Director of Income-tax (International Taxation) vs Deutche Bank A.G.

This appeal by the Revenue under Section 260A of the Income-tax Act, 1961 (the Act) challenges the order of the Income Tax Appellate Tribunal (the Tribunal) dated 28th January 2010 relating to the Assessment Year 1993-94. The following questions of law have been formulated for our consideration:--

"(1) Whether on the facts and circumstances of the case and in law, the ITAT is correct in directing the AO to allow the entire head officer expenditure under Section 37(1) of the Act, without appreciating the fact that the allowability of head office expenditure is governed by the provisions of section 44C of the said Act and accordingly the said head office expenditure is to be allowed to the assessee at 5% of the adjusted total income as per provisions of section 44C of the Act.

(2) Whether on the facts and circumstances of the case and in law, the ITAT is correct in holding that the assessee has fulfilled the conditions of Sec. 36(1)(vii) and 36(2) of the Act in respect of it''s claim of bad debt written off to the tune of Rs. 43,39,01,201/- without appreciating the fact that the advances to D.B. Financial Services (India) Ltd. were not made in the ordinary course of assessee''s banking business and therefore such write-off was not allowable as per the provisions of Sec. 36(2) of the Income-tax Act.

(3) Whether on the facts and circumstances of the case and in law, the ITAT is correct in deleting the addition of Rs. 1,03,29,545/- on account of discounts earned on Bills of Exchange purchased without appreciating the fact that the assessee''s claim of those expenses (discount earned) were in the nature of expenses incurred in violation of the provisions of law and hence the same were not allowable as per provisions of explanation to Sec. 37 of the Income-tax Act.

(4) Whether on the facts and circumstances of the case and in law, the ITAT is correct in deleting the addition of Rs. 5,03,14,814/- on account of buy-back transactions in units of UTI made with M/s. DBFSIL without appreciating the fact that as per RBI norms, buy-back of units was not permitted and therefore the entire set of transactions was illegal and void and hence all the purchases by the assessee from DBFSIL had to be considered as an outright purchase and that once the units were purchased, such units became the assets of the assessee-bank and profits/loss incurred on sale of such units become the profits/loss of the assessee."

So far as Question No. 1 is concerned, the Tribunal allowed the appeal of the Respondent-Assessee by following the decision of this Court in Commissioner of Income Tax Vs. Deutsche Bank A.G. (formerly European Asian Bank), on identical issue relating to Assessment Year 1984-85. Thereafter, for the Assessment Year 1994-95, Revenue had come up in appeal with regard to the same issue and this Court by its order dated 20th November, 2012 had refused to entertain the same as the issue was covered by the order of this Court in Respondent-Assessee''s own case in Deutsche Bank AG (supra). Thereafter, the Revenue took out a Review Petition seeking a review of the order dated 20th November 2012 on the ground that the question not entertained on the basis of the decision of this Court in Deutsche Bank AG''s case (supra) was not correct as the law had undergone a change after the Assessment Year 1984-85. In its Review Petition, the Revenue contended that Section 44C of the Act had undergone an amendment in Assessment Year 1993-94 and, therefore, the decision rendered for the Assessment Year 1984-85 would not have any application.

This Court dismissed the Review Petition by an order dated 26th March 2013. The Court held that the Respondent-Assessee was governed by the Double Taxation Avoidance Agreement (DTAA) entered into between Federal Republic of Germany and India on 28th June, 1984. The aforesaid agreement provides that the deduction in respect of head office expenses allowable would not be less than what is allowable under the Indian Income-tax Act as existing on 28th June, 1984. Thus the head ''office expenses'' was deductible under Section 37 of the Act. The Court held that the aforesaid DTAA continues to be in force for the Assessment Year 1994-95 on the same issue.

In the above view, for the reasons mentioned in our order dated 26th March 2013 in Review Petition (L) No. 14 of 2013 in ITA No. 233 of 2011 for Assessment Year 1994-95, we see no reason to entertain Question No. 1. The issue stands concluded by the decision of this Court in favour of the Respondent-Assessee.

So far as Question No. 2 is concerned, the issue raised by the Revenue is whether a write off of an advance made to an associate company is allowable under Sections 36(1)(vii) and 36(2) of the Act. This on the ground that the amount was advanced by the Respondent-Assessee even though it was aware that the financial position of the associate company was not sound. In view of the above, the Assessing Officer was of the view that the advances given by the Respondent-Assessee to its associate company was not in the ordinary course of business, and therefore, could not be written off as bad debts.

On first Appeal, the CIT (A) after examining the transaction came to the conclusion that the advance was given by the Respondent-Assessee to its associate company was in the course of its banking business. A factual finding is also recorded that the advance made to the associate company was lost only on account of security scam in Assessment Year 1993-94 which resulted in the market crashing and consequent losses of the associate company. Thus, the CIT(A) held that when the Respondent-Assessee advanced money to its associate company, it could not have for seen that it would not be recoverable and therefore, allowed the Respondent-Assessee''s appeal. On further Appeal by the Revenue, the Tribunal upheld the finding of fact arrived at CIT(A). The Tribunal inter alia recorded in the impugned order that in any banking business, there are a lot of considerations involved in making advances and merely expressing doubt about the genuineness of the advance is not sufficient to take away discretion of the bankers to make advance. Thus, the appeal of the Revenue was dismissed by the impugned order.

We find that on the above issue, there are concurrent findings of fact arrived at by the CIT(A) and the Tribunal. It is not shown to us that the aforesaid findings of fact are in any manner perverse. Thus, we refuse to entertain Question No. 2.

So far as Question No. 3 is concerned, the Tribunal by the impugned order upheld the order of CIT(A) and dismissed the Revenue''s appeal. This on the ground that for the earlier Assessment Year 1992-93 also the Tribunal by order dated 27th October 2006 upheld the order of CIT(A) by deleting the addition on account of discount earned on purchase of Bills of Exchange. We are informed that no appeal from the order of the Tribunal dated 27th October 2006 is pending before this Court. No distinguishing features in this Assessment Year as compared to the Assessment Year 1992-93 is pointed out to us. As the Revenue has accepted the order of the Tribunal dated 27th October 2006 for Assessment Year 1992-93, no reason has been shown to us justifying a different view in this Assessment Year. In view of the above, we see no reason to entertain Question No. 3 as framed by the Revenue. Question No. 4 - admit.