Income Tax Appellate Tribunal - Mumbai
Deutsche Bank A.G. , Mumbai vs Assessee
1 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G.
आयकर अपीलीय अिधकरण,
अिधकरण "एल ््"खंखंडपीठ मुंबई
INCOME TAX APPELLATE TRIBUNAL,MUMBAI - 'L' BENCH.
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डȣ.मुमोहन,उपाÚय¢
मुमोहन उपाÚय¢ एवं राजेÛि,ले
ि लेखा सदःय
Before S/Sh.D.Manmohan,Vice-President & Rajendra,Accountant Member आयकर अपील सं./ITA ./ ./ िनधा[रण वष[/Assessment Year-1999-00 No.4841/Mum/2004 ,िनधा[ Deutsche Bank A.G. Kodak The Additional Director of House, 222, Dr.D.N.Road, Fort, Income-tax (International Mumbai- 400 001 Taxation), Range 1, Mumbai.
PAN: AAACD1390F
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
आयकर अपील सं./ITA
./
./ िनधा[रण वष[/Assessment Year-1999-00
No.5033/Mum/2004 ,िनधा[
ADIT(IT)-1(2), Deutsche Bank A.G.Kodak
Mumbai. House, 222, Dr.D.N.Road, Fort,
Mumbai- 400 001
PAN: AAACD1390F
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
आयकर अपील सं./ITA
./
./ िनधा[रण वष[/Assessment Year-2000-01
No. 7445/Mum/2004 ,िनधा[
Deutsche Bank A.G.Kodak The Joint Director of Income-
House, 222, Dr.D.N.Road, Fort, tax (International Taxation),
Mumbai- 400 001 Range-3,
Mumbai.
PAN: AAACD1390F
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
आयकर अपील सं./ITA
./
./ िनधा[रण वष[/Assessment Year-2000-01
No.7562 /Mum/2004 ,िनधा[
Dy.DIT(IT)-1(2), Deutsche Bank A.G.Kodak
Mumbai House, 222, Dr.D.N.Road, Fort,
Mumbai- 400 001
PAN: AAACD1390F
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
C.O. No. 269/Mum/2005 Assessment Year-2000-01
Deutsche Bank A.G.Kodak Dy.DIT(IT)-1(2),
House, 222, Dr.D.N.Road, Fort, Mumbai
Mumbai- 400 001
PAN: AAACD1390F
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
आयकर अपील सं./ITA
./
./ िनधा[रण वष[/Assessment Year-2001-02
No.3412/Mum/2005 ,िनधा[
Deutsche Bank A.G.Kodak The Assistant Director of
House, 222, Dr.D.N.Road, Fort, Income-tax (International
Mumbai- 400 001 Taxation)-1(2),
Mumbai.
PAN: AAACD1390F
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
आयकर अपील सं./ITA
./
./ िनधा[रण वष[/Assessment Year-2001-02
No.3678/Mum/2005 ,िनधा[
2 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G.
DDIT(IT)-1(2), Deutsche Bank A.G.Kodak
Mumbai. House, 222, Dr.D.N.Road, Fort,
Mumbai- 400 001
PAN: AAACD1390F
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
C.O. No. 371/Mum/2005 Assessment Year-2001-02
Deutsche Bank A.G.Kodak DDIT(IT)-1(2),
House, 222, Dr.D.N.Road, Fort, Mumbai.
Mumbai- 400 001
PAN: AAACD1390F
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
अपीलाथȸ ओर से / Appellant by : Mr. P.J. Pardiwala, Niraj Sheth
ू×यथȸ कȧ ओर से/Respondent by : Mr. Narender Kumar
सुनवाई कȧ तारȣख / Date of Hearing : 0 2/ 0 7 / 2 0 1 3
घोषणा कȧ तारȣख / Date of Pronouncement : 1 7/ 0 7 / 2 0 1 3
आ य क र अ िधिन यम ,1 9 6 1 कȧ धा रा 2 5 4( 1) के अ Ûतग[ त आ दे श
O rd e r u/ s. 2 5 4( 1) of th e Inc o me -t a x Act , 1 9 6 1( Act )
Per Bench:
4841/Mum/04-A.Y.1999-2000
"The Commissioner of Income-tax (Appeals)-XXXI,Mumbai erred in confirming the action of the Assess - ing Officer in not accepting the appellants contention that the IT related expenditure of Rs 10,93,18,321, SAP implementation charges of Rs 3,36,62,690, SAP operating charges of Rs 17,55,499 and Global Email Charges (GEC) of Rs 52,43,348 payable to their Asia Pacific Head office (APHO),Head office (HO) and certain overseas branches were allowable as a deduction in computing their total income. The appellants submit that these expenses have been incurred for the purpose of their business carried out in India and should be allowed as a deduction in computing their taxable income. The appellants crave leave to add, amend, alter, vary, omit or substitute any of the aforesaid ground of appeal or add a new ground or grounds of appeal at any time before or at the time of the hearing of the appeal as they may be advised."
5033/Mum/04-A.Y.1999-2000 "On the facts and the circumstances of the case and in law, the ld. CIT(A) erred in holding that since there is no nexus proved between exempt income and interest bearing funds, no disallowance can be made from the gross income claimed as exempt."
2.(a)On the facts and the circumstances of the case and in law, the ld.CIT(A) has erred in allowing the assessee's claim for deduction of payment of premium amounting to Rs. 9,14,43,706/ paid to M/s. Deutsche Asia Pacific Holdings Pvt. Ltd. and
b)On the facts and the circumstances of the case and in law, the ld.CIT(A) has erred in not appreciating that, the assessee could not have been allowed deduction for the payment of Rs.9,14,43,706/-paid to M/s. Deutsche Asia Pacific Holdings Pvt. Ltd. in view of the provisions of clause (1)(e) of the Protocol to the DTAA with Germany.'
3.On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in directing the AO to allow deduction Rs.7,10,00,418/- on account of loss on unmatured Forward Foreign Exchange Contracts which were outstanding on 31-03-1998 on the ground that, the said loss had been disallowed in AY 1998-99 without appreciating that the said disallowance in AY 1998-99 had not become final."
4.On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in holding that the net gain of Rs. 4,65,O1,026/ on unmatured forward forex contracts, outstanding as on 31-03-1999 (i.e. the end of the F.Y.) are not taxable.
5.The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO restored.
6.The appellant craves leave to amend or alter any ground or add a new ground which may be 3 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G. necessary."
7445/Mum/04-A.Y.2000-01
1)The Commissioner of Income-tax (Appeals)-XXXI, Mumbai [hereinafter referred to as the CIT(A)], erred in confirming the action of the Joint Director of Income-tax (International Taxation) -3, Mumbai (hereinafter referred to as the AO) in denying the exemption of Rs.4,58,84, 863 under section 10(23G) in respect of interest received from Modi Teistra Pvt. Ltd. merely because the loan whose term provided for a repayment beyond a period of five years was repaid within a period of five years due to certain commercial reasons.The appellants pray that the AO be given suitable direction.
2)The CIT(A) erred in confirming the action of the AO in not allowing a, deduction for the IT related expenditure of Rs. 16,34,20,299, SAP operating charges of Rs.33,43,331 and Global Email Charges (GEC) of Rs.35,12,931 payable to their Asia Pacific Head office (APHO), Head office (HO) and certain overseas branches.
The appellants submit that these expenses have been incurred for the purpose of their business carried out in India and should be allowed as a deduction in computing their taxable income.The appellants pray that the AO be directed accordingly.
The appellants crave leave to add, amend, alter, vary, omit or substitute any of the aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of the hearing of the appeal as they may be advised.
7562/Mum/04-A.Y.2000-01
1.On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made on account of broken period interest amounting to Rs. 30,36,72,909/-."
2. On the facts and the circumstances of the case and in law, the ld. CIT(A) has erred in directing to delete the addition made on account of gross interest and gross dividend u/s. l0(23G) and 10(33) of the I.T.Act, 1961."
3." On the facts and the circumstances of the case and in law, the id. CIT(A) has erred in allowing the assessee's claim for deduction on account of premium paid to Rs. 7,59,66,506/- to cover the business risk."
4.On the facts and the circumstances of the case and in law, the id. CIT(A) has erred in allowing deducti
-on of Rs. 2,08,63,000/- on unmatured forward forex contract outstanding as on 3 1-03-2000."
5.The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO restored.
6.The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.
CO. No.269/M/05-A.Y.2000-01 In the event the Assessing Officer's (AO) action of not allowing a deduction for the broken period interest of Rs.30,36,72,909 paid on securities purchased during the year which forms a part of its closing stock as on 31st March, 2000, by treating it to be capital in nature is upheld, then without prejudice, the AO be directed to increase the value of the opening stock of the securities in the subsequent year by the amount of the broken period interest paid in respect of such securities which has been treated as capital in nature by the department.
The respondents pray that the AO be directed accordingly.
The respondents crave leave to add to, alter, amend, vary, omit or substitute the aforesaid cross objection or add a new ground or grounds of cross objections at any time before or at the time of hearing of the cross objection as they may be advised.
3412/Mum/05-A.Y.2001-02
1)The Commissioner of Income-tax (Appeals),XXXI Mumbai [hereinafter referred to as the CIT(A)],erred in confirming the action of the Joint Director of Income tax (International taxation -Range I-,Mumbai (hereinafter referred to as the AO) in denying the exemption of Rs. 78,98,542 under section 10(23G) in respect of interest received from Modi Telstra Pvt. Ltd. merely because the loan whose term provided for a re-payment beyond a period of five years was repaid within a period of five years due to certain commercial reasons.
The appellants pray that the AO be given suitable direction.
2)The CIT(A) erred in not entertaining the appellants claim for allowance of Rs.75,46,013 being premium to cover business risk.
3)The CIT(A) erred in confirming the action of the AO in not allowing a deduction for the IT related expenditure of Rs. 24,74,89,890, SAP operating charges of Rs. 26,52,845 and Global Email Charges (GEC) of Rs. 37,57,980 payable to their Asia Pacific Head office (APHO), Head office (HO) and certain 4 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G. overseas branches. The appellants submit that these expenses have been incurred for the purpose of their business carried out in India and should be allowed as a deduction in computing their taxable income. The appellants pray that the AO be directed accordingly.
4)The CIT(A) erred in confirming the action of the AO in not allowing a deduction for Rs.70, 97, 938 being interest paid to Head Office/Overseas branches.
The appellants submit as under:
(i)The amount is not taxable as one cannot derive income from self and no tax is required to be deducted at source.
ii)Article 7(1) of the Treaty provides that if an enterprise carries on business in India, profits that can be attributed to its Permanent Establishment(PE)may only be taxed in India. Article7(2)of the Treaty created a fiction by which a PE is deemed to be separate and distinction the enterprise of which it is a PE. Carrying the fiction to its logical conclusion, charge by HO/APHO and overseas branches could he treated as a payment by Indian FE to third parties. However as these third parties do not have a PE in India to which 'profits' if any can be attributed, as per Article 7(l), such profits would not be chargeable to tax in India.
(iii)Without prejudice and in any event, tax paid by appellant is adequate to cover tax if any, payable thereon and hence Section 40(a)(i) is not attracted. The appellants pray that the AO be directed accordingly.
5)The CIT(A) erred in upholding the action of the AO in levying interest of Rs.1,00,75,232 under Section 234D.The appellants submit that the provisions of Section 234D are not applicable to the year under appeal as the refund was received prior to 1st,June, 2003.The appellants pray that the AO he directed accordingly.
The appellants crave leave to add, amend,alter,vary, omit or substitute any of the aforesaid grounds of appeal or add a new ground or grounds of appeal at any, time before or at the time of the hearing of the appeal as they may be advised.
3678/Mum/05-A.Y.2001-02 "1. On the facts and circumstances of the case and in law, the id. CIT(A) erred in allowing disallowance of broken period interest of Rs.33,22,98,824/- paid on securities purchased during the previous year.
2.On the facts and circumstances of the case and in law, the id. CIT(A) erred in directing to delete the addition made on account of gross interest and gross dividend u/s.10(23G) and uls.10(33) of the I.T. Act.
3.On the facts and circumstances of the case and in law, the id. CIT(A) erred in allowing the assessee's claim for deduction on account of premium paid amounting to Rs.3,62,12,282/- to cover the business risk."
The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer restored.
The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. CO. No.371/M/05-A.Y.2001-02 In the event the Assessing Officer's (AO) action of not allowing a deduction for the broken period interest of Rs.33,22,98,824 paid on securities purchased during the year which forms a part of its closing stock as on 31st March, 2001, by treating it to be capital in nature is upheld, then without prejudice, the AO be directed to increase the value of the opening stock of the securities in the subsequent year by the amount of the broken period interest paid in respect of such securities. The respondents pray that the AO be directed accordingly.
The respondents crave leave to add to, alter, amend, vary, omit or substitute the aforesaid cross objection or add a new ground or grounds of cross objections at any time before or at the time of hearing of the cross objection as they may be advised.
Challenging the orders of the CIT(A)-XXXI-Mumbai,Cross appeals /Cross objections have been field by the Assessing officer(AO) and the assessee for several Assessment Years(AYs).As most of the issues raised in the appeals/Cross objections are of similar nature,so,same are being adjudicated upon by a single common order.Assessee,a banking company, is incorporated in Germany and is having branches in India.
2.Details of dates of filing of returns,incomes returned,dates of assessment,assessed incomes, dates of orders of the CIT(A)can be summarised as under :
AY Dt. of filing Returned Date of Assessed Dt. of orders
of Return Income (Rs.) assessment Income of CIT(A)
5 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G.
1999-2000 30.03.2001 2,15,87,47,735/- 07.03.2002 2,31,30,47,175/- 01.03.2004
2000-2001 28.03.2002 2,67,53,95,415/- 27.03.2003 2,80,93,33,010/- 16.07.2004
2001-2002 31.03.2003 3,49,50,40,920/- 24.03.2004 3,60,84,02,367/- 18.02.2005
4841/Mum/04-A.Y.1999-2000 ;
3.Effective ground of appeal is about payments made by the assessee bank to its Asia Pacific Head office (APHO),Head office (HO) and certain overseas branches.During the assessment proceedings,AO found that the assessee had claimed Head Office(HO) Expenses amounting to Rs.50.68 Crores,that the said amount had been added back while determining the taxable income in India, that in its place a deduction was claimed u/s 44C of the Act.He further found that assessee had claimed that such expenditure was permissible while computing total income of Indian operations, that the expenditure related to the income earned in India.After considering the submissions of the assessee and the letter filed by it on 14.02.2002, AO held that the assessee had not debited these expenses to the P & L Account,that expenses were claimed to have been incurred by the H.O.,that said expenses were again claimed to be specific to the Indian operations, that the correctness of the claim made by the assessee could not be verified, that the purpose of introduction of section 44C of the Act was to cover these types of expenses,that acceptance of the claim made by the assessee would defeat the very purpose of the section 44C of the Act. Relying upon the order of the American Express Bank Ltd. (ITA/7072/ Bom/1990),he held that assessee was not entitled to claim the said expenditure. Finally,he made an addition of Rs.12.17Crores(IT related expenditure -Rs.10.93 Crores, System Application and Products (SAP) implementation charges-Rs.3.36 Crores, SAP operating charges-Rs.17.55 lacs,Global e-mail charges payable to APHO,H.O. and certain overseas branches-Rs.52.43 lacs) to the income of the assessee.
3.1.Assessee filed an appeal before the First Appellate Authority (FAA).After considering the submissions of the assessee and the assessment order as well as the letters of the assessee dated 19.12.03,he held that expenditure amounting to Rs. 10.93 Crores pertain to IT application, that expenditure of Rs. 52.43 lacs was incurred for centralized e-mail communication system, that expenditure to the tune of Rs. 3.54 crore was assessee share on acquisition of SAP and its utilisa
-tion,that appellant was allowed to use the computer system of the H.O. at various places for various computer applications because of the said expenditure.FAA was of the view that payme
-nt made by the assessee bank had to be treated as royalty and that provisions of section 40 (a)(i) of the Act was applicable in the case under consideration.He further held that section 195 of the Act required deduction of tax at source not only at payment as such but also at incurrence of liability.Finally,he held that provisions of section 40(a)(i) were attracted in the case under consid
-eration,that assessee had not deducted any tax at source,that the appellant's contention for allow
-ability of the said expenses was not as per law.He further directed that AO shall not consider these expenses even for the purpose of allowance of H.O. expenses u/s 44C of the Act. 3.2.Before us, Authorised Representative(AR) submitted that Indian Branch was not a separate entity or a separate enterprises, that SAP was acquired long ago.He relied upon the case of Sumi
-tomo Mitsui Banking Corporation. he also referred to judgment delivered by the Hon'ble High Court of Delhi in the case of (332ITR342).Departmental Representative (DR) submitted that assessee had claimed the exemption u/s 37 of the Act, that the payment to Headquarter was not to be considered a payment towards carrying out business of the assessee .He referred to the case of First Advantage Pvt.Ltd. (ITA/3029/3030/ Mum -18.05.12).In the rejoinder,AR submitted that facts of the case of First Advantage Pvt. Ltd. (supra) were a totally different,that in said case there was question of reimbursement of expenditure, that in the matter under consideration payment had been made, that out of the 50 crore expenditure claimed in the P & L Account, AO had allowed Rs. 38 Crores (approximately) while finalising the assessment.
6 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G. 3.3.We have heard the rival submissions and perused the material on record.We find that while disallowing the claim made by the assessee,AO had held that assessee-bank has not debited the expenses to P & L Account, that the expenses were claimed to have been incurred by the H.O. We further find that expenditure was part of P & L Account.FAA has recorded a categorical finding that assessee had debited these expenses to its book of accounts.FAA,while upholding the additions, held that provisions of section 40(a)(i) of the Act were applicable in the case under consideration,that assessee had not deducted tax at source for the said payments.We find that assessee vide it letter dated 14.02.2002 had submitted before the AO the details of other expendi
-ture amounting to Rs.50.68Crores including the expenditure incurred for IT related expenditure, SAP Implementation Charges,SAP Operating Charges, GEC and Global E-mail Charges.From the said letter, it is clear that H.O. had rendered services to the assessee and divided the same amount various among various branches,including the assessee.Perusal of page No. 28 to 31 of the paper book reveal that these expenses were part of the expenditure incurred by the assessee for carrying out business in an organised and systematic manner.In these circumstances, the only issue was to be decided is whether non-deduction of TDS with regard to said payments would result in disallowance of the said expenditure or not ?
We find that in the matter of First Advantage Pvt. Ltd.(supra),relied upon by the DR, facts of were different.In that matter question of reimbursement of certain expenditure between two independent entities was discussed and decided,whereas in the case under consideration there is no question of reimbursement.We find that in the case of Sumitomo Mitsui Banking Corporation the special bench of Mumbai Tribunal(19 taxmann.com364),had discussed the issue at length. In that case,AO had disallowed the claim of the assessee for non-deduction tax on account of interest payable to the H.O. by invoking the provisions of section 40(a)(i) r.w.s.195 of the Act. Finally,it was held that the interest paid by the Indian Branch of assessee bank to its H.O. and other branches outside of India was not chargeable to tax in India,that the provisions of section 195 would not be attracted, that there was no failure to deduct tax at source from the said payment of interest made by the assessee,that the question of disallowance of said interest by invoking the provisions of section 40(a)(i) did not arise.
We, respectfully following the order of the Special Bench of Mumbai Tribunal, decide the effective ground of appeal in favour of the assessee.
As a result appeal filed by the assessee stands allowed.
5033/Mum/04-A.Y.1999-2000
4.In the first ground of appeal issue of exempt income has been agitated by the AO.During the assessment proceedings,assessee had claimed Rs.9.00lacs,10.24 Crores andRs.4.33 lacs being interest exempt u/s.10(23G), 10(15) and 10(33) of the Act respectively. AO directed the assessee to clarify whether the exemption had been claimed on gross/net basis. After considering the submission of the assessee and analysing the provisions of section 10, he worked out the average cost of fund to 5.91% of the borrowings.Finally,he restricted the exemption to Rs. 4.15 Crores as against Rs. 10.37 Crores u/s. 10 of the Act.
4.1.Assessee preferred an appeal before the FAA.After considering the submissions of the assessee and the assessment order, FAA held that only net income of interest on tax free securities and dividend of shares would be allowed as exempt u/s 10 of the Ac t, that the formula adopted by the AO for working out the Net income by reducing interest at the average cost of borrowing @ 5.91% was not as per law,that that there was no nexus between the interest bearing funds and exempt income that no disallowance could be made from the gross income claimed as exempt, that sufficient interest free funds available to the assessee ,that the AO had not calculated the cost from this angle at all, that the AO had not called upon the assessee to establish the nexus between the tax free securities/investment in shares and interest free funds, that AO do not make any effort to establish the nexus between two. Relying upon the judgment 7 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G. delivered by the Hon'ble Delhi High Court in the case of Tin Box Co. Pvt. Ltd. (260 ITR 637), he held that there was no nexus proved between tax free securities/investment and interest bearing funds that there was sufficient funds available with the assessee to finance the tax free securities/investment in shares.Finally, he held that action of the AO in disallowing exemption of part of interest/dividends u/s 10(23G), 10(15) and 10(33) could not be sustained. 4.2.Before us DR relied upon the order of the AO, AR submitted that issue was covered in favour of the assessee by the order of the Tribunal for the AY 1998-99 ITA No. 5327/Mum/2001 dated 23.08.2005.
4.3.We find that while finalising the assessment for the AY 1998-99, AO had worked out the average cost of funds at 7.6% of the borrowings.In the appellate proceedings,FAA allowed the appeal of the assessee.Deciding the appeal in favour of the assessee, the Tribunal held that there was no justification to interfere with the order of the FAA.We find that during the appellate proceedings, FAA had directed the assessee to file the source of financing the tax free securities and investment in shares.In response to the said directions, assessee-bank had filed financial statements for various years. After perusing these statements,FAA had arrived at the conclusion that assessee had sufficient funds for making investment in tax free securities and there was no nexus between the exempt income and the investments made by the assessee.Considering the finding of fact given by the FAA, we are of the opinion that his order does not suffer from any legal or factual infirmity.
Therefore, upholding his order we decide the ground no.1 against the AO.
5.Next ground of appeal is about the payment of Rs.9,14,43,706/-made by the assessee to M/s. Deutsche APHO. During the assessment proceedings, AO found that the assessee had paid Rs. 9.14Crore,as All India Risk Insurance,to Deutsche Asia Pacific.He directed the assessee to expla
-in the reasonableness of the payment and to furnish copy of the agreement.After considering the submission of the assessee AO held that the nature of the expenditure appear to be incurred by the H.O,that the expenditure was to be considered as H.O. expenditure on behalf of the Indian Branches.
5.1.Assessee preferred an appeal before the FAA.After considering the assessment order and the submissions of the assessee,FAA held that only insurance of premises located outside India were included under the term H.O. expenditure, that the impugned expenditure pertain to the Indian business of the assessee,that expenditure was incurred to cover the business risk, that the purpose of incurring the expenditure was to take a global risk insurance policy at the best possible terms,that expenditure incurred by the assessee could not be treated as H.O. expenditure on the basis that expenditure had been incurred outside India and was reimbursed by Indian Branch,that the character of the expenditure remained the same and whether insurance was taken outside India or in India.Relying upon the order the Hon'ble High Court of Bombay delivered in the case of Emirates Commercial Bank Ltd. (262 ITR 55),he held expenditure incurred by the assessee could not be treated as H.O. expenditure and would be permissible as a deduction 5.2.Before us,DR relied upon the order of the AO, AR submitted that said expenditure was incurred for business purposes, that the assessee had submitted the copy of invoice letter dated 16.01.2002 to the AO, a copy of the application made to the Reserve Bank of India for the said remittance had also been filed, that the expenditure was entirely related to the Indian branch and provisions of section 44C were not applicable, that the expenditure was not in the nature of administration/ supervision expenditure but expenditure incurred to cover business risk. 5.3.We have heard the rival submissions and perused the material before us, we find in its letter dated 16.01.2002, submitted the AO assessee had explained that looking at the risk structure of D.B.Group,it was decided by the management to take insurance policy effective from 01.04. 1998 to cover the operational risk, that the policy was taken to cover all costs and services which might be incurred because of an interruption/disruption of business.In our opinion, expenditure incurred by the assessee was to cover their business risk in India and said expenditure cannot be termed H.O.expenditure to be considered for the calculation to be made as per the provisions of 8 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G. section 44C of the Act.Provisions of section 44C of the Act have earmarked certain expenditure to be considered for the purpose of that section.Insurance taken by the assessee to cover business risk in India, in our opinion,is not included in the section.
Therefore, upholding the order of the FAA we decide ground no.2 against the AO.
6.Ground No.3 pertains to deduction of Rs. 7.10 Crores.From the records it is clear that Un- matured Forward Foreign Contract Outstanding as on 31.03.1998 was disallowed in the assessment year 1998-99.Before the AO,assessee submitted that FAA;vide his order dated 15.06. 2001 during the appellate proceedings for the AY 1998-99;had upheld the disallowance made by the AO in that year,that he had directed the AO to consider and allow the same in the year in which the contract matured.Assessee,vide its letter dated 07.03.2002,made a claim for the said amount in the AY under consideration,but AO rejected the claim of the assessee . 6.1.Before the FAA,it was submitted that claim ought to have had been allowed in one of the years-either in the year in which provision had been made for the loss or in the year in which contracts matured.After considering the submissions of the assessee,he held that AO ought to have allowed the aforesaid amount in the year in which the contract matured. He accordingly, directed the AO to allow claim of the assessee for the aforesaid amount for the AY under consideration.
6.2.Before us,DR submitted that matter could be decided on merits.AR submitted that expendi - ture had been incurred by the assessee, that it has to be allowed in one of the years, that Tribunal vide its order dated 23.08.2005 for the AY 1998-99, has decided the issue in favour of the assessee.
6.3.We have heard the rival submission and perused the material before us. We find that 'J' Bench of Mumbai Tribunal had decided the issue in favour of the assessee in its own case while deciding the appeal No. 5327/Mum/2001 in following manner:
We have considered the rival submissions and have gone through the record including the Jurisdictional High Court decision relied upon by the learned counsel for the assessee. As already stated above the assessee is a banking company and follows mercantile system of accounting. In the case of banking company the security form part of its stock in trade. The assessee being a non-resident banking company is required to enter into foreign exchange forward contracts on behalf of its constituents. At the end of the accounting year, notional profits and losses on unmatured/unexecuted/unsettled forward exchange contracts in foreign currencies are calculated. In this way, the assessee claimed a loss of Rs. 7,10,00,418 on unmatured forward exchange contracts for the year under consideration. For deciding this issue we can beneficially refer to the decision of the Tribunal in the assessee's own case for the A.Y. 1991-92 in ITA No. 1726/Bom/93, wherein vide its order dated 17.06.2002, the Tribunal has confirmed the addition made of Rs. 1,90,07,000 on account of notional profits on unsettled forward exchange contracts. For this purpose the Tribunal has referred to a plethora of judicial pronouncements including the decision of the Jurisdictional High Court in the case of Bank of India (218 ITR 371). As a natural corollary the loss claimed by the assessee is to be allowed. Accordingly this ground of the assessee is allowed and the Assessing Officer is directed to delete the disallowance".
Respectfully, following the same, we decide ground No.3 against the AO.
7.Last ground of appeal is about net gain of Rs.4.65 Crores,arising out of Un-matured Forward Forex Contract (UFFC)outstanding on 31.03.1998. During the assessment proceedings,vide its letter dated 07.03.2002,assessee made a claim before the AO that Net gain of Rs. 4.65 Crores on UFCC Outstanding as on 31.03.1999 should not be taxed in the year under consideration,that during the assessment year 1998-99 claim for loss made by the assessee with regard to UFCC outstanding on the last date of FY 1998 was disallowed by the AO, that if notional loss was disallowed in earlier AY,notional profit should not be taxed during the year under consideration. AO did not allow the claim made by the assessee.
7.1. In the appellate proceedings, FAA;after considering the submissions of the assessee and the order of his predecessor for earlier AY;held that a consistent approach had to be taken by the 9 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G. revenue authorities in this regard, that loss arisen on a similar account had been disallowed and was upheld in appeal by the FAA for the AY 1999, that the gain on this account could not be brought the tax, that both the loss/gain would need to be treated on identical basis,that if loss was disallowed the gain on this account had to be ignored. He relied upon the judgment delivered by the Hon'ble High Court of Madras in the case of Indian Overseas Bank(183 ITR
200).He directed the AO to reduce the taxable income by Rs. 4.65 Crores and decided the ground of appeal in favour of the assessee. He further directed the AO to take this amount in two accounts in determining the taxable income of the year in which the contract matured. 7.2.Before us,DR submitted that matter to be decided on merits. AR submitted that issue was decided in favour of the assessee by the decision of special bench of Mumbai ITAT in the case of Bank of Bahrain and Kuwait(132 TTJ 505).
7.3.We have heard the rival submissions and perused the material before us, we find that in the earlier AY loss claimed by the assessee on account of Un-matured Foreign Exchange Transactions was disallowed by the AO on the ground that same was notional. In the appellate proceedings for that year FAA had upheld the order of the AO. In these circumstances, notional gain on account of Un-matured Foreign Transactions should not have been taxed by the AO for the year under consideration. AO cannot type two yardsticks for the same transactions in two different assessment years. Once he had taken a view that UFFC result in notional loss he should not tax such notional profit in the very next AY.In these circumstances, if the FAA had passed a reasonable direction, in our opinion, his order does not suffer from any legal infirmity. We find that he has directed the AO to take appropriate action in the year when these transactions matured. In the case of Bank of Bahrain and Kuwait(supra) same principle has been approved by the special bench of Mumbai Tribunal. Therefore, upholding the order of the FAA, we decide ground no.4 against the AO.
As a result, appeal filed by the AO for AY 1999-2000 stands dismissed. 7445/Mum/04-A.Y.2000-01;
8.First ground of appeal filed by the assessee is about denying the exemption of Rs. 4.58 Crores u/s.10(23G) of the Act in respect of interest receipt from an assessee.During the assessment proceedings, AO found that assessee had earned exempt income to Rs. 9.72 Crores, that the exempt income included interest income of Rs. 9.67 Crores that was claimed exempt u/s 10(23G) of the Act,that the assessee had provided long term finance to M/s. Modi Telstra and M/s.Bharti Telecom.He held that the provisions of section 10(23G) of the Act granted exemption to interest income arising to an assessee in respect of investment made by way of long term of finance given to any enterprises/undertaking wholly engaged in the business referred to in sub section 4 of section 80(i)(a) of the Act,that the long term finance had been defined by section 36(1) (viii) to be a loan stock/advance extended for a period of not less than 5 years, that the loan granted to M/s.Modi Telstra was received back by the assessee before the completion of five-year-term,that the loan did not fall in the category of a long term finance for the purpose of clause 23(G) of section 10 of the Act,that the interest received by the assessee in the year under consideration from M/s Modi Telstra,amounting to Rs. 4.58 Crores, was not entitled to get any exemption in respect of this portion of interest, that necessary conditions mandated by provisions of section 10(23) of the Act were not fulfilled. 8.1.Assessee preferred an appeal before the FAA.After considering the submissions of the assessee and the assessment order,he held that loan was granted for a period of 5 years, that the facility was granted to Modi Telstra Pvt. Ltd. vide letter dated 28.03.1995,that disbursement of the amount took place in July 1995,that the amount was re-paid by Modi Telstra one month before the grant of facility or four months prior to the completion of period of 5 years, that in actual practice the condition of giving long term finance was not fulfilled by the assessee as the loan was withdrawn before that date, that the prescribed time limit was not fulfilled, that there was no equity about taxation,that based on the definition of long term finance contained in expla 10 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G.
-nation (e) to section 36(1)(viii) as applicable to provisions of section 10(23G) the assessee was not entitled to exemption.He upholding the order of the AO, he dismissed the appeal filed by the assessee.
8.2.Before us,AR submitted that loan was returned within a period of 5 years because of certain reasons,that period of re-payment was immaterial.On a query by the bench about the meaning of words more than period of 5 years, AR fairly conceded that issue was decided against the assessee by the Hon'ble Supreme Court in the case of Braithwaite & Co. Ltd.(1993) 2 SCC page
262.DR submitted that true spirit of the Act has to be followed while granting exemption to an assessee, that actual conduct of the assessee had to be considered. 8.3.We have heard the rival submissions and perused the material before us.In our opinion, whenever a phrase'period less than/or more than/for a period of ...' is used,a pragmatic approach has to be adopted. As per the accepted norms of taxation jurisprudence a period more than five years means a period at least one moment more than the stipulated period years i.e. 5 years.As per the original agreement the amount was advanced for a period of 5 years only and not in the period more than five years as envisaged by section 10(23)r.w.s.36(1)(viii) of the Act. So, respectfully following the order of the Hon'ble Supreme Court in the case of Braithwaite & Co. Ltd. (supra),we uphold the order of the FAA.
Ground no.1 filed by the assessee is decided against it.
9.Ground No.2 is about disallowance of deduction for the IT related expenditure (Rs. 16.34 Crores), SAP operating charges (Rs. 33.43 lacs), Global e-main charges (Rs. 35.12 lacs) payable to APHO, H.O. and certain overseas branches by the assessee. While deciding the appeal for the AY.1999-2000,we have decided the issue in favour of the assessee. Following the same,second ground is allowed.
As a result, appeal filed by the assessee for the year under consideration stands partly allowed. 7562/Mum/04-A.Y.2000-01
10.First ground of appeal is about deleting the addition made on account of broken period interest amounting to Rs. 30.36 Crores.During the assessment proceedings, AO found that assessee had paid interest on securities purchase during the year under consideration. He directed the assessee to furnish the details of broken period interest paid by it that was debited to P & L Account vide its letter dated 20.02.2003 assessee submitted that it had paid the sum of Rs. 30.36 Crores by way of broken period interest of current securities purchase during the year ending on 31.03.2000. Relying upon the order of the Hon'ble Supreme Court delivered in the case of Vijya Bank (187 ITR 541) he disallowed the claim made by the assessee. 10.1.Assessee preferred an appeal before the FAA.After considering the submissions of the assessee and the assessment order, FAA held that identical issue had been decided by the Hon'ble High Court of Bombay in assessee own case for the AY 1998-99, that while deciding the issue in favour of the assessee Hon'ble jurisdictional High Court had followed the decision delivered by it in the case of American Express International Banking Corporation (258 ITR
601),that Hon'ble jurisdictional High Court had considered the decision of the Supreme Court delivered in the cased of Vijya Bank (supra) and had distinguished the same,that identical view was taken by the Hon'ble High Court of Bombay in the case of City Bank (264 ITR 80). He directed the AO to delete the disallowance of Rs. 30.36 Crores.
10.2.Before us,DR conceded that matter was decided against the revenue.AR relied upon the order of the Hon'ble Bombay High Court dated 09.01.2002 delivered in assessee own case for AY 1989-1990 and the Supreme Court order in its own case dismissing the SLP filed by the department (No. 345 of 2004-C.No. 3710/04).
10.3.After perusing the order of the Bombay High Court in assessee own case and the order of the Hon'ble Supreme Court, we uphold the order of the FAA. Ground no.1,filed by the AO, is decided against him.
11 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G.
11.Ground No.2 is about addition made on account of gross interest and gross dividend u/s 10(23G) and 10(33) of the Act.We find that similar issue has been dealt with by us, while deciding the appeal for the AY1999-2000.
Following the same,we decide ground no.2 against the AO.
12.Ground No.3 is about claim for deduction on account of premium paid of Rs. 7.59 Crores to cover business risk.While deciding the Ground no.2 for the last AY we have held that insurance premium paid to cover business risk has to be allowed as deductible expenditure and it is not to be considered for calculation to be made as per the provisions of section 44C of the Act.We have decided the issue against the AO.Following the same Ground no.3 is decided against the AO.
13.Last ground of appeal is about deduction of Rs. 2.08 Crores on UFFC outstanding as on 31.03.2000.We find that similar issue has been decided against the AO by us,while deciding the appeal for AY 1999-2000.
Following the same, ground the 4 is decided against the AO.
As a result,appeal of the AO stands dismissed.
CO. No.269/M/05-A.Y.2000-01
14.Only effective ground of CO pertains to deduction for the broken period interest paid on purchase of securities during the year which formed part of its stock as on 31.03.2000.While dealing with the ground no.1 filed by the AO for the year under consideration,we have decided the issue against the AO. Following the same,we decide the ground of CO in favour of the assessee .
CO filed by the assessee stands allowed.
ITA/3412/Mum/05-A.Y.2001-02
15. First ground of appeal is about denial of exemption of Rs. 78.98 lacs u/s 10(23G) of the Act in respect of interest received from Modi Telstra Pvt. Ltd. While dealing with the identical issue for the last AY,we have decided the matter against the assessee-bank.
Following the same, Ground no. 1 is decided against the assessee.
16.Next ground of appeal pertains to claim of Rs. 75.46 lacs being the premium paid to cover the risk.Before us,AR submitted that the amount involved represented the additional premium paid to cover the risk,that in the AY.2010-11 same was reversed. DR supported the order of the AO and FAA.
16.1.We have heard the rival submissions and perused the material on record. Assessee had paid premium for the additional cover taken in the year under consideration. In our opinion,additional premium paid to cover business risk is to be treated at par with the regular premium paid.In the appeal filed by the assessee for earlier year,we have decided the issue of premium paid to cover business risk in its favour.
Following the same,Ground no.2 is decided in favour of the assessee. AO is directed to take appropriate action while deciding the issue of additional premium paid,while finalising the assessment for the AY.2010-11.
17.Next ground of appeal is bout deduction of IT related expenditure (24.74 Crores), SAP Operating Charges (26.52 lacs) GEC charge (37.57 lacs) paid to APHO and certain overseas branches.
Following our orders for earlier assessment years,we decide Ground no.3 in favour of the assessee-bank.
12 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G.
18.Last ground of appeal file by the assessee bank is about levying of interest of Rs. 1,00,75, 232/- u/s 234.While finalising the assessment,AO had charged interest u/s. 234D of the Act. 18.1.Assessee preferred an appeal before the FAA.After considering the submissions of the assessee bank, FAA held that language of the section 234D did not require that a refund should have been issued after 01st June 2003 only for the interest to be leviable, that section stipulated that demand should be raised after 01st June 2003, that there should be refund issued in a summary assessment, that both these conditions were present in the case under consideration. 18.2.Before us,AR fairly conceded that issue is decided against the assessee by the judgment of the jurisdictional High Court delivered in the case of Indian Oil Corporation Ltd. (25 Taxmann. com 284).He further submitted that consequential relief should be given to the assessee.DR relied upon the order of the jurisdictional High Court.
18.3.We have heard the rival submissions, we find that in the case of Indian Oil Corporation Ltd. (supra) Hon'ble Jurisdictional High Court has discussed the issue at length and finally has held as under :
"......Therefore, the date of grant of refund is immaterial to determine the applicability of section 234D. In the circumstances, the submission of the assessee that section 234D only applies to refunds granted after 1-6-2003 is not acceptable.The refund which is granted under section 143(1) to an assessee is qua an assessment proceeding for a particular assessment year. The refund granted is qua an assessment year. The refund emanates from assessment proceedings for a particular assessment year. The refund granted cannot be divorced from the assessment year or the assessment proceeding. Consequently to hold that interest on such refund would only run from 1 -6-2003 would be to curtail the plain meaning of Explanation 2 to section 234D.From a reading of sub-section (4) of section 143, it is clear that excess refund determined under section 143(3) is deemed to be tax payable by the assessee However, as there was no provision of interest on the grant of refund under section 143(1) it became necessary to provide for the same by having a charging provision This was done by section 234D in respect of all pending assessments in which refund was given. Thus even a refund has already been granted, the same would be subject to the provisions of section 234D. Under section 234D(1) where the refund under section 143(1) is in excess of the amounts refundable on regular assessment interest on the excess amount would be payable. In any case after the introduction of Explanation 2 there can be no doubt that even where refund is granted prior to 1 -6- 2003 the same would carry interest provided the proceedings for assessment are completed after 1 - 6-2003.Explanation 2 to section 234D specifically provides that it shall also apply to an assessment year commencing before 1 -6-2003. The only qual~ing criterion is that proceedings in respect of such assessment is completed after 1-6-2003. Once the Explanation is held to be retrospective in relation to the assessment years commencing before 1 -6-2003 it would not be open to restrict the operation of section 234D only with effect from 1 -6-2003. One more aspect of the matter which must be borne in mind is that till such time as the assessment proceedings are completed in respect of any assessment year, the amendment made to the Act would be applicable even in case of pending proceedings. It is not the case of the assessee that the Proceeding in regard to refund which has been granted under section 143(1) are concluded and final.The refund which has been granted under section 143(1) is provisional to be finally determined when final assessment order is passed under section 143(3).Explanation 2 to section 234D makes it clear that it would be applicable to pending proceedings, i.e., where assessments in respect of such assessment year is not completed on 1-6- 2003.Therefore, the assessee was liable to pay interest on the excess refund granted to it."
Respectfully following the said order,we decide ground no.5 against the assessee.AO is directed to give consequential relief to the assessee, if it is entitled to it as per law.
As a result, appeal filed by the assessee stands partly allowed.
ITA/3678/Mum/2005 ,AY.2001-02
19.The first ground of appeal filed by the AO is about disallowance of broken period interest amounting to Rs. 33.22 Crores.While deciding the same issue in earlier years, we have held that assessee was entitled to the said relief.
Following the same, we decide ground no.1 against the AO.
13 ITA No. 4841/Mum/2004 & Ors. Deutsche Bank A.G.
20.Next ground of appeal is about addition made on account of gross interest and gross dividend u/s.10(23G) and 10(33) of the Act.In the appeal for the AY ,we have decided the issue against the AO on similar facts.
Following the same ground no.2 is decided against the AO.
21.Last ground of appeal is about deduction claimed by the assessee on account of premium paid amounting to Rs. 3.62 Crores to cover business risk.In the appeal filed for last AY.,similar issue has been decided in favour of the assessee.
Following the same last ground of appeal filed by the AO is also decided against him.
As a result, appeal filed by the AO stands dismissed.
C.O./371/Mum/2005
22.Before us, during the course of hearing, AR submitted that C.O. was consequential to ground no.1 of the appeal filed by the AO, that if same was decided in favour of the assessee, CO would become infructous and academic and same may be treated as not pressed. As the Ground no.1 of the appeal of the AO has been decided against him, so Cross Objection filed by the assessee bank stands dismissed as not pressed.
As a result appeals filed by the AO for all the three years stand dismissed.Appeals of the assessee-bank are allowed in part.COs filed by the assessee for the AY.2000-01,2001-02 stand allowed and disallowed respectively.
पǐरणामःवǾप िनधा[ǐरती अिधकारȣ कȧ अपीलɅ खाǐरज कȧ जाती हɇ .िनधा[ǐरती-बɇक कȧ अपीलɅ आंिशक Ǿप से मंजूर कȧ जाती है .िनधा[ǐरती Ʈारा िन.व. 2000-01तथा 2001-02 के िलए दाǔखल बास एतराज बमश मंजूर और खाǐरज Ǒकए जाते हɇ .
Order pronounced in the open court on 17th July, 2013 आदे श कȧ घोषणा खुले Ûयायालय मɅ Ǒदनांक 17 ,जुलाई 2013 को कȧ गई ।
Sd/- Sd/-
डȣ.मुमोहन
डȣ मुमोहन/
(डȣ मुमोहन D. Manmohan) राजेÛि/Rajendra)
(राजे ि
उपाÚय¢ /Vice-President लेखा सदःय /Accountant Member
मुंबई/Mumbai,Ǒदनांक/Date: 17.07 .2013
SK
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. Assessee /अपीलाथȸ
2. Respondent /ू×यथȸ
3. The concerned CIT (A) /संबƨ अपीलीय आयकर आयुƠ
4. The concerned CIT /संबƨ आयकर आयुƠ
5. DR "L" Bench, ITAT, Mumbai /ǒवभागीय ूितिनिध एल ् खंडपीठ,आ.अ.Ûयाया.मुंबई
6. Guard File/गाड[ फाईल स×याǒपत ूित //True Copy// आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुब ं ई /ITAT, Mumbai