TaxTMI 
TaxTMI 
2023 (3) TMI 1236
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....p as a lead case. ITA no.794/Mum./2022 Assessee's Appeal : A.Y. 2016-17 3. In its appeal, the assessee has raised following grounds:- "Based on the facts and circumstances of the case, and in law, the Appellant respectfully submits that the learned Deputy Commissioner of Income-tax (International Tax)-2(1)(1) (learned AO) has in his order dated February 27, 2020, issued under section 143(3) read with section 144C(3) of the Act, and as upheld by the learned Commissioner of Income-tax (Appeals) ['learned CIT(A)'] vide his order dated February 28, 2022, issued under section 250 of the Act, erred: 1. In holding that aggregate interest of Rs 3,460 paid by the Mumbai branch office of Credit Suisse AG (CSMB') to the Singapore branch office of ('CSSB') and the London branch office (CSLB) of Credit Suisse AG is liable to tax in India by virtue of the Explanation inserted in section 9(1)(v) of the Income-tax Act, 1961 (Act') by the Finance Act 2015, without considering that the Appellant has filed its income-tax return for AY 2016-17 under the provisions of the India-Switzerland tax treaty, and that the aforesaid Explanation to section 9(1)(....
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....ax resident of Switzerland, the assessee had opted for benefit of the India-Swiss Confederation Double Taxation Avoidance Agreement ("Indo-Swiss DTAA") in respect of income earned by CSSB and CSMB. The Indian branch office, i.e. CSMB, constitutes a fixed place Permanent Establishment ("PE") of the assessee in India as per Article 5 and it has offered its income under Article 7 of the Indo-Swiss DTAA. During the year under consideration, the assessee filed its return of income on 30/11/2016 declaring a total income of Rs. 393,98,74,790. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. The Indian branch office has procured loans from CSSB and Credit Suisse London branch ("CSLB") aggregating to USD 2,000,000. During the year under consideration, the Indian branch office paid total interest amounting to Rs. 3416 to the London branch and Singapore branch. The said interest was not offered to tax by the Singapore branch on the basis that the assessee and the above-mentioned branches are one and the same enterprises, placing reliance upon the decision of the Special B....
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.... profit of the head office, in order to tax the interest received by the head office/overseas branches from the Indian branch office. On the contrary, as per the Revenue the Explanation to section 9(1)(v) was specifically inserted to overcome the decision of the Special Bench in Sumitomo Mitsui Banking Corporation (supra) and therefore after the amendment by the Finance Act 2015, the concept of payment to self is not an income is no longer valid. We find that while dealing with similar arguments in respect of the similar issue of payment of interest by the Indian branch office to the overseas branches in the context of India France DTAA, the coordinate bench of the Tribunal in BNP Paribas vs ACIT, in ITAs No. 1076/Mum./2021 and 1670/Mum./2022, vide order dated 24/01/2023, for the assessment years 2017-18 and 2018-19 held that interest paid by the Indian branch/PE to the head office/GE is not taxable in India independent of the decision of the Special Bench of the Tribunal in Sumitomo Mitsui Banking Corporation (supra). We find that the coordinate bench further held that even if the submission of the Revenue that the amendment by Finance Act 2015, whereby Explanation to section 9(1)....
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....her contracting state (i.e. say India) in which interest arises, through a PE situated therein, or performs in that other contracting state independent personal services from a fixed base situated therein, and the debt claim in respect of which the interest is paid is effectively connected with such PE or fixed base. Para 5 further provides that in such a case, the provisions of Article 7 or Article 15 as the case may be shall apply. Article 15 deals with independent personal services, which is not relevant to the present case. Since the assessee has PE in India, therefore, Article 7 which deals with business profits, becomes relevant for consideration in the present case. As per Article 7(1) of the DTAA, the profit of an enterprise is taxable in the other contracting state to the extent it is attributable to the PE. Further, Article 7(2) of the DTAA provides that the profit attributed to the PE shall be the profit which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a PE. Article 7(3)(b) deals with payment by....
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.... extended this fiction of hypothetical independence also for the computation of profit of the head office, for bringing to tax the interest received from the Indian branch office under the provisions of the Act. We are of the considered opinion that the latter approach is flawed. This aspect was extensively dealt with by the coordinate bench of the Tribunal in assessee's own case in BNP Paribas SA vs ADIT, in ITA No. 3422/Mum/2009, for the assessment year 2004-05. In the aforesaid decision, the coordinate bench held that the principles for determining the profits of the PE and GE/head office are not the same, and the fiction of hypothetical independence does not extend to the computation of the profit of the GE/head office. The relevant findings of the coordinate bench of the Tribunal, in the aforesaid decision, are as under: "22. Clearly, the principles for determining the profits of the PE and GE are not the same, and the fiction of hypothetical independence does not extend to computation of profit of the GE. The principles of computing separate profits for the PE and the GE treating them as distinct entities, in the case of Dresdner Bank AG (supra),was in the context of....
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....ns arrived at in this judicial precedent. Of course, we have reached the same destination by following a different path but then as long as reach the same destination, our traversing through a different path does not really matter at all. For this reason also, the grievance of the assessee deserves to be upheld." 25. From the aforesaid findings, it is also relevant to note that the coordinate bench of the Tribunal came to the conclusion that the interest paid by the Indian branch/PE to the head office/GE is not taxable in India independent of the decision of the Special Bench of the Tribunal in Sumitomo Mitsui Banking Corporation (supra). Thus, in view of the above, even though the submission of the Revenue that the amendment by Finance Act 2015, whereby Explanation to section 9(1)(v) of the Act was inserted specifically to overcome the decision in Sumitomo Mitsui Banking Corporation (supra), is accepted, the same would still not lead to taxation of the interest paid to the head office/overseas branches under the provisions of the DTAA. Accordingly, in view of aforesaid findings and respectfully following the judicial precedent in assessee's own case cite supra, we direct ....
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....of the Act can be said to have overcome the findings of the Special Bench in Sumitomo Mitsui Banking Corporation (supra), whereby it was held that the interest paid by the Indian branch to the head office/overseas branch is not taxable in India as per the domestic law being payment to self, however, it cannot be denied that the Special Bench in para-70 of its order accepted that the independent fiction and separate entity approach under Article 7 of the tax treaty is only for the purpose of determining the profit attributable to the PE and not for the purpose of determining the total profits of the enterprise as a whole. Therefore, in view of our aforesaid findings, we direct the AO to delete the addition on account of interest income received by the overseas branches of the assessee from the Mumbai branch office. As a result, grounds no.1 and 2 raised in assessee's appeal are allowed. 10. Grounds no.3 and 4 raised in assessee's appeal were not pressed during the hearing. Accordingly, the said grounds are dismissed as not pressed. 11. Ground No. 5 is pertaining to the initiation of penalty proceedings, which is premature in nature and therefore is dismissed. 12. In the res....