Standard Chartered Grindlays Bank Vs ACIT (ITAT Delhi)
The assessee is a non-resident banking company which carries on the business of banking and other related activities through its branches in India in accordance with the provisions of Banking Regulation Act, 1949. During the year, Indian Permanent Establishment (in short PE) of the assessee bank in India incurred NRI expenses for soliciting and mobilization of deposits in foreign currency from Non Resident Indian (NRIs) to be placed in India. As these expenses were related wholly and exclusively to the Indian PE of the assessee’s business, it had claimed the expense as deduction in the computation of Business Income of the PE earned in India.
The Assessing Officer rejected this claim for deduction of expenses holding that this expenditure was not reflected in the assessee’s Indian books of accounts that this expenditure was in the nature of ‘head office expenses’ in respect of which deduction under section 44C has already been allowed. The AO placed reliance on the judgment of the Calcutta High Court in the case of UCO Bank Vs. CIT, 200 ITR.
The ld. CIT (A) directed to re-compute the disallowance @80% of NRI deposit mobilization expenses u/s 37(1) of the Income Tax Act, 1961 and 20% of NRI expenses u/s 44C.
We have carefully considered the rival submissions: The xxxxxx abroad were brought to India in foreign currency xxxx and kept in India for the Indian business of the assessee bank. The benefits reaped by the India branch or Permanent Establishment in India have been accounted for as Indian income. We, therefore, see no reason as to why the deduction of expenditure· should not allowed.
These expenses incurred for procurement of business cannot be understood as Head Office expenses and the learned Assessing Officer, therefore, erred in treating them as Head Office expenses within the meaning of section 44C of the Act. We, therefore, direct “the learned Assessing Officer to allow the assessee deduction of actual expenditure basis and for that purpose if necessary the learned Assessing Officer may withdraw corresponding deduction allowed, if any under the provisions of section 44C.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeals have been filed by assessee the and the revenue against the orders of the ld. CIT(A)-XXIX, New Delhi dated 11.07.2008.
2. In ITA No. 2920/Del/2008, following grounds have been raised by the assessee:
“1. The Ld. CIT(A) had erred in law and on facts is sustaining an ad hoc & surmiseful addition of 20% of NRI expenses amounting to Rs. 16,92,655/- on the grounds that these are in the nature of ‘head office’ expenses and ignoring the ITAT order dt. 18.8.2006 which has held that NRI expenses are fully allowable and no portion of these are head office expenses.
2. The Ld. CIT(A) was not justified in law in ignoring the order of a superior judicial forum in the appellant’s own case for earlier years wherein it was held that the NRI expenses are fully allowable and no part of them are in the nature of Head office expenses.
3. The learned Ld. CIT(A) has erred in law and on facts in upholding an excessively high pitched estimate of as much as 94% of the gross receipts amounting to Rs.3,04,60,516/- as expenses attributable to earning income on foreign currency syndicated term loans under Sec. 115A(3) of the Income Tax Act, 1961.
4. (i) The learned Ld. CIT(A) has erred in law and on facts in making an ad hoc addition of Rs.15,00,000/- on account of expenses incurred on earning foreign currency syndicated term loans.
(ii) On page 14, para 6.1 of the CIT(A)’s Order, when dealing with the expenses on foreign currency syndicated terms loans, the CIT(A) has erroneously quoted an extract of the AO’s order with respect to deduction under sec.36(1)(viia), which is not relevant to the ground of appeal being discussed. Hence this AO’s quotation in this para should be expunged as it is quoted out of context.
5. The learned Ld. CIT(A) has erred in law and on facts in disallowing the entrance fee expenditure of Rs.30,000/- on payments made to clubs on the grounds that it is capital expenditure.
6. The Ld. CIT(A) has erred in law and on facts in making an estimated disallowance of managerial and administrative expenses of Rs. 2,50,000/- for earning dividend income by treating this as tax free income, whereas dividend income is strictly not a tax free item of income as it is subject to dividend distribution tax in the hands of the company which pays the dividends.
7. Without prejudice to above and in the alternative, it is respectfully submitted that –
(a) Section 10(33) exempts dividends referred to in section 115-O. Section 115-O refers to any amount declared, distributed or paid by a domestic company. Thus, what is exempt in the hands of recipient is the amount declared, distributed or paid by a domestic company and not the sum, which is income in the hands of the assessee;
(b) No part of the expenses incurred for the purposes of business of the Appellant can be said to be attributable to earning of dividend income in view of various decisions as under –
√ CIT v/s. Indian Bank Ltd. – 56 ITR 77(SC)
√ Rajasthan State Warehousing Corp. v/s. CIT – 242 ITR 450(SC)
√ CIT v/s. Maharashtra Sugar Mills – 82 ITR 452 (SC)
√ CIT v/s. Industrial Investment Trust Co. Ltd. –67 ITR 436(Bom)
8. The Ld. CIT(A) has erred in law and on facts in disallowing the sum of Rs.30,15,52,101/- as relating to access and user of technology related services for its credit cards business in India, on which full taxes were duly deducted at source and paid to the Indian Government @ 15% in accordance with Article 12 of the Indo -A ustralia Double Taxation Avoidance Agreement (DTAA) read with section 195(1) of the Income Tax Act, 1961.
9. The Ld. CIT(A) has erred in law and on facts by denying deduction of fees paid for access and user of technology related services for the credit cards business of India, as such fees were incurred wholly, necessarily and exclusively for the Appellant’s business in India, hence this is a permissible deduction under section 40(a)(i) read with section 37(1) of the Income Tax Act, 1961 and Article 7 of the Indo-Australia DTAA and CBDT Circular No.649 dated 31.3.1993.
10. The Order of the Ld. CIT(A) suffers from an error apparent: on the face of the records on the following ground:
