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TMI Blog2022 (1) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the present case, we are the considered view that appellant is entitled to claim deduction 80IA, which was wrongly denied. We set aside the order of the ld. CIT (Appeals) and direct the Assessing Officer to allow deduction - Decided in favour of assessee. Disallowance u/s 14A r.w.r. 8D - AO has disallowed an amount u/s 14A out of the total administrative and operative expenses - HELD THAT:- As decided in own case [ 2020 (1) TMI 1606 - ITAT DELHI] Rule 8D of the Rules has been held to be applicable from Assessment Year 2008- 09. Therefore, for the year under consideration, there is no formula to compute the disallowance. However, at the same time, we are of the view that reasonable expenditure should be disallowed for earning exempt income. Though the Assessing Officer has attributed the administrative expenses on the ratio of the tax free income to total receipts and computed the disallowance but we are of the opinion that such computation is on the higher side. Thus we hold that Rs.20 lacs be treated as expenses incurred in earning of the exempt income. Disallowance of Prior Period Expenses - As argued that the expenses have been crystallized and fully allowable - HELD TH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted basis is not correct. It is also a fact not disputed by the Assessing Officer in the assessment order that all along the provision for maintenance of expenses have been allowed to the appellant company except the disallowances made in A.Y. 1985-86 and 1995-96. We find that the similar matter of provision for maintenance stands adjudicated by the Co-ordinate Bench of the Tribunal. The assessee has been providing for expenses to be incurred on demobilization, maintenance and other expenses since by inception of the Company. Nature of expenditure on Technical Know-how - capital or revenue expenditure - HELD THAT:- The assessee furnished detailed ledger account in this regard before the Ld. CIT(A) who held that it is evident that these expenses are regular business expenses which are incidental to the business of the assessee and in no way provide any enduring benefit to the assessee. Therefore, applying the ratio laid down by the Hon ble Supreme Court in the case of M/s Empire Jute Co. Ltd. [ 1980 (5) TMI 1 - SUPREME COURT] the addition made by the AO in this regard is deleted by the ld. CIT(A) correctly. Allowability of CSR Expenses - HELD THAT:- This is a straight issue supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the combined order in ITA No. 977/DEL/2010 for A.Y 2004-05 and ITA No. 2220/DEL/2011 for A.Y 2005-06 dated 30.01.2020 is reproduced below: "36. Ground No. 2 relates to the deletion of disallowance of deduction u/s 80IA of the Act amounting to Rs. 26.71 crores made by the Assessing Officer. 37. The claim of deduction came up for adjudication for the first time in Assessment Year 2000-01 and the co-ordinate bench in ITA No. 2596/DEL/2004 held as under: "3.5 Considering the arguments advanced by the parties and after going through the orders and material placed before us, we hold as under" Regarding the claim of deduction u/s 801A, it is seen that appellant is a company and has entered into contracts with various Central Government, State Government, State Government and Local Authority and other statutory bodies. A close reading of the agreement (for instance agreement with MSRDC enclosed in the paper book) clearly shows that appellant developed the infrastructure facility and has not acted merely as contractor as sought to be made out by Assessing Officer and C1T (Appeals). The Oxford dictionary defines the term developer as a person that designs and crate new products, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of the assessing officer and this in our considered opinion is clearly impressible. Case laws relied by the revenue are clearly misplaced on facts and are clearly distinguishable. Special bench decision in the case of B. T. Patil (Mum.) 126 TTJ 577 was recalled later on as it did not consider the binding decision of Hon'ble Bombay High Court in the case of ABG 322 ITR 323 (Bom). According to the assessment order, copies of all the agreements were before Assessing Officer yet assessing officer chose to make sweeping observation that the assessee is not developer. Such sweeping and bald assertion cannot be approved by us. Therefore, taking into the facts of the present case, we are the considered view that appellant is entitled to claim deduction 80IA, which was wrongly denied. We set aside the order of the ld. CIT (Appeals) and direct the Assessing Officer to allow deduction u/s 801A has claimed by the appellant. Ground No. 1 is allowed." 4. As no new facts have been brought on record for the year under consideration, respectfully following the findings of the co-ordinate bench, we direct the Assessing Officer to allow deduction u/s 80IA of the Act. Disallowance u/s 14A: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, for the year under consideration, there is no formula to compute the disallowance. However, at the same time, we are of the view that reasonable expenditure should be disallowed for earning exempt income. Though the Assessing Officer has attributed the administrative expenses on the ratio of the tax free income to total receipts and computed the disallowance at Rs. 28.04 lakhs, but we are of the opinion that such computation is on the higher side. We, therefore, direct the Assessing Officer to restrict the disallowance to Rs. 15 lakhs which should meet the ends of justice. The assessee will get relief of Rs. 13.04 lakhs." 6. In the absence of any change in the judicial pronouncements and in the factual position except the amounts earned, following the earlier order, we hold that Rs.20 lacs be treated as expenses incurred in earning of the exempt income. Prior Period Expenses: 7. While scrutinizing the return of income, the Assessing Officer noticed that the auditors have mentioned prior period expenses claimed during the year under consideration. The assessee was asked to justify the claim of prior period expenses. The assessee furnished details of prior period expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state of residency, India has inherent right to tax the global income of the appellant as per provisions of section- 5. As per India's existing DTAA's, India has adopted credit method whereby the global income of a resident tax payer is considered which includes income accruing or arising outside India as well, even though on such income a more beneficial tax treatment under the tax laws of host country may have been available. Under this system once the assessee has paid tax under the tax laws of host country, the credit for the tax payments in the host countries is given against the global income of the assessee under Indian Income Tax Act, which includes the overseas income as well. The appellant has claimed that it has permanent establishment in the foreign countries from where the project income have been derived and with India has entered into double taxation avoidance agreement. The appellant has opted for application of DTAA u/s 90(2). The character of the income earned by the appellant is 'income from business'. Article- 7 of relevant DTAA's which are applicable in the appellant's case are similarly worded. In these DTAAs, it has been provided that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent right of taxation of global business income in India is not lost. The fiscal domicile of the appellant had to be decided in view of the provisions of Treaty. Appellant's contention that its foreign income is taxable income in foreign countries and it cannot be taxed in India is an untenable contention. It is a fallacious view taken by the appellant by wrong interpretation of Article 7 of relevant DTAA. In the sphere of international taxation, there are two fundamental systems of taxation, one is based on residency of the taxpayer and the other is based on the source of the income. In the international arena, most of the countries follow the residency based taxation system. According to this system, a country can tax its residents on the global income of the taxpayer while the non-residents are taxed only on the income sourced inside the country. The provisions of section 5 as enumerated above give a scope of a total income of the assessee who is resident of India. As per these provisions, the income of the resident taxable in India includes all income from whatever source derived which is received or is deemed to be received in India in such year by or on behalf of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, exclusion of DTAA is not provided in that explanation. The Ld. CIT(A) confirmed the action of the Assessing Officer. 22.3 Before us the Ld. Counsel of the assessee submitted that issue in dispute is covered in the favour of the assessee by the decision of the Tribunal in the case of the assessee for assessment year 200001, wherein it is held that when such income is not to be taxed as per DTAA, it cannot be brought to tax indirectly under the deeming fiction under section 115JB of the Act. 22.4 The Ld. DR, on the other hand relied on the order of the lower authorities. 22.5 We have heard rival submission and perused the relevant material on record. The Tribunal in ITA No. 2596/Del/2004 in the case of the assessee for assessment year 2000-01 has adjudicated on the identical issue in dispute involved as under: "9. We considered the above heard the rival submissions made by the parties in respect of Ground No.7 and it is seen that income earned from permanent establishment in foreign countries is liable to be excluded from the computation of book profit in view of the decision in the case of the bank of Tokyo-Mitsubishi UFJ Ltd vs. ADIT 152 1TD 796 (Del.), which has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cost i.e. contract receipts, have already been received from the client in respect of the said projects before handing over the same to the client and no separate consideration is receivable. During the year an amount of Rs.2,27,42,328/- has been provided for non-DTAA project and Rs.7,18,000/- for DTAA projects. 17. The ld. CIT(A) deleted the addition holding that the assessee has been claiming that provision for maintenance has been made taking into account contractual provision, operating turnover of the year, type of project period of maintenance and other relevant factors. It was held that as per contract agreement the appellant is liable to provide free of cost maintenance to the clients for the period mentioned in the agreement. At the time of completion of the contract, liability arises in the hands of the appellant company to provide free maintenance to the various contractees for the period specified in the agreement. This liability arises at the time of the completion of the project itself and obviously the expenditure required can only be estimated on the basis of past experience, nature of the contract, type of the project and turnover of the appellant in that parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITA No.2401/Del/2013 A.Y. 2006-07, hence the same ratio applies. The appeal of the revenue on these grounds is dismissed. Technical Know-how: 24. This issue has been adjudicated in ITA No. 2443/Del/2013: A.Y. 2008-09, hence the same ratio applies. The appeal of the revenue on this ground is dismissed. DTAA Disallowance u/s 14A: 25. The appeal of the revenue on this ground is dismissed in view of the ratio laid down with regard to the income through PE and 115JB. Disallowance u/s 14A: 26. The assessee earned income of Rs.12,39,83,554/- from tax free bonds which was claimed exempt u/s 10 of the Act. In the earlier year an amount of Rs.20 lacs has been disallowed u/s 14A in ITA No.2401/Del/2013 for the A.Y. 2006-07. The same ratio applies to the case of the assessee for the instant year. ITA No. 2402/Del/2013: A.Y. 2008-09 (Assessee): Disallowance of Deduction u/s 80IA: Income through PE & 115 JB: 27. These issues is akin to the grounds adjudicated above in ITA No.2401/Del/2013 A.Y. 2006-07, hence the same ratio applies. The appeal of the assessee on this ground is allowed. Disallowance u/s 14A: (From the order of the ld. CIT(A)) This ground relates to di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employee welfare, postage, telecom, conveyance etc. are common expenses which may have nexus with earning of dividend income. I also observe that the Ld. CIT(A)-XIII, while deciding the appeal for 2005-06, had estimated disallowance of salary in respect of certain officers from the Finance Section who were members of the Investment Committee. This fact has also been emphasised by the appellant while making submission before me. However, the appellant pleaded that since there was no meeting of the Investment Committee during the year, it had not made any disallowance. I find that in the absence of Rule 8D, the basis of disallowance adopted by the CIT(A) was by use of a Thumb-rule of taking 10% of salary of certain officials who are involved in investment decision for estimating administrative expenses, which could have proximate nexus with tax exempt income. The endorsement of the method adopted by the Ld. CIT(A)-XIII by the appellant also shows that the appellant also acknowledges that there were indeed administrative expenses incurred relating to earning of tax exempt income though its computation was not easy. The moot point is that certain expenses were incurred for earning exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the revenue pertain to charges paid for services of survey and identifying villages as per PNGS, which requires preparing of DPR consultancy services for soil survey and other detailed activities required for the project. It was also informed that the agency charges were for the purpose of securing contract and the smooth dealing with the client. The assessee furnished detailed ledger account in this regard before the Ld. CIT(A) who held that it is evident that these expenses are regular business expenses which are incidental to the business of the assessee and in no way provide any enduring benefit to the assessee. Therefore, applying the ratio laid down by the Hon'ble Supreme Court in the case of M/s Empire Jute Co. Ltd. Vs. CIT 124 ITR 1, the addition made by the AO in this regard is deleted by the ld. CIT(A). 32. In the absence of any material contrary to the findings of the ld. CIT(A) brought before us, we decline to interfere with the order of the ld. CIT(A). The appeal of the revenue on this ground is dismissed. ITA No. 2403/Del/2013: A.Y. 2009-10 (Assessee): Disallowance of deduction u/s 80IA: Income through PE & u/s 115JB: 33. These issues are akin to the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008-09 in ITA No. 2402/Del/2013 and the same ratio applies. With the change in the legal proposition in the A.Y. 2008-09 onwards, we decline to interfere with the order of the ld. CIT(A). ITA No. 2650/Del/2014: A.Y. 2011-12 (Dept.): Provision for Maintenance: 43. This issue has been adjudicated in ITA No. 2442/Del/2013: A.Y. 2006-07, hence the same ratio applies. The appeal of the revenue on this ground is dismissed. ITA No. 5460/Del/2017 : A.Y. 2012-13 (Assessee): Income through PE & u/s 115JB: 44. These issues are akin to the grounds adjudicated above in ITA No.2401/Del/2013 for the A.Y. 2006-07, hence the same ratio applies. The appeal of the assessee on this ground is allowed. Disallowance u/s 14A: 45. During the year, the assessee earned tax free interest amount of Rs.7,83,36,436/-. This issue has been dealt in the case of the assessee for the assessment year 2008-09 in ITA No. 2402/Del/2013 and the same ratio applies. With the change in the legal proposition in the A.Y. 2008-09 onwards, we direct the AO to determine the disallowance in accordance with Rule 8D(2)(ii). ITA No. 6028/Del/2017 : A.Y. 2012-13 (Dept.): Disallowance of deduction u/s 80IA: Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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