Treaty relief, CSR-linked donation deductions, and no TDS on overseas Nostro account charges were recognised.

Nostro account charges paid to foreign banks for overseas accounts were held not disallowable for want of tax deduction at source because the debit arose outside India, had no Indian nexus, and was not shown to be managerial, technical, or consultancy service income; the disallowance was deleted. Donation components carved out of CSR spending were held capable of deduction under section 80G if the statutory conditions were otherwise met, since CSR character does not bar a genuine qualifying donation; relief was allowed subject to those conditions. Interest paid by the Indian permanent establishment to its head office was held taxable at the more beneficial treaty rate under Article 11 of the India-UAE DTAA, and the higher domestic rate was not applied.

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Issues: (i) Whether Nostro account charges paid to foreign banks for accounts maintained outside India were disallowable for want of tax deduction at source, (ii) whether donation components carved out of CSR expenditure could qualify for deduction under section 80G, and (iii) whether interest paid by the Indian permanent establishment to its head office was taxable at the treaty rate under Article 11 of the India-UAE DTAA rather than at the higher rate applied under domestic law.

Issue (i): Whether Nostro account charges paid to foreign banks for accounts maintained outside India were disallowable for want of tax deduction at source

Analysis: The charges were recovered directly by debit to the assessee's overseas account maintained outside India, with no remittance by the assessee in India. The income arose from a source outside India and had no nexus with the permanent establishment in India. The foreign bank charges were not shown to be managerial, technical, or consultancy services. The Tribunal followed the coordinate bench view that no tax deduction at source was required on such bank charges.

Conclusion: The disallowance was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether donation components carved out of CSR expenditure could qualify for deduction under section 80G

Analysis: Although CSR expenditure is not deductible under section 37, there is no statutory bar against claiming deduction under section 80G for a qualifying donation made out of CSR spending, provided the conditions of section 80G are otherwise satisfied. The Tribunal applied the coordinate bench approach and held that the character of the payment as a donation, and not merely as CSR outgo, governs eligibility for the deduction.

Conclusion: Deduction under section 80G was allowed subject to fulfilment of the statutory conditions, in favour of the assessee.

Issue (iii): Whether interest paid by the Indian permanent establishment to its head office was taxable at the treaty rate under Article 11 of the India-UAE DTAA rather than at the higher rate applied under domestic law

Analysis: The Tribunal applied section 90(2) and Article 11 of the India-UAE DTAA and noted that the treaty permitted taxation of interest in the source State subject to the stipulated cap. It also relied on CBDT Circular No. 740 and coordinate bench precedent to hold that the domestic law rate could not prevail where the treaty afforded a more beneficial rate. The lower authorities did not rebut the assessee's entitlement to treaty relief.

Conclusion: The interest was held taxable at 5% under the treaty, in favour of the assessee.

Final Conclusion: The appeal succeeded on the principal transfer and treaty-taxation issues, while the remaining grounds were treated as academic, premature, or not requiring separate adjudication, resulting in only partial relief to the assessee.

Ratio Decidendi: Where a payment to a non-resident arises from an overseas account with no Indian nexus and no PE attribution, section 40(a)(i) cannot be invoked absent deductible tax; CSR-linked donations may still qualify under section 80G if the statutory conditions are met; and a more beneficial treaty rate under section 90(2) prevails over a higher domestic rate for interest taxation under Article 11 of the applicable DTAA.

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