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TMI Blog2015 (8) TMI 1584X X X X Extracts X X X X X X X X Extracts X X X X ..... t but chargeable to tax albeit at a lower rate. In the present facts it is not disputed that income earned on interest and dividends is chargeable to tax at a special rate under Section 115A of the Act. Consequently, there could be no occasion to invoke Section 14A of the Act to disallow expenditure which has admittedly been incurred in respect of income which is taxable. Interest income earned on funds by AO, in Indian Branch be termed as interest to self - HELD THAT:- In the present facts, the issue arising for consideration is not the deduction on account of interest paid to the Head Office but the non exigibility to tax on account of interest received from its Head Office on the ground that no person can make profit out of itself as held by the Apex Court in the case of Sir Kikabhai Premchand [ 1953 (10) TMI 5 - SUPREME COURT ] In any view of the matter, Section 90(2) of the Act itself provides that the assessee has an option to either invoke DTAA or normal provisions of tax to the extent which of the two is more beneficial to it. In this case, by filing the revised return of income the claim to be subjected to tax under the DTAA stood withdrawn. In the above view, we see no su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case and in law, the Tribunal was right in holding that the expenses incurred at Head Office on behalf of the Indian Branch of the assessee are deductible u/s. 37(1) of the Act without any restrictions contained in Section 44C? (B) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in deleting the disallowance made by AO Rs. 75,03,911/- keeping in view provisions of Section 14A? (C) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the interest income earned on funds by AO, in Indian Branch be termed as interest to self? (D) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the interest on bad and doubtful debts is not chargeable to tax for this year u/s. 43D when assessee had not credited such interest to it's P L Account of this year? Regarding Question A: 2. Mr. Tejveer Singh, the learned Counsel for the revenue fairly states that the same is concluded against the appellant/revenue by order of this Court in an appeal filed by revenue in respect of the same respondent relating to Assessment Year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of Supreme Court in Rajasthan State Warehousing Corporation v. CIT [2000] 242 ITR 450/109 Taxman 145 wherein the contention of the revenue that if part of the income which arise is exempt from tax and the business is one and indivisible, then no part of expenditure incurred to earn exempt income can be disallowed. The Parliament thereafter amended the statute and introduced Section 14A into the Act. This Section 14A of the Act specifically provides that expenditure incurred in relation to income which does not form part of total income under the Act shall not be allowed as deduction. Thus it excludes the allowing of deduction of expenditure incurred to earn the exempt income. It does not disturb the finding of Supreme Court in Rajasthan State Warehousing Corpn. case (supra) in respect of cases wherein the expenditure is incurred on earning income which is not exempt. In this case, income earned is not exempt but chargeable to tax albeit at a lower rate. In the present facts it is not disputed that income earned on interest and dividends is chargeable to tax at a special rate under Section 115A of the Act. Consequently, there could be no occasion to invoke Section 14A of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s interest income is taxable under the normal provisions of the Act as well as DTAA. On further appeal, the Commissioner of Income-tax (Appeals) (the 'CIT(A)') by the order in appeal holds that the interest income is chargeable to tax under normal provision of the Act i.e. Section 9(1)(v)(c) of the Act. On further appeal, the Tribunal held that no occasion to tax such interest income received from its Head Office can arise nor deduction is to be allowed in case of interest paid by the respondent-assessee to its Head Office. (d) We find that no specific ground as urged before us by Mr. Tejveer Singh has been taken in memo of appeal filed in this Court. Be that as it may, we find that respondent-assessee had claimed benefit under the DTAA in its return of income but the same was effectively withdrawn by virtue of filing a revised return of income on 29 March, 2000. Although the Assessing Officer held that the respondent-assessee is liable to pay tax in respect of interest earned from its Head Office both under the normal provision of Act as well as DTAA, both CIT(A) as well as the Tribunal have proceeded on the basis of the claim of the respondent-assessee being under the nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is that as the crediting of interest to the RDFI account would by itself be sufficient to bring the amounts to tax under Section 43D of the Act. (c) We find that Section 43D of the Act clearly provides that only such interest on bad and doubtful debts which are received or is credited to the Profit and Loss Account for the year under consideration, would the same be taxable. In the present facts, the amount of interest attributable to bad and doubtful debts has not been received. Further the interest has not been credited to Profit and Loss Account but to a reserve amount called RDFI account maintained in terms of Reserve Bank of India's guidelines. Besides, this Court in CIT v. Citi Bank N.A. [1994] 208 ITR 930/75 Taxman 433 had recorded the practice of banks to effectively control it's problem loans and it's recoveries by keeping/maintaining a memorandum record of interest due on such accounts. This is an usual banking practice to keep a tab/check on the problem loans and interest thereon. The provision under Section 43D of the Act are very clear and unequivocal that the interest receivable on bad and doubtful debts are chargeable to tax only when it is credited to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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