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2017 (7) TMI 860 - AT - Income TaxAssessment barred by time limit - Held that - Tribunal vide order dated 18.08.2006 had not set aside the entire assessment order in question before it, instead one of the issues regarding allowability of interest paid by the Indian PE to its head office amounting to ₹ 24,86,73,000/- was set aside to the file of the Assessing Officer to adjudicate it after ascertaining the correct facts. The view that the entire assessment order was not set aside is also strengthened with the wording of the conclusion of the Tribunal. In the result, for statistical purposes, the four appeals filed by the Revenue shall be treated as partly allowed. We thus, fully concur with the finding of the ld. CIT (Appeals) that it is not a case where prescribed time limit for compliance of the order of the Tribunal is required to be computed under section 153(2A) of the Act as entire assessment order was not set aside by the Tribunal, rather a particular aspect of the assessment order relating to allowability of interest paid by the Indian PE to its head office after ascertaining the correct fact, was set aside by the Tribunal for fresh adjudication. The prescribed time limit for such compliance thus has been rightly held by the ld. CIT (Appeals) to be computed under the provisions of section 153(3) of the Act. Whether interest paid by the branch office to head officer is tax deductible? - deduction under section 40(a)(i) read with section 195 - Held that - We fully concur with the finding of the authorities below that submission of the assessee is based on the nature of transaction between BO and NHB, whereas according to section 10(15)(iv)(fa), the nature of transaction on which interest is paid to non-resident should be in the nature of deposit in foreign currency. So far as the second precondition of the section that such deposit should be approved by RBI is concerned, the directive of the RBI in the present case says that BO should make payment to NHB, and therefore, such directive is with reference to transaction between the BO and NHB only. Undisputedly, RBI has not given any direction regarding source from which the BO can raise funds. We thus fully concur with the finding of the authorities below that there was no question of approval by RBI of fund flow from HO to BO as deposit in foreign currency. We thus hold that provisions of section 10(15)(iv)(fa) are not applicable in the present case and, therefore, the contention of the assessee that interest paid by BO to HO is exempt from taxation under the said section and hence, not subject to TDS is not tenable in the eyes of law. We are also fully agreeable with the finding of the authorities below that the decision in the case of ABN Amro Bank N.V. Vs. CIT (2005 (8) TMI 294 - ITAT CALCUTTA-E ) relied upon by the ld. AR having different issue is not applicable in the present case as in that case issue was as to whether interest paid by branch to its head office is subject to TDS and hence, not allowable as deduction under section 40(a)(i) read with section 195 of the Act, which is otherwise tax deductible, whereas in the present case the issue involved is as to whether interest paid by the branch office to HO is tax deductible per se or not. Withdrawal of grant of interest under section 244A - Held that - We fully concur with the approach of the ld. CIT (Appeals) that it is consequential in nature and hence, does not need independent adjudication. We, however, agree with the contention of the ld. AR that for levy of interest under section 220(2) of the Act it is a pre-condition to issue notice of demand under section 156 of the Act first. We thus, set aside the matter to the file of the Assessing Officer to examine the contention of the assessee on the basis of material available on record that notice of demand under section 156 was issued or not and decide the matter afresh as per the law after affording opportunity of being heard to the assessee. The ground is thus allowed, for statistical purposes.
Issues Involved:
1. Time-barred assessment under Section 153(2A) of the Income Tax Act, 1961. 2. Deduction of interest paid by the Indian branch to its Head Office under the India-UK Double Taxation Avoidance Agreement (DTAA). 3. Withdrawal of grant of interest under Section 244A. 4. Levy of interest under Section 220(2) without issuance of notice of demand under Section 156. Detailed Analysis: 1. Time-barred Assessment under Section 153(2A): The assessee bank contended that the assessment order dated 3.12.2010 was time-barred as it was passed much after the nine-month period prescribed by the second proviso to Section 153(2A) of the Income Tax Act. The Tribunal had set aside the matter on 18.08.2006, and the order reframing the assessment was made on 3.12.2010, which the assessee argued was beyond the statutory limitation period. The CIT (Appeals) had interpreted the limitation period of nine months as being applicable only when the entire assessment is set aside by the Tribunal. The Tribunal concurred with the CIT (Appeals) that the entire assessment was not set aside, but only a particular aspect regarding the allowability of interest paid by the Indian PE to its head office. Therefore, the prescribed time limit for compliance was to be computed under Section 153(3) and not Section 153(2A). Thus, the Tribunal upheld the CIT (Appeals) decision, rejecting the grounds related to the time-barred assessment. 2. Deduction of Interest under India-UK DTAA: The main grievance of the assessee was the disallowance of the deduction of interest paid by the Indian branch to its Head Office. The assessee argued that this interest was fully allowable under the exception clause to Article 7(7) of the India-UK DTAA. The assessee cited several rulings, including the Special Bench decision in Sumitomo Banking Corporation Vs. DDIT, which allowed tax deductibility of interest paid by a branch to its head office under DTAA provisions. However, the CIT (Appeals) and the Tribunal found that under the domestic tax law, payment by a branch office to its head office is in the nature of payment to self, which is neither taxable nor tax deductible. The Tribunal noted the distinction between the Indo-Japan DTAA and the Indo-UK DTAA, emphasizing that the latter contains a stipulation that deductions are subject to the limitations of domestic law. Consequently, the interest paid by the PE to the HO was not deductible under Article 7(5) read with Article 7(7) of the Indo-UK DTAA. The Tribunal upheld the CIT (Appeals) decision, rejecting the grounds related to the deduction of interest. 3. Withdrawal of Grant of Interest under Section 244A: The assessee contended that the CIT (Appeals) erred in confirming the withdrawal of grant of interest under Section 244A amounting to ?88,56,062/-. The CIT (Appeals) had disposed of this ground on the basis that the issue was consequential in nature. The Tribunal concurred with the CIT (Appeals) that the matter was indeed consequential and did not require independent adjudication. 4. Levy of Interest under Section 220(2) without Notice under Section 156: The assessee argued that the levy of interest under Section 220(2) amounting to ?18,67,14,012/- was invalid as it was done without issuing a notice of demand under Section 156, which is mandatory. The CIT (Appeals) had disposed of this ground stating that the assessee had not made any specific submission. The Tribunal, however, agreed with the assessee that issuance of a notice of demand under Section 156 is a precondition for levying interest under Section 220(2). The Tribunal set aside this matter to the Assessing Officer to examine whether the notice of demand was issued and to decide the matter afresh as per the law after providing an opportunity of being heard to the assessee. Conclusion: The appeal was partly allowed. The Tribunal upheld the CIT (Appeals) decisions on the issues of time-barred assessment and the deduction of interest under the Indo-UK DTAA. The matter regarding the levy of interest under Section 220(2) was remanded back to the Assessing Officer for fresh adjudication. The issue of withdrawal of grant of interest under Section 244A was deemed consequential and did not require independent adjudication.
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