TMI Blog2010 (12) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... ed:- 23-12-2010 - JUSTICE KALYAN JYOTI SENGUPTA, JUSTICE I.P. MUKERJI, JJ. I.P. MUKERJI, J. 1. This is an Appeal under Section 260A of the Income Tax Act, 1961 (in short the Act ) against the Order of the Income Tax Appellate Tribunal (in short the tribunal ) dated 22nd August 2005. 2. Before discussing the merits of this Appeal, a reference to section 90 of the Act is necessary. It empowers the Central Government to enter into an agreement with a foreign government to interalia avoid double taxation in India as well as in that foreign country. In such case where an agreement has been entered into, the said Act will only apply to the assessee, if the Act is more beneficial than the agreement. 3. The appellant before us is a foreign company incorporated in Netherlands and having its principal branch office in India at ITC Center, 4th Floor, Russel Street, Kolkata 71. 4. We are here concerned with only a limited transaction made by this bank and the effects thereof, for the purpose of computing its income. 5. In course of its banking activities the appellant s said branch in India remits substantial funds to its head office as payment of interest. While the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this country. Under section 9(1) (i) explanation (1)(a) the income of a business which arises or accrues in India attributable to operations into this country are to be taken as income. Under section 40 (a) (i), interest which is payable out side India on which tax has not been deducted is not to be deducted in computing the income chargeable under the head profits and gains of business. RIVAL CONTENTIONS: 10. The following submissions were made on behalf of the Appellant by Mr R.N.Bajoria, learned Senior Advocate. 11. He has taken us extensively through the International Agreement and all the relevant clauses which we shall deal with under the heading Discussion and Findings 12 . He has contended that the agreement should prevail over the Act relying on the decision of the Supreme Court in the case of Union of India vs Azadi Bachao Andolan and Anr reported in 263 ITR 706. He has further said that the Head Office and the Permanent establishment in India, i.e. the branch are to be treated as different entities for the purpose of taxation. The Indian branch is to be treated like a separate assessee, by creating a fiction .Under the said agreement while computing pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e concerned with making the necessary interpretation of the agreement read with the Act for the purpose of resolution of the issues involved in this appeal. The Supreme has said in the case of Union of India vs Azadi Bachao Andolan (supra). A survey of the aforesaid cases makes it clear that the judicial consensus in India has been that section 90 is specifically intended to enable and empower the Central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisions of such an agreement, with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the Legislature to make a departure from the general principle of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making those sections subject to the provisions of the Act. The very object of grafting the said two sections with the said clause is to enable the Central Government to issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses which may occur in the future. 20. However, in Betts Hartley Huett and Co Ltd vs Commissioner of Income Tax,West Bengal-II Calcutta reported in 116 ITR 425(supra) a Division Bench of our court was concerned with a transaction between the London head office of the assessee and its branch in India. The question before the court was whether it was sale. The court held in construing the transaction that the head office and the branch office being parts of the same entity there could not be a sale by the head office to itself, that is, the branch office. 21. But in our view, this particular Division Bench judgment does not answer the issues involved in this appeal because according to the international agreement, the head office and the branch are treated as separate entities for the purpose of assessment. What would be the effect of an alleged sale by the head office to the branch is not in issue here and, therefore, we are not called upon to determine its effects. But the remittance of interest is made on the premise that the head and the branch offices are separate entities and interest is payable by the branch to the head office. Under this agreement this branch is describ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 of the Act by both the appellant and the respondents. First of all, a proper meaning has to be ascribed to the expression chargeable under the provisions of this Act. Section 195(1) says that, if any interest is paid by a person to a foreign company, which interest is chargeable under the provisions of this Act tax should be deducted at source. The word chargeable is not to be taken as qualifying only the phrase any other sum only but it qualifies the word interest also. This interpretation is supported by the phrase in parenthesis, namely, not being income chargeable under the head salaries . Therefore, the meaning of this section is that such interest must be chargeable under the provisions of this Act. To simplify the matter, this interest must be accounted for or credited in the account of some person who is chargeable under the Act. In other words, this remittance of interest must result in an income which is chargeable under the Act. In those circumstances tax may be deducted at source. But where this interest is not so chargeable, no tax is deducted. In this case, by virtue of the above convention, the head office of the appellant is not liable to pay any tax und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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