2018 (8) TMI 1856 - AT - Income Tax

Appeal Dismissed on Tax Rate, Appeal Allowed on Interest Payments

The Tribunal dismissed the appeal regarding the applicability of the tax rate under Article 26 of the India-France Tax Treaty, affirming that the higher ... 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 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. Taxability of interest paid by Indian Branch Office of the assessee to its head office - subject to proving the assessee that it made such claim in its return of income filed in original for Assessment Year 2011-12 by way of notes to return that were uploaded with the same return of income - HELD THAT:- We find that the issue taxability of interest paid by the assessee to its head office has been decided in favour of the assessee by the Tribunal for Assessment Year 2000-01 and 2001-02 [2013 (7) TMI 1134 - ITAT MUMBAI] , Assessment Year 2002-03 and 2003-04, Assessment Year 2004-05 Assessment Years 2006-07 & 2007-08 and for Assessment Year 2010-11 - Decided in favour of assessee. Issues Involved:1. Applicability of tax rate under Article 26 (Non-discrimination) of the India-France Tax Treaty.2. Taxability of interest paid by the Indian Branch Office to its head office.Issue-wise Detailed Analysis:1. Applicability of Tax Rate under Article 26 (Non-discrimination) of the India-France Tax Treaty:The assessee challenged the rate of tax applicable to domestic companies and co-operative banks, claiming it should also apply to them under Article 26 of the India-France Tax Treaty. The Tribunal noted that this issue had been previously decided against the assessee in various assessment years, including AY 2010-11. In these cases, the Tribunal referred to the Explanation in Section 90 of the Income Tax Act, which clarifies that a higher tax rate for foreign companies does not violate the non-discrimination clause. The Tribunal also cited the Supreme Court judgment in ACIT Vs. J.K. Synthetics, which supported this interpretation. Consequently, the Tribunal dismissed the assessee's ground, stating, 'No contrary decision was brought to our notice,' and thus, 'this issue is decided against the assessee.'2. Taxability of Interest Paid by Indian Branch Office to its Head Office:The second ground raised by the assessee pertained to the taxability of interest paid by its Indian branch to its head office. The assessee argued that this issue had been decided in their favor in earlier Tribunal orders. The Tribunal reviewed the relevant orders, including those for AY 2001-02 to 2003-04 and the Special Bench decision in Sumitomo Mitsui Banking Corporation Vs. DDIT, which held that such interest payments are not taxable under the principle of mutuality. The Tribunal noted that the Departmental Representative did not dispute the factual matrix or the applicability of these prior decisions. The Tribunal concluded that the issue is covered by the earlier orders and decided in favor of the assessee, stating, 'the department was not justified in subjecting to tax the interest paid by the Indian Branch of the assessee to its head office and overseas branches.'Conclusion:The Tribunal dismissed the appeal regarding the applicability of the tax rate under Article 26 of the India-France Tax Treaty, affirming that the higher tax rate for foreign companies does not violate the non-discrimination clause. However, it allowed the appeal concerning the taxability of interest paid by the Indian branch to its head office, following previous Tribunal decisions that such interest payments are not taxable. The final order pronounced in the open court concluded with the appeal being partly allowed.