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TMI Blog2022 (12) TMI 997X X X X Extracts X X X X X X X X Extracts X X X X ..... anch Office of Credit Suisse (CSSB) from Credit Suisse Securities (India) Pvt. Ltd., (CSSIPL) and Credit Suisse Finance (India) Pvt. Ltd., (CSFIPL) is not taxable in India u/s.5(2) r.w.s. 9(1)(i) of the Act. The interconnected issue involved therein is as to whether the said fee is taxable in India as fee for technical services u/s.9(1)(vii) of the Act. 3. We have heard rival submissions and perused the materials available on record. The assessee is a company incorporated in Switzerland and is a tax resident of Switzerland. The Singapore branch office of the assessee (CSSB) is registered with Securities and Exchange Board of India (SEBI) as a Foreign Institutional Investor (FII) and conducts portfolio investments in Indian securities in its capacity as a SEBI registered FII. The assessee has a bank branch office in Mumbai (CSMB) which is registered with the Reserve Bank of India and undertaking banking operations in India. Since CSAG (i.e. assessee) is a tax resident of Switzerland, the assessee has opted for benefit of Indo-Swiss DTAA in respect of income earned by CSSB and CSMB. The CSMB constitutes a fixed place Permanent Establishment (PE) of CSAG (i.e. assessee) in India as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred 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 Officer is that said referral fee is in the nature of "fee for technical services‟. The expression "fees for technical services‟ finds meaning in Explanation(2) below Section 9(1)(vii) of the Act; broadly speaking, the Explanation prescribes that "fees for technical services, means any consideration for rendering of any managerial, technical or other consultancy services, including the provision of services of technical or other personnel, but does not include consideration for any construction, assembling, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "salaries‟. At this stage, we may briefly touch upon the nature of the impugned referral fee earned by the assessee. The relevant discussion in the orders of the authorities below reveal that CSDB referred an India resident client to the investment banking division ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute 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. Thus, considering that the referral activity was undertaken outside India and assessee‟s Mumbai branch (PE) had no role to play in the performance of the referral activity, the referral fee of Rs.18,27,90,578/- earned by CSDB could not be construed to be attributable to assessee‟s PE in India and thus, the DRP rightly applied Article 7 of Indo- Swiss Double Taxation Avoidance Agreement (DTAA) and held the same to be non-taxable in India. The aforesaid conclusion of the DRP is hereby affirmed. Therefore, considering the short point on the basis of which the DRP has allowed the plea of the assessee, we dispose of the aforesaid appeal by affirming the ultimate direction of the DRP. Thus, Revenue fails in its appeal." 3.1. Respectfully following the same, the ground Nos. 1 & 2 raised by the Revenue are dismissed. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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 before us, 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 we answer question No.1 referred to this Special Bench in the negative i.e. in favour of the assessee and question No.2 in affirmative i.e. again in favour of the assessee." 4.2. The ld. DR vehemently argued that the wordings of Double Taxation Avoidance Agreement between India and Japan which was considered in Sumitomo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the provisions of the Act, based on principles laid down in the Act. He further argued that neither the DTAA between India and Switzerland nor the DTAA between India and Japan would be relevant for determining the taxability of the interest to self. He vehemently argued that the ld. DR was trying to make out a new case before this Tribunal which is not even the case of the ld. AO. 4.5. None of the submissions pointed out hereinabove by the ld. AR were controverted by the ld. DR before us. We find that the issue in dispute has already been the subject matter of adjudication by this Tribunal in assessee's own case for A.Yrs. 2013-14 and 2014-15 vide order dated 05/03/2019 referred to supra wherein it has been held as under:- "6. As regards the argument of the assessee that payment of interest being a payment to self does not give rise to any income, the AO held that the same is not tenable because of the deeming provisions contained in article 7 of the treaty providing that the income of the branch should be computed as if it is a separate and distinct entity from the non resident. He held that the branch in India thus has to be treated as if it is an entity separate from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amro Bank NV v. Asstt. DIT [2005] 98 TTJ 295/97 ITD 89 wherein it was held that identity of head office and the branch being same, there cannot be any expenditure in case of Indian branches for the interest payable to the head office. Following the said decision of the Tribunal in the case of ABN Amro Bank NV (supra), he held that interest payable by the Indian branches of the assessee bank to its head office could not be allowed as deduction while computing the income of the Indian branches. Accordingly the addition made by the AO on account of disallowance of interest payable by the Indian branches to the head office while computing the profit attributable to the said branches constituting PE of the assessee bank in India was confirmed by the learned CIT(Appeals). He also held, following the decision of the Tribunal in the case of ABN Amro Bank NV (supra), that such interest not being allowable as deduction while computing the income of the Indian branches which constituted permanent establishment of the assessee bank, could not be brought to tax in India as income of the head office of the assessee bank. The addition made by the AO on account of such interest receivable by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o it in India and the interest payable to head office has to be allowed as expenditure. He submitted that it was also held by the Hon'ble Calcutta High Court that tax is not deductible from such interest payable by the PE in India to the overseas head office of a foreign bank and there is no question of making disallowance of such interest expenditure by invoking the provisions of section 40(a)(i). 10. Shri Pardiwala took us through the provisions of article 7(2) and 7(3) of the Indo-Japanese DTAA placed at page No. 133 of the Revenue's paper book II. He also took us through para 7 and 8(1) of the protocol placed at page No. 148 of the Revenue's paper book II. He submitted that this portion of the protocol makes it clear that as per article 7(2) read with article 7(3) of the Indo-Japanese treaty, interest payable by PE in India to the overseas head office is an allowable expenditure while computing the profit attributable to the PE only in case of banking institution. He contended that such interest under the domestic law no doubt cannot be claimed as deduction by the assessee being payment to self but under the relevant treaty, the assessee is entitled to claim dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia, it brings itself within the fiscal jurisdiction of India. He invited our attention to the observation recorded by the Hon'ble Supreme Court in the case of Hyundai Heavy Industries Co. Ltd. (supra) at page No. 492 of the report treating the permanent establishment as a distinct and separate entity. He also invited our attention to the observations recorded by the Hon'ble Supreme Court at page 493 of the report to the effect that when GE sets up a PE in another country, it brings itself within the fiscal jurisdiction of that country to such a degree that such other country can tax all profits that the GE derives from the source country, whether through a PE or not. It was held that it is the act of setting up a PE which triggers the taxability of transactions in the source state. 4.6. Respectfully following the same, the ground No.3 raised by the Revenue is dismissed. 5. The ground No.4 raised by the Revenue is challenging the action of the ld. CIT(A) wherein the ld. CIT(A) had directed the ld. AO to delete five items while calculating book profits u/s.115JB of the Act. The interconnected issue involved therein is whether the provisions of Section 115 JB of the Act pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e placed by the ld. DR on the decision of the Authority of Advance Ruling, New Delhi reported in 234 ITR 335 (AAR) has been considered by the Delhi Tribunal in para 62 of the decision. The ld. AR also argued that this decision of Delhi Tribunal has been upheld by the Hon'ble Delhi High Court in ITA No.604 & 605 of 2015 dated 08/04/2016. 5.4. Further the ld. DR also placed reliance on the decision of Authority of Advance Rulling, New Delhi in the case of Castleton Investment Ltd., in re*- reported in 348 ITR 537. The ld. DR also submitted that this decision of Authority of Advance Rulling, New Delhi was approved by the Hon'ble Supreme Court in the case of Castleton Investment Ltd., vs. Director of Income Tax (International) Taxation, Mumbai reported in 379 ITR 363. We have perused the decision of the Hon'ble Supreme Court in 379 ITR 363. For the sake of convenience, the said order is reproduced below: 1. Interlocutory application for intervention is allowed. 2. In these appeals order of the Authority for Advance Rulings (Income Tax), New Delhi, (hereinafter referred to as 'AAR') passed on 14.08.2012 is questioned. The basic issue, which is raised, pertains to the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablishment in India, have been under consideration of the Government. In this regard, the Government has already clarified the inapplicability of MAT provisions to FIIs/FPIs. The Government has now considered the issue of applicability of MAT under section 115JB of the Income Tax Act to foreign companies having no place of business/permanent establishment in India. After due consideration of the various aspects of the matter, the Government has decided that with effect from 01.04.2001 the provisions of section 115JB shall not be applicable to a foreign company if- the foreign company is a resident of a country having DTAA with India and such foreign company does not have a permanent establishment within the definition of the term in the relevant DTAA, or the foreign company is a resident of a country which does not have a DTAA with India and such foreign company is not required to seek registration under section 592 of the Companies Act 1956 or section 380 of the Companies Act 2013. An appropriate amendment to the Income Tax Act in this regard will be carried out." 5. Learned Attorney General has made a statement at the Bar that the Government would abide by the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Bill 2002 which sought to amend Section 115JB of the Act provided as under:- "The existing provisions of the said section provide for levy of a minimum, tax on domestic companies of an amount equal to seven and one-half per cent., of the book profit, if the tax payable on the total income chargeable to tax as per the provisions of the Income-tax Act, 1961, is less than seven and one-half per cent of the book profit.... Sub-clause (a) seeks to provide that where the tax payable on the total income chargeable to tax is less than seven and one-half per cent. of book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income shall be the. amount of income-tax at the rate of seven and one-half per cent." This amendment will take effect retrospectively from 1st April, 2001, and will, accordingly, apply in relation to the assessment years 2001-2002 and subsequent years." 5.8. This makes the intention of the legislature very clear that MAT provisions are applicable only to domestic companies and not to foreign companies. 5.9. We are conscious of the fact that an amendment has been brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent; or (ii) the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies. 5.10. From the conjoint reading of the explanatory memorandum and giving purposive interpretation to the provisions of Section 115JB of the Act and intent behind introducing the same and also considering the fact that the accounts of foreign company are not prepared in accordance with Part II and Part III of Schedule-VI of companies Act 1956 and their accounts not being laid in Annual General Meeting before the shareholders of the company for approval, we hold that provisions of Section 115JB of the Act cannot be made applicable to a foreign company. 5.11. The Explanation-4 to Section 115JB of the Act could be viewed from another perspective also. This Explanation-4 has been introduced with retrospective effect from 01/04/2001 in the Act, meaning thereby that the retrospective amendment is clarificatory in nature which seeks to address series of orders issued by Authority of Advance Rulling which had held that FPIs are required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee by directing the ld. AO to delete the aforesaid five items while computing book profits u/s.115JB of the Act. Accordingly, it is also clear that MAT could not be applied even to foreign companies which have PE in India as it would be contrary to the basic foundation of the applicable treaty. 5.15. Moreover, we also find that different tax treatment has been prescribed in India-Switzerland treaty for each of the aforesaid five items of income. For example, Article 11 / Article 12 of the treaty prescribes a tax rate of 10% for interest income and IT support charges earned by the assessee. Similarly, capital gains earned by the assessee are not liable to tax in India by virtue of Article 13(6) of the treaty. Hence, applying the MAT provisions to these items of income would result in assessee being denied the benefits of the treaty. We have already stated that the provisions of Section 90(2) would override provisions of Section 115JB of the Act despite the fact that Section 115JB of the Act is a special section and a complete code by itself. This short aspect is also addressed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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