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TMI Blog2014 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... commission for the services performed towards foreign currency loans granted by the overseas branches – Held that:- The role of the assessee in the transactions of foreign currency loan under ECB was to provide financial analysis of the borrowers, general market conditions and regulatory environment - the role of the assessee is not merely facilitation of conclusion of loan agreement or signing thereof but the services provided by the assessee are the core-basis for taking the decision of granting the loan by the syndicate - The assessee provided the services regarding clients creditability analysis, its capacity so as to consider the capacity to repay the loan and risk involved in the loan transaction - the role of the assessee in providing such a crucial service is inevitable for taking the decision of providing loan and as such cannot be said to be a mere facilitation of conclusion of the loan agreement or signing. The TPO as well as CIT(A) has not brought out any comparable for determination of the arms length price but took the total income comprising interest as well as other fees charged by the foreign branches for allocation/attribution to the assessee - the ALP has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the action of The Additional Director of Income-tax, (International Taxation), Range 1, Mumbai (hereinafter referred to as the AO) in charging the business income @ 48% being the rate applicable to foreign companies for the year under appeal. The appellants submit that their business income is chargeable to tax at the rate of 35.70% as applicable to domestic companies. The appellants pray that the AO be directed accordingly. (2) The CIT(A) erred in confirming the action of the AO in bringing to tax the interest of Rs.6,l 6,73,3 56 received on Nostro Account and overseas placements with branches outside India. The appellants submit that the amount is not taxable being received from self as the Indian branches and branches outside India are part of the same organisation and there can arise no profits as a result of any transaction between the two. The appellants pray that the AO be directed accordingly. (3) The CIT(A) erred in confirming the action of the AO in not allowing a deduction for Rs.42,43,574 being interest paid to Head office/Overseas branches, consistent with the departments stand of taxing the interest received on Nostro/O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax at the rate of 48%, being the rate applicable to foreign companies for the year under appeal. At the outset, it was admitted by the learned Counsel for the assessee that similar issue has been consistently decided by the Tribunal against the assessee in earlier years. Respectfully following the orders so passed by the Tribunal, we dismiss this ground of appeal." As it is clear from the above order of the Tribunal that this issue has been consistently decided by this Tribunal against the assessee in the earlier years i.e. for assessment years 1998-99 2000-2001, hence, respectfully following the earlier years' order of the Tribunal, this ground of the assessee's appeal is dismissed. 4. Grounds No.2 3 are in regard to bringing to tax interest received on Nostro Account and overseas placements maintained with branches outside India and disallowance of interest paid to head office/overseas branches. 4.1 The assessee claimed that the interest of Rs.6.16 crore received on Nostro account and overseas placements maintained with the branches outside India is not taxable being income to self. The AO brought the said interest to tax and also disallowed the deduction being int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to the head office/overseas branches, is allowable deduction. Accordingly, ground No.2 is dismissed as not pressed and ground No.3 is allowed. 5. Ground No.4 is in regard to disallowance of loss on valuation of securities. 5.1 The authorities below disallowed the claim of the assessee on the ground of hypothetical loss and based on conjectures. Learned AR, however, submitted that since the claim of loss on valuation was allowed in full in the earlier year i.e. for the assessment year 1998-99, therefore, the claim for the assessment year has become infructuous. He has further submitted that this issue has not attained the finality as it is pending before the Hon'ble High Court, therefore, a suitable direction may be given to the Assessing Officer. Learned DR has not disputed the fact that in the earlier year, the claim of the assessee was allowed in full by this Tribunal. We further note that for the assessment year 2001-02, the Tribunal has considered an identical issue in para 7 as under : 7. Ground no.2 is against the claim for loss of 10,52,194 on account of valuation of investments. The assessee wrote back provision for revaluation of investment amounting to 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, we dismiss the ground No.6, being not pressed. 8. Grounds No.7 to 9 regarding Transfer Pricing adjustment on account of fee or commission for the services performed towards foreign currency loans granted by the overseas branches. 8.1 The assessee has facilitated foreign currency loan to its clients from head office/overseas branches outside India but did not show any income on the said transaction. The TPO asked the assessee to show as to whether any service with regard to structured finance and syndicate business like foreign currency debt syndication etc. are rendered to any customers or to the other branches of the bank. The assessee submitted before the TPO that in most of the cases, it is the syndication desk in Hong Kong (HK) that is involved. In most of the cases, they are contacted directly by the competitor banks, however, in a few cases, Indian branch identifies the target and gets the mandate primarily because some of the prospective borrowers are the assessee's existing customers in India. All negotiations, discussions with potential clients are done by the syndication desks in HK and, therefore, the assessee has no role in the decision to grant loan. The limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Protocol between France and India and submitted that no profit can be allocated under Article 7(2) of DTAA to the PE on account of facilitation of the loan agreement. Learned AR has cited the dictionary meaning of the word "facilitation" and submitted that the term used in the protocol being "facilitation" means to "render easier the performance". Thus, the role of the assessee to provide certain information is only to facilitate the loan agreement and, therefore, as per the para 4 of the Protocol, no profit can be attributed to the assessee on account of such limited services. 8.5 The alternative contention of the learned AR is that the adjustment of 20% in respect of interest and other fees received by the foreign branches is highly arbitrary because the interest cannot be attributed to the assessee when the loan is provided by the foreign branch and, therefore, even if a profit is attributed to the assessee, the same is limited only with respect to fees or service charges received by foreign branches and that too in a reasonable proportion, to say 10%. The another alternative submission of learned AR is that 20% of the total interest and other fees received by the foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... syndication in respect of two loans to Reliance Petroleum Limited and Reliance Industries Limited to the tune of US$50 million and USD$ 11 million, respectively. There is no dispute that for these two loans, Credit Agricole Indosuez (Asia), Singapore worked as an agent and Credit Lyonnais worked as lead arrangers/co-arrangers. The ANZ Investment Bank, BA Asia Ltd. as well as ABN Amro Bank were also worked as co-arrangers. The role of the assessee in these transactions of foreign currency loan under ECB was to provide financial analysis of the borrowers, general market conditions and regulatory environment. The learned AR has vehemently argued that as per para 4 of Protocol, profit cannot be attributed to the PE on account of facilitation of conclusion of loan agreement or mere singing thereof. We do not agree with the contention of the learned AR of the assessee because of the fact that the role of the assessee is not merely facilitation of conclusion of loan agreement or signing thereof but the services provided by the assessee are the core-basis for taking the decision of granting the loan by the syndicate. The assessee provided the services regarding clients creditability analys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into consideration uncontrolled similar transaction. In our view, the interest cannot be taken into account for attribution of income towards service charges/fees and, therefore, in the facts and circumstances of the case only the fee charged by the foreign branches can be taken into consideration for making adjustment under transfer pricing provisions. Accordingly, we direct the AO/TPO to make adjustment in respect of the services performed by the assessee for foreign currency loan arranged for its existing clients by taking into account only the fee and other charges received by the foreign branches from the borrowers in question. Since none of the parties have come out with the suitable comparables, therefore, we find that the estimation made by the CIT(A) at the rate of 20% is just and proper, however, the same would be only in respect of the fee and charges other than interest received by the foreign branches. Thus, these grounds of the assessee are partly allowed. 9. In the additional ground, the assessee has raised objection in regard to the addition on account of interest received on call placements with head office/overseas branches. 9.1 This is not a fresh plea or gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services with regard to the ECB loans disbursed to the Indian Customers. 5. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in restricting the addition made on account of difference in the rate of interest charged by the assessee on funds placed with Head Office and Overseas Branches to Rs.1,51,154/-as against Rs.2,48,097/- made by the Assessing Officer". 10. Ground No.1 in the appeal of the department is in regard to deleting the disallowance on account of expenditure attributable to tax exempt income. 10.1 We have heard learned DR as well as learned AR of the assessee and considered the relevant material on record. At the outset, we note that this issue has been considered and decided by this Tribunal in assessee's own case for the assessment year 1999-2000 in para as under : "20. First ground of the Revenue's appeal is against the deletion of disallowance of expenses in relation to income u/s 10(33) and 10(15)(iv)(h). It is observed that the Assessing Officer made disallowance of interest in this year unlike the disallowance of other expenses also in the preceding year. The learned CIT(A) on appreciation of the factual posit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interest charged by the assessee on funds placed with head office and overseas branches. 14.1 We have heard learned DR as well as learned AR and considered the relevant material on record. This ground is common to the additional ground raised by the assessee in its appeal i.e. ITA No.1935/M/2007, decided above. The CIT(A) has given the part relief to the assessee by taking into consideration the actual interest to be added after giving credit of +/- 5% margin profit under Section 92 in para 15.6 as under:- "15.6 The appellant was asked and has furnished chart to show the amount of interest likely to be added after taking credit 5% margin provided by Sec.92C. The chart is under: Interest in INR Callplacements, C.L.Paris Rs.58,185. Callplacements, C.L.Newyork Rs.14,049. Callplacements, C.L. Singapore Rs.49,090. Callplacements, C.L. Hongkong Rs.29,830. It is therefore, held that the addition required to be made is of Rs.1,51,154/- as against made by the AO of Rs.2,48,097/-. Accordingly addition of Rs.1,51,154/- is confirmed and the balance is deleted. Appeal on this ground is part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) The CIT(A) ought to have appreciated that the disallowance as computed under Rule 8D cannot exceed the disallowance made by the AO. (4) The CIT(A) erred in holding that the claim for deduction of Rs 2,97,50,453 being deferred expenses on mobilization of deposits under Indian Millennium Deposit Scheme should be allowed if it was made during the assessment proceedings. He ought to have allowed the claim having regard to the finding given by the CIT(A) while framing the assessment for the assessment year 200 1-02 and 2002-03. (5) The CIT(A) ought to have held that, in the event the higher authorities reverse the decision of the CIT(Appeals) in the earlier years of allowing loss on valuation of securities, the AO be directed to recompute the profit or loss on securities sold during the year under appeal by taking into account the depreciation on securities disallowed in the earlier years. (6) The CIT(A) erred in upholding the action of the AO in invoking the provisions of section 92CA of the Act without appreciating that the Transfer Pricing provisions cannot be applied for transactions between Head Office and Permanent Establishment as they are one and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the assessment year 2002-03, wherein the assessee has not pressed ground No.2. Similarly, the assessee has accepted the taxability of interest income. Therefore, ground No.2 is hereby dismissed as not pressed and ground No.3 is allowed. 17. Ground No.4 is regarding deduction on deferred expenses on mobilization of deposits under Indian Millennium Deposit Scheme (IMDS). 17.1 This ground is common to the ground raised by the assessee in its appeal for the assessment year 2002-03. Accordingly, in view of our findings given in the assessee's own appeal for the assessment year 2002-03 and considering the fact that in the earlier year, the Tribunal has allowed the full claim, therefore, no deduction can be allowed for the year under consideration. Accordingly, this ground is decided against the assessee. 18. Ground No.5 is regarding loss on valuation of securities. 18.1 Similar ground has been raised and decided in assessee's own appeal for the assessment year 2002-03. Therefore, this ground of the assessee for the assessment year 2003-04 has become infructuous and it is hereby dismissed. 19. Grounds No.6 to 9 are regarding transfer pricing adjustment on account of foreign ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 234D based on outcome of the appeals preferred by the respondents. (2) Without prejudice and in any event, the AO be directed to compute interest under Section 234D on the excess of refund granted vide intimation under Section 143(1) exclusive of interest granted under Section 244A vide that intimation." 23.1 Though on principle the levy of interest under Section 234D is decided against the assessee as this issue is common in the assessee's own appeal for the assessment year 2002-03 and revenue's appeal for the assessment year 2003-04, however, learned AR of the assessee has submitted that the AO has computed the interest under Section 234D on the amount including the amount of interest under Section 244A and not on the outstanding tax only. 23.2 We have heard learned AR as well as learned DR and considered the relevant material on record. Since this issue has been raised first time by the assessee and involves verification on facts, therefore, the same is remitted back to the record of the AO to consider the objection of the assessee and then decide as per law. 24. In the result, appeals of assessee and department are partly allowed and the cross objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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