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TMI Blog2014 (2) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Head Office. b. He erred in not appreciating that the said payments are reimbursement of costs and expenses incurred in relation to Credit analysis and administration, Head Office control, software implementation (including implementing any upgrade, patches or mods etc. to software) and Head office support activities performed by the Head Office for all the branches including Mumbai branch. c. He erred in not appreciating in the correct perspective the submissions made by the appellant. d. He erred in not appreciating that payment to Head Office for credit analysis and administration, Head Office control, software implementation (including implementing any upgrade, patches or mods etc. to the software) and Head Office support activities is in the nature of general administrative expenditure and therefore allowable upto the limits specified under section 44C of the Act. &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest of Rs. 85,715,525 received by the Head Office from the branch on subordinated debt and term borrowings is not taxable in the hands of the Head Office. b. Reliance in this connection is placed on the following decisions: * Decision of the Calcutta High Court in the case of ABN AMRO Bank NV (198 Taxman 376) * Decision of the Larger Special Bench of the Mumbai Tribunal in the case of Sumitomo Mitsui Banking Corporation (ITA Nos. 5402 and 5458/Mum/2006) 2. The above ground of appeal is without prejudice to the grounds filed by the appellant vide letter Ref No.115605/12317 dated 19 March 2009. 3. The appellant reserves the right to amend, alter or add to any of the above grounds of appeal." 2. Assessee-company, engaged in the business of financing of Diamond Trade, filed its return of income on 30.10.2005 declaring a total income of Rs.21,91,10,834/-.Assessing Officer (AO) finalised the assessment on 28.12.2007 determinin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Article 7 of Indo-Belgium DTTA, that no deduction was allowable in respect of amounts which are in nature of charges for specific services performed to the permanent establishment (PE) that out of total general administrative expenditure of Rs. 1.20 Crores, that the AO had allowed expenditure to the tune of Rs.32.10 lacs related to reimbursement of executive and general administrative expenditure incurred by the HO, that the assessee had claimed that only sum of Rs. 16.89 lacs pertained to credit analysis service that could be disallowed u/s.40(a)(i) of the Act, that the total expenditure amounting to Rs. 88,56,354/- pertained to credit analysis and connected services as per bifurcation supplied by the assessee itself, that the expenditure incurred by the HO was in nature of specific services performed by the HO, that the cases cited by the assessee were not relevant to the facts of the case under consideration, hat the expenditure incurred by the assessee was not in the nature of reimbursement but for specific services provided and covered by Article 7 of the Indo-Belgium DTTA. 2.3 Before us, Authorised Representative (AR) submitted that the payment was by way of reimbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expenditure incurred by the assessee was not reimbursement, but the basis for arriving at this conclusion has not been mentioned. It is accepted principle of taxation that if any payment is only reimbursement it cannot be taxed-but if profit is embedded in it same has to be taxed. A clear finding based on facts has to be given as how a payment can be treated a sum embedded with profit and not a mere reimbursement payment. Considering the above, we are of the opinion that matter needs further verification. Therefore, in the interest of justice matter is restored back to the file of the FAA for fresh adjudication. He is directed to afford a reasonable opportunity of hearing to the assessee. Ground no. 1 is partly allowed in favour of the assessee. 3. Next ground of appeal is about disallowance of interest paid by the assessee to HO amounting to Rs.8.57Crores. During the assessment proceedings, AO found that interest of Rs.8,56,15, 525/-was paid by the assessee to HO on subordinate debts and term borrowing. That it had claimed the interest as an expense of the branch. However, the said interest was offered for taxation in the hands of the HO as per the Article 11 of the Indo-Belgi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t give rise to income that is taxable in India as per the domestic law. Even otherwise, there is no express provision contained in the relevant tax treaty which is contrary to the domestic law in India on this issue. This position applicable in the case of interest paid by Indian branch of a foreign bank to its head office equally holds good for the payment of interest made by the Indian branch of a foreign bank to its branch offices abroad as the same stands on the same footing as the payment of interest made to the head office. At the time of hearing before us, the learned representatives of both sides have also not made any separate submissions on this aspect of the matter specifically. Having held that the interest paid by the Indian branch of the assessee-bank to its head office and other branches outside India is not chargeable to tax in India, it follows that the provisions of section 195 would not be attracted and there being no failure to deduct tax at source from the said payment of interest made by the permanent establishment, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) does not arise. Accordingly we answer question No ..... X X X X Extracts X X X X X X X X Extracts X X X X
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