TMI Blog2014 (7) TMI 1305X X X X Extracts X X X X X X X X Extracts X X X X ..... is covered not only by the order of the Tribunal in assessee s own case for the AY 2001-02 to 2003-04 but also by the order of the ITAT s Special Bench in the case of Sumitomo Mitsui Banking Corporation [ 2012 (4) TMI 80 - ITAT MUMBAI] we hold that the department was not justified in subjecting to tax the interest paid by the Indian Branch of the assessee to its head office and overseas branches applying the provisions of Article 12 of India-France Tax Treaty. Income accrued in India - data processing fees paid by the India branch office of the appellant to its Singapore bench, as income of the appellant under article 13 (royalties and fees for technical services) of the India France DTAA - whether an internal charge on the PE can result in income in the hands of the GE or an intra GE unit? - HELD THAT:- This issue is also covered by the order of the Tribunal in assessee s own case for AY 2001-02 to 2003-04 wherein interest paid by assessee to Head Office/overseas branches was held to be not liable to tax Non granting credit for tax deducted at source on interest on sub-ordinated debt, paid by Indian branches of the assessee to its head office - HELD THAT:- Interest wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of Article 12 (Interest) of the India - France tax treaty. 3. In subjecting to tax, the data processing charges paid to the Singapore branch of the Appellant, aggregating ₹ 132,335,594, applying the provisions of Article 13 (Royalties, fees for technical services and payments for use of equipment) of the India - France tax treaty. 4. In not granting credit for tax deducted at source amounting to ₹ 2,689,177 on interest on sub-ordinated debt, paid by Indian branches of the Appellant to its head office. 5. In not directing the Assessing Officer to compute interest under section 234C of the Act considering the 'returned income' of the Appellant. 2. At the outset, it was contended by learned AR that all the grounds are covered by the order of the Tribunal in assessee s own case for the A.Y.2001-02, 2002-03 2003-04. A chart along with copy of the orders of Tribunal was placed on record. 3. We have considered rival contentions and carefully gone through the orders of authorities below. In the first ground, the assessee is aggrieved by the action of the lower authorities in not accepting the claim that the rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of applying principle of mutuality. He further contended that if principle of mutuality is applied in all the cases, Section 44C will be redundant. The CITDR Mr. Ajay Kumar Shrivastava further contended that the ITAT SB in case of Sumitomo Mitsui banking corporation 136 ITD 66(Mum)(SB) has held that the interest received by HO(GE) is not taxable in hands of GE in India under domestic law on principles of mutuality as the interest paid by PE to GE is payment to self. As per learned DR, before the SB, the counsels from both the sides did not dispute the position that such interest payments were covered by principles of mutuality being payment to self, though the revenue argued that for purpose of taxation under domestic laws also the PE and GE should be treated as separate entities. This argument was rejected by ITAT on grounds that under the domestic law there is only one assessable entity i.e. GE and PE is not an independent person and it is part of GE. 4.2 In view of the above, learned CITDR strongly defended the order of the AO on the plea that the decision of SB hinges on the assumption that the impugned transactions are covered by principles of mutuality bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by principles of mutuality. The principle that no one can trade with himself is not universally applicable. It might here be pointed out that it has been held by the House of Lords in Sharkey Vs. Wernher (1956) AC 58 ; (1956) 29 lTR 962 (HL) that the general proposition that no one could trade with himself and make in its true sense or meaning taxable profits by dealing with himself is not universally true and that there are situations in which a man could be said to make a profit out of the consumption of his own goods. The Hon ble Supreme Court in Bangalore club (supra) also bas held that this maxim is not universally applicable. When the business activity of banking by assessee bank comprises of continuous/integrated inflows and outflows of money with several entities including customers, other banks and its own branches, then the profit of the bank s business would depend on net inflows out of all operations and it cannot be said that a part of such transactions are governed by mutuality by disintegrating some of the constituent transactions between BO and HO out of the one composite business of banking and then to say that such transactions are governed by mutuality. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id 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 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 as the same stands on the same footing as the payment of interest made to the head office, At the time of hearing before us, the learned representatives of both the sides have also not made any separate submissions on this aspect of the matter specifically. Having held that the interest paid by the Indian branch of the assessee bank to its head office and other branches outside India is not chargeable to tax in India, it follows that the provisions of s. 195 would not 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 disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated by the A.O. as income of the assessee's Head office / overseas branches chargeable to tax in India. This decision of the A.O. was challenged by the assessee in the appeal filed before the Ld. CIT(A) and the contention raised before the Ld. ClT (A) in this regard was that the Head office of the assessee bank as well as all its branches being the same person and one taxable entity as per the Indian Income-tax Act, interest paid by Indian Braches to head office and ocher overseas Branches was payment to self, which did not give rise to any income as per the Income-tax Act. In support of this contention, reliance was placed on behalf of the assessee on the decision of Hon'ble Supreme Court in the case of Sir Kikabhai Premchand vs. CT (Central) 24 ITR 506 as well as the decision of Kolkata Special Bench of the ITAT in the case of ABN Amro Bank NV vs. Asst. Director of Income-tax 98 TIJ 295. The contention of the assessee, however, was not accepted by the Ld. CIT (A) and relying on the decision of Mumbai Bench of the ITAT in the case of Dresdner Bank AG vs. Add1. CIT 108 ITD 375, he held that the interest paid by the Indian branches of the assessee bank to its head office an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary 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 as the same stands on the same footing as the payment of interest made to the head office, At the time of hearing before us, the learned representatives of both the sides have also not made any separate submissions on this aspect of the matter specifically. Having held that the interest paid by the Indian branch of the assessee bank to its head office and other branches outside India is not chargeable to tax in India, it follows that the provisions of s. 195 would not 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 s. 40 (a)(i) does not arise, Accordingly we answer question No. 1 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. As the facts and circumstances o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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