EIH LIMITED,KOLKATA vs. DCIT, CIR-8(1)KOL., KOLKATA

आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH “C” KOLKATA Before Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ITA No.117/Kol/2017 Assessment Year :2012-13 EIH Ltd V/s. DCIT, Circle-8(1), 4, Mangoe Lane, Aayakar Bhawan, P-7, Kolkata-700 001 Chowringhee Square, [PAN No.AAACE 6898 B] Kolkata-69 .. अपीलाथ� /Appellant ��यथ�/Respondent Shri Ravi Sharma, AR अपीलाथ� क� ओर से/By Appellant Shri P.K. Srihari, CIT-DR ��यथ� क� ओर से/By Respondent 27-02-2018 सुनवाई क� तार�ख/Date of Hearing 16-05-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Dispute Resolution Panel-2, (DRP for short) dated 17.10.2016. Assessment was framed by DCIT, Circle-8(1), Kolkata u/s 144C(13)/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 29.11.2016 for assessment year 2012-13 and grounds raised by assessee read as under:- “1.0 Determination of arm's length price for Corporate Guarantee fees 1.1 On the facts and in the circumstances of the case & in law, the Learned Transfer Pricing Officer (hereinafter referred to as "Ld, TPO") and accordingly Learned Assessing Officer (hereinafter referred to as "Ld. AO") erred in treating the Corporate Guarantee extended by the appellant to its Associated Enterprise (AE) as international transaction and Dispute Resolution Panel (hereinafter referred to as "Ld, Panel") erred in confirming the same as an international transaction without appreciating the fact that it does not fall within the ambit of "International transaction" u/s 92B of the Act. 1.2 The Ld.AO/TPO and the Ld. Panel failed to appreciate the fact that corporate guarantee has been advanced by the appellant as a matter of commercial prudence to protect the business interest of the group by fulfilling

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 2 the shareholder's obligation as any financial incapacitation would jeopardize the investment of the appellant. 1.3 Without prejudice to the above, the Ld. AO /TPO and Ld. Panel failed to appreciate the corporate guarantee extended by the appellant is part and parcel of the management agreement entered into with the AE and therefore, the Ld. AO/TPO erred in demanding an additional charge on the corporate guarantee and Ld. Panel in confirming the same. 1.4 Without prejudice to the above, the Ld. Panel erred in arbitrarily confirming the arm's length guarantee commission rate of 3%, when a nominal guarantee commission rate of 0.3%-0.5% would meet the arm's length criteria based on various legal jurisprudence on the matter. 2.0 Determination of arm's length interest rate for loan provided to AE 2.1 On the facts and in the circumstances of the case & in law, the Ld. Panel failed to appreciate that the loan was advanced by the appellant to its AE in the capacity of a shareholder/prom to protect its investment in AE and consequently erred in confirming adjustment on account of interest on loan given to its AEs. 2.2 On the facts and circumstances of the case, the Ld. AO/TPO and the Ld. Panel failed to appreciate that that the loan was advanced by the appellant to its AE out of its own fund, has not incurred any cost for granting such loan. 3.0 Disallowance u/s 14.A read with Rule BD 3.1 On the facts and in the circumstances of the case & in law, the Ld. Panel erred in confirm disallowance of Rs. 3,51,52,181/- proposed by the Ld. AO under section 14A of the Act read with Rule 8D of the Income Tax Rules in computing income under normal provisions of the Act. 3.2 On the facts and in the circumstances of the case & in law, the Ld. Panel as well as the erred in not appreciating that the provisions of section 14A of the Act can be invoked or the conditions laid down under sub section (1) of section 14A of t he Act have been satisfied. 3.3 On the facts and in the circumstances of the case& in law, the Ld. Panel erred in co disallowance of Rs. 3,51,52,181/- u/s 14A proposed by the Ld. AO based on surmise and conjecture without having recorded any reasoned satisfaction under section 14A(2) of the Act against the suo-moto disallowance made by the appellant. 3.4 On the facts and in the circumstances of the case & in law, the Ld. Panel erred in confirming disallowance of Rs.3,51,52,181/- u/s 14A proposed by the Ld. AO without appreciating that the Ld. AO did not bring any evidence on record of any expenditure being incurred over and above the amount identified and offered to tax by the appellant. 3·5 On the facts and in the circumstances of the case & in law and without prejudice to Grounds taken here-in-above, the Ld. Panel as well as Ld. AO while computing alleged disallowance under Rule 8D (ii) and Rule 8D (iii) ought to have excluded:- - investments on which no exempt dividend income was earned during the year;

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 3 - strategic investments made in subsidiaries/ group companies out of business exigencies and consequently erred in confirming the disallowance of Rs. 3,51,52,181/- in the present case. 3.6 On the facts and in the circumstances of the case& in law and without prejudice to grounds taken here-in-above, the Ld. Panel as well as the Ld. AO grossly erred in ignoring the decision of Kolkata Tribunal in the appellant's own case in DCIT -vs- EIH Limited (2015) I.T.A. No. 426/Ko1/2006 and disallowing proportionate interest cost under Section 14A read with Rule 8D(2)(ii) without appreciating that various investments on which exempt income was earned were made in past years out of own/surplus funds and no evidence was brought to prove any nexus between the borrowed funds and the amount invested. 3·7 On the facts and in the circumstances of the case & in law and without prejudice to grounds take herein above, the Ld. Panel as well as the Ld. AO erred in not allowing netting off of interest expenditure with interest income while computing disallowance of proportionate interest cost under Section 14A read with Rule 8D(2)(ii). 4.0 Disallowance of principal repayment of finance lease 4.1 On the facts and in the circumstances of the case& in law, the Ld. Panel erred in confirming the disallowance of Rs. 8,85,68,539/- proposed by the Ld. AO on account of lease rental as capital expenditure. 4·1 On the facts and in the circumstances of the case & in law, the Ld. Panel grossly erred in confirming the disallowance of Rs. 8,85,68,539/- proposed by the Ld. AO on account of lease rental having adjudicated identical issue in favour of appellant in its own case in AY 2011-12 on the mere pretext that there was a change in legal position from AY 2012-13 and since the revenue was not allowed to challenge the DRP directions, similar relief cannot be allowed in the relevant assessment year. 4·3 On the facts and in the circumstances of the case & in law, the Ld. Panel as well as the Ld. AO while denying the deduction of principal part of lease rental grossly erred in not applying the ratio decidendi laid down in the decision of the Supreme Court in the case of M/s. I.C.D.S. Ltd. - vs.- CIT (2013) 350 ITR 527 (SC) which was squarely applicable in the case of the appellant. 4.4 On the facts and in the circumstances of the case & in law and without prejudice to grounds take herein above, the Ld. Panel as well as the Ld. AO while making the disallowance of principal repayment of lease rental erred in not allowing depreciation u/s 32 of the Act on lease assets considered as capital in nature. 5·0 Ad-hoc disallowance of aircraft maintenance expenses 5·1 On the facts and in the circumstances of the case & in law, the Ld. Panel erred in confirming the ad-hoc disallowance proposed by the Ld. AO of expenditure incurred on running and maintenance of aircrafts including depreciation to the extent of Rs. 53,32,210/- being 10% of the total expenditure of Rs. 5,33,22,099/- ignoring the decision of Hon'ble Kolkata Tribunal in appellant's own case in DCIT -vs- EIH Limited (2015) I.T.A. No. 426/Ko1/2006 for AY 2002-03·

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 4 6.0 Non-grant of set off of long term capital loss against deemed short term capital gain 6.1 On the facts and in the circumstances of the case & in law, the Ld. Panel erred in confirming the action of the Ld. AO in not allowing set-off u/s 74 of long term capital loss amounting to Rs. 1AO,51,830/-with deemed short term capital gain computed as per section 50(1) of the Act. 6.2 On the facts and in the circumstances of the case & in law, the Ld. Panel while confirming the action of Ld. AO in denying set-off u/s 74 failed to appreciate that Section 50 being a deeming provision its scope extended only up to computation of capital gain, however such gain arising from transfer of long term capital assets, retained the character of long term capital gain for all other provisions and is eligible for set off u/s 74 against brought forward loss from long term capital asset. 6.3 On the facts and in the circumstances of the case & in law, the Ld. Panel while confirming the action of Ld. AO grossly erred in not applying the ratio decidendi laid down in the decision of the Supreme Court in the case of CIT - vs.- Dempo Company Limited [Civil Appeal No. 4797/2008 - SC] applicable in the case of the appellant. 7.0 Disallowance u/s 40(a)(i) of the Act 7.1 On facts and in the circumstances of the case& in law, the Ld. AO while giving effect to the direction of the Ld. Panel erred in confirming the disallowance u/s 40(a)(i) of the Act of Rs. 5,30,91,623/- for alleged non deduction of tax u/s 195. 7.2 On the facts and in the circumstances of the case & in law, the Ld. AO grossly erred in confirming disallowance to the extent of Rs. 5,30,91,623/- u/s 40(a)(i) of the Act without providing sufficient opportunity to the appellant and disregarding the substantive details, documents and legal submissions filed in the course of assessment on the alleged ground that the same were mere general submissions. 7.2 On facts and in the circumstances of the case & in law, the Ld. AO grossly erred in confirming disallowance u/s 40(a)(i) of the Act without appreciating that the various remittances were not taxable in India either under the provisions of the Income Tax Act or under the beneficial provisions of Double Taxation Avoidance Agreement (DTAA). 8.0 Disallowance of employee's contribution to PF and ESI made beyond due date 8.1 On the facts and in the circumstances of the case & in law, the Ld. AO while giving effect to the direction of the Ld. Panel erred in confirming the disallowance u/s 36(1)(va) of RS.59,598/- on account of delayed deposit of employee's contribution to PF and ESI beyond the statutory due date of the relevant Act but before due date of return filing as per the provisions of section 139(1) of the Act. 9.0. Denial of deduction of provision for bad and doubtful debts written back 9.1 On the facts and in the circumstances of the case & in law, the Ld. Panel erred in confirming the action of the Ld. AO in not allowing deduction of provision for bad and doubtful debts written back amounting to Rs.51,77,916/- under normal provisions as well as computation of book profit which was inadvertently claimed at a lesser amount in the return of income.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 5 9.2 On the facts and in the circumstances of the case & in law, the Ld. Panelgrossly erred in confirming the action of the Ld. AO in not allowing deduction of provision for bad and doubtful debts written back on the alleged ground that the same was not claimed in correct forum or method by way of timely revision of return ignoring the fact that the same did not tantamount to lodging of fresh claim for deduction but for allowing correct amount of provision written back inadvertently claimed at a lesser amount in the return of income. 9.3 On the facts and in the circumstances of the case and without prejudice to grounds taken herein above, in any event, the Hon'ble ITAT may please consider and allow the claim of the appellant made on account of provision for bad and doubtful debts written back of Rs. 51,77,916/- on the principle laid down by the Hon'ble Supreme Court of India in the case of National Thermal Power Corporation Limited (Supra). 10.0 Short grant of credit for tax deducted at source and tax collected at source 10.1 On the facts and in the circumstances of the case, Ld. AO erred in not granting TDS/TCS credit to the extent of Rs.1,18,60,966/- without assigning any reasons. 11.0 Dividend Distribution Tax 11.1 On the facts and in the circumstances of the case, the Ld. AO erred in calculating Dividend Distribution Tax on gross dividend of Rs. 51,44,12,473/- without excluding dividend received from subsidiary companies exempt u/s 1150(1A) of the Act amounting to Rs. 7,43,40,000/- 12.0 MAT credit set off 12.1 On the facts and in the circumstances of the case, the Ld. AO erred in not granting set off of MAT credit brought forward from AY 2011-12 without assigning any reasons. 13.0 That the appellant craves leave to add to and to alter, amend, rescind or modify the grounds raised hereinabove before or at the time of hearing of the appeal.” Shri Ravi Sharma, Ld. Authorized Representative appeared on behalf of assessee and Shri P.K. Srihari, Ld. Departmental Representative appeared on behalf of Revenue.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 6 2.1 Facts of the case are that the assessee company had provided corporate guarantee to the lender bank, so that loan could be disbursed to its 100% subsidiary i.e. M/s. EIH Flight for the purpose of business. However the TPO during the assessment proceedings observed that the act of the assessee proving the corporate guarantee is international transaction but the assessee had not charged any fee from its AE for providing such guarantee. Whereas according to the assessee, there was no international transaction between it & its AE on account of providing the corporate guarantee. Accordingly the same was not reported as an international transaction. The contention of the assessee was disregarded by the TPO and according held that the arrangement between the company and its subsidiary was in the nature of providing services to AE. Therefore it has to be categorized as international transaction. Thereafter, the TPO applied the CUP method as the most appropriate method (MAM) for benchmarking the guarantee fee and held that the guarantee fee rate of 3% to be the arms length for bench marking the transactions of receipt of corporate guarantee from the subsidiary and thus made an addition of Rs. 2,56,49,228/- only to the total income of the assessee.

Being aggrieved by the order of the ld. DRP and the final order of the AO, the assessee is in appeal before us.

On the other hand the ld. DR vehemently supported the order of authorities below.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 7 5. We have heard the contentions of both the parties and perused the materials available on records. At the outset we note that the impugned issue has already been decided in favour of assessee by this Tribunal in its own case in ITA No. 110/Kol/2016 for the AY 2011-12 vide order dated 12.1.2018. The relevant extract of the order is reproduced below : “12.10. We note that M/s. EIH flight is a startup company, it required funds primarily for acquisition of capital assets for setting up its operation and guarantee facilities given by the assessee/assessee company to the lender bank is normal business practice and obligation towards a subsidiary. Since the AE was a startup company, the assessee extended corporate guarantee to the third party borrowers as a matter of commercial prudence to protect its interest by fulfilling the shareholders obligation. We agree with the contention of the ld AR that the corporate guarantee as provided by the assessee was a matter of commercial prudence to protect and by fulfilling the shareholder obligation, as any financial incapacitation of the subsidiary would jeopardize the investment of the assessee. For that we rely on the order of the Coordinate Bench of this Tribunal in the case of Tega Industries Ltd. Vs DCIT (ITA No.1912/Kol/2012 wherein it was held that the provision of corporate guarantee is in the nature of shareholder activity and hence, no TP adjustment on account of corporate guarantee is required. In the said case, this tribunal had held that “the assessee’s expectation from provision of guarantee was not that of a guarantor i.e. to earn a guarantee fee, rather, the expectation was of a shareholder to protect its investment interest, to help it achieve the assessee’s business objective”. Thus, we agree with the contention of the assessee that the objective of the assessee for providing guarantee was not to earn guarantee fee but to earn returns in the form of appreciation in investment value and receive dividends and, therefore, no TP adjustment ought to have been made in the facts and circumstances of the case. 12.11. Coming to the alternate plea of the assessee that, in the facts and circumstances the corporate guarantee is not an International Transaction u/s. 92B of the Act, we note that term 'guarantee' was inserted in the definition of 'international transaction' in section 92B by inserting an Explanation in the Finance Act, 2012 with retrospective effect from 01/04/2002. The Explanation states that- "For the removal of doubts, it is hereby clarified that (i) the expression "international transaction" shall include .... (c) capital financing, including any type of long-term or short-term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business." The Explanation states that it is clarificatory in nature and is 'for the removal of doubts'. Thus, it does not alter the basic character of definition of 'international transaction' under the main section 92B. Under this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. Clauses (a) (b) and (d) do not cover guarantee, lending or loans. Other two, (c) and (e) deal with (i) capital financing, and (ii) business restructuring or reorganization. Clause (c ) refers to lending or guarantee. But the Explanation which is for removal of doubts or is clarificatory, cannot be read independent of Section 92B(1). Section 92B(1), provides those transactions as international transactions which are in the nature of purchase, sale or lease of tangible or intangible property (explained by clauses (a) and (b) of the Explanation), or provision of services, (explained by clause (d) of the Explanation), or lending or borrowing money (explained by Clause (c) of Explanation). The plain reading of provisions of sec. 92B(1) of the Act indicate that the various transactions mentioned in section 92B(1) of the Act, (i.e.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 8 purchases, sales, provision for services, lending or borrowing or any other transaction) should have bearing on the profits, incomes, losses or assets of such enterprises. In our opinion, the condition precedent of a transaction having a bearing on profits, incomes, losses, or assets would apply to each of the aforesaid transactions namely purchase, sale, or lease of tangible or intangible property or provision of services, or lending or borrowing money or any such transaction. This understanding of ours gets further clarified by way of insertion of Explanation in section 92B(1) by the Finance Act 2012 with retrospective effect from 01.04.2002 vide clause (a) to (d). We find that in the said explanation, clause (e) alone has been carved out as an exception wherein, the transaction thereon has been specifically mandated to be an international transaction where a transaction of business restructuring or reorganization, entered into by an enterprise with an AE irrespective of the fact that it has bearing on the profits, incomes, losses, or assets of such enterprises at the time of transaction or at any future date. 12.12. Thus, we hold that when a parent company extends an assistance to the subsidiary, being associated enterprise, such as corporate guarantee to a financial institution for lending money to the subsidiary, which does not cost anything to the parent company, and which does not have any bearing on its profits, income, losses or assets, it will be outside the ambit of international transaction under section 92B(1) of the Act. In this regard, we would like to hold that issuance of corporate guarantee by the assessee to its AE would have ‘influence on the profits , incomes, losses or assets of enterprise’ but not necessarily have ‘any impact on the profits, incomes, losses or assets’ as admittedly no consideration was received by the assessee in respect of this corporate guarantee from its AE. We find that the Ahmedabad Tribunal in the case of Micro Ink in ITA No. 2873/Ahd/2010 had observed that if a subsidiary (AE in the instant case) could not borrow money from third party sources on its own standing and the guarantee provided by the parent (assessee in the instant case) enables it to make such borrowing, then the guarantee could be said to be a shareholder function, not warranting a guarantee fee. This ratio would squarely be applicable to the facts of the instant case before us.

12.13. The Ld. CIT, DR’s reliance in the case of Everest Kanto Cylinder Ltd. (supra) would not come to the rescue of Revenue because in that case, the parent company charged a fee of 0.5% on the AE for rendering this service. On this factual aspect, the Tribunal as well as the Hon’ble High Court held that it is an international transaction. Since in the case in hand, the assessee has not charged a penny from the AE, so the facts of the case are different and case law is distinguishable and, therefore, the Hon’ble High Court’s order cannot come to the rescue of the Revenue. We find that the ld. AR pointed out that in the said case, the Hon’ble Bombay High Court did not answer the specific question as to whether the issuance of corporate guarantee is inherently within the ambit of definition of ‘international transaction’ irrespective of whether or not such transactions have any “bearing on profits, income, lossess or assets of such enterprises” u/s. 92B of the Act. We also note that the Ahmedabad Bench of this Tribunal supra after considering the decision of the Hon’ble Bombay High Court in Everest Kanto Cylinder Ltd. (supra) observed as under: “We are unable to see, in the judgment of Hon’ble Bombay High Court, any support to the proposition that issuance of corporate guarantee is inherently within the ambit of definition of ‘international transaction’ under section 92B irrespective of whether or not such transactions have any ‘bearing on profits’ incomes, losses, or assets of such enterprises’. Revenue, therefore, does not derive any help from the said decision.” 12.14. The ld CIT DR would have had a case where a fee has been charged for the intra service which has been rendered (in the context of corporate guarantee), and, therefore, the assessee or the Court has treated it as an international transaction, then the charge of corporate guarantee has to be in accordance with Arm's Length principle. This means that the

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 9 price for corporate guarantee should be that which would have been paid and accepted by independent enterprises in comparable circumstances. In that case transfer pricing adjustments are required. In that case, it has to be determined what will be the ALP of corporate guarantee commission paid by associate enterprise to the parent company providing corporate guarantee. Since that is not the case before us, we need not go into it. 12.15. We also find that this very same issue came up for adjudication by this tribunal in assessee’s own case for the Asst Year 2010-11 in ITA No. 530/Kol/2015 dated 9.6.2017 , wherein by placing reliance on the decision of co-ordinate bench of Mumbai Tribunal in the case of a) Marico Ltd vs ACIT reported in (2016) 70 taxmann.com 214 (Mumbai Trib) wherein it was held that corporate guarantee was not an international transaction ; and b) Siro Clinpharm P Ltd vs DCIT in ITA No. 2618/Mum/2014 dated 31.3.2016 , wherein it was held that the Explanation introduced by Finance Act 2012 can be made applicable only from Asst Year 2013-14 onwards. 12.16. Moreover, we find that though the Explanation was introduced by Finance Act 2012, the rules were notified only on 10.6.2013. Hence the assessee cannot be expected to report this transaction also as an international transaction in its transfer pricing study and the audit report thereon. 12.17. In view of the aforesaid findings and respectfully following the various judicial precedents, we allow the Grounds 1.1. to 1.4 raised by the assessee. Respectfully following the same we reverse the order of authorities below and allow the ground of appeal filed by the assessee.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 10 Accordingly the TPO was of the view that the assessee should have earned an arm's length interest rate from its AE for this transaction. Thus the TPO used the LIBOR rate plus 400 bps to determine the interest amount on the loan provided to the AE. The average LIBOR for the year under consideration was worked out at 0.9211% only. Thus the cost of funds comes to 4.92% (0.92%+4%) and accordingly ARM length interest was computed at 8.92% (4.92%+400bps). Thus the TPO worked out the arm length of interest amount for the opening balance of loan amount @ 17.75% and for the fresh loan given during the year @ 8.92% which comes in aggregate to Rs. 3,32,83,015.00. Accordingly the TPO worked out transfer pricing adjustment amounting to INR 3,32,83,015.00 only.

Being aggrieved by the final order of the AO, the assessee is in appeal before us.

9.1 The ld. AR also submitted that the Hon’ble Ahmadabad Tribunal has decided the spread based in the case of Soma Textile & Industries Limited vs ACIT (I.T.A. No.: 262 (Ahd) of 2012) at LIBOR + 200bps. Therefore in the

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 11 instant case LIBOR +200 bps should used in determining the Arm length price.

On the other hand the ld. DR vehemently supported the order of the lower authorities.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 12 12. The assessee during the year has earned dividend income of ₹19,07,36,227/- which was claimed exempted u/s 10(34) of the Act. The assessee in relation to such income has suo motu disallowed the expense of ₹29,20,022/- only. The details of disallowance made by the assessee at its own in relation to dividend income stand as under:- Sl.No. Particulars Amount 1. Demat charges 496/- 2. 10% of directors fees 76,000/- 3. 5% of H.O staff maintenance expense 5,45,463/- Engaged in the maintenance accounts 4. 7% travelling, conveyance, printing, postage General charges etc. 22,98,063/- However, AO during the course of assessment proceedings observed that the assessee has incurred interest expense of ₹ 53,49,40,020/- which has not been considered for the purpose of disallowance u/s 14A of the Act. Accordingly, AO invoked the provision of Rule 8D of IT Rules, 1962 and made the following disallowance:- Sl.No. Particulars Rule Amount 1 Direct expense 8D(2)() 4,96/- 2 Interest expense 8D(2)(ii) 2,85,20,257/- 3 Administrative expense 8D(2)(iii) 95,51,450/-

In view of above, the AE made the disallowance of ₹3,51,52,181/- after adjusting the disallowance already made by the assessee for ₹29,20,022/- and added to the total income of assessee. 13. Aggrieved, assessee preferred an appeal before Ld. DRP. The assessee before Ld. DRP submitted that the provision of Section 14A r.w.r. 8D of the IT Rules, 1962 has been invoked without recording the satisfaction for the disallowance of the expense made by the assessee in its income tax

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 13 returns. It was mandatory for the AO to record his dissatisfaction in pursuance to provision of Section 14A of the Act. The assessee also submitted that the AO failed to exclude the investment made in foreign companies in respect of which the dividend income was taxable. The AO also failed in not excluding the strategic investment made by the assessee in its group companies while making the disallowance u/s 14A of the Act. The assessee also claimed to have made investment out of its own surplus fund. Therefore no disallowance on account of interest expense can be made by the AO. The AO also erred in not netting of the interest income with the interest cost while making the disallowance u/s 14A of the Act. 13.1 However, the ld. DRP after considering the submissions of assessee confirmed the order of AO by observing as under:- “DRP directions: The assessee has fled elaborate submissions which have been considered by the panel. In compliance to the provisions of law, a part of his expenses would necessarily have to be disallowed under section 14A read with Rule 8D if funds have been borrowed at a cost and if the taxpayer has investments in shares or mutual funds, the income from which, when received, would be tax free. The owned funds of the assessee would not merit any distinction in these circumstances as the alternative usage of funds is into main business activity of the assessee that would beer taxable returns. Either way the statute intends to lower the tax advantage conferred on the assessee where the expense on earning exempt income are directly or indirectly loaded on to the taxable income to lower the tax burden thereof. There are various decisions of Delhi ITAT and other authorities of more recent judgments wherein these aspects have been covered: i) (2014) 47 taxman.com 237 (*Del-Trib.) in the case of GEBR Pfeiffer (I) Pvt. Ltd. ii) (2014) 49 taxmann.com 527 (Delhi-Trib.) in the case of East West Rescue (P) Ltd. vs. DCIT, Circle-3(1), New Delhi iii) (2014) 50 taxman.com 271 (Delhi-Trib) in the case of Joint Investment Pvt. Ltd. vs. ACIT Circle-4(1) the above citations enumerate circumstances on invoking rule 8D while making disallowances u/s. 14A and are clearly to be applied in case of the appellant. Besides, the elaborate submissions made about own funds being used do not further the case of the appellant as the appellant has availed of

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 14 loans. The contention of the assessee is accordingly not tenable as the funds available for specific purposes have to be used as such and absence of relevant corroborative evidence does not help the case of the assessee. The doctrine of merger of funds and ‘money having no colour’ go against the contentions on behalf of appellant as the ‘opportunity cost’ foregone in such a scenario is to be viewed in form of disallowance under rule 8D. In view of the intent & purpose of the section 14A, the foregoing and the judicial pronouncements as discussed above, the addition made by the AO is upheld.” Being aggrieved by this order of DRP, assessee is in second appeal before us. 14. Ld. AR for the assessee filed paper book with case laws which is running pages from 1 to 100 and also filed written statement. He reiterated the same arguments that were placed before DRP whereas Ld. DR vehemently submitted order of Authorities Below. 15. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, we find that impugned issue has been already decided by co-ordinate Bench of this Tribunal in assessee’s own case in ITA No.110/Kol/2016 dated 12.01.2018. The relevant extract of the order is reproduced below:- “2.1. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find from page 745 of the paper book that the assessee has sufficient own funds to the extent of Rs 2587,79,74,512/- for making investments. Hence there cannot be any disallowance of interest under Rule 8D(2)(ii) of the Rules by applying the ratio laid down in the decision of the Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities & Power Ltd reported in (2009) 313 ITR 340 (Bom) wherein it was held that the presumption would go in favour of the assessee if the interest free funds are more than the loans taken by the assessee , then it would be presumed that the investments were made out of own funds of the assessee. The said ratio would squarely apply to the facts of the instant case. Hence we hold that the disallowance made under the second limb of Rule 8D(2)(ii) of the Rules is hereby directed to be deleted. 2.2. With regard to the third limb of Rule 8D(2)(iii) of the Rules, we hold that the assessee has got investments in foreign companies , the dividend earned from which would be taxable income and hence should be outside the ambit of disallowance u/s 14A of the Act read with Rule 8D of the Rules. Similarly, investments made in subsidiary companies would have to be reckoned as strategic investments and hence the same should be excluded while working out the disallowance under Rule 8D(2)(iii) of the Rules. Similarly, the investments which had yielded dividend income alone , are to be considered

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 15 while working out the disallowance under Rule 8D(2)(iii) of the Rules as has been held by the decision of this tribunal in the case of REI Agro Ltd reported in 144 ITD 141. But we find that if the disallowance made under second limb of Rule 8D(2) of the Rules is deleted, then the disallowance made by the ld AO would remain at Rs 23,77,882/- and whereas the assessee itself had voluntarily disallowed Rs 42,48,850/-. Hence we direct the ld AO to adopt the disallowance figure of Rs 42,48,850/- which had already been disallowed by the assessee and hence no further disallowance in that regard is to be made.” Respectfully following the same, we reverse the order of DRP and direct the AO to delete the same. Hence this ground of appeal of the assessee is allowed.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 16 the Act on the value of machineries acquired on lease. However, Ld. DRP after considering the submissions of assessee confirmed the order of AO by observing as under:- “DRP directions: The panel had allowed relief on this ground. The legal position has now changed as the department cannot challenge the directions of DRP. The assessee repaid Rs.88568539/- under the lease finance arrangement. The assessee capitalized the leased asset in its balance sheet. The assessee had relied on the case of M/s ICDS Ltd vs. CIT [2013] 350 ITR 527 (SC). The AO has distinguished it on the facts for this period. ICDS Ltd. Ia the lessor in this case while the assessee is a lessee hence factually it is different. The AO has placed reliance on the case of Rio Tinto India (P) Ltd /vs- ACIT-15(1), New Delhi [2012] taxmann.com 124 (Del Tribunal] involving a case of Finance Lease (here the lessee uses the asset for substantially the whole of its useful life and the lease payments are calculated to cover the full cost together with interest charges). It is thus an ingenious way of asset acquisition. Basis above, the AO has concluded- ‘Thus, keeping in view the aforesaid leasing arrangement between the assessee and M/s Orix and L&T, the action of the assessee regarding capitalization of the concerned assets in the balance sheet and in view of the decision of the Hon'ble Tribunal cited supra, it is quite clear that the principal repayment of the lease rental is nothing but payment of cost of purchase in installment and has to be treated as a capital expenditure that the leased assets are not capitalized for income tax depreciation purposes by the assessee is not good enough a reason for not treating the principal repayment in the instant case as a capital expenditure. It is quite evident that under a mutual understanding the lessor has already claimed income tax depreciation on the impugned assets. “in the light of the above discussions, it is held that the principal repayment of Rs.8,85,68,539/- is a capital expenditure in the hand of the assessee and is hence disallowed for deduction. A sum of Rs.8,85,68,539/- is thus, added back in computing the income of the assessee.’ The directions in the earlier period being for a different financial period are not followed in view of changed legal position in the current period and the discussions supra. The objection is accordingly dismissed.” Being aggrieved by this order of Ld. DRP assessee is in second appeal before us. 20. Ld. AR for the assessee reiterated the same arguments that were made before Ld. DRP whereas Ld. DR for the Revenue vehemently relied on the order of Authorities Below.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 17 21. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, we note that the issue has already been decided by the co-ordinate Bench of this Tribunal in assessee’s own case in ITA No.110/Kol/2016 (supra) and the relevant extract of this order is reproduced below:- “11.1. We have heard the rival submissions. We find that the issue under dispute is settled by the order of this tribunal in assessee’s own case for the Asst Year 2008-09 in ITA No. 529/Kol/2013 dated 19.2.2016 in favour of the assessee. Though this decision was rendered in the context of validity of section 263 proceedings of the ld CIT, this tribunal had adjudicated the issue on merits also and hence the reliance placed on the same is well founded. The operative portion of the said judgement is as under:- “4.4.1. On merits of the issue, on perusal of the various clauses in the lease deed (which are not reproduced herein for the sake of brevity) forming part of the paper book vide pages 87 to 98, we find that the ownership / title on the vehicles always lies with M/s Orix Auto Infrastructure Services Limited (lessor) during the subsistence of the lease vide clause 8 of the lease deed. We find that during the subsistence of this lease arrangement and till the vehicles are delivered back to the lessor, the lessee shall insure the vehicles with the lessor’s name as the owner vide clause 11 of the lease deed. Clause 15 of the Lease deed clearly specifies that upon expiration or earlier termination of the lease, the lessee shall deliver to the lessor the said vehicles at a place designated by the lessor. We hold that since the ownership does not vest with the assessee at any point of time during the subsistence of the lease, the claim of allowability of depreciation u/s 32 of the Act as owner of the vehicles, does not arise. We hold that the lease arrangement cannot be considered as one of hire purchase as per Circular No. 9/1943 No. 9 [R.Dis.No. 27(4)-IT/43] dated 23.3.1943, since the terms of the agreement does not provide that the equipments shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipments. We hold that merely because the lease arrangement has been considered as finance lease for the purpose of AS 19, that itself does not render the lessee (assessee herein) as the owner of asset for IT Act for claiming depreciation. We find that AS 19 provides for various situations in order to decide as to whether the lease can be considered as finance lease or operating lease for the limited purpose of such AS 19. We find that the assessee had duly complied with the Circulars laid down in this regard more so when the CBDT has itself clarified vide Circular No. 2/2001 dated 9.2.2001 that the AS 19 will have no implication on the allowance of depreciation on assets under the provisions of IT Act. It is well settled that the CBDT Circulars are binding on the revenue. As per this Circular No. 2/2001 dated 9.2.2001, in a lease transaction, the owner of the assets is entitled to

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 18 depreciation. In the instant case, the lessor (Orix Auto) being the owner had the right to claim depreciation and the assessee has not claimed any depreciation as per the provisions of the IT Act and instead had claimed the entire lease rental as revenue expenditure. We find that the issue is squarely covered by the decision of the Hon’ble Supreme Court in the case of I.C.D.S. Ltd vs CIT reported in (2013) 350 ITR 527 (SC) wherein it was held that :- “Held, affirming the decision of the Tribunal, (i) that the assessee was a leasing company which leased out the trucks that it purchased. Therefore, on a combined reading of section 2(13) and (24) of the Act the income derived from leasing of the trucks would be business income, or income derived in the course of business, and had been so assessed. Hence, it fulfilled the requirement of section 32 of the Act, that the asset must be used in the course of business. The assessee did use the vehicles in the course of its leasing business. The fact that the trucks themselves were not used by the assessee was irrelevant for the purpose of section. (ii) That a scrutiny of the material facts at hand raised a presumption of ownership in favour of the assessee. The vehicle, along with its keys, was delivered to the assessee upon which, the lease agreement was entered into by the assessee with the customer. The fact that at the end of the lease period, the ownership of the vehicle was transferred to the lessee at a nominal value did not make the assessee in effect a financier. No inference could be drawn from the registration certificate as to ownership of the legal title of the vehicle. If the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically recorded in the order of the Tribunal, was not the case. (iii) That the entire lease rent received by the assessee was assessed as business income in its hands and the entire lease rent paid by the lessee been treated as deductible revenue expenditure in the hands of the lessee. This reaffirmed the position that the assessee was in fact the owner of the vehicle, in so far as section 32 of the Act is concerned. (iv) That, therefore, the assessee was the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of section 32 of the Act and, hence, was entitled to claim depreciation in respect of additions made to the trucks, which were leased out. (v) That for purposes of the assessee's claim to the higher rate of depreciation, the interpretation of the term "purposes of business", used in second proviso to section 32(1) of the Act

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 19 would not be any different from that ascribed to it under section 32(1) of the Act. Therefore, the assessee fulfilled even the requirements for a claim of a higher rate of depreciation and was entitled thereto.” Though this decision has been rendered on the allowability of depreciation on leased assets from the angle of the lessor, the principle laid down could be made very much applicable to the facts of the instant case for allowability of lease rentals in the hands of the assessee (lessee). We also find that the issue is squarely covered by the decision of the Hon’ble Rajasthan High Court (Jaipur Bench) in the case of Rajshree Roadways vs Union of India & Ors reported in (2003) 263 ITR 206 (Raj) wherein it was held that :- Held, that under the agreement there was a clause that after completion of lease period, if one per cent. of the total consideration of the trucks was paid, the lessee would be the owner of those trucks. However, the agreement dealt with the ownership of the trucks under the agreement. There was a clear provision that the said machinery shall at all times remain sole and exclusive property of the lessor and the lessee shall have no right, title or interest thereon. It further that irrecoverable undertaking of the lessee that at no time during the currency of the lease agreement, which shall be non-cancellable, would the lessee attempt to capitalise the leased assets in its balance- sheet. As per clause 8, it had been agreed that the ownership of the said assets during the tenure of the lease and inclusive of any renewal options that the lessor may concur indisputably rested with the lessor. So in clear terms, the agreement provided that during the lease period, only the lessor shall be treated as owner of the trucks and not the lessee. Moreover, the lessor had been allowed depreciation on the trucks. Therefore, considering the terms and conditions of the lease agreement and the fact that depreciation on these trucks had been allowed to the lessor, the lease rent was deductible as revenue expenditure”- In the aforesaid case, there was a clause in the lease agreement giving an option to the lessee to buy back the asset on termination of the lease agreement. In the instant case, the assessee (lessee) falls in a better footing, in as much as there is no clause in the lease agreement, enabling the lessee to buy back the assets on termination of the lease arrangement. We find that the case law relied upon by the Learned DR on the decision of Delhi Tribunal need not be discussed as the issue is squarely covered by the High Court and Supreme Court in favour of the assessee.”

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 20 Respectfully following the aforesaid decisions, we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 4 raised by the revenue is dismissed.” Respectfully taking the consistent view of this Tribunal as discussed above, we reverse the order of Ld. DRP and direct the AE to delete the same. This ground of appeal of the assessee is allowed.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 21 26. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, we find that same issue has already been decided by the co-ordinate Bench of this Tribunal in assessee’s own case in ITA No.110/Kol/2016 (supra). The relevant extract of this order is reproduced below:- “4.1. We have heard the rival submissions and perused the materials available on record including the paper book of the assessee. We find that the assessee owns the aircrafts and were used for providing services to the tourists of the assessee company as well as others who chartered them according to their requirements. These aircrafts were utilized for chartering flights also and assessee had derived chartering income also which are reflected as income in the profit and loss account which evidences the business nexus of use of aircrafts. We also find that the assessee had stated that sometimes the directors of the assessee company had to use the aircrafts for the purpose of urgent business meetings in different locations and no personal expenses have been charged to revenue. The chartering revenue offered by the assessee has been accepted by the revenue and hence it can safely be concluded that the aircrafts are used for the purpose of its business. We hold that assessee company being a non-natural person cannot have personal element thereon and all the expenditure incurred thereon had to be construed only for business purposes. Even if there was any personal element involved in the aforesaid expenditure, the same have to be taxed as perquisite in the hands of the directors or employees and it is only for the ld TDS officer to look into the alleged violations, if any, on the same and the ld AO cannot resort to make any disallowance of expenditure on that count on an estimated basis. We also draw support from the decision of the Hon’ble Gujarat High Court in the case of Sayaji Iron and Engineering Co vs CIT reported in 253 ITR 749 (Guj) in this regard. Based on these findings and judicial precedent relied upon, we hold that no disallowance of expenditure on maintenance of aircrafts need to be made on an estimated basis towards expenditure incurred for non-business purposes. Hence the issue of maintenance of aircrafts being utilized for business purposes are proved beyond doubt and there is no question of making any disallowance on that count. Once it is established that the aircrafts were used only for business purposes, there is no question of disallowance of depreciation, being proportionate or otherwise, on the same. Hence the provisions of section 38(2) of the Act are not at all applicable to the facts of the instant case. We also find that similar issue had cropped up for the Asst Years 2007-08 to 2009-10 in assessee’s own case ITA Nos. 1431/1557/Kol/2011 ; ITA Nos. 932 & 866/Kol/2012 and ITA Nos. 352& 191/Kol/2013 respectively wherein it was held that :- 3.3. We have heard the rival submissions and perused the materials available on record. We find that this issue is squarely conveyed by the decision of the co-ordinate bench of this tribunal in assessee’s own case for Asst Year 2006-07 in ITA No. 314 & 318/Kol/2011 dated 1.6.2016 wherein it was held that :-

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 22 9.1. We have heard the rival submissions and perused the materials available on record. We find that this issue is squarely covered in assessee’s own case for the Asst Years 2003-04, 2004-05 & 2005-06 in ITA No. 57/Kol/2007 ; 1846/Kol/2007 and 299/Kol/2010 dated 9.12.2015 respectively, wherein it was held that :- 6.3. We have heard the rival submissions and perused the materials available on record. We find that this issue is squarely covered by the decision of the co-ordinate bench decision of this tribunal in assessee’s own case for Asst Year 2002-03 in ITA No. 316/Kol/2006 dated 11.9.2015 in para 4.4 had held as under:- “It is seen that the net expenditure towards running and maintenance of aircrafts debited in profit and loss account is only Rs. 95,64,995/- and hence the premise of the Learned AO that a sum of Rs. 2,14,04,416/- is debited to profit and loss account is grossly incorrect. It is observed that ultimately the assessee had derived surplus of Rs. 1,07,87,457/- being the difference between the chartering income of Rs. 2,02,52,452/- and maintenance and running of aircrafts expenditure to the tune of Rs. 95,64,995/-, even though deriving surplus thereon is not a pre-requisite for allowance of expenditure incurred. We also find that complete details of the entire expenditure towards running and maintenance of aircrafts together with the log book has been filed before the Learned AO and hence there is absolutely no case for the Learned AO to reject the same and proceed to make disallowance on estimated basis to be in line with the disallowances made in earlier years. We also find that the earlier years ITAT order on this issue need not be followed for the asst year under appeal as in this year, the entire details were very much before the Learned AO. We also find lot of force in the arguments of the Learned AR that the assessee company being a non-natural person cannot have any personal element thereon and all the expenditure incurred thereon had to be construed only for business purposes. To this extent, the reliance on the Gujarat High Court decision in 253 ITR 749 is well placed and supports the case of the assessee. We also find lot of force in the arguments of the Learned AR that if at all there is any personal element involved in the aforesaid expenditure, the same have to be taxed as perquisite in the hands of the directors and it is only for the TDS officer to look into the violations, if any, on the same and hence on that ground also, no disallowance of expenditure could be appreciated. We find that the Learned AO had made the entire addition based on surmises and conjectures and made on ad hoc basis. It is well founded proposition that what is apparent is real and the allegation to prove the

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 23 contrary is on the person making such allegation. The following decisions support our view in this regard:- CIT vs Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) Sukhdayal Rambilas vs CIT (1982) 136 ITR 414 Madura Knitting Co vs CIT (1956) 30 ITR 764 (Mad) In view of the aforesaid facts and circumstances and respectfully following the judicial precedents thereon, we have no hesitation in deleting the addition made in the sum of Rs.42,80,883/- on an estimated basis. Accordingly, the Ground No. 4 raised by the assessee is allowed. In view of the aforesaid facts of the case and respectfully following the co-ordinate bench decision (supra), we hold that no addition need to be made on an estimated basis towards running and maintenance of aircrafts. Accordingly, the ground nos. 6 & 7 raised by the assessee are allowed. 3.4. Respectfully following the said decision, we hold that no addition could be made on an estimated basis towards running and maintenance of aircrafts. Accordingly, the grounds raised by the assessee in this regard for various assessment years are allowed and grounds raised by the revenue in this regard are dismissed. 4.2. Respectfully following the aforesaid decision, we hold that no disallowance could be made on an estimated basis towards running, repairs & maintenance of aircrafts including depreciation thereon. Accordingly, the Ground No. 4.1 raised by the assessee is allowed.” Respectfully following the decision of this co-ordinate Bench of this Tribunal we reverse the order of Ld. DRP and direct the AE to delete the same. This ground of assessee’s appeal is allowed. 27. Next issue raised by assessee in ground No.6 is that Ld. DRP erred in confirming the order of AO by not allowing set off of long term capital loss against the Short-Term Capital Gains (STCG for short) u/s 74 of the Act.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 24 29. Aggrieved, assessee preferred an appeal before the ld. DRP. The assessee before Ld. DRP submitted that the depreciable asset was held by it for a period more than 36 months. Therefore, STCG earned u/s 50 of the Act was in the nature of LTCG. But the same was treated as short term by virtue of deeming provision specified u/s 50 of the Act. As such, STCG can be set off against the brought forward capital loss. After considering the submissions of assessee Ld. DRP disregard the contention of assessee and confirmed the order of AE by observing as under:- “DRP directions: The assessee company claimed set off of Long Term Capital loss amounting to rs.1,40,51,830. The AO has to follow the classification as done by the assessee. The assessee cannot take recourse as it suits to their needs to shifting classifications between short and long term gains to suit its needs. This is a typical case of running with hares and hunting with hounds. This is not permissible in the scope of the Act. The contention of the assessee is that section 50 is only for computational purposes which is a correct interpretation to the extent only. Section 50 reads as under:- ‘[Special provision for computation of capital gains in case of depreciable assets. 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:- (1) where the full value of the consideration received or accruing as a result of the transfer of the asst together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connections with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, Such excess shall be deemed to be the capital gains arising from the transfer of short-term capital asset; (2) where any block of assets cease to exist as such, for the reason that all the assets ins that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 25 accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short- term capital assets.]” This is a non obstante clause and it has to have an overriding effect on other provisions of the act. The assessee has relied on section 74 of the IT Act which deals with mechanism of computation of capital gains. This section cannot be read in isolation from section 50 nor can it nullify the impact of section 50. Ld. AR placed reliance on various case laws in this regard. The same are not applicable being distinguishable on the facts. The Ld. AR also vehemently relied on the decision of Hon'ble Supreme Court in the case of M/s Dempo (CA 4797/2008). The panel has gone through the same. It is to be noted here that this judgment has been rendered in context of section 54E related exemptions/rebates. The genesis and purpose of 54E are entirely different hence that ratio will not apply in this case where section 50 comes in full ply. The ruling does not lay down a ratio decidendi and is a mere obiter dictum and does not become law in respect of issues where facts are different. The panel is not in agreement with the contentions of the assessee in this regard. In such a scenario the action of computing also includes the process of set offs and other adjustments as per provisions of law. It has to be a harmonious interpretation and such set off cannot be allowed unless specifically permissible in the income determinative scheme of the IT Act 1961. The AO is bound to follow the Act as it exists. The objection is dismissed accordingly.” Aggrieved by the above finding of Ld.DRP, the assessee is in appeal before the Tribunal. 30. Ld. AR for the assessee before us reiterated the same arguments that were made before Ld. DRP whereas Ld. DR for the Revenue vehemently relied on the order of Authorities Below. 31. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, we find that this issue has already been decided by this co-ordinate Bench of this Tribunal in assessee’s own case (supra), the relevant extract of this order is reproduced below:- “5.1. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the asset that was the subject matter of transfer was a residential property which was held by the assessee for a period exceeding 36 months. Hence the asset held was a long term capital asset in the hands of the assessee. It is not in dispute that the assessee had claimed depreciation on the said property in the returns of earlier years and hence becomes depreciable asset. We hold that merely because the depreciable asset has been sold and the sale consideration received thereon exceeds the written down value of such asset, the character of the asset (i.e being a long term capital asset) does not undergo any change. May be , it would be eligible to taxed in terms of deeming fiction u/s

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 26 50 of the Act as short term capital gains on sale of depreciable assets. We hold that the deeming fiction created by section 50 of the Act that the capital gain arising on transfer of a depreciable asset shall be treated as capital gain arising on transfer of short term capital asset is only for the purpose of sections 48 and 49 of the Act and not for the purpose of any other section. It is well settled that the deeming fiction and the deeming provisions should be construed very strictly and to be applied in limited sense and the same cannot be imported into other sections of the Act unless otherwise specified. Section 74(1)(b) of the Act being an independent section is not bound by the deeming provisions of section 50 of the Act. The nature of capital asset, whether short term or long term, has to be determined applying the provisions of section 2(42A) and section 2(29B) of the Act. Hence we hold that the depreciable assets which had been held for more than 36 months prior to its sale, does not lose its character of being a long term capital asset, even though it might get taxed as short term capital gain in terms of deeming fiction provided u/s 50 of the Act. Reliance in this regard is placed on the decision of Hon’ble Supreme Court in the case of CIT vs V.S.Dempo Company Ltd reported in (2016) 74 taxmann.com 15 (SC) wherein it was held that :- 1. In the return filed by the respondent/assessee for the Assessment Year 1989-90 the assessee had disclosed that it had sold its loading platform M.V. Priyadarshni for a sum of Rs. 1,37,25,0001- on which it had earned some capital gains. On the said capital gains the .assessee had also claimed that it was entitled for exemption under Section 54E of the Income Tax Act. Admittedly, the asset was purchased in the year 1972 and sold sometime in the year 1989. Thus, the asset is almost 17 years old. Going by the definition of long term capital asset contained in Section 2(29B) of the Income Tax Act, 1995 (hereinafter referred to as 'the Act'), it was admittedly a long-term capital asset. Further the Assessing Officer rejected the claim for exemption under Section 54E of the Act on the ground that the assessee had claimed depreciation on this asset and, therefore, provisions of Section 50 were applicable. Though this was upheld by the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal allowed the appeal of the assessee herein holding that the assessee shall be entitled for exemption under Section 54E of the Act. The High Court has confirmed the view of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue. While doing so the High Court has relied upon its own judgment in the case of CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005]144 Taxman 855 (Born.). The High Court has observed that Section 50 of the Act which is a special provision for computing the capital gains in the case of depreciable assets is not only restricted for the purposes of Section 48 or Section 49 of the Act as specifically stated therein and the said fiction created in sub-section (l) & (2) of Section 50 has limited application only in the context of mode of computation of capital gains contained in Sections 48 and 49 and would have nothing to do with the exemption that is provided in a totally different provision i.e. Section 54E of the Act. Section 48 deals with the mode of computation and Section 49 relates to cost with reference to certain mode of acquisition. This aspect is analysed in the

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 27 judgment of the Bombay High Court in the case of ACE Builders (P.) Ltd. (supra) in the following manner: "In our opinion, the assessee cannot be denied exemption under Section 54E, because, firstly, there is nothing in Section 50 to suggest that the fiction created in Section 50 is not only restricted to Sections 48 and 49 but also applies to other provisions. On the contrary, Section 50 makes it explicitly clear that the deemed fiction created in sub-section (I) & (2) of Section 50 is restricted only to the mode of computation of capital gains contained in Section 48 and 49. Secondly, it is well established in law that a fiction created by the legislature has to be confined to the purpose for which it is created. In this connection, we may refer to the decision of the Apex Court in the case of State Bank of India v. D. Hanumantha Rao 1998 (6) SCC 183. In that case, the Service Rules framed by the bank provided for granting extension of service to those appointed prior to 19.07.1969. The respondent therein who had joined the bank on 1.7.1972 claimed extension of service because he was deemed to be appointed in the bank with effect from 26.10.1965 for the purpose of seniority, pay and pension on account of his past service in the army as Short Service Commissioned Officer. In that context, the Apex Court has held that the legal fiction created for the limited purpose of seniority, pay and pension cannot be extended for other purposes. Applying the ratio of the said judgment, we are of the opinion, that the fiction created under Section 50 is confined to the computation of capital gains only and cannot be extended beyond that. Thirdly, Section 54E does not make any distinction between depreciable asset and non-depreciable asset and, therefore, the exemption available to the depreciable asset under Section 54E cannot be denied by referring to the fiction created under Section 50. Section 54E specifically provides that where capital gain arising on transfer of a long term capital asset is invested or deposited (whole or any part of the net consideration) in the specified assets, the assessee shall not be charged to capital gains. Therefore, the exemption under Section 54E of the LT. Act cannot be denied to the assessee on account of the fiction created in Section 50." 2. We are in agreement with the aforesaid view taken by the High Court. 3. We are informed that the Gujrat High Court as well as Guahati High Court have also taken the same view in the following cases: i) CIT vs. Polestar Industries [2014] 41 taxmann.com 237/221 Taxman 423 ii) CIT vs. Assam Petroleum Industries (P) Ltd. [2003] 262 ITR 587/131 Taxman 699 (Gau)

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 28 4. We are also informed that against the aforesaid judgments no appeal has been filed. 5. In view of the foregoing, we do not find any merit in the instant appeal which is, accordingly, dismissed.” 5.2. We find that the reliance placed by the ld AR on the decision of Hon’ble Bombay High Court in the case of CIT vs Manali Investment reported in (2013) 219 Taxman 113 (Bom) wherein it was held that short term capital gain computed u/s 50 of the Act on long term depreciable assets can be set off against long term capital loss u/s 74 of the Act. 5.3. Respectfully following the decisions of the Hon’ble Supreme Court and Hon’ble Bombay High Court supra, we hold that the assessee is indeed entitled to set off the brought forward long term capital loss of Rs 9,77,54,843/- against the deemed short term capital gain of Rs 7,18,74,000/- in the facts of the case. The ld AO is accordingly directed to give benefit of the same to the assessee based on the correctness of the claim of brought forward loss figure made by the assessee. Accordingly, the Ground Nos. 5.1 & 5.2 raised by the assessee are allowed for statistical purposes as directed above.” Respectfully following the proposition laid down in the decision of this co- ordinate Bench of this Tribunal, we allow the ground of appeal of assessee for statistical purpose in terms of above direction of this Tribunal. Hence this ground of appeal of the assessee is allowed for statistical purpose. 32. Next issue raised by assessee in ground No.7 is that Ld. DRP erred in confirming the order of AO by sustaining the disallowance of ₹ 5,30,91,623/- on account of non-deduction of tax u/s 195 of the Act r.w.s. 40(a)(i) of the Act.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 29 Out of total expenses incurred in foreign currency, assessee has not deducted Tax at Source (TDS) on the amount of ₹5,30,91,623/- only. The assessee claimed that the impugned expenses are not chargeable to tax in India in view of the provision of DTAA as well as there was no PE of the foreign party in India. However, the AE disregarded the contention of assessee and added the sum of ₹5,30,91,623/- on account of non-deduction of TDS to the total income of assessee. 34. Aggrieved, assessee preferred an appeal before Ld.DRP. The assessee before Ld. DRP submitted that the payment made to foreign parties were not taxable in India in terms of the provision of DTAA, therefore, the TDS was not deducted. However, Ld. DRP disregarded the contention of assessee and confirmed the order of AE by observing as under:- “DRP directions: The AO has to follow the lawful limits as provided in section 195 in this scenario. The assessee has made the following payments; Particulars Amount (Rs in lacs) Professional and consultancy fees 1,87,92,741 Advertisement, participation and sales 1,58,99,732 Promotion Marketing & development expenses 32,68,660 Business fairs and exhibition 47,78,397 Inspection fees 11,34,053 Total 5,30,91,353 It was submitted that the remittances did not qualify under the definition of Royalties/FTS as provided under Article 12 or Article 13 of the applicable tax treaties as the same did not pass the filer of making technology available hence these could not be taxed. The AO also could not tax them under article 5 on account of absence of PE or under article 7 also there was no other details field to substantiate the contention of the assessee. The Ld. AR stated that certain agreements/material was filed before the AO in connection with the above remittances. In this context, it was merely submitted before the panel that all these operations were carried out outside India, in accordance with clause (a) of Explanation 1 to Section 9(1)(i), the various remittances cannot be considered to accrue or arise in India hence not chargeable to tax in India under Section 9(1)(i) of the Act. AO will examine the nature of such remittances within time frame available and only such proceeds which fall within the relevant taxation statute u/s. 9 r/w 195 along with concerned treaty shall be brought to tax. The objection is thus disposed of.” Aggrieved by this the assessee has come up in appeal before us.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 30 35. Before us Ld. AR for the assessee reiterated the same arguments that were placed before Ld. DRP whereas Ld. DR for the Revenue vehemently relied on the order of lower authorities and requested the Bench to confirm the same.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 31 Annexure-8 Salary/Advance against Salary Annexure-9 Domestic Payment Annexure-10 Recruitment Charges Annexure-11 Management Fees Annexure-12 Aircraft repair & Maintenance Annexure-13 Professional/Consultancy Annexure-14 Marketing and development 6.3. Advertisement in Magazines / Website Listing The assessee explained that magazines are printed outside India and / or the Websites are listed outside India. The assessee being in the luxury hospitality, its business heavily depends on clients from the western world. Consequently, as in the past it spent a considerable sum of money on advertisements both in the print and web media. As already explained in the past years, such advertisements are printed mostly in USA and some in the UK etc. The servers of the web are also located outside India. As already explained, the target for the advertisements are the foreign tourists. Hence, in those cases, what is ensured is that these foreign advertisements are circulated in the US/ Canada and in UK and European Countries. Accordingly, the payments do not attract tax withholding u/s 9 since all activities relating to the advertisements take place outside India and the remittances are made outside India such remittances should not call for any tax withholding. Further, even under the respective treaties, US / UK etc, with restricted FTS clause with ‘make available’ provision, no TDS is called for in India. 6.4. Inspection Fees The assessee explained that fees paid to overseas parties for carrying on inspections outside India. To ensure quality assurances, inspection fees were paid to various agencies mostly from the UK. Even if it is admitted that the services to provide such Inspection requires technical expertise, under the Indo-UK tax treaty, the FTS clause is very narrow. To qualify for an amount alling under the FTS clause, there should be ‘making available’ of a technology. In case of inspection fees, the service provider only provides their report or only provides a quality assurance. Such services do not fall under FTS and hence in the absence of their PEs in India, there was no withholding tax requirement in India under the India UK treaty. 6.5. Recruitment Charges Payments towards professional fees for manpower recruitment in hotels outside India. The assessee had to take the services of various foreign recruitment agents (specially for SPAs , Chefs etc) . The services are rendered outside India and the payments are made outside India. Therefore under the domestic law, the remuneration for such services are not taxable in India. Even otherwise, the recruitment services providers are based in Indonesia or Thailand. Both the countries have treaties with India and do not have any FTS clause at all. None of such services providers have any PE in India. Therefore any remittance made in this regard is not taxable in India. 6.6. Professional / Consultancy Charges

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 32 The payees are mainly from the USA, UK and Australia. The professional services rendered do not fall in the category of ‘Royalty’ as per the India- Australia Tax Treaty. Further that treaty does not have any exclusive FTS clause. As regards the USA and UK, the FTS/ included service definitions are very narrow. Services rendered to the assessee do not fall under ‘make available’ category. Therefore in the absence of PE in India, the payments made to the payees outside India do not call for any TDS. 6.7. Management Fees Management fees is paid to the Thai SPA management firm. For argument sake, even if the payment is considered taxable in India under the domestic law, the same is not taxable in India under the India Thailand tax treaty. As mentioned earlier, the Thai treaty does not have any exclusive FTS clause. Hence in the absence of any PE in India, these payments made to the service providers do not call for any TDS. 6.8. Marketing & Development Payments are made to the tax residents of USA / Mauritius. While USA has ‘make available’ clause in the ‘Included Services Article’ , Mauritius does not have any exclusive FTS clause. In view of the above, no tax withholding is called for. 6.9. Apart from this, the assessee had given an exclusive submission before the ld AO vide letter dated 19.11.2015 with regard to non-applicability of withholding tax under domestic law as well as DTAA of the respective countries for each of the aforesaid expenditure as under:-

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 33

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ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 36 business income of the service provider. It is pertinent to note that the Ld CIT(A) in the case of the assessee itself in the A.Y.2006-07 followed by subsequent years has categorically held that the payments to foreign parties on account of advertisement outside India should not be taxable in India as per the provisions of section 9(1)(vii) of the Income tax Act. The relevant extract of the ClT(A) order for the assessment year 2006-07 is reproduced as follows: “"In my considered view, the payments to the foreign parties on account of advertisement outside India should not be taxable in India as per the provisions of section 9(1)(vii) of the Income tax Act, since earning through advertisement are not in nature of "managerial, technical or consultancy services. In my view the income at best can be considered as business profits in the hands of the payees. However, in absence of Permanent Establishment of the payees in India, the amount would not be taxable in India. Since the income was not taxable in India, there was no obligation on part of the appellant to withhold tax on such payments. Thus, in the instant case, the provisions of section 40(a)(ia) do not apply.” (A copy of CIT(A) order for A.Y.2006-07 is attached as Annexure 15) Further, Reliance in this connection is placed on the decision of SHERATON INTERNATIONAL INC vs DEPUTY DIRECTOR OF INCOME-TAX reported in (2007) 293 ITR (A.T.) 68 (ITAT)(Del). The Delhi IT AT held as follows: Held, (i) that the payments in question made for rendering the services in question could be said to have accrued or arisen in India by invoking the deeming provisions of section' only if the sum was payable by the Indian hotels or clients to the assessee by way of "royalty" as defined in Explanation 2 below clause (vi) of section 9(1) or by way of "fees for technical services" as defined in Explanation 2 below clause (vii) of section 9(1) . The agreements had to be read as a whole. The main intention of both parties to continue their association was to develop tourism on a wide front by providing, inter alia, the best hotel facilities of international standards to tourists worldwide by promoting and advertising worldwide the Sheraton chain of hotels for mutual benefit. Both parties had come together with their specialized information, experience and knowledge in the field of hotel business for mutual benefit. The main intention or purpose of the association between the assessee and ITC was to publisize, market and promote the hotels of the ITC and the assessee-company, had undertaken to provide all the services as enumerated in the various articles to achieve this main intention or purpose. If all the terms thereof were read together as a whole, it explicitly showed that the assessee in substance, had mainly undertaken the job of publicity, marketing and advertising of the hotels of Indian clients worldwide and all the services to be rendered by it as enumerated in the various articles of the agreement were incidental or supplementary to carrying out this job effectively and efficiently in the interest of its business of which the said activity or job formed a part. The services, therefore, were an integral part of the main work undertaken by the assessee of publicity, marketing and promotion of the Indian hot worldwide. The services described in the various

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 37 articles of the agreement had not much significance independently and were an integral part of the arrangement between the assessee and the Indian hotels or clients for publicity, marketing and advertising of hotel business. That the payments under the agreements being entirely made by the Indian hotels to the assessee-company for the main services, the incidental or ancillary services not being independent of and separable from the main job undertaken by the assessee in the peculiar facts of the case, it was neither possible nor desirable to apportion or attribute any part of the consideration received by the assessee thereto. The various services rendered by the assessee to enable it to complete efficiently and effectively the job undertaken by it as an integrated business arrangement to provide the services relating to advertising , publicity and sales promotion including reservations of the Indian Hotels worldwide in mutual interest could not be considered in isolation to say that part of the consideration received by the assessee was in the nature of “royalties” or “fees for technical services” defined in Explanation 2 to Section 9(1)(vi) or to Section 9(1)(vii) or of “royalties” or “fees for included services” as defined in article 12(3) and 12(4) of the DTAA between India and the U.S.A. In view of the above, it is submitted that the services provided by the foreign residents in relation to advertisement is not covered within the scope of royalties or fees for technical services under section 9(1)(vi) or 9(1)(vii) of the Income Tax Act. a) India - Australia DTAA In Australia DTAA, fees for technical services (FTS) is defined within the definition of royalty. The DTAA define~ FTS as follows: "the rendering of any services (including those of technical or other personnel), which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design". The concerned foreign remittances are not covered under the scope of royalty as per Article 12 since the concerned services does not make available technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or design. Broadly speaking, the term 'make available' means that the person acquiring the technical service is enabled to independently apply the technology. 'the word 'enable' is used in the sense that the technical services should be such that they make the recipient able or wiser in the subject matter. Thus, where the recipient of technical services does not get equipped with the knowledge or expertise and the recipient would not be able to apply it in future independently without- support from the service provider, it will not be a case of technical service having been 'mad available'. And in such cases the concerned transaction would not be taxable in India and subject to withholding tax in India. In such cases, the income of the recipient shall be treated as business income under the Article 7. Since the entire operation of the service provider is carried

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 38 outside India, there is no existence of any PE in India and in such cases the concerned transaction would not be taxable in India and subject to withholding tax in India. Reliance in this connection is placed on decision 'of ITAT Delhi in case of Sheraton International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A.T.) 68 (ITAT) (Del) b) Singapore - Article 12 The concerned services are not covered within the scope of ‘fees for technical services' as defined in the Article 12(4) for the following reasons: • Such services do not involve any managerial; technical or consultancy nature. • Such services do not involve application or enjoyment of the right, property or information. • Does not make available technical knowledge, experience, skill, know-how or processes which enable the person acquiring the services to apply the technology contained therein. The concept of 'make available' has been elaborately explained herein above. • Consist of development and transfer of a technical plan or technical design but excludes any service does not enable the service provider to apply the technology contained therein. Reliance in this connection is placed on decision of ITAT Delhi in case of Sherator International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A. T.) 68 (ITAT) (Del). c) UK - Article -13 The concerned services are not covered within the scope of 'fees for technical services' as defined in the Article 13(5) for the following reasons: . • Such services do not involve rendering of any technical or consultancy services; • Such services are not ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment is received by the vendor. It is understood that, in order for a service to be considered "ancillary and subsidiary" to-the application or enjoyment of some right, property, or information for which a payment is received, the service must be related to the application or enjoyment of the right, property, or information. • Such services are not ancillary and subsidiary to the enjoyment of any property; • Do not make available technical knowledge, experience, skill know-how or processes or consist of the development and transfer of technical plan or technical design. The concept of 'make available' has been elaborately explained herein above.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 39 Reliance in this connection is placed on decision of IT A T Delhi in case of Sheraton International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A.T.) 68 (ITAT) (Del) d) USA - Article - 12 The concerned services are covered within the scope of fees for included services as defined in the Article 12 of the DTAA for the following reasons: • Such services are not ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment is received by the vendor; • Do not make: available technical knowledge, technical knowledge, experience, skill know-how or processes or consist of the development and transfer of technical plan or technical design. The concept of 'make available' has been elaborately explained herein above. Further, the protocol to the tax treaty elucidates the situation where the services can be said to be made available to the recipient of the services. As per the protocol, generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input .by the person providing the service does not per se mean that technical knowledge, skill etc. are made available to the person purchasing the service. Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. . Reliance in this connection is placed on decision of IT AT Delhi in case of Sherator International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A.T.) 68 (ITAT) (Del) e) Brazil • In the tax treaty entered into with India and Brazil, Paras of Article 12 of the DTAA deal with the meaning of the term 'Royalties and the rate at which such income is to be taxed. Obviously, there is no reference to the "Fees for technical services" in Article 12 of the DTAA. Thus it is evident that the fee for technical services does not fall within the purview of Article 12. Obviously, the application of Article 12 is ruled out. In that view of the matter, such income would remain included under Article :- The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of any PE in India. In this connection, reliance is placed on the decision of Hon'ble Mumbai ITAT in case of McKinsey & Company (Thailand) Co. Ltd Vs Deputy Director of Income-tax (International Taxation) 4(1), Mumbai in IT APPEAL NO. 7624 (MUM.) OF 2010 f) Belgium - Article 12 read with protocol of the DTAA As per Article 12(3)(b), the term "fees for technical services" means payments of any kind to any person in consideration for services of a

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 40 managerial, technical or consultancy nature, including the provision of services of technical or other personnel Further. the protocol to the DTAA provides that if under any Convention or Agreement between India and a third State being a member or the OECD which enters into force after 1st January, 1990, India limits its taxation on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in the present Agreement on the said items of income, the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under the present Agreement with effect from the date from which the present Agreement or the said Convention or Agreement is effective, whichever date is later. Since The Netherland is member of OECD, the Article 12 of India-Netherland DT AA can be applied for the purpose 'of examining taxing rights as per India-Belgium DTAA. The DTAA with the Netherland provides restricted scope of fees for technical services due to presence of 'make available' in Article-12 of DTAA between India and The Netherlands. Since in the instant case, the services do not involve make available of technical knowledge, the same is out of purview of the fees for technical services within the scope of DTAA between India and Belgium. Accordingly withholding tax is not applicable for the services pertaining to advertisements. g) France - Article 13 read with protocol of the DTAA h) Switzerland - Article 12 read With protocol of the DTAA. i) Spain - Article 13 read with protocol of the DTAA As per Article 13(4), the term "fees for technical services" means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature. Further, the clause 7 of protocol to the DTAA provides that in respect of Article 13 concerning fees for technical services, if under any Convention, Agreement or Protocol signed after 01.09.1989, between India and a third State which is a member of the GECD, India limits its taxation at source on fees for technical services to a rate lower or a scope more restricted than the rate of scope provided for in this Convention, Agreement or Protocol with effect from the date on which the present Convention or the relevant Indian Conventio Agreement or Protocol enters into force, whichever enters into force later. Since USA is member of OECD, the Article 12 of India-USA DTAA can be applied. The DTAA with the USA provides restricted scope of fees for technical services due to presence of 'make available' in Article-12 of the OTAA. Since in the instant case, the services do not involve make available of technical knowledge, the same is out of purview of the fees for technical services within the scope of DTAA between India and France. Accordingly withholding tax is not applicable for the services pertaining to advertisements. Reliance in .this connection is placed on the decision of Mumbai ITAT in the case of DDIT vs IATA BSP India reported in TS-367-ITAT-2014(Mum). The Hon'ble tribunal held as follows:

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 41 • As per clause 7 of the Protocol in the India-France tax treaty, if under any convention, agreement or Protocol signed after 1st September 1989 between India and a third state which is a member of the OECD, India limits its taxation at source inter alia on FTS to a rate lower or a scope more restricted than the rate or scope provided for in the India- France tax treaty, the same scope as provided for in that convention, agreement or Protocol on the said items of income shall also apply under the India- France tax treaty. • On 12 September 1989, India has entered into a tax treaty with USA, which is a member of OECD and as per Article 12(4)(b) thereof, the scope of FIS is restricted. India has also entered into tax treaty with Portuguese Republic on 11 September 1998 and as per Article 12(4)(b) thereof, the concept of FIS is further restricted to mean the services which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology therein. • This restricted scope provided in the India-USA tax treaty and India- Portuguese tax treaty is applicable to the India-France tax treaty, as per Clause 7 of the Protocol. In this regard, further reliance is made on the decision of Kolkata Tribunal in case of DCIT vs. ITC reported in (2002) 82 ITD 239. j) Germany-Article 12 k) Ireland- Article 12 l) Italy- Article-13 Same treatment as per Income Tax Act. Inspection Fee: To ensure quality assurances, inspection fees has been paid to Leading Quality Assurance Ltd based out of UK. This service is being availed from the same service provider in each year The vendor carries on independent audit about the quality standard of the hotels pertaining to the assessee. The abovementioned service is are not covered within the scope of 'fees for technical services' as defined in the Article 13(5) for the following reasons: Such services do not involve rendering of any technical or consultancy services which: • are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment is received by the vendor. It is understood that, in order for a service to be considered "ancillary and subsidiary" to the application or enjoyment of some right,

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 42 property, or information for which a payment is received, the service must be related to the application or enjoyment of the right, property, or information. • are ancillary and subsidiary to the enjoyment of any property; make available technical knowledge, experience, skill know-how or processes or consist of the development and transfer of technical plan or technical design. The concept of 'make available' has been elaborately explained herein above. Broadly speaking, the term 'make available' means that the person acquiring the technical service is enabled to independently apply the technology. The word 'enable' is used in the sense that the technical services should be such that they make the recipient able or wiser in the subject matter. Thus, where the recipient of technical services does not get equipped with the knowledge or expertise and the recipient would not be able to apply it in future independently without support from the service provider, it will not be a case of technical service having been 'made available'. And in such cases the concerned transaction would not be taxable in India and subject to withholding tax in India. In such cases, the income of the recipient shall be treated as business income under the Article 7. Since the entire operation of the service provider is carried outside India, there is no existence of any PE in India and in such cases the concerned transaction would not be taxable in India and subject to withholding tax in India. Reliance in this connection is placed on decision of IT AT Delhi in case 01 Sheraton International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A.T.) 68 (ITAT) (Del) Marketing and Development Expenses During the concerned assessment year various foreign remittances have been made to foreign vendors towards marketing and development services. The exact nature of service provided by each vendor is explained as follows. a) CORNELL UNIVERSITY SCHOOL OF H. ITHACA NEW YORK, 14850, USA – The vendor is an education institution and provides learning material to the assessee for distant learning programme. The education institution is specifically exempted as per Article 12(5)(c) of the India- USA DTAA. Accordingly, the services rendered by vendor is not taxable in India and not subject to withholding tax. b) Blue Link - The payment to the vendor has been paid towards redemption of airline miles. The same being marketing and development expenses does not involve any technical skill, know how etc. Accordingly, the same is not taxable under the domestic law as well as India - France tax treaty. For detailed explanation, Annexure 8 of the submission may be referred.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 43 c) Island Resort Limited - Payment to this vendor has been made towards stay of guest under the arrangement with the assessee in order to promote the sales of the assessee. Under this scheme, when a guest stays in the hotels of the assessee, he gets complementary stay in other hotels against which the payment is claimed from the assessee by that hotel. This way it promote the business of the assessee as a whole. The payment .is towards stay charges cannot be covered under the scope of fees for technical services under section 9(1)(vii) of the Act. Since the entire operation of the vendor is carried outside India, it is not taxable under the Income tax Act as business income as well. Since tax treaty between India and Mauritius does not have any fees for technical service clause, in absence of 'permanent establishment, the concerned service is not taxable in India. Recruitment Charges Taxability under the Income tax Act The assessee had to take the services of various foreign recruitment agents (specially for SPAs, chefs etc.). The services are normally rendered outside India and the payments are made outside India as well. Further, since this does not involve any know how or technical expertise, the same is not covered within the scope of section 9(1)(vii) of the Income tax Act. Therefore under the domestic law, the remuneration for such services is not taxable in India. Taxability under DTAA with Indonesia and Thailand During the year under consideration, recruitment service has been availed from these vendors based out of Indonesia and Thailand. Both the treaties does not contain any FTS clause. Thus it is evident that the fee for technical services does not fall within the purview of Article 12. Obviously, the application of Article 12 is ruled out. In that view of the matter, such income would remain included under Article 7. The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of any PE in India. In this connection, reliance is placed on the decision of Hon'ble Mumbai ITAT in case of McKinsey & Company (Thailand) Co. Ltd Vs Deputy Director of Income-tax (International Taxation) 4(1), Mumbai in IT APPEAL NO. 7624 (MUM.) OF 2010. Management fees paid to Banyan Tree Resorts &Spas(Thailand Co. Ltd.) Management fees has been paid to the Thai SPA management Firm. The tax treaties between India and Thailand does not contain any FTS clause. Thus it is evident that the fee for technical services does not fall within the purview of Article 12. Obviously, the application of Article 12 is ruled out. In that view of the matter, such income would remain included under Article 7. The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 44 any PE in India. In this connection, reliance is placed on the decision of Hon'ble Mumbai ITAT in case of McKinsey & Company (Thailand) Co. Ltd Vs Deputy Director of Income-tax (International Taxation) 4(1), Mumbai in IT APPEAL NO:7624 (MUM.) OF 2010 Professional and Consultancy Services During the under consideration, payment has been made to various foreign vendors based out of UK USA, Egypt, Australia towards professional/ consultancy services. The assessee has duly deducted tax form the payment made to Zaki Hasem &t Parterners. A copy of challan is attached as Annexure 14/1 and 14/2. For the other vendors/pertaining to USA, UK and Australia, the concerned services are not taxable in India as the service does not make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of technical plan or design. For detailed explanation, reference may be made to annexure 2,4 and 5. 6.10. Apart from this, the assessee had even provide the certificate of tax residency of the parties to whom payments were made in foreign currency and declaration form them that no PE existed for them in India. The assessee had even furnished the copies of agreements entered into with those parties, copy of advertisements, copy of invoice, subscription renewal forms etc. All these documents are enclosed in pages 822 to 930 of the Paper Book. 6.11. We find that in the earlier years in assessee’s own case, the ld CITA had granted relief to the assessee by placing reliance on ‘make available’ clause prevailing in various tax treaties , but the same is not done by the ld AO and ld DRP in the instant case. We find that the assessee had filed various documents with detailed factual and legal submissions with supporting evidences before the ld AO, which had not been appreciated by the ld AO and ld DRP in the proper perspective. Hence we deem it fit and appropriate, to remand this entire issue to the file of the ld AO, for de novo adjudication of this issue afresh in accordance with law. The assessee is also directed to co- operate with the ld AO by producing the necessary evidences in support of its contentions. Accordingly, the Ground Nos. 6.1. & 6.2 raised by the assessee are allowed for statistical purposes.” Respectfully following decision of this Tribunal we allow the appeal for statistical purpose in terms of above direction. This ground of assessee is allowed for statistical purpose. 37. Next issue raised by assessee in ground No.8 is that Ld.DRP erred in confirming the order of AO by sustaining the disallowance of ₹59,598/- on account of delayed deposit of employees’ contribution to PF and ESI.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 45 38. The AO during the course of assessment proceedings observed that assessee failed to deposit employees contribution to PF/ESI for ₹59,598/- within due date as prescribed under the relevant Act of PF/ESI. Therefore, AO disallowed the same and added to the total income of assessee. 39. Aggrieved, assessee preferred an appeal before Ld. DRP. The assessee before Ld. DRP submitted that the amount of PF/ESI on account of employees’ contribution was deposited within the due date of filing the income tax return specified u/s 139(1) of the Act. Accordingly, Ld. DRP directed the AO to verify the submission of assessee and adjudicate the same.

Being aggrieved by this order of Ld. DRP assessee came in appeal before us.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 46 of assessee’s appeal is allowed for statistical purpose in terms of above direction. 42. Next issue raised by assessee in ground No.9 is that Ld. DRP erred in confirming the order of AO by not allowing the deduction of provision for bad and doubtful debts written back for ₹51,77,916/- under normal provision as well as under the computation of book profit. 43. At the outset, Ld. AR before us submitted that the assessee omitted to claim the deduction on account of the provision for bad and doubtful debts written back for ₹51,77.916/- inadvertently in the income tax return. He further submitted that the claim was made before the AO vide letter dated 21.03.2016 but same was not considered by the AO. 44. The matter was carried before the Ld. DRP which also denied the claim made by the assessee during the course of assessment proceedings on the ground that said claim was not made in the income tax return.

Being aggrieved by this order of Ld. DRP assessee came in appeal before us.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 47 “24. A Division Bench of the Delhi High Court dealt with a similar submission in CIT v. Jai Parabolic Springs Ltd. [2008] 306 ITR 42 / 172 Taxman 258 . The Division Bench, in paragraph 17 of the judgment held that the Supreme Court dismissed the appeal making it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal. In paragraph 19, the Division Bench held that there was no prohibition on the powers of the Tribunal to entertain an additional ground which, according to the Tribunal, arises in the matter and for the just decision of the case”. In view of above proposition, we direct the AO to adjudicate the additional filed by the assessee during the course of assessment proceedings in accordance with law. Thus, this ground of assessee is allowed for statistical purpose.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 48 (c) the domestic company is not a subsidiary of any other company : Provided that the same amount of dividend shall not be taken into account for reduction more than once; (ii) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10. Explanation.—For the purposes of this sub-section, a company shall be a subsidiary of another company, if such other company, holds more than half in nominal value of the equity share capital of the company.]

A plain look at the above statutory provision makes it clear the AO should charge the dividend distribution tax after excluding the dividend income from subsidiary company. Therefore, we direct the AO to adjudicate the issue of dividend distribution tax after giving effect of the amount of dividend received from subsidiary company. Hence, in terms of above, this ground of assessee’s appeal is allowed for statistical purpose. 51. Next issue raised by assessee in ground No.12 is that Ld. DRP erred in not granting set off of Minimum Alternate Tax (MAT for short) credit brought forward from Assessment Year 2011-12. 52. At the outset, it was observed that the grievance of assessee relates to non-granting of set off MAT credit brought forward from AY 2011-12. In this regard we direct the AO to grant the MAT credit brought forward from earlier years as per the provision of law. Hence, the matter is remitted back to the file of AO in terms of above direction and to adjudicate the same in accordance with law.

ITA No.117/Kol/2017 A.Y. 2012-13 EIH Ltd. Vs. DCIT, Cir-8(1), Kol. Page 49 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-EIH Ltd., 4, Mangoe Lane, Kolkata-001 2. ��यथ�/Respondent-DCIT, Circle-8(1), Aayakar Bhawan, P-7, Chowirnghee Sq. Kol-69 3. संबं3धत आयकर आयु4त / Concerned CIT Kolkata 4. आयकर आयु4त- अपील / CIT (A) Kolkata 5. 7वभागीय �$त$न3ध, आयकर अपील�य अ3धकरण, कोलकाता / DR, ITAT, Kolkata 6. गाड< फाइल / Guard file. By order/आदेश से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील�य अ3धकरण, कोलकाता ।