2016 (3) TMI 1355 - AT - Income Tax

Tribunal rules on tax treaty rates and data processing fees, granting partial relief to appellant.

BNP Paribas SA Versus Additional Director of Income Tax, (International Taxation) – Range – 3, Mumbai.

The tribunal dismissed the appellant's appeal on the applicability of the tax rate under Article 26 of the India-France tax treaty, upholding the CIT(A)'s ... Not accepting the claim of rate of tax applicable to domestic companies and/or co-operative banks also applicable to the Appellant, in accordance with the provisions of Article 26 (Non-discrimination) of the India-France tax treaty - DTAA - HELD THAT:- The issue is covered, against the assessee, by a series of orders passed by the various co-ordinate benches in assessee’s own case as also in the cases of Chohung Bank vs. DDIT [2005 (11) TMI 372 - ITAT MUMBAI] and JCIT vs. Sakura Bank Limited [ [2005 (12) TMI 465 - ITAT MUMBAI] In this view of this undisputed position and the conclusions arrived at by the learned CIT(A) being in harmony with the views of the coordinate benches, we reject the grievance of the assessee. No interference is thus called for. Accrual of income - data processing fees paid by Indian branch offices of the appellant to its Singapore branch, as income of the appellant under Article 13 (Royalties and fees for technical services and payments for the use of equipment) of the India-France tax treaty - HELD THAT:- As decided in assessee's own case [2012 (8) TMI 329 - ITAT, MUMBAI] Payment on account of data processing charges paid to BNP Singapore cannot be taxed in the hands of the assessee. The conclusion arrived at by the coordinate bench, whatever may have been the path traversed by the coordinate bench to reach this point, are the same as arrived at by us. Of course, our reasons are different, as set out earlier in this order, but that does not really matter as on now. We fully agree with the conclusions arrived at by the coordinate bench. We, therefore, direct the Assessing Officer to delete the impugned disallowance - Decided in favour of assessee Issues Involved:1. Applicability of the tax rate for domestic companies and/or co-operative banks to the appellant under Article 26 (Non-discrimination) of the India-France tax treaty.2. Taxability of data processing fees paid by Indian branch offices to the appellant's Singapore branch under Article 13 (Royalties and fees for technical services and payments for the use of equipment) of the India-France tax treaty.Issue-wise Detailed Analysis:1. Applicability of Tax Rate Under Article 26 of the India-France Tax Treaty:The appellant contended that the tax rate applicable to domestic companies and/or co-operative banks should also apply to them in accordance with Article 26 (Non-discrimination) of the India-France tax treaty. The tribunal noted that this issue was previously addressed in the appellant's own case for the assessment year 2008-09, where it was decided against the appellant. The tribunal referenced a series of orders from various co-ordinate benches, including Chohung Bank vs. DDIT and JCIT vs. Sakura Bank Limited, which supported the CIT(A)'s decision. As there were no new arguments or material facts presented to warrant a different conclusion, the tribunal dismissed this ground of appeal, rejecting the appellant's grievance.2. Taxability of Data Processing Fees Under Article 13 of the India-France Tax Treaty:The appellant challenged the taxability of data processing fees paid by its Indian branches to its Singapore branch, arguing that such fees should not be considered income under Article 13 of the India-France tax treaty. The tribunal examined the relevant legal position and material facts, noting that the CBDT circular No. 740, which treated the branch of a foreign company in India as a separate entity for taxation, was not upheld by judicial forums. The Supreme Court in CIT Vs Hyundai Heavy Industries Co Ltd clarified that the taxable unit is the foreign company, not its branch or PE in India. Consequently, an internal charge by the Indian PE does not result in income for the General Enterprise (GE).The tribunal also referenced the appellant's own case for the assessment year 2008-09 and the Special Bench decision in Sumitomo Mitsui Banking Corporation, which held that payments to the head office or other branches do not constitute taxable income. The tribunal concluded that the data processing fees paid to BNP Singapore could not be taxed in the hands of the appellant, as it was an intra-GE charge. The tribunal directed the Assessing Officer to delete the disallowance of Rs. 18,53,83,446, granting relief to the appellant.Conclusion:The tribunal dismissed the first ground of appeal regarding the applicability of the tax rate under Article 26 of the India-France tax treaty, upholding the CIT(A)'s decision. However, it allowed the second ground of appeal concerning the taxability of data processing fees under Article 13, directing the deletion of the disallowance and granting relief to the appellant. The appeal was thus partly allowed, with the decision pronounced in the open court on March 31, 2016.