TaxTMI 
TaxTMI 
2012 (12) TMI 405
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....me attributable to the India operations in the status of non-resident. It engaged in the business of banking activities in India. During the course of assessment proceeding, it was inter alia observed by the A.O. that the assessee has paid an amount of Rs. 1,22,80,824/- as interest to H.O. on subordinated debt and term deposits. It has been claimed as expenses of the PE and simultaneously it has been offered for taxation of the H.O. at a rate of 10%. The assessee has also deducted tax at source. The assessee was requested to explain as to why it should not be disallowed. In response the assessee filed the submissions vide letter dtd. 28-3-2006 which the A.O. summarized in para 7.1 of the assessment order as under:- (a) The assessee has a....
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....f Rs. 1,22,80,824/- to the total income of the assessee. He further held that simultaneously no interest income is being taxed as income of H.O. as the same is offered by the assessee at lower rate. On appeal the ld. CIT(A) while upholding the views of the A.O. confirmed the addition made by the A.O. He further held that since the A.O. has disallowed the H.O. interest of Rs. 1,22,80,824/-, therefore, the amount of Rs. 36,59,143/- which has been added twice, directed the A.O. to delete the double addition. 3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us taking the following grounds of appeal:- "The appellant objects to the order under section 250 of the Income Tax Act,1961 ("the Act) dated 31 Janua....
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....appeal is without prejudice to the grounds filed by the appellant vide letter Ref. No. 1/5605/782 dated 23 April 2007." 5. At the time of hearing both the parties have agreed that the issue raised in appeal is covered in favour of the assessee by the decision of the Larger Bench of the Tribunal in Sumitomo Mitsui Banking Corporation vs. Dy. Director of Income-Tax (IT), Range 2(1) Mumbai (2012) 136 ITD 66 (Mum) [SB], therefore, the issue may be decided accordingly. The ld. counsel for the assessee further submits that the issue raised in the additional grounds of appeal is born out from the assessment order wherein at page 16 of the order it has been observed by the A.O. that "........Simultaneously no interest income is being taxed as in....
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....e PE which is taxable in India as per the provisions of articles 7(2) & 7(3) of the Indo-Japanese treaty read with paragraph 8 of the protocol which are more beneficial to the assessee. The said interest, however, cannot be taxed in India in the hands of assessee bank, a foreign enterprise being payment to self which cannot give rise to income that is taxable in India as per the domestic law. Even otherwise, there is no express provision contained in the relevant tax treaty which is contrary to the domestic law in India on this issue. This position applicable in the case of interest paid by Indian branch of a foreign bank to its Head Office equally holds good for the payment of interest made by the Indian branch of a foreign bank to its bra....