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2016 (3) TMI 1356 - AT - Income TaxNot accepting the claim of rate of tax applicable to domestic companies and/or co-operative banks 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. 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 - As decided in own case 2014 (7) TMI 1305 - ITAT MUMBAI payment on account of data processing charges paid to BNP Singapore cannot be taxed in the hands of the assessee. The conclusion arrived at by the coordinate bench, whatever may have been the path traversed by the coordinate bench to reach this point, are the same as arrived at by us. Of course, our reasons are different, as set out earlier in this order, but that does not really matter as on now. We fully agree with the conclusions arrived at by the coordinate bench. We, therefore, direct the Assessing Officer to delete the impugned disallowance
Issues Involved:
1. Applicability of the domestic tax rate to the appellant under Article 26 of the India-France tax treaty. 2. Taxability of data processing fees paid by the India branch office to its Singapore branch under Article 13 of the India-France DTAA. Issue-wise Detailed Analysis: 1. Applicability of Domestic Tax Rate: The first issue raised by the assessee was that the rate of tax applicable to domestic companies and/or co-operative banks for the Assessment Year 2008-09 should also apply to the appellant, in accordance with the provisions of Article 26 (Non-discrimination) of the double taxation avoidance agreement (DTAA) between India and France. The learned counsel for the assessee acknowledged that this issue had been consistently decided against the assessee in previous cases, including Chohung Bank vs. DDIT and JCIT vs. Sakura Bank Limited. Consequently, the tribunal found no reason to interfere with the CIT(A)'s decision, which was in line with the views of the co-ordinate benches. Therefore, ground no. 1 was dismissed. 2. Taxability of Data Processing Fees: The second issue involved the taxability of data processing fees paid by the India branch office of the appellant to its Singapore branch, amounting to ?13,10,97,790, under Article 13 (royalties and fees for technical services) of the India-France DTAA. The Assessing Officer (AO) had added this amount to the income of the head office in India, treating it as 'fees for technical services' under Article 13 of the DTAA and supported by CBDT circular No. 740. The CIT(A) upheld this addition, relying on directions from the DRP for the assessment year 2006-07. However, the tribunal observed that the CBDT circular's view of treating the branch as a separate entity for taxation purposes had not been favored by judicial forums. The Supreme Court in CIT Vs Hyundai Heavy Industries Co Ltd held that the taxable unit is the foreign company, not its branch or PE in India. Therefore, an internal charge by the Indian PE does not result in income for the French GE. The tribunal also noted that the services were rendered by BNP Singapore on a cost-plus 5% markup basis, and the BNP India had claimed deduction only for actual costs, with the markup already disallowed. The tribunal emphasized that an internal charge within a GE does not yield income but is a notional adjustment for computing profit attributable to the PE. Article 13(5) of the DTAA states that royalties and fees for technical services connected with a PE should be taxed under Article 7, which deals with business profits attributable to the PE. Since this had already been done, no further addition was warranted. The tribunal further noted that the DRP's directions for the assessment year 2006-07 had been disapproved by a coordinate bench, which held that interest paid by the Indian branch to the head office or overseas branches was not taxable in India. This position was supported by the Special Bench of the Tribunal in Sumitomo Mitsui Banking Corporation, which held that payments to the head office or other branches did not give rise to taxable income in India. Following these precedents, the tribunal concluded that the data processing charges paid to BNP Singapore could not be taxed in the hands of the assessee. The tribunal directed the AO to delete the disallowance of ?13,10,97,790, allowing ground no. 2. Conclusion: The appeal was partly allowed, with the tribunal dismissing the first ground and allowing the second ground, thereby providing relief to the assessee by directing the deletion of the disallowance related to data processing fees. The judgment was pronounced on 31st March 2016.
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