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2020 (5) TMI 665 - AT - Income TaxDisallowance of salary paid overseas to expatriates of the Appellant working in India by the Head Office and the Indian taxes paid thereon by the Head Office - HELD THAT - This issue decided in favour of assessee 2016 (4) TMI 817 - DELHI HIGH COURT . Interest paid to Head Office and overseas branches and interest received from Indian branches need to be deleted as relied by own case 2016 (4) TMI 817 - DELHI HIGH COURT . Interest received by the Indian branches from its own Head Office/ overseas branches - chargeable to tax in the hands of the assessee or not? - HELD THAT - The issue stands covered in favour of the assessee by the decision of the Hon ble Bombay High Court in the case of DIT vs M/s. Credit Agricole Indoseuz 2015 (6) TMI 974 - BOMBAY HIGH COURT MAT applicability - assessee is a banking company which draws up its account as per the Banking Regulation Act and not as per Part II III of the Schedule VI of the Companies Act - HELD THAT - Provision of section 115JB of the Act are not applicable to the assessee company. Taxability of interest received on ECB given to Indian Borrowers - HELD THAT - Interest on ECBs was not attributable to the Indian branches of the assessee and only the portion was taxable in the hands of the Indian branches for the role played in arranging the ECBs. We find that the issue raised in the present appeal is fully covered in favour of the assessee and where the assessee had already offered to tax the portion attributable to it then there is no merit in making any other additions in the hands of the assessee. The Tribunal in own case 2019 (9) TMI 731 - ITAT DELHI had also allowed the claim in the hands of assessee. Ground of appealby the assessee is thus allowed. Treatment in respect of Deferred Bank Guarantee Commission - HELD THAT - There is no merit in the orders of the authorities below in treating the commission received on Bank Guarantee as taxable on receipt basis. We find that the said issue stands covered in favour of the assessee by the order of the Hon ble High Court in assessee s own case in Assessment Year 2007-08 and 2008-09 2016 (4) TMI 817 - DELHI HIGH COURT Higher rate of tax - Applicable rate of tax on the income of the assessee attributable to its PE in India - rate of tax to be charged i.e. rate of tax on foreign company @ 40% or rate of tax on the domestic company @ 30% - HELD THAT - As relying on assessee s own case assessee cannot be regarded as treated less favourably by taxing at a higher rate. As a result the appeal of the assessee on this ground is dismissed. TP Adjustment - Receipt of guarantee commission - assessee while benchmarking its international transactions in the transfer pricing report applied combined approach and has benchmarked under TNMM method - HELD THAT - The evaluation of the beneficiary for the creditworthiness of the customers was performed by the overseas branches whereas the assessee had limited role in issuing letter of guarantee it received 1% guarantee commission. In these facts there is no merit in comparing the rate received by the assessee with the rate charged by different banks who are operational in India and providing financial guarantee to its customers with all risk involved therein Assessing Officer/TPO erred in applying the rate charged by Axis Bank Canara Bank Punjab National Bank and State Bank of India etc. with arithmetic mean of 2.71% to benchmark the international transactions between the assessee and its overseas branches of receipt of bank guarantee commission. The details of the international transaction are tabulated in the order of the TPO itself and the same clearly reflect that no transaction is undertaken except with overseas branches. The assessee undoubtedly is also providing the services to its customers in India where it a risk bearing entity. We are of the view that where the assessee has undertaken bundle of international transactions with its AE and the same has been benchmarked by applying combined approach and the method of TNMM has been used and the margins shown by the assessee have been accepted; then there is no merit in segregating the international transaction of the receipt of the guarantee commission and benchmarking the same separately. The margins of the combined approach has been accepted at Arm s Length. Consequently there is no merit in the transfer pricing adjustment made in the hands of the assessee. The same is thus directed to be deleted.
Issues Involved:
1. Disallowance of salary paid overseas to expatriates. 2. Addition on account of interest paid to Head Office and other overseas branches. 3. Addition on account of income from interest received from Indian branches. 4. Taxability of interest accrued/received by Indian PE from Head Office/overseas branches. 5. Applicability of Minimum Alternate Tax (MAT) under Section 115JB. 6. Taxability of interest received on External Commercial Borrowings (ECBs) given to Indian borrowers. 7. Deduction under Section 44C of the Income Tax Act. 8. Treatment of Deferred Bank Guarantee Commission. 9. Non-grant of tax credit. 10. Erroneous withdrawal of interest under Section 244A. 11. Applicable rate of tax for PE in India. 12. Transfer Pricing adjustment on guarantee commission. 13. Initiation of penalty proceedings. Issue-wise Detailed Analysis: 1. Disallowance of Salary Paid Overseas to Expatriates: The Tribunal found that the issue of disallowance of salary paid overseas to expatriates working in India by the Head Office has been decided in favor of the assessee in earlier years. The Tribunal relied on its previous orders and the judgment of the Hon’ble Delhi High Court, which upheld that the expenses incurred wholly and exclusively by the Indian branch are allowable deductions and not subject to Section 44C of the Act. Consequently, the Tribunal allowed the assessee's claim. 2. Addition on Account of Interest Paid to Head Office and Other Overseas Branches: The Tribunal noted that the issue of interest paid to the Head Office and other overseas branches has been previously decided in favor of the assessee. The Tribunal referenced the decision of the Special Bench in Sumitomo Mitsubishi Banking Corporation and the Delhi High Court's judgment, which held that no tax deduction at source is required under Section 195 for such interest payments. The Tribunal thus allowed the assessee's claim. 3. Addition on Account of Income from Interest Received from Indian Branches: The Tribunal found that the issue of interest received from Indian branches is covered by the same reasoning applied to the interest paid to the Head Office. The Delhi High Court had held that such interest is not taxable as it constitutes a receipt from self. The Tribunal followed this reasoning and allowed the assessee's claim. 4. Taxability of Interest Accrued/Received by Indian PE from Head Office/Overseas Branches: The Tribunal referred to the Bombay High Court's decision in DIT vs. Credit Agricole Indoseuz, which held that no person can make a profit out of self, and thus, such interest is not taxable. The Tribunal applied this principle and deleted the addition made by the Assessing Officer. 5. Applicability of Minimum Alternate Tax (MAT) under Section 115JB: The Tribunal held that the provisions of Section 115JB are not applicable to the assessee, a banking company preparing its accounts under the Banking Regulation Act and taxed under the DTAA provisions. This conclusion was supported by the Delhi High Court's judgment, which affirmed that MAT provisions do not apply to foreign companies governed by DTAA. 6. Taxability of Interest Received on ECBs Given to Indian Borrowers: The Tribunal found that the interest on ECBs is not attributable to the Indian branches of the assessee and only the portion attributable to the Indian branches for their role in arranging the ECBs is taxable. The Tribunal followed its earlier orders and allowed the assessee's claim, deleting the addition made by the Assessing Officer. 7. Deduction under Section 44C of the Income Tax Act: This ground was dismissed as it was raised without prejudice to Ground No. 6, which was allowed. 8. Treatment of Deferred Bank Guarantee Commission: The Tribunal held that the commission received on bank guarantees should be taxed over the tenure of the guarantee and not on a receipt basis. This decision was based on the Delhi High Court's judgment in the assessee's own case for earlier years. The Tribunal allowed the assessee's claim. 9. Non-Grant of Tax Credit: The Tribunal did not address this issue in detail as it was not pressed by the assessee. 10. Erroneous Withdrawal of Interest under Section 244A: This issue was also not pressed by the assessee and was dismissed. 11. Applicable Rate of Tax for PE in India: The Tribunal noted that the issue of the applicable rate of tax is pending before higher forums. The Tribunal followed the precedent set in the assessee's own case and dismissed this ground. 12. Transfer Pricing Adjustment on Guarantee Commission: The Tribunal found that the Transfer Pricing Officer (TPO) erred in applying the external CUP method to benchmark the guarantee commission received by the assessee. The Tribunal accepted the assessee's combined approach using the TNMM method and deleted the transfer pricing adjustment made by the TPO. 13. Initiation of Penalty Proceedings: The Tribunal dismissed this ground as premature. Conclusion: The appeal of the assessee was partly allowed, with several grounds decided in favor of the assessee based on precedents and judgments from higher courts. The Tribunal provided detailed reasoning for each issue, ensuring consistency with previous decisions and legal principles.
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