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TMI Blog2024 (7) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... case, there was no likelihood of restarting the said business and completely closed down earlier to so many years and now this expenditure cannot be allowed as a business expenditure. It was not incurred to keep its existing business. Thus, expenditure incurred during the period when no business was carried o was not admissible deduction. As decided in case of L.M. Chhabda and Sons [ 1967 (3) TMI 10 - SUPREME COURT] that the claim of allowance of expenditure from an independent business, which was closed down was not allowable against other income of the assessee. Thus, to allow any deduction relating to discontinued business would be a total contradiction and violation of the legal principle upon which section 29 of the Act stands. Among various conditions required for a loss or expenditure to be allowed, the foremost condition is that it should be in the course of business and it should be incidental to the business. On understanding this basic rule, the simplest interference to arrive at is that in the case of discontinued business, there is no question of loss or expenditure incurred in the course of business wholly and exclusively for the purpose of business as the business n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, natural justice, probabilities, facts and circumstances of the Appellant's case. (b) The appellant denies itself liable to be assessed on a total income of Rs. 5,71,10,650/- as against the returned income of Rs. 5,59,81,890/- under the facts and circumstances of the case. 2. (a) The authorities below erred in disallowing the business loss of Rs. 11,28,766/- by stating that the appellant is not engaged in any business during the year under consideration on the facts circumstances of the case. (b) The authorities below ought to have appreciated that even though the business was discontinued, the appellant had to incur expenditure such as professional fees, consultancy charges towards pending income tax litigations, labour law compliances, bank charges etc., pertaining to erstwhile business which was neither extravagant nor excessive and therefore the business loss of Rs. 11,28,766/- needs to be allowed under the facts and circumstances of the case. 3. (a) The action of the authorities below in ignoring the tax rates adopted by the appellant as per DTAA between India - New Zealand on the interest income of Rs. 4,87,50,072/- and adopting the slab rates applicable to a Resident I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (b) The learned assessing officer failed to appreciate that the income other than the income taxable under the provisions of DTAA does not exceed I Crore and thus the rate of surcharge ought to be have been restricted to 10% under the facts and circumstances of the case. 8. The appellant denies itself liable to be levied to interest under section 234A of the Act and further the computation of interest under section 234A was not provided to the appellant as regard to the rate, period and method of calculation of interest under the facts and circumstances of the case. 2. Ground No.1 (a) (b) is general in nature, which do not require any adjudication. 3. The ground No.2(a) (b) for our consideration is with regard to disallowance of business loss of Rs. 11,28,766/-. In this regard, the ld. A.R. submitted that the assessee was engaged in the business of rendering outsourced housekeeping services in the name and style of The Peoples Choice . This business was transferred to M/s. Quess Corporation Ltd. on 06.02.2017. During the year under consideration, the assessee had incurred an expenditure of Rs. 11,29,290/- towards professional charges, consultancy charges and other expenditure suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litigations pertaining to income tax and labour laws which remained unresolved. In order to handle these issues, the assessee had to maintain staff and consultants. Therefore, business loss having arisen due to expenditure incurred towards professional charges, consultancy charges and other expenditure such as ESI arrears and bank charges during the financial year 2020-21 could not be disallowed. 4. The ld. D.R. submitted that the assessee has already discontinued the business for many years back and the expenditure incurred in the assessment year under consideration cannot be considered as an expenditure wholly and exclusively incurred for the purpose of business. As such that expenditure cannot be allowed as deduction. The ld. D.R. relied on the following decisions: a) CIT Vs. Gemini Cashew Sales Corporation (65 ITR 643) b) Judgement of Madras High Court in the case of M. Seshadri Iyengar Sons 152 ITR 734 (Madras) 5. We have heard the rival submissions and perused the materials available on record. The assessee pleaded that in the assessment year under consideration, assessee has incurred various legal expenditure to defend its cases and for the basic needs of the assessee, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1977-78 it claimed deduction under section 57(iii) in respect of the salary paid to its employee. The ITO disallowed the assessee's claim on the ground that it was being claimed in respect of earning of interest income but the employee had no role to play in earning this income. On appeal, the Tribunal upheld the order of the ITO. On this issue, the Hon ble Court held that In view of the decision in the case of CIT v. Rampur Timber Turnery co. [1981] 129 ITR 58 (All.) it was held that the expenditure incurred in retaining the status of the company, namely miscellaneous expenses, salary, legal expenses, travelling expenses and the like would be expenditure wholly and exclusively for the purpose of making or earning income, in the instant case the assessee was entitled to duction under section 57(iii) in respect of the salary paid to its employee. The Tribunal was not justified in disallowing the assessee's claim. 5.3 Contrary to this, the ld. D.R. relied on the judgement of Hon ble Supreme Court in the case of CIT Vs. Gemini Cashew Sales Corporation cited (supra), wherein held as under: Two persons, 'W' and 'R', carried on business cashewnuts as partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by the proviso, transferred to a new employer, and not till then. The right therefore arises from determination of employment, or from transfer of the undertaking: it has no existence before these events take place. Broadly stated, the present value on commercial valuation of money to become due in future, under a definite obligation, will be a permissible outgoing or deduction in computing the taxable profits of a trader, even if in certain conditions the obligation may cease to exist because of forfeiture of the right. Where, however, the obligation of the trader is purely contingent, no question of estimating its present value may arise, for to be a permissible outgoing or allowance, there must in the year of account be a present obligation capable of commercial valuation. As already observed, the liability to pay retrenchment compensation arose for the first time after the closure of the business and not before. It arose not in the carrying on of the business, but on account of the transfer of the business. During the entire period that the business was continuing, there was no liability to pay retrenchment compensation. The liability which arose on transfer of the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its employees agreeing to pay them gratuity, retrenchment compensation and notice pay and it credited the amounts due to the workmen under the aforesaid accounts in their accounts and debited the same in its profit and loss account. However, the actual payment of gratuity, retrenchment compensation and notice pay was made only in the subsequent accounting year in April 1973, when the business was actually closed. For the assessment year 1973-74, the assessee's claim for deduction of the amounts paid towards gratuity, retrenchment compensation and notice pay was disallowed by the ITO on the ground that the said sum was not deductible under section 36(1)( v). On appeal, the AAC confirmed the ITO's order. On second appeal, the Tribunal held that the amount paid towards the gratuity liability was deductible, but the amounts paid towards retrenchment compensation and notice pay were not deductible, as the amounts paid towards retrenchment compensation and notice pay on the closure of the business of the assessee could not be held to be a business expenditure. On reference, it was contended by the assessee that it closed down only a part of the business and not the whole of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closure of the business the liability to pay retrenchment compensation has arisen, the liability to pay retrenchment compensation cannot be said to be a liability which arose at the time when the business was carried on and such a liability was wholly contingent when the business was being run and, therefore, the amounts paid or agreed to be paid towards retrenchment compensation cannot be termed as expenditure wholly or exclusively for the purpose of the business. Thus, even if the assessee had followed a mercantile system of accounting and the credit entries in favour of the workmen and the debit entries against the assessee-firm could be taken as the basis for the assessee's claim for exemption in respect of retrenchment compensation, that claim was liable to be rejected on the grounds that the liability to pay retrenchment compensation arose only in the next assessment year when the business was closed and the credit or the debit entries, as the case may be, could only be in respect of a contingent liability during the relevant assessment year and such a contingent liability could not be taken as business expenditure to be charged against the profit. It was held by the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing this basic rule, the simplest interference to arrive at is that in the case of discontinued business, there is no question of loss or expenditure incurred in the course of business wholly and exclusively for the purpose of business as the business no longer is in existence. Being so, the revenue authorities have taken a correct view of the facts of the case and disallowed the same. We do not find any infirmity in the finding of the lower authorities and the same is confirmed. This ground of appeal of the assessee is dismissed. 6. With regard to next ground No.3(a) (b) read with ground No.5(a) (b): Tax rates on Interest income: 6.1 The ld. A.R. submitted that as the assessee stayed in New Zealand for 359 days during the year under consideration, he was a Resident of New Zealand and accordingly, his global income was taxable in New Zealand. Further, as per Article 11 of DTAA between India New Zealand, the interest income earned by an assessee being a resident of the other Contracting State may also be taxed in India subject to a maximum rate of 10%. 6.2 Accordingly, while filing the return of income, the assessee declared the interest income amounting to Rs. 4,87,50,072/- in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the rate of 10% by stating that the assessee is not eligible for claiming the benefits of DTAA as the assessee has not included any income earned in India in the income tax return filed in foreign jurisdiction which is not correct on the facts of the case. 6.8 He contended that as long as a person is a resident of contracting state which attracts residence type taxation, the status of being a Resident of the contracting state is independent of the actual levy of tax on that person by that state. Therefore, taxability in one country is not sine qua non for availing relief under the DTAA from taxability in another country. 6.9 He placed reliance on the decision of Mumbai Tribunal in the case of ADIT(IT) vs. Green Emirate Shipping Travels reported in 100 ITD 203. 6.10 He also placed reliance on the parity of reasoning in the decision of Jurisdictional High Court in the case of CIT vs. R.M. Muthaiah reported in 202 ITR 508. 6.11 Further, he submitted that the statement of the learned assessing officer that the assessee has not included his Indian income in his New Zealand s return of income is incorrect for the reason that the assessee was a Transitional Tax Resident of New Zealand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid both income-tax under this Act and income-tax in that country or specified territory, as the case may be, or (ii) income-tax chargeable under this Act and under the corresponding law in force in the country or specified territory, as the case may be, to promote mutual economic relations, trade and investment, or (b) for the avoidance of double taxation of income under this Act and under the responding law in force in that country or specified territory, as the case may be, without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the said agreement for the indirect benefit to residents-of any other country or territory), or 8. We have heard the rival submissions and perused the materials available on record. As rightly pointed out by the ld. A.R of the assessee, the assessee is a non-resident of India and resident of New Zealand and assessee s global income is taxable in New Zealand. As per the Article 11 of DTAA between India and New Zealand income earned by the assessee being a resident of New Zealand may be taxed subject to at a maximum rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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