9911796707
TMI Blog2018 (8) TMI 850X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the fact that the PE in India has to be treated as separate entity and the interest payable by the said PE is to be taxed in India in the hands of PE as income. 2. Whether on facts and in circumstances of the case in law, the CIT(A) is correct in holding that the provisions of section 40(a)(i) do not apply without appreciating that the interest was chargeable to income. 3. Whether on facts and in circumstances of the case in law, the CIT(A) is correct in holding that the appellant was under a legal obligation to settle the foreign exchange contract as and when they would arise and therefore the claim was not contingent. 4. The Appellant prays that the order of the Ld. CIT(A) on the above ground(s) be set aside and that of the Assessing officer be restored. 5. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 2. Briefly stated, the assessee which is a foreign bank incorporated in Japan and carrying out its banking operations in India through branches situated at Mumbai and Delhi had e-filed its return of income for A.Y. 2007- 08 on 31.10.2007, declaring total income of Rs. 22, 01, 16, 464/-. The return of income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hands of the branch of the assessee bank was decided by the Tribunal in the favour of the assessee. The CIT(A) further observed that the Tribunal had further concluded that the interest income received by the head office of the assessee bank was not chargeable to tax in India. On the basis of the aforesaid deliberations, the CIT(A) adjudicated the aforementioned issues in favour of the assessee, observing as under : "6.4 I have considered the order of the AO and submissions of the AO. During the appellate proceedings, the assessee's AR submitted copy of the order of the Hon'ble ITAT in the assessee's own case for the A.Y. 2005-06 wherein identical case for A.Y. 2005-06 wherein identical issues have been dealt by the Hon'ble ITAT. The relevant portion of the order is as under : "The Revenue is in appeal against order of CIT(A) in deleting the disallowance made under Section 40(a)(ia). We have considered rival contentions and found that disallowance had been made by the AO on the plea that branch office in India has been treated as permanent establishment and has filed return of income as per IT Act. The AO observed that although the branch office is an extension of head offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee on both the issues involved in this appeal of the revenue and dismiss the said appeal." The above decisions on interest allowability and interest income of the Hon'ble ITAT in the assessee's own case have been adjudicated in favour of the assessee and in view of this, these parts of grounds of appeal are allowed. One more issue which has been raised is that a notice under section 163(1) of I.T. act, 1961 was not given to the assessee branch treating it as agent to its head office. First of all, even though the branch has been treated as agent to head office, it is not necessary to invoke provisions of section 163 and give notice under section 163 because branch and the head office are the same entity and only for assessing the income under I.T. Act, 1961, these two are being treated separately. Hence, it is held that it was not necessary to issue notice under section 163 of I.T. Act, 1961 to the branch of the bank as agent of the head office of the bank. In nutshell, ground of appeal is partly allowed." 5. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that the assessee respondent despite having be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id as a deduction in its computation of income by taking support of the protocol to Article 7(3) of the India-Japan DTAA which allows deduction of interest paid by a PE to its head office when such foreign enterprise is a banking institution. However, as observed by us hereinabove, the A.O disallowed the claim of the assessee for deduction of the interest expenditure by relying on the decision of the 'Special Bench' of the ITAT, Kolkata in the case of ABN Amro Bank N.V. Vs. ADIT (2005) 97 ITD 89 (SB), and therein holding that as the branch office and the head office were not separate entities for income tax purposes, thus the payment of the interest being in the nature of a payment to self could not be allowed as an expenditure in the hands of the branch office. Simultaneously, the A.O further observing that as the interest received by the head office from the Indian PE had accrued and arisen in India, thus brought the same to tax @ 10% on the gross amount as per Article 11(2)(a) of the India-Japan DTAA. 7. We have deliberated at length on the issues under consideration and are of the considered view that the same are squarely covered by the order passed by a coordinate bench of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the same person in general law, the Article 5 and Article 7 of the India-Netherland DTAA provided that the PE shall be assessable as a separate entity. We find that in the backdrop of the aforesaid facts the Hon'ble High Court had held that the payment of interest by the Indian PE of the Bank to its head office was to be allowed as deduction while computing the income of the PE chargeable to tax. We find that in the case of the assessee before us, the Article 7(3) of India-Japan DTAA expressly provides for deduction of interest on money advanced by the Head office to its Indian PE when such foreign enterprise is a banking institution. We are of the considered view that in the backdrop of our aforesaid observations, the interest paid by the branch office of the assessee bank in India to the head office of the bank on the amounts advanced by the latter in the normal course of its banking business is allowable as a deduction while computing the income of the Indian PE i.e. the branch of the assessee bank in India. We thus, not finding any infirmity in the order of the CIT(A) that the interest paid by the branch of the assessee bank to its head office is allowable as a deduction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative assessee/agent as per Sec. 163(1)(c) of the Act, subjected the said amount to tax @ 10% on the gross amount of interest under Article 11(2)(a) of the India-Japan DTAA. 14. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the assessee before him, observed that the issue as regards the allowability of the interest expenditure in the hands of the branch office and the chargeability of the amount of the interest income received by the head office to tax in India had been decided in favour of the assessee by the Tribunal in the assesses own case for A.Y. 2005-06. On the basis of the aforesaid deliberations the CIT(A) allowed the appeal of the assessee. 15. The revenue being aggrieved with the order passed by the CIT(A) has carried the matter in appeal before us. We find that as the issues involved in the present appeal remains the same as were there before us in the appeal of the revenue in the assesses own case for A.Y. 2007-08, viz ITA No. 4711/Mum/2016, thus our order passed in context of the issues under consideration while disposing off the aforesaid appeal shall apply mutatis muta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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