9911796707
TMI Blog2013 (8) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... alf 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. had not allowed deduction in respect of these two sums. The learned CIT(A) noticed that the Staff cost of Rs.16.66 lakh and Specific expenses of Rs.21,977 were specifically incurred by the head office on behalf of the Indian branch. He held such expenses to be allowable in full without being covered u/s 44C. The Revenue is aggrieved against this direction of the learned CIT(A). 3. After considering the rival submissions and perusing the relevant material on record, it is observed that the Assessing Officer did not dispute the deductibility of the this amount as claimed by the assessee and particularly allowed such deduction in the final determination of income. Notwithstanding that, there is no dispute on the fact that these two amounts were exclusively incurred by the head office for the Indian branch. The case of the Revenue is that these amounts ought to have been inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of Rs.40.49 lakh and proportionate Operating expenditure of Rs.12.81 lakh relatable to exempt interest income. After reducing these two amounts from the gross amount of interest received, the AO restricted the claim of exemption u/s 10(15) to a sum of Rs.13.18 lakh. The learned CIT(A) overturned the assessment order on this point. 6. We have heard the rival submissions in the light of material placed before us and precedents relied upon. It is noticed that similar issue came up for adjudication before the Mumbai bench of the tribunal in ACIT (IT) VS. Credit Lyonnais (2013) 21 ITR (Trib) 359 (Mum). In this case it has been held that exemption u/s 10(15) is available on gross amount of interest. At the same time, it has also been held that since interest income from tax free bonds is pre se not taxable, the expenses incurred in relation to such exempt income cannot equally be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong 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 earned interest income. The funds were placed at the close of the banking hours and which were available to it for the banking activities on the immediately next day. Sometimes the funds were placed for a duration of more than one day. The assessee earned interest income of Rs.27.76 lakhs on varying rates of interest. The assessee benchmarked the rate of interest at the end of the day on the basis of Reuter rates, which were admitted to be nothing but LIBOR rates obtained from Reuters history pages. The assessee contended that there was no transaction where the difference in the rates actually charged and that of Reuters / LIBOR rates was more than 5%. The Transfer Pricing Officer (TPO) did not dispute the factum of the applicability of LIBOR rates for benchmarking interest earned by the assessee from such temporary inter bank transfer of funds to its branches and head office. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. 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 transactions, is identified ; (ii) such price is adjusted to account for differences, if any, between the international transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market ; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction ;" 10. From the above rule, it is palpable that the price charged or paid in a comparable uncontrolled transaction, or a number of such transactions, as adjusted to account for differences, is taken as ALP of the international transaction. What emerges from the interpretation of the first part of the proviso is that where more than one price is determined by the most appropriate method, the arm's lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined 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 exceed the specified percentage, the price at which the international transaction has actually been undertaken shall be deemed to be the arm's length price'. The words so determined' as employed in the second proviso assume significance. As these have been used in the second proviso distinct from the subject matter of the first proviso, naturally these will apply to the ALP determined under sub-section (2) consisting of the main provision and also the first proviso. Resultantly, the option of deemed' ALP shall extend not only to a situation where more than one price is determined as ALP by the most appropriate method but also where only one price is determined as ALP. The net result is that the option to the assessee shall be available in both the situations, covered under main sub-section (2) and also the first proviso. 12. We revert to the position of law governed by the single pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 bank deposits. It is only an average' of the rates submitted by various panel banks, after exclusion of four each of highest and lowest responses, which is daily reported at 11:30 a.m. Albeit, technically speaking it is only one rate, but in reality, it is an average of rates at which various banks borrow or lend inter bank deposits. Returning to our context of rule 10B(1)(a) read with section 92C(2) proviso, it can be easily deduced that the LIBOR is nothing but arithmetical mean of rates of interest charged or paid on inter bank deposits by a number of panel banks representing different comparable uncontrolled transactions. Considering the LIBOR as one comparable uncontrolled interest rate, in our considered opinion is a restricted and narrow approach incapable of acceptance. Further, since the LIBOR is not a rate in itself at which some bank is willing to borrow or lend, but an averag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 letter to the TPO giving details of services rendered by the head office and the benefits derived by the assessee. As such, it cannot be said that the assessee did not furnish any basis of allocation of such costs to the assessee. That being the position, the very foundation of the TPO's exercise is wanting. As there is sufficient material justifying the payment made to head office to the tune of Rs.2.12 crore attributed by the head office to the Indian branch, against which the assessee claimed deduction to the permissible extent u/s 44C of Rs.98.98 lakh, we are of the considered opinion that no interference is warranted in the impugned order on this issue. This ground is not allowed. 16. First two grounds of the assessee's cross objection have become academic and hence do not survive in view of our decision on ground no.2 of the Revenue's appeal. 17. The only other ground is against the ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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 penalty to the date on which the refund is granted'. Thus it is manifest that the terminating point for the calculation of interest u/s 244A is the date on which the refund is granted. It is axiomatic that invariably the actual date of receipt by the assessee will succeed the date of granting or issuance of refund. A cheque for refund with interest having been prepared is signed by the competent authority. After making due entries in the record, it goes for dispatch and only thereafter it is actually received by the assessee. On receipt, the assessee deposits such cheque in his bank account which further takes a few days in realization. So, there is bound to be some time gap between the date of granting of refund and the date of receipt of such refund. In such a situation, the assessee cannot come out with a claim that interest u/s 244A should be allowed up to the date of receipt of refund instead ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
