Mutuality shields branch-to-head-office payments from tax, while a treaty rate claim under the India-France DTAA was rejected.

A payment by an Indian branch to its head office was treated as a payment to self, so the principle of mutuality prevented tax on data processing fee and interest for the relevant assessment year; the later amendment to section 9(1)(v)(c) was held inapplicable retrospectively. By contrast, the claim to the tax rate applicable to domestic companies and co-operative banks under Article 26 of the India-France DTAA was rejected because the issue had already been consistently decided against the assessee on the same facts. The cross appeals were disposed of issue-wise on that basis.

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Issues: (i) whether the rate of tax applicable to domestic companies and co-operative banks was available to the assessee under Article 26 of the India-France Double Taxation Avoidance Agreement; (ii) whether data processing fee received by the assessee from its Indian branch was chargeable to tax in India; and (iii) whether interest received by the assessee from its Indian branches was taxable in India.

Issue (i): whether the rate of tax applicable to domestic companies and co-operative banks was available to the assessee under Article 26 of the India-France Double Taxation Avoidance Agreement.

Analysis: The claim was a recurring one and had already been consistently rejected in the assessee's own case for earlier assessment years. In the absence of any material difference in facts, the consistent view already taken in the assessee's case was followed.

Conclusion: The issue was decided against the assessee.

Issue (ii): whether data processing fee received by the assessee from its Indian branch was chargeable to tax in India.

Analysis: The amount represented a payment by the branch to the head office and was treated as a payment to self. The recurring dispute had already been decided in favour of the assessee in earlier years, and the principle of mutuality was held to apply. The later statutory amendment to section 9(1)(v)(c) of the Income-tax Act, 1961 was noted as applicable only from a later assessment year and did not govern the year under appeal.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Issue (iii): whether interest received by the assessee from its Indian branches was taxable in India.

Analysis: The issue had repeatedly been decided in the assessee's favour on the ground that interest paid by the Indian branch to the head office is a payment to self and falls within the principle of mutuality. The Special Bench view was followed, and the later explanation to section 9(1)(v)(c) of the Income-tax Act, 1961 was held inapplicable to the assessment year in question.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The assessee failed on the tax-rate discrimination claim, but succeeded on the taxability of data processing fee and interest income. The cross appeals were disposed of in accordance with the above issue-wise findings.

Ratio Decidendi: A payment by an Indian branch to its head office is treated as a payment to self and, where the principle of mutuality applies, it is not taxable for the relevant assessment year; a later statutory amendment cannot be applied retrospectively unless so provided.

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