BNP PARIBAS,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION)-CIRCLE 1(3)(1) , MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I”, MUMBAI

BEFORE SHRI ABY T. VARKEY, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER

ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas v. ACIT (International Taxation) 1 North Avenue, Maker Maxity Circle – 1(3)(1) Bandra Kurla Complex Room No. 1810A, 18th Floor Bandra (E), Mumbai - 400051 Air India Building Nariman Point, Mumbai – 400 021 PAN: AAACB4868Q (Appellant) (Respondent)

Assessee Represented by : Shri Farooq Irani Shri Ajay Kumar Sharma Department Represented by :

Date of Conclusion of Hearing : 27.07.2023 Date of Pronouncement : 20.09.2023

O R D E R PER S. RIFAUR RAHMAN (AM)

ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 31.12.2022 for the A.Y.2015-16 passed u/s. 144C(5) of Income-tax Act, 1961 (in short “Act”).

"Without prejudice to Ground 1, the learned AO has erred on the following grounds:

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 3. We proceed to adjudicate the issues raised by the assessee ground wise.

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 7. On the other hand, Ld. DR has fairly accepted the submissions of Ld.AR. He submitted that the issue is decided in favour of the revenue by the Coordinate Bench, therefore he prayed for dismissal of the ground raised by the assessee.

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas been sought on this account. The claim has been rejected by the authorities below. 4.1. We have heard both the parties in the matter. We find that this issue has already been examined by the Tribunal in the case of M/s BNP Paribas, decided in ITA Nos. 4601 & 4602/M/ 2004, vide order dated 1-7-2013. In that case also the tax rate applied in the case of the assessee, a foreign company was 48% compared to 38% applied in case of domestic companies. The assessee had argued that it was discriminatory and not in accordance with law. Reference was made to non-discrimination clause in the Treaty, as per which there should not be any discrimination between the domestic and the non-resident company. The Tribunal, however, referred to the Explanation in the Section 90, inserted in the IT Act with retrospective effect from 01-04- 1962 as per which the higher tax rate in case of foreign company, should not be regarded as violation of non-discrimination clause. The Tribunal also referred to the judgment of the Hon’ble Supreme Court in the case of ACIT Vs. J.K. Synthetics. The Tribunal accordingly, rejected the ground raised by the assessee. The facts in the present appeal are identical and, therefore, respectfully following the decision of the Tribunal in the case of M/s BNP Paribas(supra), we dismiss this ground raised by the assessee.” Following the same, we uphold the order of the Ld. CIT(A) and dismiss the 1st ground of appeal. As the facts and the issue in the present appeal of the assessee remains the same, therefore, we respectfully follow the aforesaid order of the Tribunal. Accordingly, the Ground of appeal No. 1 is dismissed.

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas considered by the Co-ordinate Bench of this Tribunal in assessee’s own for the Assessment Years A.Y. 2005-06 to 2014-15, A.Y. 2017-18 and 2018-19 and decided the issue in favour of the assessee and against revenue. Further, he brought to notice that for the A.Ys. 2006-07, 2007-08, 2008-09 and 2009-10, revenue appealed before the Hon'ble Jurisdictional High Court challenging the order of the ITAT and Hon'ble High Court after considering the submissions sustained the order of the ITAT. He submitted that there is no change in the objective and nature of transactions entered by the assessee during the current Assessment Year. Therefore, the decision rendered in earlier years are applicable mutatis mutandis.

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas assessee’s own case for the earlier Assessment Years i.e., assessment year 2013-14 and 2009-10 held as under: - “14. We have deliberated at length on the contentions advanced by the authorised representatives for both the parties in the backdrop of the orders of the lower authorities and have also perused the material available on record. On a perusal of the aforesaid ground, we find, that the issue herein involved is about taxability of data processing fees paid by the Indian branch offices of the assessee to its Singapore branch (service agent) to the tune of Rs.40,78,10,733/- under Article 13 of the India-France Tax Treaty. We find that the Tribunal while disposing off the appeal of the assessee for A.Y. 201314 in ITA No. 552/Mum/2018, dated 22.04.2019 had adjudicated the said issue by relying on its earlier order passed in the assessee’s own case for A.Y. 2009-10 in ITA No. 3541/Mum/2014, dated 31.03.2016, observing as under: “In the above ground of appeal, the issue is about data processing fees paid by Indian Branch Office of the assessee to Singapore Branch to the tune of Rs.325,963,282/- under Article 13 of the India-France treaty. We find that while deciding the appeal for AY 2009-10 (ITA No. 3541/Mum/2014 dated 31.03.2016), the Tribunal has decided the issue as under: “5. Ground No.3 pertains to subjecting the data processing charges paid to the Singapore branch of the assessee amounting to Rs.132,335,594/- applying the provisions of Article 13(Royalties, fees for technical services and payments for use of equipment) of the India-France Tax Treaty. This issue is also covered by the order of the Tribunal in assessee’s own case for AY 2001-02 to 2003-04 wherein interest paid by assessee to Head Office/overseas branches was held to be not liable to tax, following was the precise observation of the Tribunal in its order dated 20-6- 2012 for AY 2002- 03:- 3. The solitary issue involved in the appeal of the assessee for, the A.Y. 2002-03 relates to the addition of Rs.1,48,30,613/- made by the A.O. and confirmed by the Ld. CIT (A) on account of "interest" paid by the Indian Branches of the assessee bank to its head office and other overseas branches. 4. The assessee, in the present case is a commercial bank having its Head Office in France. It carries on the normal banking activities Including financing of foreign trade and foreign exchange transactions in India through its eight branches situated at Mumbai, New Delhi, Kolkata, Bangalore, Pune, Ahmedabad, Chennai and Hyderabad. During the previous year relevant to A.Y.

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 2002-03, the Indian Branches of the assessee bank have paid total interest of Rs.1,48,30,613/- to its Head office and overseas branches and the same was claimed as a deduction while determining the profits attributable to Indian Branches, which was chargeable to tax in India. The said interest was treated by the A.O. as income of the assessee's Head office/overseas branches chargeable to tax in India. This decision of the A.O. was challenged by the assessee in the appeal filed before the Ld. CIT(A) and the contention raised before the Ld. CIT (A) in this regard was that the Head office of the assessee bank as well as all its branches being the same person and one taxable entity as per the Indian Income tax Act, interest paid by Indian Braches to head office and other overseas Branches was payment to self, which did not give rise to any income as per the Income-tax Act. In support of this contention, reliance was placed on behalf of the assessee on the decision of Hon'ble Supreme Court in the case of Sir Kikabhai Premchand vs. CIT (Central) 24 ITR 506 as well as the decision of Kolkata Special Bench of the ITAT in the case of ABN Amro Bank NV vs. Asst. Director of Income-tax 98 TTJ 295. The contention of the assessee, however, was not accepted by the Ld. CIT (A) and relying on the decision of Mumbai Bench of the ITAT in the case of Dresdner Bank AG vs. Add1. CIT 108 ITD 375, he held that the interest paid by the Indian branches of the assessee bank to its head office and overseas branches was chargeable to tax in India. Accordingly, the addition made by the A.O. on this issue was confirmed by the Ld. CIT(A). 5. We have heard the arguments of both the sides and perused the relevant material on record. As agreed by the Ld. Representatives of both the sides, the issue involved in this appeal of the assessee now stands squarely covered by the decision of Special Bench of the ITAT in the case of Sumitomo Banking Corp. Mumbai wherein it was held, after elaborately discussing the legal position emanating from the interpretation of relevant provisions of Indian Income tax Act as well as treaty, that interest paid to the head office of the assessee bank as well as its overseas branches by the Indian branch cannot be taxed in India being payment to self which does not give rise to income that is taxable in India as per the domestic law or even as per the relevant 'tax treaty'. Respectfully following the said decision of Special Bench of the ITAT which is directly applicable in the present case, we delete the addition of Rs.1,48,30,613/- made by the A.O. and confirmed by the Ld. CIT (A) on this issue and allow the appeal of the assessee. 5.1 The issue has also been dealt by the Special Bench of the Tribunal in the case of Sumitomo Mitsui Banking Corporation (supra),wherein the observation of the Bench at para 88 is 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

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 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 art. 7(2) and 7(3) of the Indo-Japanese Treaty read with, para 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 applicable in the case' of interest paid by Indian branch 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 s. 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 s. 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.” As the facts and circumstances of the case during the year under consideration are perimateria, where payment made by assessee to Singapore Branch for data processing, was brought to tax. Respectfully following the order of the Tribunal in assessee’s own case as well as the order of the Special Bench of the Tribunal in the case of Sumitomo Mitsui Banking Corporation (supra), we hold that the department was not justified in taxing the data processing charges to the Singapore Branch of the assessee by applying the provisions of Article 13 of the India-France Tax Treaty.” 13. In effect thus, reversing the stand of the DRP, the coordinate bench has come to the conclusion that the payment on account of data processing charges paid to BNP Singapore cannot be taxed in the hands of the assessee. The conclusion arrived at by the coordinate bench, whatever may have been the path traversed by the coordinate bench to reach this point, are the same as arrived at by us. Of course, our reasons are different, as set out earlier in this order, but that does not really matter as of now. We fully agree with the conclusions arrived at by the coordinate bench. We, therefore, direct the Assessing Officer to delete the impugned disallowance of Rs 13,10,97,790. The assessee gets the relief accordingly. 14. Ground no. 2 is thus allowed.” 6. We see no reasons to take any other view of the matter than the view so taken in assessee’s own case in assessment year 2008-09. Respectfully following the same, we direct the Assessing

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas Officer to delete the impugned disallowance of Rs.18,53,83,446/-. The assessee gets the relief accordingly.” Also, the above order has been followed by ITAT “L‟ Bench, Mumbai in assessee’s own case in A.Y.2010-11 (ITA No. 1182/Mum/2015). Further, the Hon’ble Bombay High Court has not admitted the Department’s appeal on this ground for AYs 2006-07 and 2007-08. Facts being identical, we follow the above orders of the Co- ordinate Bench and allow the 2nd ground of appeal.” As the facts in context of the aforesaid issue under consideration remains the same as was there before the Tribunal in the assessee’s own case for A.Y. 2013-14, therefore, we respectfully follow the view therein taken. Accordingly, we herein direct the A.O to delete the impugned addition of Rs.40,78,10,733/-. The Ground of appeal No. 2 is allowed.”

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 4. The Tribunal placed reliance upon the orders of its Coordinate Bench for the Assessment Year 2006-07 in respect of the same Assessee raising the same issue while allowing the appeal of the Assessee. We are informed that from the order of the Co-ordinate bench of the Tribunal for Assessment Year 2006-07, Revenue filed an appeal to this Court being Income Tax Appeal No.1192 of 2015 raising this very issue. This Court’s order did not entertain this question as proposed therein on the grounds that the same in the facts of the case was academic in nature. This for the reason what was being paid by the Indian entity to its Singapore branch was only in the nature of reimbursement of expenses. This finding of fact was not challenged in the Revenue’s appeal for Assessment Year 2006- 07 or in these appeals for Assessment Year 2008-09 and 2009-10. The Revenue has not been able to show any difference in facts and/or in law in the subject Assessment Years to that in Assessment Year 2006- 07. Therefore, the above decision of this Court for Assessment Year 2006-07 will apply in these two Appeals. 5. Therefore in view of the reasons stated in our order dated 20 March 2018 passed in Income Tax Appeal No.1192 of 2015 relating to Assessment Year 2006-07, the identical question as proposed in the two appeals do not give rise to any substantial question of law. Thus not entertained.”

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 2018-19 and decided the issue in favour of the assessee and against revenue. He submitted that there is no change in the objective and nature of transactions entered by the assessee during the current Assessment Year. Therefore, the decision rendered in earlier years are applicable mutatis mutandis.

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 2012-13 in ITA No. 1232/Mum/2018, dated 17.07.2019, the Tribunal following the order of the „Special bench‟ of the ITAT, Mumbai in the case of Sumitomo Mitsui Banking Corporation Vs. DDIT (2012) 163 ITD 66 (Mum) (SB) and the orders of the coordinate benches of the Tribunal in the assessee’s own case for the preceding years, had concluded, that the interest income received by the assessee from its Indian branch being a payment made to self was thus not taxable in the hands of the assessee. For a fair appreciation of the aforesaid observation of the Tribunal we herein reproduce the same, as under:- “21. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied upon. Undisputedly, the issue relating to the taxability of interest paid by the Indian Branch to the Head Office is a recurring dispute between the assessee and the Revenue from preceding assessment years. While deciding the issue in the preceding assessment years, the Tribunal following the Special Bench decision in case of Sumitomo Mitsui Banking Corporation (supra) has consistently held that interest paid by the Indian Branch to the Head Office being a payment made to self is governed by the principles of mutuality, hence, not taxable. In the latest order passed by the Tribunal in assessee’s own case in assessment year 2011–12, vide ITA no.444/Mum./2017, dated 29th August 2018, the Tribunal again reiterated the same view. Thus, as could be seen from the facts on record, the issue has been consistently decided by the Tribunal in favour of the assessee up to the assessment year 2011– 12. As regards the contention of the Department that as per the provision contained under section 9(1)(v)(c) of the Act interest income is taxable in India and the applicability of such provision has been ignored by the appellate authority, we must observe, this particular aspect relating to the applicability of section 9(1)(v)(c) of the Act was also under consideration of the Special Bench in case of Sumitomo Mitsui Banking Corporation (supra) and the Special Bench clearly and categorically held that since the interest payable by the Indian Branch to the Head Office is a payment to self, it cannot be brought to tax by relying upon the provision of section 9(1)(v)(c) of the Act. Therefore, insofar as the applicability of the aforesaid provision is concerned, it stands settled in favour of the assessee by the decision of the Tribunal, Special Bench, referred to above. Moreover, by virtue of explanation to section 9(1)(v)(c) of the Act, it is provided that in case of non–resident engaged in banking business any interest payable by the PE in India to the Head Office would be chargeable to tax in India. However, the aforesaid explanation has been inserted by Finance Act, 2015, w.e.f. 1st April 2016. From the notes and memorandum as well as CBDT Circular explaining the object and purport of introducing such explanation, it is evident that such explanation was introduced to overcome the effect and implication of the Special Bench decision of the Tribunal in case of Sumitomo Mitsui Banking Corporation (supra). However, it has been made clear by the CBDT that such

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas amendment by way of explanation will apply from the assessment year 2016–17 onwards. That being the case, as per the relevant statutory provisions applicable to the impugned assessment year and as per the ratio laid down by the Tribunal, Special Bench in case of Sumitomo Mitsui Banking Corporation (supra), which is applicable to the impugned assessment year, the interest income received by the assessee from its Indian Branch being a payment made to self, is not taxable at the hands of the assessee. Therefore, respectfully following the Special Bench decision of the Tribunal, Mumbai Bench, in Sumitomo Mitsui Banking Corporation (supra) and the decisions of the Co–ordinate Bench in assessee’s own case in the preceding assessment years, which we are bound to follow adhering to the norms of judicial discipline in the absence of any material difference in facts, we have no hesitation in upholding the decision of the learned Commissioner (Appeals) on the issue. Grounds are dismissed.” As the facts involved in context of the aforesaid issue for the year under consideration remains the same as was there before the Tribunal in the assessee’s own case for A.Y. 2012-13, we, therefore, finding no reason to take a different view respectfully follow the same. Accordingly, we herein hold that the interest income received by the assessee from its Indian branch office being a payment made to self would not be taxable in the hands of the assessee. Accordingly, the A.O is directed to vacate the addition of Rs.8,22,02,991/- made in the hands of the assessee company. The Ground of appeal No. 4 is allowed in terms of our aforesaid observations.”

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ITA NO. 840/MUM/2023 (A.Y: 2015-16) M/s. BNP Paribas 20. With regard to Ground Nos. 6 and 7 which are in respect of interest leviable u/s. 234B of the Act, considering the overall merits on the submissions made by the assessee we are inclined to remit this issue back to the file of Assessing Officer with a direction to verify the records submitted by the assessee on merit and as per law. It is needless to say that assessee may be given a proper opportunity of being heard. Accordingly, these grounds are remitted back to the file of Assessing Officer for statistical purpose.

Order pronounced in the open court on 20th September, 2023

Sd/- Sd/- (ABY T. VARKEY) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 20/09/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum

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