Non-discrimination under tax treaty rejected, but internal branch charges linked to a PE were not separately taxable.

Article notes two India-France treaty issues under ITAT Mumbai. First, the assessee's request for tax parity with domestic companies and co-operative banks under the non-discrimination article was rejected, following earlier coordinate bench rulings in the same matter. Second, data processing charges paid by an Indian branch to its foreign head office were treated as internal charges within one enterprise; because the services were effectively connected with the permanent establishment, taxation was governed by the business profits attribution framework rather than the royalty or fees-for-technical-services article. On that basis, the related amount was not brought to tax in the hands of the head office, and the appeal succeeded only on this issue.

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Issues: (i) Whether the assessee was entitled to claim the same rate of tax as applicable to domestic companies and co-operative banks under Article 26 of the India-France tax treaty. (ii) Whether data processing charges paid by the Indian branch to the foreign branch could be taxed in the hands of the head office under Article 13 of the India-France tax treaty and whether the related amount could be disallowed.

Issue (i): Whether the assessee was entitled to claim the same rate of tax as applicable to domestic companies and co-operative banks under Article 26 of the India-France tax treaty.

Analysis: The claim was covered against the assessee by earlier coordinate bench decisions in the assessee's own case and by other comparable decisions. The appellate order was found to be in line with that settled view, leaving no basis to accept the plea for parity with domestic entities under the non-discrimination article.

Conclusion: Decided against the assessee.

Issue (ii): Whether data processing charges paid by the Indian branch to the foreign branch could be taxed in the hands of the head office under Article 13 of the India-France tax treaty and whether the related amount could be disallowed.

Analysis: The Indian branch and foreign head office or branch were treated as parts of one taxable enterprise, so an internal charge did not generate separate income in the hands of the foreign enterprise. Since the services were effectively connected with the permanent establishment, Article 13(5) displaced Article 13(1) and (2), and the matter fell within the business profits attribution framework under Article 7. The Tribunal also followed its earlier coordinate bench view that such data processing charges could not be brought to tax in the hands of the assessee.

Conclusion: Decided in favour of the assessee.

Final Conclusion: The appeal succeeded only on the taxability of data processing charges, while the claim for a domestic-rate parity under the treaty was rejected.

Ratio Decidendi: An internal charge between parts of the same foreign enterprise does not create separate taxable income in the hands of the head office, and where treaty-linked services are effectively connected with the permanent establishment, taxation is governed by the business profits article rather than the royalty or fees-for-technical-services article.

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