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The Royal Bank of Scotland N.V (formerly known as ABN Amro Bank N. Versus) Versus Deputy Director of Income Tax International Taxation 1 (1) , Kolkata

2016 (5) TMI 711 - ITAT KOLKATA

Income attributed to the PE - rate of tax applicable to bank - Held that:- The assessee bank is incorporated in Netherlands and is engaged in banking operations across the globe through various branches worldwide, including India. In India, the assessee (branches / permanent establishment) is registered as a Scheduled Bank in terms of Schedule II of the Reserve Bank of India Act, 1034. Article 7 of the Double Taxation Avoidance Agreement (DTAA) provides for taxation in India of a foreign enterpr .....

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ent foreign company, the applicable tax rate as per the relevant Finance Act would be 40% plus surcharge. This action was upheld by the Learned CIT(A) in first appeal.This issue is covered against the assessee by the order of this tribunal in assessee’s own case for Asst Year 2004-05.

Disallowance of offshore remuneration to the expatriate employees rendering services in Indian branches of the assessee - Held that:- Identical issue has been decided by the ITAT , Kolkata Bench in asses .....

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iture was included for the purposes of section 44C of the Act.

Deduction on interest payments made by the assessee (Indian Branch) to its Head Office - Held that:- We find that the Hon’ble Calcutta High Court had held in asesssee’s own case [2010 (12) TMI 340 - CALCUTTA HIGH COURT] that no tax need to be deducted on interest payments made by the assessee (Indian Branch) to its Head Office and various branches outside India. We feel that the assessee had duly made out of a case for adm .....

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ned AO for the limited aspect of verification of deduction of tax at source and remittance thereon by the assessee. Thus we hold that there is no need to deduct tax at source on interest payments made by the assessee

Computing profits attributable to PE in India - Held that:- Interest paid to Head office and various branches outside India are allowable as deduction while computing the profits attributable to PE in India

Depreciation on ATM machines - Held that:- Depreciatio .....

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assessee is entitled for deduction towards lease rentals. - ITA Nos. 1738/Kol/2009, 1926/Kol/2010 & 519/Kol/2011, ITA No. 1805/Kol/2012 - Dated:- 13-4-2016 - Shri Mahavir Singh, Judicial Member And Shri M. Balaganesh, Accountant Member For the Appellant/Assessee: Shri R.N. Bajroria, Sr. Adocate, ld.AR For the Respondent/Department: Shri G. Mallikarjana, CIT, ld.DR ORDER Shri M. Balaganesh, AM These appeals of the assessee arise out of separate orders of Learned CIT(A)- XII, Kolkata/ld. DRP in A .....

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ce. 3. RATE OF TAX APPLICABLE TO THE BANK GROUND NO. 1 IN ASST YEAR 2005-06 GROUND NO. 1 IN ASST YEAR 2006-07 GROUND NO. 1 IN ASST YEAR 2007-08 GROUND NO. 1 IN ASST YEAR 2008-09 The facts in assessment year 2005-06 are stated herein and they remain the same for other assessment years also except change in figures and tax rates. The assesee bank is incorporated in Netherlands and is engaged in banking operations across the globe through various branches worldwide, including India. In India, the a .....

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harged tax at 36.5925% on its profits on the ground that in view of Article 24 of DTAA with Netherlands, the tax rate applicable to it is the rate applicable to domestic companies i.e at 36.5925%. However, the Learned AO held that assessee being nonresident foreign company, the applicable tax rate as per the relevant Finance Act would be 40% plus surcharge. This action was upheld by the Learned CIT(A) in first appeal. 3.1. Before us, the Learned AR fairly agreed that this issue is covered agains .....

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the Head office of the assessee paid a sum of ₹ 32,21,980/- as offshore remuneration to the expatriate employees rendering services in Indian branches of the assessee. The Learned AO has referred to the decision of this tribunal in the assessee s owncase for the A.Y. 1992-93 to 1995-96 wherein it has been principally held that such payment of remuneration to expatriate employees is an allowable deduction subject to the condition that such claim of remuneration has not been taken into accou .....

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in respect of such component of salary paid to him in the Netherlands. The expense incurred on expatriate s remuneration is specifically for the Indian branch and thus are specific expenses incurred for the Indian operations. Article 7(2) and 7(3) of India Netherlands DTAA specify the manner in which the profits of the PE are to be computed and thereby provide that expenses which are incurred for the purpose of PE are to be computed and thereby provide that expenses which are incurred for the pu .....

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ned AR stated that this issue is covered by the order of this tribunal in assessee s own case for Asst Year 2004-05 in ITA No. 1762/Kol/2008 dated 30.6.2010. We have gone through the said tribunal order, wherein it was held as under:- 6. Both the learned repesentatives of the parties agreed that identical issue has been decided by the ITAT , Kolkata Bench in assessee s own case in ITA No. 579/Kol/2006 dt 9.3.2007 and followed in ITA No. 315/Kol/2007 dt 10.7.2007 pertaining to the Assessment Year .....

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4C of the Act. We find that the same direction is required to be given for the asst years under appeal before us. Respectfully following the aforesaid tribunal order, this ground for various asst years (supra) is allowed for statistical purposes. 5. INTEREST PAID TO HEAD OFFICE GROUND NO. 3 IN ASST YEAR 2005-06 GROUND NO. 3 IN ASST YEAR 2006-07 GROUND NO. 2 IN ASST YEAR 2007-08 The facts in Asst Year 2005-06 are stated herein and they remain the same for other years also except change in figures .....

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ents, the assessee violated the provisions of section 40(a)(i) of the Act. The Learned AO also relied on the CBDT Circular No. 740 dated 17.4.96 that the branch of a foreign company in Idnia is a separate entity for the purposes of taxation. The Learned AO also observed that this issue has been held against the assessee by the Special Bench of Kolkata Tribunal for Asst Years 1997-98 & 1998-99 in assessee s own case and accordingly disallowed the claim of deduction made thereon. This action o .....

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d AO from Asst Year 2009-10 onwards. In respect of disallowance made in Asst Year 2008-09, the same was deleted by the Hon ble Dispute Resolution Panel (DRP). In response to this, the Learned DR fairly conceded that the issue is covered by the decision of the Hon ble Calcutta High Court in assessee s own case reported supra. 5.2. We have heard the rival submissions. We find that the issue is squarely covered by the decision of the Hon ble Calcuta High Court (supra) wherein the facts and question .....

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d its profits are to be so computed as profit properly attributable to such a permanent establishment. In the calculation of such profit by a banking enterprise interest paid can be taken as a deduction by virtue of article 7(3) read with article 11 (7). The assessee was a Netherlands company· and its principal branch office was in India. In the course of its banking activities, the branch office in India remitted substantial funds to its head ·office as interest. On appeal, two qu .....

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: The assessee's branch office in India and the head office in the Netherlands had to be taken as separate entities for all purposes. But in the making of payment of interest, no tax had to be deducted under section 195(1) for the reason that the head office was not chargeable to tax on such interest payments by virtue of the Agreement between India and the Netherlands. Hence, there was no obligation on the branch office in India to deduct tax while making interest remittance to its head off .....

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nd pertains to the claim of refund of tax deducted at source for the various asst years in respect of interest payments made by the assessee (Indian branch) to its Head Office and various branches outside India on inter bank borrowings. The assessee claimed that due tax has been deducted at source and remitted to the account of the central government on these interest payments, even though the Hon ble Calcutta High Court in assessee s own case reported in (2012) 343 ITR 81 (Cal) dated 23.12.2010 .....

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e assessee branch had indeed deducted the TDS and remitted the same could be verified by the Learned AO and on this count, he prayed for set aside to the file of the Learned AO. He also stated that this issue has been held in favour of the assessee by the Hon ble DRP for the Asst Years 2009-10 to 2011-12 by allowing the relief for TDS claim. 6.1. We have heard the rival submissions. We find that the Hon ble Calcutta High Court had held in asesssee s own case reported in 343 ITR 81 that no tax ne .....

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ted aspect requires factual verification by the Learned AO as Learned DR had raised a doubt about the same. Hence we deem it fit and appropriate to set aside this issue to the file of the Learned AO for the limited aspect of verification of deduction of tax at source and remittance thereon by the assessee. Respectfully following the decision of the Hon ble Calcutta High Court (Supra) , we hold that there is no need to deduct tax at source on interest payments made by the assessee. Accordingly, t .....

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stated that in case the aforesaid ground is held in favour of the assessee, then this ground may be treated as not pressed. The Learned DR also accepted to the same. We have heard the rival submissions. We find that in ground no.5 , we have held that interest paid to Head office and various branches outside India are allowable as deduction while computing the profits attributable to PE in India. Hence as agreed by the Learned AR , the ground no. 4 raised for Asst Years 2005-06 & 2006-07 and .....

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machinery . The Learned AO further observed that similar disallowance was made in Asst Years 2002-03 to 2004-05. On first appeal, the Learned CIT(A) upheld the action of the Learned AO as the tribunal in assesse s own case for Asst Year 2004-05 had held this issue against the assessee. Aggrieved, the assessee is in appeal before us. 8.1. The Learned AR stated that though this issue has been decided against the assessee in Asst Year 2004-05 by this tribunal, he argued that the same issue has been .....

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on this tribunal. In response to this, the Learned DR argued that the issue before the Delhi Tribunal was totally different from the fact before us. He further argued that ATM is only an Electronic Telecommunication Device. It is not similar to computers. He also presented the pictorial representation of functioning of ATM and Computer. He stated that the ATM does not contain Mother Board. He stated that once the ATM card is inserted , on reading the magnetic code thereon, it gets verified from .....

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ns. We find that the ATM machines are nothing but computers as they deal with the functions of decoding the information, processing the same and giving the output. The Learned AR submitted that ATM is a computer terminal activated by a magnetically encoded debit card that allows a person to make depsoits to and withdrawals from his accountm pay bills, transfers money between his account at any time. The inbuilt computer software therein allows the person to make financial transactions and check .....

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acraft India Ltd reported in (2010) 40 SOT 295 wherein the definition of computer given by the Information Technology Act, 2000 has been discussed and it has been held that the computer is to perform logical, arithmetical and memory functions on data etc and it is not only the equipment which perform such functions that could be called as computer but includes all input and output devices which are connected to or related to it. The Special Bench accordingly held that routers and switches are al .....

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mechanical functions of the dispensation of cash or deposit of cash is done. 8.2.1. We find that the issue is dealt with by the co-ordinate bench of Delhi Tribunal in the case of DCIT vs Global Trust Bank Ltd in ITA No. 474/Del/2009 dated 20.4.2011, wherein it was held that :- 7. ATM is the computerized telecommunication device that allows bank s customers to access the bank at places other than the normal bank without having to take the trouble to go to the bank in person and collect the cash .....

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uters which also includes computer network . The term computer network means the interconnection of one or more computers through the use of satellite, microwave, terrestrial line or other communication media and terminals or a complex consisting of two or more interconnected computers whether or not the interconnection is continuously maintained. From this angle also, Local Area Network (LAN) , Wide Area Network (WAN) and ATM would undoubtedly form a part of computer. 11. In the light of the vi .....

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n holding that depreciation on UPS is allowable @ 60% ignoring the fact that UPS is an electrical appliance for temporary supply of electricity therefore is in nature of plant and machinery and therefore, depreciation should be provided @ 15%? b) Whether on the facts and circumstances of the case the ITAT was right in holding that depreciation on ATM is allowable @ 60% ignoring the fact that ATM is a cash dispensing machine with a projector and therefore is in nature of plant and machinery and t .....

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r and would be a part of the computer used in the banking industry. Reliance was placed by the Tribual upon the decision of the Delhi Bench of Tribunal in the matter of DCIT vs Global Trust Bank (ITA No. 474/D/09) wherein it has been held that ATM was a computer equipment and depreciation @ 60% was allowed. Held that - We note that the Tribunal has arrived at a finding of fact on all the three questions. The revenue has not been able to show that the above finding of fact is perverse. Thus, we d .....

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he aforesaid judicial precedents, we have no hesitation in directing the Learned AO to allow depreciation at the rate of 60% on ATMs. Accordingly, the ground no. 5 raised by the assessee for the Asst Years 2005- 06 and 2006-07 are allowed. 9. DISALLOWANCE OF LEASE RENTALS ON VEHICLES GROUND NO. 6 IN ASST YEAR 2005-06 GROUND NO. 6 IN ASST YEAR 2006-07 GROUND NO. 4 IN ASST YEAR 2007-08 GROUND NO. 2 IN ASST YEAR 2008-09 The facts in Asst Year 2005-06 are stated herein and they remain the same for o .....

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er, lease rentals amounting to ₹ 3,27,25,577/- were separately claimed by the assessee as deduction in the computation of income as fair value of vehicles for such lease were capitalized in the books as per AS 19. For income tax purposes, the assessee has not capitalized the fair value of the leased vehicles in the additions to the block of assets and thus no tax depreciation was claimed thereon. Instead, the entire lease rentals were claimed as a revenue deduction in view of the CBDT Circ .....

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ction of the Learned AO was upheld by the Learned CIT(A) in first appeal. Aggrieved, the assessee is in appeal before us. 9.1. The Learned AR stated that though this issue has been decided against the assessee in Asst Year 2004-05 by this tribunal vide its order dated 30.6.2010, he argued that the same issue has been held in favour of the assessee by the decision of the Hon ble Apex Court in the case of I.C.D.S. Ltd vs CIT reported in (2013) 29 taxmann.com 129 (SC). He also stated that the Hon b .....

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hereas the assessee before us is a banking company and argued that the said decision may not be made applicable to the case before us. He further argued that the issue before the apex court was - who is the legal owner of the asset . According to him, the apex court did not render any judgement on whether lease rental is a capital or revenue expenditure. In Defence, the Learned AR argued that there is absolutely no difference whether the assessee is a banking company or a leasing company. He ple .....

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fect. He prayed for allowance of lease rentals as a revenue expenditure. 9.2. We have heard the rival submissions and perused the materials available on record. At the outset, we find that this issue has been held against assessee in assessee s own case for Asst Year 2004-05 vide order of this tribunal dated 30.6.2010. However, the Hon ble Apex Court decision in the case referred supra dated 14.1.2013 had been rendered after the decision of this tribunal in Asst Year 2004-05. We have gone throug .....

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expiry of lease period to the lessor. Moreover, the lessor has got every right to recover the vehicles during the tenure of the lease if the lessee defaults in payment of lease rentals. All these facts clearly prove that the assessee cannot claim ownership (both legal and beneficial) of the vehicles at any cost. Effectively the assessee herein gets only right to use the assets for which lease rentals are paid. The fact of registration of vehicles in the name of assessee under Motor Vehicles Act .....

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sions of IT Act. Hence the same analogy could be applied for lease rentals also. Hence treatment given in books to comply with AS 19 issued by ICAI is of no relevance. We find that Circular No. 2/2001 dated 9.2.2001 stipulates that in a lease transaction, the owner of the assets is entitled to depreciation. In the instant case, the lessor being the owner had the right to claim depreciation and the assessee has not claimed any depreciation on the same for tax purposes. The assessee had claimed th .....

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2.2. We find that the issue is squarely covered by the decision of the Hon ble Supreme Court in the case of I.C.D.S. Ltd vs CIT reported in (2013) 350 ITR 527 (SC) wherein it was held that :- Held, affirming the decision of the Tribunal, (i) that the assessee was a leasing company which leased out the trucks that it purchased. Therefore, on a combined reading of section 2(13) and (24) of the Act the income derived from leasing of the trucks would be business income, or income derived in the cour .....

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to the assessee upon which, the lease agreement was entered into by the assessee with the customer. The fact that at the end of the lease period, the ownership of the vehicle was transferred to the lessee at a nominal value did not make the assessee in effect a financier. No inference could be drawn from the registration certificate as to ownership of the legal title of the vehicle. If the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically r .....

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the assets in the course of its business, satisfying both requirements of section 32 of the Act and, hence, was entitled to claim depreciation in respect of additions made to the trucks, which were leased out. (v) That for purposes of the assessee's claim to the higher rate of depreciation, the interpretation of the term "purposes of business", used in second proviso to section 32(1) of the Act would not be any different from that ascribed to it under section 32(1) of the Act. The .....

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asthan High Court (Jaipur Bench) in the case of Rajshree Roadways vs Union of India & Ors reported in (2003) 263 ITR 206 (Raj) wherein it was held that :- Held, that under the agreement there was a clause that after completion of lease period, if one per cent. of the total consideration of the trucks was paid, the lessee would be the owner of those trucks. However, the agreement dealt with the ownership of the trucks under the agreement. There was a clear provision that the said machinery sh .....

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at the lessor may concur indisputably rested with the lessor. So in clear terms, the agreement provided that during the lease period, only the lessor shall be treated as owner of the trucks and not the lessee. Moreover, the lessor had been allowed depreciation on the trucks. Therefore, considering the terms and conditions of the lease agreement and the fact that depreciation on these trucks had been allowed to the lessor, the lease rent was deductible as revenue expenditure - In the aforesaid ca .....

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