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TMI Blog2021 (2) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... the outstanding loan will be recovered from the assessee. Pertinently, while sustaining a part of the adjustment made by the TPO, learned Commissioner (Appeals) has equated the letter of comfort/support to corporate guarantee - on perusal of the letter of comfort/support, it cannot be construed to be in the nature of any sort of guarantee in respect of the loan liability of the AE. The only promise made by the assessee is, it will not make any divestment of the shares during the currency of the loan. In our view, in no way it makes the letter of comfort/support a guarantee of any kind as there is no financial implication on the assessee - Reading of section 92B Explanation 1(c), we are of the considered opinion that provision of letter of comfort/support cannot be termed as an international transaction within the meaning of the aforesaid provision. Our aforesaid view is well supported by the decisions cited by the learned Counsel for the assessee. Accordingly, we delete the addition. Disallowance u/s. 14A of the Act r.w.r. 8D - Mandation of recording proper satisfaction by AO before making addition - HELD THAT:- Without recording a proper satisfaction to the effect that the computa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer for examining assessee's claim of applicability of beneficial rate of tax as per the applicable DTAA to the DDT paid under section 115-O. Adjustment of corporate guarantee to 0.2% p.a - HELD THAT:- In assessee's own case Tribunal in separate orders has accepted commission on corporate guarantee provided to AEs charged at 0.20% to be at arm's length. The aforesaid decisions of the Tribunal have been upheld by the jurisdictional High Court while dismissing the appeals of the revenue. The latest order passed by the Hon'ble High Court in this regard is for the assessment year 2008-09 [ 2019 (2) TMI 819 - BOMBAY HIGH COURT ], in Income Tax Appeal No. 1564 of 2016 order dated 06-02-2019. Therefore, following the consistent view of the co-ordinate benches and the Hon'ble jurisdictional High Court, we uphold the decision of learned Commissioner (Appeals) on this issue. Ground of the revenue is dismissed. Deduction under section 35(2AB) - HELD THAT:- As decided in own case [ 2014 (1) TMI 16 - ITAT MUMBAI ] as directed the Assessing Officer to allow assessee's claim of deduction, if, on verification it is found that the expenditure claimed was actually in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to dealers and distributors; hence, subject to deduction of tax - HELD THAT:- As the entire trip scheme is for the purpose of expanding assessee's business by encouraging the dealers and distributors to achieve a specific target of purchase. Thus, the scheme is closely linked to assessee's business activity. It is also a fact that the assessee has not paid any amount to the dealers and distributors, but amount spent has been paid to SOTC for organizing the trip. It is also a fact on record that the amounts paid to SOTC has been subjected to TDS as per the relevant provision. Therefore, the allegation of the Assessing Officer that the amount has not been subjected to deduction of tax is without any basis. As regards the applicability of section 194H of the Act, by no means, the Assessing Officer has established on record that dealers/distributors are agents of the assessee. Further, as we find, the trip scheme has been introduced by the assessee from past 20 years and the deduction claimed by the assessee on account of such trip scheme has never been disallowed by the Assessing Officer except for the impugned assessment year. Therefore, even applying the rule of consistency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee in the context of facts and material on record, the learned Commissioner (Appeals) held that provision of letter of comfort to the AE is an international transaction. However, he did not agree with the decision of the TPO in applying the arm's length fee of 1.4% on the loan taken. Equating the letter of comfort/support to corporate guarantee, learned Commissioner (Appeals) determined the arm's length price of provision of letter of comfort/support at 20% of 0.20% which is the arm's length price determined for provision of corporate guarantee. Thus, he sustained addition to the extent of ₹ 3,28,280. 5. Drawing our attention to the letter of comfort/support, a sample copy of which is at page 123 of the paper book, the learned Counsel of the assessee submitted, the assessee has not undertaken any liability while providing such letter of comfort/support towards the loan availed by the AE. He submitted, as per the terms of the letter of comfort/support, assessee cannot be called upon to make good the loan amount in case of default by the AE. The only promise the assessee had made is to intimate the bank in case of any disinvestment/divestment of share. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid provision. Our aforesaid view is well supported by the decisions cited by the learned Counsel for the assessee. Accordingly, we delete the addition of ₹ 3,28,280/-. This ground is allowed. 8. In ground No. 2 assessee has challenged disallowance of ₹ 102.26 lakhs u/s. 14A of the Act r.w.r. 8D. 9. Briefly the facts are, in course of assessment proceedings, the Assessing Officer noticed that during the year under consideration, the assessee had earned exempt income by way of dividend amounting to ₹ 16,08,58,175/-. Whereas, the assessee on its own has disallowed an amount of ₹ 23,98,769/- towards expenditure attributable to earning of exempt income. Being of the view that the disallowance computed by the assessee is not in accordance with Rule 8D and relying upon the decision of ITAT, Mumbai Special Bench in case of M/s. Daga Capital Management Ltd. (ITA No. 8057/Mum/2003), the Assessing Officer disallowed an amount of ₹ 1,26,25,090/-. Assessee contested the above disallowance before the first appellate authority. After considering the submissions of the assessee in the context of facts and materials on record; learned Commissioner (Appeals), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Tribunal was also upheld by the Hon'ble jurisdictional High Court (supra). In view of the above, we find no reason to uphold the disallowance made. Hence, we delete the same. This ground is allowed. 13. Having decided the main grounds, now we will deal with additional grounds. After considering the rival submissions, we are of the view that the issues raised in the additional grounds do not require fresh investigation into facts and can be decided on the basis of material available on record. Therefore, we admit them. 14. In first additional ground numbered as ground 3 is on the issue of taxability of royalty income received from a subsidiary in Egypt. Briefly the facts are, during the year under consideration, the assessee had received royalty income of ₹ 5.46 crores from one of its subsidiaries, in Egypt, viz. M/s. SCIB Chemical - SAE. 15. Before us, the learned Counsel for the assessee submitted that as per Article 13 of India-Egypt Double Taxation Avoidance Agreement (DTAA), the royalty income is not taxable in India. He submitted, while deciding identical issue raised through an additional ground in Assessment Year 2008-09, the Tribunal has restored the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nditure. 19. The learned Counsel for the assessee submitted, education cess paid on the tax computed is an allowable deduction. In this context, he relied upon the following decisions:- (1) Sesa Goa Ltd. vs. JCIT (2020) 107 CCH 376 (Bom) (2) Chambal Fertilizers Chemicals Ltd. vs. PCIT - Income Tax Appeal No. 52 of 2018 dt. 31-07-2018 (Rajasthan High Court) (3) Atlas Cocoa (India) Ltd. vs. ACIT - ITA No. 1470/PUNE/2010 dt. 21-10-2019 (4) Reckitt Benckiser (I) P. Ltd. vs. DCIT (2020) 117 taxmann.com 519 (Kol) 20. The learned Departmental Representative has filed a written submission, which reads as under:- I. Education Cess-allowability as expense-Additional Ground of the assessee 1. The Issue pertains to allowability of education cess as deduction. This is entirely unrelated to any of the issues which were subject matter of assessment or appeal. The recourse that should be available are as provided in statute which would be as available where the returned income is treated as the base. This was not raised before the assessing officer in the assessment proceedings and is therefore a settled matter. This is no different than the case, as Courts have held, that the revenue is precluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not allowable though the term interest is not used in the section. 6. It is humbly submitted that the SC ruling in the case of Smith Kline French [India] Ltd. 1996] 85 Taxman 683 (SC) in the context of disallowance of surtax under section 40(a)(ii) of the Act has not been appreciated by the Hon'ble Rajasthan HC. In this judgment, it was held by the SC that surtax was not allowable under section 40(a)(ii) of the Act since the same was in principle computed on business profits, going by the contextual meaning of provisions rather than literal reading of the same. 7. This SC judgment has also affirmed the Jurisdictional Hon'ble Bombay HC judgment in the case of Lubrizol India Ltd. [1991] 54 Taxman 363 (Bombay) where the broad and wide scope of the word 'tax' used in section 40(a)(ii) of the Act has been explained in detail. The Hon'ble Jurisdictional Bombay HC has held that: - The word 'tax' is used in conjunction with the words 'any rate or tax'. The word 'any' goes both with the rate and tax. - If the word 'tax' is considered only as per section 2(43) of the Act, the word 'any' used before it will be otiose and the further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard it is to submit that Finance Act of the relevant financial year in chapter II mentions of surcharge as part of income tax as contained in section 2 thereof. This chapter is titled as rates of income tax and section 2 is under the broad subtopic income-tax . It is noteworthy to mention that sub-section 11 of the section 2 mentions of the educational cess being an additional surcharge and therefore, it is natural that it is part of income tax being only a surcharge. 13. It is also relevant to mention that section 40(a)(ii) mentions of 'any rate or tax levied as not an allowable expense. The above referred chapter II speaks of the same rates and income tax'. The decision of Rajasthan High Court, as referred above, it is humbly and respectfully submitted, has not considered this aspect. The said judgment relied primarily on a CBDT circular with respect to cess whose issuance date is far antedated to the inception of 'education cess' relevant to the current controversy and the Apex Court's judgment in the case of Jaipuria Samla Amalgamated Collieries Ltd. in which their Honours held that cess was an allowable deduction. However, it is to bring to Your Honours&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o charge in addition or to subject to an additional or extra charge. If that meaning is applied to section 2 of the Finance Act, 1963, it would lead to the result that income-tax and super-tax were to be charged in. four different way or at. four different rates which may be described as (i) the basic charge or rate (In Part I of the First Schedule); (ii) surcharge: (iii) special surcharge; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the income-tax and super-tax. According to the revenue, the word 'surcharge' has been used in Article 271 for the purpose of separating it from the basic charge of a tax or duty of the purposes of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the finance Act itself it is expressly stated that, the surcharge is meant for the purpose of the union. In the result, the view of the High Court could not be sustained. Thus, the words 'income-tax' in the Finance Act, 1964 in sub-section (2b) and sub-section (2)(b) of section 2 would include surcharge an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of, any such profits or gains. When the matter came up before the Select Committee, it was derided to omit the word cess from the clause. The effect of the omission of the word cess is that only taxes paid are to be disallowed in the assessments for the years 1962-63 onwards. 3. The Board desire that the changed position may please be brought 10 one nonce of all the Income-tax Officers so that further litigation on this account may be avoided. 19. A careful reading of the circular suggests that taxes paid are to be disallowed. It nowhere mentions that cess of every type has to be allowed. It obviously reserves the space under the nomenclature of cess wherein if still it retains character of tax. it has to be disallowed. Excessive reliance on the select committee's recommendation is. it is humbly submitted, ignoring the difference between interpretation of 'current law' and that of 'to be enacted future law'. The gravamen in this respect is whether cess is tax and not absence the word cess from the section. Had th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely covered by the decision of the Hon'ble jurisdictional High Court in case of Sesa Goa Ltd. vs. JCIT (supra), wherein, it is held that education cess not being in the nature of rate or tax will not be covered u/s. 40(a)(ii). The Hon'ble Rajasthan High Court has also expressed similar view in the decisions cited above. Even, different benches of the Tribunal have expressed identical view. In view of the above, we are unable to accept the submissions of learned Departmental Representative. Respectfully following the decision of the Hon'ble jurisdictional High Court (supra) and other decisions cited before us by the learned Counsel for the assessee, we hold that the assessee is eligible to claim deduction of education cess. This ground is allowed. 22. In the third additional ground numbered as ground No. 5, the assessee has raised the issue of applicability of beneficial rate as per the applicable DTAA to the dividend distribution tax (DDT) paid under section 115-O of the Act and has claimed refund of the excess amount. 23. Having considered rival submissions, we restore the issue to the Assessing Officer for examining assessee's claim of applicability of beneficial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years 2006-07, 2007-08 and 2008-09, the Tribunal in separate orders has accepted commission on corporate guarantee provided to AEs charged at 0.20% to be at arm's length. The aforesaid decisions of the Tribunal have been upheld by the jurisdictional High Court while dismissing the appeals of the revenue. The latest order passed by the Hon'ble High Court in this regard is for the assessment year 2008-09 in Income Tax Appeal No. 1564 of 2016 order dated 06-02-2019. Therefore, following the consistent view of the co-ordinate benches and the Hon'ble jurisdictional High Court, we uphold the decision of learned Commissioner (Appeals) on this issue. Ground of the revenue is dismissed. 29. In ground No. 2, the revenue has challenged the decision of learned Commissioner (Appeals) restricting the disallowance on account of letter of comfort to 0.04% as against 1.41% made by the TPO. While deciding identical issue in ground No. 1 of assessee's appeal in ITA No. 2754/Mum/2014, accepting assessee's claim we have held that provision of letter of comfort does not come within the ambit of international transaction defined under section 92B; hence, have deleted the adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No. 4, the revenue has challenged deletion of disallowance made on account of expenditure incurred on television advertisement in relation to corporate advertisement. 36. Briefly the facts are, during the assessment proceedings, the Assessing Officer noticed that the assessee had claimed deduction of ₹ 37,31,78,551/- towards expenditure incurred for TV advertisement. After verifying the details furnished by the assessee, he noticed that a part of the expenditure incurred by the assessee is of enduring nature; hence has to be treated as capital expenditure. Further, he noticed, similar expenditure incurred in Assessment Years 2006-07 to 2008-09 was treated as capital expenditure by the Assessing Officer. Following the view taken in earlier assessment years, he disallowed an amount of ₹ 10,84,64,506 by treating it as capital in nature. However, he allowed depreciation on such expenditure. Assessee contested the above disallowance before the first appellate authority. Taking note of the fact that similar disallowance made in earlier assessment years has been deleted by the Tribunal, the learned Commissioner (Appeals) deleted the disallowance. 37. We have considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials on record. The facts on record clearly reveal that assessee had purchased and installed new plant and machinery in the preceding assessment year which is eligible for additional depreciation @20%. However, since the new assets were put to use for less than 180 days in the preceding assessment year, the claim of additional depreciation allowable at 20% was restricted to half of it, i.e. 50%. Thus, in effect, the assessee was allowed additional depreciation of 10%. Now, it is well settled by a number of judicial precedents that if for use of new plant and machinery for a period of less than 180 days the entire amount of additional depreciation cannot be claimed in the subject assessment year, the balance unclaimed amount can be claimed in the subsequent assessment year. It is also a fact on record, against similar claim allowed by learned Commissioner (Appeals) in assessee's own case in Assessment Year 2008-09, the revenue has not preferred any appeal before the Tribunal. In view of the above, we uphold the decision of learned Commissioner (Appeals) on the issue. Ground raised is dismissed. 43. In ground 6, the revenue has challenged deletion of disallowance of ₹ 1,610 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Qatar Airways 332 ITR 253 (Bom) 7. Radhasaomi Satsang vs. CIT (193 ITR 321 (SC) 47. Without prejudice, the learned Counsel submitted, since no amount has been paid or credited to the distributors, question of deduction of tax at source does not arise. Further, he submitted, whatever amount the assessee has paid to SOTC has been subjected to TDS provisions. Therefore, there cannot be any further disallowance under section 40(a)(ia) of the Act. Further, he submitted, the expenditure incurred is purely for the purpose of business as it is in the nature of an incentive linked to quantum of purchases made by the dealer. Finally, he submitted, the assessee is claiming such deduction for past 20 years. Except the impugned assessment year, the expenditure has never been disallowed. Therefore, there is no reason to deviate in the impugned assessment year. 48. We have considered rival submissions and perused materials on record. As could be seen from the facts on record, to expand its business the assessee has devised a trip scheme wherein it organized foreign trips to its dealers and distributors based on achieving a specific target assigned by the assessee. On achieving such target, the de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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