DIT vs. Citibank N. A. (Bombay High Court)

The High Court had to consider the following two questions in the appeal filed by the Department:

(a) Whether payment to Master Card International and Visa Card International without deduction of tax at source is not disallowable u/s. 40(a)(i) in view of the Article 26(3) of the Indo US DTAA, when the provisions of Article 26(3) were not attracted in the case, and especially for the year in question.

(b) Whether notional loss arising from unmatured foreign exchange contracts is allowable when the loss is neither a definite liability nor a legal liability as mandated by the Supreme Court in the decisions in the cases of Bharat Earth Movers 112 Taxman 61 & Keshav Mills Ltd. 23 ITR 230 and in fact is expenditure contingent on happening of an event and therefore not allowable in view of the decision of Supreme Court in the case of Indian Molasses Co. P. Ltd. 37 ITR 66.

HELD by the High Court dismissing the appeal:

(1) The Assessee during subject Assessment Year made payment through Master Card International and Visa Card International being assessment and equipment fees. The payments were made by the Assessee without deducting tax at source. In view of the above, the Assessing Officer & CIT(A) disallowed the entire amount of fees remitted, aggregating to Rs.82.33 lakhs in terms of Section 40(a)(i) of the Act. The Tribunal allowed the Appeal of the Assessee by followed its decision in the case of Central Bank of India v/s. DCIT 42 SOT 450 – wherein on similar facts, it was held that even if no TDS is deducted, the payments made to Visa Card International and Master Card International on account of fees could not be disallowed in view of Article 26(3) of Indo-US Double Taxation Avoidance Agreement (DTAA).

(2) On reading of the decision of the Tribunal in Central Bank of India (supra) with the assistance of the Counsel, we find that the question raised herein is covered by the order in Central Bank of India (supra) rendered in the context of similar/ identical facts and law.

(3) Mr. Tejveer Singh, learned Counsel appearing for the Revenue in support of the Appeal states that no appeal has been preferred from the decision of the Tribunal in Central Bank of India (supra). We find that neither the memo of appeal nor any affidavit by the Revenue indicates any reason why this appeal from the impugned order is being preferred when the decision of the Tribunal on identical facts in Central Bank of India (supra) is accepted and merely followed by the impugned order.

(4) We have repeatedly indicated (see CIT v/s. State Bank of India – Income Tax Appeal No. 269 of 2013 rendered on 4th February, 2015 ) that whenever the impugned order of the Tribunal merely follows its earlier orders and the Revenue has accepted the earlier order by not filing an appeal therefrom, should normally also apply in subsequent orders. This of course unless the Revenue brings on record the reasons which necessitated/ justified filing of an appeal from the impugned order when no appeal was filed from the earlier order which has been followed by the impugned order. However, there is nothing on record to indicate the reasons for filing an appeal from impugned order when no appeal is filed from the order of the Tribunal in Central Bank of India (supra). Thus on the above ground alone, we see no reason to interfere with the impugned order of the Tribunal. Consistent application of law is an essential feature/ ingredient of Rule of Law.

(5) The question (b) as formulated by the Revenue has been allowed by the Tribunal in the impugned order by following the decision of its Special Bench in DCIT v/s. Bank of Baharain & Kuwait 132 TTJ (Mum) 505. Mr. Tejveer Singh, Counsel appearing for the Revenue states that the Revenue has not filed any Appeal against decision of the Special Bench in the case of Bank of Baharain and Kuwait (supra). However, there is no ground made out in the appeal memo or in any affidavit as to why the Revenue is preferring an Appeal against the impugned order on the above issue when an identical question decided by the Special Bench of the Tribunal in Bank of Baharain and Kuwait (supra) has been accepted by the Revenue. Therefore, for the reasons indicated while dealing with Question (a) above, the appeal need not be entertained. In any case, the Counsel are agreed that an identical question of law in the Income Tax Appeal No.1914 of 2011 and 5089 of 2010 by the Revenue, this Court by the orders dated 22nd March, 2013 and 1st February, 2013 repeatedly rejected the appeal on above issue as it stands covered against the Revenue and in favour of the Assessee by the decision of this Court in CIT v/s. Bank of India 218 ITR 371.