9911796707
TMI Blog2012 (8) TMI 517X X X X Extracts X X X X X X X X Extracts X X X X ..... inst assessee. Addition on account of unrealized profits on revaluation of securities - Held that:- As the assessee has valued its closing stock scrip-wise by following 'cost or market price, whichever is less' method as per which the appreciation in the value due to the higher market value has been ignored but the depreciation in the value of the other items of stock has been reflected. Thus amount on revaluation of securities represents the excess of market price over the cost price in respect of certain scrips and further going by the method of valuation adopted by the assessee the same cannot be added to the total income - in favour of assessee. Addition on account of upfront guarantee commission - Held that:- As decided in Dy. DIT (International Taxation) v. Chohung Bank [2009 (6) TMI 693 - ITAT MUMBAI] the period of guarantee had nothing to do with the assessee's right to receive the commission and accordingly the amount was brought to tax by him in the hands of the assessee for A.Y in question holding that the said income was accrued to the assessee at the time when the corresponding guarantees were issued - accepted the alternative contention of the assessee relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omposite order for the sake of convenience. 2. First, we shall take the cross appeals filed for A.Y. 2004-05 being ITA Nos. 6891/Mum/2007 and 7421/Mum/2007 which are directed against the order of the Ld. CIT (A)-31 Mumbai dated 14.09.2007. 3. Ground no.1 of the assessee's appeal for A.Y. 2004-05 relates to its claim for the lower rate of tax at 35% as applicable to a resident tax payer by giving the benefit of non-discrimination clause as contained in Article 25 of the India Korea Double Taxation Avoidance Agreement as against tax rate of 40% (+ surcharge) levied by the A.O. as well as Ld. CIT(A). 4. At the time of hearing before us, the Ld. Representatives of both the sides have agreed that this issue is squarely covered in favour of the revenue and against the assessee by the decision of the Tribunal in the assessee's own case for the A.Y. 2002-03 reported in (2006) 6 SOT 145 (Mum) wherein a similar issue was considered by the Tribunal in Paragraphs no. 11.2 11.3 and 12 of its order which read as under: 11.2 It is, thus, evident that DTAA recognizes the fact that the amendments made in the IT Act are not affected in so far or they are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational State and not organs of international law must perforce apply national law if international law conflicts with it. But the Courts are under an obligation within legitimate limits, to so interpret the municipal statute as to avoid confrontation with the comity of nations or the well established principles of international law. But if conflict is inevitable, the later must yield. 11.3 Thus, in the present case, we hold that, firstly there is no conflict of the explanation with DTAA as ( i ) the area of operation of explanation and the Art-25(1) are in different field. ( ii ) Explanation clarifies the position as it always stood. ( iii ) DTAA did not prescribe any separate or specific rate or any particular criteria to be applied on income of Korean companies assessed in India. ( iv ) Explanation does not deal with assessability of any items of income. Secondly, even if any conflict is envisaged, still then the provision of DTAA will yield to law passed independently by Parliament in view of decision of Hon'ble Supreme Court in Gramphone Co.'s case ( supra ) . 12. The last argument of the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground no. 1 of the assessee's appeal is accordingly dismissed. 6. The issue raised in ground no. 2 of the assessee's appeal relates to the addition of ₹ 44,98,000/- made by the A.O. and confirmed by the Ld. CIT(A) on account of unrealized profits on revaluation of securities. 7. The assessee in the present case is a banking company registered in Korea which is carrying on banking business in India through its branch at Mumbai with the permission of Reserve Bank of India. As a part of its banking business, the assessee claimed to have invested in securities which were categorized as available for sale . As per the accounting policy consistently followed, the net appreciation in the value of the said securities was not recognized as income by the assessee on the ground that it represented unrealized and notional profits. The A.O. following the stand taken in the case of the assessee for earlier years treated such net appreciation in the value of securities amounting to ₹ 44,98,000/- as income of the assessee taxable in the year under consideration and the said amount was added by him to the total income of the assessee. On appeal, the Ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is the method which is being consistently followed by the assessee as recorded by the authorities below. Adverting to the facts of the instant case we find that the assessee has valued its closing stock scrip-wise by following this method as per which the appreciation in the value due to the higher market value has been ignored but the depreciation in the value of the other items of stock has been reflected. As the above referred amount of ₹ 15,43,400 represents the excess of market price over the cost price in respect of certain scrips and further going by the method of valuation adopted by the assessee as 'cost or market price whichever is less', the same in our considered opinion cannot be added to the total income. We, therefore, uphold the impugned order on this count. This ground fails. Similar grounds raised by the Revenue in asst. yrs. 2001-02, 2002-03 and 2003-04 are also liable to be and are hereby dismissed. Another connected issue in asst. yr. 2000-01 is against not allowing deduction claimed by the assessee at ₹ 45,000 on account of revaluation of remaining part of closing stock of securities. From the computation of income done by the AO it is app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, accepted the alternative contention of the assessee relating to double taxation of the same amount in two years and accordingly directed the A.O. to exclude from the income of the assessee the amount of upfront guarantee commission offered in the subsequent year on accrual basis which was already taxed on receipt basis. Respectfully following the said decision of the Tribunal in the assessee's own case for the earlier years, we confirm the addition made by the A.O. and confirmed by the Ld. CIT(A) on account of upfront guarantee commission for the A.Y. 2004-05. We, however, direct the A.O. to exclude the said amount from the income of the assessee if the same has been offered to tax in the subsequent year i.e. A.Y. 2005-06. Subject to this direction, ground no.3 of the assessee's appeal is dismissed. 13. The issue raised in ground no.4 relates to the addition of ₹ 57,12,426/-made of by the A.O. and confirmed by the Ld. CIT(A) by way of disallowance of interest paid by the Indian Branch of the assessee bank to its Head office. 14. As agreed by the Ld. Representatives of both the sides, the issue involved in ground no. 4 of the assessee's a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending obligation on the balance sheet date is determinable with reasonable certainty. The considerations for accounting the income are entirely on different footing. ( v ) As per accounting standard-11, when a transaction is not settled in the same accounting period in which it occurred, the exchange difference arises over more than one accounting period. ( vi ) The forward foreign exchange contracts have all the trappings of stock-in-trade. ( vii ) In view of the decision of the Supreme Court in the case of Woodward Governor of India (P.) Ltd. ( supra ), the assessee's claim was allowable. ( viii ) In the ultimate analysis, there was no revenue effect and it was only the timing of taxation of loss/profit. Respectfully following the decision of the Special Bench of this Tribunal, we uphold the impugned order of the Ld. CIT(A) allowing the claim of the assessee for loss on account of revaluation of foreign exchange contracts and dismiss ground no. 1 of the revenue's appeal. 17. In ground no. 2 of its appeal, the revenue has challenged the action of the Ld. CIT (A) in deleting the addition of ₹ 59,10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n branch from its head office has not been pressed by the Ld. Counsel for the assessee at the time of the hearing before us. The same is accordingly dismissed as not pressed. 23. Now, we shall take-up Cross appeals for A.Y. 2006-07 in ITA Nos. 4181 and 4567/Mum/2010 which are directed against the order of Ld. CIT(A)-11, Mumbai dated 22nd March, 2010. 24. As regards ground no. 1 of the assessee's appeal relating to its claim for the lower rate of tax at 35% as applicable to a resident tax payer by giving the benefit of non-discrimination clause as contained in Article 25 of the India Korea Double Taxation Avoidance Agreement as against tax rate of 40% (+ surcharge) levied by the A.O. as well as Ld. CIT(A), it is observed that the issue is similar to the one involved in ground no.1 of the assessee's appeal for A.Y. 2004-05 which has been decided by us in paragraph 5 of this order. Following our conclusion drawn in A.Y. 2004-05, we dismiss ground no.1 of the assessee's appeal. 25. As regards ground no. 2 relating to issue of disallowance of interest paid by the Indian Branch of the assessee bank to its Head office, it is observed that this issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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