Branch-to-head-office interest, depreciation continuity, and transfer pricing benchmarking drove a mixed tribunal outcome with remand.

Interest payable by an Indian branch to its overseas head office was treated as not taxable in India, so the related withholding disallowance under section 40(a)(i) could not survive; the Tribunal also upheld depreciation on assets already added in earlier years because the claim had been allowed in prior years and no infirmity was shown. By contrast, the transfer pricing disputes on guarantee commission and inter-bank placements required fresh benchmarking on a proper FAR and comparability analysis, and the ad hoc enhancement was not sustained. The taxability and depreciation issues were upheld, while the transfer pricing matters were remanded for de novo examination.

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Issues: (i) whether interest payable by the Indian branch to its overseas head office was taxable in India and whether disallowance under section 40(a)(i) could survive; (ii) whether the depreciation claim in respect of assets added in earlier years was liable to be disallowed; (iii) whether the transfer pricing adjustment on guarantee commission and inter-bank placements required fresh benchmarking.

Issue (i): whether interest payable by the Indian branch to its overseas head office was taxable in India and whether disallowance under section 40(a)(i) could survive.

Analysis: The issue was covered by the Tribunal's earlier orders in the assessee's own case, following the Special Bench view that interest paid by an Indian branch to its overseas head office is not chargeable to tax in India. Once such interest is not taxable in India, the withholding-related disallowance could not be sustained on the same footing. No change in facts or law for the relevant years was shown.

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

Issue (ii): whether the depreciation claim in respect of assets added in earlier years was liable to be disallowed.

Analysis: Depreciation is a year-to-year allowance dependent upon the existence and treatment of the underlying block of assets in preceding years. Since the earlier years' orders had already granted depreciation on the relevant assets, no infirmity was found in the appellate relief allowing the claim for the year under consideration.

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

Issue (iii): whether the transfer pricing adjustment on guarantee commission and inter-bank placements required fresh benchmarking.

Analysis: For guarantee commission, the material on record did not sufficiently establish the counter-guarantee structure or the risk allocation, and the benchmarking adopted by both sides required proper FAR analysis under the transfer pricing rules. The ad hoc 10% enhancement adopted in appeal was also not supported by a proper comparability analysis. For inter-bank placements, the benchmarking adopted by the assessee using USD depo rates had not been properly examined, and the assessee's claim required verification against the actual day-wise rates. In both matters, de novo benchmarking by the TPO was warranted.

Conclusion: The issues were remanded for fresh benchmarking and were not finally decided on merits.

Final Conclusion: The common order sustained the relief on taxability of interest and depreciation, while sending the transfer pricing disputes on guarantee commission and inter-bank placements back for fresh examination, resulting in a mixed outcome with statistical relief only on the remitted issues.

Ratio Decidendi: Interest paid by an Indian branch to its overseas head office is not taxable in India when the underlying payment is not chargeable to tax, and transfer pricing adjustments must rest on proper comparability and FAR-based benchmarking rather than ad hoc estimation.

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