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2015 (10) TMI 2823 - ITAT MUMBAIDisallowance which represented Data ‘Processing Costs’ paid to the Head Office - HELD THAT:- Head Office has acquired its main banking software and when the assessee branch was set up in India in Mumbai the software licence was amended to allow the branch also to use the same software making it accessible through the servers located at Belgium. Since the branch in India is using the IT resources situated at Belgium and paid by the Head Office, the branch reimbursed to the Head Office pro-rata cost for the use of the said resources. The aforesaid expenditure was not allowed by the AO, as according to him, the said expenditure was in the nature of royalty and, therefore, tax was liable to be deducted at source, which the assessee had not deducted. Therefore, as per the Assessing Officer such expenditure was hit by the provisions of section 40(a)(i) of the Act. The aforesaid stand of the Assessing Officer was in line with his stand for the earlier Assessment Years 2004-05 to 2006-07. It was a common point between the parties that in Assessment Year 2004-05 [2014 (3) TMI 726 - ITAT MUMBAI] the Tribunal has decided the said issue in favour of the assessee as held that the data processing cost paid by the assessee does not amount to royalty and, therefore, there was no requirement of deduction of tax at source so as to warrant the application of section 40(a)(i) of the Act. Following the aforesaid precedents, which continue to hold the field, we allow the plea of the assessee. Accordingly, on this aspect the Assessing Officer is directed to delete the addition made out of the data processing costs. Thus, on this aspect the assessee succeeds. Interest paid to Head Office on subordinated debts and Term borrowings - HELD THAT:- As the relevant tax has been deducted and paid in the course of the impugned assessment year, it is contended that the same be allowed as a deduction in the current assessment year also. We deem it fit and proper to direct the Assessing Officer to apply the precedents in assessee’s own case in the past years and rework the income on this aspect accordingly and also by taking into account assessee’s plea for a further deduction purported to have been disallowed in the earlier Assessment Years on account of provisions of section 40(a)(i) of the Act. Thus, on this aspect assessee succeeds for statistical purposes. Taxability of interest on subordinated debts and Term borrowings by the Head Office from the India Branch - HELD THAT:- Having regard to the decision of Hon’ble Calcutta High Court in the case of ABN Amro Bank.N.V. [2010 (12) TMI 340 - CALCUTTA HIGH COURT] the same is not taxable in the hands of the Head Office. We find that in A.Y 2004-05 he Tribunal has considered an identical controversy. As per the Tribunal, since the assessee was eligible to the benefits of tax treaty between India and Belgium, interest could not be taxed in the hands of the assessee being a foreign enterprise being payment to self, but the same is deductible while determining the profits attributable to its Permanent Establishment, which is taxable in India as per the tax treaty. Following the aforesaid precedent, we direct the Assessing Officer to re6 work the tax liability accordingly. Thus, on this aspect also assessee succeeds. Deduction of interest paid on income tax while computing the income of the assessee - HELD THAT:- The relevant facts were that assessee had disclosed certain interest income in the return of income which represented interest received from the income tax department under section 244A of the Act net of the amount of interest paid to the income tax department under section 220(2) - The assessment was originally completed under section 143(3) of the Act accepting the said position as such. Thereafter, the assessment was sought to be reopened by issuing notice under section 148 on the ground that instead of net interest, the entire interest received under section 244A of the Act was required to be offered for taxation, since under section 40(a)(ii) of the Act income tax paid or payable does not constitute deductible expenditure. In this background, assessee therein preferred a Writ Petition before the Hon’ble High Court contending that the reopening of assessment was bad in law because assessee had disclosed fully and truly all material facts pertaining to assessment. The aforesaid controversy has been addressed by the Hon’ble High Court and the stand of the assessee was upheld, as according to the Hon’ble High Court the invoking of section 147/148 of the Act was invalid having regard to the facts and circumstances of the case. In our considered opinion, the controversy before us has been directly answered by the Hon’ble Supreme Court in the case of Bharat Commerce Industries Ltd.[1998 (3) TMI 2 - SUPREME COURT] and that the judgment of the Hon’ble Bombay High Court sought to be relied upon by the assessee in the case of Arthur Anderson & Company [2010 (3) TMI 322 - BOMBAY HIGH COURT] is not in the context of the issue relating to deductibility of payment of interest for default in payment of advance tax. Appeal of the assessee is partly allowed.
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