HIGH COURT OF BOMBAY
Director of Income tax (International Taxation)
V/s.
Commonwealth Development
IT APPEAL NO. 1058 OF 2011
JULY 9, 2012
JUDGMENT
S.J. Vazifdar, J.
This is an appeal under section 260-A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal dated 25th February, 2010, in respect of the assessment year 1998-99, dismissing the appellant’s Income-tax Appeal No. 1987/Mum/2006 and the respondent’s cross-objections.
2. The appeal is admitted on the following substantial question of law :
“Whether the ITAT erred in deleting the addition made by the Assessing Officer amounting to Rs. 77,14,828/- on account of up front appraisal fees under section 143(3) of Act ?”
3. The respondent is a statutory company established under the laws of of the United Kingdom. It filed its return of income for the assessment year 1998-99 on 5th August, 1999, declaring an income of Rs. 13,17,82,890/-. After taking into account, the TDS, a refund of Rs. 21,78,079/- was claimed. The Joint Commissioner of Income-tax passed an order under section 143(3) and served a notice of demand under section 156 for Rs. 30,86,180/-. The Assessing Officer, inter-alia, added to the total income, the sum of Rs. 77,14,828/- received by the respondent towards upfront appraisal fee.
4. It is necessary first to indicate what the upfront appraisal fee is. The assessee advances loans, inter-alia, to Indian companies. Before doing so, it examines the creditworthiness of the borrower and the financial efficacy of advancing the credit facilities. To do so, it appraises the applicant for the loan. The report is then considered by the respondent’s various departments to enable them to decide whether or not to advance the loan/credit facilities. The respondent charges the applicants, a fee for carrying out the appraisal. This fee is termed as the upfront appraisal fee (hereinafter referred to as “the said fee”). It covers the cost of the appraisal and expenses incidental thereto and in connection therewith.
5. It is important to note two things. Firstly, the applicant for the facility is normally not furnished a copy of the report. Secondly, the fee is charged irrespective of whether the loan/credit facility is advanced to the applicant or not. The following table demonstrates this :
