9911796707
TMI Blog2015 (6) TMI 1084X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. In fact, the rig was surveyed by the American Bureau of Shipping on 27.05.2006 and certificate of classification was also issued on 26.06.2006. Hence, the appellant is eligible for deduction in respect of the Rig Aban VII which is complete in all respects. The appellant had also been awarded a contract to drill in the East Coast of India by Hindustan Oil Exploration Ltd. Accordingly, the appellant got the rig moving from Texas Shipyard towards India. The fact that it was sold subsequently to a different company would not blot out the factum of completion of extension of the industrial undertaking of the appellant. Hence, I am of the considered opinion that the appellant is eligible for deduction u/s 350 in respect of the total expenditure incurred towards share issue. Disallowance u/s 14A - Held that:- 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% of the exempt income is on the lower side. Further, the Hon'ble Bombay High Court in the case of Godrej Agrovet [2014 (8) TMI 457 - BOMBAY HIGH COURT ] has approved 2% disallowance of the exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2010 for A.Y 2005-06 2006-07 3.1 - 3.2 Disallowance u/s 40(a)(ia) on catering charges Allowed by ITAT in favour of assessee in ITA No 1542 and 1543 of 2010 for the assessment years 2005-06 and 2006-07 4.1 4.4 Disallowance of FCB issues expenses CIT Vs Secure Meters - 2009 TIOL - 63 SC 5.1 - 5.8 Disallowance of preference share issue expenses u/s.35DAllowed by ITAT in favour of assessee in ITA No. 1382 of 2010 for the assessment year 2006-07. Alternatively the expenditure should be added to cost of oil rig. 6.1- 6.3 Disallowance u/s.14A r.w.Rule 8D Rule 8D is not applicable for this assessment year 7.1- 7.5 Disallowance u/s 40(a)(i) on payments made to non residents Allowed by ITAT in favour of assessee in ITA No 1542 and 1543 of 2010 for the assessment year 2005-06 and 2006-07 3. Considering the above and after hearing both the parties, we decide the said issues in the following paragraphs: 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar in the year under consideration and therefore, the same has to be decided in favour of the assessee by following the order of the Tribunal in assessee s own case (supra). Accordingly, the ground raised by the Revenue is dismissed. 8. The third issue relates to allowability of FCB issue expenses. The details of this issue are discussed in paragraphs 9.2.1 and 9.2.2 of the order of the CIT(A). The CIT(A) granted relief to the assessee relying on the binding Hon'ble Supreme Court s decision in the case of India Cements Ltd vs CIT, 60 ITR 52, which is relevant for the proposition that the expenditure incurred for obtaining the loan is meant for securing the use of money for a certain period and is always treated as revenue expenditure irrespective of the purpose for which the funds are raised. The expenses which are incurred for obtaining the loan is a revenue expenditure and the Hon'ble Madras High Court judgment in the case of South India Corporation (Agencies) Ltd , 290 ITR 217, is relevant. The CIT(A) referred to many other judgments and therefore, the relevant paras 9.2 to 9.2.2 of CIT(A) s order are extracted below: 9.2 I have carefully considered the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case before us. That was a case of raising a loan and not of raising additional capital. While raising a loan does not add to the capital base, raising of capital does. Further, the Hon'ble Madras High Court in the case of South India Corporation (Agencies) Ltd, 290 ITR 217 has also clearly upheld the decision of the Tribunal which held that issue of shares is a future event which may or may not happen. Since the expenditure incurred at present was towards obtaining a loan, it was revenue in nature. It also referred to the decisions of the Apex Court in India Cement Ltd and of the Delhi High Court in CIT v. Thirani Chemicals Ltd, 290 ITR: 196 (Del). 9.2.2 It is clear from the principles laid down in the above decisions that an expenditure incurred to obtain a debt is allowable. The FCCB issued by the appellant carries a fixed rate of interest and the nomenclature of the bonds by itself signifies that these instruments are debt instruments and not equity. FCCB is a loan which cannot be treated as an asset or an advantage of enduring benefit to the business. A loan is a liability and has to be repaid. It is erroneous to consider a liability as an asset of enduring advantage. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Id. AR. I have also gone through the decisions relied on by the AO and AR. Similar issue had come up for consideration in appellant's own case for A.Y. 2006-07. After considering the facts and rival submissions, it was held in ITA No.573/08 09/A.1I1 dated 23.06.2010 for A.Y. 2006- 07 that the expenditure on issue of shares is not deductible because it is directly related to the expansion of the capital base of the company. The disallowance of the AO was sustained. However, since the appellant is engage in the business of hiring rigs as well as the business of drilling and other oil field services, hydrocarbon exploration and production, it was held that these activities would fall within the ambit of mining under clause (aa) (iv) of sub-section (7) of section 72A of the Act which defines industrial undertaking . Having decided that the appellant qualifies as an industrial undertaking, it was further examine as to whether it satisfies the conditions laid down in section 350 of the Act. Since the appellant had only purchased the oil rig but had not put it to use during the year and had classified it as capital work-in-progress in its book, the extension of the industria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ₹ 17,415/-. 15. In the first appellate proceedings, the CIT(A) held that the provision of Rule 8D of I.T Rules does not apply to the assessment year under consideration i.e 2007-08. However, as seen from para 11.2.4 of the CIT(A) s order that relying on the Hon'ble Bombay High Court s judgment in the case of Godrej Boyce Mfg. Co. Ltd vs DCIT , 328 ITR 81, he has restricted the disallowance to 5% of the exempt income. 16. On hearing both the parties and on perusal of para 11.2.4 of the CIT(A) s order, for completeness of the order, we find it relevant to reproduce the same as under: 11.2.4 It is thus clear from the discussion made above that investment in foreign subsidiary has to be excluded for making disallowance u/s 14A. Further, no interest can also be disallowed for the reasons given in para 11.2.2. However, as stated earlier, the Hon'ble Bombay High Court in the case of Godrej Boyce (supra) has held that even prior to assessment year 2008-09, when rule 8D was not applicable, the AO had to enforce the provisions of sub-section (1) of section 14A. The AO is duty bound to determine the expenditure on a reasonable basis consistent with all relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decisions relied on by the A.O and AR. Similar issue had come up for consideration before the CIT(A) in appellant s own case for A.Ys 2005-06 and 2006-07. After considering the facts of the case, reasons given by the A.O, submission of the assessee and the decisions on the subject issue, the issue was decided in favour of the appellant in I.T.A.No. 569/08-09 and 573/08-09 dated 23.6.2010 for A.Ys 2005-06 and 2006-07. On further appeal by the department, the Hon'ble ITAT has upheld the order of the CIT(A) in I.T.A.No. 1542 1543/Mds/10 dated 1507.2011 in appellant s own case for A.Ys 2005-06 and 2006-07. It concluded as under: . Since the facts are similar, respectfully following the above decision, the addition is deleted and the ground is allowed. 20. Considering the above settled nature of the issue in the assessee s own case in the earlier assessment years, we are of the opinion that the order of the CIT(A) is fair and reasonable. Accordingly, we dismiss the ground of appeal raised by the assessee. 21. The last issue relates to payment by Dubai Branch to nonresident. The contents of para 14.2 of the CIT(A) s order is relevant to the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in India or outside, becomes chargeable to tax considering the principles relating to the territorial nexus. This aspect of the amendment was not adjudicated by the lower authorities. Therefore, the ld. DR requested that the matter may be remanded to the file of the Assessing Officer for fresh adjudication. 24. On the other hand, it is a case of ld. Counsel that considering the Bombay High Court judgment in the case of DIT vs Ishikawjima Harima Heavy Inds. Co. Ltd, 212 Taxman 273, the impugned payments are neither royalty nor FTS and therefore, not taxable in India. The said judgment was delivered prior to the aforementioned amendment to section 9(1) of the Act. However, the ld. DR admitted to the fact that the CIT(A) has not considered the said decision of the Hon'ble Bombay High Court. 25. On hearing both parties, as discussed in the open court, we are of the opinion that this matter needs to be remanded to the file of the Assessing Officer for fresh consideration of the facts of the assessee s case in the light of the Hon'ble Bombay High Court judgment cited (supra). The Assessing Officer is directed to pass a speaking order on this issue after considering the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
