TaxTMI 
TaxTMI 
2014 (3) TMI 1158
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....e Assessing Officer (AO) was justified in charging to tax, the interest of Rs. 3,48,59,282 received by your appellants from their Head Office (HO)/overseas branches. Your appellants submit that the interest received represents a receipt from 'self and should therefore be ignored in computing their taxable income. Your appellants pray that the AO be directed accordingly. 2.Having held that the interest received by your appellants from their HO/overseas branches is liable to tax in India, the CIT(A) erred in not directing the AO to allow a deduction in respect of the interest of Rs. 1,25,330 paid by your appellants to their HO/branches on the basis that the provisions of section 40(a)(i) of the Income-tax Act, 1961 (the Act) are applicable. Your appellants submit that the provisions of section 40(a)(i) are not attracted for the reason that as stated earlier, the interest payment to HO/branches would amount to a payment to 'self'. Your appellants pray that the AO be directed to allow them a deduction in respect of the interest payment of Rs. 1,25,330. 3.The CIT(A) erred in confirming the AO's action of applying the provisions of Article 12 ....
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....e AO be directed accordingly. 6.The CIT(A) erred in holding that the AO was justified in rejecting your appellant's claim for a deduction in respect of data processing charges of Rs. 90,45,380 on the basis that these charges qualify for treatment as 'royalty' and therefore, the provisions of section 40(a)(i) are attracted as tax was not deducted at source. Your appellants submit that the provisions of section 40(a)(i) are not applicable as the data processing charges are neither in the nature of 'royalty' nor 'fees for technical services' under the provisions of the DTAA, but represent a mere reimbursement of expenses incurred by their regional data processing centre. Your appellants pray that the AO be directed to allow them a deduction in respect of the expenses of Rs. 90,45,380. 7.The CIT(A) erred in upholding the AO's contention that your appellants and their HO are 'associated enterprises' and the transactions between them are covered under section 92 of the Act. Your appellants submit that they and their HO are not 'associated enterprises', either under the provisions of the Act or the DTAA. Your appellants pray that the A....
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....the assessee's appeal is dismissed being not pressed. 4. Ground No.2&3 regarding disallowance of interest paid to Head Office/overseas branches by invoking the provision of section 40(a)(i). 5. We have heard learned AR as well as learned DR and considered the relevant material on record. At the outset, we note this issue is covered in favour of the assessee by the decision of Special Bench of this Tribunal in case of Sumitomo Mitsui Banking Corpn. V. DDIT (136 ITD 66. We further noted that for the Assessment year 1997-98 and 2001-02 the Tribunal has also considered and decided this issue in favour of the assessee. 6. For the Assessment Year 2001-02 the Tribunal vide order dated 07.08.2013 in ITA No.4295 &4965/M/2005 has held in para 15 as under: "15. In view of our decision on grounds no. 5 and 6, above, taxing the interest income received from HO/Overseas branches, the natural consequence is that the interest paid by the assessee to its HO/Overseas branches would become deductible. However, we find that the amount of interest disallowed has been wrongly taken in this ground. On the perusal of the assessment order, it was noticed that the amount actually disallowe....
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....wance @ 2% of exempt income in the above referred case. Following the precedent, we direct accordingly." 11. It was stated by the assessee that the investment in question is the same as for the Assessment year 2001-02 and there is no change in the facts and circumstances. In view of the facts that there is no change in the facts and circumstances for the year under consideration and for the assessment year 200102, in respect of the investment then no disallowance on account of interest is called for, when the assessee was having its own interest free fund for making investment in securities. As regards the disallowance of operating/ administrative expenses, by following earlier order of this Tribunal, we restrict disallowance at 2% of exempt income. 12. Ground No.5 regarding taxability of the profit arising on revaluation of the unmatured forward forex contracts. 13. We have heard learned AR as well as learned DR and considered the relevant material on record. The learned AR of the assessee has submitted that the loss on revaluation was disallowed by the AO, in the previous assessment year but has been allowed by the tribunal therefore on the same analogy the profit arisin....
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....sue to the record of the Assessing Officer to consider deductibility of this amount as per the provisions of the Act including section 44C. 18. Ground No.7, regarding treating the Head Office and Indian branch as associated enterprise as per section 92 of the Act. 19. At the time of hearing, learned AR of the assessee has stated that assessee does not want to press this ground and same may be dismissed as not pressed. Learned DR raised no objection if ground of the assessee's appeal is dismissed as not pressed. Accordingly we dismiss this ground of the assessee's appeal being not pressed. 20. Ground No.8 regarding the addition of TP adjustment in respect of interest received on call placement. 21. We have heard learned AR as well as learned DR and considered the relevant material on record. At the outset, we note that an identical issue has been considered by the Tribunal in case of group concern name M/s. Credit Lyonnais (through their successors Calyong Bank), in ITA NO.1935/M/2007 in para 4.4 as under: 4.4. Having considered the rival submissions and careful perusal of the relevant record, at the outset, we note that an identical issue has been considered by....
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.... Reliance industries Limited to the tune of US$50 million and USD$ 11 million, respectively. There is no dispute that for these two loans, Credit Agricole lndosuez (Asia), Syngapore worked as an agent and Credit Lyonnais worked as lead arrangers/cc- arrangers. The ANZ Investment Bank, BA Asia Ltd. as well as ABN Amro Bank were also worked as co-arrangers. The role of the assessee in these transactions of foreign currency loan under ECB was to provide financial analysis of the borrowers, general market conditions and regulatory environment. The learned AR has vehemently argued that as per para 4 of Protocol, profit cannot be attributed to the PE on account of facilitation of conclusion of loan agreement or mere singing thereof. We do not agree with the contention of the learned AR of the assessee because of the fact that the role of the assessee is not merely facilitation of conclusion of loan agreement or signing thereof but the services provided by the assessee are the corebasis for taking the decision of granting the loan by the syndicate. The assessee provided the services regarding clients creditability analysis, its capacity so as to consider the capacity to repay the loan and....
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....In our view, the interest cannot be taken into account for attribution of income towards service charges/fees and, therefore, in the facts and circumstances of the case only the fee charged by the foreign branches can be taken into consideration for making adjustment under transfer pricing provisions. Accordingly, we direct the AO/TPO to make adjustment in respect of the services performed by the assessee for foreign currency loan arranged for its existing clients by taking into account only the fee and other charges received by the foreign branches from the borrowers in question. Since none of the parties have come out with the suitable comparables, therefore, we find that the estimation made by the CIT(A) at the rate of 20% is just and proper, however, the same would be only in respect of the fee and charges other than interest received by the foreign branches. Thus, these grounds of the assessee are partly allowed." 25. As it is clear from the earlier order of this tribunal that the benefit of para 4 of the protocol between India and France does not apply as assessee has rendered the key services for taking decision of granting loan by the syndicate of Banks to the Indian bor....
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....th price is determined by the TPO. Even if one arm's length price is an average of various figures it stills remains one arm's length price. 3. On the facts and in the circumstances of the case and in law, the ld.CIT(A) erred in reducing the transfer pricing adjustment made for the service of marketing of ECBs from 25% (of interest and fee) to 20%. The ld.CIT(A) could not have given the relief without first determining himself the arm's length price on the basis of cogent material." 30. Ground No.1 regarding deduction of expenses u/s.37(1). 31. We have heard learned DR as well as learned AR and considered the relevant material on record. At the outset, we note that an identical issue has been considered and decided by this tribunal in assessee's own case for the A.Y.2001-02 in para 34 to 36 as under: "34. Ground no. 3 pertains to disallowance of Rs. 1,16,62,285/- incurred by the HO on credit risk assistance. 35. The issue has been dealt with by the coordinate Bench, wherein they relied upon the decision of JCIT vs American Express Bank Ltd., reported in 24 taxman.com50. and held, "12. Last ground of the Revenue's appeal is against the direc....
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....e have heard learned DR as well as AR and considered the relevant material on record. The assessee has not press the ground of taxability of interest of Rs. 3.48 crores and consequently the same is subjected to tax. Accordingly the ground raised in the cross objection filed by the revenue become infructuous and hence dismissed. For Assessment Year 2003-04. 39. For the Assessment Year 2003-04 the assessee has raised the following grounds: "1. The Commissioner of Income-tax (Appeals) - 15, Mumbai (CIT(A)) erred in holding that the Assessing Officer (AO) was justified in bringing to tax, the interest of Rs. 62,56,364 received by the India Branch from the Head Office (HO)!overseas branches. The appellant submits that the interest received represents a receipt from 'self and therefore ought to be ignored in computing its taxable income. The appellant prays that the AO be directed accordingly. 2. Having held that the interest received by the HO! overseas branches is liable to tax in India, the CIT(A) erred in not directing the AO to allow a deduction for the interest of Rs. 15,20,204 paid by the India Branch to the HO! overseas branches on ....
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.... section 92 of the Act. The appellant submits that the India Branch and the HO are not 'associated enterprises', either under the provisions of the Act or under the Double Taxation Avoidance Agreement (DTAA) and prays that the AO be directed accordingly. 9. The CIT(A) erred in confirming that 20% of the interest and commission arising to the overseas branches in respect of External Commercial Borrowings (ECB) to Indian borrowers represents arm's length compensation to the India Branch for its role in the marketing of these ECB. The appellant submits that the said adjustment is not warranted as no significant services were rendered by the India Branch with respect to the advancement of the ECB and the interest earned thereafter was per efflux of time. The appellant prays that the AO be directed to delete the addition of Rs. 26,98,933. 10. The AO erred in holding that the appellant's income is liable to tax at the rate as applicable to a non-resident company. The appellant submits that in accordance with the provisions of Article 26 of the India - France DTAA, tax on its income ought to have been computed at the rate as applicable....
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.... of the Special Bench of this Tribunal. Accordingly, we decide this issue against the assessee and in favour of the revenue. 46. Ground No.5 disallowance u/s14A being interest paid on FCNR(B) deposits. This issue is common to the ground no.3 raised by the revenue in the cross appeal as under: "3. On the facts and in the circumstances of the case and in law, whether the ld. CIT(A) was justified in directing the Assessing Officer not to tax the interest income of Rs. 18,71,711/- on nostro balances." 47. We have heard learned DR as well as AR and considered the relevant material on record. Learned AR of the assessee has submitted that as the assessee has not pressed ground of taxability of interest received Nostro account balances in the earlier years and consequently provision of u/s.14A cannot be invoked. 48. Learned AR of the assessee has stated that the assessee is ready to offer to tax the amount of interest received on balance of Nostro account. Accordingly, learned AR has urged that disallowance made u/s.14A may be deleted and the amount of interest may be taxed. In view of the statement of the learned AR of the assessee and to maintain the consistence on this....
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.... decision of Hon'ble Supreme Court in case of Southern Technology Ltd. Vs. JCIT 320 ITR 577, provision for NPA is not a allowable claim. Accordingly, this issue is decided against the assessee. 52. Ground no.7&8 regarding deductibility of expenditure of VRS payment under section 35DDA and not under section 37(1). 53. At the time of hearing, learned AR of the assessee has stated that assessee does not want to press this ground and same may be dismissed as not press. Learned DR has raised no objection if ground no.7&8 of the assessee's appeal are dismissed as not press. Accordingly, these grounds of the assessee's appeal are dismissed being not pressed. 54. Ground no.9 regarding disallowance of 20% of interest and commission as per TPO order with respect to ECB advance to Indian borrowers. 55. We have heard learned AR as well as DR and considered the relevant material on record. This ground is common to the ground no.9 of the assessee's appeal for assessment year 2002-03. In view of our finding on this issue for assessment year 2002-03, this ground is partly allowed. 56. Ground no.10 regarding rate of tax applicable to the assessee's income. This ground is common to th....
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....62. For the Assessment Year 2003-04 the Revenue in the Cross Appeal has raised the following grounds: "1. On the facts and in the circumstances of the case and in law, whether the ld. CIT(A) was justified in restricting the additional disallowance made u/s.14A of the Act to Rs. 2,00,000/-instead of Rs. 73,34,887/- determined by the Assessing Officer. 2. On the facts and in the circumstances of the case and in law, whether the ld. CIT(A) was justified in holding that expenses related to credit risk assistance and EDP assistance cost incurred by the HO on behalf of the India Branch are not covered u/s.44C of the IT Act. 3. On the facts and in the circumstances of the case and in law, whether the ld. CIT(A) was justified in directing the Assessing Officer not to tax the interest income of Rs. 18,71,711/- on nostro balances. 4. On the facts and in the circumstances of the case and in law, whether the ld. CIT(A) was justified in - a) restricting the estimation to 20% as against 25% determined by the TPO in respect of ECB disbursal holding that expenses related to credit risk assistance and EDP assistance cost incurred by the HO on behal....
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....n debited by the assessee to its profit and loss account, but has been claimed separately as a deduction in the computation of income filed with the return of income. The HO expenses of Rs. 20,391,525/- was subject matter of consideration under section 44C. The assessee contended before the TPO that Head Office had also certain expenditure which is directly attributable to Indian branch, over and above the normal HO expenses/allocation. Therefore, expenses have not been considered for arriving at the limits allowable u/s44C. The TPO held that the details filed by the assessee indicate that these amounts of Rs. 80,99,091/- are not being debited to the profit and loss account are being claim of the computation of income, as separate expenses. The amounts are also not being paid when Head Office had already charged. The assessee expenses towards cost of credit risk services to the tune of Rs. 20,391,525/-. The TPO held that these expenses appear to be a duplication of services which are being performed by the Indian Branches. Even if vetting is required by the Paris Branch to reduce the risk of a wrong business decision, there cannot be two allocations for the same services. According....