TaxTMI 
TaxTMI 
2012 (9) TMI 1265
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....e grounds raised by the assessee, read as under: - "1. The learned CIT(A) erred in upholding the action of the Assessing Officer in bringing to tax interest of Rs. 61,91,784, received from overseas branches as forming part of the taxable income. The appellant submit that interest received by the appellants from overseas branches cannot be treated as income since it is amount received from self. The appellants pray that the A.O. be directed suitably in the matter. 2. Without prejudice to (1) above and in any event, it is submitted that if interest received from overseas branches is not allowed as a deduction, interest of Rs. 2,48,388, paid to overseas branches should be excluded while computing the total income for the year under appeal." 2. Brief facts of the case are that the assessee is a bank incorporated in Belgium under the relevant Belgium legislation and is a non-resident banking company. During the course of the assessment proceedings, the Assessing Officer, from the statement of computation of income, noticed that the assessee has claimed deduction on account of interest received from branches amounting to Rs. 61,91,754. In response ....
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....nses claimed as deduction is relatable to the interest received from the overseas branches. Besides this, the assessee is not able to explain as to why the deduction is being claimed separately. Under the circumstances and facts of the case the claim of the assessee is rejected and disallowance made by the A.O. is confirmed. Appellant's appeal on this ground is dismissed. Aggrieved, the assessee is in appeal before the Tribunal. 5. Before us, at the outset, both the parties agreed that the issue involved is squarely covered by the Mumbai Special Bench of the Tribunal in Sumitomo Mitsui Banking Corporation v/s DCIT, [2012] 19 taxman.com 364 (SB)(Mum.). 6. We have carefully considered the above decision of the Special Bench and perused the orders of the authorities below. We find that the issue for our adjudication is now stands squarely covered by the Mumbai Special Bench decision in Sumitomo Mitsui Banking Corporation (supra), wherein, it has been observed and held as under: - "49. We have considered the rival submissions in the light of material placed on record before us and the judicial pronouncements cited at the Bar by the learned representatives of bot....
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....ied on the relevant tax treaties in support of the assessee's claim for deduction on account of interest payable to GE while computing the profits attributable to PE in India as per articles 7(2) and 7(3) read with paragraph No. 8 of the protocol. It is, therefore, pertinent to refer to the said two articles and paragraph No. 8 of the protocol which are reproduced below: "7(2) Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment 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 conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. (3) In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Cont....
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....tion in India as per article 7(2) and 7(3) of the treaty read with paragraph No. 8 of the protocol. As a matter of fact, the AO has not disputed this position and even Shri Girish Dave has not raised any material contention at the time of hearing before us to dispute this position. 56. In so far as the taxability of interest payable by PE in India in the hands of GE under the domestic law is concerned, it is relevant to note that the PE in India and the GE abroad of which the said PE is part are not independent persons under the domestic law i.e. Indian Incometax Act and they are not assessed to tax separately in India. The taxable entity is only one i.e. the overseas GE which is the assessee bank in the present case who is a non resident in India and the PE in India is part of that entity which is a taxable entity in India even in respect of income attributable to the PE in India. There is thus only one person assessable to tax i.e. GE and PE are not an independent person who is assessed to tax separately in India. It is a part of the GE and its income is chargeable to tax in the hands of GE which alone is the person assessable to tax in India. 88. Keeping in vie....
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....s not form part of the taxable income. Consequently, the ground raised by the assessee is allowed. 8. परिणामतः निर्धारिती की अपील स्वीकृत की जाती है। 8. In the result, assessee's appeal is allowed. We now take up Revenue's appeal in ITA no.2275/Mum. /2004, for assessment year 2000-01. The grounds raised by the Revenue, read as follows: - "On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in directing the A.O. to allow broken period interest of Rs. 1,33,36,472." 9. The assessee, before the authorities below, has claimed the deduction for broken period interest of Rs. 1,33,36,432, paid on securities purchased during the year by treating the same as capital in nature. Before the Assessing Officer, reliance was placed on the judgment of Jurisdictional High Court in American Express International Banking Corporation v/s CIT, [2002] 258 ITR 601 (Bom.). However, the Assessing Officer tried to dis....
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....s therefore, directed to verify and allow the same accordingly. Appellant's appeal on this ground is allowed subject to verification." 11. Before us, the learned Departmental Representative relied upon the judgment of Rajasthan High Court in CIT v/s Bank of Rajasthan Ltd., [2009] 316 ITR 391 (Raj.), wherein the judgment of Jurisdictional High Court in American Express International Banking Corporation (supra) has been dissented from. She strongly relied on the findings given by the Assessing Officer. 12. The learned Counsel for the assessee, on the other hand, submitted that the judgment of Jurisdictional High Court in American Express International Banking Corporation (supra) has now been upheld by the Hon'ble Supreme Court in CIT v/s Citi Bank N.A., in Civil Appeal no.1549/2006, vide judgment dated 12th August 2008, wherein it has been held that the case of Vijay bank Ltd. (supra), have no application. Thus, he submitted that the judgment of Rajasthan High Court will not be applicable as the Hon'ble Supreme Court, in the later judgment, has upheld the judgment of Hon'ble Jurisdictional High Court in American Express International Banking Corporation (supra). ....
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....d interest, which accrued on securities taken over by Vijaya Bank from Jayalakshmi Bank and Rs.]l, 630 was the interest which accrued up to the date of purchase of securities by the assessee-bank from the open market. These two amounts were brought to tax by the Assessing Officer under section 18 of the Income-tax Act. The assessee--Bank claimed that these amounts were deductible under sections 19 and 20. This was on the footing that the Department had brought to tax, the aforestated two amounts as interest on securities under section 18. "It is in the light of these facts that one has to read the judgment in Vijaya Bank Ltd. 's case [1991] 187 ITR 541 (SC). In the light of the above facts, it was held that the outlay on purchase of income-- bearing asset was in the nature of capital outlay and no part of the capital outlay can be set off as expenditure against income accruing from the asset in question. In our case, the amount which the assessee received has been brought to tax under the. head "Business" under section 28. The amount is not brought to tax under section 18 of the Income-tax Act. After bringing the amount to tax under the head "Business", the Department taxe....
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....treated income from securities under section 28. Lastly, the facts in the case of United Commercial Bank Ltd. [1957] 32 ITR 688 (SC), also support our view in the present case. In United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), the assessee-bank claimed a set-off under section 24(2) of the Indian Income-tax Act, 1922 (section 71(1) of the present Act), against its income from interest on securities under section 8 of the 1922 Act (similar to section 18 of the present Act). It was held that United Commercial Bank was not entitled to such a set-off as the income from interest on securities came under section 8 of the 1922 Act. Therefore, even in United Commercial Bank Ltd.'s case [1957] 32 ITR 688 (SC), the Department had assessed income from interest on securities right from the inception under section 8 of the 1922 Act and, therefore, the set-off was not allowed under section 24(2) of the Act. Therefore, United Commercial Bank Ltd. 'a case [1957] 32 ITR 688 (SC), has also no application to the facts of the present case in which the assessee's income from interest on securities is assessed under section 28 right from inception. In fact, in United Commercial Bank Ltd.'s ca....
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....d judgment of the Hon'ble Supreme Court, we uphold the order passed by the learned Commissioner (Appeals) and dismiss the ground raised by the Revenue. 15. परिणामतः राजस्व की अपील खारिज की जाती है। 16. In the result, Revenue's appeal is dismissed. We now take up assessee's cross objection in C.O. no.129/ Mum. /2004, which is arising out of Revenue's appeal in ITA no.2275/Mum. /2004, for assessment year 2000-01. The ground raised in the Cross Objection, reads as under: - "The respondents submit that in case the Assessing Officer's action of treating the broken period interest paid on purchase of securities of Rs. 1,33,36,472 as capital in nature is upheld, then consistent with the department's stand, the value of opening stock of the securities in the subsequent year should be increased by the amount of the broken period interest paid in respect of such securities which has been treated as nature by the Assessing Officer." 16. Keeping in view our findings gi....