TMI Blog2014 (2) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... Deputy Director of Income Tax (IT), Range 2(1), 2012 (8) TMI 450 - ITAT, MUMBAI] followed - interest paid to the head office of the assessee-bank by its Indian branch which constitutes its permanent establishment in India is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit attributable to the permanent establishment which is taxable in India - the interest paid by the Indian branch of the assessee-bank to its head office and other branches outside India 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 permanent establishment, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) does not arise thus, the order of the FAA reversed - Decided in favour of Assessee. - ITA No.1798/Mum/2009 - - - Dated:- 4-9-2013 - D. Manmohan And Rajendra, JJ. For the Appellant : S.E. Dastur and Nitesh Joshi. For the Respondent : Neeraja Pradhan. ORDER:- PER : Rajendra Challenging the order dt.26-12-2008 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Kolkata Tribunal, Special Bench in the case of ABN AMRO Bank NV v. Asstt. DIT (International Taxation) [2005] 97 ITD 89. The learned CIT(A) erred in not considering Circular No. 740 dated 17 April 1996 issued by the Central Board of Direct Taxes. c. The learned CIT(A) erred in not appreciating in the correct perspective the submissions made by the appellant. The learned CIT(A) erred in not appreciating that the appellant and the head office in Belgium constitute separate legal entity for the purpose of taxation in India and, therefore, interest paid by branch to Head Office was fully allowable as a deduction. d. The appellant, therefore, prays that the learned ADIT be directed to grant deduction in respect of interest of Rs. 85,715,525 paid to Head Office as claimed by the appellant. 3. Each one of the above grounds of appeal is without prejudice to the other. 4. The appellant reserves the right to amend, alter or add to any of the above grounds of appeal." Following additional grounds were also filed by the assessee : "1. Interest income not taxable in the hands of the Head Office a. The appellant submits that the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred an appeal before the First Appellate Authority (FAA). After considering the submissions of the assessee and the assessment order, FAA held that expenditure amounting to Rs. 88.56 lacs pertained to credit analysis and connected services, that credit proposals were submitted by the Mumbai branch to the HO that of this had not incurred by the assessee for the first time, that the credit proposals submitted by the assessee to its HO were analysed in accordance with the policies and procedures in lying with the group standards, that the HO had provided specific services to Indian branch in form of credit analysis and risk mitigation, that the local branch depended on the International Credit Department of the Bank for the world wide information Data base, that based on the number of man hours devoted by the personnel of HO credit department levied a charge on Mumbai branch, that the expenditure attributable to credit analysis and connected service provided by the HO was covered by Article 7 of Indo-Belgium DTTA, that no deduction was allowable in respect of amounts which are in nature of charges for specific services performed to the permanent establishment (PE) that out of total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n discussed in the orders of the AO and FAA. We are not aware whether as such details were called for or not and whether such pieces of information were provided or not by the assessee. In our opinion these are vital factors to decide the taxability of the amount in question. We find that the certificate issued by Ernest and Young had been issued for the information of and assistance to the Bank's management in connection with the review by 'local tax authorities'. It was 'not to be used', circulated quoted or otherwise referred to 'for any other purposes'.(Pg.12 of PB).FAA has not inquired in to the relevance of the said certificate as per the Indian tax laws. Assessee itself has disallowed an expenditure of Rs. 16.89 lacs incurred under the head for the year under consideration and similar expenditure in subsequent years has been allowed by the AO. What were the circumstances for such diverse course of action is not clear from the order of the Revenue Authorities. FAA has held that expenditure incurred by the assessee was not reimbursement, but the basis for arriving at this conclusion has not been mentioned. It is accepted principle of taxation that if any payment is only reimbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Sumitomo Mitsui Banking Corpn. (supra).While deciding the appeal filed before it ,Tribunal has held as under: "Keeping in view all the facts of the case and the legal position emanating from the interpretation of the relevant provisions of the domestic law as well as that of the treaty as discussed above, we are of the view that although interest paid to the head office of the assessee-bank by its Indian branch which constitutes its permanent establishment in India is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit attributable to the permanent establishment which is taxable in India as per the provisions of article 7(2) and (3) of the Indo-Japanese treaty read with paragraph 8 of the protocol which are more beneficial to the assessee. The said interest, however, cannot be taxed in India in the hands of the 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. Even otherwise, there is no express provision contained in the relevant tax treaty which is contrary to the domestic law in India on this issue. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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