Treaty non-discrimination and branch-to-head-office charges: internal PE payments treated as self-payments, with profits taxed only at PE level.

Under the India-France tax treaty non-discrimination clause, the Tribunal followed earlier orders in the assessee's own case and coordinate bench rulings and rejected the claim to the domestic company and co-operative bank tax rate. On data processing fees booked between the Indian branch and Singapore branch, it held that a foreign enterprise and its branch or permanent establishment are not separate taxable units for this purpose, so an internal charge is a payment to self. Because the amounts were effectively connected with the permanent establishment, taxation was confined to business profits attributable to that permanent establishment; the addition was deleted and only partial relief was granted.

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Issues: (i) Whether the assessee was entitled to claim the tax rate applicable to domestic companies and co-operative banks under the non-discrimination clause of the India-France tax treaty; (ii) Whether data processing fees paid by the Indian branch to the Singapore branch could be taxed in the hands of the assessee under the royalty and fees for technical services article of the treaty.

Issue (i): Whether the assessee was entitled to claim the tax rate applicable to domestic companies and co-operative banks under the non-discrimination clause of the India-France tax treaty.

Analysis: The issue was treated as covered by earlier orders in the assessee's own case and by coordinate bench decisions. No distinguishing feature was shown to warrant departure from the settled view followed by the Tribunal.

Conclusion: The claim was rejected and the issue was decided against the assessee.

Issue (ii): Whether data processing fees paid by the Indian branch to the Singapore branch could be taxed in the hands of the assessee under the royalty and fees for technical services article of the treaty.

Analysis: The Tribunal held that a foreign enterprise and its branch or permanent establishment are not separate taxable units for this purpose, and an internal charge between parts of the same enterprise is a payment to self. It further held that where the amounts are effectively connected with the permanent establishment, the treaty route shifts the matter to the business profits article, under which only profits attributable to the permanent establishment can be taxed. On those facts, the impugned amount could not again be brought to tax in the hands of the assessee.

Conclusion: The addition was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The assessee succeeded on the second ground and failed on the first, so the appeal was disposed of by granting only partial relief.

Ratio Decidendi: An internal charge between a foreign enterprise and its permanent establishment or branch is a payment to self and does not create separate taxable income in the hands of the foreign enterprise; where the treaty attributes the item to the permanent establishment regime, taxation is confined to profits attributable to that permanent establishment.

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