TaxTMI 
TaxTMI 
2026 (6) TMI 1323
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....) and has opened branches in India at Mumbai and New Delhi, which constitute assessee's permanent establishment ('PE' for short) in India. For the assessment year under dispute, the assessee had filed its return of income on 01.12.1997, declaring income of Rs. 3,13,36,990/-. 4. In course of assessment proceedings, the Assessing Officer ('AO' for short) noticed that though the Indian branches have received interest on Nostro accounts/offshore placements amounting to Rs. 1,74,66,956/-, however, such income has not been offered to tax on the reasoning that it is exempt from taxation. Referring to section 9(1)(v)(c) of the Act, the A.O. observed that the interest income is taxable in India. Accordingly, he issued a show-cause notice to the assessee. In course of assessment proceedings the assessee revised its claim to Rs. 2,46,96,374/-. Further, the assessee reiterated its stand that interest income is not taxable in India, however, the AO was not satisfied. Referring to the balance sheet of the assessee, he observed that the entire deposits/borrowings of the Indian branch is generated within India and have been deployed to Nostro accounts/overseas placements in the head office/....
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....TD 412 (Cal.) 8. Learned Departmental Representative ('ld. DR' for short) strongly relied upon the observations of the A.O. and ld. First appellate authority. 9. We have considered rival submissions and perused the materials on record. We have also applied our mind to the judicial precedents cited at the bar. Undisputedly, in the year under consideration, the assessee had received interest from Nostro account and overseas placements with its head office and overseas branches. That apart, the assessee had also received interest on a placement of funds/advances with other overseas banks (third party banks). The details of interest earned are as under: 1. Rs. 39,130/- Nostro account with head office and overseas branches 2. Rs. 1,80,27,573/- From placements of funds with head office and overseas branches 3. Rs. 66,34,382/- From other overseas banks 10. Insofar as, interest earned from Nostro account/placements of funds with head office and overseas branches, it is the say of the assessee that such receipt, being a transaction between the self same entities, would be governed by principle of mutuality. Hence, cannot be regarded to be in the nature of....
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....e 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. The impugned order of the Tribunal also places reliance upon the Special Bench decision in the case of Sumitomo Mitsul Banking Corpn. v. Dy. DIT [2012] 19 taxmann.com 364/136 ITD 66 (Mum.) (SB) to hold that man cannot make profit out of himself and therefore the interest received by the Assessee from it's own Head Office is not chargeable to tax. (c) So far as the reliance by the Revenue on order dated 14 April 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 PE 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 Diamond Bank N.V. (supra) before the Tribunal was a part of the Special Bench decision in Sumitomo Mitsui Banking Corpn. (supra) wherein at para 50, it is held as under: "50. As regards the deduction of interest payable to the head office in the hands of Indian PE for the purpose of computing profits attributable to the said PE, there is ....
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.... deduction of interest paid by it to its Head Office while computing the taxable income. 12. Thus, keeping in view the observations of the Hon'ble Jurisdictional High Court and ITAT (Special Bench) in decisions referred to above, we hold that the interest income earned by the Indian branches on the Nostro account and the placements made with head office and overseas branches is not taxable in India. 13. Having held so, it is necessary to examine the issue relating to the taxability of interest earned of Rs. 66,34,382/- from other overseas banks. While bringing to tax the aforesaid amount under the domestic law, the line of reasoning of the AO is that such income is taxable both under the general provision contained u/s. 9(1)(i) as also the special provision u/s. 9(1)(v)(c) of the Act. Of course, learned first appellate authority has observed that there is no need to apply the general provision, as the receipt is covered u/s. 9(1)(v)(c) of the Act. Let us examine the aforesaid line of reasoning of learned first appellate authority on merits. Section 9(1)(v)(c) reads as under: ".....a person who is a non-resident, where the interest is payable in respect of any deb....
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....s, banks are required to purchase securities to maintain Statutory Liquidity Ratio (SLR). According to the accounting principle followed by the Banks, these securities are held as stock-in-trade. The banks have to pay interest for the broken period, which is claimed as deduction. Relying upon certain judicial precedents, the departmental authorities have held that the broken period interest is not allowable as revenue expenditure. 17. Having considered the rival submissions, we find that the issue is settled in favour of the assessee in case of Bank of Rajasthan Ltd. vs. CIT [2024] 167 Taxman.com 430 (SC), wherein after taking note of the decision of Hon'ble Supreme Court in the case of Vijaya Bank Ltd. vs. Addl. CIT [1957] 152 Taxman 152 (SC) and American Express International Banking Corporation v. CIT [2002] 125 Taxman.com 488 (Bom), the Hon'ble Supreme Court has held that the broken period interest is allowable as revenue expenditure. Thus, respectfully following the ratio laid down by the Hon'ble Supreme Court, we direct the AO to delete the addition. 18. In ground number 3, the assessee has challenged the disallowance of deduction claimed towards bad debts a....
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....ed under sub-section (4) of section 143 of the Act, the AO computed interest u/s. 234B of the Act by treating the refund granted to the assessee as shortfall in payment of advance tax and charged interest u/s. 234B of the Act. 26. The assessee contested the levy of interest before ld. first appellate authority. 27. After considering the submissions of the assessee and referring to the provisions contained u/s. 143(4) and section 234B of the Act, ld. first appellate authority held that the refund granted u/s. 143(1)(a) of the Act can only be recovered by resorting to the provision contained u/s. 234D of the Act, which was not in the statute at the relevant time. As section 234B of the Act as section 234B of the Act is for shortfall in advance tax, it cannot be invoked for charging interest on refund. Accordingly, he deleted the interest levied u/s. 234B of the Act. 28. We have considered rival submissions and perused the materials available on record. Notably, identical issue has been considered by the co-ordinate bench in case of M/s. Banque Indosuez (known as Credit Agricole Indosuez) and others (in ITA No. 3098/Mum/2000 & others vide order dated 21.09.2012). While dealin....