2014 (7) TMI 1305 - AT - Income Tax

Not accepting the claim that the rate of tax applicable to domestic companies and/or co-operative banks also applicable to the Appellant, in accordance with the provisions of Article 26 (Non-discrimination) of the double taxation avoidance agreement between India and the Republic of France ('India - France tax treaty' - HELD THAT - Issue is covered, against the assessee, by a series of orders passed by the various co-ordinate benches in assessee s own case as also in the cases of Chohung Bank vs. DDIT 2005 (11) TMI 372 - ITAT MUMBAI and JCIT vs. Sakura Bank Limited 2005 (12) TMI 465 - ITAT MUMBAI .In this view of this undisputed position and the conclusions arrived at by the learned CIT(A) being in harmony with the views of the co-ordinate benches, we reject the grievance of the assessee. No interference is thus called for. Taxing the interest paid by the Indian branch of the assessee to its head office and overseas branches applying the provisions of Article 12 (Interest of India France Tax Treaty) - HELD THAT - Since the issue under consideration is covered not only by the order of the Tribunal in assessee s own case for the AY 2001-02 to 2003-04 but also by the order of the ITAT s Special Bench in the case of Sumitomo Mitsui Banking Corporation 2012 (4) TMI 80 - ITAT MUMBAI we hold that the department was not justified in subjecting to tax the interest paid by the Indian Branch of the assessee to its head office and overseas branches applying the provisions of Article 12 of India-France Tax Treaty. Income accrued in India - data processing fees paid by the India branch office of the appellant to its Singapore bench, as income of the appellant under article 13 (royalties and fees for technical 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 - This issue is also covered by the order of the Tribunal in assessee s own case for AY 2001-02 to 2003-04 wherein interest paid by assessee to Head Office/overseas branches was held to be not liable to tax Non granting credit for tax deducted at source on interest on sub-ordinated debt, paid by Indian branches of the assessee to its head office - HELD THAT - Interest was allowed as tax has been deducted on payment of interest to the overseas/head office. AO held that computation of profit of PE is to be done as per Article 7(3)(a) of the DTAA. As per the AO, the income of overseas/head office, would be taxable under Article 12 of the Treaty. Accordingly, he added an amount of ₹ 3,09,48,018/- to the total income of the assessee as interest income of the overseas branches/head office. The AO held that assessee will be allowed credit of tax deducted on payment to head office/overseas branches. However, in spite of such observation, no credit for TDS was allowed. In the interest of justice, we restore this issue to the file of the AO with a direction to verify the tax deducted at source and to give respective credit after allowing proper opportunity to the assessee.

Issues Involved:
1. Applicability of tax rate for domestic companies and cooperative banks to the appellant under the India-France tax treaty.
2. Taxation of interest paid by the Indian branches to the head office and overseas branches under the India-France tax treaty.
3. Taxation of data processing charges paid to the Singapore branch under the India-France tax treaty.
4. Credit for tax deducted at source on interest on subordinated debt paid by Indian branches to the head office.
5. Computation of interest under section 234C of the Income-tax Act.

Detailed Analysis:

Issue 1: Applicability of Tax Rate for Domestic Companies and Cooperative Banks
The appellant claimed that the tax rate applicable to domestic companies and cooperative banks should also apply to it under Article 26 (Non-discrimination) of the India-France tax treaty. The tribunal noted that this issue had been previously decided against the appellant in earlier assessment years (1996-97, 1997-98, 1998-99, and 2000-01). Both the appellant's representative and the revenue acknowledged that the issue was covered by these prior decisions. Consequently, the tribunal dismissed this ground, following the precedent set in the appellant's own case.

Issue 2: Taxation of Interest Paid by Indian Branches to Head Office and Overseas Branches
The appellant contested the taxation of interest paid by its Indian branches to its head office and overseas branches, arguing that such interest should not be taxed under Article 12 (Interest) of the India-France tax treaty. The tribunal referred to its own decisions in the appellant's cases for the assessment years 2001-02 to 2003-04, where it had ruled in favor of the appellant. Additionally, the tribunal cited the Special Bench decision in Sumitomo Mitsui Banking Corporation, which held that such interest payments are not taxable as they are considered payments to self. The tribunal rejected the revenue's arguments regarding mutuality and commerciality, distinguishing the case from the Supreme Court decision in Bangalore Club. Thus, the tribunal ruled that the interest paid by the Indian branches to the head office and overseas branches is not taxable.

Issue 3: Taxation of Data Processing Charges Paid to the Singapore Branch
The appellant challenged the taxation of data processing charges paid to its Singapore branch, arguing that these should not be taxed under Article 13 (Royalties, fees for technical services, and payments for use of equipment) of the India-France tax treaty. The tribunal noted that this issue was also covered by its previous decisions in the appellant's cases for the assessment years 2001-02 to 2003-04. The tribunal reiterated that the payments to the Singapore branch for data processing were not liable to tax, following the precedent and the Special Bench decision in Sumitomo Mitsui Banking Corporation.

Issue 4: Credit for Tax Deducted at Source on Interest on Subordinated Debt
The appellant argued that it was not granted credit for tax deducted at source on interest on subordinated debt paid by its Indian branches to the head office. The tribunal observed that while the Assessing Officer (AO) had acknowledged the deduction of tax on such payments, no credit was actually given. The tribunal directed the AO to verify the tax deducted at source and grant the appropriate credit after providing the appellant with an opportunity to present its case.

Issue 5: Computation of Interest Under Section 234C
The appellant contended that the AO should compute interest under section 234C of the Income-tax Act based on the returned income. The tribunal noted that this issue was consequential and directed the AO to recompute the interest accordingly.

Conclusion:
The appeal was allowed in part, with the tribunal ruling in favor of the appellant on the issues of taxation of interest payments and data processing charges, while directing the AO to verify and grant credit for tax deducted at source and recompute interest under section 234C. The tribunal dismissed the ground related to the applicability of the tax rate for domestic companies and cooperative banks. The order was pronounced on July 16, 2014.

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