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TMI Blog2015 (12) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The facts of the issue are that in the course of assessment, the Assessing Officer found that the assessee has claimed credit for an amount of Rs. 2,24,67,411/- towards whithholding tax deducted by the Singapore Tax authorities. The assessee has earned interest income of Rs. 22,47,07,167/- from Aban Holdings Pte Ltd(AHPL), a company registered in Singapore. M/s AHPL has deducted tax of SGD equivalent to Indian Rs. 2,24,67,411/- under Singapore Income Tax Act. The Assessing Officer observed that there was no dispute regarding the receipt of interest income and the quantum of withholding tax deducted in Singapore as per DTAA. The Assessing Officer stated that the assessee has not shown that it had received from AHPL in excess the interest expenditure claimed in its Profit & Loss Account, after taking into account foreign exchange losses, expenses on FCCBs. It has also not shown the tax paid on the interest in Singapore is subsumed in the computation charging interest from AHPL. She further stated that the relief u/s 90 could be provided only if real income is shown as part of the taxable income in India which the assessee has failed to show. As per Article 25, the relief to be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s CIT in I.T.A.No. 2927/Mds/2011 dated 25.7.2014, observed as under: "26. We have heard the rival contentions and perused the decisions relied upon by both the parties. The issue of interpretation of phrase "may be taxed in other contracting States", as used in different Articles including Article-7 in the DTAA has been discussed in detail by the Tribunal in Essar Oil Ltd. (supra) after taking into consideration various decisions of the High Court, Supreme Court, affect of amendment in section 90(3) and notification dated 28th August 2008, issued by the Central Government. The conclusion arrived by the Tribunal after discussing various aspects are as under:- "i) The ratio of all the judgments rendered by the Hon'ble High Courts, as discussed herein above and confirmed by the Hon'ble Supreme Court specifically in the case of Turquoise Investment, on the interpretation of the expression "may be taxed", that once the tax is payable or Bank of Baroda paid in the country of source, then country of residence is denied of the right to levy tax an such income or the said income cannot be included in return of income filed in India, would no longer apply after the insertion of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Baroda given primacy and has to be understood in that manner only. Therefore, the notification is not contrary to the provisions of the Act. Consequently, the earlier judgments rendered in assessee's case prior to assessment year 2004-05, will not have binding precedence in this year or subsequent year;" 27. In view of the aforesaid findings / conclusion, we hold that the income of the branches of the assessee shall also taxable in India i.e., it would be included in the return of income filed by the assessee in India and whatever taxes have been paid by the Branches in the other contracting States i.e., the source country, credit of such taxes shall be given. Accordingly, the ground no.3, as raised by the assessee in the assessment year 2005-06 and 2006- 07, is treated as dismissed, whereas, ground no.1, as raised by the Department in ITA no.60 18/Mum./20 11, for the assessment year 2007 -08, is treated as allowed." 7. In view of the above order of the Tribunal in the case of Bank of Baroda (supra), we remit this issue in dispute to the file of the Assessing Officer for reconsideration. 8. In the result, the assessee's appeal is allowed for statistical purposes. 9. Now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was engaged in the business of manufacturing and export of hosiery garments. During the course of export, the assessee entered into derivative contract. The assessee incurred loss in this transaction. The assessee claimed it as business loss. According to the Assessing Officer this loss was not business loss and it is a speculative loss and this transaction is speculative in nature as such the loss incurred on this transaction cannot be set off against business income of the assessee. According to the ld. Authorised Representative for assessee, the derivative transaction cannot fall under sec.73. Explanation to sec.73 creates a deeming fiction by which among the assessee, who is a company, as indicated in the said Explanation dealing with the transaction of share and suffer loss, such loss should be treated to be speculative transaction within the meaning of sec.73 of the Act, notwithstanding the fact that the definition of speculative transaction mentioned in sec.43(5) of the Act, the transaction is not of that nature as there has been actual delivery of the scrips of share. As per the definition of sec.43(5), trading of shares which is done by taking delivery does not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , prior to 1st April, 2006 any transaction in which a contract for the purchase or sale of any commodity including stocks and shares was periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip was a speculative transaction. Subsection 1 of Section 73 provides as follows: '(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.' The resultant effect was that any loss arising out of speculative transaction could only have been set off against profits arising out of speculative transaction. In the present case, the assessee, as already indicated, has been dealing in shares where delivery was in fact taken and also in shares where delivery was not ultimately taken. In other words, the assessee has been dealing in actual selling and buying of shares as also dealing in shares only for the purpose of settling the transaction otherwise than by actual delivery. The question arise whether the losses arising out of the dealings and transaction in which the assessee did not ultimately take delivery of the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aljit Securities Pvt. Ltd. cited supra, the issue stands covered in favour of the assessee. However, we make it clear that total transaction considered for determining this business loss from derivative transactions cannot be more than the total export turnover of the assessee for the assessment year under consideration and if the derivative transaction is in excess of export turnover, then that loss suffered in respect of that portion of excess transactions to be considered as speculative loss only as that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly. This ground is allowed as indicated above." 5. Further, the Mumbai Bench of ITAT in the case of Araska Diamond P. Ltd vs ACIT, 152 ITD 203, has held as under: "Total sales during the year amounted to Rs. 27.78 crores, that the AO and the FAA had held such transaction were speculative in nature and had disallowed the claim made by the assessee, that the assessee was of the opinion that transactions entered into by it were not speculative transactions. ITAT found that the amount involved in the forward contract (FC) was more than 100% of the turnover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken by the assessee is in excess of export turnover then that loss suffered in respect of that portion of excess transaction has to be considered as speculative loss only and that excess derivative transaction has no proximity with export turnover and the Assessing Officer is directed to compute accordingly. Further, the Assessing Officer has to see whether there is any premature cancellation of forward contract of foreign exchange and that transaction should be taken out for the purpose of considering the business loss and only the transctions which are completed to be considered for the purpose of determining the business loss from these foreign exchange forward contract. With this observation, we remand this issue to the file of the Assessing Officer for fresh consideration. 7. Before us, the ld. Representative relied on the judgment of Gujarat High Court in CIT vs Friends and Friends Shipping P. Ltd, [2013] 217 Taxman 267, for the proposition that if the assessee failed to take delivery within the period indicated in contract and the assessee had given instructions to bank for cancellation of contract on payment of agreed charges to the bank these transactions cannot be consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directors of the company are involved in decision making process on investment made by the appellant. Therefore, part of the expenditure on establishment and administration can be attributed to the activity of earning dividend. The amount disallowed by the Assessing Officer was found to be very low. On being confronted regarding disallowance u/s 14A, the assessee stated that it had invested in shares, mutual funds in course of carrying on its business from its surplus fund which were not required immediately on a day to day basis. In order to liquidate these funds they were kept in the scheme of liquid funds and mutual funds. The appellant stated that the disallowance made by it suo moto was reasonable. It stated that the investment made by the assessee was not out of borrowed funds but from interest-free funds available to it. It stated that out of total investment of Rs. 978.50 crores, a sum of Rs. 737.23 crores was towards investment in Aban Holdings Pte Ltd., Singapore. The income from this investment will not yield exempt income. The remaining investment has been taken care by share capital and reserve & surplus available with the company. The Assessing Officer did not accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant is required to incur routine administrative and common expenditure to maintain its establishment and administration. A portion of such expenses can certainly be attributable to the activity of earning dividend. The managerial staff, treasury department and directors are involved in taking decision as regards the investments to be made by the company. They have to monitor and track the investment, encash the dividend, switch over the investment from one share to another share or MF depending on the market situation etc. These require involvement of manpower and various other related and incidental expenses. Therefore, it would be reasonable to hold that some expenditure are attributable to these activities. In my opinion, it would be reasonable if 5% of the exempt income is considered as expenditure incurred in relation to the exempt income. Accordingly, the AO is directed to restrict the disallowance u/s 14A to Rs. 34,03,825/- The ground is partly allowed." 17. Considering the above, we are of the opinion that the Revenue has brought nothing on record to say that the provisions of Rule 8D are applicable to the year under consideration and the said disallowance of 5% o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT again decided the issue in favour of the appellant for A.Y 2005-06 in I.T.A.No. 1542/Mds/10 dated 15.7.2011. Since the facts are similar, respectfully following the above decision, the ground is allowed." 5. Considering the above covered nature of the issue, we confirm the order of the CIT(A). Accordingly, the first issue raised by the Revenue stands dismissed." Accordingly, this ground is dismissed. 21. The next issue is that the CIT(A) erred in holding that the assessee was eligible for deduction u/s 35D in respect of total expenditure incurred towards share issue. 22. The facts of the case are that On perusal of the details of other expenses of Rs. 6,76,03,748/-, the Assessing Officer found that the assessee had claimed Rs. 3,74,53,336/- as preference share issue expenses. She stated that since expenditure related to share capital was capital in nature, the same was not allowable as revenue expenditure. The assessee submitted that the expenditure incurred on preference share issue was capital in nature but has taken the plea that the said expenses should be allowed u/s 35D which deals with amortization of certain preliminary expenditure. The Assessing Officer held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Hon'ble Apex Court held that an A.O. could not entertain a claim made otherwise than by way of revised return. However, here the assessee had claimed the whole of the amount as revenue expenditure. The letter filed by the assessee was only an alternative claim that amount if not allowed in one go, it should be considered amortization under Section 35D of the Act. Assessee might have made a claim under a particular Section, but if the claim though not allowable under that section, but was allowable under another section, then it cannot be considered as a fresh claim, though the allowance under the latter Section could be given only in a gradated manner. The claim, nevertheless, was always there and we cannot consider it as claim of allowance made for the first time. In any case, Assessing Officer himself had considered the claim of the assessee under section 35D of the Act. He did not allow the claim for two reasons. Primary reason was that assessee, according to him, was not an industrial undertaking and second reason was that assessee had not completed extension of its industrial undertaking by purchase of rig. Assessing Officer never declined to consider the claim for a rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k in progress. No article classified as work-in-progress can be considered as a completed item. Be it a rig or be it any other thing. Hence, extension of the industrial undertaking cannot be considered as complete in the relevant previous year. Ld. CIT(Appeals) was justified in denying assessee claim under Section 35D of the Act for the impugned assessment year. We *do not find any reason to interfere. Ground No.3 of the assessee stands dismissed." 24. In view of the above order of the Tribunal, this ground of appeal of the Revenue is allowed. 25. The next ground is that the CIT(A) erred in deleting the disallowance of Rs. 6,67,070/- u/s 40(a)(ia) of the Act on payment of catering charges to catering contractor. 26. This issue is squarely covered in favour of the assessee by the decision of Special Bench in the case of Merilyn Shipping and Transports vs Addl. CIT, 20 taxmann.com 244 (Vizag) (SB), wherein it was held that only the amount outstanding at the close of the financial year has to be disallowed u/s 40(a)(ia) of the Act. Being so, in our opinion, the Assessing Officer has to see whether any amount is outstanding at the close of the financial year and that portion is to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions. The payments were made by the assessee to non-residents. The payment made to International Tubular F2E was for rental and repairs to machinery and payment made to International Offshore Management was for drilling services. This has been mentioned by the Assessing Officer at para 6 of his assessment order. However, as per the Assessing Officer, it was not for the assessee to decide whether Section 44BB could be applied to such nonresident entities. Assessing Officer relied on the decision of Frontier Offshore Exploration (India) Ltd. v. OCIT (118 ITD 495) which was for assessment year 2003-04 for making the disallowance for' short deduction of tax at source. Assessee admittedly was engaged in exploration of oil on offshore basins and drilling was undertaken on contracts received from entities like ONGC. Such offshore drilling was for crude oil and crude oil is definitely a mineral oil. Therefore, services rendered by a nonresident entity for rental and repairs to machinery used in offshore drilling and also for drilling services can only be considered as services or facilities in connection with prospecting for, or extraction or production of mineral oil. Hence assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said provision itself. As per the provisions of sec. 44BB(1) a sum equal to 10% of the aggregate of the amount specified in sub-section (2) is deemed to be the profits and gains of such business chargeable to tax under the head "profits and gains business or profession". It is because the provision of sec.44BB has quantified the deemed income of the non-resident assessee at 10%, it has opened with the clause "Notwithstanding anything to the contrary" contained in sections 28 to 41 and sections 43 and 43A. The aggregate amounts are quantified in sub-section (2) of sec. 44BB to be the amount paid or payable, received or deemed to be received etc. As per the sub-section (3) of sec. 44BB the non-resident can claim a lower profit. It is for the purpose of claiming lower profits that the non-resident must file a return and prove the same with support of his regular books of accounts and other documents and by complying with other conditions specified therein. If no return is filed, section 44BB(1) deems that the profits and gains of the business of the nonresident at 10% of the gross receipts. A perusal of the decision of the Hon'ble Supreme Court in the case of GE India Technolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in India. This is not so in the present case. Here on account of the special provisions of sec. 44BB, 10% of the gross amount payable 'to the non-residents deemed as the income chargeable to tax in India. In the present case it is noticed that the assessee has deducted tax at the specified rate on the 10% of the Bare Boat charges paid to the Norway company who is the non-resident, computed as per the provisions of sec. 44BB. In the circumstances, we are of the view that there is no violation of the provisions of section 195 in the assessee's case which cells for a disallowance by invoking the provisions of section 40(a)(i) of the Act. In the circumstances, the finding of the learned CIT(A) and that of the Assessing Officer stands reversed. 7. We may also mention here that we are not in agreement with the submission of the learned authorised representative that the provisions of sec. 40(a)(i) postulates an absolute failure and not short deduction. This is because a reading of section 201 clearly shows that the portion "the whole or any part of the tax" is in connection with the words "after so deducting fails to pay". It is not in connection with the words "does not d ..... 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