TaxTMI 
TaxTMI 
2018 (6) TMI 1659
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.... 1.1 That on the facts and in the circumstances of the case and in la\v, the Hon'ble Dispute Resolution Panel ('DRP') erred in confirming the addition, as proposed in the draft assessment order, for an amount of INR 37,12,44,563 paid as salaries by the HO overseas, in foreign currency (including Indian taxes thereon), without appreciating that such salary paid by the HO to the expatriate employees working in India exclusively for the permanent establishment ('PE') of the Appellant, is fully allowed as deduction under section 37(1) of the Act. 1.2 That on the facts and in the circumstances of the case and in law, the Hon'ble DRP and the Id. AO have erred in not following the favourable decision of the Hon'ble Delhi High Court/Hon'ble Tribunal in the Appellant's own case for earlier years. 1.3 Without prejudice to above, the Id. AO erred in not refunding the tax deducted at source on such salaries in view of the fact that the deduction for such salaries paid to expatriate employees outside India was not allowed by him. 2.Interest amounting to INR 846,996 accrued/ received by the Indian Permanent Establishme....
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....t granting the complete TDS credit in the impugned assessment order, which was claimed by the Appellant in its return of income filed for AY 2013-14. 6.Levy of interest under section 234B of the Act That on the facts and circumstances of the case and in law, the ld. AO erred in levying interest under section 234B of the Act. 7.Excess withdrawal of interest under section 244A of the Act That on the facts and circumstances of the case and in law, the ld. AO erred in withdrawing the interest under section 244A(3) of the Act. 8.Excess levy of interest under .section 2340 of the Act That on the facts and circumstances of the case and in law, the ld. AO erred in levying excess interest under section 234D of the Act. 9.Transfer Pricing adjustment 9.1That on facts and in law, the Hon'ble DRP and Ld. AO/TPO erred in making an adjustment of INR 13,66,36,735 to the returned income of the Appellant in respect of the international transaction pertaining to "receipt of counter guarantee commission" ("impugned international transaction') to its Associated Enterprise (&#....
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.... applicable rate of tax (as per the Finance Act for the subject AY) in the case of Domestic Companies and consequential directions may kindly be issued in this regard. 11That on the facts and in the circumstances of the case and in law, the Id. AO has erred in initiating penalty proceedings, being against the provisions of the Act. 12General a)Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. b)The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable your Honour to decide this appeal according to law." 3.The first issue vide ground nos. 1 to 1.3 relates to the disallowance of salary paid to overseas expatriates of the assessee working in India by the Head Office amounting to Rs. 37,12,44,563/-. 4.As regards to this issue, the ld. Counsel for the assessee at the very outset sated that it is covered in favour of the assessee in assessee's own case for the assessment year 2007-08 in ITA No.5364/Del/2010, order dat....
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....acts and in the circumstances of the case, the assessee was entitled to deduction of interest levied u/s 201(1A). (c)Whether or not, on the particular facts and in the particular circumstances of this case, the assessee was entitled to deduction on account of operational loss of Rs. 9,57,58,904/-." 11.1 Thus, Id. DRP has not correctly appreciated the facts of the case. 12. Respectfully following the decisions of Hon'ble Bombay High Court in the case of Emirates Commercial Bank Ltd. (supra), this ground is allowed." 7.The said order has been affirmed by the Hon'ble Jurisdictional High Court in ITA No. 604 & 605/2015 vide order dated 08.04.2016 and the relevant findings have been given in paras 9 & 10 which read as under: "9. The first question urged concerns the payment of salaries to the expatriates. In deciding this issue in favour of the Assessee, the ITAT has in the impugned common order referred to and relied upon the decision of its coordinate bench at Kolkata in ABN Amro Bank v. JCIT (2005)97 ITD 1(ITAT [Kol]). Further the ITAT followed the decision of the Bombay High Court in CIT v. Emirates Commercial Bank Ltd. (20....
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....re before him for adjudication: "(a) Whether or not, on the facts and in the circumstances of the case, the assessee is entitled to deduction of tax component of salary of expatriate employees, relating to asstt. yRs. 199091 and 1991-92, in ITA Nos. 5364/D/2010 & 5104/D/2011 the asst. yr. 1995-96, i.e., the year in which the tax has been paid by the assessee. (b)Whether or not, on the particular facts and in the circumstances of the case, the assessee was entitled to deduction of interest levied u/s 201(1A). (c)Whether or not, on the particular circumstances of this case, the assessee was entitled to deduction on account of operational loss of Rs. 9,57,58,904/-. 11.1 Thus, Id. DRP has not correctly appreciated the facts of the case. 12. Respectfully following the decisions of Hon'ble Bombay High Court in the case of Emirates Commercial Bank Ltd. (supra), this ground is allowed. 8.1. It is also pertinent to point out over here that the above decision of the Tribunal on the issue has also been upheld by the Hon'ble High Court of Delhi vide its or....
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....counts maintained with its head office / other overseas branches. The said amount received by the Indian PE / branches from its head office other overseas branches although credited to the profits and loss account of the Indian branches of the assessee was claimed to be not taxable being payment of self. The authorities below have held that TDS should have been deducted under section 195 from the interest paid by the Indian branches to head office and other branches. 13.1 In support of the above ground, the ld. AR has made following submissions:- "The coordinate bench in the assessee's own case for the order dated September 19, 2014 passed for AYs 2007-08 and 2008-09 has decided this ground against the assessee and held that interest received by the Indian branches of the assessee from its HO/other overseas branches is taxable under the Act under section 9(1)(v) of the Act. At the outset, it is submitted that the issue stands covered in favour of the assessee by the recent judgment of the Bombay High Court in the case of Credit Agricole Indoseuz in ITA No. 1430 of 2013 wherein the Bombay High Court held t....
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....(ii)Reference can be made to the decision of Mumbai Tribunal in the case of Oman International Bank S.A.O.G (ITA No 2518/Mum/2004 & 4492/Mum/2005) wherein the ratio of mutuality laid down by the Special Bench inter-alia in the case of Sumitomo Mitsui Banking Corporation has been applied to interest received by the Indian branches from its HO/other overseas branches. On the basis of mutuality, it was held by the Mumbai Tribunal that there can be neither any income in respect of interest earned from its overseas branches, nor there can be deduction for interest expenditure paid by the Indian branch to HO/other overseas branches. With respect to interest paid to HO/other overseas branches, no treaty provision was examined in the case of Oman International Bank and therefore, no deduction was allowed for interest paid by the Indian branches to HO/other overseas branches. IndoJapanese treaty specifically provides for deduction to Indian branches for interest paid to HO/overseas branches as held by the Special (Larger) Bench in the case of Sumitomo Mitsui Banking Corporation. (iii)Several double tax avoidance agreements entered into by India (f....
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....Director of Income-tax Vs. M/s. Credit Agricole Indoseuz in ITA. No. 1430 of 2013 vide its order dated 17.06.2015 has been pleased to hold that it is a settled position that no person can make profit out of its self and accordingly, interest received by the Indian PE from its head office is not taxable in India. The relevant para No. 7 of the said order of the Hon'ble Bombay High Court is being reproduced hereunder for a ready reference:- "7 Regarding question 5 - (a)Mr. Tejveer Singh, the learned counsel for the Revenue submitted that this question ought to be admitted as a similar issue has been admitted by this Court. In support Mr. Singh tenders the order dated 14 February 2013 of this Court in Income Tax Appeal (L) No.2078 of 2012, in Director of Income Tax (IT)1 Vs. M/s Antwerp Diamond Bank N.V. The question on which the above appeal was admitted reads as under: a) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in holding that interest payable by the Indian Permanent Establishment of the foreign bank to its HO and other o....
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.... position which is well settled under the domestic law has not been disputed even by the learned representatives of the assessees during the course of hearing before us. They, however, have relied on the relevant tax treaties in support of the assessee's claim for deduction on account of interest payable to GE while computing the profits attributable to PE in India as per article 7(2) and 7(3) read with paragraph No.8 of the protocol. 51........................ 52.A combined reading of article 7(2) and 7(3) of the treaty and paragraph No.8 of the protocol thus makes it clear that for the purpose of computing the profits attributable to the PE in India, the said PE is to be treated as a distinct and separate entity which is dealing wholly independently with the general enterprise of which it is a part and deduction has to be allowed for all the expenses which are incurred for the purpose of PE whether in India or elsewhere barring the amount paid by a permanent establishment to the head office of GE or any other offices thereof, inter alia, by way of interest on moneys lent to the permanent establishment except where the enterprise is a bank....
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.... permanent establishment (PE) from its head office / overseas branches. 6. The assessee submitted before DRP that during the previous year relevant to assessment year under appeal, India branches of the assessee has received a sum of Rs. 15,79,194/- from its overseas branches / HO. The assessee submitted that such interest is not income in the hands of the branch as the same has been received from the head office and thus, being a receipt for self, in view of the principles laid down by the Supreme Court in the case of Sir Kikabhai Premchand vs. CIT 24 ITR 506. The DRP however noted that ITAT Delhi Bench in assessee's own case for assessment year 2007-08 and 2008-09 has decided the matter against the assessee. The DRP following the order of the Tribunal rejected the objections of the assessee. Learned counsel for the assessee submitted that identical issue was considered by ITAT Delhi Bench 'C' in assessee's own case for assessment year 2010-2011 in ITA No. 1174/2015 dated 25th January, 2017 in para 15 of the order and identical addition has been deleted. The order of the Tribunal is reproduced as under: "Considering the above submission,....
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....e payment of interest to compute total income but with regard to the chargeability to tax of the interest received by the Indian Permanent Establishment (PE) from its Head Office in computing the total income. It is pointed out that the Indian PE and the head office are one and the same person. It is settled position that one cannot make a profit out of oneself as held by the Apex Court in Sir Kikabhai Premchand v.Commissioner of Income tax (Central) Bombay 24 ITR page 506. The impugned order of the Tribunal also places reliance upon the Special Bench decision in the case of Sumitomo Mitsui Banking Corpn. Vs Deputy Director of Income tax (IT), Range2(1), Mumbai [(2012) 19 Taxmann.com 364 (Mum.) (SB)] to hold that man cannot make profit out of himself and therefore the interest received by the Assessee from its own Head Office is not chargeable to tax. (c)So far as the reliance by the Revenue on order dated 14 April 2013 of this Court admitting the appeal in M/s Antwerp Diamond Bank N.V.(supra), is concerned, deduction on account of interest paid by the Indian PE to its Head office was in the specific context of Articles 7(2) and 7(3) of the Indo Belgium DTAA. The ca....
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....tion and not under the regular provisions of Income tax Act. Thus the fact that the Appeal in the case of M/s Antwerp Diamond (supra) is admitted would have no relevance for admitting the present appeal on the proposed Question No.5. It is also necessary to point out that the Tribunal in the impugned order has recorded the fact that the Respondent Assesses has admitted before it that to bring about parity, it is not claiming any deduction of interest paid by it to its Head Office while computing the taxable income. (d)Accordingly, in view of the above settled position that no person can make profit out of itself, the proposed question of law not being substantial, is not entertained." It is a settled position of law that in absence of the decision of Hon'ble jurisdictional High Court on an issue, the order of the non-jurisdictional High Court should be followed by the Tribunal. Besides, the Tribunal while passing its order on the issue in the appeals for the assessment years on 19.09.2014 was having no benefit of the decision of Hon'ble Bombay High Court in the case of DIT Vs. M/s. Credit Agricole Indoseuz (supra) dated17.06.2015. In view of this position w....
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.... office / other overseas branches of the assessee are in receipt of interest earned from the external commercial borrowings (ECB) given to the Indian borrowers parties. Indian branches of assessee help its Indian customers in arranging funds through its overseas branches as the banks in India cannot lend in foreign currency except for providing export credit to its customers as per the extant Reserve Bank of India Regulations. Indian branches of the assessee, based on the request of the customers pass on the lead to the overseas branches along with the credit evaluation report, terms and conditions of approval and details of security documents to be entered into. Indian branches evaluate the customer on an on-going basis and passes on the lead information to its overseas branches on activities related to credit rating, monitoring of covenants etc. On receipt of the information from the Indian branches of the assessee, the overseas branches of the bank do the booking of the loan based on the terms and conditions of the approval. The agreement and security documentations are entered between overseas branches and the borrowers. Indian branches recei....
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....t of Rs. 14,58,92,297 as syndication fee from its HO/other overseas branches for the services performed by the Indian branches in relation to ECBs, which has been credited to profit & loss account of the Indian branches of the assessee and offered to tax in the return of income filed by the assessee. Apart from this, the assessee has offered to tax an amount of Rs. 2,14,77,903 as transfer pricing adjustment with respect to ECB syndication fee in the return of income. Therefore, the assessee has already offered to tax an amount of Rs. 16,73,70,200 (Rs. 14,58,92,297 + Rs. 2,14,77,903) as fee received by the Indian PE of the assessee from its HO/other overseas branches for the services performed in relation to ECBs, which has been accepted to be an arms' length price by the Revenue. (iv)The Mumbai Tribunal in the case of Credit Lyonnais (ITA No. 1935/Mum/2007) has held that ECB interest is not attributable to the Indian branches of the assessee and only the fee is taxable in the hands of the Indian branches of the assessee for the role played by it in arranging the ECBs. (v)Without prejudice to the claim of non-taxability of ECB interest income, t....
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....ated 24.11.1999 has also clarified that where the payment is made of taxes i.e. tax is borne by the payer of the income, the payer is under obligation to issue TDS certificate to the payee, since such grossed up income is taxable in the hands of the payee and the payee is eligible to claim the credit of such taxes withheld against the income taxed in the hands of the payee. 26.After having gone through the above cited decision, we find that Mumbai Bench of the Tribunal in the case of Credit Lyonnais (supra) has held that ECB interest is not attributable to the Indian branches of the assessee and only the fee is taxable in the hands of the Indian branches of the assessee for the role played by it in arranging the ECB. The Hon'ble High Court of Delhi in the case of GE Package Powerink (supra) has been pleased to hold that no interest under section 234B of the Act can be levied where the payment to non-resident payee is subject to tax deduction at source. In the present case, the Assessing Officer himself had admitted by grossing up the ECB interest by the amount of tax borne by the borrowers that tax at source has been deducted. We ....
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....Rs. 23.56 Crore for the services performed by it with respect of ECB loan, which has been credited to the profit and loss account. The same has been offered to tax and the return of income filed by the bank. Further, since interest payment is net of taxes i.e. taxes are to be borne by the borrowers, the borrowers have deducted TDS on such interest as per Article 11 of the DTAA, therefore as per provisions of the Act, no demand of tax in respect of this interest can be recovered from the assessee as that has already been discharged by way of TDS by payer. 10.The learned DRP however held that contention of the assessee that such interest is taxable under Article 7 because of provisions contained in Article 11(6) of DTAA is not correct because debt claim in respect of which interest is arisen is not effectively connected with PE of the assessee in India. Indian PE of the assessee is just providing processing services to the assessee for ECB loans being availed by Indian residents and is being remunerated by services fees also. The objection was accordingly rejected. 11.Learned counsel for the assessee reiterated submissions made before autho....
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....gly allowed." 12.Learned DR stated that identical issues have been decided in favour of the assessee. 13.Considering the facts of the case in the light of the order of the Tribunal dated 25th January, 2017 in the case of assessee, we are of the view that issue is covered in favour of the assessee by order of Tribunal dated 25th January, 2017. It is also an admitted fact that assessee has already offered to tax an amount of Rs. 25.85 Crore therefore no further addition should have been made on this issue. Following the order of the Tribunal dated 25th January, 2017 (supra), we set aside the impugned orders and direct the AO to delete the addition made on account of interest received on ECB given to Indian borrowers. This ground of appeal of assessee is allowed." 19.So, respectfully following the aforesaid referred to order in assessee's own case, this issue is decided in favour of the assessee. 20.Vide ground no. 4 & 4.1, the grievance of the assessee relates to the taxability of interest u/s 244A of the Act on the income tax refund amounting to Rs. 8,00,57,085/-. 21.The ld. Counsel for the assessee submitted that the AO d....
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....Such collection of tax by force of law would not establish effective connection of the indebtedness with the PE as ultimately it is only the appropriation of profit of the assessee company. However, we may add that we do not venture to say that the interest income has to be necessarily business income in nature for establishing the effective connection with the PE because that would render provision contained in paragraph 4 of Article XI redundant. Thus, there may be cases where interest may be taxable under the Act under the residuary head and yet be effectively connected with the PE. The bank interest in this case is an example of effective connection between the PE and the income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income-tax refund. Such interest is not effectively connected with PE either on the basis of asset-test or activity-test. Accordingly, it is held that this part of interest is taxable under paragraph No. 2 of Article XI. Thus, the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with this order." 23.On....
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.....As regards to Ground Nos. 6 & 7 relating to levy of interest u/s 234B of the Act and excess withdrawal of interest u/s 244A of the Act. It was the common contention of both the parties that these are consequential in nature. We order accordingly. 29.Ground Nos. 9 to 9.6 relates to the issue on transfer pricing adjustment. The main grievance of the assessee in these grounds is that the ld. DRP/AO/TPO used the erroneous comparable uncontrolled price (CUP) data obtained by issuing the notices u/s 133(6) of the Act but without providing any opportunity to the assessee, while determining the arm's length price of the international transaction. 30.The ld. Counsel for the assessee submitted that the ld. DRP decided, the similar issue in the assessment years 2010-11 and 2011-12 in favour of the assessee and the department had not preferred any appeal against the directions of the ld. DRP. Therefore, by keeping in view the principles of consistency, this issue is required to be decided in favour of the assessee and no addition could have been made on account of receipt of Counter Guarantee Commission. The reliance was placed on the judgment of the Hon'ble Supreme ....
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.... the applicable rate of tax on the income of the assessee attributable to its PE in India cannot exceed applicable rate of tax in the case of domestic companies. The DRP noted that as per provisions contained in explanation 1 to section 90 of the Act, higher rate of tax charged to foreign company as compared to domestic company shall not be regarded as less favourable treatment in respect of foreign company. This objection was dismissed. 18.Learned counsel for the assessee submitted that ITAT Delhi Bench 'C' in the case of the same assessee in preceding assessment year vide order dated 25th January, 2017 (Supra) decided this issue against the assesse. Para 35 of the order is reproduced as under: "It is regarding applicability of rate of tax. Having gone through the order dated 19.09.2014 of the Tribunal in the case of assessee itself for the assessment years 2007-08 and 2008-09 (supra), we find that the issue raised is covered against the assessee. The Tribunal has dealt with this issue in the appeal for the assessment year 2007-08 vide para numbers 87 and 87.1 of the order, which has been followed on the issue in the assessment year 2008-09. The Tribunal wh....