DIC Asia Pacific Pte Ltd vs. ADIT Article 2(1) of the applicable tax treaty provides that the taxes covered shall include tax and surcharge thereon. Once we come to the conclusion that education cess is nothing but an additional surcharge, it is only corollary thereto that the education cess will also be covered by the scope of Article 2. Accordingly, the provisions of Article 11 and 12 must find precedence over the provisions of the Income Tax Act and restrict the taxability, whether in respect of income tax or surcharge or additional surcharge – whatever name called, at the rates specified in the respective article.
It is a fact that the assessee was employed as ‘Service Provider’ and during the period under dispute he was providing the service from Bangalore in India. As per the Co¬operation agreement dated 14.12.2004 entered into between the assessee and the Polish Company, the function of the assessee was ‘to support establishing and preparing organization of the company’s representative office in India by the date of 31st May 2005’. We are of the view that the function to support establishing and preparing organization can at best be termed as a management function but cannot be equated with ‘Top Level Managerial Position’.
Delhi High Court has upheld that ‘payment on account of goodwill is similar to assets like patents, copyrights, trademarks, licences referred to in the definition of the block of assets in the senses that the function of all these assets is to restrict their misuse and to earn maximum profits in the business. The function of goodwill acquired by the assessee also is the same in view of the fact that it maximizes the profits of the company. Since the function of intangibles defined in the Act and the intangible acquired by the assessee is the same, the assets are similar. Therefore, the assessee’s goodwill being a valuable commercial asset similar to other intangibles specified in the definition of block of assets is eligble to depreciation’.
The Sick Industrial Companies (Special Provisions) Act, 1985 is a Central Act having legal sanctity. It has got overriding effect on any other provisions of any other Act except the provisions of FERA 1973 and Urban Land (Ceiling Act & Regulation) Act, 1976. Therefore, the directions of the BIFR have to be honoured and failure of such directions will bring legal disharmony.
The applicant’s counsel submitted that an item of income can be said to have been dealt with in an article of the Treaty only if it defines its scope as well as allocates the right to tax such income between the two Contracting States. Mere exclusion of shipping business profits from article 7 does not amount to dealing with that item of income. We find it difficult to accept this contention. Allocation of taxing right to the source State can well be done by such a process of exclusion. There is no particular manner or methodology of achieving that result.
As regards the applicability of section 14A, it was submitted that the only income by way of dividend on shares was exempt from tax in respect of securities notified for the purpose of section 10(23G). It was submitted that since the said shares were also capable of generating other income in the form of short term capital gain, income from stock lending, income by way of fees for providing of shares, as collateral etc., and it was not a case wherein the borrowed funds were exclusively utilized for making investment in order to earn the exempt dividend income. It was contended that the premium paid on redemption of premium notes, therefore, could not be considered as expenditure incurred in relation to income which did not form part of total income of the assessee companies so as to attract the provisions of section 14A.
Profitability if considered without considering the positive deviations would lead to impossible profitability positions, which is not what is contemplated under the provisions of 92C. In the circumstances, the Assessing Officer is directed to re-compute the ALP by taking into consideration both the net difference on the sale from the AE and purchase from the AE. The Assessing Officer may look into the fact as to the margins of the profits in regard to the transactions done by the assessee with its AE, as also the non-AE transactions and then compute the adjustment of ALP, if any.
In the instant case The CIT has not indicated the nature of information not furnished and without considering the documents filed by the applicant along with applications for registration u/s 12AA/80G has rejected assessee’s claim solely on the ground that applicant could not file most of the informations call for. We find force in the argument of ld. counsel that CIT failed to consider the claim of the applicant on merit, without considering the record and affording opportunity of being heard to the applicant on alleged non compliance. In the interest of natural justice we deem it fit and proper to restore the issues in question i.e. registration u/s 12AA/80G, back to the file of CIT for decision afresh on merit in accordance with law, after affording reasonable opportunity of being heard to the appellant. We order accordingly.
Section 54EC clearly states that the investment in specified bond is to be made “within a period of six months after the date of such transfer. The intention of the legislature is clear. It was not desired by them to give the exemption u/s 54EC even investment made before the transfer of the long term capital assets. There is no direct case law of Section 54EC for claiming of exemption even investment made before, has been brought in the knowledge of the Bench.
Since the assessee failed to establish nexus of use of borrowed funds for the purpose of business to claim deduction under section 36(1)(iii) of the Act, there is no escape from the finding that interest being paid by the assessee to the extent the amounts are diverted to sister concerns or other persons on interest free basis, are to be disallowed.
