AI Drafter 
TaxTMI 
TaxTMI 
2020 (1) TMI 19
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...., the assessee is a foreign company, the Assessing Officer framed draft assessment orders under section 144C(1) of the Act for both the assessment years under dispute proposing certain variations in the income offered in the return of income. As observed by the Assessing Officer, since the assessee did not file any objections before the Dispute Resolution Panel (DRP) against the draft assessment orders within the prescribed time limit, the Assessing Officer passed final assessment orders under section 144C(3) of the Act on 22nd May 2015, and 29th April 2016, for the assessment years 2011-12 and 2012-13 respectively. Subsequent to completion of assessment as aforesaid, learned CIT, in exercise of power conferred under section 263 of the Act, called for the assessment records for the years under dispute and after examining them found that in the relevant assessment years, the assessee has paid interest to its Head Office and overseas branches. Being of the view that the interest paid to Head Office and overseas branches are taxable in India as per the provisions of India-USA Double Taxation Avoidance Agreement (DTAA) as business profits through its Permanent Establishment (PE) i.e., ....
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....dingly, holding the assessment orders passed for the impugned assessment years to be erroneous and prejudicial to the interests of Revenue, he cancelled them with a direction to the Assessing Officer to make fresh assessment keeping in view the observations made by him. 3. Shri Madhur Agarwal, learned Counsel for the assessee submitted, the exercise of power under section 263 of the Act is wholly without jurisdiction as the assessment orders passed by the Assessing Officer are neither erroneous nor prejudicial to the interests of Revenue. He submitted, in the returns of income filed for the relevant assessment years, the assessee has appended a note explaining in detail the reasoning for not offering the interest income received from the Indian Branch to tax. He submitted, in the course of assessment proceedings, the Assessing Officer has made specific enquiry with regard to the interest income earned and after considering the submissions of the assessee and all the relevant facts has accepted assessee's claim while completing the assessment. He submitted, as per the ratio laid down in the judicial precedents cited before the Assessing Officer, interest paid by the Indian Branch....
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....e have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. Undisputedly, learned CIT has exercised his power of revision conferred under section 263 of the Act on the issue of taxability of interest paid by the Indian Branch to the Head Office and other overseas branches. As could be seen from the facts on record, in the returns of income filed for the respective assessment years, the assessee had appended notes stating in detail the reasons for which the interest paid to the Head Office/overseas branches are not taxable at the hands of the assessee in India. On a perusal of the said note, it appears that during the relevant assessment years, Indian branch had received interest from Head Office/overseas branches and had also paid interest to them. In the course of assessment proceedings, the Assessing Officer has issued notice under section 142(1) of the Act raising specific query regarding the interest received from the Indian Branches. In response to the query raised by the Assessing Officer, the assessee has also furnished detailed reply stating the reasons why the interest received from Indian Branches ....
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....ing a payment received from self is governed by the principle of mutuality, hence, not taxable under the provisions of the Act. Further, since the provisions of the Act are more beneficial to the assessee, it will prevail over the provisions of the Tax Treaty as per section 90(2) of the Act, as held by the special Bench. After the decision of the special Bench in Sumitomo Mitsui Banking Corporation (supra), the legislature, though, had thought it prudent to make amendment to the provisions of section 9(1)(v)(c) of the Act to nullify the effect of the Special Bench decision. Accordingly, amendment was made to the aforesaid provision by introducing Explanation (a) and (b) by Finance Act, 2015, w.e.f. 1st April 2016. As per Explanation (a) to section 9(1)(v)(c) of the Act, it was clarified that the interest paid by an Indian Branch of a non-resident banking company shall be deemed to be accruing or arising in India and shall be chargeable to tax in addition to any income attributable to the PE in India. It further says that the PE in India shall be deemed to be a person separate and independent of the non-resident person. In our view, the aforesaid provision would apply prospectively ....