9911796707
TMI Blog2024 (4) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... ome in the hands of Head Office - HELD THAT:- Identical issue is decided in favour of the assessee in the A.Y. 2001-02 [ 2023 (11) TMI 1250 - ITAT MUMBAI] interest paid by Branch to the Head office is not taxable under the domestic laws for the year under consideration. Disallowance of interest paid to Head Office - assessee submitted that Assessing Officer held that interest income is taxable under DTAA at 10% in the hands of the HO and disallowed the claim of deduction on account of non-deduction of tax which is allegedly deductible at source - HELD THAT:- Identical issue is decided in favour of the assessee for the A.Y. 2001-02 [ 2023 (11) TMI 1250 - ITAT MUMBAI] to allow the deduction of interest paid to HO/OB in line with the decision of the Mumbai Special Bench in case of in case of Sumitomo Mitsui Banking Corporation [ 2012 (4) TMI 80 - ITAT MUMBAI] Further, the Appellant submit that Special Bench decision in case of Sumitomo (supra) is not only dealing with India-Japan Tax Treaty but also dealt with India-Netherland Tax Treaty. Your Honour will appreciate that the language of India-UK Tax Treaty (applicable in case of the Appellant) is in line with India-Netherland Tax Trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l transaction there has to be certain documents justifying the allocation with proper allocation key, which has to be documented with mutual agreement for demonstration of acceptance of such allocation key. Once the branches and head office justifies the allocation key for allocation of various expenses, it justifies the purpose of sharing the internal costs. We observe that these costs are not just shared this year, it is a regular practice over the years by the head office or relevant branches which does services by submitting the various costs with proper allocation key. It is brought to our notice that various services are offered by the head office and relevant branches which also demonstrates the increase in the volume of business as well as services to Indian customers, this itself a benefit derived by the Indian branch. Therefore, in sum and substance, we observe that AO has intended to disallow the whole cost allocation made by the Head office to toe along with the findings in the earlier assessment years and not inclined to relook at the actual material or facts on record. In our view, he has grossly rejected the documents and justification submitted by the assessee. We d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant to note that it has acquired the running retail portfolio business. Therefore, it is only a trading assets acquired by it. In our view, the assessee will get the benefit based on the tenure of this trading assets. It was submitted by the Ld AR that the tenure of this retail loans are for the period 2 to 5 years. Therefore, cost verses benefit has to be recognized in this transaction. The assessee has benefitted and recognized the income in the next 5 years, hence, in our view, it should be treated as deferred revenue expenditure and allocated in 5 equal installments. Therefore, we direct the AO to allow 1/5th of the cost in this assessment year and balance can be carried forward to the subsequent years. Accordingly, the ground raised by the assessee is partly allowed. Deduction of Head office expenditure - HELD THAT:- Head office expenditure is allowed in entirety under the provisions of Article 26 of the tax treaty without the applicability of restriction under section 44C of the Act, and as the submissions by assessee not controverted by the Revenue, In view of this, ground of appeal of the assessee is allowed. - Shri S. Rifaur Rahman, Hon'ble Accountant Member And Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle of mutuality as laid down by the Hon'ble Special Bench of the Mumbai ITAT in the case of Sumitomo Mitsui Banking Corporation when in fact the assessee has been taxed as per the beneficial provisions of the DTAA under which the Head office and the Branch office of the assessee bank are two distinct and separate entities under Article 7(2)/7(3) of the said DTAA and which allows for deduction of interest expense as also for taxation in source State of the payment of interest by a PE to its HO. 6. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in applying the principle of mutuality to when in fact the assessee has been taxed as per the beneficial provisions of the DTAA under which the Head office and the Branch office of the assessee bank are two distinct and separate entities under Article 7(2)/7(3) of the said DTAA and which principle has also been upheld by the Hon'ble Kolkata High Court in the case of ABN Amro Bank in L.T.A. No. 458 of 2005. 7. On the facts and circumstances of the case and in law, the Ld CIT(A) erred in holding that the interest paid by the Branch office to the Head office/Overseas branches is a deductible expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain portion of their salary was paid in their home country (outside India) which has been claimed as deduction by India Branch and the said portion of salary is a subject matter of dispute. This component of salary has been offered to tax as salary income in India by the employees in their individual tax returns and has already been subjected to tax deduction at source as salary by India Branch of the Bank. Further, he submitted that Assessing Officer disallowed the claim u/s 37(1) and section 44C of the Act which was set-aside by the Ld.CIT(A) relying on ITAT orders in assessee's own case and Ld.CIT(A) orders for the past assessment years. The Department raised this new ground of taxability of salaries to expatriates under section 28(iv) of the Act for the first time before the Hon ble ITAT bench, the basis of put forth by them are viz., these salaries are actually paid by India Branch to HO, etc. 8. Further, Ld.AR of the assessee brought to our notice that the issue under consideration in this appeal has considered by the Co-ordinate Bench of this Tribunal in assessee s own case and decided the issue in favour of the assessee and against the department. 9. Considered the riva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment As Shri Agarwal, learned counsel for the assessee, rightly points out, the fiction of the hypothetical independence of a PE, as inherent in the scheme of Article 7(2), is confined to the computation of PE profits under Article 7(2). Under the scheme of Article 7(2), one has to visualize a situation of hypothetical independence of the source jurisdiction's PE vis-a-vis it's GE (i.e. the foreign company, which is also referred to a the 'general enterprise') and other PEs outside the source jurisdiction, but then such a visualization of the state of things is only to compute the profits which the source jurisdiction PE might have made if such hypothetical independence was to exist. This fict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d office? The answer, in our humble understanding, is emphatically in negative. Therefore, under fiction envisaged in article 7(2), which requires Indian PE to be treated as wholly independent for the purpose of profit computation of the PE, the expenses incurred by the HO, which are exclusively for the benefit of the PE, are required to be treated as expenses relatable to the PE and, as such, taken into account in the computation of the profits attributable to the Indian PE. It is for this reason that the expenses incurred by the HO, though relatable to the PE, are allowed as a deduction in the computation of income attributable to the PE. The next question is as to what is the impact of the Indian PE not reimbursing the costs so incurred, for the benefit of the Indian PE, by the Korean HO. In our considered view it has no impact on income computation so far as PE profits are concerned, as a taxable unit is only the HO or the Korean company. Its importance, if at all, is only from the point of view of cash flow, but then a cash flow, or absence thereof, is not a critical factor from the taxation point of view since an intra-company cash flow simpliciter is tax neutral- unless it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities are proper and he justified the additions, at the same time, he has fairly agreed that the issue under consideration is similar to the issues raised in the earlier assessment years. 12. On the other hand, Ld AR of the assessee submitted that as the assessee is engaged into banking business in India through its branches, the said India Branches borrow from its Head Office / Overseas Branches (HO). On this borrowings, India Branches have paid interest to the HO. The India Branches have claimed deduction of this interest expenses and since, the said interest is not taxable in the hands of the HO, there is no question of tax deduction at source on such interest expense. Further, he submitted that the Assessing Officer held that interest income is taxable under DTAA at 10% in the hands of the HO. The Ld.CIT(A) held that interest is not chargeable to tax in the hands of the HO relying upon the decision in the case of Sumitomo Mitsui Banking Corporation [136 ITD 66] (Mum ITAT -SB), ABN Amro Bank N.V. vs. CIT [2012] 343 ITR 81 (Cal. HC) and the Bank's own case CIT(A) order for AY 2001-02)]. 13. Further, Ld. AR of the assessee brought to our notice that the issue in appeal has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aised by the revenue, but the same is decided in favour of assessee by the Ld. CIT (A) and coordinate bench as mentioned (supra) and Revenue is not in a position to controvert the same with any decision in their favour by any higher judicial forum. Hence, following the legal precedent continuously up till in favour of assessee, Ground raised by the Revenue is dismissed. 15. Respectfully following the above decision and following the principle of consistency, the view taken by the coordinate bench in A.Y.2001-02 is respectfully followed, accordingly, grounds raised by the revenue are dismissed. 16. With regard to Ground Nos. 7 and 8 which are in respect of disallowance of interest paid to Head Office, Ld.DR brought to our notice the relevant facts of the issue raised by the revenue and submitted that the issue brought on record by the lower authorities are proper and he justified the additions, at the same time, he has fairly agreed that the issue under consideration is similar to the issues raised in the earlier assessment years. 17. Ld.AR of the assessee submitted that Assessing Officer held that interest income is taxable under DTAA at 10% in the hands of the HO and disallowed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject to TDS / consequent disallowance under section 40(a) (i) of the Act (copy enclosed at page247 of the Bank s Appeal legal paper book), which read as under: 88. Keeping in view all the facts of the case and the legal position emanating from the interpretation of the relevant provisions of domestic law as well as that of the treaty as discussed above, we are of the view that although interest paid to the head office of the assessee bank by its Indian branch which constitutes its PE in India is not deductible as expenditure under the domestic law being payment to self, the same is deductible while determining the profit attributable to the PE which is taxable in India as per the provisions of article 7(2) 7(3) of the Indo-Japanese treaty read with paragraph 8 of the protocol which are more beneficial to the assessee. The said interest, however, cannot be taxed in India in the hands of assessee bank, a foreign enterprise being payment to self which cannot give rise to income that is taxable in India as per the domestic law. Even otherwise, there is no express provision contained in the relevant tax treaty which is contrary to the domestic law in India on this issue. This position a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial pronouncements cited by the learned representatives of both the sides and the relevant portion of commentaries referred to in support of their respective stand have been considered and deliberated upon by us while arriving at our conclusions. Some of them, however, are not specifically mentioned or discussed in the order as the same have been found to be not directly relevant to the issue or the proposition therein is found to be repetitive in nature which has already been considered by us. We take this opportunity to place on record our appreciation for the assistance provided by the learned representatives of both the sides by making elaborate submissions which has helped us to analysis the legal position emanating from the interpretation of the relevant provisions of the domestic law as well as the relevant tax treaties and apply the same to the facts of the cases before us. 91. The matter will now go before the respective Division Bench for disposing off the appeals keeping in view our decision rendered above. In view of the above, the Appellant submits before us to allow the deduction of interest paid of INR 32, 44,183/- to HO/OB in line with the decision of the Mumba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue. 22. On the other hand, Ld. DR has fairly accepted the submissions of the Ld.AR. 23. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue, the Coordinate Bench ITA.No. 4867/Mum/2017 dated 13.11.2023 held as under: - Ground No. 4: Expenditure on refurbishment of premises 4.1 Ground 4.1 The learned CIT (A) erred in law and on facts to disallow 25% of the expenditure incurred on refurbishment of leasehold premises as capital in nature. 4.2 The learned CIT (A) ought to have allowed the said expenditure as revenue in nature and accordingly disallowance should be deleted. The Appellant submits that this issue is covered in favor of the Appellant by the decision of the Co-ordinate bench of the Tribunal in the Appellant s own case for the assessment year 1999-2000, wherein the Tribunal following the decision of Hon ble Supreme Court in the case of Madras Auto Service Pvt. Ltd. [233 ITR 468] (Copy of decision is enclosed in the Bank s legal paper book at page 336) allowed the deduction for the entire refurbishment expenses (Copy of A.Y. 1999-00 ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive, the assessee claimed depreciation on capital investment; in the alternative, the assessee claimed deduction of the payments as business expenditure or as extra rent for the lease. Ultimately, the Income-tax Tribunal has held that the expenditure of the said two amounts for the construction of a new building is in the nature of business expenditure for proper carrying on of the business of the assessee. The Tribunal has, therefore, treated these amounts as revenue expenditure and allowed a deduction in that regard to the assessee. The claim of the department that the expenditure was capital expenditure and was, therefore, not deductible was negatived by the Tribunal. On the application of the department the Tribunal referred the following question to the High Court for its determination under Section 256(1) of the Income-tax Act, 1961: Whether on the fact and in the circumstances of the case the Appellate Tribunal was right in holding that the building expenses of Rs. 1,62,835/- are not liable to be taken into account as deductible expenditure in arriving at the real income of the assessee for the assessment year 1968-69? For the next assessment year, a similar question was ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital expenditure and revenue expenditure in our country was laid down by this Court in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, West Bengal (27 ITR 34). In that case, the appellant-company had acquired from the Government of Assam lease of certain lime-stone quarries for a period of 20 years for the purpose of manufacture of cement. The lessee had, inter alia, agreed to pay an annual sum during the whole period of the lease as a protection fee and in consideration of that payment, the lessor undertook not to grant to any person any lease, permit or prospecting license for lime-stone. This Court examined tests laid down in various cases for distinguishing between capital expenditure and revenue expenditure. One of the standard tests now in use was laid down in the case of Atherton v. British Insulated and Helsby Cables Ltd. ([1925] 10 Tax Cases 155). It said: When an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit ourselves to examining a few cases where the assessee, by expending money, created and asset of an enduring nature. However, the asset so created did not belong to the assessee. In such a situation the courts have held that the expenditure was for better carrying on of the business of the assessee and could be allowed as revenue expenditure, looking to the circumstances of each of those cases. Thus in Lakshmiji Sugar Mills Co. P. Ltd. v. Commissioner of Income-tax, New Delhi (82 ITR 376) the assessee company was carrying on the business of manufacture and sale of sugar. It paid to the Cane Development Council certain amounts by way of contribution for the construction and development of roads between various sugarcane-producing centers and the sugar factories of the assessee. The roads remained the property of the Government. This Court held that the expenditure was not of a capital nature and had to be allowed as an admissible deduction in computing the profits of the assessee's business. The expenditure was incurred for the purpose of facilitating the running of the assessee's motor vehicles and other means employed for transportation of sugarcane to its factories. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tenements, this Court said that the expenditure was incurred merely with a view to carry on the business of the company more efficiently by having a contented labour force. All these cases have looked upon expenditure which did bring about some kind of an enduring benefit to the company as revenue expenditure when the expenditure did not bring into existence any capital asset for the company. The asset which was created belonged to somebody else and the company derived an enduring business advantage by expending the amount. In all these cases, the expense has been looked upon as having been made for the purpose of conducting the business of the assessee more profitably or more successfully. In the present case also, since the asset created by spending the said amounts did not belong to the assessee but the assessee got the business advantage of using modern premises at a low rent, thus saving considerable revenue expenditure for the next 39 years, both the Tribunal as well as the High Court have rightly come to the conclusion that the expenditure should be looked upon as revenue expenditure. In the premises, the appeals are dismissed with costs. 14. respectfully following the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isregarding the detailed submissions made by the appellant that notification No S.O. 994(E), [NO. 278/2004], dated 1-9- 2004_issued by the CBDT do not include authorisation to the Additional Commissioner of Income-tax (TP - (II)), Mumbai and consequently the order passed by him is bad in law and illegal. 1.3 The Appellant submits that CIT(A) ought to have considered the submissions of the Appellant that Transfer Pricing Order is bad in law and accordingly adjustments made by the AO in the Assessment Order in relation to the Transfer Pricing Adjustment/additions/variations is also bad in law and illegal. 2. EXPENSES DIRECTLY ATTRIBUTABLE TO OPERATIONS IN INDIA - Rs. 86,99,22,880/- (Pages 5-31 of CIT(A)'s Order) 2.1 The learned CIT(A) erred in law and on facts to confirm the disallowance towards part of the expenses directly attributable to operations in India. 2.2 The learned CIT(A) erred in confirming the disallowance of expenses incurred outside India for the Appellant's operations aggregating to Rs. 76,93,01,880 without appreciating that appellant has produced details with respect to Rs. 34.97 crores and certificate of auditor is provided for the entire deduction which sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Appellant. 5.3. The learned CIT(A) also erred by disregarding the submissions made by the Appellant that Appellant Bank has its own and non-interest bearing funds far in excess of investments yielding tax-free interest which demonstrates that no cost of borrowing is attributable to exempt income. 5.4. The learned CIT(A) erred in law and on facts in disallowing the expenditure under section 14A of the Act and accordingly, the disallowance should be deleted. 5.5. The learned CIT(A) erred in relying on the order of his predecessor for confirming disallowance of expenditure attributable to earning exempt income. 6. RECOVERIES MADE AGAINST SECURITIES LOSSES Rs. 10,68,03,977/- (Pages 63-64 of CIT(A)'s Order) 6.1. The learned CIT(A) erred in confirming the action of the Assessing Officer of making additions of recovery of securities losses of Rs. 10,68,03,977 without appreciating the fact that the losses incurred by the Appellant pertaining to the earlier years is subject matter of litigation. 6.2. The CIT(A) ought to have considered the submissions of the Appellant that losses allowed in earlier year are subjudice and accordingly, the recovery of the amounts should not be tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . With regard to Ground No. 1, Assessee has raised ground against the transfer pricing assessment order is bad in law without inherent jurisdiction in excess of express statutory provisions of the Act, by relying on decision of DCIT v. M/s. Tata Consultancy Services Ltd., [174 TTJ 570 (Mumbai ITAT)] and Tata Sons v. ACIT (162 ITD 450). At the time of hearing, it was submitted that this ground of appeal is requested to be kept open and adjudication of this ground serves for academic purpose only. Accordingly, this ground of appeal is kept open and not adjudicated at this stage. 31. With regard to Ground No. 2 which is in respect of disallowance of expenses directly attributable to operation in India, the relevant facts on record are, assessee has declared its financial performance for the year ended 31.03.2002 and since assessee has entered international transactions as reflected in the Form 3CEB on account of costs directly attributable to the Indian Branch. These costs are incurred by the Head Office, Singapore Branch and Hongkong Branch of the bank exclusively for the benefit of the Indian Branch. The total amount allocated on this account is ₹.73,93,01,880/-. It was submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regarding contemporaneous evidence for the services, the assessee has filed some specific documents which are discussed separately in succeeding paragraphs. (d) Regarding debit of these accounts in the assessee's P L account, it is stated that historically, the assessee branch does not debit the same in its branch accounts. (e) The assessee has filed the certificate from the Hongkong and Singarpore co branches wherein both the branches have confirmed that these expenses have not been claimed by them as deduction for their income tax assessments in their respective jurisdictions. In the case of the services rendered by their London Office, it is explained that as the assessee Bank is incorporated in U.K. and tax resident of the said country, deduction on account of these expenses would ultimately be claimed by Standard Chartered Bank, U.K. under the India column of their income computation which would consist of the entire income and expenditure relating to the India branch. 36. In the summary, Transfer Pricing Officer observed that the costs allocated to the assessee, Indian branch, are toward technology upgradation, maintenance of systems, advisory and business support, Hubbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e being allocated to the assessee. It was further submitted that the basis of allocation is the turnover of the respective branches. (f). Training cost of ₹.3.51 crores and these costs were allocated by Hong Kong, Singapore and UK branches to the assessee, in this regard assessee has submitted a list of various training programmes in which Indian employees were participated during the relevant year. After considering the above training costs, Transfer Pricing Officer observed that the total cost on training were shown to be a sum of ₹.0.23 crores. To the extent of information furnished, the cost allocation made is accepted without any justification. For the balance amount of ₹.3.28 crores (₹. 3.51 cores less ₹.0.23 Crores) as no information has been provided, hence, the cost allocation was not justified. Therefore, he treated the above Arm s Length Price as NIL. 39. After observing the above submissions, Transfer Pricing Officer accepted the various cost allocations to the extent of ₹.41.97 crores out of the total allocation cost of ₹.76.94 crores and for the balance of ₹.34.97 crores, he observed that in absence of contemporaneous ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology cost. A major part of these costs allocated to India are on account of cost incurred for improving the systems. Further vide letter dated 16/02/2005, the assessee has selected approximately 60% of the costs for demonstrating the benefit for the Indian operations from them. 2. After taking into account the various submissions made by you, the Addl.CIT(TP-II), Mumbai has passed the above order stating that out of the total cost allocation to the Indian branch of Rs. 76.94 crores, Rs. 41.97 crores is accepted. Further, the arm's length price with respect of the balance amount of Rs. 34.97 crores is treated as NIL. In view of this order, please explain why an amount of Rs. 34.97 crores should not be added to your total income. 3 It is seen from the order that a majority of the costs incurred for the Indian branch are related to systems i.e. Technology upgradation, maintenance, advisory and business support, hubbing cost, training costs, etc. These costs have been incurred by the Head Office and also by the Singapore and Hongkong Branches. Subsequently, these costs have been reimbursed by the Indian branch. In view of these facts, please state why the reimbursement of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer on account of non-production of original books of accounts and vouchers maintained in foreign currency abroad. It was observed by the ITAT that the expenses claimed by the assessee in dollars were not audited by the auditors in India and as such expenses cannot be allowed. 44. In summary, Assessing Officer has disallowed ₹.41.97 crores, which was accepted by the Transfer Pricing Officer as Arm s Length Price and also to the extent of T.P adjustment proposed by the Transfer Pricing Officer to the extent of ₹.34.97 crores. In sum and substance, the Assessing Officer had disallowed the total cost allocation for upgradation of technology and various system related expenditure allocated to the Indian Branch. Further, without prejudice to the above findings, he has proceeded to invoke the provisions of section 40(a)(i) of the Act to further justify the disallowance of entire amount of ₹.76.91 crores. 45. Aggrieved with the above order, assessee preferred appeal before the Ld. CIT(A)-57, Mumbai and filed the detailed submissions before him which is reproduced in the appellate order at Page No. 7 to 17 of the order. After considering the detailed submissions, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x allegedly deductible at source. k It was submitted that the expenses under consideration are not in the nature of Royalty / FTS and the Assessee was not required to deduct TDS on the same as: i) The expense incurred are not in relation to the use of, or the right to use, any copyright; ii) The expense incurred are not in relation to the use of, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; iii) The expense incurred does not meet the test of make available ; iv) For income to be taxable there should be a bilateral transaction between two parties. In the instant case, transaction is between the HO and the Branch. L) The Hon'ble Tribunal, in the past AYs, has accepted that these costs relate to the business of the India branch. This fact is not in dispute also in the current AY (i.e., AY 2002-03). v) Disallowance by Hon'ble CIT(A) vi) Break-up of cost a) The Hon'ble CIT(A) confirmed the disallowance on the basis that there is no agreement entered with the co-branches to share the cost and no invoice is raised. b) The Hon'ble CIT(A) disallowed the entire expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant documents even though assessee has filed the complete cost allocation basis and keys for allocation. 49. Further, he submitted that the Assessing Officer has not only disallowed the TP Adjustment proposed by the Transfer Pricing Officer and also gone ahead disallowing the entire cost attributable to the functioning of the branch which are relevant and allocation of cost based on actual as well as with proper allocation key. He prayed that the issue under consideration is already considered by the Coordinate Bench in the earlier assessment years which are disallowed under section 37(1) and not disallowable for withholding of tax under section 40(a)(i) of the Act. Therefore, he prayed that the findings of the Coordinate Bench may be followed. 50. On the other hand, Ld. DR relied on the findings of the lower authorities. 51. Considered the rival submissions and material placed on record, we observe that the similar issue was raised in earlier assessment years and disallowed under section 37(1) and by invoking section 40(a)(i) of the Act. During the current assessment year, the matter was referred to the Transfer Pricing Officer and Transfer Pricing Officer has considered the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly related to the Indian operations based on audit certificates. The broad nature of direct expenses attributable to the Appellant is as under: GTS, IT cable wireless and corporate institutional banking Advisory and business support costs o Singapore IT Hubbing/IT Cable wireless 2.3 AO s contention (page 7) The Ld. AO held that the Appellant failed to produce any details or explanation for the direct expenses, hence, disallowed the entire expenses by relying on the decision of Mumbai ITAT in case of Micoperi, Italian Company (82 ITD 369). 2.4 CIT(A) s decision (page 19) The Ld. CIT(A) allowed the direct expenses attributable to Appellant s business of INR 21,50,15,149/- which relates to GTS, IT cable and wireless and corporate and institutional banking as it represents payment made to self and the amounts are held to be not liable to TDS [refer para 6.13, page 19 of the CIT(A) order] The Hon ble CIT(A) disallowed the direct expenses of INR 42,54,26,899/- attributable to the Appellant s business which relates to advisory and business support costs and Singapore IT Hubbing costs due to the following: With respect to advisory and business support costs incurred in connection with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset, the legal expenses incurred in that behalf partake the nature of capital expenditure. The Tribunal was of the opinion that as both the companies were carrying on complimentary business and their amalgamation was necessary for the smooth and efficient conduct of the business , it is an expenditure laid out wholly and exclusively for the purpose of the business of the assessee. In view of the, said finding and also in view of the, decision of this Court in Bombay Steam Navigation Co. [1953] (P.) Ltd. v. CIT [1965] 56 ITR 52, we are of the opinion that the Tribunal was right in its conclusion. The decision in Bombay Steam Navigation Co. (1953) (P.) Ltd.'s case (supra) also pertains to amalgamation of two shipping companies. The assessee company took over the assets of the other company and part of the price was treated as a loan secured by a promissory note and hypothecation of all movable properties of the assessee company. The loan was to carry simple interest at 6 per cent. The question that arose in the said case was whether the interest paid upon the said loan was deductible as revenue expenditure. It was held by this Court that it was an expenditure deductible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant submit that the same is not sustainable due to following reasons: o The Appellant has undertaken a Hubbing project as result of which its operations were networked to hub in Singapore allowing it to have access to centralized transaction processing operations and operation of bank accounts from anywhere in India. o The expenditure mainly relates to salaries and other related costs, travel, communication for staff working on the project, payment to external vendors such as Cable and Wireless for system maintenance and similar expenditure. o The examples provided in India US DTAA which is relied by the Ld. CIT (A) (refer para 6.16, page 19) are not applicable in the instant case, as the Appellant has incurred the expenses only for the use of technology solely for the purpose of business in India. o Further, the services of IT Hubbing costs does not make available any technical design or technical plan to the Appellant. In this regard, the Appellant rely on the following judicial decisions (as enclosed in the Appellant s legal paper book) wherein it is held that payments towards use of technology do not result in make available. Therefore, the same will not fall with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, the Assessing Officer noticed that the assessee has claimed deduction of expenditure incurred outside India amounted to ₹.24,85,49,931 comprising of salaries of expatriate employees, direct expenditure attributable to Indian branches and NRI expenses. The Assessing Officer after examining the nature of expenses held that the aforesaid expenditure claimed by the assessee being part of Head Office expenses is eligible for deduction under section 44C of the Act, hence, cannot be claimed as deduction separately. Being aggrieved with the aforesaid decision of the Assessing Officer, assessee preferred appeal before the first appellate authority. 18. Learned Commissioner (Appeals) after considering the submissions of the assessee in the context of facts and materials on record found that identical disallowance made by the Assessing Officer in assessee s own case in assessment year 1994 95 to 1996 97 was deleted by his predecessor in office by holding that such expenditures are incurred by the assessee exclusively for the purpose of business of the assessee in India and are not in the nature of Head Office expenses covered under section 44C of the Act. Following the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses are not in the nature of general administrative expenses but are solely and exclusively incurred for the purpose of the operations of the assessee in India and no portion of expenditure is referable to a business outside India. Reliance was also placed on various decisions of Tribunal and High Court 13. After considering the submissions and perusing the material on record the CIT (A) found that these expenses are incurred wholly for the purpose of assessee's business and no portion of these expenses fails under section 44C. Accordingly, the disallowance made by the Assessing Officer was deleted. 14. The learned Departmental Representative placed reliance on the order of the Assessing Officer. On the other hand, counsel for the assessee placed reliance on the order of CIT (A). It was further submitted that in case of British Bank of Middle East in ITA No.2297/M/99 identical issue was involved and Tribunal has decided the issue in favour of assessee. Attention of the Bench was drawn towards copy of the order placed at paper-book at pages 136 to 144. Further reliance was placed on the decision considered by the CIT (A). 15. After considering the submissions and perusing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not to be considered u's 44C. The Assessing Officer is directed to allow the expenses of Rs. 14,61,83,854/- u/s.37(1) of the Act. This ground in appeal is allowed in favour of the Appellant. 16 This finding of CIT (A) neither could be controverted nor any material was brought on record from which it can be established otherwise. We further noted that identical issue was decided by the Tribunal in the case of British Bank of Middle East in ITA No.2297/Mum/1999 and others for assessment year 1992-93 to 1997-98 vide its order dated 28.06.2005. Copy of the same is placed in the paper-book. Following the decision of the Tribunal and on the reasoning given by CIT (A) we confirm his order in this regard also. 34. Since the issue is exactly similar and grounds as well as the facts are also identical, respectfully following the above decision in assessee s own case for the A.Y. 1997-98 and also following rule of consistency, we dismiss the grounds raised by the revenue. 55. From the above ratio, we observe that the issue raised are, whether the allocation of cost by the Head Office are eligible and whether it is covered within the provisions of section 44C of the Act. The Coordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices to Indian customers, this itself a benefit derived by the Indian branch. Therefore, in sum and substance, we observe that Assessing Officer has intended to disallow the whole cost allocation made by the Head office to toe along with the findings in the earlier assessment years and not inclined to relook at the actual material or facts on record. In our view, he has grossly rejected the documents and justification submitted by the assessee. Therefore, we do not see any reason to differ from the findings of the Coordinate Bench in the earlier assessment years. Further, the Assessing Officer himself partially accepted the findings of TPO and proceeded to disallow the whole allocation of costs, which demonstrates that he has no inclination to allow the costs incurred by the assessee. Even the TPO partially recognizes the allocation of costs and rejects the cost which according to him not supported by the sufficient documents. It is Transfer Pricing Officer's obligation to call for the whole documents before closing the Transfer Pricing assessments and also he cannot treat any TP adjustment without properly justifying the reasons for such rejection. In this case, we observe tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Centre (in ITA No. 692 of 2012 vide order dated 22.08.2014). In this case, the Hon'ble jurisdictional High Court has expounded that in a situation where the details were very much before the TPO, the Hon ble High Court held that the tribunal therefore, did not and rightly permitted the DR to argue the appeal contrary to the record. That the appeal therefore did not raise any substantive question of law and deserves to be dismissed. The ratio from the above said decision is applicable on the present case also. The necessary evidence has also been brought on record by the assessee. The authorities below have totally disregarded the same and made the allocation on the basis of a total bizarre and whimsical method. The bizarreness and whimsical nature of the allocation done by the TPO which has been supported by the DRP is not lost upon the ld. DR who has argued for a remand for proper appreciation by the TPO. In view of the aforesaid Hon'ble jurisdictional High Court decisions we are of the considered opinion that such an act of TPO and DRP cannot be set right by remitting the issue on this account. 28. We note that it is the claim of the assessee that the assessee has intra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and case laws in support thereof as noted in para 22 hereinabove are germane and duly support the case of the assessee. 29. We further note that as regards the estimation and allocation of IT cost is concerned, the same has been duly accepted for the Dispute Resolution Panel for A.Y. 2013-14 and the Revenue has accepted the same. In the background of the aforesaid discussion and precedent, we set aside the order of the authorities below and decide the issue in favour of the assessee. Hence, the transfer pricing adjustment stands deleted. 56. It was held that the intra group services should have provided and such services must be at Arm s Length Price. As per OECD, allocation of cost based on approved allocation key and certified by the CPA certificate is relevant. The revenue cannot reject the CPA certificate since the same are specific and authenticated. As per Rule 10D(2)(A), the document must be supported by authentic documents, which includes authentication by the CPA. Therefore, the certification of allocation key and the same was authenticated by the CPA is proper documents as per Reule 10(2)(A) of the I.T. Rules. Respectfully following the above decision, we obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue, the Coordinate Bench in ITA.No. ITA.No. 4867/Mum/2017 dated 13.11.2023 held as under: - 5.1 Ground 5.1 The learned CIT (A) erred in law and on facts that Rule 8D is to be applied for arriving at the disallowance of expenditure attributable to earning taxable income. 5.2 The learned CIT(A) ought to have considered the Appellant's submission that the expression 'in relation to' under section 14A means dominant and immediate connection which is not applicable in the case of the Appellant as no expenditure has been incurred by the Appellant in relation to earning the exempt income. 5.3 The learned CIT (A) erred in law and on facts in disallowing the expenditure under section 14A of the Act and accordingly, the disallowance should be deleted. ..... The Appellant submits that this issue is covered in favor of the Appellant by a decision of the Co-ordinate bench of the Tribunal in the Appellant s own case for the AY 1999-2000, wherein the Tribunal followed the Appellant s own case Tribunal order of AY 1997-98 and dismissed the ground raised by Revenue (Copy of AY 1999-00 ITAT order dated 27 Septe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spectfully followed, accordingly, Assessing Officer is directed to restrict the disallowance to 1% of exempt income and ground raised by the assessee is partly allowed. 63. With regard to Ground No. 6 which is in respect of recoveries against securities loss, at the time of hearing, Ld.AR of the assessee submitted that this ground is academic in nature, accordingly, the same requires no specific adjudication. Ground No. 6 raised by the assessee is kept open. 64. With regard to Ground No. 7 which is in respect of premium paid on acquisition of retail asset portfolio, Ld.AR of the assessee submitted that during this assessment year, the Bank acquired retail loan portfolio (i.e, auto loans, mortgage loans, etc.) from Standard Chartered Grindlays Bank Ltd., at a premium of ₹.20.30 crore. Since this loan portfolio is stock-in-trade/trading asset for the Bank, the said premium was claimed as revenue expense / deduction in this assessment year. Assessing Officer held that the premium paid is capital in nature and disallowed the same and Ld. CIT(A) sustained the same. Ld.AR of the assessee submitted that any income arising from loan portfolio is business income for the Bank and same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee brought to our notice that the issue in appeal has been considered by the Co-ordinate Bench of this tribunal in assessee s own case and decided the issue in favour of the assesse and against the department. 69. On the other hand, Ld. DR relied on the orders of the lower authorities. 70. Considered the submissions and material placed on record, we observe from the record that identical issue is decided in favour of the assessee for the A.Y. 2001-02. While deciding the issue, the Coordinate Bench in ITA.No. 4867/Mum/2017 dated 13.11.2023 held as under: - 8.1 Ground 8.1 The learned CIT(A) erred in disallowing the claim of the appellant towards Head Office Expenditure of Rs. 77,08,83,765/- in entirety on the ground that no revised return of Income was filed for such claim and thus, restricted the claim under section 44C of the Act. 8.2 The Ld. CIT (A) failed to appreciate that: a) The decision of the Supreme Court in the case of Goetz (India) Ltd. v CIT (2006) 284 ITR 323 (SC) can be applied only when the claim for deduction was made first time during the course of assessment. In the present case, the Appellant had already claimed deduction for Head Office Expenditure in the Retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in that State unless the enterprise carries on business in the other Contracting State through a PE situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other Contracting State but only so much of them as is attributable to: (a) That PE, and (b) Sales of goods and merchandise of the same or similar kind as those sold, or from other business activities of the same or similar kind as those effected, through that PE. 2. Subject to the provisions of para 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a PE situated therein, there shall in each Contracting State be attributed to that PE, the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a PE. In any case, where the correct amount of profits attributable to a PE is incapable of determination or the ascertainment thereof presents exceptional difficulties, the profits attributable to the PE may be estimated on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, constitutes taxation on a PE which an enterprise of a Contracting State has in the other Contracting State as less favourably levied in that other State than the taxation levied on enterprises of that other State carrying on the same activities . Another aspect which requires to be considered by us is whether the provisions of computation of business profits in Article 7 are to viewed as subject to the application of non-discrimination clause in Article 24(2), or is it the other way round i.e., non-discrimination clause to be read as subject to the clause regarding computation of business profits. There are other peripheral or subsidiary issues raised before us, such as, whether the provisions of Section 44C of the Act can be viewed as a restriction on admissibility of deduction of head office expenditure at, and, whether the provisions of Section 44C of the Act, only provide for a fair method of estimation of deductible head office expenses and are enabling provisions in nature. 6. Article 24(2) of the Indo-Canadian DTAA is worded on the lines of Article 24(3) of the OECD Model Convention. In fact, it is verbatim extract from the Model Convention. While elaborating upon the sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the meaning indicated in these documents to the clauses and expressions in the tax treaties can be inferred as the meaning normally understood in, to use the words of Lord Redcliff, 'international tax language' developed by the organizations like OECD. This is so held in the case of Graphite India Ltd. v. Dy. CIT (2003) 78 TTJ (Cal) 418 : (2003) 86 ITD 384 (Cal). When an expression or a clause is picked up from the OECD Model Convention, the normal presumption is that the persons using the said clause or expression are also aware about the meanings assigned to the said clause or expression by the OECD and have used it in the same sense and for the same purpose. Unless a contrary intention is specifically expressed, say by a protocol attached to the DTAA, it is only axiomatic that the clause or the expression will have the same meaning as normally assigned in the tax literature by the OECD. Therefore, when an expression or a clause from the OECD Model Convention is used even in a bilateral tax treaty involving a non OECD country, one has to proceed on the basis that it is used in the same meaning and with the same connotations as assigned to it by the OECD Model Convention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that other State carrying on the same activities. On the issue whether the general provisions will prevail over the special provision or vice versa, the law is fairly well settled. As aptly conveyed by the legal maxim generalia specialibus non derogant', i.e., special things derogate from general things. As observed by a co-ordinate Bench, in the case of ITO v. Titagarh Steels Ltd. (2001) 73 TTJ (Cal) 297 : (2001) 79 ITD 532 (Cal) and relying upon Hon'ble Supreme Court judgment in the case of South India Corporation (P) Ltd. v. Secretary, Board of Revenue AIR 1964 SC 207, 'a special provision normally excludes the operations of general provision'. The provisions of Article 7 being general in nature are therefore, required to be read as subject to the provisions of Article 24. Revenue's argument that since the business profits are to be computed in accordance with the provisions of and subject to the limitations of the taxation laws of that State under Article 7(3) and, therefore, limitation placed under Section 44C of the Indian IT Act cannot be ignored, cannot, therefore, be accepted. What Article 24(2) seeks to remove is the discrimination to the permanent res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch expenses are to be allowed as a deduction on account of head office expenses as can be fairly allocated to the PE. The only impact of the applicability of non-discrimination clause will be that the scope of deduction under Section 37(1) of the Act will not stand curtailed by the restriction placed under Section 44C of the Act. In our considered view, this direction of the Ld. CIT (A) is justified and calls for no interference. 10. As far as asst. yr. 1993-94 is concerned, the CIT(A) has held that the provisions of Section 44C of the Act will apply but then, for the reasons set out above, we are of the considered view that Section 44C has no application in the matter and that the assessee is to be allowed deduction of such head office expenses as can be fairly allocated to the PE. Accordingly, as for the asst. yr. 1993-94, the matter is to be restored to the file of the AO for adjudication de novo in the light of the above observations. 22. Respectfully following the above said decision, we allow the ground raised by the assessee. In view of the above, the Appellant submits before Hon ble ITAT to follow the own case above ITAT order for AY 1999-00 and allow the head office expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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