TMI Blog2016 (3) TMI 1356X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical 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:- As decided in own case [ 2014 (7) TMI 1305 - ITAT MUMBAI] payment on account of data processing charges paid to BNP Singapore cannot be taxed in the hands of the assessee. The conclusion arrived at by the coordinate bench, whatever may have been the path traversed by the coordinate bench to reach this point, are the same as arrived at by us. Of course, our reasons are different, as set out earlier in this order, but that does not really matter as on now. We fully agree with the conclusions arrived at by the coordinate bench. We, therefore, direct the Assessing Officer to delete the impugned disallowance - ITA No.3540/Mum/2014 Assessment Year: 2008-09 - - - Dated:- 31-3-2016 - Pramod Kumar AM and Pawan Singh JM Arvind Sonde, for the appellant N. Sathyamoorthy, for the respondent ORDER Pramod Kumar AM: 1. By way of this appeal, the assessee appellant has called into question correctness of the order dated 9th March 2012, passed by the learned CIT(A), in the mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it should not be taxed in the hands of the head office as it does not constitute fees for technical services within the meanings of Article 13 of Indo French DTAA, and that it should not be disallowed as it is outside the ambit of head office expenses which can be covered under section 44C of the Act. None of these submissions impressed the Assessing Officer. He was of the view that the payment for data processing services is duly covered under section 13(4) of the Act, and, therefore, it is taxable in the hands of the head office. A reference was also made to the CBDT circular No. 740 in support of the stand that foreign bank s head office and Indian branch are two separate entities for taxation purposes. The Assessing Officer, however, added only ₹ 13,10,97,790, as the assessee had, on his own, offered disallowance of ₹ 65,54,889 as mark up on the actual expenses. This income was brought to tax in the hands of the head office @10% under article 13(4) of the Indo France DTAA. Aggrieved, assessee carried matter in the appeal before the CIT(A) but without any success. Relying upon the DRP directions for the assessment year 2006-07, the CIT(A) confirmed the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of profit attributable to the permanent establishment. Explaining this hypothesis, Prof. Kees Van Raad, a well known international tax academician, in his preface to The Attribution of Profits to Permanent Establishments The taxation of intra-company dealings [ISBN 90- 76078-84-X; published by IBFD, Amsterdam] , has stated that Since my early days of teaching international tax law I have tried to explain to students the relationship between a PE and the general enterprise of which the PE is a part, as that of an egg and the yolk it contains. I have further explained that, with regard to income attribution to PEs, the OECD Model does not require that a general enterprise is divided into two separate parts a head office and a PE and that, therefore, an internal charge borne by a PE will not yield income for anyone, but only produces a smaller amount of PE income to be taxed by the PE state and, correspondingly, a smaller amount of foreign income in respect of which the residence state needs to provide relief. I must admit that my attempts to get these views across have met with varying levels of success. In a way, Dr Kees van Raad s frustrations in being able to hammer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee, in the present case is a commercial bank having its Head Office in France. It carries on the normal banking activities Including financing of foreign trade and foreign exchange transactions in India through its eight branches situated at Mumbai, New Delhi, Kolkata, Bangalore, Pune, Ahmedabad, Chennai and Hyderabad. During the previous year relevant to A.Y. 2002-03, the Indian Branches of the assessee bank have paid total interest of ₹ 1,48,30,613/- to its Head office and overseas branches and the same was claimed as a deduction while determining the profits attributable to Indian Branches, which was chargeable to tax in India. The said interest was treated 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 other overseas Branches was payment to self, which di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch constitutes its PE in India is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit attributable to, the PE which is taxable in India as per the provisions of art. 7(2) and 7(3) of the Indo-Japanese Treaty read with, para 8 of the Protocol whish are more beneficial to the assessee, The said 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 s ..... 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