Income Tax Appellate Tribunal - Kolkata
M/S Apeejay Shipping Limited, Kolkata vs Dcit, Centre Circle - Iii, Kolkata, ... on 30 August, 2017
आयकर अपील
य अधीकरण, यायपीठ - "A" कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "A" KOLKATA
Before Shri Waseem Ahmed, Accountant Member and
Shri S.S.Viswanethra Ravi, Judicial Member
ITA No.2550/Kol/2013
Assessment Year:2009-10
M/s Apeejay Shipping बनाम DCIT, Central Circle-III,
Ltd., Apeejay House, 15, / Aaykar Bhawan, Poorva,
Park Street, Kolkata-16 V/s . 110, Shanti Pally,
[PAN No.AADCS 7605 P] Kolkata-107
अपीलाथ /Appellant .. यथ /Respondent
अपीलाथ क ओर से/By Appellant Shri Manish Tiwari, FCA
यथ क ओर से/By Respondent Shri Sallong Yaden, Addl. CIT-DR
सन
ु वाई क तार
ख/Date of Hearing 22-06-2017
घोषणा क तार
ख/Date of Pronouncement 30-08-2017
आदे श /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is against the order of Commissioner of Income Tax (Appeals)-I, Kolkata dated 27.08.2013. Assessment was framed by JCIT(OSD), Central Circle-III Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') vide his order dated 29.12.2011 for assessment year 2009-10. The grounds raised by the assessee per its appeal are as under:-
Shri Manish Tiwari, Ld. Authorized Representative appeared on behalf of assessee and Shri Sallong Yaden, Ld. Departmental Representative represented on behalf of Revenue.
2. First issue raised by assessee in ground No.1 in this appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹2,64,64,575/- on account of loss on "currency fluctuation".
ITA No.2550/Kol/2013 A.Y. 2009-10M/s Apeejay Shipping Ltd. Vs. DCIT, CC-III, Kol. Page 2
3. Briefly stated facts are that assessee in the present case is a limited company and engaged in business of shipping and other investments. The assessee in the year under consideration has derived its major income from the shipping business and accordingly the tax was paid under Tonnge Tax Scheme as per the provision of Section 115VA of the Act. Besides the income from its shipping business assessee has also shown income from interest, profit on sale of investment and dividend on mutual fund / shares.
4. The assessee in the year under consideration has shown interest income from other sources on the amount of loan which was given in foreign currency to its subsidiary companies as detailed under :
i) Apeejay Tea (Panama) Inc. located in Panama.
ii) Surrendra Overseas (Panama) Inc., located in Panama.
The assessee in respect of these two loans given to the subsidiary companies in foreign currency has incurred loss as detailed under:-
Sl. Name of subsidiary Co. Amount (Rs) loss Remark(s) No 1 Apeejay Tea (Panama) Inc. 2,38,38,000 On account of foreign currency fluctuation 2 Surrendra Overseas (Panama) 26,24,575 On account of Inc. forward contracts to hedge risk During the year, the above stated losses were actually incurred by the assessee. The assessee in respect of both the loans has declared interest income under the head "income from other sources".
During the course of assessment proceedings, AO observed as under:-
i) That the losses have been incurred by the assessee on account of capital transactions;
ii) The assessee has shown the loan given to its subsidiary company under the current asset but the impugned loss does not pertain to the interest on such loan but it is arising out of principal amount of loan.ITA No.2550/Kol/2013 A.Y. 2009-10
M/s Apeejay Shipping Ltd. Vs. DCIT, CC-III, Kol. Page 3
iii) The main business of assessee is shipping, thus, providing loan of interest is not a primary business of the assessee. Therefore, the assessee has shown interest income under the head "income from other sources".
iv) The assessee as per Rule 115 of the IT Rules, 1962 has to restate its transactions at the end of every financial year after giving effect the currency fluctuation.
Accordingly, any effect on account of currency fluctuation either generates income or loss if it relates to the current account transactions. In the instant case, the loan given by the assessee represent capital account transactions therefore, any fluctuation on account of it should be ignored.
In view of the above, AO disallowed the loss claimed by the assessee for ₹2,64,64,575/- on account of currency fluctuation and added to the total income of the assessee.
5. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who confirmed the order of Assessing Officer by observing as under:-
"3.Ground no. 1 is directed against the action of the AO in not allowing the claim of loss of Rs.2,64,64,575/- on account of foreign exchange fluctuation. It is was explained at the assessment stage that the assessee company had given foreign currency loans to Apeejay Tea (Panama) and had suffered loss of Rs.2,38,38,000/- as a result of fluctuation in foreign currency on realisation of the principal loan amount. the assessee also entered into forward contracts to hedge its risk against loans advanced to Surrendra Overseas(Panama) and incurred loss of Rs.26,26,575/- on expiry of the contracts. It was argued that the above loss is allowable as deduction in computation of profits from non-shipping activity. The AO did not accept the arguments. The AO noted that the loss on fluctuation of foreign currency was not on account of interest but on account of realisation of the principal loan amount. The assessee company was mainly engaged in the business of shipping and forwarding loan was not part of it primary business. It was for this reasons that the assessee had shown interest income under the head other sources. The AO held that irrespective of its disclosure as current asset in the balance sheet, the loan given by the assessee company was not its trading asset or part of circulating capital as the income derived therefrom did not form part of its business income. The AO therefore ignored the loss of Rs.2,64,64,575/-. The Ld. AR appeared for the assessee and reiterated the submissions already made at the assessment stge. I do not find merit or substance in the arguments made on behalf of the assessee. the Assessing Officer has rightly held that giving of loan was not the primary business of the assessee and the loss due to fluctuation in foreign currency on account of realization of the principal loan amount was not allowable as deduction from the profits of the non-shipping activity. The order of the AO is upheld. Ground no 1 is dismissed."ITA No.2550/Kol/2013 A.Y. 2009-10
M/s Apeejay Shipping Ltd. Vs. DCIT, CC-III, Kol. Page 4 Being aggrieved by this order of Ld. CIT assessee came in second appeal before us.
6. Ld. AR for the assessee before us submitted that the investment was made by assessee in its subsidiary companies. Therefore, it was directly linked with the business of the assessee. The interest income earned on the loan given to subsidiary company was shown under the head "income from other sources" but the nomenclature of the income cannot be a decisive factor for not allowing the loss incurred on account of currency fluctuation. The assessee also submitted that the loans given to subsidiary companies were classified under the head "current asset". As such, Ld. AR prayed to delete the addition made by AO. On the other hand, Ld. DR vehemently relied on the order of Authorities Below and prayed before the Bench to confirm the same.
7. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, assessee has incurred loss on account of currency fluctuation in relation to loan provided to its subsidiary companies. The AO held that the impugned loss relates to the principal amount of the loan and therefore it cannot be allowed as deduction. Moreover, AO also observed the interest income corresponding to the loan was declared under the head "income from other sources". Therefore, no deduction on account of currency fluctuation was allowed to the assessee. The view taken by AO was subsequently confirmed by Ld. CIT(A). 7.1 From the foregoing discussion, we find that the assessee has given loan to its subsidiary company in foreign currency which was located outside India. At the time of repayment of loan by those subsidiary companies, the assessee has incurred loss of ₹2,64,64,575/- only on account of principal amount. It is an undisputed fact that the losses were incurred on account of capital transactions. It is also undisputed fact that the income from such loan was declared by the assessee under the head "income from other sources". Thus, it is clear that the loss has been incurred from the income which was declared under the head "income from other sources". Now, the issue before us arises for our adjudication whether loss on account of currency fluctuation can be claimed as deduction against the income from other sources u/s 57 of the Act. The provision of section 57 of the Act provides the deduction which can be claimed are detailed as under :-
ITA No.2550/Kol/2013 A.Y. 2009-10M/s Apeejay Shipping Ltd. Vs. DCIT, CC-III, Kol. Page 5 "Deductions.
57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely:-
i)-----------------
(ii----------------
(iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income;
[(iv) ------------------
A plain look at the above statutory provision makes it clear that clause (iii) to Section 57 of the Act is applicable in the instant case. The expenses which had been incurred wholly and exclusively for the purpose or earning of such income are eligible for deduction but the same should not be in the nature of capital expenditure. It is undisputed fact that the loan given to the subsidiary companies were returned back in entirety. The loss was incurred due to the currency fluctuation at the time of repayment of loan of principal amount by the subsidiary company which was claimed by the assessee. There was no case of non recovery of the principal amount from the companies. Thus in our considered view the impugned loss represents is on revenue accounts and has direct nexus with the interest income of the assessee. Therefore it is eligible for deduction under section 57(iii) of the Act. In view of the above, we reverse the order of authorities below. Hence, this ground of assessee's appeal is allowed.
8. Next issue raised by assessee in ground No. 2 is that Ld. CIT(A) erred in upholding the order of AO on account of wrong calculation of Minimum Alternate Tax (MAT for short) credit u/s 115JAA of the Act.
9. The Assessing Officer has worked out the tax liability under the provision of normal computation of income. Thus, the income under the MAT provision was not determined being lower tax liability. However, the Assessing Officer under the normal computation of income determined the tax liability and subsequently added surcharge and education cess. Thereafter the AO allowed the MAT credit available to the assessee. The necessary workings for the tax under the normal computation of income and MAT credit allowed to the assessee are detailed as under:-
"CALCULATION OF TAX Tax payable @ 30% Rs.8,38,10,076/-
Add: Surcharge @ 10% Rs. 83,81,008/-
ITA No.2550/Kol/2013 A.Y. 2009-10
M/s Apeejay Shipping Ltd. Vs. DCIT, CC-III, Kol. Page 6
Add: Education cuss @ 3% Rs. 27,65,733/-
Rs.9,49,56,817
Less: MAT credit allowed for adjustment as
b/f from A.Y. 2008-09 restricted to
regular tax payable for the year Rs.8,38,10,076/-
computed MAT for the year Rs.3,62,96,754/-
Rs.4,75,13,322/-
Balance payable Rs.4,74,43,495/-
10. Aggrieved, assessee preferred an appeal before Ld. CIT(A) who disregarded the contention of assessee by observing and confirmed the order of Assessing Officer by observing as under:-
"first determined the tax on total income including surcharge and educational cess; and then, allowed credit for MAT. The Ld. AR has argued that the AO was not justified in first computing the surcharge and educational cess and then allowing credit for MAT. The AO should have instead allowed credit for MAT and then computed surcharge and educational cess. I have perused the assessment order and considered the submissions made on behalf of the assessee. I find no infirmity in the method of computation of the tax liability as made by the AO. The surcharge and educational cess is leviable on the tax liability; and, credit for the MAT is allowable only from, the total tax liability. The order of the AO is confirmed. Ground no 2 is dismissed."
Being aggrieved by this order of Ld. CIT(A) assessee came in second appeal before us.
11. At the outset, Ld. AR before us submitted that as per the provision of MAT credit has to be allowed first before charging surcharge and education cess for working out the tax liability under the normal provision of tax. On the other hand, Ld. DR vehemently relied on the order of Authorities Below.
12. We have heard rival contentions of both the parties and perused the material available on record. At the outset, we find that impugned issue has been decided in favour of assessee by the order of the co-ordinate Bench of this Tribunal in the case of DCIT vs. M/s CRI Ltd. in ITA No.1942/Kol/2014 for the A.Y. 2009-10 dated 29.05.2017. The relevant extract is reproduced below:-
"5.Aggrieved, the assessee preferred an appeal before the CIT-A and contended that the AO was wrong in charging surcharge on the gross tax (before MAT credit) instead of net tax. The assessee has placed reliance on the proposition of law in the order in the case of Universal Medicare P.Ltd of the Co-ordinate Bench, ITAT Mumbai. The CIT-A considering the facts of the case with that of ITA No.2550/Kol/2013 A.Y. 2009-10 M/s Apeejay Shipping Ltd. Vs. DCIT, CC-III, Kol. Page 7 the facts in the case of Universal Medicare (supra) of Mumbai Tribunal allowed the MAT credit before charging of surcharge and education cess. Relevant finding of the CIT-A is reproduced herein below:-
5. The Ld AR has submitted that the scheme for the computation of tax as prescribed by the ITR-6 for the relevant assessment year 2009-10 clearly shows the chronology: compute the gross tax payable (column 3), then reduce MAT credit u/s 115JAA (column
4) to determine the tax payable after credit u/s 115JAA (column
5); and then, add surcharge (column 6) and education cess (column 7) to determine the gross tax liability (column 8). The Ld AR also placed reliance in the case of Universal Medicare (P) Ltd vs ACIT in ITA No. 839/Mum/2012 wherein identical issue was decided by the Hon'ble Bench of the ITAT, Mumnbai. In that case, the Hon'ble Tribunal has held as under:
Ground No. 6 relate to levying surcharge and educational cess before adjusting MAT credit. It is pertinent to mention that this issue has not been discussed in the assessment order. However, the same has been raised before the Ld CIT(A). The claim of the assessee is that MAT credit should first be reduced from the tax payable and thereafter on the residual amount the surcharge and educational cess be levied. It is relevant to note that in the Income Tax Return form-ITR-6, column no. 4, the assessee is required to fill the credit u/s 115JAA of tax paid in earlier years and after which on the balance tax payable, the assessee has to fill the surcharge and educational cess at column no. 8 and 10 for the purpose of arriving at the gross tax liability. Also, the ITAT in the case of Richa Global Exports (P) Ltd V ACIT in ITA No. 2303/Del!2012 has held there is no need to give separate credit of education cess and surcharge while giving credit of MAT. What is required is that in the year when such credit is given, education cess and surcharge should be computed after giving credit of MAT to the tax computed on the assessed income in the same way as 'in the case of interest under sections 2348 and 234C. The nature of MAT is like pre- paid taxes and, therefore, it should be treated alike for the purposes of computing education cess and surcharge also.
In view of that matter, we find merits in the contention of the assessee that MAT credit should first be reduced from the tax payable and thereafter on the residual amount the surcharge and educational cess be levied. We order and direct accordingly. Ground No. 6 is allowed.
6. I have considered the submissions of the assessee and also the material placed on record. I find merit in the submission that MAT credit has to be first allowed before charging the surcharge and education cess. The contention of the assessee is in line with the scheme for the computation of tax as prescribed by the ITR-6 for the relevant assessment year. The issue is also covered directly by ITA No.2550/Kol/2013 A.Y. 2009-10 M/s Apeejay Shipping Ltd. Vs. DCIT, CC-III, Kol. Page 8 the decision of the Hon'ble ITAT, Mumbai in the case of Universal.
Medicare (P) Ltd vs ACIT in ITA No. 839/Mum/2012 (supra). Accordingly, the AO is directed to follow the columns of the ITR-6 for the relevant assessment year; and, charge the surcharge and education cess after allowing the MAT credit. Ground no 2 is allowed. "
6. From the above, we find that the ld.CIT-A has followed the proposition of law laid down by the Mumbai Bench of ITAT on this issue. Hence, we find no infirmity in his order.
7. In view of the above, we hold that MAT credit shall be reduced first from the tax payable and add surcharge and education cess thereafter. In view of the above, we uphold the order of the CIT-A. The ground raised by the revenue is dismissed."
Respectfully following the same, we reverse the order of Lower authorities and direct the AO accordingly. Hence, this ground of assessee's appeal is allowed.
13. In the result, assessee's appeal stands allowed.
Order pronounced in open court on 30/08/2017
Sd/- Sd/-
( या%यक सद'य) (लेखा सद'य)
(S.S.Viswanethra Ravi) (Waseem Ahmed)
Judicial Member Accountant Member
*Dkp-Sr.PS
)दनांकः- 30/08/2017 कोलकाता / Kolkata
आदे श क त
ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-M/s Apeejay Shipping Ltd.,Apeejay House, 15, Park St. Kol-16
2. यथ /Respondent-DCIT, Cen. Cir.-III, Aaykar Bhawan Poorva 110, Shantipally Kolkta-107
3. संबं,धत आयकर आयु-त / Concerned CIT
4. आयकर आयु-त- अपील / CIT (A)
5. .वभागीय %त%न,ध, आयकर अपील य अ,धकरण कोलकाता / DR, ITAT, Kolkata
6. गाड2 फाइल / Guard file.
By order/आदे श से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील य अ,धकरण, कोलकाता