TaxTMI 
TaxTMI 
2014 (7) TMI 169
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....laneous application filed by the assessee, the Tribunal vide order dated 26th March 2014, has recalled the order for the limited purpose of adjudication of ground no.4. Accordingly, ground no.4, is to be adjudicated by us. The said ground, reads as under:- "4 The CIT(A) erred in confirming the action of the A.O. in not allowing a deduction for Rs. 70,97,938, being interest paid to Head Office / Overseas branches. (i) The amount is not taxable as one cannot derive income from self and no tax is required to be deducted at source. (ii) Article-7(1) of the Treaty provides that if an enterprise carried on business in India, profits that can be attributed to its Permanent Establishment (PE) may only be taxed in India. Article 7(2) of the....
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....the learned Commissioner (Appeals) in Para-8.4. However, the learned Commissioner (Appeals) too rejected the assessee's contention that such an interest payment to the head office should be ignored because it is a payment to self only. The sum and substance of his reasoning was that the global income of the assessee bank is not a subject matter of determination but only for part of its income which has accrued or arisen in India. He also distinguish the decision of the Hon'ble Calcutta High Court as relied upon by the assessee in Betts Hartley Hutte and Co., [1979] 116 ITR 425 (Cal.). 4. Before us, the learned Senior Counsel, Mr. P.J. Pardiwala, on behalf of the assessee, submitted that now this issue stands covered by the decision o....
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....bservation and the conclusion of the Special Bench in Sumitomo Mitsui Bank Corp. are as under:- "50. As regards the deduction of interest payable to the head office in the hands of Indian PE for the purpose of computing profits attributable to the said PE, there is no dispute that such deduction is not permissible under the Indian Income-tax Act (domestic law) being the payment made to self. Both the Indian PE and the foreign GE of which it is a part are not separate entities for the purpose of taxation under the domestic law and the same being one and the same entity recognized as one assessee under the domestic law, interest payable by Indian PE to foreign GE of which it is a part, cannot be treated as expenditure allowable as deductio....
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....n question is payable by the PE in India to the head office of the GE abroad on the moneys lent to it and the same being undisputedly the expenditure incurred for the purpose of PE, we have no hesitation to hold that the same is allowable as deduction while computing the profits of the PE in India for the purpose of taxation in India as per article 7(2) and 7(3) of the treaty read with paragraph No. 8 of the protocol. xxx xxx xxx 88. Keeping in view all the facts of the case and the legal position emanating from the interpretation of the relevant provisions of domestic law as well as that of the treaty as discussed above, we are of the view that although interest paid to the head office of the assessee bank by its Indian branch which ....