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2016 (5) TMI 283 - ITAT MUMBAI

2016 (5) TMI 283 - ITAT MUMBAI - TMI - Computation of income of the PE - Held that:- On going through the orders of the Co-ordinate Bench of this Tribunal in assessee’s own case for the A.Yrs 1995-96 to 2000- 01 [2012 (7) TMI 703 - ITAT MUMBAI ], we find that the issue is decided in favour of the assessee holding that income of the PE of the assessee should be computed as business income after allowing all the expenses attributable to its business in India including the head office expenses. Res .....

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5 reported in (2013 (9) TMI 603 - ITAT MUMBAI). - Decided against assessee

Disallowance u/s 14A - Held that:- In view of the decision of Godrej & Boyce Co. Ltd., (2010 (8) TMI 77 - BOMBAY HIGH COURT ) Rule 8D has no application for the assessment year 2004-05. However, reasonable disallowance should be made towards expenditure attributable for earning exempt income. It is the submission of the Ld. Counsel that in the case of DDIT Vs Development Bank of Singapore (2013 (8) TMI 175 - IT .....

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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 Indian branch of a foreign bank to its Head Office equally holds good for the payment of interest made by the Indian branch of a foreign bank to its branch offices abroad a .....

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being no failure to deduct tax at source from the said payment of interest made by the PE, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) does not arise.- Decided in favour of assessee

Penalty levied u/s. 271(1)(c) - assessee has claimed head office expenses and also the claim made by the assessee that interest paid to head office is not taxable - Held that:- Assessee has made claim in the return of income and it is a full disclosure o .....

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s of expenses are given in the annexure. In the circumstances, we are of the considered view that there is neither concealment of income nor furnishing of inaccurate particulars of income by the assessee so as to levy penalty u/s. 271(1)(c) - Decided in favour of assessee - I.TA Nos. 4926 to 4928/Mum/2009, I.TA No. 3760/Mum/2012, C.O. No. 121/Mum/2013 - Dated:- 29-4-2016 - Shri Rajendra, Accountant Member And Shri C. N. Prasad, Judicial Member For the Petitioner : Shri Dhanesh Bafna For the Resp .....

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sposed of by this common order for the sake of convenience and brevity. ITA No. 4926/M/2009-A.Y. 2004-05 2. The first ground raised by the assessee is in respect of Transfer Pricing (i) in restriction the deduction for head office expenses by applying the provisions of Sec. 44C of the Act as against the assessee s claim that the entire expenses allocated to the Indian branches should be allowed as deduction as per the provision of Article 7(3) of the convention between the Government of U.A.E. a .....

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l for assessment years 1995-96 to 2000-01 is reported in (150 TTJ 85) and for the assessment years 2001-02 & 2002-03 is reported in (60 SOT 71) and for the assessment years 2003-04 and 2004-05 he submits that the Coordinate Bench decided this issue in ITA Nos. 6530 of 2006 and 3463/M/2010 dated 3.8. 2012. Copies of the decisions are placed on record. 4. The Ld. Departmental Representative vehemently supports the orders of the lower authorities. In the alternative, the Ld. DR submits that the .....

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we find that the issue is decided in favour of the assessee holding that income of the PE of the assessee should be computed as business income after allowing all the expenses attributable to its business in India including the head office expenses. This decision is reported in Abu-Dhabi Commercial Bank Ltd. Vs ADIT (International Taxation) (138 ITD 83). Respectfully following the said decision, we allow the ground raised by the assessee. We do not find much substance in the alternative contenti .....

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4-05 reported in (60 SOT 71). Copies of orders are placed on record. Respectfully following the said orders, we dismiss this ground of appeal. 7. The next issue in the appeal of the assessee is that the Ld. CIT(A) erred in holding that the provisions of Sec. 14A r.w. Rule 8D are applicable in computing the amount of expenditure alleged to have been incurred in relation to exempt income thereby disallowing interest and expenses amounting to ₹ 2,28,01,012/- and ₹ 14,98,250/- respective .....

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r the assessment year 2004-05, the provisions of Rule 8D have no application in view of the decision of the Jurisdictional High Court in the case of Godrej & Boyce Co. Ltd., Vs CIT (328 ITR 81). The Ld. Counsel further submits that there is no nexus between the borrowed funds and investments and these investments were old and were made during the years 1997 and 2000. The Ld. Counsel further submits that similar issue has been decided in favour of the assessee by the Co-ordinate Bench for the .....

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ure attributable for earning exempt income. It is the submission of the Ld. Counsel that in the case of DDIT Vs Development Bank of Singapore (33 Taxman.com 300), 2% of dividend income is held to be reasonable for earning exempt income. Respectfully following the above decision, we hold that 2% of dividend income will be reasonable expenditure for earning exempt income. This ground of the assessee is partly allowed. 10. In the result, the appeal filed by the assessee is partly allowed. ITA No. 4 .....

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uantum may differ. Therefore, on similar lines and for similar reasons, the ground raised by the assessee in ITA No. 4927/M/09 for assessment year 2005-2006 is dismissed. 13. The next issue in the appeal of the assessee is the Ld. CIT(A) erred in holding that the provisions of Sec. 14A r.w. Rule 8D are applicable in computing the amount of expenditure alleged to have been incurred in relation to exempt income thereby disallowing interest and expenses amounting to ₹ 1,17,68,939/- and ₹ .....

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Officer in applying provisions of Sec. 40(a)(i) to interest paid by the assessee to its Head Office/overseas branch. 16. The Ld. Counsel for the assessee submits that the issue is covered in favour of the assessee by the Special Bench decision in the case of Sumitomo Mitsui Banking Corporation Vs DDIT (136 ITD 66). On the other hand, the Ld. Departmental Representative placed his reliance on the decision of Co-ordinate Bench in the case of Oman International Bank SAOG reported in 35 CCH 207 (Mum .....

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provisions of Sec. 195 could not be attracted and there being no failure to deduce tax at source from payment of interest made by PE. It was held that the question of disallowance of the said interest by invoking provisions of Sec. 40(a)(i) does not arise. While holding so, the Special Bench of the Tribunal held as under: 63. We have carefully gone through the above provisions of the treaty along with other provisions which are relevant in this context as well as commentaries available on this p .....

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ner of the interest, the tax so charged shall not exceed 10% of the gross amount of interest. In the present case, there is no dispute that the head office of the assessee bank in Japan is the beneficial owner of the interest and that is how the said interest has been taxed by the AO in the hands of the assessee at a fixed tax rate of 10%. It is, however, to be noted that such interest can be taxed in India in the hands of GE at a maximum rate of 10% as per article 11(2) according to the Laws of .....

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of receiving general approval. It is stated that a compromise solution, therefore, has been adopted by providing that interest may be taxed in the State of a residence, but leaves to 'the State of source the right to impose a tax if its laws so provide, it being an implicit in this right that the State of source is free to give up all taxation on interest paid to non resident. The State of source thus has to exercise its right to bring to tax interest income arising in that State to the non .....

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te and independent entity should be extended to article 11 to the treaty. According to him, if the PE in India and the head office abroad are treated as two separate entities, there will be no difficulty in bringing to tax interest paid by Indian PE as income of the GE in India as per article 11(2). Before we deal with this argument relating to the extension of deeming fiction created in article 7(2) and application thereof to article 11 also as sought by Shri Girish Dave, we consider it proper .....

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blishment situated therein or pe2rforms in that other contracting state independent personal services from a fixed base situated therein and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of article 7 or article 14, as the case may be, shall apply . 66. It is to be noted that the provisions of article 11(6) of the Indo-Japanese convention are pari-materia to that of article 11(4) of th .....

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ent them from being taxed both in the State of source and in the State of the beneficiary's residence when the beneficiary has a permanent establishment in the former State. Paragraph 4 is not based on such a conception which is sometimes referred to as "the force of attraction of the permanent establishment". It does not stipulate that interest arising to a resident of a Contracting State from a source situated in the other State must, by a kind of legal presumption, or fiction ev .....

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y connected with that establishment. In that case, paragraph 4 relieves the State of source of the interest from any limitation under the Article. The foregoing explanations accord with those in the Commentary on Article 7. 25.1 A debt-claim in respect of which interest is paid will be effectively connected with a permanent establishment, and will therefore form part of its business assets, if the "economic" ownership of the debt-claim is allocated to that permanent establishment under .....

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he ownership of the debt-claim and the potential exposure to gains or losses from the appreciation or depreciation of the debtclaim). 67. Keeping in view the purpose and scope of article 11(4) of the OECD Model Convention, the provisions of which are pari materia to the provisions of article 11(6) of the Indo- Japanese treaty, we are of the view that the same is not applicable to the facts of the present case inasmuch as the situation as contemplated to make it applicable does not exist in the p .....

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nt so as to say that it is effectively connected with the Permanent Establishment. It is no doubt true that article 7 makes inroads in article 11 as a result of the provisions contained in article 11 (6) as contended by Shri Girish Dave. However, the situation contemplated in article 11 (6) should be found to be in existence in a case to bring the interest to article 7 in order to treat the said income 5 business profit attributable to the PE indirectly by force of attraction. In the present cas .....

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"Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterpri .....

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ich its PE. The said fiction, in our opinion, therefore, is applicable only for the purpose of determining the profits attributable to the PE and this limited application contemplated in the treaty cannot be extended and applied to compute the income of the GE. It is no doubt true that if the accounts of two entitles are prepared symmetrically and the methods of attributing profits or expenses applied are the same, such accounts are more acceptable to the tax authorities having jurisdiction over .....

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ent of other contracting State through a PE in the source State and if so, how much of the profits the source State may tax. The resident State has to determine the profits attributable to the PE considering it as a separate entity mainly for the purpose of granting double taxation relief according to the relevant treaty and not for the purpose of determining the total taxable income of the enterprise carried on by such resident. Article 7 provides for taxation of the profits attributable to the .....

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the enterprise as a whole. 71. While explaining the peculiar relationship between a PE and the enterprise of which it is a part, a comparison is often made to a Yolk and its egg. The PE is considered as yolk and the enterprise as a whole is considered as the egg. This comparison is made to show that whatever is in the yolk is necessarily in the egg itself and there is no need to account for the egg separately. On the other hand, not everything that is in the egg is part of the yolk and it is, th .....

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nterest say is ₹ 95 crores. The profits attributable to the PE without taking into consideration the said interest is ₹ 5 crores. In such a case, the total profit of the GE representing consolidated figures of HO and PE will be ₹ 100 crores as the interest payable by PE and receivable by HO will get squared of. In so far as taxation is concerned, the profit attributable to PE will be ₹ 2 crores on which the PE State will impose tax as business profit. The remaining amount .....

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ose tax. The profit of GE which represents the consolidated figure of HO and PE will also remain unchanged at ₹ 100 crores as the interest received from third party of ₹ 3 crores will be credited to the consolidated profit & loss account and the interest paid by PE to third party amounting to ₹ 3 crores will be debited in the consolidated profit & loss account. The total profit of the GE thus will remain the same even in this situation at 100 crores out of which ₹ .....

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as per article 23B of the relevant treaty. The GE thus at enterprise level will neither gain nor lose anything as far as its tax liability is concerned. The PE State, however, will lose in the first situation tax on interest payable by the PE to the head office because the same being payment to self is not taxable under the domestic law . 72. As already discussed by us with reference to OECD commentary, article 11 (2) gives an option to the source State to tax interest arising in that State to t .....

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CD in July, 2010 in para no. 29 which states that some States consider that the separate and independent enterprise fiction that is mandated by article 7 (2) should not be restricted to the application of article 7, 23A and 23B but should also extend to the interpretation and application of other article of the convention, so as to ensure that permanent establishments are, so far as possible, treated in the same way as subsidiaries. These states also consider that notional charges for dealings w .....

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levied in accordance with such provisions of the treaty only to the extent provided for under domestic law. We have already noted that no such provisions are made either in the Indo- Japanese treaty or even in the domestic law i.e. Income-tax Act, 1961 to expressly provide for taxation of interest payable by the PE in India to the GE of which it is a part which constitutes a payment to self. 73. The OECD commentary 'Model Tax Convention on income and on capital (condensed version)' relea .....

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cle of the convention. It is also rarified that the separate and independent enterprise fiction does not extend to article 11 and for the purpose of that article, one part of an enterprise cannot be considered to have made an interest payment to another part of the same enterprise. 74. In the assessment order, the AO has relied on the provisions of section 9(1)(v)(c) of the Income-tax Act to" hold that interest payable by PE in India being income deemed to accrue or arise in India is charge .....

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ch of the foreign company or concern in India is a separate entity for the purpose of taxation and interest paid or payable by such bank abroad will be liable to tax in India and would be governed by the provisions of section l1SA. The provisions of section 11SA read as under: "l15A(l) Where the total income of- (a) a non-resident (not being a company) or of a foreign company, includes any income by way of (i) dividends (other than dividends referred to in section 115-0; or (ii) interest re .....

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ing a company) or a foreign company from Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency. The said provision, however, has no application to the facts of the present case. In any case, if the interest income in question is not chargeable to tax under the provisions of the domestic law as already held by us, the same cannot be brought to tax by way of a board circular. 76. As regards the decision of Hon'ble Calcutta H .....

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eceivable by a foreign bank from its Indian branch was not taxable in the hands of foreign bank in India. Shri Dave has also made an attempt to invite our attention to the various findings and observations recorded by the Hon'ble Calcutta High Court in its judgment delivered in the case of ABN Amro Bank NV (supra) which according to him, are self contradictory and inconsistent. The learned counsels for the assessee, Shri Pardiwala and Shri Dastur, on the other hand, have contended that the d .....

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ious submissions made by both the sides and the relevant material placed on record. This issue, therefore, is not being decided by us by simply following the decision of Hon'ble Calcutta High Court in the case of ABN Amro Bank NV (supra). Nevertheless, we can certainly say that the said decision of Hon'ble Calcutta High Court taking a similar view in the matter supports our view. 77. In the case of Hyundai Heavy Industries Co. Ltd. (supra) relied upon by Shri Dave, the Hon'ble suprem .....

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gh Permanent Establishment. In the present case, we, however, are concerned with the interest payable by the Indian PE to the foreign GE and the basic question is whether such interest payable by the PE to the GE of which it is a part can give rise to any income chargeable to tax in India in the hands of GE. As already held by us, there are no express provisions in the Indo-Japanese tax treaty to bring the said income to tax in India in the hands of GE and in any case, the said interest payable .....

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he Government of India in exercise of the powers conferred by section 90 of the Income-tax Act, 1961, the same has become a part of domestic law and as per article 23 of the said treaty, the issue relating to taxability of the Japanese Bank in India has to be decided as per the provisions of the treaty even though the same is contrary to the provisions of the domestic law. We have already discussed and considered the effect of article 23 of the Indo-Japanese treaty. As held by us, the said provi .....

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adi Bachao Andolan (supra) wherein it was held that treaty cannot impose tax which is otherwise not provided in the domestic law. 79. As regards the reference made by Shri Girish Dave to the balance sheet of Indian Branches of the assessee bank wherein capital and loans given by the head office are reflected separately to show that head office is a distinct and separate entity from the Indian Branches, we have already considered and highlighted the peculiar relationship between the head office o .....

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d even by the OECD in its 'Report on the attribution of profits to permanent establishments Parts I(General Considerations), Il (Banks) and III (Global Trading) published in December 2006. As mentioned in the said report, there are a number of aspects to the recognition (or not) of dealings between a PE and the rest of the enterprise of which it is a part. One of such aspects is that a PE is not the same as a subsidiary and is not in fact legally or economically separate from the rest of the .....

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PE, deduct 'notional rent' charged by it in relation to the Canadian PE's use of specialized equipment in the performance of the lucrative contract in Canada. It was decided by the lower court that the notional rent was not deductible in computing the Canadian PE's taxable business income from Canadian sources on the basis of factual finding that an arm's length separate and distinct entity in the situation of Cudd's Canadian PE would not have rented the specialized equi .....

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also reached the same conclusion but discussed the issue of deductibility of notional expenses in more details. It was held by him in this context that deduction of notional rent was not allowable as deduction also for the reason that the amount of such notional rent was never included as income in the hands of head office. It was held by him that to allow deduction in this circumstance would mean that the tax was being avoided on rental income both in Canada and in United States. The facts inv .....

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the present case. 81. In the case of ABN Amro Bank (supra) decided by Hon'ble Sindh High Court of Pakistan and cited by Shri Girish Dave, the issue involved was whether the Tribunal was correct to confirm the taxation of interest income received by the branch in Pakistan of a foreign bank from its Head Office and branches located outside Pakistan disregarding the principle of mutuality and the same was decided by the Court on the basis of domestic law of Pakistan which contained a specific p .....

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ealing wholly independently with the non-resident person of which it is a permanent establishment." The PE of a non-resident in Pakistan thus is treated as a distinct and separate person under the domestic law by making express provision and keeping in view the said provision made in the domestic law, it was held by the Hon'ble Sindh Court that the doctrine of mutuality does not and cannot apply to a situation to which section 10S(1)(a) applies. As already discussed by us, there is no s .....

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Act, 1961, the profits arising out of dealings of the foreign companies Indian Branch office, with its head office and with other foreign branches, is taxable in India or not. In this regard, the doctrine of mutuality was pressed into service on behalf of the assessee in support of its case that such internal dealings between the Indian branch office of a foreign bank and its head office and other foreign branches being the transactions with self, no income could be said to have arisen that is c .....

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dian PE of a foreign company, under section 5(2)(b) of the Act. In our understanding, for the purposes of computing profits of a PE, the intra organization transactions are to be taken into account as long as these transactions are real and bona fide transactions. It is not the assessee's case that the interest income from the head office is without any consideration or without sufficient consideration. In other words, fact of or correctness of interest earnings from head office are not in d .....

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graph No. 72 of its order as under: "As we part with this issue in appeal before us, we add that we are alive to the fact that our decision hereinabove can possibility result in an incongruity inasmuch as while a foreign bank operating in India will be taxable in India in respect of the interest it earns from its head office and branches abroad, no deduction will be available, in the light of Special Bench decision in ABN Amro Bank N.V.'s case (supra) to the foreign banks in respect of .....

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rations in India and it does not want to delay finalization of its tax liability as the constitution of larger Bench will result in, that the case before us only deals with an income situation under the Act while ABN Amro Bank N.V.'s casedeals with an expense situation under the tax treaty, and, that, the issue decided by the Tribunal in ABN Amro Bank N.V.'s case (supra) does not arise in this appeal at all. Learned Departmental Representative also, equally emphatically, submitted that t .....

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actually decided by us. Subject to these observations and for the reasons set out above, the plea of the assessee is rejected." 83. In the case of American Express Bank Ltd. (supra) cited by Shri Pardiwala, the issue that arose before the Division Bench of this Tribunal was whether the interest received by the assessee from its non resident branches could be taxed in India and on this issue, reliance was placed on behalf of the assessee on the decision of Kolkatta Special Bench of ITAT in .....

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Bench in the case of ABN Amro Bank (supra) for the following reasons given in paragraph No. 35 of its order: "The comparative study of both the judgments shows that there is conflict between the ratio laid down by the decision of Special Bench in the case of ABN Amro Bank (supra) and the decision of Division Bench in the case of Desdner Bank (supra). It is not in our domain to make any commenton the decision of the Division Bench. However, there is no dispute to the legal position that in t .....

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ad office is not chargeable to tax. The order of learned C!T(A) is therefore, upheld on this issue." While we fully agree and endorse the view taken by the Bench in the case of American Express Bank Ltd. (supra) to the extent that decision of Special Bench would prevail over that of the Division Bench and the Division Bench has to follow the decision of Special Bench as a matter of judicial discipline and propriety, it is to be noted that the Division Bench in the case of Dredsner Bank (sup .....

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ial Counsel for the Revenue, has strongly relied on the provisions of section 4 read with section 5(2) of the Income-tax Act in support of the Revenue's case that the interest payable by PE in India being the income arising in India to the foreign GE which is a non resident is chargeable to tax in India. We have already considered this aspect of the matter. As noted by us, the GE alone is the taxable entity in India and the Indian PE which is a part of that GEis not a separate and distinct t .....

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nobody can make profit from himself and the income accrues or arises only when there is a deal with some third person and not from the deal with himself. 85. As regards the arguments raised by Shri Srivastava relying on the provisions of article 11 (2) of the treaty, it is observed that the same is mainly a reiteration of what has been argued by Shri Girish Dave and we have already dealt with the submissions made by Shri Girish Dave elaborately before finally rejecting the same. As regards the c .....

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y held by us, this separate entity approach adopted in the case of PE by way of a deeming fiction is applicable only for the purpose of determining the profit attributable to the PE in India and the same cannot be extended and applied for the purpose of determining income of foreign GE taxable in India. Shri Srivastava has submitted that interest received by the Indian branch from the overseas branch of the same bank is chargeable to tax in India inspite of the fact that the same is also a payme .....

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nt of income, the concept of separate entities or existence of two entities is very much embedded. We find it difficult to accept this contention of Shri Srivastava. In our opinion, question of apportionment of income does not always arise only in the case of two entities which are separately chargeable to tax. Moreover, the relation between GE and PE, as already discussed by us, is so peculiar that the GE and PE which is a part of that GE are one and the same entity for the purpose of taxation .....

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ble in the present context for the various reasons given by us. Shri Srivastava has also contended that the entire interest income arising in India is taxable in the hands of GE in India irrespective of whether the funds fetching the said interest are advanced by GE in India directly or through Indian PE. In the present case, the funds, however, are not advanced by the GE to a third party and the same having been advanced directly to the PE, it is a transaction between the two parts of the same .....

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ch cost incurred at HO level, interest paid by the branch to the HO will be only a notional expenditure which cannot be apportioned as per article 7(2) of the treaty. We are unable to accept this contention of Shri Srivastava keeping in view the specific provisions contained in article 7(2) of the treaty. As per the said provisions, the profits attributable to the Permanent Establishment are the profits which the PE might be expected to make if it were a distinct and separate enterprise engaged .....

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ed to be determined as if it is dealing wholly independently with the enterprise of which it is a part and what would be allowable as deduction in such case is the cost of funds to the PE borrowed from GE and not the cost of funds to GE which is totally irrelevant. 88. Keeping in view all the facts of the case and the legal position emanating from the interpretation of the relevant provisions of domestic law as well as that of the treaty as discussed above, we are of the view that although inter .....

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e 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 Indian branch of a foreign bank to its Head Office equally holds good for the payment of interest made by the Indian branch of a foreign bank to i .....

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ot be attracted and there being no failure to deduct tax at source from the said payment of interest made by the PE, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) does not arise. Accordingly we answer question No. referred to this Special Bench in the negative i.e. in favour of the assessee and question No.2 in affirmative i.e. again in favour of the assessee . Respectfully following the Special Bench decision, we allow ground No. 3 & 4 rais .....

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sessment year 2004-05, though quantum may differ. Therefore, on similar lines and for similar reasons, the ground raised by the assessee in ITA No. 4927/M/09 for assessment year 2005-2006 is dismissed. 19. The next issue in the appeal of the assessee is that the Ld. CIT(A) erred in holding the provisions of Sec. 14A r.w. Rule 8D are applicable in computing the amount of expenditure alleged to have been incurred in relation to exempt income thereby disallowing interest and expenses amounting to & .....

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upholding the action of the Assessing Officer in applying provisions of Sec. 40(a)(i) to interest paid by the assessee to its Head Office/overseas branch. 22. This issue is identical with the issue in Ground Nos. 3 & 4 in ITA No. 4927/M/09 for assessment year 2005-06. Therefore, on similar lines and for similar reasons, the ground raised by the assessee in ITA No. 4928/M/09 for assessment year 2006-2007 is allowed. 23. Ground No. 4 is in respect of upholding the Assessing Officer s action of .....

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by the assessee . The Revenue in its appeal is challenging the order of the Ld.CIT(A) in deleting the penalty levied u/s. 271(1)(c) of the Act for the Assessment Year 2006-07. 26. The Ld. Departmental Representative submits that the Assessing Officer levied penalty on the disallowance of head office expenses and on the addition made towards interest paid to head office. The Ld. Departmental Representative referring to the penalty order submits that in the return of income, assessee claimed head .....

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ld have been allowable as deduction from computation of income but the same is not allowable u/s. 40(a)(i) because assessee failed to deduct tax on payment of interest to overseas branch of the head office. The Ld. Departmental Representative vehemently supporting the order of the Assessing Officer submits that assessee has made wrong claims thereby furnishing inaccurate particulars of income. He further submits that the income from head office has not been reported by the assessee, therefore th .....

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tc. He submitted that there was no concealment of income and furnishing of inaccurate particulars, notwithstanding the fact that there was a disclosure of the same during the course of the assessment / penalty proceedings. He further submitted that assessee had furnished a statement of true income and tax liability in the return of income. The AO ought to have appreciated that in the assessee's case penalty has been levied on disallowances on account of difference in interpretation of variou .....

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particulars of income. He further submits that in levying penalty of ₹ 1,75,12,353/- being the alleged tax sought to be evaded in respect of the Head Office (HO) expenses without appreciating that full disclosure was made giving reasons for claiming the entire expenditure at the time of the assessment proceedings as well as at the time of penalty proceedings. The Ld. Counsel submits that the disallowance has arisen on account of difference in the stand of the department and the assessee a .....

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g of the orders of the Assessing Officer as well as the First Appellate Authority, we find that assessee has made claim in the return of income and it is a full disclosure of the assessee in respect of the expenses as well as the claim towards interest paid to head office. We do not see concealment of income or furnishing of inaccurate particulars in respect of these two disallowances/additions made by the Assessing Officer. It is only a difference of opinion as to whether these claims can be al .....

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