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TMI Blog2020 (1) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... whether or not interest received by the Head Office/overseas Branches from the Indian Branch is taxable in India is a highly debatable issue and the position of law prevailing at the time of completion of assessments as per the available judicial precedents on the issue, clearly held that the interest income was not taxable as it is governed by the principle of mutuality. Therefore, it cannot be said that it is not a possible view. Rather, the assessment orders would have been erroneous had the Assessing Officer taxed the interest income received from the Indian Branch overlooking the decision of the Special Bench in case of Sumitomo Mitsui Banking Corporation [ 2012 (4) TMI 80 - ITAT MUMBAI] which was available at the time of completion of assessments. Even, assuming for the sake of argument that Explanation (a) to section 9(1)(v)(c) of the Act will apply retrospectively, however, proceedings under section 263 of the Act cannot be initiated on the basis of such retrospective amendment as the AO has to proceed on the basis of law prevailing as on the date of assessments. Thus, looked at from any angle, the assessment orders cannot be considered to be erroneous and prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taxable in India as per the provisions of India USA Double Taxation Avoidance Agreement (DTAA) as business profits through its Permanent Establishment (PE) i.e., the Indian branch. Since, the Assessing Officer had not brought to tax the interest income at the hands of the Head Office/overseas branches, the learned CIT was of the view that the assessment orders are erroneous and prejudicial to the interests of Revenue. Accordingly, he issued show cause notices to the assessee to explain as to why the assessment orders should not be revised. In response to the show cause notice issued by the learned CIT, the assessee furnished its detailed reply objecting to the initiation of proceedings under section 263 of the Act. However, the submissions made by the assessee did not find favour with learned CIT. He observed, as per the existing provision of India USA Tax Treaty, interest income is taxable in the source country. He observed, since the assessee has a PE in India through its Branch Office, the interest income is taxable in India. He observed, the Branch Office in India and the Head Office are two separate entities. He observed, once the assessee opts to be governed under the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as accepted assessee s claim while completing the assessment. He submitted, as per the ratio laid down in the judicial precedents cited before the Assessing Officer, interest paid by the Indian Branch to Head Office/overseas branches is not taxable as it is considered to be a payment made to self, hence, governed under the principle of mutuality. He submitted, since the Assessing Officer was bound by the ratio laid down in the judicial precedents, he has acted in a judicious manner while accepting assessee s claim. Therefore, the assessment orders cannot be treated as erroneous. Further, he submitted, the issue is otherwise squarely covered in favour of the assessee by the Special Bench decision of the Tribunal, in Sumitomo Mitsui Banking Corporation (supra) wherein it has been held that interest paid by the Indian Branch to the Head Office/overseas branches is covered under the principle of mutuality as it is a payment made to self. Therefore, under the provisions of the Act, it is not taxable. He submitted, the Bench has also held that since the provisions of the Act is more beneficial, it will prevail over the provisions of the Tax Treaty. Thus, he submitted, keeping in view the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng specific query regarding the interest received from the Indian Branches. In response to the query raised by the Assessing Officer, the assessee has also furnished detailed reply stating the reasons why the interest received from Indian Branches is not taxable. In support of its claim, the assessee has relied upon certain judicial precedents. The Assessing Officer after considering the submissions of the assessee has ultimately concluded the assessments excluding from taxation the interest income received from Indian Branch. As could be seen from the impugned orders of learned CIT, the primary reason on which he considers the assessment orders to be erroneous and prejudicial to the interest of Revenue is, interest received from the Indian Branch is taxable in India as per Article 14(6) of the India USA Tax Treaty. According to learned CIT, the provisions of Tax Treaty will prevail over the provisions of the Act. Of course, learned CIT by referring to the Explanation (a) to section 9(1)(v)(c) of the Act, has also held that the interest income is taxable even under the provisions of the Act. The issue relating to the taxability of the interest paid by Indian Branch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and shall be chargeable to tax in addition to any income attributable to the PE in India. It further says that the PE in India shall be deemed to be a person separate and independent of the non resident person. In our view, the aforesaid provision would apply prospectively from 1st April 2016 and not prior to that. The aforesaid view has been expressed by the Co ordinate Bench in DCIT v/s BNP Paribas S.A. (supra). Therefore, Explanation (a) to section 9(1)(v)(c) of the Act cannot be pressed into action for bringing to tax the interest income in the impugned assessment years. In any case of the matter, the issue, whether or not interest received by the Head Office/overseas Branches from the Indian Branch is taxable in India is a highly debatable issue and the position of law prevailing at the time of completion of assessments as per the available judicial precedents on the issue, clearly held that the interest income was not taxable as it is governed by the principle of mutuality. Therefore, it cannot be said that it is not a possible view. Rather, the assessment orders would have been erroneous had the Assessing Officer taxed the interest income ..... 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