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TMI Blog2016 (4) TMI 1117X X X X Extracts X X X X X X X X Extracts X X X X ..... ssets and liabilities were under process of transfer to LRA-India Branch office(LRA-IBO) and LRAQIndia Branch Office(LRAQ-IBO).Lloyds Register UK entered into licence agreement on 16.7.2003 with LRA and LRQA and certain rights were transferred to them. During its world-wide corporate-restructuring, Lloyds applied for closure of its Branch vide its application dated 13.10.2003 and RBI granted final approval vide its letter dated 02.12. 2005. Even after closure of its India Branch office, the assessee was filing its return of income from AY.2005-06 onwards as it had started earning royalty income from its two subsidiaries i.e.LRA and LRQA.As stated earlier, it entered into two types of agreements. First agreement i.e. licence agreement dealt with the right to use the intellectual property and technical and marketing support services to various clients against the payment of royalty. The agreement was entered into between Lloyds Register UK and Lloyds Register Asia Ltd. and LRA. The second agreement was termed as management services agreement. As per the agreement Lloyds register UK and Lloyds Register Asia Ltd. were the service provider and LRQA was service recipient. Both the agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MS was towards adoption and carrying out policies of the organisation, that even if services were treated as TS-it had to be made available as per the Article 4(c) of the tax-treaty, that such services were not taxable under the treaty and that the fact was accepted by the AO himself, that the definition of FTS in the Act and in the DTAA is not the same, the definition of FTS in section 9 had a specific meaning of the expression MS, that in the India-UK-DTAA the word managerial services was not there, that in the license fee agreement it was stated that licensees wished to use the IPR and the technical/marketing services, that in the MS agreement it was mentioned that service provider had specific knowledge and skills in the fields of commerce, finance, law, administration and manage -ment, that these were essential to enable the service recipients as a whole to benefit from such specialised knowledge and skill in order to carry out the objectives of promoting safety on land and at sea and in air, that it could not be basis for linking MS with licence fee, that in transfer pricing assessment no nexus had been found between license agreement and management fee agreement, that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arges were taxable in India, that the entire receipt should be treated as FTS. The authorised representative(AR)referred to page is 35, 38, 43, 51, 54, 56 of the paper book and analysed the provisions of various schedules of the agreements i.e. royalty agreement and managerial service agreement. He stated that consideration for use of IPR and consultancy were covered by the other agreement, that intangible rights and technical services were rendered as per the provision of the said agreement, that managerial services were different, that they were not for exploiting intangible properties, that the AO had discussed the managerial services at pages four and five of his order, that the services provided by the assessee were not in the nature of technical or consultancy services, that general, advisory, administrative, supervisory services could be considered MS. Referring to the provisions of Article 13(4)(a) of the DTAA, he argued that services rendered by the assessee could not be taxed under the head MS, that nothing was made available by the assessee. He referred to the cases of De Beers India Minerals (P.)Ltd.(346ITR467), and Guy Carpenter & Co.Ltd.(346ITR505).He further stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicating the appeal, filed by the AO, we have restored back the matter to the file of the FAA for fresh adjudication.Following that, ground no.1 is stands in favour of the asessee, in part. 8. Next Ground is about disallowance of business loss of 38.57 lakhs to be set off against long-term capital gain and income from other sources. During the assessment proceedings the AO held that the assessee had admitted that with effect from 01/04/2004 it had discontinued its business and it had no PE in India, that the business profit could not be tax in India in view of Article 7 of the India-UK DTAA, that the profit included loss and once the assessee had taken the benefit of DTA a the loss arising under the head business income could not be set of against any other head of income, that no business Activity was carried out by the assessee, that business loss could not be adjusted against the taxable royalty income. 9. Aggrieved by the order of the AO, the assessee preferred an appeal before the FAA. Before him, it was argued that though the assessee had discontinued its India operations yet it wasn't process of transfer of assets to LRA-IBO and LRAQ-IBO, that it wasn't process of win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company incorporated in and controlled from Japan carrying on banking business in India. It was noted by the AO that interest was provided by the Indian branch offices of the assessee bank as payable to its Head Office and overseas branches and tax at source was not deducted by the assessee from the said interest. He held that interest payable by the branches of assessee bank in India to its head office and London branch office was chargeable to tax in India and the Indian branches were liable to deduct tax at source. Since no such tax was deducted at source AO disallowed the interest so paid u/s.40(a)(i) of the Act. The FAA deleted the addition and held that interest was allowable as deduction while computing the profits of the Permanent Establishment in India for the purpose of taxation in India as per article 7(2) and 7(3) of India Japan treaty read with paragraph No. 8 of the protocol. Following question were framed by the special bench of the Tribunal, while hearing the appeal: 1. Whether or not on the facts and in the circumstances of the case, the CIT(A) was justified in holding that interest payable by the Indian PE of the foreign bank to its HO and other Overseas Branche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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, the learned representatives of both the 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 PE, the question of disallowance of the said interest by invoking the provisions of section 40(a)(i) does not arise. Accordingly question No.1 is answered in favour of the assessee and question No.2 in affirmative i.e. again in favour of the assessee." Respectfully following the above order, we are of the opinion that FAA was not ju ..... X X X X Extracts X X X X X X X X Extracts X X X X
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