TMI Blog2014 (7) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... omestic law, such an income cannot be taxed. The issue has been decided by the Special Bench, in favour of the assessee, by holding that interest paid to the head office of the assessee bank by its Indian Branch which constitutes its P.E. in India, is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit to the P.E. which is taxable in India as per the provisions of article 7(2) and 7(3) because, it amounts to payment to self which is not taxable under the domestic law - Thus, the “principles of mutuality” were invoked for non–deduction of tax - no disallowance u/s 40(a)(i) can be made on the payment of interest paid to the head office / overseas branches as the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a PE is deemed to be separate and distinct from the enterprise of which it is a PE. Carrying the fiction to its logical conclusion, charge by HO/APHO and overseas branches could be treatd as a payment by Indian PE to third parties. However, as these third parties do not have a PE in India to which profit if any can be attributed, as per Article 7(1), such profits would not be chargeable to tax in India. (iii) Without prejudice and in any event, tax paid by appellant is adequate to cover tax if any, payable thereon and hence, section 40(a)(i) is not attracted. 2. Facts in brief: The assessee company has paid sum of ₹ 70,97,738, by way of interest to Head Office and other overseas branches on Nostro account lying with the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, Mumbai, in Sumitomo Mitsui Bank Corp. v/s DDIT, [2012] 136 ITD 66 (SB), wherein it has been held that where any Indian branch of a foreign bank passing interest to its head office and other overseas branches of the said foreign bank on advance received by it, the said interest is neither deductible in the hands of the Indian branch nor chargeable to tax in the hands of the head office and overseas branches, as all being single entity. In the domestic law, such an income cannot be taxed. 5. The learned Departmental Representative, on the other hand, fairly admitted that this issue stands covered by the decision of the Tribunal, Special Bench, Mumbai, cited supra. 6. After hearing both the parties and on a perusal of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is position which is well settled under the domestic law has not been disputed even by the learned representatives of the assessees during the course of hearing before us. xxx xxx xxx 52. A combined reading of article 7(2) and 7(3) of the treaty and paragraph No. 8 of the protocol thus makes it clear that for the purpose of computing the profits attributable to the PE in India, the said PE is to be treated as a distinct and separate entity which is dealing wholly independently with the general enterprise of which it is a part and deduction has to be allowed for all the expenses which are incurred for the purpose of PE whether in India or elsewhere barring the amount paid by a permanent establishment to the head office of GE or any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit attributable to the PE which is taxable in India as per the provisions of article 7(2) 7(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 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. This position applicable in the case of interest paid by Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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