AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 39
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.... The appellants submit that in computing the taxable business income in India, the treaty allows a deduction for all expenses wherever incurred and reasonably allocable to the permanent establishment, including its share of executive and general administrative expenses. As the treaty overrides the domestic law, the amount allocated by the Head Office should be allowed as a deduction in full. The appellants pray that the AO be directed to allow the entire amount of Head Office expenses. 2. The CIT(A) erred in upholding the AO's action of not allowing the appellants claim that the tax rate applicable to its business income is 35% and not 48% being the rate applicable to foreign companies for the year under appeal. The appellants submit that in view of Article 26 of the tax treaty i.e. the nondiscrimination clause read with Section 90(2) of the Act, the business income is chargeable to tax @ 35% as is applicable to domestic companies. The appellants pray that the AO be directed to tax its business income @ 35% as against 48%. The CIT(A) erred in confirming the action of the AO in disallowing Rs. 1,54,64,006 being the loss on Forward Foreign Exchange Contracts which were unmature....
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.... aforesaid grounds of appeal or add a new ground or grounds of appeal at any time before or at the time of hearing of the appeal as they may be advised. ITA No. 4793/Mum/2005,AY-2001-02 1. The Commissioner of Incometax (Appeals)XXXIII, Mumbai (hereinafter referred to as the CIT(A)) erred in confirming the action of the Assistant Director of Incometax (International Taxation)1( 2), Mumbai (hereinafter referred to as the AO) in restricting the deduction of Head Office expenses by applying the provisions of section 44C of the Act, as against the appellants claim that the entire amount of Rs. 1,53,42,210 allocated to the Indian branches should be allowed as a deduction as per the provisions of Article 7(3) of the DTAA between the Government of UA.E. and the Government of India. 2. The CIT(A) ought to have held that in case the higher authorities reverse the decision of the CIT(A) in the assessment year 19992000 of allowing the deduction for payment made on account of Voluntary Retirement Scheme(VRS) in the year of payment, the AO be directed to allow deduction of Rs. 81,84,564 in the assessment year 200102 on account of the amount of VRS amortised in the books of account. The CIT(....
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.... of the Act were applicable in the case under consideration and allowed 5% of the HOE, amounting to Rs. 31.85 Lakhs. 2.2.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). Following the orders of his predecessor for AY.s. 1995-96 to 1997-98, the FAA dismissed the appeal filed by the assessee. 2.3.Before us,the AR stated that the order for the earlier years stand reversed in light of the decision given by the Special Bench in the case of M/s Sumitomo Mitsui Banking Corp.He relied upon the cases of Abu Dhabi Commercial Bank(ITA/3462/M/2010,AY-1995-96 & Other AY.s., dated 20.07.2012),Dalma Energy LLC(ITA/1664/Ahd/2008-AY-2004-05 dated 23.04.2012). Departmental Representative(DR)supported the order of the FAA. 2.4.We have heard the rival submissions and perused the material before us. We find that in the case of Abu Dhabi Commercial Bank(supra) the matter has been discussed as under: 13.The case of Mashreqbank Psc (supra), which has been relied upon heavily by the department, first of all, was rendered prior to the amendment brought by the Protocol. However in this case it has been interpreted that Article 25(1) of IndoUAE....
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....ply to the extent they are more beneficial to that assessee. This specific provision contained in section 90(2) makes it abundantly clear that in relation to the assessee like the one in the present case to whom the double tax avoidance treaty entered into by the Indian government applies, the provisions of Income-tax Act shall apply to the extent they are more beneficial to him. It, therefore, follows that if the provisions of the domestic law are more beneficial to the assessee than the provisions of the relevant tax treaty, the provisions of the domestic law shall override and prevail over the provisions of the treaty. Article 23 of the Indo- Japanese treaty therefore cannot be interpreted in a way as sought by Shri Girish Dave because if such interpretation is assigned to article 23 and the interest income which is otherwise not taxable in India as per the domestic law is held to be taxable relying on the provisions of the treaty, the same will run contrary to the provisions of section 90(2). Such interpretation, therefore, cannot be assigned to article 23 and the only interpretation which, in our opinion, can be assigned to the said article so as to make the provisions thereof....
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....g executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the tax laws of that State." (emphasis given) 14.1 In view of the aforesaid amendment, now the admitted legal position is that the admissibility of expenditure is to be governed by Article 7(3) of the Treaty upto the date from which the new amended provisions of the Treaty shall be applicable i.e. w.e.f. 1.4.2008. It can, inter alia, be summed-up that the contracting States and to avoid any conflict in the provisions of the tax laws vis-à-vis the provisions of Treaty, as also to streamline the applicable provisions of law, it was decided to incorporate that, for the purposes of determining the profits of a permanent establishment, there shall be allowed deduction of expenses incurred for the purposes of the business of the permanent establishment including general administrative expenses but in accordance with the provisions and also subject to the limitations of the tax laws of that State. Therefore, by this amendment in the Article the applicability of provisi....
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....l filed by the assessee. 3.1.Before us, the Authorised Representative (AR) submitted that while deciding the appeal for AY 1997-98 (ITA/2154/Mum/2001 dated 23.08.2007),the Tribunal had decided the issue in favour of the assessee.He referred to the cases of Bank of Bahrain and Kuwait(132 TTJ 505) & Credit Lyonnais(AY.1998-99 to 2000-01).DR relied upon the order of the FAA.We find that while deciding the appeal,filed by the assessee for the AY 1997-98,the Tribunal has held as under: 12. In ground no. 5, the assessee has raised the following grievance: "The CIT(A) erred in confirming the action of the ACIT of disallowing Rs. 10,14,045/being the loss on Forward Foreign Exchange Contracts which were unmatured on the last day of the previous year, The appellants submit that Forward Exchange Contracts are mainly entered into to cover the risk arising due to fluctuation in the exchange rate of currencies. Such contracts are entered into on an ongoing basis depending upon the currency position in the books of the bank. The forward exchange contracts are in the nature of stock in trade and the same are valued at the forward exchange rate notified by the Foreign Exchange Dealers Associati....
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.... loss, if any, on such forward contracts will .only accrue on the date on which the contract is settled. Referring to 'Hon'ble Madras High Court's judgment in the case Indian Overseas Bank Vs CIT (183 ITR 200), the Assessing Officer noted that profit on unmatured forward contract could not be taxed as income, and that such profits were only notional profits. The Assessing Officer concluded that similar loss on unmatured contracts is also a contingent loss and not eligible for deduction from business income. Aggrieved, assessee carried the matter in appeal before the CIT(A), but without any success. The assessee is not satisfied and is in appeal before us. 14.We have heard the rival contentions, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position. 15 .. We have take note of the fact that the Assessing Officer has primarily contended that when anticipated profits on unmatured contracts are held to be non taxable, as in the case of Indian Overseas Bank (supra), there is no good reason as to why anticipated losses on unmatured contracts can be taken into account while computing business income. There is, ....
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....n favour of the assessee. 4.Last ground of appeal is about restricting the exemption in respect of interest on tax free bonds. During the assessment proceedings, the AO found that the assessee had received interest of Rs. 27.81 Lakhs on tax free securities, that it claimed that entire interest was exempt u/s 10(15)(iv)(a) of the Act. The AO asked the assessee to explain as to why the income derived from tax free securities should not be exempted instead of the gross receipts as claimed in the return. The assessee argued that gross interest was exempt and not the income derived from it. 4.1.During the appellate proceedings,before the FAA,the assessee contented that in the AY 1997- 98 identical issue was decided in favour of the assessee.Referring the provisions of section 14A of the Act,the FAA held that while passing the order for earlier AY.the then FAA had not considered the provisions of section 14A of the Act, that more than 90% of the funds were borrowed by the assessee, that the stand taken by it about investing the money in tax free bonds out of its own funds was not justified.Finally, the FAA upheld the order of the AO. 4.2.Before us,the AR stated that in the preceding A....
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....ted as Arranger by SBI - Caps,that the assessee was entitled for fees and service charges as a collecting bank as per the rates already fixed,that the assessee received Rs. 8.23 Crores as commission from SBI, that out of it Rs. 8.20 Crores were claimed as commission pertain to Overseas branches of Abu Dhabi & Dubai.The AO held that the commission income was arising on account of the agreement between the assessee and SBI/SBI Caps, that the assessee-company was incorporated in UAE, that it was not entitled for treaty benefit in terms of Article 4 of the Treaty, that the assessee was not resident of UAE and was not liable to pay tax.Finally, he held that commission income was taxable in India in the assessee's hands. 7.1.After considering the submission of assessee and the assessment order, the FAA held that the action of the AO denying the treaty benefit to the assessee for the reason that it had not paid tax in UAE was not correct, that assessee was resident of UAE, that treaty benefit could not be denied to it.He referred to the judgment of Azadi Bachao Andolan (263 ITR 706) of Hon'ble Supreme Court and held that in light of the provisions of Article 7(1) of the Treaty commission....
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....ees,that assessee had remitted a sum of Rs. 31.72 Crores to its Head Office.AO made an enquiry about payment of Rs. 31.72 Crores.After considering the submissions of the assessee, AO held that services rendered by way of marketing and collection by the assessee bank and its overseas branches had a business connection in India,that the provisions of section 9(1) were attracted to the transaction in question,that activities carried out by the assessee bank were not covered by the explanation(a) to section 9(1),that the fees arisen from the activity were directly attributable to the operations carried out by the assessee in India, that payment made by the assessee did not represent the business income of the overseas branches, that the sum under consideration represented the income of the bank, that income had arisen in India, that the Indian branch was taxable under the provisions of Article 5 and 7 of Double Taxation Avoidance Agreement(DTAA),that the assessee was required to deduct tax at source on these payments as envisaged by the provisions of section 40(a)(i) of the Act.Finally,he disallowed the claim of the assessee amounting to Rs. 37.79 Crores paid under the Head arrangers f....
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....ion by holding that the amount paid by the assessee to the nonresidents sub-arrangers is not a fees for managerial or technical or consultancy services. Hence, the same cannot be brought within the ambit of 'fees for technical services' as per section 9(1)(vii) of the Act. If this payment is not fees for technical services but only commission, the provisions of section 195 requiring the assessee to make deduction of tax at source before remitting or crediting the amount to the accounts of sub-arrangers, cannot apply. If no deduction of tax at source is required, obviously the provisions of section 40(a)(i) do not come into play. Once it is held that the said commission/brokerage is not chargeable to tax in the hands of non-resident sub-arrangers under the provisions of the Act, there remains no need to examine the taxability or otherwise of this amount in their hands under the respective Double taxation avoidance agreements. In that view of the matter, we are of the considered opinion that the learned CIT(A) was justified in reversing the AO's order insofar as the applicability of section 40(a)(i) is concerned. Consequently, the ground raised by the Revenue fails". Respectfully fo....