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2020 (1) TMI 19 - AT - Income TaxRevision u/s 263 - Income accrued in India - whether or not interest received by the Head Office/overseas Branches from the Indian Branch is taxable in India? - HELD THAT:- As per Explanation (a) to section 9(1)(v)(c) of the Act, it was clarified that the interest paid by an Indian Branch of a non–resident banking company shall be deemed to be accruing or arising in India and shall be chargeable to tax in addition to any income attributable to the PE in India. It further says that the PE in India shall be deemed to be a person separate and independent of the non–resident person. In our view, the aforesaid provision would apply prospectively from 1st April 2016 and not prior to that. The aforesaid view has been expressed by the Co–ordinate Bench in DCIT v/s BNP Paribas S.A. [2019 (7) TMI 1076 - ITAT MUMBAI]. Therefore, Explanation (a) to section 9(1)(v)(c) of the Act cannot be pressed into action for bringing to tax the interest income in the impugned assessment years. In any case of the matter, the issue, whether or not interest received by the Head Office/overseas Branches from the Indian Branch is taxable in India is a highly debatable issue and the position of law prevailing at the time of completion of assessments as per the available judicial precedents on the issue, clearly held that the interest income was not taxable as it is governed by the principle of mutuality. Therefore, it cannot be said that it is not a possible view. Rather, the assessment orders would have been erroneous had the Assessing Officer taxed the interest income received from the Indian Branch overlooking the decision of the Special Bench in case of Sumitomo Mitsui Banking Corporation [2012 (4) TMI 80 - ITAT MUMBAI] which was available at the time of completion of assessments. Even, assuming for the sake of argument that Explanation (a) to section 9(1)(v)(c) of the Act will apply retrospectively, however, proceedings under section 263 of the Act cannot be initiated on the basis of such retrospective amendment as the AO has to proceed on the basis of law prevailing as on the date of assessments. Thus, looked at from any angle, the assessment orders cannot be considered to be erroneous and prejudicial to the interests of Revenue for not bringing to tax the interest received from the Indian Branch. Accordingly, we hold that the impugned orders of CIT passed u/s 263 are unsustainable in law, hence, have to be quashed. Accordingly, we quash the orders passed under section 263 - Decided in favour of assessee.
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