2024 (6) TMI 1139 - AT - Income Tax

Validity of the assessment - no notice issued u/s 143(2) by the prescribed authority - HELD THAT - As decided in 2024 (6) TMI 673 - ITAT MUMBAI notice issued u/s 143(2) of the Act 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 companies - scope of non-discrimination clause of India-France Tax Treaty - This issue has recurring history and it is coming from A.Y. 2001-2002 to A.Y. 2020-2021 and in all these years this issue has been decided against the assessee and in favour of the Revenue. In 2024 (6) TMI 673 - ITAT MUMBAI as 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 Tribunal accordingly, rejected the ground raised by the assessee correctly. Taxability of data processing fees paid by the assessee to its overseas branch - This issue also of recurring issues coming from A.Y. 2005-2006 to A.Y.2020-2021 and the co-ordinate Bench in 2024 (6) TMI 673 - ITAT MUMBAI wherein as held 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. In effect thus, reversing the stand of the DRP, the coordinate bench has come to the conclusion that the 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. Decided in favour of assessee. Taxability of interest paid by branch office to Head Office / overseas branches - This is also a recurring issue coming from A.Y. 2001- 2002 to A.Y. 2020-2021 and the co-ordinate Bench has considered this issue as held 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 - Decided in favour of assessee .

Issues Involved:
1. Validity of the assessment.
2. Rate of tax applicable to domestic companies under the India-France Tax Treaty.
3. Taxability of data processing fees paid by the assessee to its overseas branch.
4. Taxability of interest paid by branch office to Head Office/overseas branches.

Detailed Analysis:

1. Validity of the Assessment:
The assessee challenged the validity of the assessment, arguing that the notice issued under Section 143(2) was not valid. The Tribunal referenced its earlier decision in ITA No. 3146/Mum/2023 for A.Y. 2020-2021, which upheld the validity of such notices issued by the ACIT/NaFAC-1(2) Delhi. The Tribunal noted that the amended Section 143(2) and relevant CBDT notifications authorized NaFAC to issue such notices. The Tribunal also referenced the Karnataka High Court's decision in Adarsh Developers, which supported the validity of NaFAC's jurisdiction. Consequently, the Tribunal found no merit in the assessee's challenge and dismissed this ground.

2. Rate of Tax Applicable to Domestic Companies:
The assessee contended that the higher tax rate for foreign companies violated the non-discrimination clause of the India-France Tax Treaty. This issue had been consistently decided against the assessee in previous years, including in ITA No. 3416/Mum/2023 for A.Y. 2020-2021. The Tribunal reiterated that the higher tax rate for foreign companies did not violate the non-discrimination clause, referencing its earlier decisions and the Supreme Court's ruling in ACIT vs. J.K. Synthetics. Therefore, this ground was also dismissed.

3. Taxability of Data Processing Fees:
The assessee argued that data processing fees paid to its Singapore branch were not taxable in India, as they were payments to self and did not constitute 'fees for technical services' under the India-France DTAA. The Tribunal referenced its decision in ITA No. 3416/Mum/2023 for A.Y. 2020-2021, which had ruled in favor of the assessee on similar facts. The Tribunal noted that the issue had been consistently decided in favor of the assessee in previous years, including by the jurisdictional High Court. Consequently, the Tribunal allowed this ground of appeal.

4. Taxability of Interest Paid by Branch Office to Head Office/Overseas Branches:
The assessee contended that interest paid by its branch office to the Head Office/overseas branches was not taxable in India. The Tribunal referenced its earlier decision, which held that under Article 7 and Article 12 of the India-France DTAA, such interest payments were not taxable in the hands of the Head Office. The Tribunal noted that the DTAA provisions were more beneficial to the assessee than the domestic law. Consequently, this ground was decided in favor of the assessee.

Conclusion:
The appeal was partly allowed. The Tribunal upheld the validity of the assessment and the higher tax rate for foreign companies but ruled in favor of the assessee on the taxability of data processing fees and interest payments to the Head Office/overseas branches.

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