TaxTMI 
TaxTMI 
TaxTMI 
2025 (10) TMI 984
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....reon by the Head Office: Rs. 127,955,895 That on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the Ld. AO of not allowing deduction in respect of a sum of Rs. 127,955,895 paid as salaries by the Head Office overseas, in foreign currency, to the expatriates working in India exclusively for the permanent establishment ('PE') of the Appellant in India, on which taxes have been duly deducted/deposited in India, and accordingly the order of the Hon'ble CIT(A) is erroneous in law as well as on facts on the following counts: a) That the Hon'ble CIT(A) has failed to appreciate that the salary has been paid to the expatriates who are stationed in India and are working exclusively for business operations of the Indian PE of the Appellant and is thus an allowable expenditure as per Article 7(3) of DTAA; b) That the Hon'ble CIT(A) has erred in observing that the nature of expense is covered under section 44C of the Act, even though, the said amount is incurred exclusively and for direct benefit of Indian operations of the Appellant. c) That the Hon'ble CIT(A) erred ....
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.... of the case and in law, the Hon'ble CIT(A) has erred in not upholding the contention of the Appellant that under the provisions of Article 24 of the India-Japan DTAA, the applicable rate of tax on the income of the Appellant attributable to its PE in India cannot exceed the applicable rate of tax (as per the Finance Act for the subject assessment year) in the case of Domestic Companies and consequential directions may kindly be issued in this regard. 3. The revenue's cross appeal in ITA 3756/Del/2014 on the other hand canvasses the following substantive grounds: 1. On the facts and in the circumstances of the case and law, Ld. CIT(A) has erred in deleting the addition of Rs. 4696,100/- made by the AO on account of Deferred Bank Guarantee Commission, as he has ignored the fact recorded by AO that the commission received in respect of Deferred Bank Guarantee is like a fees for issuing the guarantee and is not a contingent receipt or advance and this is also not returnable at the end of guarantee period. 2. On the facts and in the circumstances of the case and law, Ld. CIT(A) has erred in deleing the addition made by the AO on account of provision of wealth t....
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....2003) 262 ITR 55 (Bom.) where the Bombay High Court approved the view taken by the ITAT. The ITAT agreed that the expenses have been incurred wholly and exclusively by the Indian branch and therefore no part of these expenses can be allocated to any other branch and the HO and that there was no dispute with regard to the non-applicability of Section 44C of the Act. 10. This Court has perused the order of the Bombay High Court in Emirates Commercial (supra) where on identical facts, the issue was decided in favour of the Assessee. This order of the Bombay High Court has been affirmed by the Supreme Court by order dated 26th August 2008 in Commissioner of Income Tax v. M/s. Emirates Commercial Bank Ltd., which in turn referred to an order of the same date in Commissioner of Income Tax v. Deutsche Bank AG (CA No. 1544 of 2006). 11. In that view of the matter, this Court declines to frame a question on this issue" The facts of the present appeal are also identical therefore, Ground No. 1 is allowed." "9.2 As relates to Ground No: 2 of the Assessee's appeal, the Hon'ble Delhi High Court in Assessee's own case (ITA No. 604/2015 order dated ....
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....interest received by the Indian PE on deposit maintained with Head Office Overseas Branch is not taxable in India? 3. The aforesaid issue arises in the context of interest received by the Permanent Establishment of the Bank of Tokyo Mitsubishi UFJ Ltd., now known as MUFG Bank, comprising of branches in India from its overseas branches and Head Office, During the Assessment Year in question, namely AY 2003-04, that sum was quantified at INR 7,002,400. The aforesaid constituted interest earned by the PE in India on balances maintained either with its Head Office or other Overseas branches outside India. The taxability of interest received has been answered in favour of the respondent assessee with the Tribunal observing as follows:- 20. Ground No. 5 of the appeal for Assessment year 2003-04 of the assessee is with respect to the interest of Rs. 7002160/- received by the Indian PE of the appellant on deposit maintained with head office and its taxability. Undisputedly in the case the appellant had itself included the interest received by Indian PE on deposits maintained with Head office in the total table income. However, the same was challenged before the ld. CTT(A)....
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....ther incurred in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specific services performed or for management, or, except in the case of a banking enterprises, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than toward reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specific services....
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.... the amount of the executive and general administrative expenses which may be allowed, and that restriction is relaxed or overridden by any Convention between that State and a third State which enters into force after the date of entry into force of this Convention, the competent authority of that State shall notify the competent authority of the other State of the terms of the corresponding paragraph in the Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other State or requests, the provisions of this sub-paragraph shall be amended by protocol to reflect such terms. (b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Like....
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....to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this article. 5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 6. For the purposes of the provisions of the preceding paragraphs of this article, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. 7. Where profits include items of income which are dealt with separately in other articles of this Convention, then the provisions of those articles shall not be affected by the provisions of this article." 11. Although Article 7(2) of the India-Japan DTAA stands framed on lines similar to other treaties while dealing with the principle of attribution, the Protocol to the aforesaid Treaty makes the following significant provisio....
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....erest to compute the total income but with regard to the chargeability to tax of the interest received by the Indian permanent establishment from its head office in computing the total income. It is pointed out that the Indian permanent establishment and the head office are one and the same person. It is settled position that one cannot make a profit out of oneself as held by the apex court in Sir Kikabhai Premchand v. CIT (1953) 24 ITR 506 (SC). The impugned order of the Tribunal also places reliance upon the Special Bench decision in the case of Sumitomo Mitsui Banking Corpn. v. Deputy DIT (2012) 16 ITR (Trib) 116 (Mumbai) [SB]; (2012) 19 taxmann.com 364 (Mum) [SB] to hold that man cannot make profit out of himself and, therefore, the interest received by the assessee from its own head office is not chargeable to tax. (c) So far as the reliance by the Revenue on order dated April 14, 2013, of this court admitting the appeal in Antwerp Diamond Bank N. V. (supra), is concerned, deduction on account of interest paid by the Indian permanent establishment to its head office was in the specific context of articles 7(2) and 7(3) of the Indo-Belgium DTAA. The case of Antwerp Dia....
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.... the Revenue's appeal, in the case of Antwerp Diamond (supra) arose from a different factual matrix, viz., specific provision of the DTAA allowing deduction and not under the regular provisions of Income- tax Act. Thus, the fact that the appeal in the case of Antwerp Diamond (supra) is admitted would have no relevance for admitting the present appeal on the proposed question No. 5. It is also necessary to point out that the Tribunal in the impugned order has recorded the fact that the respondent-assessee has admitted before it that to bring about parity, it is not claiming any deduction of interest paid by it to its head office while computing the taxable income. (d) Accordingly, in view of the above settled position that no person can make profit out of itself, the proposed question of law not being substantial, is not entertained." 13. As is evident from the aforesaid passages of the judgment in Credit Agricole, the Bombay High Court had taken note of the indubitable and well settled position of branch offices not being separate personalities or juridical entities and that one person cannot thus profit from itself. Since the receipt of interest was from the ....
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....h allows for the taxability of interest paid by a permanent establishment to its head office and other branches and had pointed out absence of such a specific provision in the Income-tax Act. Considering that there were several disputes on the issue which were pending and likely to arise in future, it was essential that necessary clarity and certainty is provided for in the Income-tax Act. 9.7 Accordingly, the Income-tax Act has been amended to provide that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head office or any permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India. The permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Income-tax Act relating to computation of total income, determination of tax and collection and recovery would apply. Ac....
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....allenge that stands raised based on the well settled position of the law clearly not contemplating a person profiting out of itself. Once we come to the firm conclusion that the branch office would not partake the character or attribute of a separate legal personality, the view as taken by the Tribunal is clearly rendered unexceptional. In any event, it would be the exception carved out in the DTAA with respect to banking enterprises which would govern. 18. At this juncture, we deem it apposite to extract the following passages from the decision rendered by the Supreme Court in Kikabhai Premchand KT v. Commissioner of Income Tax (Central), Bombay:- "10. It is well recognised that in revenue cases regard must be had to the substance of the transaction rather than to its mere form. In the present case disregarding technicalities, it is impossible to get away from the fact that the business is owned and run by the assessee himself. In such circumstances we are of the opinion that is wholly unreal and artificial to separate the business from its owner and treat them as if they were separate entities trading with each other and then by means of a fictional sale introdu....
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....nting policy followed by the assessee Bank. According to the Assessing Officer, the Commission received was like a fee for issuing guarantee and was not a contingent receipt or advance and which accrued at the time of bank issues the guarantee. According to the Assessing Officer, the income gets accrued to the assesses, the moitment right to receive has arisen. Accordingly, he added the sum of Rs. 1.75.34.052/- to the income of the asses 3.2 The La CIT-(A), following the order of the Hon'ble Calcutta High Court in the case of the assessee for assessment year 1981-82. adjudicated the issue in the favour of the assessee 3.3 Before us, the Ld. CIT(DR) supported the order of the Assessing Officer and submitted that guarantee commission accrued to the assessee, the moment it issued guarantee and thus the entire guarantee commission was lable to be assessed in the year under consideration. Without prejudice to above, he also submitted that from the facts of the case it was not clear whether the assessee declared any income for guarantee commission in respect of the guarantees granted in earlier years, but continued during the year under consideration. 3.4 O....
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....on'ble Delhi High Court are reproduced as under: "Deferred bank guarantee commission 16. This issue appears to be covered in favour of the Assessee by the decision of the Calcutta High Court in CIT Vs. Bank of Tokyo Ltd. (1993) 71 Taxman 85 (Cal). 17. Accordingly, this Court declines to frame any question on this issue." 4.7 On perusal of page 11 & 12 the statement of facts filed before the Ld. CIT-(A), it is evident that assessee has followed consistent method of accounting of crediting income over the period of life of the bank guarantee, following the decision of the Hon'ble Calcutta High Court (supra) in its own case for assessment year 1981-82. The Ld. CIT-(A) has allowed relief to the assessee following the above decision of the Hon'ble Calcutta High Court. In view of above, we do not find any error in the finding of the Ld. CIT-(A) on the issue in dispute, accordingly, we uphold the same and the ground No. 1 of the appeal is dismissed." 11. The department could hardly pinpoint any distinction on facts or law, as the case may be. We, thus, uphold the ld. CIT(A)'s impugned lower appellate findings deleting deferred bank guaran....