TaxTMI 
TaxTMI 
2014 (10) TMI 150
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....orate and individual clients (for e.g. Japanese Companies and Joint Ventures in India and the Japanese expatriates working in those companies and deputed in India). The assessee operated in India under license from the RBI and was governed by the Banking Regulation Act, 1949. The branches of the assessee in India constituted a permanent establishment in India, within the meaning of Article 5 of the DTA. Therefore, the profits earned by such PE of the assessee in India were computed in accordance with the provisions of Article 7 of the DTA by assessee. 3. The assessee e-filed its return of income on 31st October, 2007 declaring total income at Rs. Nil. The AO passed draft order, dated 23/12/2009, determining the total income at Rs. 118,28,68,119/- and book profits as per MAT provisions at Rs. 860946889/-. Since the tax payable under normal provisions of Income-tax Act was more than tax payable under MAT, AO computed the tax liability in the draft assessment order using normal provisions of the Act. 4. The assessee filed objections before ld. Dispute Resolution Panel - II dated 03/02/2010. Ld. DRP gave directions u/s 144C(5) vide order dated 24th September, 2010 which were subs....
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....ure as per Article 7(3) of DTAA; b) That the Hon'ble DRP and AO have erred in observing that the nature of expense is covered u/s 44C of the Act read with clause (b) of Explanation (iv) to the section, even though, the said amount is incurred exclusively and for direct benefit of Indian operations of the appellant; c) That the AO has, while complying with the directions of the Hon'ble DRP, erred in relying on then order of the CIT(A) for earlier years wherein the CIT(A) has erred in not following the decision of the Third Member, Kolkata Tribunal in the case of ABN Amro Bank NV vs. JCIT (96 TTJ 1041) by incorrectly stating that the said decision was rendered in the context of section 40(a)(i) and not u/s 44C of the Act. 2. Addition on account of Interest paid to Head Office and other overseas branches of the Bank amounting to Rs. 133,497,526 That on the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the addition proposed by the AO in the draft assessment order by holding that the appellant was required to deduct tax at source u/s 195 of the Act on the payment of interest to overseas branches/head office, and accordingly, the....
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.... of a 'debt claim' as contemplated under Article 11 of the DTAA. f) Without prejudice to ground no. 2, the Hon'ble DRP and AO have erred in not appreciating that separate addition of Rs. 133,497,526 relating to interest paid on borrowings from HO/overseas branches would tantamount to double taxation, which is against all canons of taxation. 4. Interest amounting to Rs. 27,659,232 accrued/received by the Indian PE from its HO/overseas branches. That on the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in confirming the addition, as proposed in the draft assessment order, for an amount of Rs. 27,659,232 being the interest accrued/received by the Indian PE of the appellant on funds lying with the Head Office/overseas branches outside India, and accordingly the order of the AO based on DRP's instructions is bad in law as well as on facts, on the following counts: a) The Hon'ble DRP and AO have erred in not appreciating that the interest received by the Indian branches is not chargeable to tax in India in accordance with the provisions of the Act, being 'receipts from self'. b) The Hon'ble DRP and AO have ....
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....ts before an Annual General Meeting (AGM) as per section 210 of the Companies. d) The Hon'ble DRP and AO have erred in not appreciating the legislative intent behind the introduction of the said provisions and holding that the provisions of section 115JB of the Act were applicable to the appellant's case. 6. Addition on account of interest received on External Commercial Borrowings ("ECBs") given to Indian Borrowers That on the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in confirming the addition, as proposed in the draft assessment order, in respect of interest received by then appellant on ECBs given to Indian borrower parties, and accordingly the order of the AO based on DRP's direction is bad in law as well as on facts on the following counts: a) the Hon'ble DRP & AO have erred in making an addition on account of interest received on ECBs, by not appreciating that since the ECBs given are effectively connected with the PE of the appellant, the taxability of such interest is governed by Article 7 of the DTAA in terms of Article 11(6) of the DTAA. b) The Hon'ble DRP & AO have erred in not appreciating that unde....
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....income on account of interest received by the appellant on ECBs. 8. Treatment in respect of Deferred Bank Guarantee Commission a) That on the facts and circumstances of the case and in law, the Hon'ble DRP & AO have erred in treating the commission received on guarantees as taxable on receipt basis in the year in which the commission is received. b) That on the facts and circumstances of the case and in law, the Hon'ble DRP & AO have failed to appreciate that the appellant follows mercantile method of accounting according to which, the commission falling due for the relevant previous year on accrual basis can only be taxed. c) That on the facts and circumstances of the case and in law, the Hon'ble DRP & AO have erred in not following the decision of the Hon'ble Calcutta High Court in the appellant's own case for the AY 1981-82. d) Without prejudice to the above, on the facts and circumstances of the case and in law, the Hon'ble DRP and AO have erred in not appreciating that if the guarantee commission were to be taxed on receipt basis, it would result an additional deduction of Rs. 3,926,300 since the guarantee commission offered to tax on acc....
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....rrency (in Japanese Yen) outside India. The salaries so paid by the Head Office in Japanese Yen are credited to the bank accounts of the individual employees maintained in Japan. Balance of their salaries was paid in Indian Rupees by the branches of the assessee situated in India. The assessee also bears the Indian tax payable on such salaries, therefore, there is grossing up of tax. The consequential taxes are thus deducted and deposited with the Indian Government treasury. Whole of the salary paid (comprising of both the salary paid outside India as well as the amount paid in India) to such expatriate employees is duly taxed in India in the hands of such expatriates. The Profit and Loss Account prepared by the assessee in respect of its Indian branches for the relevant assessment year was debited, inter-alia, with only that portion of the salary which was paid in Indian rupees by the branches in India. In other words, the salary paid in foreign currency by the Head Office was not routed through the profit and loss account of the Indian branches. Therefore, while computing the profits attributable to the Permanent Establishment ('PE') of the assessee in India, in the re....
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....e outside India, which may be for the exclusive and direct benefit of the Indian branch. The scope of Head Office expenditure, as provided in sec. 44C is very wide, and all such expenses of an administrative nature incurred outside India would come within the ambit of the definition of Head Office expenditure, subject to the limit of 5% of the total income as provided by sec. 44C. The impugned expenditure of Rs. 127,955,895/- has been incurred by the Head Office situated outside India, and has been debited to the accounts of such Head Office. The head office has not raised any debit notes on the assessee. There has been no settlement of accounts with the Head Office. The head office has not raised any debit notes on the assessee. There has been no settlement of accounts with the Head Office. From these facts, it is clear that even if these expenses are made in respect of Indian Branch, the liability in respect of such expenses is borne by the Head Office and the same is not passed on to the assessee bank. Also, these expenses are incurred outside India and cannot be subjected to verification. 3.5 The assessee has also argued that the provisions of section 44C are not attracted to t....
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.... on the ground that the Bench had examined the issue of allowability of claim of deduction of remuneration with reference to provisions of section 40(a)(i), whereas, in the case under consideration, the disallowance of salary had been made u/s 44C of the Income Tax Act. Ld. Counsel referred to page 295 of paper book, wherein the details of expatriate employees working for the Indian branches during the year are contained to demonstrate that the employees had been sent on deputation from the head office for rendering services to the Indian branches on whole time basis. Ld. Counsel referred to detailed reply filed before AO in this regard contained at pages 266 onwards of paper book. In regard to the objections regarding verifiability of expenditure, ld. Counsel referred to page 297 of paper book, wherein form no. 16 in respect of Mr. Kita Aeb whose name appeared at page 295 of paper book, containing details of expatriate employees is contained, to demonstrate that from form no. 16, the salary paid to expatriate was verifiable. 9.2 Ld. Counsel referred to section 44C and pointed out that the said section has been incorporated in the statute to allow deduction of head office expend....
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....k of Middle East vs. JCIT,4 SOT 122, Bombay, wherein also similar view has been taken. 9.5 Ld. Counsel further relied on the decision in 13 SOT 524 (Del.) in the case of ANZ Grindlays Bank Ltd. vs. DDIT, wherein Tribunal followed the earlier years orders, wherein it was, inter-alia, held that since the benefits reaped by the Indian branch or permanent establishment in India have been accounted for as Indian income, therefore, there was no reason as to why the deduction of expenditure should not be allowed. 9.6 Ld. Counsel further referred to the decision in the case of Bank of America NT and SA vs. DCIT 27 SOT 97 (Mum.), wherein also similar view was taken and it was, inter-alia, held that the provisions of section 44C and limitations provided therein are inapplicable in respect of expenses incurred exclusively for Indian branches. Ld. Counsel further relied on the decision in the case of Bombay High Court in CIT v. Emirates Commercial Bank Ltd. [2003] 262 ITR 55(Mum.), wherein the Hon'ble Bombay High Court approved the view taken by the Tribunal. 10. Ld. CIT(DR) Shri D.K. Gupta relied on the order of AO and submitted that these expenses were covered u/s 44C being incurre....
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....ition on account of income of the assessee pertaining to receipt of interest from Indian branches amounting to Rs. 133497526/-. 15. Ground 4 is in regard to addition on account of interest amounting to Rs. 27659232/- accrued/received to the Indian PE from its head office/overseas branches. 16. All these grounds are in regard to interest received/ payment Intra Group being between head office and assessee's PE in India for which the arguments were advanced covering all the three grounds. First we will deal with ground nos. 2 & 3 and, thereafter, separately decide ground no. 4. However, since arguments for all the three grounds have been advanced by both sides together, we will take note of them accordingly. 17. Brief facts apropos ground no. 2 are that AO noticed that assessee had paid an interest of Rs. 133497526/- without making any deduction of tax at source. He pointed out that PE of the assessee bank is a separate entity for the purpose of taxation and on this ground assessee had claimed deduction of the interest paid to head office. He further pointed out that the interest paid by the PE to the head office was liable to tax in India and, accordingly, it was subjec....
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....t establishment the profits which it might be accepted to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. Thus, for the purpose of Article 7(2), the permanent establishment is treated as distinct and separate enterprise which implies the direct method of separate accounting by the PE. He further pointed out that the provisions of Article 7(3) of the DTA makes it amply clear that in determining the profits of the permanent establishment, there shall be allowed as a deduction expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses so incurred, whether in the contracting state in which a permanent establishment is situated or elsewhere. Ld. Counsel further submitted that paragraph 8 of the Protocol no doubt makes it clear that no deduction shall be allowed for any payments made or amounts charged by a PE of an enterprise to its head office for the items specified therein, however, exception has been carved out and it is specified that a....
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....f DTAA. Ld. CIT(DR) further submitted that the question is whether after exercising his option under a particular scheme of taxation can the assessee go back to the other scheme of taxation, if it is more beneficial. Ld. CIT(DR) submitted that hybrid computation by adopting pick & choose method is not permissible. Once the assessee has adopted the DTA then the entire computation has to be made as per DTA. In this regard ld. CIT(DR) referred to the decision of ITAT Mumbai Bench in the case of Dresdner Bank AG vs. ACIT 2006-TII-20-ITAT-Mum.-INTL. He referred to para 78 which is reproduced as under: 78. "Undoubtedly, in a case where the Government of India has entered into a tax treaty with a foreign country, then in relation to an assessee on whom such tax treaty applies, the provisions of the Income Tax Act apply only to the extent these are more beneficial to the assessee. However, once assessee himself abandons his option to be assessed to tax in accordance with the provisions of the tax treaty, as is the situation before us, it cannot be open to assessee to go back for the treaty protection on one aspect of the tax assessment i.e. on applicability of minimum alternate tax u/s ....
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....f Rs. 4.23 crore by the PE to the HO is a payment to self and hence cannot be allowed as deduction in the hands of PE. As a result thereof, the provisions of section 40(a)(i) were held to be not applicable. Since the assessee is a non-resident governed by the provisions of the DTAA, it is entitled t the benefits of DTAA, if the quantum of income or the overall tax liability turns out to be less as per the DTAA vis-à-vis the domestic law. In the absence of any discussion about the computation of the business profits of the permanent establishment as per the DTAA, it is not possible to determine as to whether or not the computation under the DTAA is more beneficial to the assessee. In our considered opinion that ends of justice would adequately meet if the impugned order is set aside and the matter is restored to the file of AO for computation of income of the assessee as per the DTAA as well after allowing a reasonable opportunity of being head to the assessee. We order accordingly. After such computation, the AO will compare the income of the permanent establishment as per domestic law and the DTAA. The liability to tax on the assessee in respect of the income of the PE woul....
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.... company, which is more than 15 per cent. Therefore, on making the assessment of tax under the treaty and under the Act, it will be found that tax payable under the Act is more than the tax payable under the treaty. Accordingly, the aforesaid provision will come to the aid of the assessee to come to an automatic conclusion, without exercise of any option, that it should get the benefit under the Double Taxation Avoidance Agreement. No other consideration is material for this purpose as ultimately what is to be seen is whether the provisions of the Act are more beneficial to the assessee or not. Accordingly, it is held that the assessee is entitled to the benefit under the treaty." 25.1 He, therefore, submitted that Spl. Bench has approved the view taken in M/s Lloyd Registrar (supra). He further relied on the decision in the case of Deputy Director of Income Tax (Mum.) vs. M/s Tokyo Engineering Corporation (2012)-TII-55-ITAT-Mum.-INTL and referred to para 11.2 at page 15 & 16 of the said order, which is reproduced here under: 11.2 "A bare perusal of the above provision indicates that where the Central Government has entered into DTAA with the Government of any other country for ....
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....applies, has been given option to be governed by the Act or DTAA, whichever is more beneficial to it." 25.2 Thus, in sum and substance, ld. CIT(DR) submitted that assessee can be assessed either under DTA or domestic law, whichever is more beneficial but once the option is exercised to be assessed under a particular scheme of taxation then the said option cannot be reverted back for adopting the other scheme. Ld. CIT(DR) submitted that assessee had opted to be assessed under domestic law. In this regard he referred to page 327 of the paper book dated 18.1.2012, wherein the copy of Return of Income is contained and also to pages 333 and 334, wherein the statement of computation of taxable income/loss is contained and pointed out that assessee itself had computed income under the head "profit and gains of business or profession" at Rs. 695920087/- which was set off against the brought forward business losses. Ld. CIT(DR) also referred to page 336 of paper book, wherein the computation of taxable income as per ITAT u/s 115JB is contained. He, therefore, submitted that once the assessee had opted for being assessed under domestic law then assessee could not take shelter of the provi....
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....he ld. Counsel for the assessee has not adverted to the relevant clauses of the relevant Treaty and has thus restricted himself only to the principle of mutuality. Respectfully following the principle of mutuality arising from the above special bench orders, we overturn the impugned order on this issue and direct that neither the interest income should be charged to tax nor the interest expenditure be allowed as deduction. This ground is accordingly allowed." 27. He, therefore, submitted that under domestic law since concept of mutuality applies so neither deduction nor taxation of the same amount can be made. However, as regards the taxability aspect, ld. CIT(DR) relied on AO's order and pointed out that AO applied the deeming provisions contained u/s 9(1)(v) and did not apply the concept of mutuality. 28. Ld. CIT(DR), further illustrating this issue, with reference to position under treaty, submitted that there is no dispute that in view of Article 11(6) Article 7 applies because assessee was operating through PE and, therefore, the deduction of interest paid to head office by PE is to be allowed as per Article 7(2),7(3) read with clause (c) of para 8 of Protocol. He su....
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....anent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise, or any of its other offices." 29. Ld. CIT(DR) further referred to para 8 of Indo Japanese Treaty Protocol which reads as under: - 8. "With reference to paragraph 3 of article 7 of the Convention, no deduction shall be allowed in respect of amounts paid or charged (other than reimbursement of actual expenses) by a permanent establishment of an enterprise to the head office of the enterprise or any other offices thereof, by way of : (a) royalties, fees or other similar payments in return for the use of patents or other rights, or for the use of know-how; (b) commission or other charges, for specific services performed or for management; and (c) interest on moneys lent to the permanent establishment; except where the enterprise is a banking institution." 30. With reference to above, ld. CIT(D....
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....ch as not taxable in the hand of the Indian Branch of assessee." 5. We have considered the rival submissions as well as the relevant material on record. Having held that the interest income received from the HO is not taxable in view of principle of mutuality, the question arises whether such income which has to be excluded from the total income, shall be the gross receipts or net income after deduction of the expenditure incurred in relation to earning of such income. The aspect of total income under the scheme of Income Tax is understood as the earning of the assessee from all the sources as classified under different heads of income reduced by the expenditure directly and indirectly incurred in relation to the earning of the income and further deducting all the allowable claims and the exemption/deduction while computing the total income. Thus, the total income chargeable to tax means the net income computed from the gross receipts after the deduction of the allowable expenditure and other deductions. As per the scheme of the Income Tax, the income which is chargeable to tax is computed after the deduction of the expenditure which has been incurred for earning such taxable in....
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....n, the natural and logical conclusion which therefore has to follow is that no deduction should be allowed towards expenses incurred in relation to such exempt income. We, therefore, hold in principle that the provisions of section 14A are attracted on the interest earned by the assessee from placement of funds with its head office/overseas brandies which has been claimed and allowed as exempt on the principle of mutuality. The ld. AR unsuccessfully tried to argue that the funds for such placement with head office/overseas branches were made available from the assessee's own kitty of interest free available funds. This argument runs contrary to the specific submission made by the assessee before the AO, which has been reproduced above, by which the assessee submitted that its "placement with the head office" Overseas branches are funded by way of deposits in the foreign currency maintained in India such as EEFC and FCNR deposits". Once the assessee is specifically admitting the placement of funds with head office/overseas branches out of interest bearing deposits, it cannot be argued that the source of such funds was different. We, therefore, hold that the source of the funds p....
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....ent order, we are of the view that the additional ground raised by the revenue is not bringing altogether a different case thereby undoing what has been done by the AO and accordingly, it would not go beyond the assessment order by raising a new issue or subject matter. But the issue in the additional ground is arising as a result of finding on the subject matter of taxability of interest income received from HO. The Special Bench of the Tribunal in the case of Prakash L. Shah (supra) is not applicable to the facts of the case in hand. Therefore, we do not agree with the contention of the ld. AR on this point. 14. As we have discussed above, the issue of applicability of section 14A has been covered by the decision of the coordinate Bench of the Tribunal in the case of M/s Societe Generale (supra). Accordingly by following the decision of the coordinate Bench of this Tribunal, we hold that the provisions of sec. 14A are applicable on the exempt interest income earned from the HO/overseas Branches." 32. Ld. CIT (DR) submitted that in view of above decision the disallowance u/s 14A has to be made if the interest earned by the PE is held to be non- taxable. He, therefore, submit....
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....e computing the profits attributable to the Indian operations of the assessee under Article 7(1) read with Article 7(3) of the DTAA and paragraph 8 to the Notes appended to DTAA. The assessee is not liable to deduct tax on such payments as has been held by the Hon'ble Special Bench of Kolkata Tribunal while dealing with the case of ABN Amro Bank NV and in the case of the assessee (then known as Bank of Tokyo Mitsubishi Ltd.), reported in 280 ITR 117." 34. With reference to these notes, ld. Counsel submitted that it is wrong to plead that computation had been made under the domestic law. 35. Ld. Counsel further referred to the decision in the case of IBM World Trade Corporation vs. DCIT (International Taxation) (2012) 54-SOT-39 (Bang.) and pointed out that Tribunal has considered the issue of taxation simultaneously both under domestic law as well as treaty and has upheld the same, inter-alia, observing as under: "In the instant case on hand, the assessee has not invoked or applied the provisions of the Treaty selectively. The assessee has computed the tax on royalty income arising from two different contracts falling under two different limbs of section 115A( 1) (b) at....
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....es should be charged to tax. 22. The learned Departmental Representative vehemently relied on the order passed by the Mumbai Bench of the Tribunal in the case of Dresdner Bank AG v. Addl.CIT [(2007) 108 ITD 375 (Mum.)} to contend that such interest / commission income was liable to tax. The learned Departmental Representative also supported his contention by relying on the order passed by the Tribunal in assessee's own case for assessment years 1983-84 to 1985-86, a copy of such order dated 9th March, 1998 in ITA Nos.2089 to 2091/Bom/91 was placed on record. In the opposition the learned AR relied on the five Members Special Bench order in the case of Sumitomo Mitsui Banking Corpn. V DDIT [(2012) 19 Taxmann. com 364 (Mum.) (SB)} to contend that such interest / commission received from HO cannot be charged to tax. He also relied on a subsequent order passed by the Mumbai Bench of the Tribunal in the case of Oman International Bank S.A. O. G. v. ACIT In this order dated 29th June, 2012, the Tribunal, after considering the five Member Special Bench order in the case of Sumitomo Mitsui Banking Corpn. (supra), has held that the interest received from HO / overseas branches cannot....
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....eficial to that assessee". The sub-section is applicable only to the cases governed by avoidance of double taxation treaty. There is thus no justification for holding that foreign nationals having selected to be governed by double taxation treaty cannot ask for application of any provision of the IT Act even when such provision is beneficial to them. The choice of selection is clearly with the foreign nationals and not with Revenue authorities. The intention of the legislature and spirit to grant benefit and choice to the foreign national is manifestly clear. In view of above provision and other reasons recorded earlier, we direct the AO to allow depreciation to the assessee as per provisions of the IT Act." 37. With reference to aforementioned decisions ld. Counsel submitted that the assessee company was being taxed as per the provisions of treaty and, therefore, the provisions of the Act were to apply to the extent that they were more beneficial to the assessee. 38. As regards the plea of ld. CIT(DR) regarding netting off of interest income, ld. Sr. Counsel pointed out that if no income arises, there is no question of section 14A. Ld. Sr. Counsel referred to page 44 of Sumi....
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....h in the case of Sumoto Mitsubishi Banking Corporation (supra). Therefore, the first issue to be decided is whether the decision in the case of Sumitomo Mitsui Banking Corporation (supra) holds the field on this issue in the backdrop of decision in the case of Clogue Engineering Ltd. or not. We find that in Clogue Engineering Ltd. Tribunal has observed that proper appreciation of the words "more beneficial" as found u/s 90(2) needs to be appreciated for proper adjudication of the dispute before it. The Tribunal further observed, as noted earlier in the arguments advanced by ld. DR, that this point had not been elaborated upon by any of the contending parties, but Tribunal came to the conclusion that application of this provision can be made after ascertaining the tax payable by the assessee under the double taxation avoidance agreement and then tax payable by the assessee under the Act. Thus, it is evident that this issue per se was not before the Spl. Bench and, therefore, these observations are only in the nature of obiter dicta and not ratio decendi. Be that as it may, Tribunal has primarily taken the same view as was taken by Tribunal in the case of Dresdner Bank AG, wherein al....
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....ing or arising in India to the German GE, therefore, we have to compute the profits of the Indian branch or India PE of the German company. 26. Learned counsel does not dispute the above proposition that business profits of the Indian PE are to be computed but he contends that in term; of the provisions of the Indian Income Tax Act, no one can make profits by entering into transactions with oneself. It is contended that debiting or crediting one's account does not alter this legal position, and that, therefore, irrespective of the head office account being debited for interest, it cannot be said that the Indian branch has earned any income by way of interest debited to the head office. Learned counsel's emphatic submission is that an inter branch transaction is a transaction with itself and cannot lead to any income liable to be taxed or loss liable to be carried forward. According to the learned counsel, these are self cancelling transactions, and are, resultantly, profit neutral. 27. In our humble understanding, the proposition that Intra organization transactions are to be ignored for computing the business profits holds good only when profits of the organization a....
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....ces of the case and in law, the ld. CIT(A) erred in holding that interest income payable by the Indian PE of a foreign bank to its HO and branch offices abroad cannot be taken into account for the purpose of computing the income of HO liable to be taxed in India." 41. A distinction has to be kept in mind between banking and financial institutions and non-banking and financial institutions. If entity is not in the business of giving commercial loans, no notional interest charged is allowed as a deduction to the intra entity borrowing. If the entity is a bank or other financial institution and, therefore, in the business of giving commercial loans, the current interest rate applicable to the funds lend to the PE is deductible to the borrower (PE). However, as far as assessability in the hands of lender (HO) is concerned the same has to be excluded on the ground of mutuality as held by Special Bench in the case of Sumitomo Corporation (supra). 42. As far as the detailed submissions advanced by ld. CIT(DR) with reference to separate computations under DTA and domestic law are concerned, we find that Spl. Bench in the case of Sumitomo Mitsui Banking Corporation, while referring to....
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....where express provisions to the contrary are made in the convention. He contended that this issue, therefore, has to be decided as per the relevant provisions made in the said convention governing the issue and not as per the provisions of local law." 45. The contention of ld. CIT(DR) was primarily based on the decision of Hon'ble Supreme Court in the case of SAL Narayan Rao and Another vs. Eshwar Lal Bhagwan Das & Another, 57 ITR page 149, wherein the Hon'ble Supreme Court referring to the decision in the case of M.K. Venkata Challan vs. Bombay Dying and Manufacturing Company Limited referred to the observations relied in that case of Lord Asquith of Bishoptone in East End Dwellings Company Limited vs. Finsbury Borough Council, "if you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it." 45.1 Thus, primarily the contention of ld. CIT(DR) is that when as per Article 7(2) the PE is taken as a distinct and separate enterprise engaged in the same or simila....
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....ept the assessee's contention for the following reasons: a) Once the assessee was having PE in India then it would be assessed for determining the profit as per the Income Tax Act and the expenses were to be allowed as per Income Tax Act; b) If the assesse's argument that the provisions of the Income Tax Act relating to determination of the profit were applicable and rests provisions were not applicable, then it will lead to an anomalous situation and even the loss incurred in earlier year will not be allowed to be carried forward and set off u/s 80 of the I.T. Act; c) The AO referred to section 115JB(i) and pointed out that the said section is applicable in case of companies and the definition of company u/s 217 includes any body corporate, incorporated by or under the laws of a company outside India. Therefore, company, as used in section 115JB, includes foreign companies. d) There is no indication in the memorandum explaining the introduction of the said section that the said section shall not apply to foreign companies. In this regard the AO pointed out that section 115JB starts with the phrase "notwithstanding anything". e) The AO relied on the decision ....
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....is required that the assessee prepares its Profit & Loss Account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. The assessee is neither required to draw up its accounts in Indian in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 nor it is required to place the accounts before the AGM as per sec. 210 of the Companies Act. It does not declare or distribute any dividends in India with reference to any such accounts. Therefore, provisions of section 115JB are not applicable in the case of the assessee. The assessee places reliance on the following decisions: Maharashtra State Electricity Board vs. Joint CIT 77 TTJ 33 (Bom.); Process Pumps (P) Ltd. vs. DCIT 94 TTJ 190 (Bang.) However, without prejudice to the assessee's claim that provisions of sec. 115JB are not applicable to its case, computation of book profits u/s 115JB of the Act are annexed herewith alongwith certificate in Form No. 29B." 50.1 Ld. Sr. Counsel filed copy of Annual Report for 2007, wherein the auditors have pointed out that the financial statements of Bank of Tokyo - Mitsubishi UFJ, Ltd. Indian Branches we....
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....nomenon of zero tax companies which, according to many observers, reflects an excessive degree of laxity in the tax regime. I propose to respond to the two issues as follows: (i) I am reducing the rate of surcharge on corporation tax from15% to 7.5% and hope to take a similar step in my next budget. The reduced tax burden will benefit all companies big and small. (ii) I propose to introduce a "Minimum Alternate Tax" (MAT) on companies. In a case where the total income of the company, as computed under the I.T. Act after availing of all eligible deductions, is less than 30% of the book profit, the total income of such a company shall be deemed to be 30% of the book profit and shall be charged to tax accordingly. The effective rate works out to 12% of book profit calculated under the Companies Act. Companies engaged in the power and infrastructure sectors will, however, be exempted from the levy of MAT." 50.7 He further referred to the Finance Minister's speech while introducing Finance Bill, 2000 which reads as under: 156. "The various exemptions currently available while calculating Minimum Alternate Tax (MAT) and the credit system has undermined the efficacy of the....
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....pplicable 115JB provisions will apply. There cannot be any discrimination between Indian Company and foreign companies on this count. As regards the 1st contention of assessee regarding accounts being prepared under Banking Regulation Act, ld. CIT(DR) submitted that section 115JB starts with a non- obstante clause. He submitted that section 115JB(2) gives only mode of preparation of profit and loss account. It only requires that the accounts are to be prepared as per Schedule VI. Ld. CIT(DR) submitted that language of section is not 'as prepared' but 'as per Schedule VI' only. Only this compliance is mandatory. He submitted that Income Tax Act is not subordinate to Companies Act. He further submitted that section 211 of Companies Act only provides mode of preparation of Balance Sheet and profit and loss account. The manner of preparation is to be followed. In this regard he referred to the decision in the case of 257 ITR 51 (Rajasthan) Chhogmal Chiranji Lal vs Commissioner of Income-Tax. He submitted that Companies Act does not prescribe form of profit and loss account. He referred to page 103, wherein the particulars in regard to profit and loss account as per Bank....
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....itted that section 115JB does not make any distinction and refers only to company. He further submitted that whenever so required, legislature has made specific provisions applicable to only foreign companies like sub-section 44BB, 115A, 44DA, 80HHBA. He pointed out that since the law is unambiguous, therefore, Hon'ble Finance Minister's speech and memorandum explaining introduction of clause are not relevant. 61.4 As regards assessee's contention regarding non-applicability of provisions of section 115JB to Treaty, ld. CIT(DR) submitted that: (i) Assessee opted to be taxed under domestic law; (ii) Assessee computed income u/s 115JB; (iii) Return filed and tax paid as per domestic law. Treaty in above steps does not come into picture. 61.5 Further, Article 7(3) under Treaty talks of only book profits. If foreign company paying tax below book profit then it will have to determine income as per section 115JB. He submitted that since 115JB has overriding effect, therefore, it will override section 90 also. 62. Ld. DR referred to AAR's ruling contained at page 47 of the Department's case law paper book in the case of Suhas Chandra Sen & Mohini Bhus....
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....l fiction. It will come into play only when the total income as computed under this Act is less than thirty per cent of the book profit of an assessee. Total income has to be computed in the manner laid down in the Act. If an assessee has business income, it will have tobe computed in the manner laid down in sections 30 to 43D. All the deductions and allowances permissible under any other provision will also have to be given to the assessee for the purpose of computation of his total income in regular course of assessment of income. If the total income, thus calculated, falls short of thirty per cent of book profit,the special provisions of sec. 115JA come into operation. There is no scope for any deduction or allowance under any other provision of the Act at this stage. The section is to apply "notwithstanding anything contained in any other provisions of this Act". Book profit has been defined and explained in section 115JA. This provisionbecame necessary because a large number of companies were not paying any tax in spite of making huge profits by taking advantage of the various provisions for deduction and allowances contained in the Act. The total income thus computed was way ....
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....her the provisions of section115JB of the Act are applicable on the sale of shares of a listed company, VIZ , Timken India Limited, t the applicant, which has suffered securities transaction tax and, accordingly, tax exempt under section 10(38) of the Act? (iv) If the provisions of section 115JB of the Act are applicable to the applicant. whether the payment made to the applicant on sale of the shares would suffer any withholding tax under section 195 of the Act and If yes whether tax at 15 per cent of the net capital gains would be required to be withheld?" 63.1 Ld. DR pointed out that AAR answered the question no. 3 only in negative but not dissented from earlier decisions. He submitted that since the applicant had no physical presence in India therefore, it was held that the provisions of section 115JB were not applicable. Ld. DR further referred to the decision of AAR in the case of Castleton Investment Ltd. 2012-TII-36- ARA-INTL, wherein, inter-alia, it was held that 115JB is not applicable only to domestic company but also to foreign companies. Ld. DR submitted that this decision has been followed in RST R BatliBoi & Co. 25. "Question no. 2 is whether the applicant w....
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....submitted that in our case assessee has prepared accounts in accordance with part II of Schedule VI of Companies Act. He submitted that facts and context has to be seen because slightest difference in facts will change the entire complexion. He submitted that assessee's case comes within the ambit of Companies Act and not any special Act. In this regard ld. DR referred to page 37 of paper book, wherein the decision of Tribunal in the case of Maharashtra State Electricity Board is contained and pointed out that in para 15 Tribunal has, inter-alia, noted that as per section 115JA(2) company is required to prepare its profit and loss account in accordance with the provisions of part II & III of schedule VI to the Companies Act. However, MSEB was required to prepare its accounts in conformity with the provisions of section 69 of the Electricity Supply Act. Ld. CIT(DR) pointed out that in our case assessee has prepared accounts in accordance with part II of schedule VI to Companies Act and, therefore, this decision is not applicable. Ld. CIT(DR) referred to the decision of ITAT Mumbai Benches in the case of Krung Thai Bank PCL and pointed out that in this case requirements of Bankin....
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....e assessee is required to prepare its profit and loss account in accordance with the provisions of Part II and III of Schedule VI to the Companies Act. The starting point of computation of minimum alternate tax under section 115 JB is the result shown by such a profit and loss account. In the case of banking companies, however, the provisions of Schedule VI are not applicable in view of exemption set out under proviso to sectlon 211 (2) of the Companies Act. The final accounts of the banking companies are required to be prepared in accordance with the provisions of the Banking Regulation Act. The provisions of Section 115 JB cannot thus be applied to the case of a banking company." 69. Ld. Counsel referred to page 327 and pointed out that in the Return of Income there is typographical error as regards the preparation of profit and loss account as per Schedule VI to which ld. CIT(DR) vehemently opposed at this stage. Ld. Counsel referred to page 336, wherein computation of Taxable Income u/s 115JB(MAT) of the Act is contained and pointed out that was with reference to Note 12 and 13 given in the Notes to computation of Income in Annexure V. He submitted that assessee had pointed ....
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.... has relied on the decision in the case of Maharashtra State Electricity Board (supra), M/s Reliance Energy Limited (supra), Kerala State Electricity Board (supra), which have been rendered with reference to Electricity (Supply) Act, 1948. The decision in the case of ICICI Lombard General Insurance Company Ltd. has been rendered with reference to accounts prepared as per the Insurance Regulatory and Development Authority (preparation of financial statements on auditor's report of Insurance Company) Regulation, 2002. In all these decisions it has been held that since the accounts were not prepared as per the provisions of part II of schedule VI of Companies Act and the accounts were not laid before the Annual General Meeting in accordance with the provisions of section 210 of the Companies Act as per the requirements of sub-section (2) of section 115JB, therefore, the provisions of section 115JB were not applicable. Explanation 3 has been inserted by the Finance Act, 2012 w.e.f. 01/04/2013 as per which now the book profits can be computed on the basis of accounts prepared under the governing Act to such company. 73.1 Ld. Counsel pointed out that in the case of State Bank of Hyde....
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....retrospective operation, current law ought to govern current activities, law passed today cannot apply to past events. 75. Ld. Counsel has also relied on the decision in the case of Krung Thai Bank PCL in which it has been held that since in the case of banking companies schedule VI is not applicable, therefore, section 115JB cannot be applied. 76. The MAT provisions were brought in statute by the Income Tax Act by Finance Bill, 1996 and the Hon'ble Finance Minister while introducing this provision, inter-alia, observed that company engaged in the power and infrastructure sector will remain exempt from the levy of MAT. This provision was brought in to bring within the tax net the zero tax companies. In Finance Bill, 2000, the Hon'ble Finance Minister, inter-alia, proposed that the MAT be levied at the revised rate of 7.5% of book profits as determined under the Companies Act instead of the existing effective rate of 10.5%. The Finance Bill, 2002 vide clause (49) amended section 115JB observing as under: "Clause 49 seeks to amend section .115JB of the. Income-tax Act relating to special provision for payment of tax by certain companies. . The existing provisions of ....
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....dian borrowers are enclosed as Annexure 1. It is submitted that the bank is in process of collating information with respect to other borrowers, which shall be furnished with your office shortly". As the information was not forthcoming, the AO required the assessee to file copies of loan agreements along with pending details. Since assessee failed to provide the complete details, the AO computed the interest of this account at Rs. 1391607202/- being 20% higher than the figure submitted by the assessee. He pointed out that this interest income accrues to the assessee from India and is arising from India and is taxable in India also as per section 9(1)(v) of the Act and as per article 11 of the DTAA. The assessee pointed out that the fee offered to tax as the 'syndication fee' is the income attributable to the PE and the same has been offered to tax in India. The AO did not accept the assessee's submission and pointed out that the compensation given to the PE for services rendered by it to an associate enterprise has to be at arm's length price. He pointed out that the syndication fee was the remuneration to the branch in India and no way the interest. The interest is....
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.... Singapore, the assessee has filed affidavit in support of these applications. Ld. CIT(DR) submitted that firstly admissibility of additional ground has to be decided. He submitted that the additional ground has been raised in November, 2012 though appeal was filed on 30/11/2010 i.e. after two years. He submitted that this ground was neither raised before AO nor DRP. He referred to page 23 of assessment order to demonstrate that even remotely this issue was not before AO and same was the position before ld. DRP. Ld. CIT(DR) submitted that assessee has to give reasons why this ground was not taken earlier. He submitted that fresh investigation of facts is required to find out as to how the loan was utilized outside India. Ld. DR relied on the decision in the case of Dr. Chandravati, 301 ITR 172; (ii) Brook Bond India vs. CIT, 100 CTR 284(Cal.), wherein it has been held that where fresh examination of facts is required then no additional ground can be raised. He also referred to the following decisions: 116 ITR 778, CIT vs. Gangappa Cables Ltd. 204 ITR 166 (AT), CIT vs. Lt. Begum Noor Banu Alladin. 299 ITR 400 (Ker.), P.R. Narahari Rao vs. CIT. 266 ITR 409 (Ker.), Ooppoot....
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....iled by way of additional evidence. We agree with ld. Sr. Counsel that these agreements, though filed as additional evidence, are necessarily to be taken into consideration for arriving at the correct taxability of interest. We, therefore, admit these agreements and restore the matter to the file of AO for denovo consideration. 83. In the result, this ground is allowed for statistical purposes. 84. Ground no. 7 is with regard to deduction u/s 44C of the Act which deduction has not been allowed by AO while computing interest income from "ECB's. As we have restored the ground no. 6 for determining the interest income on ECB's relating to PE in India, therefore, this ground necessarily has to be restored to the file of AO. 85. In the result, this ground is allowed for statistical purposes. 86. Ground no. 8 is regarding treatment in respect of deferred bank guarantee commission. The AO noted that the commission received on guarantees in respect of the period which had not expired was not offered as income accrued for the year but had been treated as an advance in line with the accounting policy followed by the bank. He observed that amount of commission received is ....
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....e charge or levy of tax in respect of such foreign company." 88. In view of above explanation this ground is rejected. 89. Ground no. 10 is relating to initiation of penalty u/s 271(1)(c), the same being premature, is dismissed. 90. In the result, the assessee's appeal is partly allowed for statistical purposes. ITA No. 5104/Del/2011 91. Ground no. 1 is regarding disallowance of salary paid overseas to expatriates of the appellant working in India by the Head Office and the Indian taxes paid thereon by the Head Office Rs. 110,832,464/-. This issues has been decided by us in A.Y. 2007-08 for the reasons stated in para 5 to 12 of the said order this ground is allowed. 92. Ground no. 2 & 3 are regarding addition on account of interest paid to Head Office and other overseas branches of the Bank amounting to Rs. 238,222,371/- and relating to addition on account of income of the appellant pertaining to receipt of interest from Indian branches amounting to Rs. 238,222,371/-. These two grounds have been decided in A.Y. 2007-08 vide para nos. 16 to 42. These grounds are allowed for the reasons stated therein. 92.1 Ld. CIT(DR) has raised an additional ground in cours....
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....e of computation of interest u/s 234B of the Act. 99.1 In the case of CIT vs. Tulsyan Nee Ltd., 2010-(SC2)-GJX-0969-SC, the issue was whether MAT credit admissible in terms of sec. 115JAA has to be set off against the tax payable (assessed tax) before calculating interest u/s 234A, 234B & 234C of the Income Tax Act, 1961. The Hon'ble Supreme Court held as under: "From the above, it is evident that any tax paid in advance/pre-assessed tax paid can be taken into account in computing the tax payable subject to one caveat, viz., that where the assessee on the basis of self computation unilaterally claims set off or MAT credit, the assessee does so at its risk as in case it is ultimately found that the amount of tax credit availed was not lawfully available, the assessee would be exposed to levy of interest u/s 234B on the shortfall in the payment of advance tax. We reiterate that we cannot accept the case of the Department because it would mean that even if the assessee does not have to pay advance tax in the current year, because it would mean that even if the assessee does not have to pay advance tax in the current year, because of his brought forward MAT credit balance, he....