied by the assessee s counsel supports the view as a condition. Accordingly, we allow this ground taken by the assessee. This ground of appeal of the assessee is allowed.
Issues Involved:
1. General opposition to the orders of the authorities. 2. Disallowance of business loss. 3. Tax rates on interest income under DTAA between India and New Zealand. 4. Tax rates on dividend income under DTAA between India and New Zealand. 5. Applicability of tax relief and the concept of transitional tax resident. 6. Violation of principles of natural justice. 7. Levying of surcharge. 8. Levying of interest under section 234A. Detailed Analysis: 1. General Opposition to the Orders: - The grounds numbered 1(a) and 1(b) are general in nature and do not require adjudication. 2. Disallowance of Business Loss: - The appellant argued that the business loss of Rs. 11,28,766/- should be allowed as the expenditure was incurred towards professional fees, consultancy charges, and other expenses related to the erstwhile business. - The appellant cited the need to maintain statutory records and respond to legal notices as the basis for retaining accountants and incurring these expenses. - The authorities below disallowed the expenditure, arguing that the business had been discontinued for many years and the expenses were not incurred wholly and exclusively for business purposes. - The Tribunal held that no deduction could be allowed for expenses incurred when the business was not carried on during the relevant assessment year and there was no likelihood of its revival. This ground of appeal was dismissed. 3. Tax Rates on Interest Income: - The appellant contended that the interest income of Rs. 4,87,50,072/- should be taxed at a maximum rate of 10% as per Article 11 of the DTAA between India and New Zealand. - The authorities below denied the lower tax rate, arguing that the appellant did not include the Indian income in the New Zealand tax return. - The Tribunal found that the appellant was a resident of New Zealand and eligible for the lower tax rate under the DTAA, despite the income not being taxed in New Zealand due to temporary tax exemption. This ground of appeal was allowed. 4. Tax Rates on Dividend Income: - The appellant argued that the dividend income of Rs. 4,11,026/- should be taxed at a maximum rate of 15% as per Article 10 of the DTAA between India and New Zealand. - The Tribunal applied the same principles as discussed for the interest income and directed the assessing officer to apply the DTAA rate. This ground of appeal was allowed. 5. Applicability of Tax Relief and Transitional Tax Resident: - The appellant argued that the tax relief should be applicable as he was a transitional tax resident of New Zealand, enjoying temporary tax exemption. - The authorities below contended that the appellant was not eligible for tax relief since the income earned in India was not taxed in New Zealand. - The Tribunal held that the appellant was entitled to the benefits of the DTAA, regardless of the tax exemption in New Zealand. This ground of appeal was allowed. 6. Violation of Principles of Natural Justice: - The appellant claimed that the authorities failed to consider the submissions made, violating the principles of natural justice. - No specific arguments were presented before the Tribunal for this ground, and it was dismissed. 7. Levying of Surcharge: - The appellant argued that the surcharge should be restricted to 10% as the income other than capital gains did not exceed Rs. 1 crore. - No specific arguments were presented before the Tribunal for this ground, and it was dismissed. 8. Levying of Interest under Section 234A: - The appellant denied liability for interest under section 234A and argued that the computation of interest was not provided. - No specific arguments were presented before the Tribunal for this ground, and it was dismissed. Conclusion: - The appeal was partly allowed, with the Tribunal granting relief on the grounds related to the tax rates on interest and dividend income under the DTAA, while other grounds were dismissed.
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