TaxTMI 
TaxTMI 
TaxTMI 
2014 (7) TMI 1305
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....g grounds: 1. In not accepting the claim that the rate of tax applicable to domestic companies and / or co-operative banks is also applicable to the Appellant, in accordance with the provisions of Article 26 (Non-discrimination) of the India - France tax treaty. 2. In subjecting to tax, the interest paid by the Indian branches of the Appellant to its head office and overseas branches, amounting to Rs. 30,948,018, as interest income, applying the provisions of Article 12 (Interest) of the India - France tax treaty. 3. In subjecting to tax, the data processing charges paid to the Singapore branch of the Appellant, aggregating Rs. 132,335,594, applying the provisions of Article 13 (Royalties, fees for technical services and payments for use of equipment) of the India - France tax treaty. 4. In not granting credit for tax deducted at source amounting to Rs. 2,689,177 on interest on sub-ordinated debt, paid by Indian branches of the Appellant to its head office. 5. In not directing the Assessing Officer to compute interest under section 234C of the Act considering the 'returned income' of the Appellant." 2. At the outset, it was contended by learned AR tha....
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.... Special Bench, the issue of mutuality was not considered by the Special Bench. He also relied on the observation made by Hon'ble Supreme Court in the case of Bangalore Club Vs. CIT, reported in (2013) 350 ITR 509 (SC) and our attention was invited to para 23. It was contended by the learned DR that taking loan from HO at interest itself shows that borrowing is on commercial basis, therefore, there is no question of applying principle of mutuality. He further contended that if principle of mutuality is applied in all the cases, Section 44C will be redundant. The CITDR Mr. Ajay Kumar Shrivastava further contended that the ITAT SB in case of Sumitomo Mitsui banking corporation 136 ITD 66(Mum)(SB) has held that the interest received by HO(GE) is not taxable in hands of GE in India under domestic law on principles of mutuality as the interest paid by PE to GE is payment to self. As per learned DR, before the SB, the counsels from both the sides did not dispute the position that such interest payments were covered by principles of mutuality being payment to self, though the revenue argued that for purpose of taxation under domestic laws also the PE and GE should be treated as separate e....
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....nce these are commercial transactions not limited amongst the mutual entities but extended to third parties also and the privity of mutuality gets diluted for this reason. Again referring to the decision of Hon'ble Supreme Court, learned DR contended that all transactions between legal entity and its constituent members (such as BO and HO) are not always covered by principles of mutuality. The principle that no one can trade with himself is not universally applicable. It might here be pointed out that it has been held by the House of Lords in Sharkey Vs. Wernher (1956) AC 58 ; (1956) 29 lTR 962 (HL) that the general proposition that no one could trade with himself and make in its true sense or meaning taxable profits by dealing with himself is not universally true and that there are situations in which a man could be said to make a profit out of the consumption of his own goods. The Hon'ble Supreme Court in Bangalore club (supra) also bas held that this maxim is not universally applicable. When the business activity of banking by assessee bank comprises of continuous/integrated inflows and outflows of money with several entities including customers, other banks and its own br....
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.... PE in India is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit attributable to, the PE which is taxable in India as per the provisions of art. 7(2) and 7(3) of the Indo- Japanese Treaty read with, para 8 of the Protocol whish 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 branch offices abroad as the same stands on the same footing as the payment of interest made to the head office, At the time of hearing before us, the learned representatives of both the sides have also not made any separate submissions on this aspect of the matter specifically. Havin....
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....levant to A.Y. 2002-03, the Indian Branches of the assessee bank have paid total interest of Rs. 1,48,30,613/- to its Head office and overseas branches and the same was claimed as a deduction while determining the profits attributable to Indian Branches, which was chargeable to tax in India. The said interest was treated by the A.O. as income of the assessee's Head office / overseas branches chargeable to tax in India. This decision of the A.O. was challenged by the assessee in the appeal filed before the Ld. CIT(A) and the contention raised before the Ld. ClT (A) in this regard was that the Head office of the assessee bank as well as all its branches being the same person and one taxable entity as per the Indian Income-tax Act, interest paid by Indian Braches to head office and ocher overseas Branches was payment to self, which did not give rise to any income as per the Income-tax Act. In support of this contention, reliance was placed on behalf of the assessee on the decision of Hon'ble Supreme Court in the case of Sir Kikabhai Premchand vs. CT (Central) 24 ITR 506 as well as the decision of Kolkata Special Bench of the ITAT in the case of ABN Amro Bank NV vs. Asst. Direc....
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.... 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 branch offices abroad as the same stands on the same footing as the payment of interest made to the head office, At the time of hearing before us, the learned representatives of both the sides have also not made any separate submissions on this aspect of the matter specifically. Having held that the interest paid by the Indian branch of the assessee bank to its head office and other branches outside India is not chargeable to tax in India, it follows that the provisions of s. 195 would not be attracted and there being no failure to deduct tax at source from the said payment of interest made by the PE, the question of disallowance of the sa....