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2014 (7) TMI 169 - AT - Income TaxTDS on interest paid to Head Office/Overseas branches – Principle of mutuality - Disallowance u/s 40(a)(i) of the Act - Held that:- The decision in Sumitomo Mitsui Banking Corporation Versus Deputy Director of Income-tax, (IT), Rg. 2(1), Mumbai [2012 (4) TMI 80 - ITAT MUMBAI] followed - where any Indian branch of a foreign bank passing interest to its head office and other overseas branches of the said foreign bank on advance received by it, the interest is neither deductible in the hands of the Indian branch nor chargeable to tax in the hands of the head office and overseas branches, as all being single entity - In the domestic law, such an income cannot be taxed. The issue has been decided by the Special Bench, in favour of the assessee, by holding that interest paid to the head office of the assessee bank by its Indian Branch which constitutes its P.E. in India, is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit to the P.E. which is taxable in India as per the provisions of article 7(2) and 7(3) because, it amounts to payment to self which is not taxable under the domestic law - Thus, the “principles of mutuality” were invoked for non–deduction of tax - no disallowance u/s 40(a)(i) can be made on the payment of interest paid to the head office / overseas branches as the same is not taxable, being payment to self on the ground of principles of mutuality and no TDS was required to be deducted – Decided in favour of Assessee.
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