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TMI Blog2013 (8) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... ble in full without being covered under head office expenses as provided for in section 44C. Against assessee. Exemption u/s 10 in respect of tax free bonds - Departmental appeal against allowing exemption - Held that:- As the investment in tax free bonds was made in an earlier year and there is no current fresh investment in any bonds fetching exempt income no interest can be disallowed u/s 14A. In so far as the disallowance of Operating expenses made by the A.O. is concerned, the AO made it on a proportionate basis by taking the figure of operating expenses from Profit and loss account and then apportioning it in the ratio of total interest earned as to interest of 9.5% tax free bonds. This does not appear to be a correct basis for apportionment. At the same time, it is noticed that the CIT(A) has also not given any reasons for deleting such disallowance. As in the case of Credit Lyonnais (2012 (12) TMI 640 - ITAT MUMBAI ), the tribunal has directed to curtail the disallowance for operating expenses at the rate of 2% of the exempt income. Following the precedent, AO directed to restrict the disallowance accordingly. Addition on account of transfer pricing adjustment - Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner : Shri Ajit Kumar Jain Mahesh Kumar For the Respondent : Shri P. J. Pardiwala ORDER Per R. S. Syal (AM) :- This appeal by the Revenue and Cross objection by the assessee arise out of the order passed by the Commissioner of Income-tax (Appeals) on 31.08.2006 in relation to the assessment year 2002- 2003. 2. First ground of the Revenue's appeal is against allowing deduction of Staff costs of Rs.16,66,659 and Specific expenses of Rs.21,977 incurred by the head office on behalf of the assessee in entirety holding that such expenses were not covered by the expenses mentioned u/s 44C. Briefly stated the facts of the case are that the assessee is an Indian branch of the Development Bank of Singapore. It claimed deduction of Rs.16.66 lakh towards Salary cost of expatriate staff deployed at the branch on a full time basis incurred by the head office on behalf of branch and Rs.21,977 towards Specific expenses incurred by head office on behalf of Indian operations / branch. In the computation of income, the Assessing Officer allowed deduction for these two sums. Inadvertently, the assessee, in its first appeal, raised a ground on this score by presuming that the A.O. h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12,817. Both the sides are in agreement that similar issue has been consistently decided by the tribunal in assessee's favour in earlier years. Copies of such orders have been placed on record. Respectfully following the precedents, we uphold the impugned order on this issue. This ground fails. 5. Ground no.3 of the Departmental appeal is against allowing exemption u/s 10 in respect of tax free bonds amounting to Rs.66,50,000 as against Rs.13,18,463 allowed by the AO. The facts apropos this ground are that the assessee earned interest income of Rs.66.50 lakh from 9.5% tax free bonds of National Housing Bank. Such amount was claimed as exempt u/s 10(15) of the Act. The Assessing Officer considered the provisions of section 14A in the light of various judgments including that of the Hon'ble Supreme Court in Rajasthan State Warehousing Corporation v. CIT (2000) 242 ITR 450 (SC) and came to the conclusion that the entire amount could not be granted exemption. He held that the expenses incurred for earning such tax free income were to be reduced from the gross interest income on pro-rata basis for allowing exemption u/s 10. That is how, he computed proportionate interest expenditure o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the above discussed case of Credit Lyonnais (supra), the tribunal has directed to curtail the disallowance for operating expenses at the rate of 2% of the exempt income. Following the precedent, we direct the AO to restrict the disallowance accordingly to a sum of Rs.1,33,000. 7. Ground no.4 of the Revenue's appeal is against the deletion of addition of Rs.50,476 made on account of transfer pricing adjustment. The factual matrix of this ground is that the assessee entered into two sets of international transactions of granting loans earning interest on one hand and paying interest on borrowings on the other to and from its Associated Enterprises (AEs). There is no dispute in so far as the second set of transactions of borrowing and payment of interest are concerned. The entire controversy revolves around the interest on lending transactions which are restricted to its Hong Kong and London branches and also Singapore Head office. The assessee followed Comparable Uncontrolled Price (CUP) method for benchmarking both the sets of international transactions. The assessee placed surplus foreign currency funds with its head office / branch offices from time to time on which it earne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d". Sub-section (2) provides that the most appropriate method referred to in sub-section (1) shall be applied for determination of arm's length price in the manner as may be prescribed, which has been prescribed in rule 10B(1). Proviso to section 92C(2), which is the core of controversy, at the relevant time provided as under :- "Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by an amount not exceeding five per cent of such arithmetical mean." 9. On going through sub-section (2) in juxtaposition to the above extracted proviso, it transpires that the most appropriate method referred in sub-section (1) [any one of the six methods] shall be applied for the determination of ALP. The manner of computation of ALP under the CUP method has been prescribed under rule 10B(1)(a) as under : - "(a) comparable uncontrolled price method, by which,-- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viso states that : Provided that where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices'. As per the second proviso if the variation between the arm's length price so determined and price at which the international transaction has actually been undertaken does not exceed the specified percentage of the latter, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's length price. Main sub-section (2) provides that the most appropriate method as per sub- section (1) shall be applied for the determination of ALP. As per the first proviso where more than one price is determined by the most appropriate method, the arm's length price shall be taken to be the arithmetical mean of such prices. Per contra, if there is only one price which is determined by the most appropriate method, then as per the main sub-section (2) without the aid of proviso, that price shall constitute the ALP. The second proviso comes into play to deem the actual transacted price as the ALP. It provides that where the variation between the ALP so determined' does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for calculation of LIBOR is extracted as under :- "Libor is calculated and published by Thomson Reuters on behalf of the British bankers' Association (BBA). It is an index that measures the cost of funds to large global banks operating in London financial markets or with London-based counterparties. Each day, the BBA surveys a panel of banks (18 major global banks for the USD Libor), asking the question, "At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?" The BBA throws out the highest 4 and lowest 4 responses, and averages the remaining middle 10, yielding a 23% trimmed mean. The average is reported at 11:30 a.m." 13. It can be seen that each LIBOR contributor panel bank formulates its own rate for a day which is put into the application which links directly to a rate setting team at Thomson Reuters. Then trimming is done of such rates submitted by different contributor banks. After excluding four highest and lowest rates, an average is worked out, which becomes LIBOR rate. Thus it is evident that LIBOR is not a rate in itself which is charged or paid for the user of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e paid. In the absence of any benefit derived, the TPO determined ALP of such allocated head office expenses at Nil. The learned CIT(A) agreed with the submissions made on behalf of the assessee and deleted the said addition. 15. We have heard the rival submissions and perused the relevant material on record. It is relevant to note that, in fact, it was a sum of Rs.2.12 crore which was attributed by the head office to the Indian branch. However, the assessee claimed deduction only to the extent permissible u/s 44C to the tune of Rs.98.98 lakh by restricting such expenses to 5% of the adjusted total income. Insofar as the contention of the TPO that the assessee did not adduce any evidence about the incurring of this expenditure is concerned, we find that the same is not correct. Page no.112 of the paper book is bill issued by head office on the assessee for S$773,129.40, being audit fees and head office expenses for the year 2001. Page no.113 is detail and basis of allocation of such expenses. Page no.114 is head-wise detail of expenses totaling S$763,220.40. All these details were before the TPO as is evident from page no.115 of the paper book, being a copy of the assessee's lett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received u/s 244A. On the other hand, the case of the Revenue is that the relevant date is the date on which the refund is issued by the department. 19. At this stage it is relevant to note that interest on refunds is granted under section 244A. Sub-section (1) of this section provides that where refund of any amount becomes due to the assessee under this Act, he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the prescribed manner. Clause (a) stipulates that where the refund is out of any tax paid, inter alia paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the prescribed rate for every month or part of a month comprised in the period from the 1st day of April of the assessment year to the date on which the refund is granted'. Similarly, clause (b) providing for interest in any other case, states that such interest shall be calculated at the specified rate for every month or part of a month comprised in the period or periods from the date of payment of the tax or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exist. When the payment of interest u/s 244A is contemplated w.r.t the date of grant of refund, there can be no question of substituting similar expression - date of grant of refund' - employed u/s 234D with the date of receipt of refund' as has been argued on behalf of the assessee. It is axiomatic that one word cannot be understood differently in two related sections. When the word grant' cannot be read as receipt' in section 244A, the same cannot have a different meaning in section 234D. 21. The legislature cannot be considered as oblivious of the fine distinction between "the date of grant of refund" and "the date of receipt of refund". These two expressions have different connotations. Whereas the first refers to the date on which refund is issued, the second refers to the date on which it is actually received by the assessee. The legislature in its wisdom has employed the expression "date of receipt" in several sections, such as section 155(8A) before its omission and certain sections providing exemption under the head Capital gains'. To claim that the date of receipt of refund should be reckoned as a starting point instead of the date of grant of refund, in our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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