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TMI Blog2019 (3) TMI 1834X X X X Extracts X X X X X X X X Extracts X X X X ..... ased and determined on the usage of space / capacity and other key determinants towards usage of ICT infrastructure? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the usage of the ICT infrastructure of the Bank by the Branch did not amount to "use" or "right to use" as per the provisions of Article 12(3) of the India - Belgium DTAA? 3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that Indian branch of the assessee - Bank was not obliged to deduct tax at source while making payment for 'Data Processing Cost' of Rs. 1,15,51,228/- to the Head Office and that Section 40(a)(ia) of the Act is not applicable to this payment? 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the definition u/s 9(l)(vi) of the Act read with Explanation 4 & 5, would not be applicable in case where 'Royalty' has been defined under the India - Belgium DTAA? 5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the claim of interest paid by the Branch Office (BO) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in not making the disallowance u/s 14A read with Rule 8D for earning of exempt income on the basis of the Principle of Mutuality by the HO by following the order of the Special Bench of the ITAT, Mumbai in the case of Sumitomo Mitsui Banking Corporation, when the HO and the BO are fungible entities. 11. The Appellant prays that the order of the CIT(A) be set aside on the above ground and that of the Assessing Officer be restored. 12. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 3. The brief facts of the case are that the assessee is a banking company incorporated in Belgium with limited liability, was granted license to carry on banking business in India by the Reserve Bank of India. The assessee has filed return of income for the A.Y.2013-14 on 29/11/2013 declaring total income of Rs. 1,79,30,700/-. The assessment was completed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 determining the total income at Rs. 15,00,44,453/-, interalia, by making additions towards disallowance of data processing cost u/s.40(a)(i) of the Income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt provisions of the Act, and also scope of Article 12(3)(a) of DTAA between India and Netherlands held that data processing cost did not constitute royalty and is merely reimbursement of expenses not liable for withholding tax and therefore, no disallowance could be made u/s.40(a)(i) of the Income Tax Act, 1961. Relevant paragraphs of the Tribunal order are as under:- "2.1. The facts in brief are that - assessee paid Data Processing Cost of Rs. 88,26,181/- to its HO, which according to the AO is a copy right protected intellectual property, known as ICT Infrastructure, which is IT Hardware imbedded with software and accordingly, the AO came to the conclusion that the it is a Royalty as per Clause-(iii), Explanation-2 to Section 9(1)(vi) of the Act. Since the assessee has not deducted any tax at source, the AO disallowed the same under the provisions of Section 40(a)(ia) of the Act and added to the income of the assessee. 2.2. At the outset, Ld. Counsel for the assessee pointed out that the issue is squarely covered in favour of assessee in assessee's own case by the decision of the Co-ordinate Bench in earlier years i.e., AYs. 2004-05, 2006-07 & 2007-08, wherein the Co-ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the materials available on record. The issue of deductibility of interest paid to head office is a subject matter of consideration by the Co-ordinate Bench in assessee's own case for earlier years. The Tribunal after considering relevant facts in the light of the provisions of Article 11 of DTAA between India and Netherlands hold that interest paid by the branch office to head office is not chargeable to tax in view of the specific provisions of Article 11 of DTAA between India and Netherlands. The relevant findings of the Tribunal are as under:- "3. As far as the Ground No. 2 is concerned, the facts in brief are that assessee-branch in India during the year has paid interest of Rs. 11,94,79,875/- to its HO which is not taxable in the hand of H.O. under the Income Tax Act and therefore not offered to tax as income of the H.O. The AO disallowed the same on the ground that the decision of the ITAT in the case of Mitsui Bank [35 TTJ 426] and ITAT, Calcutta in the case of ABN AMRO Bank [97 ITD 89] and also that the DRP has disallowed the same in AYs. 2006-07 & 2007-08 though the credit of TDS deducted of Rs. 1,21,04,206/- u/s. 195 of the Act was allowed which was deducted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airly accepted that the issue is covered in favour of the assessee. 16. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The issue involved in the present appeal i.e., disallowance of expenditure incurred in relation to exempt income u/s.14A r.w.r. 8D is no longer res integra. The Co-ordinate Bench of ITAT, Mumbai 'I' Bench, in assessee own case considered similar issue in light of provisions of Section 14A r.w.r. 8D and by following the decision of ITAT Delhi Bench in the case of Sumitomo Corporation vs. DCIT 114 ITD 61 held that when the assessee has not claimed reduction towards interest paid to head office as its expenditure, the question of apportionment interest for exempt income and taxable income does not arise, consequently no disallowance could be made u/s.14A of the Income Tax Act, 1961. The relevant findings of the Tribunal are as under:- "4.1. The facts in brief are that the assessee during the course of assessment proceedings made disallowance u/s. 14A r.w. Rule 8D to the tune of Rs. 2,15,61,865/-, comprising proportionate disallowance of interest of Rs. 1,34,59,230/- under rule 8D(2)(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one can refer to the following cases wherein the said proposition has been upheld: * ClT v/s. Delile Enterprises (ITA No 110 of 2009) (Born) * Cheminvest Ltd., v/s. CIT (2015) 378 ITR 33 (Delhi) * ACIT vs. Lafarge India Holding (P) Ltd., (2008)-(19 SOT 121) (Mum Trib) * CIT v/s Shivam Motors Pvt Ltd., (2015) 230 Taxman 63 (Allahabad) * CIT v/s. Corrtech Energy Pvt. Ltd.. (233 Taxman 130) (Gujarat) * ACIT v/s. Mr. M. Baskaran (ITA No.1717/Mds/2013) * CIT v/s.Lakhani Marketing Inc (2015) 226 Taxman 45 (P & H) * Huntsman International (India) P. Ltd., v/s DCIT (2016] 66 taxmann.com 325 (Mum, Trib) 6. Contention of assessee before us was that no expenditure has been incurred or claimed by the Indian Branch in respect of interest earned by the Head Office (which is not taxable). Accordingly, it was pleaded that provisions of Section 14A are not applicable to the said case. 7. We found substantial merit in the contention of learned AR, however, in the interest of justice, we restore the matter back to the file of the AO to find out if assessee was in receipt of any exempt income vis-a-vis interest paid to head office. If the AO found that assessee was not in receipt of any exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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