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Facts
The assessee, Barclays Bank Plc, Mumbai, engaged in banking, remitted fees for technical services (DSC) to Barclays UK without deducting TDS. The AO treated these payments as income for Barclays India and deemed the assessee in default for non-deduction of TDS.
Held
The Tribunal held that the AO's treatment of payments made by Barclays India to Barclays UK as income of Barclays India was not understandable. The Tribunal found no merit in the impugned additions, stating that treating an expenditure as income and penalizing for non-deduction of TDS was against the cannons of law.
Key Issues
Whether payments made by a branch of a foreign bank in India to its head office/overseas branches for technical services are to be treated as income of the Indian entity and whether TDS is applicable on such payments.
Sections Cited
195
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HON’BLE & SHRI ANIKESH BANERJEE, HON’BLE
Shri Madhur Agrawal, Adv. Assessee by : Revenue by : Shri Krishna Kumar, Sr. D/R सुनवाई की तारीख/Date of Hearing : 04/09/2025 घोषणा की तारीख /Date of Pronouncement : 10/09/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: are two separate appeals by the assessee preferred against the order of the ld. CIT(A) – 55, Mumbai {hereinafter “the ld. CIT(A)”} dated 13/02/2024 pertaining to AYs 2015-16 & 2016-17.
Since common issues are involved in both the appeals they were heard together and are disposed off by this common order for the sake of convenience and brevity.
We have heard the representatives on the facts of for AY 2015-16.
Briefly stated the facts of the case are that the assessee is engaged in the business of banking and is a branch of Barclays Bank Plc, U.K. The AO was in possession of the information about remittances made outside India to Barclays UK during FY 2014-15 i.e., AY 2015-16. A perusal of the details of remittances, the AO was of the opinion that the assessee has made remittances on account of ‘fees for technical services’ on account of Derivatives Sales Credit (DSC) to Barclays UK, on which no tax was deducted at source. The assessee was asked to give particulars of remittances and the status of TDS and was also asked to provide the reasons for non-deduction of tax at source. 4.1. The assessee filed a detailed reply which is as under:- “1. Barclays Capital, a division of Barclays Bank Pic managed the global derivative operations of the Barclays Group. The existing/prospective customers of the Barclays Group who wish to take derivative positions/ hedge their exposures in India, would approach Barclays Bank Pic, UK (hereinafter referred to as 'Barclays UK) being the head office or its overseas branches as the case may be with their requirements in relation to the desired derivative product. Barclays UK, being the head office and its overseas branches act as an intermediary between the client and Barclays India in respect of the derivative transactions to be undertaken by the client in India. Accordingly, Barclays UK and its overseas branches perform coordination/ liaising, origination and marketing activities of the derivative products. The payment for the aforesaid activities within the Barclays group is termed as DSC.
1. 1. Barclays India also undertakes origination, coordination/ liaising and marketing activities for clients/ prospective clients in India requiring exposure in UK or other overseas markets in respect of derivative products. For the aforesaid services, Barclays India receives DSC from Barclays UK. Thus, Barclays India pays as well as receives DSC.
1. 1. As per the global policy of Barclays Group, all the payments and receipts of DSC are routed through Barclays Bank Pic, UK, being head office. For the given nature of activity carried out, the settlement process (i.e. receipts/payments) is conducted through Barclays UK being the head office. Accordingly, for administrative purposes, Barclays Bank Plc, UK acts as a centralized entity to collect and distribute the DSC to various branches for the activities undertaken by them……”
"2. Methodology of computing DSC 1.
1. In relation to the methodology of calculation of DSC, we wish to submit that the revenue in the books of Barclays UK (being the head office) and Barclays India is booked on the basis of 'Estimated Day-1 P&L' i.e. difference between the value of prospective net cash flows based on the transaction price (i.e. the price at which the transaction has been entered with the clients) and value of the prospective net cash flows based on market price/ price at which the transaction could be hedged in the market (i.e. the price based on the market parameters).
1. 1. The aforesaid methodology is used for computing both DSC payable as well as receivable from Barclays UK/overseas entities. Certain percentage of the total income received from derivative transaction is paid to the marketing/originating entity in the form of DSC. Further, we wish to submit that DSC remitted by Barclays India for the aforesaid services is in accordance with the global transfer pricing policy of the Barclays Group. A copy of the global transfer pricing policy is enclosed as Annexure 2. 1. 1. Based on the above, the total amount of remittance has two components:
• Actual sales credit payment net off reversals / adjustment with respect to services provided by the overseas office to Barclays India; and • Reversal of excess sales credit received in prior months for services offered by Barclays India to Barclays UK. Accordingly, the actual amount to be remitted consist of the total DSC payable for services received during the year net of the reversals of amount paid in excess (which is recoverable/ recovered subsequently).
1. Separately, during early 2016, an independent internal investigation/review of the DSC payment process was undertaken by Barclays India. Pursuant to the internal investigation/ review it was observed by Barclays India that on account of certain system inconsistencies/errors (being incorrect mapping of legal entities) Barclays India had inadvertently made excess payments which have been recovered subsequently….”