ACIT, CIRCLE-31(1), NEW DELHI vs. INDIAN FARMERS FERTILISER COOPERATIVE LTD.,, NEW DELHI

The appeal is preferred by the revenue against order dated 13.10.2017 in appeal no. 85/17-18 / 90/16-17 in regard to assessment year 2012-13 passed by Commissioner of Income Tax (Appeals)-31, New Delhi (hereinafter referred to ./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. as the “First Appellate Authority or in short FAA) by which appeal against assessment order dated 31.03.2016 passed by ACIT, Circle 31(1), New Delhi (hereinafter referred to as the Ld. AO) u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) was partly allowed.

2.1 The Ld. F.A.A. had allowed the appeal of assessee in regard to denial of tax credit of Rs. 30.85 Crores for taxes deemed to be paid in Oman under Article 25(4) of the DTAA read with Section 90(1)(a)(ii) of the Act. It also held that no amount of Interest on borrowings can be notionally disallowed under section 36(1)(iii) of the Act while upheld the AO’s order of addition of Rs 2,43,99,000/- u/s 14A r/w Rule 8D of the Act.

1) WHETHER on the facts and in the circumstances of the case, the Ld.CIT(A)-31, New Delhi was justified in allowing the tax credit whereas no taxes have been paid by the assessee in either of the country.

2) WHETHER on the facts and in the circumstances of the case the Ld.CIT(A)-31, New Delhi was justified in relying upon the order of ./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. Hon’ble ITAT wherein Hon’ble ITAT had accepted the letter of Secretary General of taxation that interpreted the Article 25(4) of DTAA which is within the domain of two Governments and thus inserted words “designed for economic development” in Omani Tax Law whereas such words do not exist in Omani Law?

3) WHETHER on the facts and in the circumstances of the case the Ld.CIT(A) was justified in relying upon the order of Hon’ble ITAT wherein Hon’ble ITAT had relied on the letter of the Secretary General for Taxation Oman,which could only be construed to be his opinion and not the position of the Sultanate of Oman, in holding that exemption to dividend was granted to dividends with a view to promote economic development and consequently holding that the assessee was entitled to tax credit under Article 25(4) of the DTAA.

4) Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified allowing the relief on the issue of disallowance/reallocation of interest under section 36(1 )(iii) under the head Work-in-capital/ Investments in relying upon the order of ITAT wherein Hon’ble ITAT had ignored the fact that the assessee was not able to give date wise details so as to demonstrate that only own funds have been utilized for the purpose of acquisition of work- in-capital/fixed assets/investments and the assessee only produced the figures as mentioned in balance sheet.

5) Whether on the facts and circumstances of the case, the Ld.CIT(A) was justified in relying upon the order of ITAT wherein Hon’ble ITAT had ignored the reasoning given by Ld. Pr. CIT for application of debt-equity ratio for calculation of interest to be capitalised/disallowed on addition made to fixed assets and capital

4 ITA No. 294/Del./2018 M/s. Indian Farmer Fertilizer Co-operative ltd. work in progress and amount of investment as the same was accepted in decision of the Hon’ble ITAT Delhi in the case of M/s U. G. Hospitals (P) Ltd in in the cases where mixed pool of fund was available with the assessee.

6) The department craves leave to add, alter or amend the grounds of appeal at a later stage.”

4. In regard to all the grounds it was submitted on behalf of revenue that the ld. F.A.A. has failed to take note of correct position of law and gave benefit to the assessee on the basis of letter of Secretary General of Taxation.

4.1 The Ld. Counsel for assessee submitted in regard to grounds of appeal no 1 to 3 that Ld. AO had erred in adding dividend income of Rs. 257,21,23,225/- from M/s. OMIFCO by making it taxable in India. It was submitted that in regard to chargeability the findings of CIT(A) have become final as the assessee’s appeal has been settled under VSVS and withdrawn 20.11.2020 but in regard to the claim of credit the case of assessee is covered by the judgment of Hon’ble Delhi High Court in Kribhco 395 ITR 572 (Del) and ITAT Delhi order dated 19.09.2016 in ITA No. 2487/Del/2016 for assessment year 2010-11.

4.1.1 In regard to the remaining grounds of appeal no. 4 and 5 it was submitted that the Ld. F.A.A. has rightly concluded that assessee had sufficient own fund to finance its investment and otherwise also it is now well-settled that in a situation whether the assessee has mixed funds and the payment is made out of that mix funds the investment must be considered to have been made out of interest free funds.

5. The Bench has given a thoughtful consideration to the arguments and the matter on record and the ground wise findings are as below.

5.1 In regard to the ground no 1 to 3, at very outset reliance can be placed on the judgment of Hon’ble Delhi High Court in PCIT vs. Krisha Bharti Co- operative Ltd. (supra) wherein as with regard to the letter of Secretary General of Taxation, which goes to the core of controvery, it was observed in para no. 26 that the clarification given by Secretary General of Taxation has to be regarded as conclusive. If the tax authorities had any doubts they could not have proceeded to elevate them into findings, but rather addressed them to Omani Authorities, if not directly then through Indian Diplomatic Channels. In not doing so, but proceeding to interpret the laws and the certificate of Omani Authorities, the revenue, specially the Commissioner fell into error.

5.2 Further in assessee’s own case of AY 2010-11 vide a Cordinate Bench vide order dated 19/9/16 has held “It is seen from the assessment orders u/s.143(3) for the assessment years 2008-09 to 2009- 10 that the Revenue had consistently adopted the view that the assessee is entitled to tax credit on the deemed dividend which would have been payable in Oman. The Revenue had taken a conscious view after considering the provisions ITA NO. 2487/DEL/2016 55 of the Omani Tax Laws, Section 90 of the I.T. Act, Article-25 of the DRAA and the clarifications issued by the Royal decree of the Omani Government. Copies of the assessment orders for A.Ys. 2007-08 to 2009- 10 have been placed before us from pages 495 to 558 of the Paper Book. On perusal of the same, it is seen that the Revenue has, after thoroughly examining the issues on hand and examining the provisions, considered the dividend income as exempt.”

5.3 Thus, this bench of considered opinion that matter rests at peace in regard to these grounds no. 1, 2 & 3 by assessee’s own case for the assessment year 2010-11, accordingly these grounds are decided against the revenue.

Thus, there is no substance in these grounds of appeal also requiring interference.

7. Consequently, the appeal of the revenue is dismissed. Order pronounced in open court on this 25th day of March, 2022.