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TMI Blog2019 (5) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... o Mitsui Banking Corporation [ 2012 (4) TMI 80 - ITAT MUMBAI] held that wherein Indian Branch of foreign bank paid interest to head office and other overseas branches of the Foreign Bank, on advances received by it, said interest is neither deductable in the hand of Indian Branch or chargeable to tax in the hand of head office and overseas branches being all single entity. Similar contention as raised by AO in the present case that provision of section 9(1)(v) prescribed that interest payable by PE in India being income deemed to accrue or arise in India is chargeable to tax. The Special Bench further held that such interest payable by PE to head office being payment made to self does not give rise to income i.e. chargeable to tax in India as held by Hon ble Supreme Court in Kikabhai Premchand [ 1953 (10) TMI 5 - SUPREME COURT] and the question of bringing the said income to tax by relying on the provision of section 9(1)(v), therefore, does not arise. The interest paid to head office of the assessee bank by its branch which constitute its PE in India is not deductible as expenditure under the domestic law being payment to self, the same is taxable by determine the profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Fees for Technical Services under the provisions of the Act and concluding that the referral fees are deemed to accrue or arise in India per the provisions of section 9(1)(vii) of the Act. 3. In holding that the interest paid by Credit Suisse AG, Mumbai Branch ('CSMB') to its Head Office ('HO') and CSSB, on amounts borrowed by CSMB from the HO and CSSB, is income attributable to the HO / CSSB and liable to tax in India in the hands of the HO and CSSB. 4. In initiating penalty proceedings under section 271(1)(c) of the Act on the basis that the Appellant has concealed particulars of income and furnished inaccurate particulars of income. 2. At the outset of hearing, the ld. Authorized Representative (AR) of the assessee submits that all the grounds of appeal raised by assessee in the present appeal are squarely covered in favour of assessee and against the revenue in assessee s own case for Assessment Years 2011-12. The ld. AR of the assessee further submits that ground no.1 2 of the appeal are covered in favour of assessee in assessee s own case for Assessment Years 2011-12 in ITA No. 7357/Mum/2016 and ITA No. 7357/Mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of the source of the referral fee being located in India, the same was taxable in India. In coming to such conclusion, the Assessing Officer differed with the assessee on the nature of the impugned fee, which according to him was in the nature of fee for technical services and not business income as contended by the assessee. For the said reasons, the Assessing Officer brought to tax a sum of ₹ 18,27,90,578/- to tax in hand of the assessee as fee for technical services earned by CSDB in the draft assessment order passed u/s.144C(1) read with section 143(3) of the Act dated 25.03.2015. Against the said order, the assessee raised various objections before the DRP, inter-alia, assailing the stand of the Assessing Officer of not treating the referral fee as business income but fee for technical services and also contended that such fee was not taxable in the hands of the assessee in India. The order of the DRP has captured the various submissions of the assessee in detail, which we are not repeating here because the DRP has ultimately upheld the plea of the assessee of nontaxability of the said receipts in India on a short point, which is to the effect (i) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee is that considering the fact that the referral fee is in the nature of commission income, the DRP made no mistake in treating it as not taxable in India in view of the Article 7 of the Indo-Swiss Double Taxation Avoidance Agreement (DTAA). 7. We have carefully considered the rival submissions. As the aforesaid discussion shows, the short controversy before us relates to the nature and chargeability to tax of referral fee of ₹ 18,27,90,578/- received by assessee s Dubai Branch (CSDB) from the Indian Company. The charge of the Assessing Officer is that having regard to Section 5(2)(b) read with section 9(1)(i) of the Act, the said income is includible in the scope of total income chargeable to tax in India. To put it differently, as per the Assessing Officer, referral fee is deemed to accrue or arise in India and therefore, the same is taxable in India. This has been inferred on the strength of the fact that the fee has been paid by the Indian Company after execution of the work of the referred client based in India and therefore, the source of the fee is located in India. Allied to the aforesaid stand, the perception of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., (supra) wherein also referral fee earned by a non-resident assessee from an India based entity for referring certain international clients was held not to be in the nature of fees for technical services within the meaning of Section 9(1)(vii) of the Act. Notably, the aforesaid decisions have also been referred and relied upon by the DRP in concluding that the referral fee is in the nature of commission to be taxed as business income and not as fees for technical services . In the course of hearing before us, no decision to the contrary has been brought out by the Revenue. For all the said reasons, we are unable to uphold the stand of the Assessing Officer that the impugned referral fee was a consideration in the nature of fees for technical services . 8. Another factual aspect which is not in dispute is that CSDB has no PE in India and also the fact that assessee s PE in India i.e., Mumbai bank branch had no role to play in the performance of the referral activity in question. Neither the discussion in the draft assessment order and nor in the course of hearing before us any credible assertions to the contrary has been brought out by the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee submits that the submission of ld. DR for the revenue is not acceptable as the interest paid by assessee to its head office being payment made to self does not give rise to any income i.e. chargeable to tax in India as held by Hon ble Supreme Court in Kikabhai Premchand (24 ITR 506 (SC). 9. We have considered the rival submission of the parties and have gone through the orders of authorities below. During the assessment, the Assessing Officer concluded that interest payment made to head office is attribution to the interest income of head office as provided under Article- 7(2) of India - Switzerland Tax Treaty on the basis of function carried out, assets deployed and the risk assumed by the head office and not to be considered as expenditure as there is no concept of income from salary. The Assessing Officer also concluded that the income shown in the Profit Loss Account of assessee will be reduced to the extent of income attributed to head office. The interest attributed to India Branch shall be part of business income of Indian Branch whereas the interest attributable to head office would be taxable under domestic source of rule of taxation under se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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