2016 (12) TMI 500 - HC - Income Tax

Taxability on interest received from Head Office and other overseas branches - Held that - We were told that the Revenue is aggrieved because no disallowance under Section 14A of the Act has been done by the Tribunal on the interest income. This explanation for being aggrieved, we are unable to comprehend for the reason that once the Tribunal holds that interest income is taxable, no occasion would arise to disallow expenditure under Section 14A of the Act. This indicates the casual manner of filing appeals without any application of mind. - Decided against revenue Deduction on account of interest paid by assessee - Held that - Before the Tribunal, the respondent assessee had challenged the order of the lower authorities bringing to tax the interest received by it from its Head Office and branch offices. However, at the hearing before the Tribunal, the respondent assessee gave up this challenge. Consequently, the orders of the lower authorities bringing to tax the interest income received from its Head Office and other overseas branches were held to be taxable. It is in that context that the impugned order of the Tribunal held that the interest paid by the assessee to its Head Office / overseas branches would also be deductible to bring to tax the net interest income i.e. interest received less interest paid.- Decided against revenue TDS u/s 195 - whether payment constitute Royalty as per Explanation 2 to Section 9(1)(vi) - disallowance under Section 40(a)(i) - Held that - The impugned order of the Tribunal is a well reasoned order. It holds that mere taking assistance from ADPC at its Regional Head Office, cannot be held to be payment of Royalty for the use of assets. The decision of the Delhi bench Tribunal relied upon by both the Assessing Officer and also by the CIT(A) in the case of Asia Satellite Telecommunications Co. Ltd. (2002 (11) TMI 263 - ITAT DELHI-C ) has been reversed by the Delhi High Court as reported as Asia Satellite Telecommunications Co. Ltd. Vs. Director of Income Tax 2011 (1) TMI 47 - DELHI HIGH COURT . The entire issue is now before the Assessing Officer to determine whether or not the amount paid for the information technology facility to the Regional Head Office is at all taxable or not within the parameters of Section 44C of the Act even if it is treated as Head Office expenses.- Decided against revenue

Summary

Issues:
1. Interpretation of income chargeable at special rate under section 10(15) of the Income Tax Act, 1961.
2. Deductibility of expenses incurred at Head Office on behalf of Indian Branch under section 37(1) without restrictions in section 44C.
3. Taxation of interest received under section 244A at the rate prescribed in DTAA between India and France.
4. Taxability of interest received by Indian Permanent Establishment of a foreign bank from Head Office and overseas branches.
5. Allowance of deduction on interest paid by assessee disallowed under section 40(a)(i).
6. Determination of whether a payment constitutes Royalty under Explanation 2 to Section 9(1)(vi) and disallowance under section 40(a)(i).

Analysis:

1. The questions raised regarding the income chargeable at a special rate under section 10(15) were not entertained by the court as they did not give rise to substantial questions of law based on a previous order for a different assessment year.

2. The issue of deductibility of expenses incurred at the Head Office on behalf of the Indian Branch under section 37(1) without restrictions in section 44C was not entertained by the court based on the lack of substantial questions of law.

3. The court dismissed the question of taxation of interest received under section 244A at the rate prescribed in DTAA between India and France as it did not give rise to any substantial question of law.

4. The court found that the interest received by the Indian Permanent Establishment of a foreign bank from its Head Office and other overseas branches was taxable, and the appeal by the Revenue was not entertained due to lack of substantial question of law.

5. The court held that the interest paid by the assessee to its Head Office and overseas branches would be deductible to bring to tax the net interest income, and the question raised by the Revenue did not give rise to any substantial question of law.

6. The court examined whether a payment of a specific amount constituted Royalty under Explanation 2 to Section 9(1)(vi) and disallowance under section 40(a)(i). The court found that the payment for data processing services could not be considered a payment of royalty, and the issue was referred back to the Assessing Officer for further consideration under the parameters of Section 44C of the Act. The court dismissed the question as it did not give rise to any substantial question of law.

Overall, the court dismissed the appeal and did not entertain most of the questions raised by the Revenue as they did not present substantial questions of law for consideration.