The Assessing Officer has deleted the interest on borrowed capital without recording any finding to the effect that the borrowed capital on which interest was paid by the assessee was diverted by the assessee for providing interest-free advances to its sister concerns. It is not the case of the revenue that the interest-free funds available with the assessee were not sufficient to advance interest-free money in question to its sister concerns.
The assessee borrowed money and instead of financing in rural areas invested the same in the company ‘J,’ where the founders of the assessee-trust are having substantial interest, which is contrary to the object of which the registration was granted to the assessee under section 12AA. Apart from the above, the assessee is paying interest on money borrowed without receiving any benefit from ‘J’. Therefore, the assessee borrowed money for the benefit of ‘J’ and not for the purpose of carrying on its object.
One of the important Supreme Court decisions relied on by the counsels appearing for the assessees is the decision rendered in the case of GE India Technology Cen. (P.) Ltd. v. CIT [2010] 193 Taxman 234, wherein the Hon’ble apex court has considered the question whether merely on account of such remittance to the non-resident abroad by an Indian company per se, could it be said that income chargeable to tax under the Income-tax Act, 1961 arises in India.
Assessing Officer has disallowed the interest of Rs. 72,83,21,913/- on the ground of borrowed funds were used by the assessee for making investment in shares. The contention of the assessee is that in the earlier Assessment Year 2006-07 where no dividend income was received by the assessee, the Tribunal has held that no disallowance of expenditure can be made u/s. 14A of the Act and therefore, the disallowance made in the year under appeal may also be deleted as in this year also the assessee has not received any dividend income on the shares,
As per the assessee, since it had received a benefit of enduring nature, the outgo was on capital account and it had acquired an asset by making such payment. There cannot be any quarrel on this argument. The assessee had derived an interest in the property since leasehold interest is a valuable right. But, the question here is not whether the outgo was capital or revenue, the question is whether the upfront fee paid will fall within the definition of ‘rent’ as given under Explanation to section 194-I. It is pertinent to note that section 194-I does not make any differentiation between capital outgo and revenue outgo.
Therefore, in view of the Hon’ble Bombay High Court’s decision (supra), we, set aside the orders of the lower authorities and direct the Assessing Officer not to apply Rule 8D in the present case since the assessment year under appeal is 2005-06 and Rule 8D is applicable only from the assessment year 2008-09.
The provisions of Transfer Pricing regulations contained in Section 92 belong to a separate code enacted for computing income from international transactions having regard to Arm’s Length Price (ALP) so as to confirm that there is no tax avoidance by the taxpayer. Operation of Transfer Pricing provisions ends when the Transfer Pricing Officer passes an order holding that the operating profit of the taxpayer is compatible with ALP norms and no adjustment is necessary.
Apex Court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323 has clearly held that for making a claim other than what was originally made in return of income, filing of a revised return is mandatory. Neither the A.O. nor the CIT(Appeals) have considered these fundamental aspects regarding status and validity of a claim made other than through revised return.
The case of the assessee is that the assessee could not comply with the provisions of section 54 within the time prescribed for reasons beyond her control, inasmuch as the money, which was blocked by her by paying advances to procure the property, was not realized within the time and, therefore, she could not make any alternative investment within the prescribed time. It is the case of the assessee that the acquisition of the property has been completed in 2001-02 and, therefore, deduction under section 54 may be granted, condoning the period of delay caused in complying with the time-limit prescribed under section 54.
The assessee was in the business of offset printing and typesetting. It admittedly had converted this land and factory building into stock-in-trade. The Minutes of the assessee-company did the conversion of the land and factory building into stock-in-trade and the business assets of the assessee no more survived as the business asset eligible for depreciation. Once this happens, the business of the assessee would be deemed to have been discontinued.
