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2016 (5) TMI 711 - AT - Income TaxIncome attributed to the PE - rate of tax applicable to bank - Held that:- The assessee bank is incorporated in Netherlands and is engaged in banking operations across the globe through various branches worldwide, including India. In India, the assessee (branches / permanent establishment) is registered as a Scheduled Bank in terms of Schedule II of the Reserve Bank of India Act, 1034. Article 7 of the Double Taxation Avoidance Agreement (DTAA) provides for taxation in India of a foreign enterprise in respect of profits attributable to its Permanent Establishment (PE) in India. Since the assessee (The Royal Bank of Scotland ) is having a PE in India, the assessee is liable to tax in respect of income attributed to the PE. The assessee charged tax at 36.5925% on its profits on the ground that in view of Article 24 of DTAA with Netherlands, the tax rate applicable to it is the rate applicable to domestic companies i.e at 36.5925%. However, the Learned AO held that assessee being nonresident foreign company, the applicable tax rate as per the relevant Finance Act would be 40% plus surcharge. This action was upheld by the Learned CIT(A) in first appeal.This issue is covered against the assessee by the order of this tribunal in assessee’s own case for Asst Year 2004-05. Disallowance of offshore remuneration to the expatriate employees rendering services in Indian branches of the assessee - Held that:- Identical issue has been decided by the ITAT , Kolkata Bench in assessee’s own case pertaining to the Assessment Years 2002-03 and 2003-04 respectively, wherein the ITAT by following earlier order of the Tribunal has allowed the claim of the assessee subject to verification whether the expenditure was included for the purposes of section 44C. In this view of the matter, by following the earlier orders of the Tribunal (supra), we remit this issue back to the file of the Assessing Officer to allow the claim of the assessee subject to verification whether the expenditure was included for the purposes of section 44C of the Act. Deduction on interest payments made by the assessee (Indian Branch) to its Head Office - Held that:- We find that the Hon’ble Calcutta High Court had held in asesssee’s own case [2010 (12) TMI 340 - CALCUTTA HIGH COURT] that no tax need to be deducted on interest payments made by the assessee (Indian Branch) to its Head Office and various branches outside India. We feel that the assessee had duly made out of a case for admission of its additional ground and hence the same are admitted herein for adjudication. However, in case the assessee had deducted taxes thereon and remitted to the account of Central Government, then the assessee is rightly entitled for refund of the same. However, as conceded by the Learned AR, this limited aspect requires factual verification by the Learned AO as Learned DR had raised a doubt about the same. Hence we deem it fit and appropriate to set aside this issue to the file of the Learned AO for the limited aspect of verification of deduction of tax at source and remittance thereon by the assessee. Thus we hold that there is no need to deduct tax at source on interest payments made by the assessee Computing profits attributable to PE in India - Held that:- Interest paid to Head office and various branches outside India are allowable as deduction while computing the profits attributable to PE in India Depreciation on ATM machines - Held that:- Depreciation at the rate of 60% on ATMs allowed Deduction towards lease rentals - Held that:- There was a clause in the lease agreement giving an option to the lessee to buy back the asset on termination of the lease agreement. In the instant case, the assessee (lessee) falls in a better footing , in as much as there is no clause in the lease agreement, enabling the lessee to buy back the assets on termination of the lease arrangement. In view of the aforesaid facts and findings we hold that the assessee is entitled for deduction towards lease rentals.
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