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TMI Blog2018 (6) TMI 1659X X X X Extracts X X X X X X X X Extracts X X X X ..... case and in la\v, the Hon'ble Dispute Resolution Panel ('DRP') erred in confirming the addition, as proposed in the draft assessment order, for an amount of INR 37,12,44,563 paid as salaries by the HO overseas, in foreign currency (including Indian taxes thereon), without appreciating that such salary paid by the HO to the expatriate employees working in India exclusively for the permanent establishment ('PE') of the Appellant, is fully allowed as deduction under section 37(1) of the Act. 1.2 That on the facts and in the circumstances of the case and in law, the Hon'ble DRP and the Id. AO have erred in not following the favourable decision of the Hon'ble Delhi High Court/Hon'ble Tribunal in the Appellant's own case for earlier years. 1.3 Without prejudice to above, the Id. AO erred in not refunding the tax deducted at source on such salaries in view of the fact that the deduction for such salaries paid to expatriate employees outside India was not allowed by him. 2.Interest amounting to INR 846,996 accrued/ received by the Indian Permanent Establishment ('PE') from its HO/ overseas branches. 2.1That on the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. 6.Levy of interest under section 234B of the Act That on the facts and circumstances of the case and in law, the ld. AO erred in levying interest under section 234B of the Act. 7.Excess withdrawal of interest under section 244A of the Act That on the facts and circumstances of the case and in law, the ld. AO erred in withdrawing the interest under section 244A(3) of the Act. 8.Excess levy of interest under .section 2340 of the Act That on the facts and circumstances of the case and in law, the ld. AO erred in levying excess interest under section 234D of the Act. 9.Transfer Pricing adjustment 9.1That on facts and in law, the Hon'ble DRP and Ld. AO/TPO erred in making an adjustment of INR 13,66,36,735 to the returned income of the Appellant in respect of the international transaction pertaining to "receipt of counter guarantee commission" ("impugned international transaction') to its Associated Enterprise ('AE'). 9.2That on the facts and circumstances of the case and in law, the Hon'ble DRP and Ld. AO/TPO have erred in rejecting the primary as well as corroborative analysis undertaken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in initiating penalty proceedings, being against the provisions of the Act. 12General a)Each of the above ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. b)The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable your Honour to decide this appeal according to law." 3.The first issue vide ground nos. 1 to 1.3 relates to the disallowance of salary paid to overseas expatriates of the assessee working in India by the Head Office amounting to Rs. 37,12,44,563/-. 4.As regards to this issue, the ld. Counsel for the assessee at the very outset sated that it is covered in favour of the assessee in assessee's own case for the assessment year 2007-08 in ITA No.5364/Del/2010, order dated 19.09.2014 which has been confirmed by the Hon'ble Jurisdictional High Court vide order dated 08.04.2016 in ITA 604/2015 (copies of the said orders were furnished which are placed on record). The ld. CIT DR could not controvert the aforesaid contention of the ld. Counsel for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 Thus, Id. DRP has not correctly appreciated the facts of the case. 12. Respectfully following the decisions of Hon'ble Bombay High Court in the case of Emirates Commercial Bank Ltd. (supra), this ground is allowed." 7.The said order has been affirmed by the Hon'ble Jurisdictional High Court in ITA No. 604 & 605/2015 vide order dated 08.04.2016 and the relevant findings have been given in paras 9 & 10 which read as under: "9. The first question urged concerns the payment of salaries to the expatriates. In deciding this issue in favour of the Assessee, the ITAT has in the impugned common order referred to and relied upon the decision of its coordinate bench at Kolkata in ABN Amro Bank v. JCIT (2005)97 ITD 1(ITAT [Kol]). Further the ITAT followed the decision of the Bombay High Court in CIT v. Emirates Commercial Bank Ltd. (2003) 262 ITR 55 (Bom.) where the Bombay High Court approved the view taken by the ITAT. The ITAT agreed that the expenses have been incurred wholly and exclusively by the Indian branch and therefore no part of these expenses can be allocated to any other branch of the HO and that there was no dispute with regard to the non-applicability of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (b)Whether or not, on the particular facts and in the circumstances of the case, the assessee was entitled to deduction of interest levied u/s 201(1A). (c)Whether or not, on the particular circumstances of this case, the assessee was entitled to deduction on account of operational loss of Rs. 9,57,58,904/-. 11.1 Thus, Id. DRP has not correctly appreciated the facts of the case. 12. Respectfully following the decisions of Hon'ble Bombay High Court in the case of Emirates Commercial Bank Ltd. (supra), this ground is allowed. 8.1. It is also pertinent to point out over here that the above decision of the Tribunal on the issue has also been upheld by the Hon'ble High Court of Delhi vide its order dated 8.04.2016 in the appeal preferred by the Revenue vide ITA No. 604/2015 and others. Besides, the issue is also covered by the decision of Hon'ble Bombay High Court in the case of Emirates Commercial Banking Ltd. (2003) 262 ITR 55 (Bom.) followed by the Tribunal. The Hon'ble Supreme Court has also been pleased to uphold the said decision of Hon'ble Bombay High Court by dismissing the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Indian branches to head office and other branches. 13.1 In support of the above ground, the ld. AR has made following submissions:- "The coordinate bench in the assessee's own case for the order dated September 19, 2014 passed for AYs 2007-08 and 2008-09 has decided this ground against the assessee and held that interest received by the Indian branches of the assessee from its HO/other overseas branches is taxable under the Act under section 9(1)(v) of the Act. At the outset, it is submitted that the issue stands covered in favour of the assessee by the recent judgment of the Bombay High Court in the case of Credit Agricole Indoseuz in ITA No. 1430 of 2013 wherein the Bombay High Court held that it is a settled position that no person can make profit out of its self and accordingly, interest received by the Indian PE from its HO is not taxable in India (refer para 7 at page nos. 5 to 8 of the Bombay High Court judgment enclosed as Annexure-3). Therefore, although the Tribunal in the assessee's own case for the order passed for AYs 2007-08 and 2008-09 has decided this issue against the assessee, the earlier decision of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s branches, nor there can be deduction for interest expenditure paid by the Indian branch to HO/other overseas branches. With respect to interest paid to HO/other overseas branches, no treaty provision was examined in the case of Oman International Bank and therefore, no deduction was allowed for interest paid by the Indian branches to HO/other overseas branches. IndoJapanese treaty specifically provides for deduction to Indian branches for interest paid to HO/overseas branches as held by the Special (Larger) Bench in the case of Sumitomo Mitsui Banking Corporation. (iii)Several double tax avoidance agreements entered into by India (for e.g. India-Netherland treaty) have specifically provided that where deduction is allowed to banking companies for the amounts paid by the PE to HO, amounts earned by the PE from HO shall be taken into consideration for the purposes of computing profits. However, such provision is absent in the IndoJapanese treaty and hence the amounts received by the Indian branches cannot be taken into consideration for the purposes of computing profits of the Indian branches. (iv)Vide Finance Act 2015, w.e.f. AY 2016-17, an E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Singh, the learned counsel for the Revenue submitted that this question ought to be admitted as a similar issue has been admitted by this Court. In support Mr. Singh tenders the order dated 14 February 2013 of this Court in Income Tax Appeal (L) No.2078 of 2012, in Director of Income Tax (IT)1 Vs. M/s Antwerp Diamond Bank N.V. The question on which the above appeal was admitted reads as under: a) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in holding that interest payable by the Indian Permanent Establishment of the foreign bank to its HO and other overseas branches, is deductible in computing the total income? (b)Mr. Pardiwala the learned Senior counsel for the Respondent contests the submission on behalf of the Revenue and submits that in the present case the question as raised by the Revenue is not in respect of deducting the payment of interest to compute total income but with regard to the chargeability to tax of the interest received by the Indian Permanent Establishment (PE) from its Head Office in computing the total income. It is pointed out that the Indian PE and the head office are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus makes it clear that for the purpose of computing the profits attributable to the PE in India, the said PE is to be treated as a distinct and separate entity which is dealing wholly independently with the general enterprise of which it is a part and deduction has to be allowed for all the expenses which are incurred for the purpose of PE whether in India or elsewhere barring the amount paid by a permanent establishment to the head office of GE or any other offices thereof, inter alia, by way of interest on moneys lent to the permanent establishment except where the enterprise is a banking institution." (Emphasis supplied) It would thus be noticed from the order of this Court dated 14 February 2013 admitting the Revenue's Appeal, in the case of M/s Antwerp Diamond (supra) arose from a different factual matrix viz. specific provision of DTAA allowing deduction and not under the regular provisions of Income tax Act. Thus the fact that the Appeal in the case of M/s Antwerp Diamond (supra) is admitted would have no relevance for admitting the present appeal on the proposed Question No.5. It is also necessary to point out that the Tribunal in the impugned order has re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee's own case for assessment year 2007-08 and 2008-09 has decided the matter against the assessee. The DRP following the order of the Tribunal rejected the objections of the assessee. Learned counsel for the assessee submitted that identical issue was considered by ITAT Delhi Bench 'C' in assessee's own case for assessment year 2010-2011 in ITA No. 1174/2015 dated 25th January, 2017 in para 15 of the order and identical addition has been deleted. The order of the Tribunal is reproduced as under: "Considering the above submission, we find that during the year the Indian PE / branches of the assessee had received interest for the accounts maintained with its head office / other overseas branches. The said amount received by Indian PE / branches from its head office / other overseas branches although credited to the profit and loss account of the Indian branches of the assessee was claimed to be not taxable being payment to self. The authorities below did not agree. The Tribunal vide its order dated 19.02.2014 in the assessment years 200708 and 2008-09 (supra) has decided the issue against the assessee with this finding that interest received by the Indian branches of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Taxmann.com 364 (Mum.) (SB)] to hold that man cannot make profit out of himself and therefore the interest received by the Assessee from its own Head Office is not chargeable to tax. (c)So far as the reliance by the Revenue on order dated 14 April 2013 of this Court admitting the appeal in M/s Antwerp Diamond Bank N.V.(supra), is concerned, deduction on account of interest paid by the Indian PE to its Head office was in the specific context of Articles 7(2) and 7(3) of the Indo Belgium DTAA. The case of M/s Antwerp Diamond Bank N.\/. (supra) before the Tribunal was a part of the Special Bench decision in Sumitomo Mitsui Banking Corpn. (supra) wherein at para 50, it is held as under: "50. As regards the deduction of interest payable to the head office in the hands of Indian PE for the purpose of computing profits attributable to the said PE. There is no dispute that such deduction is not permissible under the Indian Income tax Act (domestic law) being the payment made to self. Both the Indian PE and the foreign GE of which it is a part are not separate entities for the purpose of taxation under the domestic law and the same being one and the same entity recognized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition of law that in absence of the decision of Hon'ble jurisdictional High Court on an issue, the order of the non-jurisdictional High Court should be followed by the Tribunal. Besides, the Tribunal while passing its order on the issue in the appeals for the assessment years on 19.09.2014 was having no benefit of the decision of Hon'ble Bombay High Court in the case of DIT Vs. M/s. Credit Agricole Indoseuz (supra) dated17.06.2015. In view of this position we are bound to follow the decision of Hon'ble Bombay High Court in the case of DIT Vs. M/s. Credit Agricole Indoseuz (supra) on the issue. We thus respectfully following the ratio laid down in the decision, hold that the authorities below we are not justified in taxing the interest received by the Indian PE / branches of the assessee from its head office / other overseas branches as no person can make profit out of its self. The Assessing Officer is, therefore, directed to delete the addition in question. GroundNo.5 is accordingly allowed." 7.It is not in dispute that issue is covered in favour of the assessee. 8.Considering the facts of the case in the light of the order of the Tribunal dated 25th Janu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information to its overseas branches on activities related to credit rating, monitoring of covenants etc. On receipt of the information from the Indian branches of the assessee, the overseas branches of the bank do the booking of the loan based on the terms and conditions of the approval. The agreement and security documentations are entered between overseas branches and the borrowers. Indian branches receive syndication fees from its head office / other overseas branches for the services rendered by it in relation to ECB. 22.The case of authorities below is that interest income accrues and arises as under: (i)Interest income accrues and arises in India under section 9(1)(v) of the Act. Since the ECB do not form part of the asset base of the PE in India and is not effectively connected with the PE, ECB interest is chargeable to tax under Article 11 of the Treaty between India and Japan (para 9.2 and 9.3 at page nos. 207-208 of appeal set). (ii)No tax credit, however is allowable to the assessee, since, any new claim can be made by the assessee only through a revised return of income (para 9.7 at page 210 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal in the case of Credit Lyonnais (ITA No. 1935/Mum/2007) has held that ECB interest is not attributable to the Indian branches of the assessee and only the fee is taxable in the hands of the Indian branches of the assessee for the role played by it in arranging the ECBs. (v)Without prejudice to the claim of non-taxability of ECB interest income, the AO has erred in not allowing the credit for tax deducted at source on ECB interest. Sample copies of TDS certificates were also furnished to the AO. Further, that the taxes have been deducted is an admitted position since the AO has himself grossed up the entire amount of ECB interest by the amount of tax borne by the borrowers. Once this is so, in view of section 205 of the Act, the necessary credit has to be given to the assessee. (vi)Tax at source has been deducted as evident from the sample copies of TDS certificates furnished before the AO and the AO has also admitted the same by grossing up the ECB interest by the amount of tax borne by the borrowers, therefore, no interest under section 234B of the Act can be levied for the tax demand on account of ECB interest. (vii)Even on merits, interest under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 234B of the Act can be levied where the payment to non-resident payee is subject to tax deduction at source. In the present case, the Assessing Officer himself had admitted by grossing up the ECB interest by the amount of tax borne by the borrowers that tax at source has been deducted. We are thus of the view that no interest under section 234B of the Act can be levied for the tax demand on account of ECB interest and interest under section 234B is also not chargeable since ECB interest received by the assessee from the borrowers was subject to tax deduction at source under section 195 of the Act. The Assessing Officer is thus directed to delete the addition made on account of interest received from ECB given to Indian borrowers. The ground No. 7 is accordingly allowed." 18. Similarly, for the assessment year 2011-12, the same issue had been adjudicated in ITA No. 306/Del/2016 vide order dated 26.04.2017. The relevant findings have been given in paras 9 to 13 which read as under: "9. On ground no. 2 assessee challenged the addition on account of interest received on external commercial borrowings (ECB's) given to Indian borrowers. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is just providing processing services to the assessee for ECB loans being availed by Indian residents and is being remunerated by services fees also. The objection was accordingly rejected. 11.Learned counsel for the assessee reiterated submissions made before authorities below and referred to PB 124 i.e. objection filed before DRP in which the assessee has also explained that bank has offered to tax an amount of Rs. 2.29 Crores as transfer pricing adjustment with respect to ECB syndication fees in its return of income in addition to amount of Rs. 23.56 Crore. Therefore, the bank has already offered to tax an amount of Rs. 25.85 Crores as income which is attributable to the PE in India in respect of interest received / earned by the assesse's branches from Indian borrowers. He has referred to PB 269 which is order of the TPO which also confirmed that assessee has reported Rs. 25.85 Crore on account of international transaction for ECB syndication. He has also referred to PB 332 with regard to the addition of Rs. 10.43 Crore as enhanced u/s 92 C.A. of the Income Tax Act. Learned counsel for the assessee also submitted that identical issue was considered by ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the assessee. 20.Vide ground no. 4 & 4.1, the grievance of the assessee relates to the taxability of interest u/s 244A of the Act on the income tax refund amounting to Rs. 8,00,57,085/-. 21.The ld. Counsel for the assessee submitted that the AO did not charge any interest u/s 244A of the Act in the draft assessment order but the interest had been charged in the final assessment order. It was also stated that this issue has been decided by the ITAT Delhi Bench 'B' (Special Bench) in the case ACIT, Range-I, Dehradun Vs Clough Engineering Ltd. reported at (2011) 11 Taxmann.com 70 and that the said order was followed by the ITAT Bombay Bench in the case of M/s DHL Operations B.V., The Netherlands Vs DCIT has been confirmed by the Hon'ble Bombay High Court in ITA No. 431/2012 vide order dated 17.07.2014 and the said order has been followed by the Hon'ble Bombay High Court in ITA No. 1430/2013 in the case of Director of Income Tax (IT)-I, Mumbai Vs M/s Credit Agricole Indosuez vide order dated 17.06.2015 (copies of the said order were furnished which are placed on record). The CIT DR could not controvert the aforesaid contention of the ld. Counsel for the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, it is held that this part of interest is taxable under paragraph No. 2 of Article XI. Thus, the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with this order." 23.On a similar issue, the Hon'ble Bombay High Court in the case of DIT(IT), Mumbai Vs M/s Credit Agricole Indosuez held as under: "However we find that the decision in Clough Engineering (supra) of the Special Bench had been followed by the Tribunal in ITA No. 183/Mum/2010 - [M/s DHL Operations B. V., The Netherlands Vs. Dy. Director of Income Tax] . The issue before the Tribunal was the rate of tax on which Income tax refund is to be taxed i.e. on the basis of the Articles of DTAA or under the Act. The Tribunal on examination of the DTAA in the above case concluded that interest on income tax refund is not effectively connected with the PE (Permanent Establishment) either on asset test or activity test. Therefore, taxable under the Article 11(2) of IndoNetherlands tax treaty. The Revenue carried the aforesaid decision of M/s DHL Operations B.V. (supra) in appeal to this Court, being Income Tax Appeal No.431 of 2012. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f consistency, this issue is required to be decided in favour of the assessee and no addition could have been made on account of receipt of Counter Guarantee Commission. The reliance was placed on the judgment of the Hon'ble Supreme court in the case of Bharat Sanchar Nigam Ltd. and Another Vs Union of India and Others reported at (2006) 2 SCC 1. 31.In her rival submissions, the ld. CIT DR supported the orders of the AP/TPO. 32.We have considered the submissions of both the parties and perused the material available on the record. In the present case, it appears that the AO/TPO collected comparable uncontrolled price (CUP) data by issuing the notices u/s 133(6) of the Act and used the said data for the purpose of determining the ALP of the international transactions entered into by the assessee with its AE. It is well settled that nobody should be condemned unheard. In the present case, it is alleged that the AO/TPO did not confront the assessee with the data obtained by issuing the notices u/s 133(6) of the Act while determining the arm's length price. We, therefore, deem it appropriate to set aside this issue back to the file of the AO/TPO to be decided afresh after con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal has dealt with this issue in the appeal for the assessment year 2007-08 vide para numbers 87 and 87.1 of the order, which has been followed on the issue in the assessment year 2008-09. The Tribunal while referring Explanation (1) to section 90(2) has rejected the contention of the assessee that the applicable rate of tax on the income of the assessee attributable to its PE in India cannot exceed the applicable rate of tax in the case of domestic companies. In the said Explanation (1) to section 90(2) it has been declared that the charge of tax in respect of foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company. Thus the grievance of the assessee that the authorities below have not adjudicate the issue under the provisions of Article 24 of DTAA does not stand. The ground is accordingly rejected." 19.In view of the submissions of learned counsel for the assessee in the light of the order of the Tribunal, it is admitted fact that the issue is covered against the assessee by order of ITAT Delhi Bench in the case of same assessee (Supra). This gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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