TMI Blog2018 (8) TMI 850X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - Order of CIT(A) sustained - Decided against the Revenue. - ITA No. 4711/Mum/2016 And 4710/Mum/2016 - - - Dated:- 13-8-2018 - SHRI SHAMIM YAHYA, AM AND SHRI RAVISH SOOD, JM For The Appellant : Shri M.V Rajguru, D.R For The Respondent : None ORDER PER RAVISH SOOD, JUDICIAL MEMBER: The present appeals filed by the revenue are directed against the respective orders passed by the CIT(A)-55, Mumbai, dated 28.03.2016, which in itself arises from the orders passed by the A.O under Sec. 143(3) r.w.s. 144C(3) of the Income Tax Act, 1961 (for short Act ), dated 31.01.2011 and 15.02.2012 for A.Y. 2007-08 and A.Y. 2008-09, respectively. As common issues are involved in the aforementioned appeals, hence the same are being taken up and disposed off by way of a composite order. We shall first take up the appeal of the revenue for A.Y. 2007-08. The revenue assailing the order of the CIT(A) has raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate entities for tax purposes, thus disallowed the assesses claim of interest expenditure on the ground that the same was in the nature of a payment to self. The A.O while concluding as hereinabove, took support of the order of the Special Bench of the Tribunal in the case of ABN Amro Bank N.V. Vs. ADIT (2005) 97 ITD 89 (SB). Still further, the A.O held a conviction that as the source of the interest income earned by the head office was the latters branch office in India, thus the same as per Sec. 9(1)(v)(c) of the Act having deemed to have accrued or arisen in India, was therefore taxable in India as per the domestic law i.e. the Income Tax Act, 1961. It was further held by the A.O that as the interest was paid by the branch office, hence the latter automatically became the representative assessee/agent as per Sec. 163(1)(c) of the Act. In the backdrop of the aforesaid facts, the A.O concluded that the interest income received by the head office was taxable in India @10% of the gross amount as per Article 11(2)(a) of the India-Japan DTAA. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the contentions advanced by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the provisions of section 195 consequently would not be attracted in case of such payment of interest by the Indian Branch to overseas Head Office and the question of disallowance of the said interest by invoking the provisions of Section 40(a)(ia) does not arise. Respectfully following the said decision of the Special Bench, we upheld the impugned order of CIT(A) for deleting the disallowance of interest made under section 40(a)(ia) of the I.T. Act. Similarly, on the issue of amount of interest received by the HO, the Hon ble ITAT has held as under : The Ld. D.R, however, has fairly and frankly conceded that both the issue involved in this appeal of the revenue are squarely covered by the recent decision of Special Bench of the Tribunal in the case of Sumitomo Mitsu Banking Corp. Vs. DDIT 136 ITD 66 (Mum)(SB) wherein it has been held that interest paid by the Indian Branch of the assessee bank to its overseas head office is not chargeable to tax in India. As further held by the Special Bench in the said case, the provisions of sec. 195 consequently would not be attracted in case of such payment of interest by the Indian Branch to overseas Head Office and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thus the provisions of Sec. 40(a)(i) of the Act were clearly attracted. However, on being confronted with the fact that the order of the Special Bench of ITAT, Kolkata in the case of ABN Ambro NV (supra) had been reversed by the Hon ble High Court of Calcutta in the case of ABN Amro Bank, N.V. Vs. CIT Anr. (2012) 343 ITR 81 (Cal), as well as the said view of the Special Bench of the Tribunal in the case of ABN Ambro NV (supra) had been dislodged by the ITAT, Special Bench, Mumbai in the case of Sumitomo Mitsui Banking Corporation Vs. DDIT (2012) 136 ITD 66 (SB)(Mum), the Ld. D.R failed to bring to our notice any judgment/order wherein a contrary view had been taken. 6. We have heard the Ld. D.R, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal has been sought for adjudicating two issues viz. (i) whether the interest paid by the branch office of the assessee bank to its head office is allowable as an expenditure in the hands of the branch office; and (ii) whether the interest received by the head office is chargeable to tax in India. We find that the assessee had claimed an interest expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration (supra), thus finding no reason to take a different view, we respectfully follow the same. We thus, uphold the order of the CIT(A) to the extent the latter had concluded that the interest income received by the head office of the assessee bank would not be chargeable to tax in India. 8. We shall now advert to the issue as regards the allowability of the interest paid by the branch of the assessee bank to its head office as an expenditure in the hands of the branch office. We find that the claim of the assessee as regards the interest expenditure was disallowed by the A.O, for the reason that he held a conviction that as the branch and head office of the assessee bank were not separate entities as per domestic law as well as DTAA, thus the payment of the interest by the branch office to its head office, being in the nature of a payment to self could not be allowed as an expenditure. We find that the A.O while arriving at the aforesaid view had taken support of the order passed by the Special Bench of ITAT, Kolkata in the case of ABN Amro Bank N.V. Vs. ADIT (2005) 97 ITD 89 (SB). However, as observed by us hereinabove, the decision of the Special Bench of ITAT, Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct in holding that the provisions of section 40(a)(i) do not apply without appreciating that the interest was chargeable to income. 3. 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. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary 12. Briefly stated, the assessee bank had e-filed its return of income for A.Y. 2008-09 on 29.09.2008, declaring total income of ₹ 33, 38, 98, 770. The case of the assessee was thereafter taken up for scrutiny assessment under Sec. 143(2) of the Act. 13. During the course of the assessment proceedings, it was observed by the A.O that the assessee had paid interest on inter office accounts maintained with its head office and London branch amounting to Rs, 2, 28, 81, 479/- on which no tax was deducted at source. The A.O observing that the assessee had failed to deduct tax at source while making the payment of interest to its head office and London branch, thus disallowed the same. Still further, the A.O being of the view that the source of interest earned by the head office was from its ..... 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