Dismissed

The Director of Income Tax ( International Taxation) -Ii v. British Bank of Middle Esat

Bombay HC19 Nov 2014ITXA/2098/2011

Case brief

AI extract

What is this about?

The High Court dismissed appeals filed by the Revenue against Tribunal orders regarding interest exemption and bad debt deduction for two assessment years. The court found that questions relating to interest raised no substantial question of law and the question on bad debts was already addressed by the High Court in a similar case involving CBDT instructions.

What did the court decide?

Appeals dismissed with no order as to costs.

The Director of Income Tax ( International Taxation) -Ii Vs… — Income Tax | Bombay HC (2014)

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906.itxa.2098.2011.doc

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dik

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION

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INCOME TAX APPEAL NO. 2098 OF 2011 WITH

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INCOME TAX APPEAL NO.2151 OF2011

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The Director of Income Tax (International Taxation)-II...Appellant.

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vs British Bank of Middle East

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...Respondent

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Mr Suresh Kumar for the Appellant in both appeals. Mr Percy Pardiwalla, Sr. Counsel a/w Mr B.D.Damodar a/w Mr Devash Shah i/b Kanga & Co. for the Respondent in both appeals.

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CORAM : M.S.SANKLECHA & S.C. GUPTE, JJ.

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NOVEMBER 19, 2014

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P.C. :

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These two appeals by the Revenue under Section 260A of Income Tax Act, 1961 ('Act') challenge a common order dated 20 January 2011 passed by the Income Tax Appellate Tribunal (Tribunal) for the Assessment Years 199899 and 1999-2000.

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2 (a) The following questions of law have been raised by the Revenue, for the A.Y. 1998-1999:

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(I) Whether, on the fact and circumstances of the case and in law the Tribunal was correct in directing the AO to allow the entire interest of Rs.7,20,00,000/- against Rs.79,99,200/- allowed by the AO?

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(ii) Whether on the facts and circumstances of the case the Tribunal is correct in holding that, gross interest would qualify for exemption under Section 10(15)(iv) of the Income Tax Act, 1961 but not the net interest?

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(b) The following questions of law have been raised for our consideration for the A.Y. 1999-2000:

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(i) Whether, on the facts and circumstances of the case and in law, the Tribunal was correct in directing the AO to allow the entire interest of Rs.7,45,51,833/- against Rs.48,10,000/- allowed by the AO?

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(ii) Whether on the facts and circumstances of the case the Tribunal is correct in holding that, gross interest would qualify for exemption under Section 10(15)(iv) of the Income Tax Act, 1961 and not the net interest?

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(iii) Whether, on the facts and circumstances of the case and in law the Tribunal was correct in directing the AO to allow the bad debts of Rs.1,84,34,398/- without setting off closing provision of Rs.29,63,021/- determined u/s 36(1)(viiia) of the Act?”

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Question Nos.(i) and (ii) for A.Y.1998-2000 and A.Y.1999-2000 raise identical issues. Only for the A.Y. 1999-2000 there is one additional question viz. question No.(iii). So far as question Nos.(i) and (ii) are concerned, they are different facets of the same issue and, therefore, are being dealt with together.

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3 For the purpose of convenience, we shall refer to the facts pertaining to A.Y. 1999-2000, which are as follows;

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(a) The respondent – assessee for the A.Y. 1999-2000 filed its return of Income declaring a loss of Rs.6.79 crores. In its return of income the respondent made a claim for exemption of Rs.7.45 crores on interest received from Public Sector Companies under Section 10(15)(iv)(h) of the Act. Further the respondent – assessee also claimed deduction of Rs.1.84 crores on account of bad debts under Section 36(1)(viia) of the Act;

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(b) On 8 March 2002, the Assessing Officer passed an Assessment Order under Section 143(3) of the Act. By the above order, the claim for

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exemption under Section 10(15)(iv)(h) of the Act was allowed on net basis i.e. by excluding expenses/ interest paid so as to restrict it to Rs.48.10 lacs. Further the claim for deduction on account of bad debts was restricted to Rs.1.54 crores after adjusting the provision for doubtful debts under Section 36(1)(viia) of the Act to the extent of Rs.29.63 lacs.

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(c) Being aggrieved, the respondent – assessee filed an appeal to Commissioner of Income Tax (Appeal) (“CIT(A)”). By order dated 24 March 2004, the CIT(A) on analysis of the financial position concluded that the assessee had sufficient funds of its own to make its investment in the public sector companies and allowed respondent - assessee's claim on interest received. So far as Bad debts was concerned, it was held that set off of Rs.29.63 lacs made as provision out of an amount of Rs.1.84 lacs is not warranted in view of the decision of the Tribunal in Oman International Bank dated 27 March 2003 and 15 December 2003 for A.Y. 1990-91, 1991-92 and 1993-94. Thus the respondentassess's appeal was allowed.

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(d) Being aggrieved, the appellant – revenue filed an appeal to Tribunal. By order dated 28 July 2001, the Tribunal dismissed the revenue's appeal on the issue of interest income not being included as part of Income under Section 10(15)(iv)(h) of the Act and bad debts. This was by following its order in the assess's own case for A.Y.1997-98.

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4 So far as questions (I) and (ii) for A.Y. 1998-99 and 1999-2000 are concerned, we find that they concern different facets of the same issue and stand covered by the order of the Tribunal in the Assessee's own case for A.Y. 199798. We are informed that no appeal from Tribunal order for A.Y. 1997-98 is pending in this Court seeking to disturb the finding of the Tribunal. Moreover, the revenue is unable to show any distinguishing features in the impugned order of the Tribunal from that passed by the Tribunal in respect of A.Y. 1997-98, warranting taking of a different view. In the present facts the CIT (A) has come to the finding that the amounts invested in the public sector company from which Respondent – Assessee was receiving the interest, were all out of its own funds

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and not out of borrowed funds. Therefore, no amount has been spent in investing the amount for earning the exempt interest. This is a finding of fact which is not shown to be perverse. In view of the above, question Nos.(i) and (ii) as stated herein above for the A.Y. 1998-99 and 1999-2000 do not raise any substantial question of law. Accordingly, we see no reason to entertain the same.

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5 So far as question No.(iii) which is raised only for the A.Y. 19992000 is concerned, an identical issue had come up before this Court in Director of Income Tax (International Taxation) Vs Oman International Bank SAOG, Income Tax Appeal (L) No.1889 of 2012 and the same was not entertained by order dated 26 February 2013. This on the ground that there are instructions issued by the Central Board of Direct Taxes (CBDT) being instruction No.17 of 2008 dated 26 November 2008 in favour of the respondent-assessee. Moreover, Tribunal in the impugned order has relied upon its decision in the Respondent – assessee one case for the A.Y. 1997-98. The Revenue has not been able to show that the law and facts of A.Y.1999-2000 are different from A.Y. 1997-98 warranting a different view. Accordingly, question No.(iii) also does not arise any substantial point of law. We see no reason to entertain the same.

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6 Accordingly, Appeals are dismissed. There shall be no order as to

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costs.

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( S.C.GUPTE J. )

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( M.S.SANKLECHA J. )

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The Director of Income Tax ( International Taxation) -Ii v. British Bank of Middle Esat

Case brief

What is this about?

What did the court decide?

The Director of Income Tax ( International Taxation) -Ii v. British Bank of Middle Esat

Case brief

What is this about?

What did the court decide?

What the court decided

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