STATE BANK OF INDIA,MUMBAI vs. THE ASSISTANT COMMISSIONER OF INCOME-TAX, INTERNATIONAL TAXATION CIRCLE - 4(2)(1), MUMBAI, MUMBAI

Briefly stated, the assessee is a public sector bank in India and is stated to be the largest commercial bank in India. Information was received by the Assessing Officer (AO) indicating that in the assessment years under dispute, the assessee had remitted certain payments to the following entities: i. Master Card International Inc An entity located in United States of America (USA) AYs. 2013-14, 2014-15 and 2015-16. ii. Visa Worldwide Pte Ltd A Singapore based entity A.Ys. 2013-14 to 2015-16

Based on such information, the A.O. issued notice u/s. 133(6) of the Act to the assessee to ascertain the correctness of the information and also seeking information whether tax has been deducted while remitting the amounts. In response to the query raised by the A.O., the assessee furnished its reply stating that no tax has been deducted while remitting the amounts to the concerned entities, as the concerned entities have claimed that in absence of any Permanent Establishment (PE) in India, the remittances received by them, being in the nature of ‘business income’, are not taxable in India. The A.O., however, was not convinced with the submissions of the assessee. He observed, irrespective of the fact whether the concerned entities/payees have PE in India or not, the payments made by the assessee to them, being in the nature of royalty, are taxable u/s. 9(1)(vi) of the Act as well as Article 12 of the respective Double Tax Avoidance Agreements (DTAAs). The assessee having failed to deduct tax while remitting the amounts, the A.O. treated the assessee as an 3 ITA No. 5070/Mum/2024 & others (A.Ys. 2013-14 to 2018-19) ‘assessee in default’ and passed orders u/s. 201(1) and 201(1A) of the Act, in all the assessment years under dispute, raising demands and interest thereon.

Though, the assessee preferred appeals against the orders passed u/s. 201(1) and 201(1A) of the Act before learned First Appellate Authority, however, it was unsuccessful. The assessee has raised multiple grounds challenging the applicability of section 201 of the Act and also raised the issue whether the assessee can be at all declared as ‘assessee in default’. However, at the time of hearing, ld. Sr. Counsel appearing for the assessee advanced certain specific arguments to deny its liability u/s. 201(1) and 201(1A) of the Act. Drawing our attention to Explanation u/s. 191 of the Act, ld. Sr. Counsel submitted, only when the payee fails to discharge its tax liability directly, the deductor can be treated as an ‘assessee in default’ u/s. 201(1) of the Act. Ld. Sr. Counsel submitted, insofar as payments made to M/s. Master Card International (USA) in A.Ys. 2013-14 to 2015-16, the assessee cannot be treated as ‘assessee in default’, since M/s. Master Card International USA has not only offered the amounts received from the assessee as ‘income’ in the respective assessment years, but has also discharged the tax liability. In this context, he drew our attention to letter dated 18.06.2019, received from M/s. Master Card International USA, copy of which is placed at pg. 16 of the paper book. 6. Proceeding further, he submitted, even Visa International Trust Ltd. had disputed the taxability qua remittances received from the assessee bank, but ultimately the issue has been resolved through Mutual Agreement Procedure (MAP) for all the six assessment years under dispute and the A.O. has passed orders under Rule 44G/44H r.w.s 144(3) of the Act, implementing the MAP resolution. Thus, he submitted, since the tax demand relating to remittances received from the assessee having been discharged by Visa International Trust

Insofar as, chargeability of interest u/s. 201(1A) of the Act is concerned, ld. Sr. Counsel submitted, such interest can be charged only upto the date of payment of tax by the payees/recipient. Hence, the A.O. can be directed to factually verify the actual date of payment of tax by the recipient and, accordingly, compute interest. In support of such contentions, ld. Sr. Counsel relied upon the decision of Hon’ble Supreme Court in case of Hindustan Coca Cola Beverage P. Ltd. Vs. CIT 163 taxmann.com 355 (SC). He also referred to Circular No. F. No. 275/201/95-IT(B) dated 29.01.1997 issued by Central Board of Direct Tax (‘CBDT’ for short). 9. Per contra, ld. Departmental Representative (‘ld. DR’ for short) submitted that the A.O. has held the amounts paid to M/s. Master Card USA, Visa International Trust Ltd. and Master Card Singapore as royalty. Hence, in terms with section 195 of the Act, the 5 ITA No. 5070/Mum/2024 & others (A.Ys. 2013-14 to 2018-19) State Bank of India vs. Asst. CIT(IT) assessee was required to deduct tax at source. He submitted, the assessee having failed to deduct tax at source while remitting the payments as per the provisions of section 201(1) of the Act, the assessee has to be treated as ‘assessee in default’ and consequences under the said provision are bound to follow. Therefore, the assessee cannot take recourse to section 191 of the Act to escape its liability to deduct tax.

We have considered rival submissions and perused the materials available on record. We have also applied our mind to the judicial precedent cited before us. Undisputedly, in the assessment years under dispute, the assessee has made certain remittances to M/s. Master Card International USA (A.Ys. 2013-14 to 2015-16), Visa International Trust Ltd. in all the assessment years and Master Card Singapore (A.Ys. 2016-17 to 2018-19). It is also a fact on record that while remitting the payments to the above mentioned entities, the assessee has not deducted tax at source. The assessee has pleaded that the non-deduction of tax at source was due to the claim of payees that they were not having PE in India, hence, the receipts, being in the nature of ‘business receipts’, are not taxable in India. On a reading of the orders passed u/s. 201(1) and 201(1A) of the Act, it is evident the A.O. has treated the receipts as ‘royalty’ both under the domestic law as well as under respective treaty provisions and taxed it on gross basis by applying the rate of 10%. Ld. Sr. Counsel for the assessee has explained the nature of transaction between the assessee and payees through the undermentioned illustration as under:  “The customer is required to make payment to the Merchant - Rs. 100 and instead swipes the card  The card network company is the payment systems facilitator and provides the auto debit and auto credit facility to the card issuing bank and the acquiring bank respectively.

However, at this stage, we are not really concerned with the issue whether the assessee at all was required to deduct tax at source and other related issue including the issues as to who in the real sense of the term is the payer. The crucial issue arising for determination is whether the assessee can be declared as an ‘assessee in default’, in terms with section 201(1) of the Act, in the event of payees having discharged the tax liability on the remittances received from the assessee. In this context, it is relevant to refer to Explanation under section 191 of the Act, which reads as under:

A reading of the above Explanation makes it clear that when the payee fails to directly pay the tax on the amounts received from another entity, which is subject to deduction of tax at source, the deductor can be treated as an ‘assessee in default’, in terms with section 201(1) of the Act. The aforesaid provision assumes importance in the context of factual position brought to our notice in assessee’s case. From the materials placed before us, it is observed that M/s. Master Card International USA has confirmed to the assessee that to settle the dispute and buy piece they have discharged the tax liability on the amounts received from the assessee in A.Ys. 2013-14 to 2015-16 through MAP resolution. Similarly, Visa International Trust Ltd. has also communicated to the assessee that the tax liability on the remittances received from the assessee have been discharged through MAP. In fact, in case of Visa International Trust Ltd., the A.O. has passed an order under Rule 44G/44H, implementing the MAP resolution. That being the factual position emerging on record, prima facie, the assessee cannot be treated as an ‘assessee in default’, in respect of remittances made to M/s. Master Card International USA and Visa International Trust Ltd., as the recipients offered the income arising out of such remittances and discharged the tax liability. Insofar as payments made to M/s. Master Card Singapore, the materials placed before us demonstrate that the said entity has disputed its tax liability on remittances received from the assessee before the Authority for Advance Ruling (‘AAR’ for short). However, the AAR decided the issue against it.

Being aggrieved with the said Ruling of AAR, the payee has filed Writ Petition before Hon’ble Delhi High Court vide order dated 12.10.2018, in WP(C) No. 10944/2018,

In the result, the appeals are allowed for statistical purpose. Order pronounced in the open court on 28.08.2025 (Padmavathy S.) (Saktijit Dey) Accountant Member Vice President

The Appellant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER,