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TMI Blog2014 (1) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... ee's own case for A.Y. 2005-06 - The transaction charges paid on Nostro Account were in the nature of bank charges for maintaining the accounts with banks outside India - These charges were recovered directly by way of debits to the concerned accounts of the assessee with these banks and the same represented business income of those banks which accrued/arisen outside India - No tax was required to be deducted at source from the transaction charges paid on Nostro account - Decided in favour of assessee. Expenses specifically incurred by HO for Indian branches – Held that:- Following assessee's own case for A.Y. 2005-06 - The traveling expenses incurred by the Head Office on traveling of its own staff are directly in connection with Indian branch and are allowable u/s 37(1) of the Act - Section 44C has no application to such expenses – Decided in favour of assessee. Expenses incurred on employee of the bank – Held that:- In the appointment letter of the employee from Oman office, allowances which were to be paid to him as well as the description of work is stated. On perusal of the said letter it is observed that he has to work on full time basis for a period of two years at Mumbai B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Neerja Pradhan ORDER Per B. R. Mittal, JM. The assessee has filed this appeal for assessment year 2006-07 against order of Assessing Officer passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (the Act) dated 27.7.2010. 2. In Ground Nos.1 and 2 of the appeal, the issue relates to receipt of interest of Rs.24,14,208/- from Head Office and the amount of Rs.1,37,58,736/- paid by the assessee Branch in India to its Head Office towards interest. 3. The assessee is non resident and carries on the business of banking which has two branches in India and its Head Office at Muscat. 4. The assessee credited an amount of Rs.24,14,208/- as interest received from its Head Office in the profit and loss account but in the computation of income filed along with the return of income, assessee reduced this amount from taxable income stating that the same is not taxable since interest received from self. Similarly, the assessee debited an amount of Rs.1,37,58,736/- of interest paid to its Head Office, however in the computation of income, the same has been added back to the total income stating that the same is not claimed as deduction in view of the fact that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank was not separate and distinct taxable entity in India as per the domestic law. It was foreign bank i.e. Head Office which was taxable entity in India. That the interest received by Indian Branch of foreign bank from its head office, therefore, does not give rise to any income which is taxable in India because one could not make profit out of itself. In view of above and following the decision of Special Bench of Tribunal in Sumitomo Mitsui Banking Corporation(supra), we delete the addition made by AO of Rs.24.14,208/- on account of interest received by Indian Branch of assessee bank from its Head Office. We may state that no deduction with respect to interest of Rs.1,37,58,736/- paid by the assessee Branch of the assessee-company to its Head Office is to be allowed. It is also relevant to state that assessee in Ground No.1(c ) has stated that AO has made the additions of Rs.1,37,58,736/- being interest paid by the assessee Branch to Head Office which amount to double disallowance as the assessee itself has not claimed deduction. It was also pointed out that the DRT in its direction has also directed AO to verify that the assessee itself made disallowance in the return of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowance made by AO on account of transaction charges u/s 40(a)(i) of the Act. Hence Ground No.3 of the appeal taken by assessee is allowed. 12. Ground No.4 of the appeal taken by assessee reads as under: "4. (a) the AO erred in not allowing a deduction of Rs.7,32,941/- u/s 37 of the Act on account of expenses specifically incurred by HO for Indian branches and processing the same under section 44C of the Act; (b) without prejudice to the above and in any event, the AO erred in not following the directions of of DRP (per para 5 page 6 of the directions) that since the expenses specifically incurred in HO of Rs.7,32,941/- was not reduced by the appellants in computing the total income per the ROI and the claim was made by the assessee by way of note to the ROI and hence the disallowance has become ir-relevant" 13. The AO has stated that in the return of income vide note to the computation the assessee had claimed deduction of Rs.7,32,941/- on account of expenses incurred by Head office on behalf of Indian Branch. The AO stated that the said expenses are within the purview of section 44C and therefore no additional deduction or allowance is permitted under the provisions of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Rs.17,42,363/-. AO has stated that the said expenditure pertains to HO expenditure and cannot be allowed of its branch office. Accordingly, he added back the said amount to the computation. 18. Assessee filed its objection before DRP and submitted that Shri Zakariya was deputed to India on 25.6.2005. During his stay in India he worked as Officer in Mumbai Branch. The expenditure was incurred for services rendered in India and the same is allowable u/s 37 of the Act. DRP has confirmed the proposed disallowance made by AO by stating that there is no evidence which can unambiguously pointed out that services so rendered by Shri Zakariya is exclusively for the Indian Branch operation. He was in the employment of HO and had been deputed to the Indian Branch. AO has correctly applied the provisions of section 44C of the Act to bring it in to the ambit the expenditure incurred on Shri Zakariya. Hence this appeal by the assessee. 19. Ld. AR submitted that salary paid to Shri Zakariya while working in Indian Branch had been taxed in India and filed a copy of the return to substantiate his submissions. He further submitted that there is an agreement entered into pursuant to which Shri Z ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is disallowed and added back to the total income of the assessee. The DRP also confirmed the action of AO. Hence, the assessee is in appeal before us. 24. At the time of hearing ld. AR submitted that if disallowance of the same is confirmed in the assessment year under consideration, the said amount should be allowed as deduction without written back in the subsequent year. Ld. DR has not objected to the above contention of ld. AR. 25. In view of above, we confirm the action of the AO. However, we may state that as and when the assessee reverse the excess provision, the said amount should not be charged to tax in the subsequent years. Ground No.6 of the appeal taken by assessee is rejected. 26. Ground No.7 of the appeal taken by assessee reads as under: "7. The AO erred in not following the direction of the DRP (per para 8 page 7 of the directions ) by not reducing the sum of Rs.58,948/- on account of reversal of excess provision which was brought to tax in the AY 2005-06" 27. We have heard ld. Representatives of the parties and perused the order of AO and the direction of DRP. We observe that the AO while discussing the said amount in para 8.3 of the Draft Assessment Order st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP. With the above directions, we direct the AO to decide the issue as per directions of DRP and after giving due opportunity of hearing to the assessee. Hence, Ground No.8 of the appeal taken by assessee is allowed for statistical purposes. 31. Ground No.9 of the appeal taken by assessee reads as under: "9. The AO has determined interest of Rs.1,41,350/- under section 244A from 1.4.2006 to 27.7.2010 (being the date of the order under appeal) The appellant submit that they are entitled to interest u/s 244A from 1.4.2006 till the date of receipt of the refund order" 32. We observe that DRP has directed the AO in respect of the interest on refund to be granted as under : 12. Objection No.12 : Refund to be granted: Ground of objection: Based on the outcome of the ground of objection No.11 above, the AO be directed to grant refund along with interest under section 244A till the date of receipt of the refund order. The assessee has not received an intimation under section 143(1) for the AY-2006-07. The assessee is entitled to a refund arising out of tax deducted at source along with interest u/s 244A thereon" However, AO has not considered the said direction of the DRP nor any d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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