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TMI Blog2018 (5) TMI 344X X X X Extracts X X X X X X X X Extracts X X X X ..... old that in the interest of justice matter should be restored back to the file of the AO for fresh adjudication. Direct the AO to go through the various transactions entered in to by the German Bank with the Indian borrowers and find out as to whether the functions performed by the DZ India Bank were of preparatory /auxiliary nature or it was working as an agent of the German Entity. The correspondence between the borrowers, the lender and the Indian Bank as well as the documents related with money lending transactions should to examined to arrive at a definite conclusion - I.T.A./692/Mum/2016 - - - Dated:- 2-5-2018 - Sh. Rajendra, Accountant Member And Ramlal Negi, Judicial Member For The Revenue : Shri Samuel Darse,CIT DR For The Assessee : Sh.Percy Pardiwala and Nitesh Joshi Order u / s . 254 ( 1 ) of the Income - tax Act, 1961 ( Act ) - PER RAJENDRA, AM Challenging the order of the Assessing Officer(AO), passed u/s. 143(3) r. w. s. 144C(13) of the Act, in pursuance of the Directions, dtd. 02. 11. 2015 of the Dispute Resolution Panel(DRP)-2, Mumbai, the assessee has filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered a Permanent Establishment(PE)of the head office in India and that the interest income/any other income and by the head office from the operations in India should not be taxed at the rate of 40% as per the provisions of the Act. Vide its letter, dated 19/03/2015, the assessee filed detailed submissions and relied upon certain case laws. The AO, after considering the letter of the assessee, held that DZ bank India as a representative of the German entity was actually involved in various activities on be of its head office, that DZ bank India would approach Indian banks/financial institutions/corporate entities and would appraise them about the products and services that the German entity would offer, that it would initiate discussion with the potential customers, that DZ bank India would approach its head office/overseas branches with the funding opportunity, that it would collect from the customers and provide the necessary information to facilitate that due diligence at the head office/overseas branches, that it would collect and provide information in respect of the financial statements of the clients, revenue projections, history and background of the company for the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia office constituted a PE for the German entity, that taxability of interest under the Act was not in dispute, that the only dispute regarding taxability under the act was whether the provisions of section 9 (1) (i) or section 9 (1) (v) would apply, that provisions of section 9 would apply only in the cases of non-residents and that it had no relevance in case of a resident, that the assessee had PE in India, that all the provisions of the Act would apply as they would apply to a resident. With regard to Article 11 of the India Germany tax treaty, the DRP held that taxability of interest income at the rate of 10% in the hands of head office was not relevant as the India office constituted a PE. With regard to the order of Clough Engineering Ltd. (2011-64-ITAT-DEL-SB-INTL)and the judgment of the Hon ble Bombay High Court in the case of DHL OperationsB. V. (TS-439-HC-2014), relied upon by the assessee, the DRP held that both the decisions were in relation to taxability of interest on income tax refund granted to a PE in India under section 244 A of the Act, that the responsibility of paying tax on the income of a PE was the responsibility of the assessee and not that of the PE, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on granted by the RBI was irrelevant to determine the true character of the activities and the functions of India office, that the relation between the money-lending by head office/branch offices and the function done by the India office was real, intimate and intricate, that the money692/ lending business could not have been conducted by the head office or the branch in the manner it was being done without the active role of the Indian office, that the Indian entity was not a mere communication channel but played a serious and significant role that included even signing of agreements and also taking steps for recovery in case of delay in default, the India office would participate actively in the deal-making including signing of agreements though in the name of head office/branch, that it participated in the discussion and negotiations, that it also constituted an agency PE, that the name on whose behalf the agreement was signed was not important to prove the existence or absence of a PE, that the mere fact that the terms of the deal were approved by the age of before it resulted into an agreement was irrelevant, that there was no denial that India office played the significant ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome that was connected with PE. On a query by the Bench, it was stated that assessment for the earlier three years i. e. assessment years 2008-09, 2009-10 and 2010-11, were reopened by the department. 5 . 1 . The Departmental Representative (DR)stated that the involvement of the representative office in scouting the customers, giving specific inputs to the HO and its branches about the prospective clients, negotiating with the clients, signing loan agreements and follow up in recovery of interest and principals were the functions of main business of banking of the assessee, that those functions could not be regarded as auxiliary or preparatory, as claimed by the assessee, that the India Representative office habitually exercised authority to conclude contracts for and on behalf of the head office or the overseas branches, that it also secured orders for the head office/overseas branches, that the AO had rightly held that representative office was the PE of the assessee in India that any business transaction of head office in India was incomplete without active participation and involvement of the assessee, that the India office constituted a business connection, that the ..... 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