TaxTMI 
TaxTMI 
2023 (4) TMI 990
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....lowing grounds:- "1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has failed to appreciate that during the AY 2013-14, the assessee has operated through its branch Permanent Establishment unlike in AY 2010-11 where the assessee was acting through subsidiary Indian company. 2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in deciding the appeal stating that the facts of the appeal for AY 2010-11 were similar to present appeal, while the facts of the case that in AY 2010-11, the assessee acted through Indian company M/s Rabo India Finance Private Limited (Rabo India), whereas in AY 2013-14, the facts of the case is that during assessment proceeding the assessee itself disclosed that it has a branch in India (PE). 3. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) has failed to appreciate that the ECB loans provided to Indian clients were linked to the activities of branch (PE) of assessee in India and therefore the interest paid by Indian clients is liable to tax as its business Income at rate of 40%. 4. Whether on the facts and in the circumstances of th....
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....s has been subjected to TDS at 10% under the India Netherlands Double Taxation Avoidance Agreement ("DTAA") and the same has been deposited to the Revenue using the PAN of the assessee. The assessee submitted that since the income does not pertain to the operations of the Indian branch, the TDS credit in respect of the same was not claimed in the return of income filed by the assessee. On a without prejudice basis, the assessee proposed to add back the aforesaid income as reported in Form 26AS to the total income of the assessee, however, requested that the tax be levied at the rates prescribed under the India-Netherlands DTAA and also the credit for taxes deducted at source as reflected in the Form 26AS be granted. 6. The Assessing Officer ("AO") vide order dated 22/02/2017, passed under section 144C(3) r/w section 143(3) of the Act held that the assessee has not shown its complete gross receipts and available TDS credit in its return of income filed for the year under consideration. The AO proceeded to add the difference between the gross receipts as per Form 26AS and income as per the return. Accordingly, the AO made an addition of Rs.66,28,56,151, being the undisclosed gross r....
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....as not filed any appeal and only the Revenue is in appeal before us. Thus, it is evident that the assessee is not aggrieved against the taxability of interest income in its hands. The only plea of the assessee is that the rate of tax of 10% as per Article 11(2) of the India Netherlands DTAA be applied in the present case. In support of this submission, reliance was placed upon the decision of the coordinate bench of the Tribunal in assessee's own case for the assessment year 2012-13. On the other hand, as per the Revenue, the income is in the nature of business income in the hands of the assessee and therefore is required to be taxed at the rate of 40%. 10. From the record, it is evident that the AO as well as the learned CIT(A) though held that the interest income is includable in the hands of the assessee, however, did not analyse the applicability of the provisions of the DTAA in the present case. Further, the assessee has also not made any submission before the lower authorities as regards the provision under which this income is taxable under the DTAA. It is evident from the record that during the assessment proceedings, the assessee merely requested that the income be taxed ....
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....nch are two separate entities and the interest expenditure is deductible under the tax treaty, therefore the tax need not be deducted under section 195(1) of the Act as the income of the head office is not chargeable to tax in India. The AO vide order passed under section 144C(3) r/w 143(3) of the Act did not agree with the submissions of the assessee and held that branch and head office of banking enterprise are distinct entities for the purpose of taxation under the Act as well as DTAA based on the principle of apportionment enshrined under the Act as well as the DTAA in respect of cross-border transactions of the non-residents. The AO also referred to the amendment to section 9(1)(v) of the Act vide Finance Act, 2015. Accordingly, the AO treated the interest paid by the assessee as income of the head office apportioned in the hands of the branch office which is attributable to India. 13. The learned CIT(A), vide impugned order allowed the appeal filed by the assessee on this issue, by observing as under:- "5.3 Decision: I have perused and considered the AO's order and the submission of the Appellant. The AO has taxed interest paid by India branch in the hands of HO. The....
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....rofits attributable to the PE considering it as a separate entity mainly for the purpose of granting double taxation relief according to the relevant treaty and not for the purpose of determining the total taxable income of the enterprise carried on by such resident. Article 7 provides for taxation of the profits attributable to the PE in the PE State which is source State and for determining such profits attributable to the PE, it is treated as independent entity. There is thus a departure from preparation of the accounts of PE and GE symmetrically to the extent that independent fiction is applied only to the PE treating the PE and the enterprise of which it is a part as two separate entities only for the purpose of determining the profits attributable to the PE and not for the purpose of determining the total profits of the enterprise as a whole." 15. Thus, the Special Bench held that the interest paid by the Indian branch is not taxable in the hands of the head office or overseas branches, all being the same entity. Further, as regards the reliance placed upon the amendment to section 9(1)(v) of the Act vide Finance Act, 2015 w.e.f. 01/04/2016 by the AO, we find that the said a....
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....ition of Rs.26,66,995/- made by the AO in respect of Interest received by head office/overseas branch from branch in India (Assessee)." 18. The issue arising in grounds no.1-4, raised in Revenue's appeal, is pertaining to the taxability of interest earned on External Commercial Borrowings ("ECB") loans. Since a similar issue on the basis of a similar factual matrix has been decided in Revenue's appeal in ITA No.2514/Mum./2022, for the assessment year 2013-14, the decision rendered therein shall apply mutatis mutandis. As a result, grounds no. 1-4 raised in Revenue's appeal are allowed for statistical purposes. 19. The issue arising in ground No. 5, raised in Revenue's appeal, is pertaining to the deletion of addition in respect of interest received by the head office/overseas branches from the Indian branch. Since a similar issue on the basis of a similar factual matrix has been decided in Revenue's appeal in ITA No.2514/Mum./2022, for the assessment year 2013-14, the decision rendered therein shall apply mutatis mutandis. As a result, grounds no.5 raised in Revenue's appeal are dismissed. 20. In the result, the appeal by the Revenue is partly allowed for statistical purposes. ....