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TMI Blog2014 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... he business income @ 48% being the rate applicable to foreign companies for the year under appeal. The appellants submit that their business income is chargeable to tax at the rate of 35.70% as applicable to domestic companies. The appellants pray that the AO be directed accordingly. (2) The CIT(A) erred in confirming the action of the AO in bringing to tax the interest of Rs.6,l 6,73,3 56 received on Nostro Account and overseas placements with branches outside India. The appellants submit that the amount is not taxable being received from self as the Indian branches and branches outside India are part of the same organisation and there can arise no profits as a result of any transaction between the two. The appellants pray that the AO be directed accordingly. (3) The CIT(A) erred in confirming the action of the AO in not allowing a deduction for Rs.42,43,574 being interest paid to Head office/Overseas branches, consistent with the departments stand of taxing the interest received on Nostro/Overseas placements. &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; "2. First ground of the assessee's appeal is against the direction of the learned CIT(A) to charge business income to tax at the rate of 48%, being the rate applicable to foreign companies for the year under appeal. At the outset, it was admitted by the learned Counsel for the assessee that similar issue has been consistently decided by the Tribunal against the assessee in earlier years. Respectfully following the orders so passed by the Tribunal, we dismiss this ground of appeal." As it is clear from the above order of the Tribunal that this issue has been consistently decided by this Tribunal against the assessee in the earlier years i.e. for assessment years 1998-99 & 2000-2001, hence, respectfully following the earlier years' order of the Tribunal, this ground of the assessee's appeal is dismissed. 4. Grounds No.2 & 3 are in regard to bringing to tax interest received on Nostro Account and overseas placements maintained with branches outside India and disallowance of interest paid to head office/overseas branches. 4.1 The assessee claimed that the interest of Rs.6.16 crore received on Nostro account and overseas placements maintained with the branches outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, then as decided by this Tribunal in assessee's own case, the natural consequential effect would be the claim of assessee regarding interest paid to the head office/overseas branches, is allowable deduction. Accordingly, ground No.2 is dismissed as not pressed and ground No.3 is allowed. 5. Ground No.4 is in regard to disallowance of loss on valuation of securities. 5.1 The authorities below disallowed the claim of the assessee on the ground of hypothetical loss and based on conjectures. Learned AR, however, submitted that since the claim of loss on valuation was allowed in full in the earlier year i.e. for the assessment year 1998-99, therefore, the claim for the assessment year has become infructuous. He has further submitted that this issue has not attained the finality as it is pending before the Hon'ble High Court, therefore, a suitable direction may be given to the Assessing Officer. Learned DR has not disputed the fact that in the earlier year, the claim of the assessee was allowed in full by this Tribunal. We further note that for the assessment year 2001-02, the Tribunal has considered an identical issue in para 7 as under :- "7. Ground no.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this ground and the same may be dismissed as not pressed. 7.2 Learned DR has no objection if the ground No.6 is dismissed as not pressed. 7.3 Accordingly, we dismiss the ground No.6, being not pressed. 8. Grounds No.7 to 9 regarding Transfer Pricing adjustment on account of fee or commission for the services performed towards foreign currency loans granted by the overseas branches. 8.1 The assessee has facilitated foreign currency loan to its clients from head office/overseas branches outside India but did not show any income on the said transaction. The TPO asked the assessee to show as to whether any service with regard to structured finance and syndicate business like foreign currency debt syndication etc. are rendered to any customers or to the other branches of the bank. The assessee submitted before the TPO that in most of the cases, it is the syndication desk in Hong Kong (HK) that is involved. In most of the cases, they are contacted directly by the competitor banks, however, in a few cases, Indian branch identifies the target and gets the mandate primarily because some of the prospective borrowers are the assessee's existing customers in India. All negotiations, discus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttributed to a PE by reason of facilitation of conclusion of foreign trade or loan agreements or the mere signing thereof. He has referred para 4 of the Protocol between France and India and submitted that no profit can be allocated under Article 7(2) of DTAA to the PE on account of facilitation of the loan agreement. Learned AR has cited the dictionary meaning of the word "facilitation" and submitted that the term used in the protocol being "facilitation" means to "render easier the performance". Thus, the role of the assessee to provide certain information is only to facilitate the loan agreement and, therefore, as per the para 4 of the Protocol, no profit can be attributed to the assessee on account of such limited services. 8.5 The alternative contention of the learned AR is that the adjustment of 20% in respect of interest and other fees received by the foreign branches is highly arbitrary because the interest cannot be attributed to the assessee when the loan is provided by the foreign branch and, therefore, even if a profit is attributed to the assessee, the same is limited only with respect to fees or service charges received by foreign branches and that too in a reasonabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve considered the rival submissions as well as relevant material on record. The assessee being Indian branch has helped the foreign currency loan syndication in respect of two loans to Reliance Petroleum Limited and Reliance Industries Limited to the tune of US$50 million and USD$ 11 million, respectively. There is no dispute that for these two loans, Credit Agricole Indosuez (Asia), Singapore worked as an agent and Credit Lyonnais worked as lead arrangers/co-arrangers. The ANZ Investment Bank, BA Asia Ltd. as well as ABN Amro Bank were also worked as co-arrangers. The role of the assessee in these transactions of foreign currency loan under ECB was to provide financial analysis of the borrowers, general market conditions and regulatory environment. The learned AR has vehemently argued that as per para 4 of Protocol, profit cannot be attributed to the PE on account of facilitation of conclusion of loan agreement or mere singing thereof. We do not agree with the contention of the learned AR of the assessee because of the fact that the role of the assessee is not merely facilitation of conclusion of loan agreement or signing thereof but the services provided by the assessee are the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest as well as other fees charged by the foreign branches for allocation/attribution to the assessee. In this case, the ALP has not been determined by taking into consideration uncontrolled similar transaction. In our view, the interest cannot be taken into account for attribution of income towards service charges/fees and, therefore, in the facts and circumstances of the case only the fee charged by the foreign branches can be taken into consideration for making adjustment under transfer pricing provisions. Accordingly, we direct the AO/TPO to make adjustment in respect of the services performed by the assessee for foreign currency loan arranged for its existing clients by taking into account only the fee and other charges received by the foreign branches from the borrowers in question. Since none of the parties have come out with the suitable comparables, therefore, we find that the estimation made by the CIT(A) at the rate of 20% is just and proper, however, the same would be only in respect of the fee and charges other than interest received by the foreign branches. Thus, these grounds of the assessee are partly allowed. 9. In the additional ground, the assessee has raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the circumstances of the case and in law, the Id. CIT(A) erred in deleting the addition of Rs.14,19,912/- out of addition of Rs.70,99,5631- made on account of arm's length price on the international transaction relating to lending of services with regard to the ECB loans disbursed to the Indian Customers. 5. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in restricting the addition made on account of difference in the rate of interest charged by the assessee on funds placed with Head Office and Overseas Branches to Rs.1,51,154/-as against Rs.2,48,097/- made by the Assessing Officer". 10. Ground No.1 in the appeal of the department is in regard to deleting the disallowance on account of expenditure attributable to tax exempt income. 10.1 We have heard learned DR as well as learned AR of the assessee and considered the relevant material on record. At the outset, we note that this issue has been considered and decided by this Tribunal in assessee's own case for the assessment year 1999-2000 in para as under :- "20. First ground of the Revenue's appeal is against the deletion of disallowance of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned AR and considered the relevant material on record. In view of our findings given in the assessee's appeal for the assessment year 2002-03 whiling deciding grounds No.7 to 9, this ground of the revenue is hereby dismissed. 14. Ground No.5 is in regard to interest charged by the assessee on funds placed with head office and overseas branches. 14.1 We have heard learned DR as well as learned AR and considered the relevant material on record. This ground is common to the additional ground raised by the assessee in its appeal i.e. ITA No.1935/M/2007, decided above. The CIT(A) has given the part relief to the assessee by taking into consideration the actual interest to be added after giving credit of +/- 5% margin profit under Section 92 in para 15.6 as under:- "15.6 The appellant was asked and has furnished chart to show the amount of interest likely to be added after taking credit 5% margin provided by Sec.92C. The chart is under:- Interest in INR Callplacements, C.L.Paris Rs.58,185. Callplacements, C.L.Newyork Rs.14,049. Callplacements, C.L. Singapore Rs.49,090. Callplacements, C.L. Hongkong Rs.29,830. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct year. (c) The CIT(A) ought to have held that as the investments were made in the earlier years, where it has been held that no expenditure was incurred in relation to exempt income as the investment were out of own funds, no interest / administrative expenditure could have been held to be incurred during the year under appeal in relation to such exempt income. (d) The CIT(A) ought to have appreciated that the disallowance as computed under Rule 8D cannot exceed the disallowance made by the AO. (4) The CIT(A) erred in holding that the claim for deduction of Rs 2,97,50,453 being deferred expenses on mobilization of deposits under Indian Millennium Deposit Scheme should be allowed if it was made during the assessment proceedings. He ought to have allowed the claim having regard to the finding given by the CIT(A) while framing the assessment for the assessment year 200 1-02 and 2002-03. (5) The CIT(A) ought to have held that, in the event the higher authorities reverse the decision of the CIT(Appeals) in the earlier years of allowing loss on valuation of securities, the AO be dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firming the addition on account of interest paid on call borrowings with its Head Office/overseas branches to Rs.2,964/-" 15. Ground No.1 is regarding the rate of tax. 15.1 This ground is common to the ground No.1 of the assessee's appeal decided for the assessment year 2002-03. In view of our findings given in the assessee's appeal i.e. ITA No.1935/M/2007, this ground of the assessee is dismissed. 16. Grounds No.2 & 3 are regarding bringing tax to the interest income and disallowance of interest under Section 14A. 16.1 Both these grounds are common to the grounds raised by the assessee in its appeal decided for the assessment year 2002-03, wherein the assessee has not pressed ground No.2. Similarly, the assessee has accepted the taxability of interest income. Therefore, ground No.2 is hereby dismissed as not pressed and ground No.3 is allowed. 17. Ground No.4 is regarding deduction on deferred expenses on mobilization of deposits under Indian Millennium Deposit Scheme (IMDS). 17.1 This ground is common to the ground raised by the assessee in its appeal for the assessment year 2002-03. Accordingly, in view of our findings given in the assessee's own appeal for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in appeal for the assessment year 2002-03, whereby we have decided the ground against the assessee. Therefore, in view of our findings given in the aforesaid appeal, we allow this ground in favour of the department. 23. Now, we will take up the Cross Objection filed by the assessee for the assessment year 2003-04 i.e. C.O.No.205/M/2009, wherein the assessee has raised the following grounds:- "(1) The respondents submit that in case the Deputy Director of Income-tax (International Taxation) 1(2), Mumbai's (hereinafter referred to as the AO) action of levying interest under Section 234D is upheld, then the AO be directed to re-compute the interest under section 234D based on outcome of the appeals preferred by the respondents. (2) Without prejudice and in any event, the AO be directed to compute interest under Section 234D on the excess of refund granted vide intimation under Section 143(1) exclusive of interest granted under Section 244A vide that intimation." 23.1 Though on principle the levy of interest under Section 234D is decided against the assessee as this issue is common in the assessee's own appeal for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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