Payment of broken period interest will be allowed as a business expense

Brief of the case:

Payment of broken period interest will be allowed as a business expense;

1.ITAT Mumbai  held in the case of Asst. DIT Vs M/s Hongkong and Shanghani Banking Corporation Ltd that the broken period interest paid would be allowed to the assessee after relying the case of the assessee itself in The Hongkong and Shanghai Banking Corporation Ltd V/s DCIT in ITA Nos.9587/Mum/92 and 9588/Mum/92 (AYs-1989-90 and 1990-91) order dated 22.2.2006 para 3 of the order;

Salaries paid to expatriate employees will be allowed as deduction;

2. ITAT held in the above citations after relying in the case of Emirtes Commercial bank Ltd (now known as Abu Dhabi Commercial Bank Ltd (262 ITR 55); and may other that salaries paid to the expatriate would be allowed as an expense to the assessee because as the services were rendered in India so the same would be taxable in India.

Payment for library subsidy, staff cultural committees and recreational club and holiday home will be allowed as an expense;

3. ITAT held in the above citations that the payment made to the Library subsidy, staff cultural committees and recreational club and holiday home would be allowed as an expense because the same had been incurred for the convenience of administration. ITAT also relied on the decision given in Mumbai Bench of the Tribunal in Tribunal in JCIT V/s The British Bank of Middle East in which it was held that the above payments would be allowed as an expense.

Payment of entertainment expenses will be allowed as deduction ;

4. ITAT held in the above citations that the entertainment expense would be allowed as an expense because the same had been incurred for the entertainment of staff as well as outsiders for the promotion of business. ITAT also relied in the case decision given in Credit Lyonnais (2012) 28 taxmann.com 91 (Mumbai); (2013) 21 ITR (T) 359(Mumbai), (2012) 139 ITD 681 (Mumbai) in which it was held that the expenses incurred for the entertainment of staff would be allowed as an expense.

Interest earned on tax free bonds invested form own funds will be allowed as an expense;

5. ITAT held in the above citations that the interest earned on tax free bonds would be exempt only and only if the investments had been made out of own funds. SO, as the assessee had made investment out of its own funds so the interest would be exempt.

Interest accrued but not due will be added to the total income of assessee;

6. ITAT held in the above citations that the interest accrued but not due on securities would be treated as income of the assessee. ITAT held that there was retrospective amendment to sec 145 in which it was stated that the interest accrued but not due on securities would be treated as income of the assessee.

Expenses on account of NRI deposit mobilization will be allowed;

7.  ITAT held in the above citations that the amount on account of NRI deposit mobilization would be allowed. ITAT relied on the case decision given in

a) JCIT V/s The British Bank of Middle East in ITA No.4908/Mum/2000(AY- 1997-98) order dated 28.6.2005;

b) Emirtes Commercial bank Ltd (now known as Abu Dhabi Commercial Bank Ltd (262 ITR 55);

c) M/s American Express Bank Limited in Income Tax Reference No.3 of 2002 R A No.568/Mum/1998 order dated 17.7.2003;

d) Kedarnath Jute Mfg Co. Ltd.V/s CIT- 82 ITR 363(SC)

in which it was held that the amount of NRI deposit mobilization would be allowed.

Fees paid to Master card and visa for services rendered will be allowed as an expense;

8. ITAT held in the above citations that the case of amount paid of fees of master card and visa card would be restored to AO for fresh adjudication because the same decision had been taken in the assessee’s own case.

Any payment made to tenant for vacating the space is a revenue expense not capital expense;

9. ITAT held in the above citations that the amount paid for vacating the space would be allowed as business expense and was not a capital expenditure because the amount had been paid by the assessee to compensate the tenant for the amount tenant had incurred in renovating the office. So, the same should be allowed as expense.

Expense on account of replacement of shares to foreign Institutional Investor will be allowed as deduction;

10. ITAT held in the above citations that the loss in respect of replacement of shares to a foreign Institutional Investors(FII) would be allowed to the assesse because the assessee had paid the same to the same to save the interest of its esteem customers because its esteem customers had incurred the loss due to the action of broker. So, to safeguard the interest of its esteem customers it had decided to compensate its esteem customers. ITAT relied on CIT Vsd Nanital Bank Ltd (1996) 62 ITR 638(SC) and decide that the amount would be allowed to the assessee as a business loss.

Expense of bonus point paid to customers will be allowed as deduction;

11. ITAT held in the above citations that the payment made on redeeming the bonus points on credit cards would be allowed to the assessee.

Deferred guarantee commission will not be taxable;

12. ITAT held in the above citations that the deferred guarantee commission would not be added to the income of the assessee.

13. Commission payment to agent for services rendered outside India is not liable to TDS u/s 195.

Facts of the case:

The assessee herein is engaged in the business of Banking and financing activities. It filed return of income declaring total income of Rs.1,53,45,60,780/- on 31/12/1999. The AO made assessment u/s

143(3) of the Income Tax Act, 1961 and after making certain additions and disallowances computed total income of the assessee at Rs.1,90,83,89,060/- vide order dated 04/02/2002, against which an appeal was filed which was disposed of vide order dated 15/01/2004, against which the present appeal was filed before ITAT.

Contention of the assessee:

Assessee was of the view that the broken period interest should be allowed after relying on High Court rest in the case of American Express International Banking Corporation V/s CIT reported in 258 ITR 601 (Bom) in which it was held that the broken period interest would be allowed.

Assessee was of the view that as the officers had rendered services in India which was taxable in India so the same should be allowed to the assessee. So, the payment of salary to expatriate officials should be allowed to the assessee.

Assessee was of the view that the amount of library subsidy, staff cultural committees and holiday home should be allowed as expense because the same had been incurred for the welfare of staff.

Assessee was of the view that the entertainment expense should be allowed because it was for the promotion of business.

Assessee was of the view that as the assessee had made investment from its own funds in the interest free bonds. So, the interest should not be added to the income of the assesee.

Assessee was of the view that the interest accrued but not due should not be added to the income of the assessee.

Assessee was of the view that amount on account of NRI deposit mobilization scheme should not be disallowed.

Assessee was of the view that the fees paid to the master card and visa towards services rendered by them should be allowed.

Assessee was of the view that the amount paid for vacating the space should be allowed as a business expense not a capital expenditure.

Assessee was of the view that the payment of redeemed points on credit card should be allowed as a expense.

Assessee was of the view that the deferred guarantee commission should not be added to the income of the assessee.

Contention of the revenue:

Revenue contented all the above citations against the assessee and argued to make addition on all the above points in the income of assessee.

Held by ITAT:
ITAT held all the appeals in the favour of the assesee except the appeal of payment of fees to master card and visa card which had been restored to the AO and the appeal of AO was allowed for statiscal purpose