AI Drafter 
TaxTMI 
TaxTMI 
2024 (4) TMI 737
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....the HO for salary paid to the expatriate employees for rendering services to PE, erred in not considering at the same time that these expenses being not recorded in books of assessee (PE) in India, were neither actually paid nor shown payable in books of Indian PE and as the assessee did receive the services of such value through its HO, simultaneously there was equivalent income also accruing to assessee u/s 28(iv) and once the AO having not made any separate addition u/s 28(iv), the disallowance of expenses claimed directly in computation of income was merely to bring tax neutrality." 2. "On the facts and in the circumstances of the case and in law, the Ld CIT(A) has erred in holding that the interest received by HO of the non-resident bank from its PE in India is not taxable under the Act." 3. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in not considering section 9(1)(v)(e) of the Act as a charging section as held by the Hon'ble Supreme Court in the case of A. Sanyasi Rao (1996) 3 SCC 465 and reiterated by the Hon'ble Supreme Court in the case of Sedco Forex International Inc in Civil Appeal No. 4906 of 2010." 4. ....
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....x Act." 9. On the facts of the case and in law, the Ld CIT(A) erred in directing that 75% of the expenses of Rs 5,56,40,717- (incurred on refurbishment of leasehold premises) be treated as revenue expenses and 25% of the expenditure be considered as capital expenses, without considering the fact that there is no provision under the Act to estimate certain percentage of the total expenditure related to a particular asset as revenue expenditure or capital expenditure and that the expenditure incurred in relation to any particular asset is either entirely on capital or on revenue account" 10. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 4. At the time of hearing, both the counsels fairly agreed that the issues raised in this appeal are covered and adjudicated by the Coordinate Bench of the Tribunal in assessee's own case for the A.Ys. 1994-95 to 2001-02. Copies of the orders are placed on record. 5. We proceed to dispose off this appeal by adjudicating the issues ground wise. 6. With regard to Ground No. 1, which is in respect of salaries paid to Expatriates, Ld DR brought to our notice the relevant fac....
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.... para 34) which reads as under: "34. since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee's own case for the A.Y. 1997-98 and also following rule of consistency, we dismiss the grounds raised by the revenue." Further, with respect to the contention of the department that equivalent income accruing to the Appellant under section 28(iv) of the Act (being raised for the very first time directly before the Hon'ble ITAT), the Appellant submit that this issue is covered in favor of the Appellant by the decision of the Mumbai Tribunal in case of Shinhan Bank vs. DCIT [2022] 144 taxmann.com 182(Mumbai ITAT) (Copy of the decision is enclosed in the Department's appeal legal paper book at page no. 1), wherein the Hon'ble Tribunal has inter alia held that non-reimbursement of expenses incurred by HO for salary of employees of Indian PE did not result in taxable income in the hands of PE/HO under section 28(iv) of the Act. Relevant para is reproduced as under: "9. We find that Article 7(1) of India Korea Double Taxation Avoidance Agreement [(1987) 165 ITR Stat 191; the then Indo-....
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....ities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. The entire profit computation is thus based on this fiction. We must also remember that the taxable unit is the foreign company itself, and not the Indian PE. As observed by the Hon'ble Supreme Court in the case of CIT v. Hyundai Heavy Industries Co. Ltd. [2007] 161 Taxman 191/291 ITR 482, "it is clear that under the Act, a taxable unit is a foreign company and not its branch or PE in India". It is in this light that one has to analyze the fact situation that we are dealing with. The assessee has eleven Korean expatriates working in India and running the entire show with respect to its Indian banking operations. These persons are employees of the assessee company, but they work exclusively for the Indian PE. As employees of the Assessee Company and working for its head office, these employees get salaries in Korea and, in addition to that salary, when they come to India, they get a certain additional amount as compensation for working in India. While the Indian salaries of these eleven expatriates are paid in India, and shown in the books of ....
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....the taxable unit is the foreign company and not the PE. It is also important to bear in mind the fact that, in the light of the five-member bench decision of this Tribunal, in the case of Sumitomo Mitsui Banking Corpn. v. Dy. CIT (IT) [2012] 19 taxmann.com 364/136 ITD 66 (Mum.), the intra-organization transactions, as non-reimbursement of employee costs by the PE to HO, is, are tax neutral. In any case, there cannot be a benefit accruing to the Korean company when the Indian PE of the assessee company does not reimburse its Korean company, because the assessee itself is the Korean company and the transaction in question is a wholly non-business and internal transaction of the Korean company." In view of the above, the Appellant submits before us to follow the own case ITAT order for A.Y. 1999-00 dated 27 September 2022 and decision of Mumbai Tribunal in case of Shinhan Bank(supra) and allowed the deduction of INR 3,25,01,633/- by dismissing the ground raised by the Revenue. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee's own case for the A.Y. 1997-98 and 1999-00 and als....
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....les of mutuality, without appreciating the fact that under International taxation principles the income of the PE has to be computed as independent entity by attributing appropriate portion of income arising from transaction between the PE and its HO. ..... The Assessee submits that this issue is covered in favor of the Assessee by the decision of the Special bench of the Mumbai Tribunal in case of Sumitomo Mitsui Banking Corporation vs. DDIT (2012) (136 ITD 66).The Hon'ble Tribunal has inter alia held that since the interest payment by branch to HO is in the nature of payment to self, (the HO and branch being one legal entity), the same should not be chargeable to tax in the hands of the HO under the provisions of the Act. It was also held that this interest cannot be taxed in the hands of the HO / overseas branch of the Bank even under the provisions of the tax treaty. (The relevant portion of Mumbai Special Bench order is already reproduced at para 3.5 of Ground 3 above.) Further, the Assessee submits that the amendment under the provisions of section 9(1) (v) of the Act, is applicable prospectively with effect from 1 April 2016 (i.e., AY 2016....
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.... placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue, the Coordinate Bench of the Tribunal in ITA.No. 4867/Mum/2017 dated 13.11.2023 held as under: - 3.1 Ground 3.1 The learned CIT(A) erred in law and on facts to disallow interest payable to head office/ overseas branches on the ground that the Act does not allow deduction of interest paid by Branch to Head office. 3.2 The learned CIT(A) ought to have considered that a combined reading of Articles 7(2) and 7(5) of DTAA entered into by India with UK provides that interest paid by the Permanent Establishment (PE) on moneys lent to it by the Head Office / overseas branches of any banking enterprise would be taken into consideration in determining the profits attributable to that PE. 3.3 The learned CIT (A) ought to have allowed deduction for interest payment by the Appellant to its Head Office / overseas branches and accordingly, disallowance should be deleted. ..... At the outset, the Appellant wish to highlight that this issue of disallowance of interest paid to HO was first time rai....
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....pecifically. Having held that the interest paid by the Indian branch of the assessee Bank to its head office and other branches outside India is not chargeable to tax in India, it follows that the provisions of section 195 of the Act would not be attracted and there being no failure to deduct tax at source from the said payment of interest made by the PE, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) of the Act does not arise. Accordingly we answer question No.1 referred to this Special Bench in the negative i.e. in favour of the assessee and question No.2 in affirmative i.e. again in favour of the assessee. 89. before parting, we may clarify that there may arise a situation where interest is payable by PE to GE and also there is interest receivable by PE from GE in the same year. A similar situation may arise where there are internal dealings of the Indian Branch of a foreign bank with its head office as well as other overseas branches. In such a situation, the issue may arise whether only the net interest would be allowable as deduction while determining profits attributable to the PE in India. This issue, however, has n....
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....nue is not able to produce any argument to controvert the facts of the ground raised by the assessee and also not able to controvert the stand taken by the special bench in the case of Sumitomo Mitsui Banking Corporation vs. DDIT (2012) (136 ITD 66) (SB-Mumbai ITAT). Hence, in the given situation respectfully following the decision of special bench (supra), ground raised by the assessee is allowed." 19. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2000-01 is respectfully followed, accordingly, grounds raised by the revenue are dismissed. 20. With regard to Ground No. 9 which is in respect of disallowance of expenditure on Refurbishment, Ld.DR brought to our notice the relevant facts of the issues raised by the revenue and submitted that the issue brought on record by the lower authorities are proper and he justified the additions, at the same time, he has fairly agreed that the issue under consideration is similar to the issues raised in the earlier assessment years. 21. Ld. AR of the assessee submitted that these expenses incurred on refurbishment of various branch premises like electrical wor....
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.... holding so Hon'ble Supreme Court held as under: - "The assessee is a limited company carrying on the business of sale of motor parts. Its head-office is at Madras. It has a branch at Bangalore. Under an agreement of lease dated 1st of February, 1966, the assessee obtained from M/s. Hajira Comer and Mrs. Rabia Bai Razack a lease of premises Nos. 64 and 64/1 situated at Sri Narasimharaja Road, Bangalore for a period of 39 years commencing from 1st of January, 1966. Under the terms and conditions of the lease, the lessee (that is to say the assessee), had the right to demolish at its own expense the existing premises and appropriate to itself all the material thereof without paying to the lessors any compensation and construct a new building thereon to suit the purpose of their business as per the plan approved by the lessors. Under Clause 2 of the lease deed, the lessee was required to pay a rent of Rs. 1000/- per month for the first fifteen years, Rs. 1500/- per month for the next ten years, Rs. 1650/- per month for the next ten years and Rs. 2000/- per month for the remaining years. The lease deed further provided that the new construction shall, right from the commen....
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....assessee for the said assessment years. The present appeals are filed by the department from the impugned judgment of the High Court. The assessee in the present case has spent the amounts in question in order to construct a new building after demolishing the old building. The new building, however, from inception was to belong to the lessor and not to the assessee. The assessee, however, had the benefit of the existing lease in respect of the new building at the agreed rent for a period of 39 years. The Tribunal has found, as a fact, that the rent as stipulated in the lease was extremely low. It rental rate for the area in which the building was situated was much higher and would be not less than Rs. 12,000/- as against which the maximum rent the assessee would be paying was only Rs. 2,000/-. This concessional rent was on account of the fact that the new building was constructed by the assessee at its own cost. In order to decide whether this expenditure is revenue expenditure or capital expenditure, one has to look at the expenditure from a commercial point of view. What advantage did the assessee get by constructing a building which belonged to somebody else an....
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....pply if there are special circumstances pointing to the contrary. This Court in the above case summarised the tests as follows :( p. 44): 1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade...........If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. (Underlining ours) ....
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....in U.P. The assessee paid a contribution towards meeting the cost of construction of roads in the area around its factory under a sugarcane development scheme. The question was whether this amount was deductible in computing the assessee's profits. The Court held that it was. Because although the advantage secured was of long duration, it was not an advantage in the capital field because no tangible or intangible asset was acquired by the assessee; nor was there any addition to or expansion of the profit making apparatus of the assessee. The amount was contributed for the purpose of facilitating the business of the assessee and making it more efficient and profitable. It was, therefore, revenue expenditure. In the case of Commissioner of Income-tax, Bombay City- I v. Associated Cement Companies Ltd. (172ITR 257) the respondent-company entered into an agreement to supply water to the municipality and provide water pipelines as also to supply electricity for street lighting and put up a transmission line for that purpose. The assessee also agreed to concrete the main road from the factory to the railway station. The amounts expended for these purposes were held to be rev....
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....ITAT order for A.Y. 1999-00 dated 27 September 2022 and allow deduction for the entire amount incurred on refurbishment of premises. Revenue is not able to produce any argument to controvert the facts of the ground raised by the assessee and also not able to controvert the stand taken by the coordinate bench in assessee's own case. Hence, in the given situation respectfully following the decision of coordinate bench in assessee's own case for A.Y. 1999-00, dated 17 October 2022, ground raised by the assessee is allowed." 24. Respectfully following the above decision and following the principle of consistency, the view taken by the Tribunal in A.Y. 2001-02 is respectfully followed, accordingly, ground raised by the revenue is dismissed. 25. In the result, appeal filed by the revenue is dismissed. ITA No. 2936/MUM/2019 (A.Y. 2002-03) 26. Coming to the appeal relating to A.Y. 2003-04, since facts and the grounds raised by the revenue in this appeal are identical to A.Y.2002-03, therefore the decision taken in A.Y. 2002-03 are applicable mutatis mutandis to this assessment year also. Accordingly, the appeal filed by the revenue is dismissed. Assessee Appeals ITA No.16....
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....on. The learned CIT(A) also erred in holding that the entire amount is royalty/Fees for Technical Services in nature and disallowable under section 40(a)(ia) without appreciating the detailed submissions made by the Appellant inter alia that it is not service but cost allocation by the HO/offshore branches to PE in India, HO and branches are part of same entity and no payment has been made by India PE to HO thereby TDS mechanism fails. The learned CIT(A) also erred in ignoring the submissions made by the Appellant that provisions of section 92 are not applicable in view of explicit provisions of India UK Double Tax Avoidance Agreement. 3. SALARY PAID TO EXPATRIATES CIT(A)'s Order) Rs. 5,56,66,866/- (Pages 31-30 of 3.1. The learned CIT(A) erred in referring the matter to the Assessing Officer by holding that deduction of salary paid to expat employees be allowed only if TDS has been deducted on such salary without appreciating the fact that concerned employees have already offered the relevant income to tax in India and this fact has not been disputed by the Assessing Officer. 3.2. The learned CIT(A) ought to have allowed the said exp....
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.... allowed in earlier year are subjudice and accordingly, the recovery of the amounts should not be taxed. 7. PREMIUM ON ACQUISITION OF RETAIL ASSET PORTFOLIO Rs. 20,30,00,000/- (Page 64 of CIT(A)'s Order) 7.1. The learned CIT(A) erred in confirming the action of the Assessing Officer of for disallowance of premium paid on acquisition of retail assets by holding that the same is capital in nature and not revenue relying on the decision in the case of Sitalpur Sugar Works v CIT 49 ITR 160 (SC) which was with respect to expenditure incurred in dismantling and refitting existing plant at a better site and in the case of Abdul Khayoom v CIT 44 ITR 689 (SC) wherein the issue was in respect to payment made for acquiring monopoly right over a long period of time from producer of goods. 7.2. It is respectfully submitted that both these decisions deals with totally different facts and ratio thereof cannot be applied to Appellant's case. 7.3 The learned CIT(A) ought to have considered the submissions of the Appellant that expenditure on the acquisition of retail asset portfolio does not result in the acquisition of any capital asset or an advantage o....
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....ad Office, Singapore Branch and Hongkong Branch of the bank exclusively for the benefit of the Indian Branch. The total amount allocated on this account is Rs..73,93,01,880/-. It was submitted that these are costs allocated based on direct usage, the transaction value represents the arm's length price. 32. The back ground of the assessee company are, it is incorporated in UK and it operates as a branch in India. The branch is taxed in India in the status of Foreign Company. The Foreign Companies are taxed @48% and it is taxed in India on its income attributable to its Indian operations. 33. The value of International transactions as shown in the Form 3CEB is accepted without adjustment in respect of all transactions except the direct cost allocation which is referred to Transfer Pricing Officer vide reference dated 16.01.2004 from the Dy. Director of Income Tax, International Taxation 2(1), Mumbai. Accordingly, notices under section 92CA(2) of the Act was issued vide letter dated 21.01.2004. In response, Authorised Representative of the assessee filed the relevant information as called for. 34. During Transfer Pricing proceedings the assessee was asked to explain the benef....
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....uld consist of the entire income and expenditure relating to the India branch." 36. In the summary, Transfer Pricing Officer observed that the costs allocated to the assessee, Indian branch, are toward technology upgradation, maintenance of systems, advisory and business support, Hubbing cost and Training cost etc., these costs have been incurred by the Head Office and also by the Singapore Branch and Hongkong Branch. Subsequently these costs were reimbursed by the Indian Branch. In support of the same the assessee has submitted a detailed break up of these costs, vide letter dated 10.02.2005, for the sake of clarity it is reproduced below: - 37. Transfer Pricing Officer asked the assessee to provide specific evidences in respect of the above said cost to establish that they relate to Indian Branch activity and the assessee has derived equivalent benefit out of the same. In response, assessee vide letter dated 16.02.2005 has provided approximately 60% of the cost for demonstrating the benefit for the Indian operations. The cost from the above table were regrouped and explained in the following manner which are reproduced as under: - 38. It was also explained to the Transfe....
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....ing the above submissions, Transfer Pricing Officer accepted the various cost allocations to the extent of Rs..41.97 crores out of the total allocation cost of Rs..76.94 crores and for the balance of Rs..34.97 crores, he observed that in absence of contemporaneous evidences establishing the benefits derived by the assessee during the previous year from the cost allocation, the cost allocation cannot be regarded as to be at arm's length. Accordingly, he treated the balance amount of Rs..34.97 crores Arm's Length Price at Rs..NIL. 40. After considering the Transfer Pricing Officer order, the Assessing Officer observed that assessee has claimed expenses of Rs..76,93,01,880/- incurred by the Head office as directly attributable to the business carried in India. In this regard, assessee was asked to produce the following information: - "a Books of account of the HO where such expenses have been incurred b Original vouchers supporting such expenses c Why such expenses have not been debited in the books of account of the branch in India? What are the RBI guidelines in this regard considering the fact that if such amount are to be paid, it would have required ....
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....ed to systems i.e. Technology upgradation, maintenance, advisory and business support, hubbing cost, training costs, etc. These costs have been incurred by the Head Office and also by the Singapore and Hongkong Branches. Subsequently, these costs have been reimbursed by the Indian branch. In view of these facts, please state why the reimbursement of Rs. 41.97 crores made by the Indian branch to the HO and other overseas branches should not be treated as fees for technical services(FTS) u/s 9(1)(vii) of the Income-tax Act, 1961. Further, also explain why the amount of Rs. 41.97 crores debited to the P & L Account of the Indian branch should not be disallowed u/s 40(a)(i) as the assessee has failed to deduct tax on such payments made to the HO/Overseas Branches, which are in the nature of FTS and liable to tax in India." 42. In response to the above letter, assessee filed the detailed submissions objecting to the above said show cause notice which are more or less similar to the submissions made by the assessee in the earlier assessment proceedings. It is fact on record that the addition proposed by the Assessing Officer is not a fresh addition. Similar additions were proposed by ....
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.... 40(a)(i) of the Act to further justify the disallowance of entire amount of Rs..76.91 crores. 45. Aggrieved with the above order, assessee preferred appeal before the Ld. CIT(A)-57, Mumbai and filed the detailed submissions before him which is reproduced in the appellate order at Page No. 7 to 17 of the order. After considering the detailed submissions, Ld. CIT(A) has sustained the additions proposed by the Assessing Officer and also he has dealt with the submissions made by the assessee with regard to Article 13 and 7 of the Indo-UK treaty and held that this falls under Royalty/FTS and will not fall under Article 7(7) of the Indo - UK DTAA and accordingly, he dismissed the grounds raised by the assessee. 46. Aggrieved with the above order, assessee is in appeal before us raising the above grounds of appeal. 47. At the time of hearing, Ld.AR of the assessee submitted as under: - "a) Nature of costs primarily Technology costs incurred outside India. b The Appellant has demonstrated the need and benefit for the costs allocated (refer pages 68 to 71 of the factual paperbook including the detailed breakup of the costs before the Ld. TPO (refer page 75 of the....
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....saction is between the HO and the Branch. L) The Hon'ble Tribunal, in the past AYs, has accepted that these costs relate to the business of the India branch. This fact is not in dispute also in the current AY (i.e., AY 2002-03). v) Disallowance by Hon'ble CIT(A) vi) Break-up of cost a) The Hon'ble CIT(A) confirmed the disallowance on the basis that there is no agreement entered with the co-branches to share the cost and no invoice is raised. b) The Hon'ble CIT(A) disallowed the entire expenses by treating the same as Royalty /FTS on which tax has not been deducted which was alleged to be deductible at source. A. Global Technology Services (GTS) / Group Technology Cost, India RFS, HR CTF, IT Cable & Wireless, Corporate and institutional banking (Global Account manager cost) (INR 13 Cr) i. The Hon'ble CIT(A) held that these expenses are in nature of FTS as covered by make-available clause, Hence, disallowed the same in absence of TDS. [Page 28 of the CIT(A) order] ii. In AY 2001-02, the Hon'ble ITAT upheld the decision of the Hon'ble CIT(A) who had held that this cost component represents payme....
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....rs which are disallowed under section 37(1) and not disallowable for withholding of tax under section 40(a)(i) of the Act. Therefore, he prayed that the findings of the Coordinate Bench may be followed. 50. On the other hand, Ld. DR relied on the findings of the lower authorities. 51. Considered the rival submissions and material placed on record, we observe that the similar issue was raised in earlier assessment years and disallowed under section 37(1) and by invoking section 40(a)(i) of the Act. During the current assessment year, the matter was referred to the Transfer Pricing Officer and Transfer Pricing Officer has considered the various submissions submitted before him and he allowed about 60% of the cost allocated to the Indian Branch based on the detailed submissions made by the assessee justifying the allocation. He has partially made TP Adjustments with the observation that assessee has not filed relevant documents before him. However, the Assessing Officer accepted the disallowance based on the findings of the Transfer Pricing Officer to the extent of TP adjustments and further gone ahead by disallowing the allocation of cost accepted on the basis of various docume....
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....on of Mumbai ITAT in case of Micoperi, Italian Company (82 ITD 369). 2.4 CIT(A)'s decision (page 19) * The Ld. CIT(A) allowed the direct expenses attributable to Appellant's business of INR 21,50,15,149/- which relates to GTS, IT cable and wireless and corporate and institutional banking as it represents payment made to self and the amounts are held to be not liable to TDS [refer para 6.13, page 19 of the CIT(A) order] * The Hon'ble CIT(A) disallowed the direct expenses of INR 42,54,26,899/- attributable to the Appellant's business which relates to advisory and business support costs and Singapore IT Hubbing costs due to the following: With respect to advisory and business support costs incurred in connection with the acquisition of Indian branches of ANZ Grindlays Bank, the Ld. CIT (A) held that these advices are not with respect to business activity carried on by the PE but are services rendered to the HO. The amount is not in the nature of revenue expenditure of the PE and hence, cannot be allowed [refer para 6.14, page 19 of the Ld. CIT (A) order]. o With respect to expenses relating to Singapore IT Hubbing costs, the Ld. CIT (A) held that th....
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.... In view of the, said finding and also in view of the, decision of this Court in Bombay Steam Navigation Co. [1953] (P.) Ltd. v. CIT [1965] 56 ITR 52, we are of the opinion that the Tribunal was right in its conclusion. The decision in Bombay Steam Navigation Co. (1953) (P.) Ltd.'s case (supra) also pertains to amalgamation of two shipping companies. The assessee company took over the assets of the other company and part of the price was treated as a loan secured by a promissory note and hypothecation of all movable properties of the assessee company. The loan was to carry simple interest at 6 per cent. The question that arose in the said case was whether the interest paid upon the said loan was deductible as revenue expenditure. It was held by this Court that it was an expenditure deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922. It was held that transaction of acquisition of the asset was closely related to the commencement and carrying on of the assessee's business and, therefore, interest paid on the unpaid balance of the consideration for the assets acquired had, in the normal course, to be regarded as expenditure for the purpose of the business wh....
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....iture mainly relates to salaries and other related costs, travel, communication for staff working on the project, payment to external vendors such as Cable and Wireless for system maintenance and similar expenditure. o The examples provided in India US DTAA which is relied by the Ld. CIT (A) (refer para 6.16, page 19) are not applicable in the instant case, as the Appellant has incurred the expenses only for the use of technology solely for the purpose of business in India. o Further, the services of IT Hubbing costs does not make available any technical design or technical plan to the Appellant. In this regard, the Appellant rely on the following judicial decisions (as enclosed in the Appellant's legal paper book) wherein it is held that payments towards use of technology do not result in make available. Therefore, the same will not fall with the definition of FTS under Article 13 of India-UK tax treaty: 1. DIT Vs. Guy Carpenter & Co. Ltd. (20 taxmann.com 807) [2012] (Delhi HC) 2. CIT vs. De Beers India Minerals (P.) Ltd. (21 taxmann.com 214) [2012] (Karnataka HC) 3. Anand NVH Products Inc. Vs. ACIT (145 taxmann.com 412) [2022]....
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....ributable to Indian branches and NRI expenses. The Assessing Officer after examining the nature of expenses held that the aforesaid expenditure claimed by the assessee being part of Head Office expenses is eligible for deduction under section 44C of the Act, hence, cannot be claimed as deduction separately. Being aggrieved with the aforesaid decision of the Assessing Officer, assessee preferred appeal before the first appellate authority. 18. Learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and materials on record found that identical disallowance made by the Assessing Officer in assessee's own case in assessment year 1994-95 to 1996-97 was deleted by his predecessor-in-office by holding that such expenditures are incurred by the assessee exclusively for the purpose of business of the assessee in India and are not in the nature of Head Office expenses covered under section 44C of the Act. Following the decision of his predecessor-in-office, learned Commissioner (Appeals) deleted the disallowance by holding that the expenditure is allowable under section 37(1) of the Act without imposing restrictions contained under se....
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....expenditure is referable to a business outside India. Reliance was also placed on various decisions of Tribunal and High Court 13. After considering the submissions and perusing the material on record the CIT (A) found that these expenses are incurred wholly for the purpose of assessee's business and no portion of these expenses fails under section 44C. Accordingly, the disallowance made by the Assessing Officer was deleted. 14. The learned Departmental Representative placed reliance on the order of the Assessing Officer. On the other hand, counsel for the assessee placed reliance on the order of CIT (A). It was further submitted that in case of British Bank of Middle East in ITA No.2297/M/99 identical issue was involved and Tribunal has decided the issue in favour of assessee. Attention of the Bench was drawn towards copy of the order placed at paper-book at pages 136 to 144. Further reliance was placed on the decision considered by the CIT (A). 15. After considering the submissions and perusing the material on record we found no infirmity in the finding of the learned CIT (A) who has decided the issue in favour of the assessee following the decision....
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.... This ground in appeal is allowed in favour of the Appellant. 16 This finding of CIT (A) neither could be controverted nor any material was brought on record from which it can be established otherwise. We further noted that identical issue was decided by the Tribunal in the case of British Bank of Middle East in ITA No.2297/Mum/1999 and others for assessment year 1992-93 to 1997-98 vide its order dated 28.06.2005. Copy of the same is placed in the paper-book. Following the decision of the Tribunal and on the reasoning given by CIT (A) we confirm his order in this regard also." 34. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee's own case for the A.Y. 1997-98 and also following rule of consistency, we dismiss the grounds raised by the revenue." 55. From the above ratio, we observe that the issue raised are, whether the allocation of cost by the Head Office are eligible and whether it is covered within the provisions of section 44C of the Act. The Coordinate Benches have allowed the same in favour of assessee. However, in the current assessment year the Assessing Office....
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....observe that Assessing Officer has intended to disallow the whole cost allocation made by the Head office to toe along with the findings in the earlier assessment years and not inclined to relook at the actual material or facts on record. In our view, he has grossly rejected the documents and justification submitted by the assessee. Therefore, we do not see any reason to differ from the findings of the Coordinate Bench in the earlier assessment years. Further, the Assessing Officer himself partially accepted the findings of TPO and proceeded to disallow the whole allocation of costs, which demonstrates that he has no inclination to allow the costs incurred by the assessee. Even the TPO partially recognizes the allocation of costs and rejects the cost which according to him not supported by the sufficient documents. It is Transfer Pricing Officer's obligation to call for the whole documents before closing the Transfer Pricing assessments and also he cannot treat any TP adjustment without properly justifying the reasons for such rejection. In this case, we observe that he has merely considered the submissions made by the assessee and he partially accepted the allocation and other....
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....). In this case, the Hon'ble jurisdictional High Court has expounded that in a situation where the details were very much before the TPO, the Hon'ble High Court held that the tribunal therefore, did not and rightly permitted the DR to argue the appeal contrary to the record. That the appeal therefore did not raise any substantive question of law and deserves to be dismissed. The ratio from the above said decision is applicable on the present case also. The necessary evidence has also been brought on record by the assessee. The authorities below have totally disregarded the same and made the allocation on the basis of a total bizarre and whimsical method. The bizarreness and whimsical nature of the allocation done by the TPO which has been supported by the DRP is not lost upon the ld. DR who has argued for a remand for proper appreciation by the TPO. In view of the aforesaid Hon'ble jurisdictional High Court decisions we are of the considered opinion that such an act of TPO and DRP cannot be set right by remitting the issue on this account. 28. We note that it is the claim of the assessee that the assessee has intra group AEs spread around the length and breadth of ....
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....ted in para 22 hereinabove are germane and duly support the case of the assessee. 29. We further note that as regards the estimation and allocation of IT cost is concerned, the same has been duly accepted for the Dispute Resolution Panel for A.Y. 2013-14 and the Revenue has accepted the same. In the background of the aforesaid discussion and precedent, we set aside the order of the authorities below and decide the issue in favour of the assessee. Hence, the transfer pricing adjustment stands deleted." 56. It was held that the intra group services should have provided and such services must be at Arm's Length Price. As per OECD, allocation of cost based on approved allocation key and certified by the CPA certificate is relevant. The revenue cannot reject the CPA certificate since the same are specific and authenticated. As per Rule 10D(2)(A), the document must be supported by authentic documents, which includes authentication by the CPA. Therefore, the certification of allocation key and the same was authenticated by the CPA is proper documents as per Reule 10(2)(A) of the I.T. Rules. Respectfully following the above decision, we observe that in the given case also, the ....
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....he assessee for the A.Y. 2001-02. While deciding the issue, the Coordinate Bench in ITA.No. ITA.No. 4867/Mum/2017 dated 13.11.2023 held as under: - "5.1 Ground 5.1 The learned CIT (A) erred in law and on facts that Rule 8D is to be applied for arriving at the disallowance of expenditure attributable to earning taxable income. 5.2 The learned CIT(A) ought to have considered the Appellant's submission that the expression 'in relation to' under section 14A means dominant and immediate connection which is not applicable in the case of the Appellant as no expenditure has been incurred by the Appellant in relation to earning the exempt income. 5.3 The learned CIT (A) erred in law and on facts in disallowing the expenditure under section 14A of the Act and accordingly, the disallowance should be deleted. ..... The Appellant submits that this issue is covered in favor of the Appellant by a decision of the Co-ordinate bench of the Tribunal in the Appellant's own case for the AY 1999-2000, wherein the Tribunal followed the Appellant's own case Tribunal order of AY 1997-98 and dismissed the ground raised by Revenue (Copy of AY ....
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....ing the principle of consistency, the view taken by the Tribunal in A.Y. 2001-02 is respectfully followed, accordingly, Assessing Officer is directed to restrict the disallowance to 1% of exempt income and ground raised by the assessee is partly allowed. 63. With regard to Ground No. 6 which is in respect of recoveries against securities loss, at the time of hearing, Ld.AR of the assessee submitted that this ground is academic in nature, accordingly, the same requires no specific adjudication. Ground No. 6 raised by the assessee is kept open. 64. With regard to Ground No. 7 which is in respect of premium paid on acquisition of retail asset portfolio, Ld.AR of the assessee submitted that during this assessment year, the Bank acquired retail loan portfolio (i.e, auto loans, mortgage loans, etc.) from Standard Chartered Grindlays Bank Ltd., at a premium of Rs..20.30 crore. Since this loan portfolio is stock-in-trade/trading asset for the Bank, the said premium was claimed as revenue expense / deduction in this assessment year. Assessing Officer held that the premium paid is capital in nature and disallowed the same and Ld. CIT(A) sustained the same. Ld.AR of the assessee submitt....
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....the India-UK tax treaty provisions. He submitted that the claim made before Ld. CIT(A) was disallowed. Further, Ld.AR of the assessee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee's own case and decided the issue in favour of the assesse and against the department. 69. On the other hand, Ld. DR relied on the orders of the lower authorities. 70. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue, the Coordinate Bench in ITA.No. 4867/Mum/2017 dated 13.11.2023 held as under: - "8.1 Ground 8.1 The learned CIT(A) erred in disallowing the claim of the appellant towards Head Office Expenditure of Rs. 77,08,83,765/- in entirety on the ground that no revised return of Income was filed for such claim and thus, restricted the claim under section 44C of the Act. 8.2 The Ld. CIT (A) failed to appreciate that: a) The decision of the Supreme Court in the case of Goetz (India) Ltd. v CIT (2006) 284 ITR 323 (SC) can be applied only when the claim ....
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....e may, first of all, reproduces the relevant extracts from the provisions of arts. 7 and 24 of the applicable Indo-Canadian DTAA for ready reference: Article 7 - Business profits 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a PE situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other Contracting State but only so much of them as is attributable to: (a) That PE, and (b) Sales of goods and merchandise of the same or similar kind as those sold, or from other business activities of the same or similar kind as those effected, through that PE. 2. Subject to the provisions of para 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a PE situated therein, there shall in each Contracting State be attributed to that PE, the profits 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 condit....
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....will apply in the case of non-resident companies governed by the India Canada DTAA, particularly in the light of non-discrimination clause in the said DTAA. As a corollary to this question, we must decide whether restriction on admissibility of deduction on account of head office expenditure, as contemplated by Section 44C of the Act, constitutes "taxation on a PE which an enterprise of a Contracting State has in the other Contracting State" as "less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities". Another aspect which requires to be considered by us is whether the provisions of computation of business profits in Article 7 are to viewed as subject to the application of non-discrimination clause in Article 24(2), or is it the other way round i.e., non-discrimination clause to be read as subject to the clause regarding computation of business profits. There are other peripheral or subsidiary issues raised before us, such as, whether the provisions of Section 44C of the Act can be viewed as a restriction on admissibility of deduction of head office expenditure at, and, whether the provisions of Section ....
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....n the technical expressions and the clauses in the model conventions, and referred to, with approval, Lord Redcliff's observation in Ostime v. Australian Mutual Provident Society (1960) 39 ITR 210, 219 (HL) which have described the language employed in those documents as the 'international tax language'. These documents are thus in the nature of contemporanea expositioin as much as the meaning indicated in these documents to the clauses and expressions in the tax treaties can be inferred as the meaning normally understood in, to use the words of Lord Redcliff, 'international tax language' developed by the organizations like OECD. This is so held in the case of Graphite India Ltd. v. Dy. CIT (2003) 78 TTJ (Cal) 418 : (2003) 86 ITD 384 (Cal). When an expression or a clause is picked up from the OECD Model Convention, the normal presumption is that the persons using the said clause or expression are also aware about the meanings assigned to the said clause or expression by the OECD and have used it in the same sense and for the same purpose. Unless a contrary intention is specifically expressed, say by a protocol attached to the DTAA, it is only axiomatic that....
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....rovisions of Article 7 are in the nature of general provisions. While taxation of business profits under Article 7 refers to the general principles on the basis of which the business profits are to be computed, Article 24(2) refers to the specific provision that the PE of the residents on one State shall not be subjected to any taxation which is less favorable vis-a-vis the taxation levied on enterprises of that other State carrying on the same activities. On the issue whether the general provisions will prevail over the special provision or vice versa, the law is fairly well settled. As aptly conveyed by the legal maxim generalia specialibus non derogant', i.e., special things derogate from general things. As observed by a co-ordinate Bench, in the case of ITO v. Titagarh Steels Ltd. (2001) 73 TTJ (Cal) 297 : (2001) 79 ITD 532 (Cal) and relying upon Hon'ble Supreme Court judgment in the case of South India Corporation (P) Ltd. v. Secretary, Board of Revenue AIR 1964 SC 207, 'a special provision normally excludes the operations of general provision'. The provisions of Article 7 being general in nature are therefore, required to be read as subject to the provisions o....
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....er Section 37(1) of the Act and this is so held by the Hon'ble jurisdictional High Court in Deutsche Bank's case (supra). 9. We have noted that the Ld. CIT (A) has, in the asst. yrs. 1994-95 and 1996-97 restored the matter to the file of the AO for examining the claim of expenditure as attributable to the PE in India, and the assessee is not in appeal against these directions. Therefore, beyond dispute, only such expenses are to be allowed as a deduction on account of head office expenses as can be fairly allocated to the PE. The only impact of the applicability of non-discrimination clause will be that the scope of deduction under Section 37(1) of the Act will not stand curtailed by the restriction placed under Section 44C of the Act. In our considered view, this direction of the Ld. CIT (A) is justified and calls for no interference. 10. As far as asst. yr. 1993-94 is concerned, the CIT(A) has held that the provisions of Section 44C of the Act will apply but then, for the reasons set out above, we are of the considered view that Section 44C has no application in the matter and that the assessee is to be allowed deduction of such head office expenses as c....
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.... allowed. 72. In the result, appeal filed by the assessee is partly allowed. ITA NO. 2839/MUM/2019 (A.Y. 2003-04) 73. Coming to the appeal relating to A.Y. 2003-04, since facts and grounds in this case are mutatis mutandis, therefore the decision taken in assessee's case for the A.Y. 2002-03 are applicable to this assessment year also. With regard to Ground No. 7 relating to premium paid to acquire the retail loan portfolio, we have decided the issue on the basis of deferred revenue expenditure, the same is directed to be allowed to the assessee at 1/5th of the premium paid on acquisition of portfolio. Therefore, this ground is partly allowed. All other grounds raised are similar to the grounds raised in A.Y. 2002-03, the same are disposed off mutatis mutandis to other grounds in A.Y. 2002-03. Accordingly, the appeal filed by the assessee is partly allowed. 74. In the result, appeal filed by the assessee is partly allowed. 75. To sum-up, appeals filed by the revenue are dismissed and appeals filed by the assessee are partly allowed. Order pronounced in the open court on 15th March, 2024. ============= Document 1 8. With the above general background, the asses....