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TMI Blog2007 (7) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... his matter back to the file of the Assessing Officer with the direction that the Assessing Officer should decide this issue afresh in all the three years as per amended provisions of section 44C after considering the Judgment of Hon ble Bombay High Court relied upon by the learned counsel of the assessee rendered in the case of Deutsche Bank AG as per order dated 24-7-2003 in Income-tax reference No. 139 of 1997. The Assessing Officer was also directed to consider the Judgment of Authority for Advance Rulings relied upon by learned DR of the revenue rendered in the case of ABC In re [1987] 228 ITR 487. The Assessing Officer was also directed to consider the fact as to what happened in the intervening years i.e., assessment years 1993-94 and 1994-95. Now, this Miscellaneous Application is filed by the assessee and it is contended in the Miscellaneous Application by the assessee that tax treaty between India and UAE is applicable in their case for these assessment years and has in fact been referred to by learned CIT(A) in his order in para 2 at pages 1 to 8 of his order for assessment year 1997-98. It is the contention of the assessee in Miscellaneous Application that the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to lay down that the Indian taxation law would not be applicable for computation of profits of the permanent establishment, the provisions of Article 25(1) relating to elimination of double taxation would prevail and the laws in force in India should continue to govern the taxation of income of the permanent establishment situated in India. Learned CIT(A) has reproduced one para from treaties on double taxation conventions by Klaus Vogel (3rd Edition), wherein while interpreting the provisions of Article 7(3) of the DTAA between India and Germany; certain observations were made. From these observations, it is noted by learned CIT(A) that, wherever it was decided by the contracting states that the provision of domestic tax laws would not apply in computation of profits of the permanent establishment situated in that state, it was specifically provided so in the DTAA s entered into by Germany with Kuwait and UAE and express provision in this regard has been introduced in the Article 7(3) to lay down that irrespective of limitations provided by internal law, expenses may be deducted (attributable to the permanent establishment) provided that the deductions are in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpress provision in this regard has been introduced in the Article 7(3) to lay down that irrespective of the limitations provided by internal law, expenses may be deducted (attributable to the permanent establishment) provided that the deductions are in accordance with the international practices. In the present case, Article 7(3) of India with UAE reads as under:- "In determining the profits of a permanent establishment, there shall be allowed as deduction expenses, which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred whether in the state in which the permanent establishment is situated or elsewhere." From the above Article 7(3) of the DTAA between India and UAE, it is clear that this Article does not contain an express provision to lay down that the Indian Taxation Law would not be applicable for computation of profits of the permanent establishment; hence, we are in agreement that the provision of Article 25(1) relating to elimination of double taxation would prevail and the laws in force in India should continue to govern the taxation of income of the permanent establishment s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is amendment in the provisions of section 44C with effect form 1-4-1993 i.e., with effect from assessment year 1993-94 and because of this reason, the issue was restored by the Tribunal to the file of the Assessing Officer for a fresh decision after considering amended provisions of section 44C. Regarding the contention that these expenses i.e., expenses on IOLO are exclusively pertaining to branch at Bombay, it has been noted by the Tribunal on page No. 7 of the impugned Tribunal order that the language of the Auditors certificate suggests that the expenditure were allocated to Indian Branch and the auditors have checked the mathematical accuracy of the allocation made. It is also observed by the Tribunal that the mathematical accuracy of allocation will be required to be checked if the expenses are not pertaining to Indian Branch alone and some amount is allocated to Indian Branch as per some mathematical formulae on the basis of some agreed criteria. Under these facts and circumstances, the Tribunal came to the conclusion that this matter should also go back to the file of the Assessing Officer for deciding this issue afresh after examining the fact as to whether these exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended Explanation does not alter the legal position as the definition of domestic company in section 2(22A) itself includes the condition that in order to constitute a domestic company, foreign company must have "made the prescribed arrangement for declaration and payment within India of the dividends (including dividends on preference shares) payable out of its income in India". It is submitted that this condition is the same as the one that existed in the Explanation to section 90 prior to its deletion by the Finance Act, 2004; and, therefore, the ratio of the rulings in the case of Decca Survey Overseas Ltd., IT Appeal No. 3604/B/94 dated 27-2-2004 and Bank International Indonesia must continue to apply. It is also submitted by the assessee in Miscellaneous Application that as per Article 26(1) (2) and as per the definition of the term "National" in Article 3( h ), term National includes any legal person and a company would certainly be a legal person; and therefore reading Article (3) with Article 26, non-discrimination provisions are required to be taken into account for the purpose of determining the tax rate applicable to a UAE resident bank carrying on busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be decided after considering these contentions and various statements made by learned counsel of the assessee. 17. As against this, learned DR of the revenue submitted that the Tribunal has decided this issue on merit and there is no mistake in the Tribunal order and therefore Miscellaneous Application of the assessee on this issue should be rejected. 18. We have considered the rival submissions and we find that this issue has been decided by the Tribunal on the basis that only comparables can be compared. It is also noted by the Tribunal in the impugned order that till date, the higher rate of tax is charged in India from foreign companies only and not to any other foreign entity; and for these two reasons, this Explanation to section 90 is talking rate of tax only to foreign company and domestic company. The contention of the assessee in Miscellaneous Application is that various arguments advanced by the learned counsel of the assessee in course of hearing of the appeal are not considered by the Tribunal. We want to make it clear that this is not so and issue has been decided by the Tribunal after duly considering all arguments of the assessee; although, the same ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable to the assessee s case; as it only seeks to allow discrimination between a domestic company and a foreign company; and since, co-operative bank is not a domestic company, the Explanation would not apply. It is also contended by learned counsel that the assessee company is also national as per Article 3( h ) and hence as per Article 26(1) of the DTAA, higher rate of tax cannot be charged. We find no force in these arguments of learned counsel of the assessee also because, we have already held above that only comparable can be compared and rate of tax to be charged to foreign company has to be compared with the rate of tax being charged to domestic company and the same cannot be compared with the co-operative bank. In view of Explanation to section 90, the second argument regarding charging of higher rate of tax to foreign national also has no substance. These arguments of learned counsel of the assessee also fail. 22. Now, we deal with the contention that the definition of domestic company in section 2(22A) itself includes the similar contention as was there in Explanation to section 90 prior to its deletion by the Finance Act, 2004. We find no merit in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is dated 1-11-2004 and with Malaysia, which is dated 12-10-2004. The amendment in tax treaty between India with New Zealand was also in the year 2000, which is also prior to the date of Finance Act, 2001. 25. From the above, it can be seen that prior to insertion of this Explanation to section 90, Government of India took precaution to provide specifically in these tax treaties with various countries that charging of higher rate of tax will not amount to discrimination. In the absence of this Explanation to section 90, this can be argued that in such cases, where there is no such specific provision in the treaty, charging of higher rate of tax will amount to discrimination; but in the light of this Explanation to section 90, no such argument can be raised. It is also to be noted that tax treaties are entered into by the Central Government of India with Government of outside India as per authorities given by the same section 90 of Income-tax Act, 1961; and hence, insertion of Explanation in section 90 or amendment in section 90 cannot be overlooked or ignored. With regard to tax treaties with 4 countries, which are subsequent to insertion of this Explanation to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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