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2022 (11) TMI 719 - AT - Income TaxIncome deemed to accrue or arise in India - benefit of the Article 24 of the DTAA - denial of benefit of the non-discrimination clause of the India-Korea Double Taxation Avoidance Agreement ('DTAA') and taxing the Appellant's income at the rate 40% (plus surcharge and education cess) instead of at the rate applicable to a resident tax payer (i.e 30% plus surcharge and education cess) - HELD THAT:- This issue is now covered, against the assessee, by a coordinate bench decision in the assessee's own case for the assessment year 2007-08 [2022 (6) TMI 1329 - ITAT MUMBAI] thus hold that the applicable rate of taxation, under the Income Tax Act 1961, for the assessee company cannot be read down in the light of the provisions of a double taxation avoidance agreement, as is the specific mandate of Explanation 1 to Section 90 or even on the first principles without the benefit of this Explanation. We confirm the action of the Assessing Officer and the DRP and decline to interfere in the matter. Addition u/s 28(iv) - salary paid to expatriates - salary paid by the Shinhan Bank - Head office to expatriates exclusively working for India operations/branch during the year under consideration - HELD THAT:- There cannot be any purpose of expenses incurred by the HO, which are relatable to the Indian PE, being allowed as a deduction in the computation of income of the PE when non-reimbursement of that expenditure by the PE is treated as a source of income of the foreign company itself- particularly when, from the income tax perspective, 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 Corp Vs DDIT [2012 (4) TMI 80 - ITAT MUMBAI] 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 these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assesse on this point. The Assesing Officer is thus directed to delete the impugned disallowance - The assessee gets the relief accordingly. As we have upheld the plea of the assessee on the short ground explained above, all other pleas of the assessee are dismissed as infructuous as of now, but these contentions shall remain open for adjudication in a fit case. Transfer pricing adjustment with respect to interest paid to Head Office - HELD THAT:- We deem it fit and proper to delete the impugned ALP adjustments for the short reason that the LIBOR, even amongst the independent banks, cannot always be the rate at which the intra-bank transactions must take place, and it cannot be open to the TPO to reject the independent party transactions, which are valid input for application of Comparable Uncontrolled Price Method (CUP), simply because the transactions are entered at a rate higher than LIBOR. Such a simplistic approach cannot meet any judicial approval. The ALP adjustment in respect of taking loans at a rate higher than LIBOR is thus deleted. As regards the ALP adjustment in respect of the loans given, the amount involved is only Rs 17,896, and looking to the smallness of the amount, we treat this grievance as not pressed. Addition treating the interest paid by Indian branch of the Bank to its overseas branches as taxable in the hands of the Indian branch - HELD THAT:- As per assessee own case [2022 (6) TMI 1329 - ITAT MUMBAI] we uphold the plea of the assessee that the interest paid by the PE to the GE cannot be brought to tax in the hands of the assessee company, even though it is to be allowed as a deduction in the computation of profits attributable to the permanent establishment. The Assessing Officer is directed to grant the relief accordingly. The assessee has already offered to tax the interest income received from its head office, and there is no surviving dispute in respect of the same.
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