TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 1200
X X X X Extracts X X X X
X X X X Extracts X X X X
....er of Income Tax Appeals-58, Mumbai [in short 'the CIT(A)'] dated 15/04/2017 for Assessment Year 2010-11. The assessee in appeal has raised twelve grounds. 3. Shri Nishant Thakkar appearing on behalf of assessee made a statement at Bar that on instruction from assessee /appellant he is not pressing grounds of appeal No.1 to 7. Thus, in light of statement made by ld. Counsel for the assessee grounds of appeal No.1 to 7 are dismissed as not pressed. 4. The grounds of appeal No.8 to 12 of the appeal are against Transfer Pricing adjustment on account of administrative support services in relation to Inter Bank Indemnities. The aforesaid grounds raised in appeal by the assessee are reproduced herein below: "8. In confirming the transfer pricing adjustment made by the learned AO in respect of account of provision of administrative support services in relation to Inter Bank Indemnities (IBI). 9. In rejecting the search process and transfer pricing documentation submitted by the Appellant and in not appreciating that the arm's length price of the international transaction of provision of administrative support services in relation to IBI was appropriately determined in the transf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ded in favour of assessee by us, holding as under: "34. Heard both the sides and perused the material on record. During the year BNS Overseas Branches executed interbank indemnities against which the BNS India issued guarantee on behalf of the clients of the overseas branches and vice-versa. BNS India received a commission of USD 125 per transactions for guarantee issued by it on behalf of its overseas branches and paid commission of USD 100 for the guarantees issued by the overseas branches on its behalf. Before us the ld. Counsel referred the various submission made before the lower authorities and stating that the assessee bank has not faced any risk as the guarantees issued was fully secured by back to back interbank indemnity issued by overseas branches. The assessee has benchmarked this transaction after following the TNMM and comparability analysis showed an arithmetic mean margin (operating profit to operating cost) of 15.28%. However, the TPO has applied internal CUP method and computed an upward adjustment of Rs. 40,58,558/-. In the TP study report the assessee has given the analysis of the aforesaid transactions that Inter-Bank indemnity is a financial arrangement wher....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant operating part of the decision is reproduced as under: "3.6 Hence, from the aforesaid modus operandi, it could be concluded that assessee acts as a beneficiary bank Je issue guarantee in India on behalf of clients of overseas branches of ANZ based on the counter guarantee issued by such overseas ANZ branches. Since assessee is acting as the beneficiary, the entire risk of discharging the bank guarantees is borne by overseas ANZ branch issuing the counter guarantee. The assessee merely provides support service in connection with processing of the guarantees, typing out the guarantee agreement based on swift message received and issuing the said agreement to the beneficiary The aforesaid functions performed by the assessee are not disputed by the lower authorities. When assessee is fully protected by overseas counter guarantee, we are unable to comprehend ourselves as to how CUP method could be applied there as it would be impossible to make adjustment for the differences as per rule 10B(1)(a) of the Income- tax Rules In effect, we find that assessee is merely providing secretarial services or which can be loosely called as carrying out administrative functions. It is not in di....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... We also find the assessee vide its letter dated 28-10-2015 had filed a detailed annexure enclosed in pages 328-331 of the paper book listing the guarantees issued by it based on counter guarantee received from overseas branches of ANZ The assessee also furnished the sample documents enclosing the copy of swift message received from ANZ New York advising the assessee to issue guarantee to Indian beneficiaries like Reliance Infrastructure Ltd., and providing counter guarantee. 3.8 The assessee also placed on record the copy of the swift message from assesse to ANZ New York confirming that guarantee has been issued to Reliance Infrastructure Ltd, confirming that guarantee has been Issued by ANZ Mumbai. By all these documents, the Id. AR was vociferous in driving home the point that the entire risk of discharging the bank guarantees is borne by the overseas ANZ branch issuing the counter guarantees wherein the assessee merely provides support services in connection with processing of the guarantees The Id AR also referred to page 380 of the paper book containing various swift messages received The assessee also placed on record the reply letter dated 18-12-2015 filed before the Id T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ussed supra in this order the issue in the appeal is squarely covered by the decision of the ITAT Mumbai therefore, the decision of ld. CIT(A) in sustaining the arm's length price addition made by the assessing officer is not justified. Accordingly, ground nos. 9 to 13 are allowed." Since, both sides have unanimously admitted that the facts germane to the issue in the impugned assessment year are identical to ground 9 to 13 of the appeal for A.Y 2008-09, the grounds of appeal 8 to 12 in the instant appeal are allowed for parity of reasons. 8. In the result, appeal of the assessee is partly allowed. ITA NO.4899/MUM/2017(A.Y.2010-11)- REVENUES APPEAL: 9. The Revenue in appeal for Assessment Year 2010-11 has raised following grounds: "1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the interest income earned on foreign currency loan advanced by the assessee to Indian concerns is to be taxed as per section 115A of the Income Tax Act and not as per normal rates without appreciating the fact that the assessee is in the business of lending and borrowing money and the foreign currency loan arrangements entered into by the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 01 has been consistently holding that interest earned on foreign currency loans is liable to tax @20%. The CIT(A) held so following order of Tribunal in assessee's own case in ITA No.306/Mum/2001 for Assessment Year 1997-98. The CIT(A) in the impugned order followed the decision of his predecessor in Assessment Year 2008-09 holding such interest income taxable @20%. 11. The ld. Departmental Representative fairly stated that in the preceding Assessment Years this issue has been considered by the Tribunal in the appeals by the Revenue. 12. Both sides heard. We find that the issue of rate of tax on interest income from foreign currency loans is perennial. The Tribunal has consistently held that interest income earned on foreign currency loans is taxable @20%. The CIT(A) in impugned order has followed the decision of his predecessor in Assessment Year 2008-09, which in turn followed the decision of Tribunal in assessee's own case in Assessment Year 1997-98(supra). We find no infirmity in the findings of the CIT(A) on this issue, hence, ground No.1 of appeal is dismissed, sans-merit. 13. The ground No.2 to 4 of appeal by the Department relates to single issue i.e. assessee's....
X X X X Extracts X X X X
X X X X Extracts X X X X
....accepted submissions of the assessee. The CIT(A) allowed assessee's claim primarily for the reason that the claim of the assessee is within the limit of 5% of the adjusted total income and the said claim of the assessee is supported by auditors certificate. The Co-ordinate Bench in the case of Doha Bank QSC vs. DCIT (supra) held that head office expenses attributable to the business of assessee in India is allowable in accordance the provisions of section 44C, irrespective of the fact whether or not any amount is debited in the books of account. The relevant extract of the said order is reproduced herein below: "11. "........... On a perusal of sec.44C, we find, that the same therein contemplates a ceiling on the allowability of the head office expenditure insofar the same is attributable to the business in India, while computing the income of an assessee, being a non-resident, under the head profits and gains of business or profession. Under the said statutory provision the allowability of the expenditure is to be restricted to viz. (i) an amount equal to five percent of the adjusted total income; or (ii) the amount of so much of the expenditure in the nature of head office expe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... India. Foreign companies operating through branches in India sometimes try to reduce the incidence of tax in India by inflating their claims in respect of head office expenses. With a view of getting over these difficulties, the Finance Act has inserted a new section 44C in the Income-tax Act laying down certain ceiling limits for the deduction of head office expenses in computing the taxable profits in the case of non-resident taxpayers." Accordingly, we are of the considered view, that the legislature in all its wisdom had provided a basis for attributing a part of the head office expenses incurred by an assessee, a non-resident, to the business of the assessee in India. On a perusal of the purpose for making available of the aforesaid statutory provision i.e Sec. 44C on the statute, we find, that the same was backed by the reason that it was extremely difficult to scrutinise and verify the veracity of the claims of the non-resident assessee's carrying on any business or profession in India, as regards their head office expenses attributable to such business or profession in India. We are unable to concur with the view taken by the lower authorities that the absence of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 of the appeal are dismissed as not pressed. In so far as ground No.8 to 12 of the appeal are concerned, the findings given while adjudicating appeal of the assessee in Assessment Year 2010-11 would mutatis mutandis apply to the present set of grounds. Hence, ground No.8 to 12 are allowed in the similar terms. 24. In the result, appeal of assessee is partly allowed. ITA NO.820/MUM/2019 - (A.Y. 2012-13)-ASSESSEE'S APPEAL: 25. This appeal of assessee for Assessment Year 2012-13 is directed against the order of CIT(A) -55 Mumbai dated 03/12/2018. The grounds of appeal in the impugned assessment year are identical to grounds in Assessment Year 2010-11. 26. The ld.Counsel for the assessee stated at Bar that he is not pressing ground No.1 to 7 of the appeal. In respect of grounds of appeal No.8 to 12 he stated that the submissions made in Assessment Year 2010-11 would equally apply to the impugned assessment year. 27. The ld. Departmental Representative fairly stated that the issue raised in ground No.8 to 12 of appeal by the assessee is identical to Assessment Year 2010-11. 28. Both sides heard. In view of the statement made by ld.Counsel for the assessee ground No.1 to 7 of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est is exempt from tax within the meaning of Article 11(3) of India -Canada tax treaty. To further support his submissions he placed reliance on the following decisions: (i) DIT vs. Credit Agricole Indosuez , 377 ITR 101(Bom) (ii) Ansaldo Energia SPA vs CIT, 384 ITR 312 (Mad) The ld.Counsel for the assessee submitted that the decision rendered by Hon'ble Jurisdictional High Court in the case of DIT vs. Credit Agricole Indosuez (supra) was cited before the CIT(A) . The CIT(A) instead of following the decision of Hon'ble Jurisdictional High Court referred to the decision of Hon'ble Uttarakhand High Court in the case of B.J. Services Co. Middle East Ltd. vs. ACIT, 60 taxmann.com 246. He pointed that the decision in the case of B.J.Services Co. Middle East Ltd. is distinguishable on facts. The said decision was in respect of DTAA between India and UK. In India-UK DTAA the provisions of Article-12 dealing with "Interest" are not similar to that of India-Canada DTAA. Hence, the ratio laid down in the aforesaid decision would not apply in the facts of assessee's case. 36. Per contra, the Ld. Departmental Representative strongly defended the order of CIT(A) and prayed for dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export Development Corporation; or (ii) interest arising in Canada and paid to a resident of India shall be taxable only in India if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export-Import Bank of India (Exim Bank). 4. The term 'interest' as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage, and in particular, income from Government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation laws of the State in which the income arises. However, the term 'interest' does not include income dealt with in Article 8 or in Article 10. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arise....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n by observing as under: "6. Regarding Question 4 : (a) The Tribunal by the impugned order restored the issue of the rate at which interest is to be charged to tax on income-tax refund received under Section 244A of the Act to the Assessing Officer to be decided in the light of Indo-France DTAA and the decision of the Special Bench of the Tribunal in the matter of Asstt. CIT v. Clough Engg. Ltd. [2011] 130 ITD 137/11 Taxman 70 (Delhi). (b) The grievance of the Revenue is with the impugned order following the decision of the Special bench in Clough Engg. Ltd. (supra). (c) However we find that the decision in Clough Engg. Ltd. (supra) of the Special Bench had been followed by the Tribunal in DHL Operations B.V. v. Dy. DIT [IT Appeal No. 183 (Mum.) of 2010]. The issue before the Tribunal was the rate of tax on which Income tax refund is to be taxed i.e. on the basis of the Articles of DTAA or under the Act. The Tribunal on examination of the DTAA in the above case concluded that interest on income tax refund is not effectively connected with the PE (Permanent Establishment) either on asset test or activity test. Therefore, taxable under the Article 11(2) of Indo-Netherlands ta....