TaxTMI 
TaxTMI 
2025 (6) TMI 977
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..... In sum and substance, ld. Counsel made substantive submissions qua ground nos. 5 & 8 only. In view of the aforesaid, we would proceed to deal with the issues raised in ground nos. 5 & 8. For deciding these grounds, it is necessary to briefly discuss the relevant facts. 4. The assessee is a non-resident banking company having its head office in United Arab Emirates ('U.A.E' for short) and is a tax resident of U.A.E. The assessee has global presence and to carry out its activities, the assessee has opened two branches in India as well, which are located in Mumbai and Bangalore. As stated by the Assessing Officer (AO), the assessee is involved in normal banking activities including financing trade, personal banking services and foreign exchange transactions. In course of its business activity, the assessee had advanced External Commercial Borrowing (ECB) loans to Indian customers/clients directly through head office without the involvement of Indian branches, which admittedly constitute Permanent Establishment (PE) in India. For the assessment year under dispute, the assessee had filed its return of income on 04.01.2021, declaring income of Rs. 63,15,58,020/-. In course of assessme....
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.... be followed irrespective of the provisions in Income Tax Act. Thus, he observed, once the assessee has chosen to be governed by DTAA, it cannot again go back to the provisions of the Income Tax Act for computation of income. He observed, since the Treaty does not provide for set off of loss, the assessee cannot claim such benefit by referring to the Income Tax Act. In this context, he relied upon the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Davy Ashmore India Ltd. [1991] 190 ITR 626 (Cal.) and various other decisions. Referring to Article 31(1) of Vienna Convention on the Law of Treaties, the A.O. observed that "a treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose". Thus, when the treaty uses the word "gross" tax has to be levied on the gross interest income without any kind of deduction. Accordingly, he framed the draft assessment order disallowing assessee's claim of set off of business losses of PE against the interest income and computed tax liability at the applicable rate of 5% on the entire interest income earned by the asse....
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....)(iiaa). In terms with the directions of ld. DRP, the A.O. finalized the assessment, which is under challenge before us. 6. The ld. Counsel appearing for the assessee, more or less, reiterated the submissions made before the Departmental Authorities. He submitted, the word "gross" as used in Article 11(2) of the Treaty, though has not been defined under the Treaty, however, in general parlance, it would mean the amount without allowing any deduction on account of expenses. He submitted, the assessee, as such, has not claimed any expense from the interest income. He submitted, loss cannot be equated with expense. Drawing our attention to the return of income, he submitted, the assessee has offered the income under the head 'income from other sources'. He submitted, even the return form provides for set off of losses from the interest income through intra head adjustments. In this context, he drew our attention to Schedule CYLA in the return of income. He submitted, once the return of income itself permits set off of business loss against the interest income, it cannot be said that intra head adjustment is not allowable. He submitted, in terms with section 90(2) of the Act, the ass....
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....a fact on record that in the return of income filed for the assessment year under dispute, the assessee had offered the interest income on ECB loans under the head 'income from other sources' and claimed concessional rate of tax u/s. 115A(1)(a)(iiaa). Further, the assessee has also chosen to be governed under the India- UAE DTAA and claimed that the interest income is subject to tax at concessional rate of 5% u/s. 11(2) of the Treaty. However, the bone of contention between the assessee and department is with regard to claim of set off of business loss of the PE in India against the interest income. While the assessee has justified its claim of such set off of loss against interest income by submitting that the word "gross" used in Article 11(2) only refers to the amount without claiming deduction towards expenses, the department has taken the stand that the word 'gross' would mean 'the entire amount without making any further deduction including loss'. 10. Keeping in perspective the respective stand of the parties, it is necessary to examine the position under the India-UAE tax treaty. At this stage, we must hasten to add, though, ld. DRP has opined that the interest income on EC....
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....Having understood the meaning of the treaty provision, it is necessary to look into the computational provision contained under the Indian Income Tax Act. Chapter IV of the Act provides for computation of total income. Section 14 of the Act defines heads of income and as per the said provision, there are following heads of income: 1. Salaries 2. Income from house property 3. Profits and gains of business and profession 4. Capital gain 5. Income from other sources 12. Sections 15 to 59 provide the mode and manner of computation of income under each of the aforesaid heads of income. Once income under different heads are computed, Chapter VI and VI-A get triggered. While Chapter VI provides for aggregation of income and set off and carry forward of loss, Chapter VIA provides for deduction to be made in computing total income. The expression 'total income' has been defined u/s. 66 of the Act. Section 71 provides for set off of current years loss under one head against another, except, income under the head 'capital gain'. Thus, in terms with section 71 of the Act, the inter10 head set off of current year loss is admissible, except, incase of capital gain. On the income compu....
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....e under various heads. In so far as computation of income under the head "income from other sources" is concerned, Section 57 of the Act enlists the deductions to be made for computing the income. It is a fact on record that assessee has not claimed any deduction of expenses. Hence, the income computed by the assessee does not violate the conditions of Article 11(2)(a) of the Treaty. Thus, according to our understanding of the relevant provisions, in the first stage, the total income of the assessee has to be computed in terms with the provisions of the Act and after set off of loss as provided u/s. 71 of the Act, the applicable rate of tax as per Article 11(2)(a) can be applied to bring to tax the interest income. Thus, we hold that assessee's claim of set off of loss of PE against the interest income is allowable. 15. Having held so, it is necessary to look into the alternative claim of the assessee u/s. 115A(1)(a)(iiaa). The ld. DRP has rejected such claim of assessee on the ground that the condition of approval of the loan agreement by the Central Government as provided under Section 194LC has not been satisfied. In this context, we may refer to the following press release by ....