M/S. BARCLAYS BANK PLC,MUMBAI vs. ADDL COMMISSIONER OF INCOME TAX, SPECIAL RANGE-32, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, VICE PRESIDENT AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No.308/Mum/2001 (Assessment Year:1997-98) Addl. CIT, Special Range 32, Barclays Bank PLC Room No.557, Aaykar Bhava, 21/23, Maker Chambers, M K Road, Mumbai-400 020 Vs. VI, Nariman Point, Mumbai-400 021 PAN/GIR No. AAACB 4876 B (Revenue) : (Assessee) ITA No.383/Mum/2001 (Assessment Year:1997-98) Barclays Bank PLC Addl. CIT, Special Range 32, 21/23, Maker Chambers, Room No.557, Aaykar Bhava, VI, Nariman Point, Vs. M K Road, Mumbai-400 020 Mumbai-400 021 PAN/GIR No. AAACB 4876 B (Assessee) : (Revenue) & CO No. 231/Mum/2013 (Arising out of ITA No.383/Mum/2001) (Assessment Year:1997-98) DIT(IT) III Barclays Bank PLC R. No. 007, Ground Floor, 21/23, Maker Chambers, Scindia House, N. M. Road, Vs. VI, Nariman Point, Ballard Estate, Mumbai-400 038 Mumbai-400 021 PAN/GIR No. AAACB 4876 B (Revenue) : (Assessee) Assessee by : Shri P. J. Pardiwala – Sr. Adv./ Shri Fenil Bhatt Revenue by : Shri Krishna Kumar – Sr. DR Date of Hearing : 20.04.2026 Date of Pronouncement : 23.06.2026

2 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC O R D E R Per Saktijit Dey, Vice President: Captioned cross appeals and the cross objection by the Department arise out of order dated 31.10.2000 of learned Commissioner of Income Tax (Appeals), Mumbai (‘ld. CIT(A) for short), for the assessment year (A.Y. for short) 1997-1998. ITA No. 383/Mum/2001 (by the assessee) 2. In ground No. 1, the assessee has raised the issue of taxability of interest earned on overseas placements and NOSTRO accounts amounting to Rs.2,46,22,825/-.

3 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC in the head office/overseas branches. Thus, he observed that the conditions of section 9(1)(v)(c) of the Act are satisfied. Hence, the interest income on Nostro accounts/overseas placements will be taxable in India. Since the assessee had credited an amount of Rs.1,74,66,956/- to the profit and loss account, he added the said amount to the income of the assessee.

4 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC in India u/s. 9(1)(v)(c) of the Act, as the primary conditions of section 9(1)(v)(c) of the Act are not fulfilled. He submitted, the overseas banks paying interest have not carried out any business in India. Hence, such income is not taxable at the hands of the assessee. In this regard, learned counsel relied upon the following decisions: a) DIT(IT) vs. Credit Agricole Indosuez [2016] 69 taxmann.com 285 (Bom) b) Sumitomo Mitsui Banking. Corporation v/s DDIT, [2012] 19 taxmann.com 364 (Mum.) c) Credit Agricole Indosuez vs. Jt. CIT [2007] 14 SOT 246 (Mum) d) Assam Fronter Tea Co. Ltd. vs. ITO [1994] 49 ITD 412 (Cal.)

5 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC be regarded to be in the nature of income. We find substantial merit in the aforesaid submissions of the assessee. Undisputedly, the Indian branch and head office cannot be regarded as distinct and separate entities for tax purpose under the domestic law. Of-course, under the treaty provision, applying the concept of PE, the Indian branch can be constituted as a distinct entity, but only for the limited purpose of attributing profit generated through PE. In cany case of the matter, the issue is no more res integra in view of the decision of Hon'ble Jurisdictional High Court in case of Credit Agricole Indosuez (supra), wherein the following substantial question of law came up for consideration: (a) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in holding that interest payable by the Indian Permanent Establishment of the foreign bank to its HO and other overseas branches, is deductible in computing the total income? 11. While answering the question, the Hon'ble Jurisdictional High Court after placing reliance upon some other judicial precedents including the decision of ITAT Special Bench in case of Sumitomo Mitsui Banking. Corporation v/s DDIT (supra) concluded as under: 7. Regarding question 5: (a) Mr. Tejveer Singh, the learned counsel for the Revenue submitted that this question ought to be admitted as a similar issue has been admitted by this Court. In support Mr.Singh tenders the order in DIT v. Antwerp Diamond Bank hod. 2080 2012, dated 14-2-2013). The question on which the above appeal was admitted reads as under- (a) Whether on the facts and in the circumstances of the case and in law the Tribunal was justified in holding that interest payable by the Indian Permanent Establishment of the foreign bank to its HO and other overseas branches, is deductible in computing the total income? (b) Mr. Pardiwala the learned Senior counsel for the Respondent contests the submission on behalf of the Revenue and submits that in the present case the question as raised by the Revenue is not in respect of deducting the payment of interest to compute total income but with regard to the chargeability to tax of the interest received by the Indian Permanent Establishment (PE) from its Head Office in computing the total income. It is pointed out that the Indian PE and the head office are one and the same person. It is settled position that one cannot make a profit out of oneself as held by the Apex Court in Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506. The impugned order of the Tribunal also places reliance upon the Special Bench decision in the case of Sumitomo Mitsul Banking Corpn. v. Dy. DIT [2012] 19 taxmann.com 364/136 ITD 66 (Mum.) (SB) to hold that man cannot make profit out of himself and therefore the interest received by the Assessee from it's own Head Office is not chargeable to tax. (c) So far as the reliance by the Revenue on order dated 14 April 2013 of this Court admitting the appeal in Antwerp Diamond Bank N.V. (supra), is concerned, deduction on account of interest paid

6 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC by the Indian PE to its Head office was in the specific context of Articles 7(2) and 7(3) of the Indo- Belgium DTAA. The case of Antwerp Diamond Bank N.V. (supra) before the Tribunal was a part of the Special Bench decision in Sumitomo Mitsui Banking Corpn. (supra) wherein at para 50, it is held as under: "50. As regards the deduction of interest payable to the head office in the hands of Indian PE for the purpose of computing profits attributable to the said PE, there is no dispute that such deduction is not permissible under the Indian Income-tax Act (domestic law) being the payment made to self. Both the Indian PE and the foreign GE of which it is a part are not separate entities for the purpose of taxation under the domestic law and the same being one and the same entity recognized as one assessee under the domestic law, interest payable by Indian PE to foreign GE of which it is a part, cannot be treated as expenditure allowable as deduction being payment to self. This position which is well settled under the domestic law has not been disputed even by the learned representatives of the assessees during the course of hearing before us. They, however, have relied on the relevant tax treaties in support of the assessee's claim for deduction on account of interest payable to GE while computing the profits attributable to PE in India as per article 7(2) and 7(3) read with paragraph No.8 of the protocol. 51 52. A combined reading of article 7(2) and 7(3) of the treaty and paragraph No. 8 of the protocol thus makes it clear that for the purpose of computing the profits attributable to the PE in India, the said PE is to be treated as a distinct and separate entity which is dealing wholly independently with the general enterprise of which it is a part and deduction has to be allowed for all the expenses which are incurred for the purpose of PE whether in India or elsewhere barring the amount paid by a permanent establishment to the head office of GE or any other offices thereof, inter alia, by way of interest on moneys lent to the permanent establishment except where the enterprise is a banking institution." (Emphasis supplied) It would thus be noticed from the order of this Court dated 14 February 2013 admitting the Revenue's Appeal, in the case of Antwerp Diamond Bank N.V. (supra) arose from a different factual matrix viz, specific provision of DTAA allowing deduction and not under the regular provisions of Income-tax Act. Thus the fact that the Appeal in the case of Antwerp Diamond Bank N.V. (supra) is admitted would have no relevance for admitting the present appeal on the proposed Question No.5. It is also necessary to point out that the Tribunal in the impugned order has recorded the fact that the Respondent-Assessee has admitted before it that to bring about parity, it is not claiming any deduction of interest paid by it to its Head Office while computing the taxable income. 12. Thus, keeping in view the observations of the Hon'ble Jurisdictional High Court and ITAT (Special Bench) in decisions referred to above, we hold that the interest income earned by the Indian branches on the Nostro account and the placements made with head office and overseas branches is not taxable in India.

7 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC income is taxable both under the general provision contained u/s.9(1)(i) as also the special provision u/s. 9(1)(v)(c) of the Act. Of course, learned first appellate authority has observed that there is no need to apply the general provision, as the receipt is covered u/s.9(1)(v)(c) of the Act. Let us examine the aforesaid line of reasoning of learned first appellate authority on merits. Section 9(1)(v)(c) reads as under: “…..a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India.” 14. Thus, for better understanding the provision can be broken down as under: i. Person has to be a non-resident, ii. The interest is payable by the non-resident in respect of a debt incurred or money borrowed. iii. The debt incurred or money borrowed must have been used for the purposes of the business or profession carried on by such person in India. 15. The expression “such person” in the concluding part of the provision is with reference to the non-resident who has incurred the debt or borrowed the money for use in business or profession carried out in India. In the facts of the present appeal, admittedly, the other overseas banks have paid interest to the Indian branches of the assessee for debt incurred or money borrowed. However, it is neither the case of the department nor the department has been able to establish at any point that non-resident banks have used the debt incurred or money borrowed for any business or profession carried out by them in India. Thus, in our considered view, the interest paid by the other overseas banks to the Indian branch of the assessee does not come within the ambit of section 9(1)(v)(c) of the Act. The ratio laid down by the co-ordinate Bench in case of Credit Agricole Indosuez (supra) and Assam Fronter Tea Co. Ltd. (supra) support this view. In our view, the departmental authorities have failed to correctly interpret the provision of section 9(1)(v)(c) of the Act, hence, committed the error of bringing to tax the interest received by

8 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC the Indian branches from other overseas branches. In so far as, the observation of the AO that even the interest income would otherwise be covered under the general clause contained under clause 9(1)(i) of the Act, we are not impressed. When a specific provision in the form of section 9(1)(v) of the Act has been brought to the statute w.e.f. 01.06.1976 for taxing the interest income, the general provision would not apply. Thus, we hold that the interest amount of Rs.2,46,76,374/- is not taxable in India. Ground No. 1 is allowed.

9 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC 18. In ground number 3, the assessee has challenged the disallowance of deduction claimed towards bad debts amounting to Rs.1,65,40,906/-.

ITA No. 308/Mum/2000 (Appeal by the Department) 21. In ground no.1, the Department has challenged the deletion of addition made of club expenses of Rs.47,90,602/-.

10 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC Court, while dealing with an identical issue, has held that the payment made towards entrance and subscription fee of employees is allowable as ‘revenue expenditure’. In case of CIT v. United Glass Manufacturing Co. Ltd. [2012] 28 taxmann.com 429, Hon'ble Supreme Court has upheld allowability of club membership fee for employees as allowable expenditure. Thus, respectfully following the decisions referred above, we uphold the decision of Ld. First Appellate Authority by dismissing this ground.

11 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC 28. We have considered rival submissions and perused the materials available on record. Notably, identical issue has been considered by the co-ordinate bench in case of M/s. Banque Indosuez (known as Credit Agricole Indosuez) and others (in ITA No. 3098/Mum/2000 & others vide order dated 21.09.2012). While dealing with the issue, the co-ordinate bench has held as under: 21. Ground no.4 of the Revenue’s appeal is against the direction of the learned CIT(A) to disregard the refund while calculating the interest u/s 234B of the Act. The learned CIT(A) vide para 9.3 of the impugned order held that section 234D was brought into the statute by the Finance Act, 2003 with effect from 01.06.2003 and as such the Assessing Officer was not justified in charging interest u/s 234B with reference to the fund issued u/s 143(1)(a) earlier. 22. Having heard the rival submissions and perused the relevant material on record it is observed that the learned CIT(A) has rightly considered the mandate of sections 234B and 234D. Obviously, the interest u/s 234B is required to be calculated on the basis of total income computed without considering the refund determined u/s 143(1) of the Act. We, therefore, uphold the impugned order on this issue. This ground is not allowed. 29. Viewed in the context of the aforesaid observations of the co-ordinate bench, the A.O. essentially seeks to levy interest u/s. 234D of the Act in the garb of section 234B of the Act though section 234D of the Act was not in the statute at the relevant point of time. In view of the aforesaid, we do not find any infirmity in the decision of ld. First appellate authority. Hence, this ground is dismissed.

CO No. 231/Mum/2013 31. The cross objection of the department is on the issue that in the event of interest received by Indian branches from the head office and overseas branches being held as exempt from taxation in India, expense relatable to such income should be disallowed u/s. 14A of the Act.

12 ITA No. 308/Mum/2001 & others (A.Y. 1997-98) Barclays Bank PLC 32. Having considered the rival submissions, we are of the view that the issue is no more res integra in view of the decision of ITAT (SB) in case of J.P. Morgan Chase Bank, N.A. vs. Joint Commissioner of Income-tax (JCIT) (in ITA No. 9189/Mum/2004 & CO No. 139/Mum/2013 vide order dated 10.10.2025), wherein the Bench has held that the interest received/paid from/to head office and overseas branches being payment to self is not in the nature of income, hence, would not enter the computation provision at all. Therefore, the provision of section 14A would not be applicable. Respectfully following the ratio laid down by the Special Bench in the decision referred to above, we dismiss the cross objections.

Sd/- Sd/- (Prabhash Shankar) (Saktijit Dey) Accountant Member Vice President Mumbai; Dated : 23.06.2026 Roshani, Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai