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TMI Blog2004 (2) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... a, there is no question of making any prescribed arrangements for the declaration and payment, within India, of the dividends. It thus implies that conditions u/s 2(22A) of the Act, for being classified as a domestic company, are satisfied. We are of the considered view that the provisions of Article XXI only deal with the cases of discrimination on the ground of nationality, and non-availability of deduction u/s 80M to the foreign companies, i.e., companies which are not domestic companies, has nothing to do with nationality of a company. On the contrary, this classification is at best relatable to requirements connected with residence, which, as stated in the OECD commentary extracted earlier in this order, cannot be a reason enough for invoking the non-discrimination clause. We may add that the provisions of Article 26(1) of the present India France DTAA (209 ITR Statute 130) is materially similar in scope. Accordingly, non-discrimination clause in the Indian France DTAA cannot be invoked in the cases where provisions of Indian Income-tax Act more favourable to the domestic companies vis-a-vis foreign companies. Once we come to this conclusion, it follows that the case of non-av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80M is required to be extended to the foreign companies covered by the India France DTAA. This is a purely legal contention. The Assessing Officer has rather summarily rejected this contention by relying on the plain wordings of the statute and by stating the legal position that concession is given to the foreign companies by charging the tax at a lower rate under section 115A. The CIT(A) has also rejected the contention. In his brief order, he has observed as follows: I have carefully considered the submissions. As regards the decision, the same is not directly applicable. Otherwise also, I am of the view that a specific provision normally overrules general provision. Since section 80M, which is specifically applicable for domestic companies, if this benefit is not allowed to the appellant bank, which is a foreign company, the question of discrimination does not arise. No interference is therefore necessary with the action of the Assessing Officer. The assessee is not satisfied with the orders of the authorities below, and is in further appeal before us. 5. We have heard the rival contentions and perused the material on record. We have also duly considered the legal positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, is restricted to Indian nationals only. In such an eventuality, in view of the provisions of Article XXI, the benefits of that provision would have been available to the French nationals as well. Another situation in which the provisions of Article XXI may affect the provisions of the Income-tax Act is perhaps the entitlement for deduction under section 80R which is available only to an Indian citizen. Since one of the necessary conditions for entitlement of deduction under section 80R, in respect of remuneration from certain foreign incomes in the case of professors and teachers etc., is an Indian citizenship, this section appears to discriminate on the ground of nationality. It is interesting to note that while section 80R and 80RRA deal with the citizenship also, many similar sections such as section 80QQB, section 80RR, section 80RRB, there is no reference to citizenship, and the requirements are only with respect of residence. It is also very important to appreciate that such Indian and French nationals, as are compared for the purpose of finding out whether or not taxation etc. of one of which is more burdensome than the other, must be 'in the same circumstances'. Elaborat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Ltd. v. Dy. CIT [2003] 86 ITD 384 (Kol.) and Dy. CIT v. ITC Ltd. [2003] 85 ITD 162 (Kol.). In any event, on a plain reading of the provision also it is unambiguous that it deals with discrimination on account of nationality alone. It is so stated in clear words of the DTAA. 7. The question then is as to on what basis is a company classified as a domestic company and a foreign company under the Income-tax Act. Is it based on the nationality simplicitor or is it on the basis of some other criterion? Does this classification depend on requirements connected with residence, or is it the nationality of a company which decide such company being classified as a 'domestic company' or a 'foreign company? This question is very important because the contention of the assessee is that a foreign company, it is not entitled to deduction under Section 80M, and that the said deduction is available only to the domestic companies. The availability, or non-availability, of deduction under section 80M is entirely dependent on in which of these mutually exclusive categories an assessee company falls. It is therefore important to ascertain whether that this classification is dependent on the national ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rench DTAA, cannot be considered as a discrimination on the ground of nationality. 9. During the course of hearing before us, we shared our, then prima facie, impression with the learned representatives that the discrimination so far as non-availability of section 8M to the foreign companies is concerned, if at all that can be termed as a discrimination, is not on the ground of nationality but is on the ground as to whether or not the company in question has made the prescribed arrangements for the declaration and payment, within India, of the dividends (including dividends on preference shares) payable out of income liable to tax in India have not been made. Learned counsel's reply was that since the appellant company does not have any shareholders in India, there is no question of making any prescribed arrangements for the declaration and payment, within India, of the dividends. It thus implies that conditions under section 2(22A) of the Act, for being classified as a domestic company, are satisfied. 10. This argument, however, does not impress us. We are not at present dealing with the question as to whether the assessee is required to be treated as a domestic company or not. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out discrimination against foreign companies, even if such a discrimination actually exists. 11. The assessee's grievance against CIT(A)'s declining the deduction of Rs. 2,70,91,836 under section 80M, and assessee's reliance on Article XXI of the applicable India France DTAA, in support of such a grievance, is not sustainable in law. We, therefore, reject the same. 12. As regards the disallowance of licence fees of Rs. 5,00,000 paid to the Securities and Exchange Board of India, it is an undisputed position that the said fees is paid for "membership of assessee bank's merchant banking division" and the disallowance has been made on the ground that "membership of SEBI is an asset of enduring nature". Learned representatives agree that this issue is now covered, in favour of the assessee, by Tribunal's decisions in the cases of Asstt. CIT v. Marvel Equity (P.) ltd. and Dy. CIT v. Magnum Equity Broking (P.) Ltd. In these decisions, it is held that the membership fees paid for OTC Exchange of India Limited is revenue expenditure in nature. By following the ratio of these decisions, the payments made to the SEBI for membership of the merchant banking division is also required to be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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