Brief of the Case
ITAT Chennai held In the case of M/s. M.R.M. Plantations P. Ltd. vs. DCIT that u/s 57 only expenditure incurred in connection with earning of income was allowable as deduction. The assessee admitted that the entire income is by way of interest from the bank deposits. It was seen that the expenditure made by the assessee towards salary, remuneration, commission, building maintenance etc, these expenses have no nexus with earning of interest on bank deposits and cannot be allowed as deduction u/s.57.
Facts of the Case
The assessee filed its return of income for the AY 2006-07 on 21.11.2006 declaring a total income of Rs. 13,77,120/-. The return was processed u/s 143(1) (a) on 15.02.2008. As income chargeable to tax has escaped assessment, proceedings u/s 147 was initiated by issue of notice u/s 148 dated. 22.03.2012. It was found that the income from Malaysian Branch amounting to Rs. 55, 92,897/- is not included in the total income for the purpose of taxation in India. In view of the above, the Assessing Officer had reasons to believe that income to the tune of Rs. 69,47,340/- has escaped assessment. Accordingly assessment was computed interalia taxing the Malaysian plantation.
The Assessing Officer observed that in the profit and loss account for the year ended 2006- 07, the assessee received interest income from bank and others and dividend receipt of Rs.12,70,603/-. From the interest income and dividend receipts, the assessee has claimed major expenses. The Assessing Officer held that as the interest income from banks is to be taxed as income from other sources, the above expenses cannot be claimed as per Sec.57. The Assessing Officer also held that the assessee has no known business activity in India. Hence, the Assessing Officer disallowed the expenses to the tune of Rs.43,35,061/- and computed accordingly.
On account of exchange rate fluctuations, the Assessing Officer noted that the assessee received Rs. 8,04,623/- on account of exchange rate fluctuation which was not offered as income. The Assessing Officer proceeded to tax this amount as income of the assessee.
The assessee filed its return of income for the AY 2007-08 on 23.110.2007 declaring a total income of Rs.10,13,510/-. The return was processed u/s 143(1)(a). The case was selected for scrutiny and assessment u/s.143(3) was completed on 22.12.2009 raising the demand of Rs.6,01,419/-. As income chargeable to tax has escaped assessment, proceedings u/s 147 was initiated by issue of notice u/s 148 dt. 22.03.2012. The Assessing Officer had the reasons to believe that income to the tune of Rs. 98,41,036/- has escaped assessment. Accordingly assessment was computed interalia the Malaysian plantation.
Contention of the Assessee
The ld counsel of the assessee submitted that the sum of Rs. 8,06,423/- was shown in the profit and loss account for the year ended 31st March, 2006 with the narration “Amount adjusted for the purposes of finalizing the balance between the head office and the branch owing to fluctuation in foreign exchange’’ and is a mere notional entry made for the purpose of equalizing the balance between the head office and the Malaysian branch office. The assessee further submitted that the sum of Rs. 8,06,423/- was a notional amount and not a gain real terms, being an accounting entry relating to the assessee’s own branch in Malaysia which cannot result in any income.
Contention of the Revenue
The ld counsel of the revenue supported the orders of lower authorities.
Held by CIT (A)
CIT (A) upheld the partly assessment. Further, he observed that in view of the judgment of Supreme Court in the case of CIT vs. PVRM Kulandayan Chettiar 267 ITR 654, plantation income received from Malaysian cannot be taxed in India.
On the matter of disallowance of expenses, CIT (A) confirmed the disallowance.
On the matter of income from exchange rate fluctuation, CIT (A) submitted that the assessee had earned
Rs. 8,04,623/- due to exchange rate fluctuation. Gain due to exchange rate on the foreign exchange held on revenue account is to be treated as income. During appeal proceedings, the assessee had not adduced any argument as to why the gain is not income except arguing that the Assessing Officer had added Rs. 8,04,623/- without reason. The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer.
CIT (A) observed that the gist of the argument is that original assessment was completed u/s143 (3) and the same issue was examined and a finding was given by the Assessing Officer. The reopening the same issue with a different interpretation would amount to change of opinion. He further placed reliance on the order of the Tribunal in assessee’s own case in ITA No.2326/Mds/2012, dated 05.07.2013 for the assessment year 2004-2005. Finally CIT (A) considered the reopening is invalid.
Held by ITAT
Admittedly, a similar issue was considered by the Supreme Court in the case of PVRM Kulandayan Chettiar 267 ITR 654 wherein it was held that business income arising out of rubber plantations in Malaysia cannot be taxed in India because of closer economic relations between the assessee and Malaysia which determines the fiscal domicle of the assessee in terms of Article 4 of the DTAA between India and Malaysia. In Article 5(2)(g) the term ‘’permanent establishment’’ shall include especially ‘’a farm or plantation’’ In this case, the plantation in Malaysia would be the permanent establishment through which the business is carried on by the assessee and applying the test of permanent establishment the income from the plantation would be taxable only in Malaysia and not in India.
The assessee already filed its return of income and the return filed for all these assessment years which
was kept in record. Accordingly, in our opinion the order of the Commissioner of Income Tax (Appeals) is to be confirmed.
Under section 57 only expenditure incurred in connection with earning of income was allowable as deduction. The assessee admitted that the entire income is by way of interest from the bank deposits. It was seen that the expenditure made by the assessee towards salary, remuneration, commission, building maintenance etc, these expenses have no nexus with earning of interest on bank deposits and cannot be allowed as deduction u/s.57. Further, the assessee made a plea before us that expenditure at head office at Rs.15,65,918/- instead of Rs. 43,35,061/-. In our opinion, the Assessing Officer already brought on record the total expenditure at Rs. 43,35,061/- as recorded in earlier para. Being so, the contention of assessee counsel is devoid of merit as it is not based on any evidences. Accordingly, this ground of the appeal of the assessee is rejected.
With regard to issue related to foreign exchange rate fluctuations, the assessee admittedly received the above amount on account of exchange rate fluctuation which is revenue receipt and the same to be liable to be taxed and it cannot be considered as notional entry. Accordingly, this ground of the appeal of the assessee is dismissed.
The issue in this case is squarely covered by the order of the Tribunal in assessee’s own case in ITA No.2326/Mds/2012 & ITA 233/Mds/2013, dated 05.07.2013 for the assessment year 2004-05 wherein the Tribunal annulled reassessment. In this case, it was held that the notice under section 148 was issued after four years. There is no specific finding by the Assessing Officer in the reasons recorded as extracted from the assessment order that the assessee failed to disclose fully and truly all the particulars required to complete the assessment. Therefore, we find that the notice issued under section 148 is not valid.
Accordingly appeals of the revenue & assessee dismissed.