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2024 (6) TMI 673 - AT - Income TaxValidity of National Faceless Assessment Centre using a notice u/s 143(2) - HELD THAT - Notice issued u/s 143(2) in the case of the assessee by the prescribed authority i.e NaFAC is in accordance with the provision of the Act therefore we don t find any merit in this ground of appeal of the assessee and the same stand dismissed Rate of tax applicable to domestic company and/or cooperative bank in accordance with Article 26 of the India-France Tax Treaty - HELD THAT - As decided in 2023 (3) TMI 193 - ITAT MUMBAI for A.Y.2017-2018 Tribunal 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 accordingly rejected the ground raised by the assessee. It is evident that the issue is recurring in nature and it is squarely covered by the decision of the ITAT in the proceeding assessment year as discussed supra in this order therefore following the decision of the coordinate bench of the Tribunal as referred above this ground of appeal no. 2 of the assessee is dismissed. Taxability of data processing fees paid by the Indian branch of the assessee to its Singapore branch - Tribunal in assessee s own case 2023 (3) TMI 193 - ITAT MUMBAI for A.Y.2017-2018 as well as the order of the Special Bench of the Tribunal in the case of Sumitomo Mitsu Banking Corporation 2012 (4) TMI 80 - ITAT MUMBAI we hold that the department was not justified in taxing the data processing charges to the Singapore Branch of the assessee by applying the provisions of Article 13 of the India-France Tax Treaty. Interest payable/paid by the Indian branch offices of the assessee to the head office and its other overseas branches as chargeable to tax - We consider that the similar issue on identical fact has been adjudicated in favour of the assessee 2023 (3) TMI 193 - ITAT MUMBAI decided that as per Article 12(1) of the DTAA interest arising in a contracting state and paid to a resident of the other contracting state may be taxed in the contracting states in which it arises and the tax so charged shall not exceed 10% of the gross amount of the interest. However the provision of Article 12(5) provides that provision of Article 12(1) and Article 12(2) shall not apply if the beneficial owner of the interest carrying on business in the other contracting state through a permanent establishment and the debt claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such cases provision of Article 7 or Article 15 as the case may be shall apply. Since the assessee being a head office of the banking company and having branches in the form of permanent establishment in India in such cases the provision of Article 7 is to be applied. The provision of Article 12 and 7 of the India-France DTAA demonstrate that interest payment made by the permanent establishment to the head office are not taxable in the hands of the head office as provided in Article 12(5) of the treaty and it also provide that in such cases income of the permanent establishment only to be taxed as per provision of Article 7 of DTAA. As per the provision of Sec.90(2) of the Act the assessee can opt for the taxability of its income as per the Double Taxation Avoidance Agreement between India and France (DTAA) or the Act which is more beneficial accordingly even though the interest paid by the branches (PE) to the head office are taxable as per the provision of Sec. 9(1)(5)(c) of the Act however because of beneficial provision of DTAA i.e Article 12(5) as discussed supra will lead to the conclusion that such interest received by the overseas head office is not taxable under the provision of DTAA. As clear from the provision of DTAA that interest income of the non-resident (head office) shall be taxable under Article 12 of the DTAA only when such head office shall not having any PE in India wherein branch (PE) is established in India then the provision of Article 7 only shall apply and Article 7 deal with taxability of only profit attributable to the PE branches of such overseas head office. Further the debt regarding claim mean the some money due from one person to another. Since in the case of the assessee branch has borrowed from the overseas head office therefore debt claim of the head office is connected to the PE branch in India therefore in the present case interest received by head office from its branches in India is not taxable in the hands of the head office in view of the provision of DTAA. Addition under the head profit and gain from business and provision - assessee recorded an amount in its books of account as rental income - HELD THAT - We find that the submission of the assessee has not been considered by the assessing officer therefore we restore this issue to the file of the assessing officer for deciding afresh after verification of the submission and detail filed by the assessee. Accordingly this ground of appeal is allowed for statistical purpose.
Issues Involved:
1. Validity of notice issued u/s 143(2) by NaFAC. 2. Applicability of domestic tax rates to the assessee under Article 26 of the India-France tax treaty. 3. Taxability of data processing fees paid by the Indian branch to the Singapore branch. 4. Levy of surcharge and health and education cess on tax computed under Article 13 of the India-France tax treaty. 5. Taxability of interest paid by the Indian branch to the head office and other overseas branches. 6. Addition to income under 'profit and gain from business and profession'. 7. Short credit of taxes deducted at source (TDS). 8. Initiation of penalty proceedings u/s 270A. Summary: Issue 1: Validity of Notice Issued u/s 143(2) by NaFAC The assessee argued that faceless assessment cannot be applied to non-residents and that the notice u/s 143(2) was issued without jurisdiction. The Tribunal, after examining the notifications and legal provisions, concluded that the notice issued by NaFAC was valid and dismissed this ground of appeal. Issue 2: Applicability of Domestic Tax Rates The assessee contended that the tax rate applicable to domestic companies should apply to it under Article 26 of the India-France tax treaty. The Tribunal noted that this issue had been consistently decided against the assessee in previous years and dismissed this ground of appeal. Issue 3: Taxability of Data Processing Fees The assessee argued that the data processing fees paid to its Singapore branch should not be taxed in India. The Tribunal, following its earlier decisions in the assessee's own case, ruled in favor of the assessee and directed the AO to delete the addition. Issue 4: Levy of Surcharge and Health and Education Cess The assessee submitted that this issue would become academic if ground no. 3 was decided in its favor. Since the Tribunal ruled in favor of the assessee on ground no. 3, this ground was dismissed as infructuous. Issue 5: Taxability of Interest Paid to Head Office The assessee contended that the interest paid to the head office and other overseas branches should not be taxed in India. The Tribunal, following its earlier decisions and the provisions of the India-France DTAA, ruled that such interest is not taxable in India and directed the AO to delete the addition. Issue 6: Addition to Income under 'Profit and Gain from Business and Profession' The assessee claimed that a portion of the rental income had already been offered to tax in the previous year. The Tribunal restored this issue to the AO for verification and fresh decision, allowing this ground for statistical purposes. Issue 7: Short Credit of TDS This issue was not discussed before the Tribunal, and hence, this ground of appeal was dismissed. Issue 8: Initiation of Penalty Proceedings u/s 270A The Tribunal deemed this ground as premature and dismissed it. Conclusion: The appeal of the assessee was partly allowed, with specific directions given for each issue.
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