ITA 1576 & 1791/MUM/2004

M/S JP MORGAN CHASE BANK

आदेश / ORDER

PER BEENA PILLAI, JUDICIAL MEMBER:

These cross appeals have been filed by the assessee as well as the Revenue against the order passed by the Ld. CIT(A)-XXXIII, Mumbai dated 31/12/2003 [hereinafter referred to as Ld.CIT(A)] for A.Y. 1999–2000.

2. The assessee has raised the following grounds of appeal:-

“Aggrieved by the order passed by the Commissioner of Income-tax (Appeals)-XXXIII, Mumbai [hereinafter referred to as 'the learned CIT(A)'], under section 250 of the Income-tax Act, 1961 (‘Act’) and based on the facts and circumstances of the case, JPMorgan Chase Bank [hereinafter referred to as the "Appellant'] respectfully submits that the learned CIT(A) erred in partly upholding the order of Assistant Commissioner of Income tax, Circle 1(2), Mumbai, thereby disposing the appeal of the Appellant on the following grounds.

1. In taxing the interest received from overseas branches amounting to Rs 48,878,457.

2. In disallowing a deduction for hub expenses to Rs. 51,769, 989/-“

The Revenue has raised the following grounds of appeal:-

“1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in directing the AO to allow broken period interest paid on securities purchased amounting to Rs. 1,40,63,711/-.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to delete the salary paid to expatriate employee amounting to Rs. 1,62,95,395/-.

3. On the facts and in the circumstances of the case the Id. CIT(A) erred in directing the AO to allow loss on revaluation of unmatured foreign exchange contracts amounting to Rs. 39,97,207/-.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to allow the loss incurred on depreciation in value of investments amounting to Rs. 9,25,033/-

The appellant prays that the order of the Ld. CIT(A) on the above ground be set aside and that of the AO restored

The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”

The revenue has also raised the following additional grounds of appeal:-

“Whether provision of section 14A of the I.T. Act will be applicable in the event it is held that the interest received by the assessee from its Head Office is not taxable in the hands of Indian branch office?"

3. Brief facts of the case are as under:-

Assessee is a banking company incorporated in the United States of America and is carrying on banking operations in India through its branch office at Mumbai. For the assessment year under consideration, the assessee filed its return of income declaring total income of Rs. 6,82,57,957/-. The assessment was framed by Ld. AO u/s 143(3) of the Act, wherein various additions and disallowances were made in computing the total income of the assessee.

3.1. During the course of assessment proceedings, the Ld. AO disallowed broken period interest paid on purchase of securities amounting to Rs. 1,40,63,711/- by treating the same as part of cost of acquisition of securities. The Ld.AO further disallowed salary paid to expatriate employee amounting to Rs. 1,62,95,395/- by invoking provisions of section 44C of the Act on the ground that the same constituted head office expenditure. The Ld.AO also brought to tax interest received by the Indian branch from its Head Office/overseas branches amounting to Rs.4,88,78,457/- by holding that such income had accrued in India and was taxable. Further, the Ld.AO disallowed hub expenses amounting to Rs.5,17,69,989/- on the ground that the assessee failed to establish that such expenses were incurred wholly and exclusively for the purposes of business in India and also failed to furnish a proper basis of allocation. In addition, the Ld.AO disallowed loss on revaluation of unmatured foreign exchange forward contracts amounting to Rs.39,97,207/- and also disallowed depreciation in value of investments amounting to Rs.9,25,