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2014 (10) TMI 150 - AT - Income TaxSalary paid overseas to expatriate of assessee disallowed - Working in India by the head office and the Indian tax paid there on by the head office Held that:- The expatriates were working in India and salary had been subjected to tax for which form no. 16 was also issued to the expatriates - there cannot be any dispute regarding verifiability of thes expenses Following the decision in Abn Amro Bank N. Versus Joint Commissioner Of Income-tax, Spl. Range 3. [2005 (6) TMI 218 - ITAT CALCUTTA-E] - The expenses had been incurred wholly and exclusively for the Indian branch and no part of thee expenses could be allocated to any other branch by head office - there was no dispute amongst the members in regard to non-applicability of provisions u/s 44C - Decided in favour of assessee. Interest paid to head office and other overseas branches - receipt of interest from Indian branches Held that:- Following the decision in Sumitomo Mitsui Banking Corporation vs. DDIT [2012 (8) TMI 450 - ITAT, MUMBAI] the interest paid to the head office of the assessee bank by its Indian branch cannot be taxed in India in the hands of assessee bank, a foreign enterprise being payment to self which cannot give rise to income that is taxable in India as per the domestic law - as interest paid by the Indian branch is not chargeable to tax in India, it follows that the provisions of section 195 would not be attracted and there being no failure to deduct tax at source from the said payment of interest made by the PE - a distinction has to be kept in mind between banking and financial institutions and non-banking and financial institutions - If entity is not in the business of giving commercial loans, no notional interest charged is allowed as a deduction to the intra entity borrowing - If the entity is a bank or other financial institution and, therefore, in the business of giving commercial loans, the current interest rate applicable to the funds lend to the PE is deductible to the borrower (PE) - However, as far as assessability in the hands of lender (HO) is concerned the same has to be excluded on the ground of mutuality Decided in favour of assessee. Interest accrued/received to the Indian PE from its head office/overseas branches Held that:- Following the decision in Assistant Director of Income-tax (International Taxation) Versus Credit Agricole Indosuez [2013 (9) TMI 364 - ITAT MUMBAI] - the assessee himself had submitted that the amount paid by PE to its HO/branches should not be allowed as deduction so as to bring symmetry between interest income and interest accrued from or to HO - The next limb of submission of revenue is that specific deeming provision u/s 9(1)(v) will override the concept of mutuality the contention of the revenue is accepted because concept of mutuality cannot override specific provision of law - once the interest received by PE is deemed to be income of PE and there is no bar in the treaty on its taxability then it cannot be excluded from computation of income earned by PE Decided against assessee. Applicability of the provisions of section 115JB Minimum Alternate Tax Held that:- The assessee had prepared its accounts as per the requirements of Banking Regulation Act and while filing the return of income, though it had computed the book profits as per the provisions of section 115JB also, but had given a note that the provisions of section 115JB were not applicable. It is also not disputed that profit and loss account of assessee had not been prepared as per part II & III of schedule VI to the Companies Act - The MAT provisions were brought in statute by the Income Tax Act by Finance Bill, 1996 and it has been observed that company engaged in the power and infrastructure sector will remain exempt from the levy of MAT - This provision was brought in to bring within the tax net the zero tax companies - this makes the intention of legislature very clear that the MAT provisions are applicable only to domestic companies and not to the foreign companies - section 115JB is not applicable in case of banking companies - it has been clarified by the assess that the taxable income had been computed as per the provisions of article 7(3) of the DTAA Decided in favour of assessee. Interest received on external commercial borrowings given to Indian borrowers deduction u/s 44C - Held that:- The Indian branch of assessee was performing the services relating to marketing/sales promotion, passing on the lead to the overseas branches, Indian branches did the credit evaluation of the Indian customers and used to send an evaluation report to the head office/overseas branches and Review of terms and conditions of the approval with respect to ECB loan - The syndication fee was received by Indian Branch for the services - But that part of interest earned by head office/foreign branches which was attributable to the PE in India was not returned by assessee - the assessee has admitted that the Indian branches of the bank play an active role in the disbursement of ECB loan and also regularly monitor the same - Therefore, the ECB loans disbursed by the Head office/foreign branches were effectively connected with the Indian branches interest income had to be appropriated to the PE in India as it had accrued and arisen in India - The AO has taxed 10% of the gross interest assessee contended that the interest paid to head office/foreign branches are net of tax for which the loan agreements have to be examined which has been filed by way of additional evidence thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of assessee. Treatment of deferred bank guarantee commission Held that:- Following the decision in CIT vs. Bank of Tokyo Ltd. [1993 (5) TMI 172 - CALCUTTA HIGH COURT] - full commission though payable at the outset did not crystallize into perfect right to receive so far as un-expired period was concerned because the payability or receivability from the view of the assessee bank was counter balanced by the refundability diluting the right to receive into a contingent right as regards un-expired period of the guarantee - The assessee clarified that FEDAI Guidelines places an obligation on the assessee to refund the proportionate commission for the un-expired period Decided in favour of assessee.
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