Whether when Search conducted by Revenue leads to papers relating to sale & purchase of land outside books and same is admitted by Managing Director in his statement, any addition with respect to unexplained investments is legally sustainable - YES: ITAT
THE assessee-company is engaged in real estate and construction business. During the year, company purchased land and sold plots after undertaking development works. There were search and seizure operations under section 132. Assessee claimed deduction under section 80IB on the residential complex constructed and sold. Assessing Officer asked for details. Assessee did not furnish complete details. Therefore, A.O. called for sale deeds and noticed that all the flats sold were above 1500 sq.ft. and exceeded the limits prescribed under the Act. Therefore, he denied the deduction.
In appeal, CIT(A) held that out of 65 flats only 5 were above 1500 sq.ft. area, therefore, the Assessing Officer was not justified to deny the benefit of deduction u/s 80-IB for the entire project completed for the assessment year under consideration.
The issue before the Bench is - Whether when the Search conducted by the Revenue leads to papers relating to sale and purchase of land outside the books and the same is admitted by the Managing Director in his statement, any addition with respect to unexplained investments is legally sustainable. And the verdict goes against the assessee.
HYDERABAD, JUNE 17, 2014: THE issues before the Bench are - Whether receipts on sale of carbon credits are capital in nature and Whether sale of carbon credits are liable to tax. And the verdict goes against the Revenue.
Facts of the case
The assessee is engaged in the business activity of generation of biomass based power. During the year, the assessee had received Carbon Emission Reduction Certificates, also known as 'carbon credits' for its project activity of switching off fossil fuel from naphtha and diesel to biomass. The assessee sold most of these carbon credits to a foreign company, M/s. Noble Carbon Credits Ltd. of Ireland. The assessee accounted for these receipts as capital in nature and having shown losses, these receipts were not offered for taxation. According to the assessee, these carbon credits were issued to every industry which saved emission of carbon and were not limited to power projects.
The AO observed that the receipts were directly attributable to the business of production of power. Therefore, being attributable to the assessee's business activity, the AO held that these receipts, on account of a tradeable commodity quoted on a stock exchange, were revenue in nature. Thus, after giving effect to the set off of brought forward losses, the total income was determined and tax demand was raised against the assessee.
In appeal, the CIT(A) confirmed the AO's order holding that the amount realised by transferring carbon credits represented income from transfer of goods and that the entire amount realised on sale of such goods represented the income of the assessee. The CIT(A) thus gave a finding that the amount which was considered as the income of the assessee could not be considered as income from business and was not entitled for deduction under section 80IA. The CIT(A) thus confirmed the addition made by the AO.
In appeal before the Tribunal, the assessee submitted that the receipt had no relationship with the process of production nor was it connected with the sale of power or with the raw material consumed. It was not even the sale proceed of any bye product. These receipts were not related to the assessee's business activity and did not represent a revenue receipt and did not fall within any of the clauses of section 2(24).
The Tribunal allowed the assessee's appeal. The Tribunal concluded that carbon credits were not generated or created due to carrying on business but it accrued due to "world concern". The consideration received on account of carbon credits could not be considered as income, as carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset was generated in the course of business but it was generated due to environmental concerns. Credit for reducing carbon emission or greenhouse effect could be transferred to another party in need of reduction of carbon emission. It did not increase profit in any manner and did not need any expenses. It was a nature of entitlement to reduce carbon emission but there was no cost of acquisition or cost of production to get this entitlement. Carbon credit was not in the nature of profit or in the nature of income and it could not be subjected to tax in any manner under any head of income. It was not liable for tax in terms of sections 2(24), 28, 45 and 56 of the Income-tax Act, 1961. Hence, carbon credit was held to be an entitlement or accretion of capital and hence income earned on sale of these credits was capital receipt.
Relying on the decision of the Supreme Court in the case of Maheshwari Devi Jute Mills, the Tribunal held that the receipt of such consideration could not be considered as business income and it was a capital receipt.
In appeal before the High court, the Revenue submitted that the generation of carbon credits was intricately linked to the machinery and processes employed in the production process by the assessee. Therefore, the consideration received on account of sale of carbon credits should be treated to be business income as the sale was made in connection with the assessee's business.
Having heard the parties, the High Court Held:
++ we are unable to accept the same, as the Tribunal has factually found that "Carbon Credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns." We agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal, it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal.
The AO observed that the receipts were directly attributable to the business of production of power. Therefore, being attributable to the assessee's business activity, the AO held that these receipts, on account of a tradeable commodity quoted on a stock exchange, were revenue in nature. Thus, after giving effect to the set off of brought forward losses, the total income was determined and tax demand was raised against the assessee.
In appeal, the CIT(A) confirmed the AO's order holding that the amount realised by transferring carbon credits represented income from transfer of goods and that the entire amount realised on sale of such goods represented the income of the assessee. The CIT(A) thus gave a finding that the amount which was considered as the income of the assessee could not be considered as income from business and was not entitled for deduction under section 80IA. The CIT(A) thus confirmed the addition made by the AO.
In appeal before the Tribunal, the assessee submitted that the receipt had no relationship with the process of production nor was it connected with the sale of power or with the raw material consumed. It was not even the sale proceed of any bye product. These receipts were not related to the assessee's business activity and did not represent a revenue receipt and did not fall within any of the clauses of section 2(24).
The Tribunal allowed the assessee's appeal. The Tribunal concluded that carbon credits were not generated or created due to carrying on business but it accrued due to "world concern". The consideration received on account of carbon credits could not be considered as income, as carbon credit is not an offshoot of business but an offshoot of environmental concerns. No asset was generated in the course of business but it was generated due to environmental concerns. Credit for reducing carbon emission or greenhouse effect could be transferred to another party in need of reduction of carbon emission. It did not increase profit in any manner and did not need any expenses. It was a nature of entitlement to reduce carbon emission but there was no cost of acquisition or cost of production to get this entitlement. Carbon credit was not in the nature of profit or in the nature of income and it could not be subjected to tax in any manner under any head of income. It was not liable for tax in terms of sections 2(24), 28, 45 and 56 of the Income-tax Act, 1961. Hence, carbon credit was held to be an entitlement or accretion of capital and hence income earned on sale of these credits was capital receipt.
Relying on the decision of the Supreme Court in the case of Maheshwari Devi Jute Mills, the Tribunal held that the receipt of such consideration could not be considered as business income and it was a capital receipt.
In appeal before the High court, the Revenue submitted that the generation of carbon credits was intricately linked to the machinery and processes employed in the production process by the assessee. Therefore, the consideration received on account of sale of carbon credits should be treated to be business income as the sale was made in connection with the assessee's business.
Having heard the parties, the High Court Held:
++ we are unable to accept the same, as the Tribunal has factually found that "Carbon Credit is not an offshoot of business but an offshoot of environmental concerns. No asset is generated in the course of business but it is generated due to environmental concerns." We agree with this factual analysis as the assessee is carrying on the business of power generation. The Carbon Credit is not even directly linked with power generation. On the sale of excess Carbon Credits the income was received and hence as correctly held by the Tribunal, it is capital receipt and it cannot be business receipt or income. In the circumstances, we do not find any element of law in this appeal.
(See 2014-TIOL-978-HC-AP-IT)
IT : Where assessee claimed deduction under section 35(2AB) in respect of expenditure incurred on in-house R&D facilities and in support of claim filed letter issued by DSIR, New Delhi under signature of Scientist -G and Assessing Officer disallowed claim of deduction on plea that approval had to be obtained from Secretary, DSIR, whether order of approval had been signed by Secretary, DSIR or by any of Nodal Officer on his behalf would not make any difference and in such a case claim for deduction under section 35(2AB) could not be disallowed
IT : Where assessee-company had written off in books of account bad debts pertaining to its customer and claimed deduction of same contending that said customer had not paid amount due, despite making continuous effort for recovery of amount, and Assessing Officer disallowed claim on ground that assessee could not substantiate its claim by producing any documentary evidence, matter was remanded to Assessing Officer with a direction to re-examine claim of assessee in view of decision of Supreme Court rendered in case of TRF Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391
■■■
[2014] 45 taxmann.com 329 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'F'
Assistant Commissioner of Income-tax, Circle -1, Thane
v.
Ferment Biotech Ltd.*
R.C. SHARMA, ACCOUNTANT MEMBER
AND AMIT SHUKLA, JUDICIAL MEMBER
AND AMIT SHUKLA, JUDICIAL MEMBER
IT APPEAL NOS. 4341 & 4888 (MUM.) OF 2012
[ASSESSMENT YEAR 2008-09]
[ASSESSMENT YEAR 2008-09]
FEBRUARY 12, 2014
I. Section 35 of the Income-tax Act, 1961 read with rule 6 of the Income-Tax Rules, 1962 - Scientific research expenditure (Sub-section (2AB)) - Assessment year 2005-06 - Assessee-company was engaged in business of manufacturing, marketing and processing of drug intermediates pharmaceuticals, chemicals and bulk drugs - For assessment year 2005-06, it claimed deduction under section 35(2AB) in respect of expenditure incurred on in-house R&D facilities - In support of claim, it filed a copy of letter dated 14-11-2005 (Renewal of recognition of in-house R&D unit certificate), issued by Department of Scientific and Research [DSIR], New Delhi under signature of Scientist-G - Assessing Officer disallowed claim of deduction on ground that as per provisions of section 35(2AB), approval had to be obtained from prescribed authority, who was Secretary, DSIR - Whether order of approval had been signed by Secretary, DSIR or by any of Nodal Officer on his behalf would not make any difference and in such a case claim for deduction under section 35(2AB) could not be denied to assessee - Held, yes [Para 11] [Matter remanded]
II. Section 36(1)(vii) of the Income-tax Act, 1961 - Bad debts (Burden of proof) - Assessment year 2005-06 - During previous year relevant to assessment year 2008-09, assessee-company had written off in books of account bad debts pertaining to its customer and claimed deduction of same - It submitted that said customer had not paid amount due, despite making continuous effort for recovery of amount - Assessing Officer disallowed claim on ground that assessee could not substantiate its claim by producing any documentary evidence - Commissioner (Appeals) remanded back matter to Assessing Officer with a direction to re-examine claim of assessee in view of decision of Supreme Court rendered in case of T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 - Whether in peculiar facts of case, Commissioner (Appeals) was justified in his action - Held, yes [Para 19] [In favour of revenue]
FACTS-I
| ■ | The assessee-company was engaged in the business of manufacturing, marketing and processing of drug intermediates pharmaceuticals, chemicals and bulk drugs. In the return of income filed for the assessment year 2005-06, it claimed deduction under section 35(2AB) in respect of expenditure incurred on in-house R&D facilities. In support of the claim, it filed a copy of the letter dated 14-11-2005 (Renewal of recognition of in-house R&D unit certificate), issued by the Department of Scientific and Research (DSIR), New Delhi under the signature of Scientist -G. | |
| ■ | The Assessing Officer held that as per the provisions of section 35(2AB), the approval had to be obtained from the prescribed authority, who was the Secretary, DSIR, and hence the assessee could not be allowed the claim for deduction under section 35(2AB). He, therefore, disallowed the claim of deduction. | |
| ■ | On appeal, the Commissioner (Appeals) upheld the action of the Assessing Officer. | |
| ■ | On second appeal: |
HELD-I
| ■ | On the face of the above letter, it is evident that the said letter issued by the DSIR is only for renewal of recognition of in-house R&D unit. The revenue's case is that such a letter has not been issued by the prescribed authority, i.e., Secretary, DSIR. | |
| ■ | Provision of section 35(2AB) provides that where a company is engaged in the business of bio-technology or any business of manufacturing and production of anything which is not in the list of Eleventh Schedule and incurs any expenditure on scientific research not in the nature of any cost of land and building but on in-house research and development facility which has been approved by the prescribed authority who is the Secretary, DSIR, Government of India, then the assessee shall be allowed sum equal to 1½ times of the expenditure so incurred. Provision of sub-section (4) of section 35 provides that prescribed authority shall submit its report in relation to the approval of the said facilities to the Director General in such form and within such time as may be prescribed. Rule 6 lays down the procedure for making application and obtain approval in the prescribed Form No. 3CK and the prescribed authority is required to grant approval in Form No. 3CM. | |
| ■ | Thus for the purpose of claiming deduction on scientific research expenditure under section 35(2AB), it has to be approved by the prescribed authority. The application should be made in prescribed form and also the approval is to be granted in the prescribed form. [Para 10] | |
| ■ | Once the assessee has filed the application in the prescribed form before the prescribed authority, then in so far as the assessee is concerned, it has fulfilled its obligation. However, there is a rider that such an application form has to be approved or has to be passed by the prescribed authority in Form No. 3CM. These conditions are essential, but such a strict interpretation may defeat the very purpose of the legislation intent, if the assessee has complied with all the other conditions and procedures. The purpose of section 35 read with rule 6 is to promote scientific research and development facilities which contribute to the technical advancement. If the proper process has been followed by the assessee, then whether the order of approval has been granted by the Secretary, DSIR or by some Nodal Officer for and on behalf of the Secretary, DSIR, it does not make any difference if all the conditions for granting of approval are satisfied. | |
| ■ | In the instant case, it is evident from the documents submitted by the assessee that in subsequent years the DSIR has granted order of approval in Form No. 3CM which has been signed by the Scientist-G for and on behalf of the Secretary, DSIR. Once the DSIR has authorized any of its Nodal Officer to issue order of approval for and on behalf of the Secretary, then for the purpose of section 35(2AB), it can be taken that the approval has been granted by the prescribed authority itself. Whether the order has been signed by the Secretary or by any of the Nodal Officer on his behalf will not make any difference because it is not the fault of the assessee. In such a case, claim for deduction cannot be denied to the assessee. [Para 11] | |
| ■ | In the instant case, the assessee could not show whether any approval of in-house R&D facilities has been issued in prescribed form by the DSIR, even if it is signed by any authority like Scientist -G for and on behalf of the Secretary, DSIR. In the subsequent years, if such an order is available, then the assessee has to show that the order of the approval for in-house R&D facility has been granted by the DSIR covering the present assessment year. Therefore, the impugned order passed by the Commissioner (Appeals) deserved to be set aside. | |
| ■ | The issue required to be restored back to the file of the Assessing Officer with a direction to verify this fact and to examine whether any order of approval of in-house R&D facilities has been issued for the relevant assessment year. The assessee will provide all the necessary information and evidence. If such an order is available and even if it is signed by the Scientist -G on behalf of the Secretary, DSIR, then also it should be taken as if the same has been issued by the prescribed authority. [Para 12] | |
| ■ | In case, such an order is not being provided by the assessee, then the Assessing Officer shall examine the nature of expenditure incurred by the assessee for the purpose of scientific research, relating to its business and also examine whether such expenditure can be allowed under section 35(1) or as revenue expenditure under section 37. [Para 13] |
CASE REVIEW - II
TRF Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 (SC) (para 19) followed.
CASES REFERRED TO
Asstt. CIT v. Meco Instruments (P.) Ltd. [2010] 7 taxmann.com 24 (Mum.) (para 4), Asstt. CIT v.Parabolic Drugs Ltd. [2013] 33 taxmann.com 661 (Delhi)(Trib.) (para 7) and TRF Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 (SC) (para 16).
Nitesh Joshi and Vipul K. Modi for the Appellant. Ravi Prakash for the Respondent.
ORDER
Amit Shukla, Judicial Member - These cross appeals are directed against the impugned order dated 30th April 2012, passed by the learned Commissioner (Appeals)-II, for the quantum of assessment passed under section 143(3) of the Income Tax Act, 1961 (for short "the Act") for the assessment year 2005-06.
2. We first take up assessee's appeal in ITA no.4341/Mum./2012, for the assessment year 2008-09, vide which, following grounds have been raised.
| "1. | The learned Commissioner of Income-tax (Appeals) erred in upholding disallowance of weighted deductions of Rs.1,05,65,3921- claimed under Section 35(2AB) of the Act. | |
| | It is submitted that the both lower authorities have failed to appreciate that the appellant is engaged in the business of conduction research and has incurred an expenditure of Rs. 70,43,595/-. The appellant having fulfilled the conditions of Section 35(2A)3) of the Act is entitled to a weighted deduction of Rs. 1,05,65,392/-. | |
| 2. | Without prejudice to above and in an alternate to ground 1 above, the Learned Commissioner of Income-tax (Appeals) erred in holding that the expenditure of Rs. 70,43,595/- incurred is capital in nature. | |
| It is submitted that the appellant has incurred the said expenditure wholly and exclusively for the purpose of business. The expenditure of Rs. 70,43.595/- incurred by the appellant is revenue in nature and ought to be allowed as deduction in computing the income for the year. The conclusion arrived at by the Commissioner of Income-tax (Appeals) and the learned Assessing Officer is contrary to the facts and the law. | ||
| 3. | The learned Commissioner of Income-tax (Appeals) erred not directing the assessing officer to delete the addition of Rs. 1,08,48,954/- erroneously made on account of bad debts. | |
| It is submitted that learned Commissioner of Income-tax (Appeals) while adjudicating that bad debts of Rs.8,24,978/- are to be allowed, ought to given clear direction to delete the addition of Rs.1,08,48,954/- made on account of bad debts. | ||
| 4. | The learned Commissioner of Income-tax (Appeals) erred in giving direction to the assessing officer to verify the claim for deduction under Section 80G of the Act in respect or donations paid. | |
| It is submitted that based on the documentary evidences available on record, learned Commissioner of Income-tax (Appeals) ought to have quantified and given specific directions to allow deduction under section 80G of the Act. | ||
| 5. | The learned CIT(A) erred in giving direction to the Assessing Officer to verify the claim for deduction under section 80IB in respect of profits derived by the eligible undertaking." |
3. Brief facts, qua the issue involved in ground no.1 above are that, the assessee is a company which is engaged in the business of manufacturing, marketing and processing of drug intermediates pharmaceuticals, chemicals and bulk drugs. On a perusal of the return of income, the Assessing Officer observed that the assessee has claimed deduction of Rs. 1,05,65,392 on account of expenditure made on inhouse scientific research under section 35(2AB)(1). In response to the show cause notice, the assessee filed a copy of renewal of recognition of inhouse R&D unit issued by the Department of Scientific and Research (for short "DSIR"), New Delhi, vide letter dated 14th November 2005, issued and signed by "Scientist-G". The Assessing Officer held that as per the provisions of section 35(2AB), the approval has to be obtained from the prescribed authority who is the Secretary, DSIR, and hence, the assessee cannot be allowed the claim for deduction under section 35(2AB). Before the Assessing Officer, the assessee submitted that the Scientist-G is a designated officer of DSIR who issues recognition to inhouse R&D units. The assessee also enclosed Citizens Charter issued by the DSIR which indicates that responsibility of giving recognition to inhouse R&D centre lies with Scientific-G. After considering the assessee's explanation, the Assessing Officer held that the provision of section 35(2AB) are absolutely clear that certificate has to be issued by the Secretary, DSIR, and not by the Scientist. Further, on the reverse side of the renewal certificate, it is clearly mentioned that it is not for the purpose of tax exemption or for quantum of tax concession. Thus, he disallowed the assessee's claim of Rs. 1,05,65,392.
4. Before the learned Commissioner (Appeals), besides reiterating the explanation given before the Assessing Officer the assessee also relied heavily upon the decision of the Tribunal in Asstt. CIT v. Meco Instruments (P.) Ltd. [2010] 7 taxmann.com 24 (Mum.), wherein it was held that even though the approval was not available in the prescribed form for the relevant assessment year, the tax payer was still entitled for deduction for the inhouse R&D expenditure. The Tribunal also held that it is only a procedural defect and benefit cannot be denied. The learned Commissioner (Appeals) rejected the assessee's submission and held that provisions of section 35(2AB)(1) r/w rule-6 makes it clear that the deduction can be allowed only when the approval is granted by the prescribed authority in the prescribed form. Further, the assessee company has not placed any copy of approval from the prescribed authority in the prescribed form no.3CM. The copy of letter dated 14th November 2005, signed by the "Scientist-G" according recognition to the inhouse R&D unit is neither signed by the prescribed authority nor is in the prescribed form no.3CM. The letter only indicates approval for the purpose of recognition and not for availing benefit of the deduction under section 35(2AB). Thus, he disallowed the assessee's claim and upheld the action of the Assessing Officer.
5. Before the learned Commissioner (Appeals), the assessee also took alternate plea that the actual expenditure incurred by the assessee on the inhouse R&D unit is revenue in nature because the same has been incurred wholly and exclusively for the purpose of business and, therefore, same should be allowed as business expenditure under section 37. The learned Commissioner (Appeals) rejected this plea also on the ground that expenditure on scientific R&D does not come under the category of day-to-day business expenses, but it is incurred keeping in view the long term benefit to the company. The expenditure incurred in R&D will have only long term enduring benefit which is capital in nature.
6. Before us, the learned Counsel for the assessee submitted that once the assessee has applied for renewal of recognition and approval of inhouse research and R&D facility in the prescribed form and the same has been issued by the DSIR, then, insofar as the assessee is concerned, the obligation gets discharged. He strongly referred to the decision of the Tribunal in Meco Instruments (P.) Ltd. (supra), wherein the Tribunal has analysed the provisions of section 35(2AB) and rule-6 to come to the following conclusion:—
"6.3 Now, we will also examine the issue having regard to the object of legislation. The entire scheme deals with the granting of approval to the facilities and the object is that the research and development facility is not related purely to market research, sales promotion, quality control, testing, commercial production, style changes, routine data collection or activities of a like nature. The purpose is to have research and development facilities which contribute to the technological advancement and not merely limited to earning of profits. Therefore, once the approval is there by the prescribed authority, it could be easily concluded that the same met the basic requirement and merely the same is not in prescribed form, it would not lead to the conclusion that the approval was of no purpose. As per the terms and conditions of the recognition of In-house R&D unit framed by the Ministry of Science and Technology, the assessee company is required to submit brief summary of the achievements of the R&D unit to the Department of Science and Industrial Research every year which includes paper published, patents obtained and processes developed, new products introduced, awards and prizes received and other achievements. Further, as per clause 8, commercial exploitation of the know-how/process developed by in-house R&D Unit was to be solely governed by the licensing policies in operation from time to time and the decision of the licensing authorities in this regard is considered to be final. Thus, stringent conditions have been imposed by the prescribed authority itself though the said approval was not meant for tax exemption but in substance, there was not much difference between the objects sought to be achieved by these approvals.
6.4 Further, in any view of the matter, at best it could be said that it was only a procedural defect and from the various decisions, noted in the arguments of Id Counsel for the assessee, it is clear that merely on the ground of technicalities of procedure, the benefit bestowed by legislature cannot be denied. When it comes to follow the prescribed procedure, the exemption provisions have to be liberally construed and if in substance, the assessee has fulfilled the basic requirements then the exemption cannot be denied."
7. The learned Counsel for the assessee further submitted that the order of approval in Form no.3CM for the subsequent years i.e., 1st April 20011 to 31st March 2012 and 1st April 2012 to 31st March 2015 has been granted by the DSIR which has been signed by the Scientist- G for and on behalf of the Secretary, DSIR. This goes to show that the assessee is eligible for making claim under section 35(2AB). By way of an alternative submissions, he submitted that if such an expenditure cannot be allowed as deduction under section 35(2AB), then the same should be allowed as revenue expenditure to the extent of Rs. 70,43,595. He pointed out to the relevant details, as appearing in Page-120 of the paper book, of such expenses and submitted that these are purely incurred for material purchase, employee's cost and other expenses which are exclusively and wholly for the purpose of assessee's business. In support of his contention that such expenditures are to be allowed, he relied upon the decision of the Tribunal, Delhi Bench, in Asstt. CIT v.Parabolic Drugs Ltd. [2013] 33 taxmann.com 661.
8. The learned Departmental Representative, on the other hand, strongly relied upon the reasoning and conclusion drawn by the learned Commissioner (Appeals) that once the approval has not been granted by the prescribed authority, then the claim for deduction under section 35(2AB) cannot be given.
9. We have heard the rival contentions, perused the findings of the authorities below as well as the material available on record. It is seen that the assessee has made claim for the deduction under section 35(2AB) which is for expenditure incurred on inhouse R&D facilities on the basis of letter dated 14th November 2005, issued by the DSIR, New Delhi, under the signature of "Scientist-G". The contents of the entire letter is reproduced hereunder for the sake of ready reference:-
"F.no.TU/IV-RD/1967/2005
Dated: 14 November 2006
To
M/s. Fermenta Biotech Ltd.
"DIL Complex", Opp. Vidyapeeth
Swami Vivakananda Road
Mijiwada, Thane 400 607
Subject: RENEWAL OF RECOGNITION OF IN-HOUSE R&D UNIT (S)
Dear Sirs,
This has reference to your application for renewal of recognition of your in-house R&D unit beyond 31.03.2005 by the Department of Scientific and Industrial Research.
2. This is to inform you that it has been decided to accord renewal of recognition to the in-house R&D unit of your firm at VIII, Takoll, PO Nagwain, Mandi Dist., H.P. upto 31.03.2008. Terms and conditions pertaining to this recognition are given overleaf.
3. Kindly acknowledge receipt of this letter.
Yours faithfully,
Sd/-
(R.R. Abhyankar)
Scientist-G"
10. On the face of the letter, it is evident that the said letter issued by DSIR is only for renewal of recognition of inhouse R&D units. There is no formal order or approval for such inhouse R&D facilities in the prescribed form under section 35(2AB). The Revenue's case is that such a letter has not been issued by the prescribed authority i.e., Secretary, DSIR. Provisions of section 35(2AB) provides that where a company is engaged in the business of biotechnology or any business of manufacturing and production of anything which is not in the list of 11th schedule and incurs any expenditure on scientific research not in the nature of any cost of land and building but on inhouse research and development facility which has been approved by the prescribed authority who is the Secretary, DSIR, Government of India, then the assessee shall be allowed sum equal to 1½ times of the expenditure so incurred. Provisions of sub-section (4) provides that prescribed authority shall submit its report in relation to the approval of the said facilities to the Director General in such form and within such time as may be prescribed. Rule-6 lays down the procedure for making application and obtain approval in the prescribed form which is form no.3CK and the prescribed authority is required to grant or approval in form no.3CM. Thus, for the purpose of claiming deduction on scientific research expenditure under section 35(2AB), it has to be approved by the prescribed authority and the rules provide that application should be made in proscribed form and also the approval is to be granted in the prescribed form.
11. Once the assessee has filed the application in the prescribed form before the prescribed authority, then insofar as the assessee is concerned, it has fulfilled its obligation. However, there is a rider that such an application form has to be approved or has to be passed by the prescribed authority in form 3CM. These conditions are essential but such a strict interpretation may defeat the very purpose of the legislation intent, if the assessee has complied with all the other conditions and procedures. The purpose of this section r/w relevant rule is to promote scientific research and development facilities which contribute to the technical advancement. If the proper process has been followed by the assessee, then whether the order of approval has been granted by the Secretary, DSIR, or by some Nodal Officer on/or behalf of the Secretary, DSIR, it does not make any difference if all the conditions for granting of approval are satisfied. In this case, it is evident from the documents submitted by the learned Counsel for the assessee subsequent years that the DSIR has granted order of approval in form no.3CM which has been signed by the Scientist-G for and on behalf of the Secretary, DSIR. Once the DSIR has authorized any of its Nodal Officer to issue order of approval on or behalf of the Secretary, then for the purpose of section 35(2AB), it can be taken that the approval has been granted by the prescribed authority itself. Whether the order has been signed by the Secretary or by any of the Nodal Officer on his behalf will not make any difference because it is not the fault of the assessee. In such a case, claim for deduction cannot be denied to the assessee.
12. In the present case, however, the assessee could not show us whether, any approval of inhouse R&D facilities has been issued in prescribed form by the DSIR, even if it is signed by any authority like Scientist-G for on/or behalf of the Secretary, DSIR. In the subsequent years, if such an order is available, then the assessee has to show that the order of the approval for inhouse R&D facility has been granted by the DSIR covering the present assessment year. Therefore, we set aside the impugned order passed by the learned Commissioner (Appeals) and restore the issue back to the file of the Assessing Officer with a direction to verify this fact and to examine whether any order of approval of inhouse R&D facilities has been issued for the relevant assessment year. The assessee will provide all the necessary information and evidence. If such an order is available and even if it is signed by the "Scientist-G" on behalf of the Secretary, DSIR, then also it should be taken as if the same has been issued by the prescribed authority.
13. In case, such an order is not being provided by the assessee, then the Assessing Officer shall examine the nature of expenditure incurred by the assessee for the purpose of scientific research, relating to its business and also examine whether such expenditure can be allowed under section 35(1) or as revenue expenditure under section 37. We order accordingly. Thus, the ground no.1 and 2 raised by the assessee are treated as partly allowed for statistical purposes.
14. Ground no.3, relates to disallowance of bad debt of Rs. 1,08,48,954.
15. The Assessing Officer noted that the assessee company has written of bad debt pertaining to Aurubindo Pharma. In response to the show cause notice, the assessee submitted that the said party was their customer for the last several years and they have not paid the amount due from them, despite making continuous effort for recovery of this amount, therefore, the same were written of in the books of account during the year with the approval of the Board of Directors. The Assessing Officer did not accept the assessee's explanation and disallowed the claim on the ground that the assessee could not substantiate its claim by producing any documentary evidence.
16. During the course of the appellate proceedings, the assessee contended that the actual amount written of during the period in respect of bad debt pertaining to Auribindo Pharma is only amounting to Rs. 8,24,978 and not Rs. 1,08,40,951 as disallowed by the Assessing Officer. It was further contended that all the conditions laid down in section 36(1)(vii) and 36(2) has been fulfilled. The learned Commissioner (Appeals), after analyzing the provisions of section 36(1)(vii) and law applicable from 1st April 1989, held that the Assessing Officer should re-examine the case of the assessee and also the amount of bad debt claimed by the assessee. He also referred and relied upon the decision of the Hon'ble Supreme Court in TRF Ltd. v.CIT [2010] 323 ITR 397/190 Taxman 391.
17. Before us, the learned Counsel for the assessee drew our attention to the amount debited to the Profit & Loss account of Auribindo Pharma. He submitted that the amount of Rs. 1,08,48,951 pertained to different customers and parties. In the name of Auribindo Pharma, the assessee has claimed only bad debt of Rs. 8,24,978. This is evident from Page-144 of the paper book. Further, he submitted that the law is absolutely clear that once the assessee has written of the bad debts in the books of account, then it has to be allowed while computing the profits.
18. The learned Departmental Representative, on the other hand, relied upon the findings of the Assessing Officer and submitted that if there is some discrepancy in the figures, the matter can be remanded back to the file of the Assessing Officer.
19. We have carefully considered the rival contentions, perused the orders of the authorities below and the material available on record. On a perusal of the details as pointed out by the learned counsel, it is seen that in the case of Auribindo Pharma, the assessee had shown the amount of bad debt written of at Rs. 8,24,978. It seems that the Assessing Officer has taken the figure of Rs. 1,08,48,951, which pertained to different parties. Thus, to this extent, we are of the opinion that only the figure of Rs. 8,24,978 should be taken into consideration for the purpose of adjudication. On a perusal of the findings of the learned Commissioner (Appeals), we find that his observation and conclusion are absolutely correct and is in accordance with the law that the Assessing Officer has to examine the conditions laid down in section 36(1)(vii) and whatever amount has been written of in the books of account as bad debts the same should be allowed in view of the principles laid down by the Hon'ble Supreme Court in TRF Ltd. case (supra). Thus, we do not find any infirmity in the order of the learned Commissioner (Appeals) to the extent stated above. Thus, the assessee's ground is treated as partly allowed.
20. In ground no.4 and 5, the assessee has contended that the learned Commissioner (Appeals) has directed the Assessing Officer to examine and give specific findings regarding the claim of deduction under section 80G and the claim of deduction under section 80IB without himself allowing the same.
21. The learned Counsel for the assessee submitted that insofar as the claim of deduction under section 80G is concerned, the assessee's net income itself was in loss, therefore, this ground has not much significance. Hence, the ground is dismissed. However, with regard to the claim under section 80IB, he submitted that in case there is a positive income after giving effect of this order, then the Assessing Officer should be directed to allow the claim for deduction under section 80IB.
22. After considering the submissions of the learned counsel, it appears that the contention of the assessee is legally tenable because at the time of filing of return of income, the net income was in loss, therefore, the claim of deduction under section 80IB had no meaning. However, if the income is assessed at positive figure, then the same has to be allowed as deduction. Thus, the Assessing Officer while giving effect to this order will keep this in mind and allow this deduction in accordance with the provisions of law. Thus, the ground no.5 is treated as partly allowed.
23. In the result, assessee's appeal is treated as partly allowed for statistical purposes.
We now take up Revenue's appeal in ITA no.4341/Mum./2012 for the assessment year 2008-09, wherein following grounds have been taken :-
| "1. | On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition made on account of disallowance of claim of bad debts written off of Rs. 1,08,48,951. | |
| 2. | On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the Assessing Officer to consider the claim of assessee stating that actually only amount despite the act that the assessee has written off Rs. 1,08,48,951 and the debts have not been proved to be bad/irrecoverable and no documentary evidences have been furnished to substantiate the claim." |
24. The issue arising out of ground no.1 and 2, raised by the Revenue is identical to the ground no.3 raised by the assessee, wherein, for the detailed reasons stated therein that the direction of the learned Commissioner (Appeals) is correct, subject to the quantum of amount of bad debt. Since the issue as well as the facts and circumstances are identical to the ground raised by the assessee, therefore, the findings given in assessee's appeal will apply to the present ground also. Accordingly, ground no.1 and 2 raised by the Revenue are treated as dismissed.
25. In the result, Revenue's appeal is treated as dismissed.
26. To sum up, assessee's appeal is treated as partly allowed for statistical purposes and Revenue's appeal is treated as dismissed.
■■*Partly in favour of assessee.
Regards,
Pawan Singla , LLB
M. No. 9825829075
Export and Import of Currency: Enhanced facilities for residents and non-residents
RBI/2013-14/648
A .P. (DIR Series) Circular No.146
A .P. (DIR Series) Circular No.146
June 19, 2014
To
All Authorised Persons
Madam/ Sir,
Export and Import of Currency: Enhanced facilities for residents and non-residents
Attention of Authorised Persons is invited to Regulation (3) of Foreign Exchange Management (Export and Import of Currency) (Amendment) Regulations, 2009, notified vide Notification No.FEMA.258/2013-RB dated February 15, 2013 and A.P. (DIR Series) Circular No. No. 39 dated September 6, 2013, in terms of which, any person resident in India may take outside India or having gone out of India on a temporary visit, may bring into India (other than to and from Nepal and Bhutan) currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs.10,000 (Rupees Ten Thousand only).
- In view of the evolving economic conditions and with a view to facilitating travel requirements of residents travelling aboard as well as non-residents visiting India, it has been decided to allow all residents and non-residents (except citizens of Pakistan and Bangladesh and also other travellers coming from and going to Pakistan and Bangladesh) to take out Indian currency notes up to Rs. 25,000 while leaving the country. An announcement to this effect was made in the Second Bi-Monthly Monetary Policy Statement, 2014-15 released on June 3, 2014.
- Accordingly, any person resident in India:
i) may take outside India (other than to Nepal and Bhutan) currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs.25,000 (Rupees twenty five thousand only); and
ii) who had gone out of India on a temporary visit, may bring into India at the time of his return from any place outside India (other than from Nepal and Bhutan), currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs.25,000 (Rupees twenty five thousand only).
- Any person resident outside India, not being a citizen of Pakistan and Bangladesh and also not a traveller coming from and going to Pakistan and Bangladesh, and visiting India:
i) may take outside India currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs. 25,000 (Rupees twenty five thousand only) while exiting only through an airport.
ii) may bring into India currency notes of Government of India and Reserve Bank of India notes up to an amount not exceeding Rs. 25,000 (Rupees twenty five thousand only) while entering only through an airport.
- Authorised Persons may bring the contents of this circular to the notice of their constituents, customers and foreign counter parties concerned.
Necessary amendments [No. FEMA. 309/2014-RB dated June 4, 2014] to Foreign Exchange Management (Export and Import of Currency) Regulations 2000 (Notification No.FEMA.6/2000-RB dated May 3, 2000) have been notified in the Official Gazette vide G.S.R. Nos. 399(E) dated June 12, 2014, a copy of which is annexed.
The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Yours faithfully,
(C D Srinivasan)
Chief General Manager
Chief General Manager
ICAI Signs MOU with Saudi Organization for Certified Public Accountants
ICAI Signs Memorandum of Understanding with the Saudi Organization for Certified Public Accountants
The Institute of Chartered Accountants of India signed a Memorandum of Understanding with the Saudi Organization for Certified Public Accountants (SOCPA) yesterday at ICAI Bhawan, New Delhi.
The MoU interalia provides that both ICAI and SOCPA would be working together in establishing possible co-operation in respect of Corporate Governance, technical research and advice, quality assurance, forensic accounting, issues for Small and Medium Sized Practices (SMPs) etc.
As ICAI has taken upon itself being a mentor and collaborative partner to transition economies, developing of accountancy profession in Saudi Arabia is a step forward in achieving the desired goal.
Mr. Mohammad Alaqeel, Assistant Secretary General for Membership and Professional Development, SOCPA stated "This MoU would be a step forward to strengthen bilateral relation between India and Saudi Arbia".
CA. K Raghu, President, ICAI remarked "This MoU will establish closer working linkages between ICAI and SOCPA as it will enable the two to draw synergies from the professional expertise available with each other in areas of accounting, technical research, corporate governance and alike."
SEBI to share KYC details of clients with other financial sector regulators
PR No. 63/2014 – SEBI Board Meeting
The SEBI Board met in New Delhi today and took the following decisions:
I. Reforms in the Primary Market
The Board undertook a review of the extant regulatory framework in the primary market and approved certain reforms to revitalize the market, details of which are as under:-
(1) Revisiting the minimum offer to public norm under Rule 19 (2) (b) of Securities Contracts (Regulation) Rules, 1957 ("SCRR")
In order to make regulatory requirements consistent across the companies irrespective of post issue capitalisation and to facilitate mid size issuers who may not be in need of large funds, SEBI has decided to take up the following proposal with Ministry of Finance to carry out suitable amendments to SCRR
(i) Minimum dilution to public in an IPO shall be 25% or Rs. 400 crore, whichever is lower, for companies with post capitalisation of less than Rs. 4000 crore. This will remove the anomaly that a company just short of Rs. 4000 crore market capitalisation, was required to dilute about Rs. 1000 crore while another company at Rs. 4000 crore market capitalisation was required to dilute only Rs. 400 crore.
(ii) In case of dilution of less than 25%, minimum public shareholding of 25% to be achieved within three years of listing, where required under the rules.
(2) Minimum public shareholding for Public Sector Undertakings ("PSUs") under Securities Contracts (Regulation) Rules, 1957
(i) SEBI believes that rules for the market should be uniform across all the companies and should be promoter neutral.
(ii) Under the current rule, while non-PSUs are required to have minimum 25% public shareholding, PSUs are required to have only 10%, which is discriminatory and inconsistent with the broader market design.
(iii) Therefore, SEBI has decided to recommend to Ministry of Finance that SCRR should be amended so that all the listed companies including PSUs shall be required to achieve and maintain minimum public shareholding of 25% of the total number of issued shares, within a time period of three years.
(3) Increasing the investment bucket for anchor investor
In order to increase the share of serious, committed investors, SEBI has decided to increase the anchor investor's bucket to 60% from the current requirement of 30% of the institutional bucket.
(4) Eligibility of shares for Offer for Sale in an IPO with respect to bonus issues on shares held for more than a year
The Board approved the proposal to permit bonus shares issued in last one year prior to filing of the draft offer document to be offered for sale, provided that these bonus shares were issued out of the free reserves or share premium.
(5) Amendments to regulations governing the preferential issue norms
In order to bring consistency between various regulations and to clarify certain regulations governing the preferential issue norms, the following has been approved:
(i) Replace 'closing price' with 'volume weighted average price' in the pricing formula for preferential issues
(ii) The regulations concerning pricing of QIPs take into account the effect of stock split, bonus, etc. However, this has not been explicitly provided for in the regulations concerning preferential issues. SEBI has decided to extend the same treatment to preferential issues also.
(iii) The regulations concerning preferential issues do not provide specifically for pricing of infrequently traded shares. However, SEBI (SAST) Regulations explicitly specifies the pricing methodology in case of infrequently traded shares. It has been decided to extend similar treatment to preferential issues also.
II. Review of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
(1) The Board approved the proposals to review the existing regulatory framework on Employee Stock Option Scheme (ESOS) and Employee Stock Purchase Scheme (ESPS) for listed entities and frame regulations for employee benefit schemes involving shares of the company, replacing the existing SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.
(2) The proposed regulations intend to address issues regarding composition of Trusts, facilitate secondary market acquisitions, enhanced disclosures and better enforceability. The regulations cover employee benefit schemes which deal in shares of the company, in addition to ESOS and ESPS. Such schemes would also be permitted to acquire shares from secondary market under certain conditions so as to avoid forced dilution of capital and to be in line with international practice. Certain safeguards as outlined below have been put in place to improve governance and transparency of the schemes and also address concerns regarding potential market abuse:
(i) Requirement of shareholders' approval through special resolution for undertaking secondary market acquisitions,
(ii) Certain limits on secondary market acquisitions,
(iii) A limit of 10% of the assets held by general employee benefit schemes other than ESOS type of schemes on owning shares of the company / listed holding company,
(iv) Trusts shall undertake only delivery based transactions and not deal in derivatives,
(v) Restrictions on sale of shares by the Trusts,
(vi) At least six month holding period for shares acquired from secondary market,
(vii) Classifying shareholding of such Trusts separately from 'promoter' and 'public' category,
(viii) Stricter disclosure and other regulatory obligations.
(3) To ensure a smooth transition for complying with the new regulatory framework, the existing employee benefit schemes have been provided with a time period of one year from the date of notification.
Further, a longer transition period of five years has been provided for the following:
(i) Re-classifying shareholding of existing employee benefit schemes separately from 'promoter' and 'public' category.
(ii) Bringing down the level of shares acquired from secondary market within the permissible limits.
(iii) Reducing own share component to 10% of the total assets of general employee benefit schemes.
III. Manner of Dealing with the Qualified Audit Reports filed by Listed Companies – Status
Pursuant to SEBI Circular No. CIR/DIL/7/2012 dated August 13, 2012, SEBI has constituted Qualified Audit Report Review Committee (QARC) to deal with the Qualified Audit Reports filed by the Listed Companies. QARC has dealt with all the qualified audit reports submitted to the stock exchanges from January 01, 2013 to December 31, 2013 after preliminary scrutiny by the stock exchanges. The Board took note of the performance of QARC, which is summarised as under:
| Particulars | No. of Qualifications |
| No. of audit qualifications dealt by QARC | 713 |
| No. of audit qualifications where rectification/restatement not required | 130 |
| No. of audit qualifications referred for rectification | 397 |
| No. of audit qualifications referred to Financial Reporting Review Board – ICAI (FRRB) for its opinion on restatement | 186 |
IV. Expanding the framework of Offer for Sale (OFS) of shares through stock exchange mechanism
In order to encourage retail participation in OFS, to enable all large shareholders including non-promoter shareholders to use the OFS mechanism and also to expand the universe of companies to whom OFS mechanism is available, presently being 100 top companies only, the Board has approved the following modifications to the existing OFS mechanism:
(1) Reservation for retail individual investors
(i) Minimum 10% of the issue size shall be reserved for retail investors i.e. for the investors bidding for amounts less than Rs. two lakhs. In case this percentage is not fully utilized, the unutilized portion may be offered to other investors.
(ii) Seller of shares may offer a discount to retail investors in accordance with the framework specified from time to time.
(2) Allowing non-promoter shareholders to offer shares through OFS
Non-promoter shareholders having (shareholding) more thatn 10% or such percentage as specified by SEBI from time to time shall be eligible to use OFS.
(3) Expanding the list of eligible companies
OFS mechanism shall be made available for shareholders of top 200 companies by market capitalization.
V. Common KYC in Financial Sector
The centralized KYC system introduced by SEBI has evolved and stabilized with data of about 1.95 crore KYCs of investors. The client who has already done the KYC with any SEBI registered intermediary need not undergo the same process again when he approaches another intermediary. The system has benefited the investors.
Currently, the facility of sharing of KYC information is available only among SEBI registered intermediaries. Board has now approved the amendment to SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011 for sharing of KYC information available on the centralised system with the entities regulated by other financial sector regulators. This would further facilitate the KYC process for the investors in the entire financial sector. This will not only reduce the paper-work and bring down cost of operations for the investors as well as for the intermediaries, but will also save the investors from the hassle of getting KYC done again by the intermediaries regulated by other financial sector regulators.
VI. SEBI (Research Analyst) Regulations, 2014
(1) The Board considered and approved the draft SEBI (Research Analyst) Regulations, 2014.
(2) The SEBI (Research Analyst) Regulations, 2014 have been framed based on consultation with market participants and comments received from the public on the consultation paper and draft regulations for research analysts disseminated for this purpose.
(3) The salient features of the SEBI (Research Analyst) Regulations, 2014 are as under:
(i) The Regulations seek to register and regulate individual research analysts and entities engaged in issuance of research reports or research analyses and/or publication of substance of research report or who provides research report or who makes 'buy/sell/hold' recommendation of a security or who make recommendation on public offers such as Brokerage houses, merchant bankers, proxy advisors etc.
(ii) Investment Advisers, Credit Rating Agencies, Portfolio Managers, Asset Management Companies, fund managers of Alternative Investment Funds or Venture Capital Funds shall not be required to be registered under these regulations.
(iii) Internal communications that are not given to current or prospective clients and periodic reports or other communications prepared for unit holders of Mutual Fund or Alternative Investment Fund or clients of Portfolio Managers and Investment Advisers are not included in the definition of research report.
(iv) Requirements relating to experience, qualification, certification and capital adequacy have been prescribed in the regulations for an individual person or an entity to act as research analyst.
(vi) The regulations specify requirements to foster objectivity and transparency in research and provide investors with more reliable and useful information to make informed decisions.
(vii) Requirements in relation to establishing, maintaining written internal policies and control procedures governing the dealing and trading by any research analyst have been prescribed in the regulations.
(viii) Limitations on trading by research analysts have been prescribed in the regulations.
(ix) Requirements in relation to compensation of research analysts have been prescribed in the regulations.
(x) Limitations on publication of research reports and restrictions on public appearances have been prescribed in the regulations.
(xi) The regulations specify that the research report prepared shall have complete disclosures in respect of financial interest, receipt of compensation, etc. so that investors can understand the actual or potential conflicts of interest and their likely impact on the quality of the research report published.
(xii) The regulations specify provisions in relation to disclosures to be made in research reports and disclosures to be made during the public appearance.
(xiii) The regulations specify restrictions on trading and on compensation of the persons who make comments or recommendations concerning securities or public offer through public media.
(xiv) The regulations specify provisions for code of conduct, general responsibility, maintenance of records, etc.
(xv) These regulations shall come into force on the ninetieth day from the date of their publication in the Official Gazette.
VII. SEBI Annual Report : 2013-14
The Board considered and approved the SEBI Annual Report: 2013-14. In compliance with Section 18(2) of SEBI Act, 1992, the same Annual Report would be submitted to the Central Government.
Mumbai-June 19, 2014
Clear guidelines on foreign tax credit should be introduced – ICAI
Clause 207 relates to foreign tax credit allowable to an assessee, being a resident in India in any financial year on income which is taxed in India as well as outside India. The said clause further provides that where the assessee is required to pay Indian incometax in respect of an income which has been taxed in any specified territory or other country with which India has an agreement under clause 291, the foreign tax credit shall be allowed in accordance with the agreement entered into with such specified territory or country. Where there is no such agreement, the tax credit shall be determined at the Indian rate of tax or the rate of tax of the other country, whichever is lower. The credit, in either case shall not exceed the Indian income-tax payable in respect of income which is taxed outside India and the Indian income-tax payable on total income of the assessee.
The existing foreign tax credit guidelines are not sufficient to deal with various foreign tax credit issues. Hence, detailed guidelines should be introduced to bring clarity.
It is suggested that detailed & clear guidelines on foreign tax credit should be introduced.
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