TMI Blog2019 (1) TMI 1831X X X X Extracts X X X X X X X X Extracts X X X X ..... on of interest paid by the branch office to its HO considering the fact that the assessee a banking company. The Calcutta High Court has held in the case of ABN Amro Bank [ 2010 (12) TMI 340 - CALCUTTA HIGH COURT] ] where an assessee is an branch (PE) of non resident entity i.e its Head Office(G.E.) and the interest paid by the P.E. to G.E. allowable since branch (P.E.) is separate and distinct from head office(G.E.)for the purpose of assessment under the I.T.Act and also held that interest earned by the head office (G.E.) from branch office(P.E.) is not chargeable to tax in view of the specific provisions of Article 11 of DTAA between India and Netherland. Therefore, respectfully following the decisions of the Co-ordinate Benches, we dismiss the ground raised by Revenue. Disallowance u/s. 14A - CIT(A) deleted the disallowance on the ground that if there is any exempt income earned by the branch which is exempt under the Income Tax Act, only then the provisions of Section 14A could be applied - HELD THAT:- As relying on own case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable and consequently no disallowance is called for under the provisions of Section 40(a)(ia) of the Act. 2.1. The facts in brief are that - assessee paid Data Processing Cost of ₹ 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-ordinate Bench has held that Royalty cannot be held to be covered under the scope of Article 12(3)(a) of DTAA (Double Taxation Avoidance Agreement) between India and Netherlands. Ld. CIT(A) following the order of ITAT in these years held that Data Processing Cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that the assessee a banking company. The Calcutta High Court has held in the case of ABN Amro Bank 198 taxman 376 where an assessee is an branch (PE) of non resident entity i.e its Head Office(G.E.) and the interest paid by the P.E. to G.E. allowable since branch (P.E.) is separate and distinct from head office(G.E.)for the purpose of assessment under the I.T.Act and also held that interest earned by the head office (G.E.) from branch office(P.E.) is not chargeable to tax in view of the specific provisions of Article 11 of DTAA between India and Netherland. Therefore, respectfully following the decisions of the Co-ordinate Benches, we dismiss the ground raised by Revenue. 4. The issue raised in Ground No. 3 is against deletion of disallowance u/s. 14A of the Act. 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 ₹ 2,15,61,865/-, comprising proportionate disallowance of interest of ₹ 1,34,59,230/- under rule 8D(2)(ii) and ₹ 81,02,635/- under Rule 8D(2)(iii). The said disallowance was made by the AO on the ground that the assessment of both HO and branch in I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 income, no disallowance is to be made. Accordingly AO is directed to decide afresh after verification. 8. Learned DR fairly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee submitted to the Bench that the issue in the present case is squarely covered in favour of assessee, by the following decisions of Co-ordinate Benches, wherein it has been held that interest on income tax return is chargeable to tax in terms of Article 11 of DTAA by relying on the following decisions: i. MSM Satellite Singapore Pte. Ltd Vs. DCIT (ITA No. 1718/Mum/2015, dated 21 June 2017); ii. ACIT Vs. Clough Engineering Ltd., [138 TTJ 385] (Delhi) (SB); 5.3. Ld. DR on the other hand, relied on the grounds of appeal and the order of AO. 5.4. Having heard the rival contentions, material on record and the decisions relied upon, we find that the issue in the present case is whether the interest on income tax refund of ₹ 21,24,618/- is to be charged @15% or @40% has been adjudicated by the coordinate benches to be taxable at 15% plus surcharge. After perusing the facts of the case of assessee and Article 11 of DTAA, we are of the considered view that interest income on income tax refund has to be taxed at the rate which is beneficial to assessee as the assessee is tax agent of Belgium. Apparently the beneficial rate is 15% under Article 11(2) of DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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