TaxTMI 
TaxTMI 
2010 (12) TMI 340
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....y a limited transaction made by this bank and the effects thereof, for the purpose of computing its income. 5. In course of its banking activities the appellant's said branch in India remits substantial funds to its head office as payment of interest. While the appeal was being argued, it was submitted by Mr. R.N. Bajoria, learned senior Advocate for the appellant, that there is a continuous process of the said branch receiving interest from its head office and other branches and remitting of interest by the branch to the head office and other branches. This interest accrues according to him on funds of the head office or the branch as the case may be, treated to be held by the other unit. 6. There was a convention between the Governments of India and Netherlands for inter alia avoidance of double taxation. The said convention became operational from 21st January 1989. In exercise of powers under Section 90 of the Act the Central Government by a notification dated 27th March 1989 amended by a notification dated 30th August 1999 gave effect to it. 7. Now, the articles of this convention have assumed great significance in deciding the issues in this appeal. There are ....
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.... He has further said that the Head Office and the Permanent establishment in India, i.e. the branch are to be treated as different entities for the purpose of taxation. The Indian branch is to be treated like a separate assessee, by creating a fiction .Under the said agreement while computing profit from business the said two entities have to be treated separately. Interest remitted from India can be deducted as an expense. No tax is to be deducted as, for such purpose, the Indian branch and the foreign Head Office are one entity. Further the profit of the Indian establishment has to be computed proportionately to the total profit on the basis of profit which is properly attributable to India. He has cited the decisions of the Supreme Court in Commissioner of Income Tax and Anr vs Hyundai Heavy Industries Co Ltd & Ors reported in 291 ITR Pg 482, Sir Kikabhai Premchand vs Commissioner of Income Tax (Central)Bombay reported in 24 ITR 506, Anglo French Textile Company Ltd vs Commissioner of Income Tax Madras reported in 25 ITR 27 and Betts Hartley Huett and Co Ltd vs Commissioner of Income Tax,West Bengal-II Calcutta reported in 116 ITR425 and Director of Income Tax (International tax....
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....ty to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections "subject to the provisions" of the Act. The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under section 90 towards implementation of the terms of the DTAs which would automatically override the provisions of the Income-tax Act in the matter of ascertainment of chargeability to income-tax and ascertainment of total income, to the extent of inconsistency with the terms of the DTAC." 18. Such issues, as noted above, are very limited. First, is the question of separate taxable entities. If one is to make an interpretation of the word "assessee" in section 2(7) read with the definition of "person" in 2(31), a branch of a company not being an artificial juridical person is not to be taken as a separate assessee/entity. But under Article 5(2) of the convention or agreement defining "permanent establishment" a branch is to be taken as a permanent establishment and if it is further read with article 7, this permanent establishment or branch....
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....ale by the head office to the branch is not in issue here and, therefore, we are not called upon to determine its effects. But the remittance of interest is made on the premise that the head and the branch offices are separate entities and interest is payable by the branch to the head office. Under this agreement this branch is described as a permanent establishment, treating as if as a separate entity. Therefore, as far as the remittance of interest is concerned it cannot be said that the branch or permanent establishment and the head office are one entity. Neither can the permanent establishment nor the branch, and the head office be treated as one entity for the purpose of deduction of tax under section 195 (1), as explained below. 22. The Supreme Court in Commissioner of Income Tax and Anr vs Hyundai Heavy Industries Co Ltd & Ors reported in 291 ITR Pg 482 specifically stated the principles on which profits of a company had to be apportioned between the head office and the permanent establishment in India for the purpose of taxation. Therefore on the basis of the above decisions and the international agreement the permanent establishment of the foreign company in Indi....