TMI Blog2024 (1) TMI 414X X X X Extracts X X X X X X X X Extracts X X X X ..... al are allowed. Income taxable in India - interest paid by Indian branch to its Head Office /Overseas branches is taxable in the hands of assessee under the provisions of DTAA - HELD THAT:- We find that similar issue was raised in the appeal by the Revenue [ 2023 (4) TMI 1284 - ITAT MUMBAI] analyzed the issue of interest paid by Indian Branchto Head Office/ Overseas Branches with reference to provisions of the Act as well as DTAA and concluded such payment of interest by Indian Branch is not chargeable to tax in India. In the absence of any contrary material we see no reason to take a different view, hence, ground No.3 of the appeal is allowed for parity of reasons. TP adjustment made in respect of correspondent banking services - HELD THAT:- It is the case of Transfer Pricing adjustment and not a case of determination of taxability of income in international taxation, as has been tried to be portrayed by the assessee. TPO while analyzing the transaction came to the conclusion that if the same services were to be rendered by the Indian Branch in an uncontrolled environment with the third party, the Indian Branch would have added markup to the cost, hence, the payment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issed the ground raised in appeal by the Department. No fresh material has been placed on record by the Revenue to distinguish the findings of the Co-ordinate Bench on this issue, hence, following the decision of Co-ordinate Bench ground No.3 of appeal is dismissed. - Shri Vikas Awasthy, Judicial Member And Shri Gagan Goyal, Accountant Member For the Assessee : Shri Nishant Thakkar with Ms. Jasmin Amasadvala For the Revenue : Shri Soumendu Kumar Dash Shri Anil Sant ORDER PER VIKAS AWASTHY, JM: These cross appeals by the assessee and the Revenue are directed against the order of Commissioner of Income Tax(Appeals)-XXXIII, Mumbai [in short the CIT(A) ] dated 25/03/2009, for the Assessment Year 2004-05. 2. The assessee in appeal has assailed the order of CIT(A) on following grounds: 1. In upholding, in principle, the Assessing Officer's action for disallowance under section 14A of the Act. 2. In holding that Rule 8D of the Income-tax Rules, 1962 ('Rules') is retrospectively applicable and directing the Assessing Officer to compute the amount to be disallowed under section 14A of the Act, in accordance with Rule 8D of the Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und raised in appeal by the Revenue. There is no change in facts in the impugned Assessment Year. 3.2 In respect of ground No.4 of appeal relating to correspondent banking charges the ld.Authorized Representative of the assessee has filed written submissions. The relevant extract of the same is reproduced herein below: 2. While the Appellant has added back in the computation of income, the entire cost of rendering correspondent banking services of Rs. 25,10,333/-, the Transfer Pricing Officer ( TPO ) held that the Appellant ought to have charged a mark-up of 23.43% and ought to have reduced Rs. 30,98,504/-. The TPO has consequently made an adjustment of Rs. 5,88,I71/- since Rs. 25,10,333/-has already been reduced by the Appellant. 3. The Appellant's case before the Assessing Officer [ AO ] and Commissioner of Income Tax(Appeals) [ CIT(A) ] is that in view of Article 7(3) of the DTAA between India and Canada, insofar as transactions between the PE and HO/Foreign Branches are concerned (i.e. intra-organization transactions), the same can be accounted for on cost basis alone. Relevant portion of Article 7(3) reads as follows In the determination of the profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Software and Services Companies reported in [2012] 345 ITR 362 (Del.). The ration that can be culled out from the said decisions is that specific services performed is used in contra distinction to generic services for which there is no identifiable separate cost/recovery. It is not what the CIT(A) says, viz. that specific services performed are such that are outside the order course of business, not continuous but a one time service . Specific services performed can very much be services which are in the ordinary course of business but are such for which costs are separately identifiable. Viewed thus, it is submitted by the Appellant that a charge of mark-up would be amounts charged for specific services (of correspondent banking) performed by the Branch (PE) for its HO/other branches. That being so, no account could be taken of the same in view of the specific provisions of Article 7(3) of the India -Canada DTAA. 9. The Appellant submits that Article 7(3) of the India -Canada DTAA in substance requires that effect of the costs of services to HO/'foreign branches must be factored only at cost, thereby nullifying the effect thereof in the computation of the profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trovert the fact that own funds of assessee are much more than the investments made. There being no distinction in facts in the impugned assessment year, following the decision of Co-ordinate Bench inassessee's own case, the disallowance made u/s. 14A of the Act is directed to be deleted for parity of reasons. As regards application of Rule 8D, it is no more res-integra that Rule 8D would apply from Assessment Year 2008-09 onwards and would not apply retrospectively.{Re. Godrej Boyce Mfg. Co. Ltd. vs. DCIT, 328 ITR 81(Bom)]. Hence, the provisions of Rule 8D cannot be invoked in the impugned Assessment Year. In the result ground No.1 2 of appeal are allowed. 6. In ground No.3 of appeal, the assessee has assailed the addition on the ground that interest paid by Indian branch to its Head Office /Overseas branches is taxable in the hands of assessee under the provisions of DTAA. We find that similar issue was raised in the appeal by the Revenue in ITA No.651/Mum/2007 (supra). The Co-ordinate Bench decided the issue in favour of assessee by observing as under: 8.2 Both sides heard. The Assessing Officer made disallowance of interest payment invoking the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Special Bench, ground No.3 raised in appeal by the Revenue is dismissed and ground No.1 in the appeal of assessee is allowed. The Special Bench has analyzed the issue of interest paid by Indian Branchto Head Office/ Overseas Branches with reference to provisions of the Act as well as DTAA and concluded such payment of interest by Indian Branch is not chargeable to tax in India. In the absence of any contrary material we see no reason to take a different view, hence, ground No.3 of the appeal is allowed for parity of reasons. 7. In ground No.4 of appeal, the assessee has assailed Transfer Pricing adjustment made in respect of correspondent banking services. A perusal of the order dated 18/12/2006 passed by TPO shows that the assessee had furnished Transfer Pricing study in respect of international transaction of correspondent banking services. The TPO made adjustment by adding 23.43% markup to the cost. Before the TPO the assessee had never pleaded that the transaction is covered by Article -7(3) of the India-Canada DTAA. While passing the assessment order, the Assessing Officer made addition of T.P adjustment made by TPO. In First Appellate proceedings, the assessee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, whether incurred in the State in which the permanent establishment is situated or elsewhere as are in accordance with the provisions of and subject to the limitations of the taxation laws of that State. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than as a reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authorized Representative of the assessee submitted at the outset that the grounds of appeal raised by the Revenue are similar to the grounds raised in ITA No.651/Mum/2007 for Assessment Year 2002-03(supra). There being no change in the facts, appeal of the Revenue is liable to be dismissed considering findings of the Tribunal on the similar set of facts in Assessment Year 2002-03. 11. The Ld. Departmental Representative strongly supported the findings of the Assessing Officer. However, he fairly stated that the issues raised by the Department in appeal are similar to the one considered by the Tribunal in assessee s own case in appeal by the Department for Assessment Year 2002- 03. 12. Both sides heard. The Revenue in ground No.1 of appeal has assailed the findings of CIT(A) in deleting disallowance of interest expenditure towards earning income on foreign currency loan. We find that this issue is recurring and was considered by the Tribunal in Assessment Years 1997-98, 1998-99 and 2002-03 in appeal by the Department for the respective Assessment Years. The Tribunal in Assessment Year 2002-03 decided the issue against the Department holding as under: 7.1 We have heard th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue holding as under: 11.3 Both sides heard . Undisputedly, the salary expenditure of expatriate employees was for rendering services wholly and exclusively for assessee in India. The quantum of expenditure and payment of salary to employees expatriated to India by head office has not been doubted by the Assessing Officer. The solitary objection of Assessing Officer for disallowing expenditure is that no debit note was raised by head office . The CIT(A) has negated the objection raised by the Assessing Officer by placing reliance on the decision in the case of Kedarnath Jute Manufacturing Co. 82 ITR 353(SC). Regarding applicability of section 44C of the Act, the CIT(A) placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of Emirates Commercial Bank (supra) to conclude that payment of salary to expatriate employees paid by the head office is an allowable expenditure in view of Article 7(3) of the DTAA and section 37 of the Act and such expenditure does fall within the ambit of section 44C of the Act. We find no infirmity in the findings of CIT(A) on this issue, hence, ground No.6 of the appeal is dismissed No contrary material has b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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