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February, 20th 2017

%                                   Judgement delivered on:07.02.2017

+                                ITA 385/2004

        M/S TEJ QUEBCOR PRINTING LTD.                ..... Appellant
                      Through: Dr. Rakesh Gupta, Mr. T.R. Talwar
                               and Ms. Monika Ghai, Advocates.


        JOINT COMMISSIONER OF INCOME TAX           ..... Respondent
                     Through: Mr. Ashok K. Manchanda and
                               Mr. Raghvendra Singh, Advocates.



1.      The questions of law framed in this case on 08.02.2005 are as
         "(i) Whether the Tribuna1 was correct in law in holding that
         on the facts and in the circumstances of the case, provisions of
         Section 40(a)(i) of the Income Tax Act read with the provisions
         of Section 10 (15)(iv)(c) were applicable to the assessee's case
         in relation to the assessment year 1996-97?

         (ii) Whether the approval of the Govt. of India, Ministry of
         Finance in their letter dated 25.5.95 approving the loan
         amount, rate of interest and the mode of repayment did
         constitute the approval of the Central Govt. in this behalf with
         regard to the rate of interest, terms of the loan and its
         repayment of purpose of Section10(15)(iv)(c) of the Income
         Tax Act?"

     ITA 385/2004                                                 Page 1 of 7
2.      The assessee was at the relevant time engaged in the business of
printing and binding of telephone directories. For its business, it imported
machinery from a foreign supplier i.e. M/s. Quebecor Printing Ltd. Inc.,
Canada on deferred credit to the tune of Canadian dollars 25,74,537
equivalent to `5,94,86,535/-. It sought the benefit of Section 10(15)(iv)(c)
of the Income Tax Act, 1961 (hereinafter to be referred as `the Act') by
seeking approval of the Central Government. By a letter dated 25.05.1995
the Department of Economic Affairs, Ministry of Finance of the Central
Government approved the proposal but advised the assessee at the same time
to approach the Reserve Bank of India (`RBI') since the amounts were to be
remitted in foreign exchange. The RBI granted its approval on 20.12.1995
in the following terms:-
         "With reference to your letter dated 25/04/1995, on the subject
         cited above, I am directed to convey the approval of the
         Government or India, Ministry of Finance, Department of
         Economic Affairs, for your obtaining a Supplier's Credit from
         M/s. Quebecor Printing Inc., Canada, for financing the import
         of capital goods, on the following terms and conditions:

         a) Loan Amount          : Canadian Dollar 2,574,536.79/-
         b) Rate of interest     : 8.3359% p.a.
         c) Repayment Terms      : In 10 equal semi-annual instalments
                                 commencing from June 1997.

         2. No other charges in foreign currency or Indian Rupee
         other than those specifically authorized in terms of this
         sanction will be permitted for payment.

         3. You are not permitted to exercise any multi-currency

         4. You are requisite to obtain the approval of the Reserve
         Bank of India, Surcharge Control Deptt., through your

     ITA 385/2004                                                Page 2 of 7
         bankers under FERA 1973 in order to satisfy the Reserve Bank
         that the terms of the Govt. approval are complied with and
         that no additional foreign exchange liability, either express or
         implied, is being assumed under the arrangements.

         5. Kindly note that in case the credit is required to be
         guaranteed by a Bank/Development Financial Institution
         (DFI), the same shall be provided by scheduled commercial
         bank(s) or DFI(s) in India. The counter guarantee from a
         foreign bank or confirmation of a scheduled bank or DFI's
         guarantee by a foreign bank will not be permitted under any
         circumstances. The guarantee issuance, however, would be
         subject to the authorization of Industrial & Export Credit
         Department of Reserve Bank of India under CAS.

         6. The Reserve Bank of India would be advised to allow you
         to draw any loan and effect the advance payment/down
         payment only after your agreement with the lender is taken on
         record by this Department. You are, therefore, requested to
         make available to this Department two executed copies of the
         agreement immediately, after it is entered into, with reference
         to this sanction letter. Please note that if the said executed
         copies of the agreement are not made available to this
         Department within 3 months of the date of issue of this
         sanction letter, the approval for External Commercial
         Borrowings contained herein shall automatically lapse unless
         specifically extended by this Department.
                                                        Yours faithfully,

                                                        (D.J. Pandian)
                                              Deputy Secretary (ECB)"

3.      In these circumstances, the assessee claimed a deduction in its returns
filed on 30.11.1996. This was disallowed on 22.12.1998. In the meanwhile,
it had approached the Department of Revenue of the Central Government
seeking its approval. On 15.01.1999, the Department of Revenue granted

     ITA 385/2004                                                 Page 3 of 7
the approval in the following terms:-
         "     I am directed to refer to your letter No.NIL dated
         23.11.98 on the above cited subject and to convey the approval
         of the Central Government to rate of interest, fees and other
         charges in respect of the loan/credit taken by you from the
         foreign party as per details, indicated below for the purpose of
         section 10(15)(iv)(c) of the Income-tax Act, 1961.

         Foreign Lender          : M/s Quebecor Printing Inc., Canada
         Amount of Loan          : Canadian dollar 2,277,422.77
         Rate of interest        : 8.3359% p.a.
         Arrangement Fee         : -------------
         Management Fee          : -------------
         Agency Fee              : -------------
         Commitment Fee          : -------------

               Please intimate early the date of payment and amount of
         payment of the interest and the country to which the amount
         was remitted."

4.      The Assessment Officer (`AO') while completing assessment was of
the opinion that since tax was deductable under Section 195 of the Act, the
amounts had to be disallowed under Section 40(a)(i) of the Act and
proceeded to do so. The CIT(A), whom the assessee approached, granted
relief taking a broad view of the matter. The Commissioner was of the
opinion that the provision relied upon i.e. Section 10(15)(iv)(c) of the Act,
merely talks of the Central Government and that in the circumstances of the
case since the assessee had already obtained the approval of the Department
of Economic Affairs and subsequently of the RBI (the latter with respect to
the foreign exchange of loan) and most crucially, since the approval referred
to in the provision related to the rate of interest, there was compliance with
the statutory conditions.

     ITA 385/2004                                                 Page 4 of 7
5.      The Income Tax Appellate Tribunal (`ITAT'), to which the Revenue
appealed, upset the order of the CIT(A). The ITAT was of the opinion that
since the assessee had applied to the concerned Department i.e. the
Department of Revenue for the first time on 02.04.1997 after filing the
returns, and it had failed to deduct the amounts under Section 195 of the
Act, the AO could not be faulted in disallowing the amounts. The ITAT
also felt that since the approval of the Department of Revenue was more
than a year, the assessee was told that benefits could not be granted in the
circumstances of the case.
6.      Learned counsel for the assessee points out that Section 10(15)(iv)(c)
of the Act merely talks of approval of the Central Government viz-a-viz the
rate of interest. Given that the Department of Economic Affairs is also a
part of the Central Government and that it had granted such approval
without, in any manner, indicating that the Department of Revenue was the
concerned agency but merely cautioned to obtain the RBI's approval on
account of the foreign exchange remittance, the denial of relief was
unwarranted. He commended the order of CIT(A) as containing the correct
approach in the facts of the case. Counsel for the Revenue, on the other
hand, urged that the reference to the Central Government has to be
necessarily urged as one meaning the `concerned department', which in this
case is none other than the Department of Revenue. He highlighted the fact
that the assessee approached the Department of Revenue after an inordinate
delay though it was asked to do so by the RBI on 22.12.1995. By the time it
did approach, it had already filed the return. Given these circumstances, the
invocation of Section 40(a)(i) of the Act was not unjustified, the assessee
would very well availed its opportunity of approaching the AO under

     ITA 385/2004                                                Page 5 of 7
Section 195 of the Act, which it did not at the relevant point of time.
7.      Section 10(15)(iv)(c) of the Act reads as follows:-
         "(15)(iv) interest payable -
         (c) by an industrial undertaking in India on any moneys
         borrowed or debt incurred by it in a foreign country in respect
         of the purchase outside India of raw materials or components
         or capital plant and machinery, to the extent to which such
         interest does not exceed the amount of interest calculated at
         the rate approved by the Central Govt. in this behalf, having
         regard to the terms of the loan or debt and its repayment."

8.      A plain reading of the provision clearly bears the fact that its approval
of the Central Government which is necessary ­ not with respect to the
transaction per se but with regard to the rate of interest. Given this objective
factor, and the fact that the Revenue does not appear to have notified any
specific agency ­ i.e. the Department of Revenue/CBDT or any other
Department by naming it (unlike Section 10B, Section 35(2)(a)(b) etc.),
where either the specific power is granted or the concerned authority/agency
itself is mentioned; the particular elusion to the Central Government cannot,
in the opinion of the Court in any manner, undermine or render valueless the
approval granted by one of the agencies or departments of the Government.
This view is more crucially important - given the fact that in the present
case, the Department of Revenue did not express any contrary opinion in its
approval dated 15.01.1999. In this context, the Court holds the Revenue's
arguments - that the amounts mentioned in the Department of Revenue's
approval do not tally with the approval granted by the Department of
Economic Affairs utterly unsubstantial. What the Department of Economic
Affairs has approved is the transaction and the rate of interest. That the
assessee availed a lesser amount of credit or loan did not mean that there

     ITA 385/2004                                                   Page 6 of 7
was no approval. Particularly, because it is not the Revenue's case that the
Department of Revenue approved an entirely different transaction.
9.      In view of the above discussion, the Court is of the opinion that the
impugned order of the ITAT cannot be sustained. It is accordingly set aside.
The assessee is held entitled to the benefit of claim of deduction of interest
made by it, in its return. The questions of laws are accordingly answered in
favour of the assessee and against the Revenue. The appeal is allowed.

                                                  S. RAVINDRA BHAT, J.

                                                        NAJMI WAZIRI, J.
FEBRUARY 07, 2017

     ITA 385/2004                                                Page 7 of 7
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