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2023 (3) TMI 193 - AT - Income TaxRate of tax applicable to domestic companies and/ or co-operative banks - Scope of provisions of Article 26 (Non-discrimination) of the India France tax treaty - assessee is a commercial bank having its head office in France having 8 branches in India - assessee is involved in normal banking activities including financing of foreign trade and foreign exchange transactions - HELD THAT - We find that the coordinate bench of the Tribunal in assessee s own case in BNP Paribas vs DCIT, 2021 (1) TMI 1296 - ITAT MUMBAI decided a similar issue against the assessee by following the judicial precedents in assessee s own case wherein referred to the Explanation in the Section 90, inserted in the IT Act with retrospective effect from 01-04- 1962 as per which the higher tax rate in case of foreign company, should not be regarded as violation of non-discrimination clause. The Tribunal also referred to the judgment of the Hon'ble Supreme Court in the case of ACIT Vs. J.K. Synthetics 2001 (2) TMI 17 - SUPREME COURT . The Tribunal accordingly, rejected the ground raised by the assessee. Ground no.1 raised in assessee s appeal is dismissed. Taxability of data processing fees paid by the Indian branch offices of the assessee to its Singapore branch - HELD THAT - As decided in own case 2019 (8) TMI 1856 - BOMBAY HIGH COURT what was being paid by the Indian entity to its Singapore branch was only in the nature of reimbursement of expenses. This finding of fact was not challenged in the Revenue's appeal for Assessment Year 2006-07 or in these appeals for Assessment Year 2008-09 and 2009-10. The Revenue has not been able to show any difference in facts and/or in law in the subject Assessment Years to that in Assessment Year 2006- 07. Therefore, the above decision of this Court for Assessment Year 2006-07 will apply in these two Appeals. Ground no.2 raised in assessee s appeal is allowed. Taxability of interest payable/paid by the Indian branch office to the head office and its other overseas branches - AO held that the interest income of the head office/overseas branches would be taxable under Article 12 of the India-France DTAA at the rate of 10% - HELD THAT - In view of Article 7 of the India-France DTAA, the Revenue though has rightly accepted that the fiction of hypothetical independence or a separate entity approach, as stated in this Article, comes into play for the limited purpose of computing the profit attributable to the PE. However, extended this fiction of hypothetical independence also for the computation of profit of the head office, for bringing to tax the interest received from the Indian branch office under the provisions of the Act. We are of the considered opinion that the latter approach is flawed. This aspect was extensively dealt with by the coordinate bench of the Tribunal in assessee s own case in BNP Paribas SA 2016 (5) TMI 428 - ITAT MUMBAI , for the assessment year 2004-05. In the aforesaid decision, the coordinate bench held that the principles for determining the profits of the PE and GE/head office are not the same, and the fiction of hypothetical independence does not extend to the computation of the profit of the GE/head office. Interest paid by the Indian branch/PE to the head office/GE is not taxable in India independent of the decision of the Special Bench of the Tribunal in Sumitomo Mitsui Banking Corporation 2012 (4) TMI 80 - ITAT MUMBAI . Thus, in view of the above, even though the submission of the Revenue that the amendment by Finance Act 2015, whereby Explanation to section 9(1)(v) of the Act was inserted specifically to overcome the decision in Sumitomo Mitsui Banking Corporation (supra), is accepted, the same would still not lead to taxation of the interest paid to the head office/overseas branches under the provisions of the DTAA. Accordingly, in view of aforesaid findings and respectfully following the judicial precedent in assessee s own case cite supra, we direct the AO to delete the addition on account of interest income received by the head office/overseas branches. As a result, ground no.4 raised in assessee s appeal is allowed.
Issues Involved:
1. Rate of tax applicable to the assessee. 2. Taxability of data processing fees paid by the Indian branch offices to the Singapore branch. 3. Levy of surcharge and education cess on tax computed under Article 13 of the India-France DTAA. 4. Taxability of interest payable/paid by the Indian branch office to the head office and its other overseas branches. 5. Short grant of credit of TDS. 6. Computation of interest under sections 234B, 234C, and 234D of the Act. 7. Initiation of penalty proceedings under section 270A of the Act. Detailed Analysis: 1. Rate of Tax Applicable to the Assessee: The issue pertains to whether the rate of tax applicable to domestic companies and/or co-operative banks should also apply to the assessee under Article 26 (Non-discrimination) of the India-France tax treaty. The Tribunal found that this issue has been consistently decided against the assessee in previous years by the coordinate bench. The Tribunal upheld these decisions, dismissing the ground raised by the assessee. 2. Taxability of Data Processing Fees: The assessee argued that the data processing fees paid to its Singapore branch should not be taxable in India as it constitutes a transaction between branches of the same legal entity. The Tribunal noted that this issue had been decided in favor of the assessee by the Hon'ble jurisdictional High Court and the coordinate bench of the Tribunal in previous years. The Tribunal followed these precedents and directed the AO to delete the impugned addition, allowing the ground raised by the assessee. 3. Levy of Surcharge and Education Cess: This issue pertains to the levy of a 5% surcharge and a 3% education cess on tax computed under Article 13 of the India-France DTAA. The Tribunal noted that this ground would be rendered academic if the data processing fees issue (ground no.2) was decided in favor of the assessee. Since ground no.2 was decided in favor of the assessee, ground no.3 was dismissed as academic. 4. Taxability of Interest Payable/Paid: The issue involves the taxability of interest paid by the Indian branch office to the head office and other overseas branches. The Tribunal observed that this issue had been decided in favor of the assessee in previous years by the coordinate bench. The Tribunal held that the interest paid by the Indian branch office to the head office/overseas branches is not taxable in India under the provisions of the DTAA, directing the AO to delete the addition. The ground raised by the assessee was allowed. 5. Short Grant of Credit of TDS: The assessee contended that there was a short grant of credit of TDS. The Tribunal restored this issue to the file of the AO with the direction to grant TDS credit in accordance with the law after conducting the necessary verification. The ground was allowed for statistical purposes. 6. Computation of Interest under Sections 234B, 234C, and 234D: These grounds pertain to the incorrect computation of interest under sections 234B, 234C, and 234D of the Act. The Tribunal noted that these issues are consequential in nature and allowed the grounds for statistical purposes. 7. Initiation of Penalty Proceedings: The issue involves the initiation of penalty proceedings under section 270A of the Act. The Tribunal found this ground to be premature and dismissed it. Conclusion: The Tribunal's judgment addressed multiple issues concerning tax rates, taxability of data processing fees, interest payments, and procedural matters like TDS credit and interest computation. The Tribunal largely followed precedents set in previous years, providing relief to the assessee on several grounds while dismissing others as either academic or premature. The appeals were partly allowed for statistical purposes.
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