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TMI Blog2013 (9) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... missions. Rejecting such contentions, the Assessing Officer came to hold that the interest income on nostro account was liable to be included in the total income. The learned Commissioner of Income-tax (Appeals) overturned the assessment order on this point. However, considering the provisions of section 14A, the learned Commissioner of Income-tax (Appeals) held that since the interest on nostro account was not taxable, the interest expenditure was also not allowable. He, therefore, made disallowance of Rs. 32,79,61,314 under section 14A of the Act. The assessee through grounds Nos. 1, 2 and 3 is aggrieved against the enhancement made by the learned Commissioner of Income-tax (Appeals) to the tune of Rs. 32.79 crores under section 14A of the Act. Before us the learned Departmental representative contended that similar issue about the taxability of interest on nostro account was there in the assessee's own case in the immediately preceding year and the Tribunal has decided the same against the Revenue. It was, however, submitted that the said interest was chargeable to tax and the Tribunal was not justified in deciding this issue against the Revenue. He made detailed submissions on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial question of law has been admitted. In view of these rival but common submissions we are of the considered opinion that the assessment order on this count needs to be approved in preference over the view taken by the learned Commissioner of Income-tax (Appeals). This ground taken by the Revenue about the chargeability of interest on nostro account amounting to Rs. 13.66 crores is, therefore, allowed. It is observed that the learned Commissioner of Income-tax (Appeals) made enhancement of income to the tune of Rs. 32.79 crores by computing disallowance under section 14A in respect of such interest income on nostro account, which was held by him to be not chargeable to tax as against the Assessing Officer's decision as to the chargeability of this amount. When the view of the learned Commissioner of Income-tax (Appeals) on this issue is overturned and that of the Assessing Officer is restored, interest on nostro account becomes taxable. Once the income itself is chargeable to tax, there can be no question of computing any disallowance under section 14A, the mandate of which operates to disallow deduction for expenses incurred in relation to income which does not form part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of the details filed by the assessee, the learned Commissioner of Income-tax (Appeals) observed that in each year of investment in tax-free securities the assessee had sufficient interest-free funds available which were utilised for making investment in such tax-free bonds. He depicted this position through annexure-A to his order. In the light of these facts, it was held that no nexus was proved between the tax-free securities and interest bearing funds and on the contrary sufficient funds were there to finance the taxfree securities. Thus the action of the Assessing Officer in disallowing exemption under section 10(15) of a part of interest on tax-free securities was held to be not sustainable. The learned Departmental representative was fair enough to concede that the exemption under section 10(15) needs to be allowed on gross interest. He, however, submitted that the proportionate interest disallowed by the Assessing Officer was in a way disallowable under section 14A though this section was not there on the statute. Relying on certain decisions, it was argued that even though section 14A was not there on the statute in the period relevant to the assessment year 1997-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning the income which is exempt from tax should be disallowed". The second reason is the finding recorded by the learned Commissioner of Income-tax (Appeals) that the investment in tax-free securities was made out of sufficient interest-free funds available with the assessee. The learned Commissioner of Income-tax (Appeals) has tabulated this position through annexure-A to the impugned order. The learned Departmental representative could not controvert the factual position as recorded by the learned Commissioner of Income-tax (Appeals). As per this position the assessee utilised interest-free funds at its disposal for making investment in interest-free securities. The hon'ble jurisdictional High Court in the case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom) has held that if there be interest-free funds available to the assessee sufficient to meet its investment and at the same time loan has been raised, it can be presumed that the investments were made from interest-free funds and resultantly no disallowance of interest can be made. The hon'ble jurisdictional High Court, in taking this decision, drew support from the judgment of the hon'ble Supreme Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 143(1)(a) should be assessed to tax. Briefly stated the facts of this ground are that the assessee was granted interest of Rs. 80,26,069 under section 244A on intimation issued under section 143(1)(a) for the assessment year 1996-97. It was argued before the learned Commissioner of Income-tax (Appeals) that on completion of assessment for the assessment year 199697, interest of Rs. 23,48,027 was determined as against Rs. 80,26,069 determined in intimation under section 143(1)(a). The learned Commissioner of Income-tax (Appeals) rejected the assessee's contention that interest should not be charged to tax in the year until the assessment under section 143(3) was finalised. He, however concurred with the alternate contention of the assessee that only that much interest received under section 244A can be brought to tax which is finally determined on assessment. Learned counsel for the assessee contended that primarily the interest on income-tax refund should not be charged to tax in the year in which it is granted and secondly, if at all such interest is to be charged to tax then it should be restricted to the income finally determined after the appeal effect. The learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring this question. It was, therefore, prayed that this additional ground be admitted. No serious objection was raised by the learned Departmental representative in this regard. We, therefore, admit this ground and take it up for disposal on merits. The viewpoint canvassed by the learned authorised representative in this regard is that the interest received by the assessee on income-tax refund should not be considered as effectively connected to the permanent establishment and hence considered as independent interest under article 12 of the Double Taxation Avoidance Agreement between India and France and charged to tax accordingly. For this proposition, the learned authorised representative relied on the Special Bench order in the case of Asst. CIT v. Clough Engineering Ltd. [2011] 9 ITR (Trib) 618 (Delhi). Having regard to the facts of the instant ground it is seen that while disposing of ground No. 5 of the assessee's appeal above, we have held that interest under section 143(1)(a) is assessable to tax in the year in question. The proposition as raised by the learned authorised representative is about the rate of tax which should be applied on such interest. The Special Bench o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years 1983-84 to 1985-86, a copy of such order dated March 9, 1998 in ITA Nos. 2089 to 2091/Bom/91 was placed on record. In the opposition the learned authorised representative relied on the five Member Special Bench order in the case of Sumitomo Mitsui Banking Corporation v. Deputy DIT [2012] 16 ITR (Trib) 116 (Mumbai) to contend that such interest/commission received from head office cannot be charged to tax. He also relied on a subsequent order passed by the Mumbai Bench of the Tribunal in the case of Oman International Bank S.A.O.G. v. Asst. CIT. In this order dated June 29, 2012, the Tribunal, after considering the five Member Special Bench order in the case of Sumitomo Mitsui Banking Corpn., has held that the interest received from head office/overseas branches cannot be charged to tax. We have heard the rival submissions and perused the relevant material on record. It is apparent from paragraphs 55 and 56 of the Special Bench order that under the provisions of the Income-tax Act, 1961 the taxable entity is only one, i.e., overseas general enterprise and the permanent establishment in India is a part of that entity. It is the overseas general enterprise which has been held t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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