Treaty non-discrimination cannot extend domestic deductions without statutory eligibility; factual issues on expenses were remanded.

A treaty-based non-discrimination clause cannot be used to extend a domestic-law deduction unless the claimant satisfies the statutory conditions for that deduction and is similarly placed in the same circumstances as the comparator taxpayer. On that basis, section 80M relief was unavailable to the foreign bank under the India-France DTAA. The provision for interest on bad and doubtful debts and the repairs and maintenance claim were remanded for fresh factual verification, including consistency with earlier years and supporting records. For the later year, the Tribunal treated the Rules 6D and 6B, section 37(2), section 43B and club-payment disallowances as unsustainable on the treaty footing applied to business profits.

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Issues: (i) Whether deduction under section 80M of the Income-tax Act, 1961 could be claimed by a foreign bank in view of the non-discrimination clause in Article XXI of the India-France DTAA. (ii) Whether the disallowance relating to provision for interest on bad and doubtful debts required fresh consideration. (iii) Whether the disallowance relating to repairs and maintenance expenses on flats and premises required fresh consideration. (iv) Whether the disallowances under Rules 6D and 6B, section 37(2), section 43B and payments to clubs for the later assessment year were sustainable.

Issue (i): Whether deduction under section 80M of the Income-tax Act, 1961 could be claimed by a foreign bank in view of the non-discrimination clause in Article XXI of the India-France DTAA.

Analysis: Section 80M, as applicable, was confined to a domestic company. The claim rested on the argument that denial of the deduction to a foreign bank, while granting it to Indian scheduled banks, amounted to discrimination prohibited by Article XXI of the India-France treaty. The Tribunal held that the distinction under section 80M was not based on nationality alone, but on the statutory requirement of being a domestic company and satisfying the conditions attached to that status. It also held that the foreign bank and an Indian scheduled bank were not in the same circumstances for the purpose of the treaty clause, and that the treaty could not be used to extend a domestic-law deduction where the assessee did not satisfy the statutory conditions.

Conclusion: The claim for deduction under section 80M was rejected and the assessee was denied relief on this issue.

Issue (ii): Whether the disallowance relating to provision for interest on bad and doubtful debts required fresh consideration.

Analysis: The assessee relied on the RBI circular and earlier appellate orders to contend that the matter had to be examined consistently with the treatment of income on bad and doubtful debts. As the factual foundation and consistency with earlier years required verification, the Tribunal directed a fresh examination by the Assessing Officer in accordance with the earlier order and the governing legal principles.

Conclusion: The issue was restored to the Assessing Officer for fresh consideration and was allowed for statistical purposes.

Issue (iii): Whether the disallowance relating to repairs and maintenance expenses on flats and premises required fresh consideration.

Analysis: The Tribunal found that the record before it was insufficient to conclusively determine whether the liability to incur the expenditure had arisen in the relevant year and whether the amounts were claimed in the correct year. Since the factual materials were incomplete, the issue was remitted so that the supporting bills and details could be examined.

Conclusion: The issue was restored to the Assessing Officer and was allowed for statistical purposes.

Issue (iv): Whether the disallowances under Rules 6D and 6B, section 37(2), section 43B and payments to clubs for the later assessment year were sustainable.

Analysis: The Tribunal accepted that, on the relevant India-France treaty provisions governing business profits, the earlier view that such domestic-law restrictions could not be superimposed in the manner urged by the Revenue applied to the assessee's claim. It therefore held that the artificial and statutory disallowances in question were not to be made on the facts of the case.

Conclusion: The assessee succeeded on this issue and the disallowances were deleted.

Final Conclusion: The appeals were partly allowed, with the assessee succeeding on the business-expense disallowance issue for the later year, while the section 80M claim failed and the remaining two issues were remanded for fresh consideration.

Ratio Decidendi: A treaty-based non-discrimination clause cannot be invoked to claim a domestic-law deduction unless the assessee satisfies the statutory conditions for that deduction and is shown to be similarly placed in the same circumstances; where the record is factually incomplete, remand for verification is appropriate.

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