BANK OF AMERICA N.A,MUMBAI vs. DCIT (IT) RG 1, MUMBAI

PER OM PRAKASH KANT, AM This appeal by the assessee is directed against revision order dated 30/03/2019, passed by the Ld. Commissioner of Income-tax (International Taxation)-I, Mumbai [in short ‘the Ld. CIT’] for assessment year 2013-14, raising following grounds:

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Appellant to its head office and overseas branches as INR 1,86,06,181 Appellant to its head office and overseas branches as INR 1,86,06,181 Appellant to its head office and overseas branches as INR 1,86,06,181 as against INR 1,58,79,058. as against INR 1,58,79,058. 2. Briefly stated facts of the case are that the assessee stated facts of the case are that the assessee stated facts of the case are that the assessee M/s Bank of America, is a resident of United States of America and carries on is a resident of United States of America and carries on is a resident of United States of America and carries on the business of banking through its branches located it various the business of banking through its branches located it various the business of banking through its branches located it various places across the world. During the year under consideration, the places across the world. During the year under consideration, the places across the world. During the year under consideration, the assessee had five branches in India namely Mumbai, New De assessee had five branches in India namely Mumbai, New De assessee had five branches in India namely Mumbai, New Delhi, Kolkata, Chennai and Bangalore. In India, the bank carries on its Kolkata, Chennai and Bangalore. In India, the bank carries on its Kolkata, Chennai and Bangalore. In India, the bank carries on its business of banking through its branches (i.e. king through its branches (i.e. king through its branches (i.e. Permanent Establishment). For the year under consideration, the assessee filed . For the year under consideration, the assessee filed . For the year under consideration, the assessee filed return of income on 25/11/2013 declaring total income of return of income on 25/11/2013 declaring total income of return of income on 25/11/2013 declaring total income of ₹817,13,21,220/-. The return of income filed by the assessee was . The return of income filed by the assessee was . The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the selected for scrutiny assessment and statutory notices under the selected for scrutiny assessment and statutory notices under the Income-tax Act, 1961 (in short , 1961 (in short ‘the Act’) were issued and complied ) were issued and complied with. The Assessing Officer Assessing Officer issued a draft assessment order d issued a draft assessment order dated 22/02/2017, wherein he proposed wherein he proposed certain additions/disallowances additions/disallowances to the returned income. income. Thereafter, the Ld. CIT called for the he Ld. CIT called for the

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assessment record for the year under consideration for his assessment record for the year under consideration for his assessment record for the year under consideration for his inspection. On inspection of the record, the Ld. CIT was of the vi inspection. On inspection of the record, the Ld. CIT was of the vi inspection. On inspection of the record, the Ld. CIT was of the view that impugned assessment order passed by the that impugned assessment order passed by the Assessing Officer Assessing Officer was erroneous insofar as prejudicial to the interest of the was erroneous insofar as prejudicial to the interest of the was erroneous insofar as prejudicial to the interest of the Revenue because of the reason that the eason that the Assessing Officer did not assess interest income in the hand of the assessee, which was pai interest income in the hand of the assessee, which was pai interest income in the hand of the assessee, which was paid by the Indian branches to the head office of the bank or overseas branches. Indian branches to the head office of the bank or overseas branches. Indian branches to the head office of the bank or overseas branches. The Ld. CIT also held that assessment order was erroneous insofar The Ld. CIT also held that assessment order was erroneous insofar The Ld. CIT also held that assessment order was erroneous insofar as prejudicial to the interest of the as prejudicial to the interest of the Revenue as the Assessing Officer Assessing Officer did not carry out the inquiries, which he did not carry out the inquiries, which he ought to have carried out ought to have carried out on taxability of interest income and therefore assessment order is on taxability of interest income and therefore assessment order is on taxability of interest income and therefore assessment order is deemed to be erroneous invoking deemed to be erroneous invoking Explanation-1, below the section 1, below the section 263 of the Act. After considering After considering the submission of the assessee in the submission of the assessee in response to the show cause no response to the show cause notice issued, the Ld. Ld. CIT held that explanation to section 9(1)(v)(c) explanation to section 9(1)(v)(c) introduced by way of Finance by way of Finance Act 2015, with effect from 01/04/2016, is retrospective in nature, with effect from 01/04/2016, is retrospective in nature, with effect from 01/04/2016, is retrospective in nature,

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therefore, the interest income of head office/overseas branches is the interest income of head office/overseas branches is the interest income of head office/overseas branches is taxable in the hand of taxable in the hand of permanent establishment of the assessee permanent establishment of the assessee in India. Accordingly, he set aside . Accordingly, he set aside impugned assessment order and impugned assessment order and directed to make a fresh assessment order observing as under: directed to make a fresh assessment order observing as under: directed to make a fresh assessment order observing as under:

“15. As in the instant case, the AO has failed to make any inquiry in As in the instant case, the AO has failed to make any inquiry in As in the instant case, the AO has failed to make any inquiry in relation to the is relation to the issue of income arising to the assessee on account of sue of income arising to the assessee on account of payment of interest by the Indian branch PE to HO/Overseas payment of interest by the Indian branch PE to HO/Overseas payment of interest by the Indian branch PE to HO/Overseas branches, which has been borne by the Indian branch PE as an branches, which has been borne by the Indian branch PE as an branches, which has been borne by the Indian branch PE as an expense, the assessment order is erroneous and prejudicial to the expense, the assessment order is erroneous and prejudicial to the expense, the assessment order is erroneous and prejudicial to the Revenue, within th Revenue, within the meaning of section 263(1) of the Act. e meaning of section 263(1) of the Act. It is also evident that the interest paid by Indian branch PE to its HO/Overseas evident that the interest paid by Indian branch PE to its HO/Overseas evident that the interest paid by Indian branch PE to its HO/Overseas branches is taxable in India as income of the assessee @ 10% u/s branches is taxable in India as income of the assessee @ 10% u/s branches is taxable in India as income of the assessee @ 10% u/s 9(1)(v)(c) of the Act read with Article 11(2)(a) and 14(3) of the 9(1)(v)(c) of the Act read with Article 11(2)(a) and 14(3) of the 9(1)(v)(c) of the Act read with Article 11(2)(a) and 14(3) of the India-USA DTA. Therefore the assessment order made u/s 143(3) USA DTA. Therefore the assessment order made u/s 143(3) USA DTA. Therefore the assessment order made u/s 143(3) read with section 144C(3) of the Act by the AO is set aside and the read with section 144C(3) of the Act by the AO is set aside and the read with section 144C(3) of the Act by the AO is set aside and the assessing officer is directed to make a fresh assessment for AY 2013 assessing officer is directed to make a fresh assessment for AY 2013 assessing officer is directed to make a fresh assessment for AY 2013- 14 and examine the taxability of the interest income of the a 14 and examine the taxability of the interest income of the a 14 and examine the taxability of the interest income of the assessee in light of the discussion above in relation to the interest paid by the light of the discussion above in relation to the interest paid by the light of the discussion above in relation to the interest paid by the Indian branch PE of the assessee to its HO/Overseas branches which Indian branch PE of the assessee to its HO/Overseas branches which Indian branch PE of the assessee to its HO/Overseas branches which is also borne by the Indian branch PE as expense, after making due is also borne by the Indian branch PE as expense, after making due is also borne by the Indian branch PE as expense, after making due inquiries and allowing inquiries and allowing adequate opportunities of being heard to the ties of being heard to the assessee.” 3. Aggrieved, the assessee is before the , the assessee is before the Tribunal by way of raising by way of raising grounds as reproduced above. grounds as reproduced above.

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provision of section 263 of the provision of section 263 of the Act as same cannot be regarded as as same cannot be regarded as erroneous or prejudicial to erroneous or prejudicial to the interest of the revenue. the interest of the revenue.

6.1 Accordingly, he submitted that he submitted that once the condition of once the condition of assessment order to be erroneous, is not fulfilled, the order of assessment order to be erroneous, is not fulfilled, the order of assessment order to be erroneous, is not fulfilled, the order of the Ld. CIT need to be reversed/quashed. reversed/quashed.

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head office/overseas branches as income in the head office/overseas branches as income in the hands of hands of permanent establishment, the assessee establishment, the assessee is invoking mutuality principle s invoking mutuality principle under the Income-tax Act Act, instead of following provisions of DTAA. ng provisions of DTAA. According to him, in respect of two legs of same transaction, the According to him, in respect of two legs of same transaction, the According to him, in respect of two legs of same transaction, the assessee is invoking DTAA and Income invoking DTAA and Income-tax Act Act simultaneously, which should not be permitted in law. which should not be permitted in law. He submitted that He submitted that order of the Assessing Officer Assessing Officer in accepting the version of the assessee rsion of the assessee, without making an enquiry is erroneous to that extent of not without making an enquiry is erroneous to that extent of not without making an enquiry is erroneous to that extent of not assessing the interest income under reference. assessing the interest income under reference.

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attraction rules and proposed to tax at the rate of 20% along with attraction rules and proposed to tax at the rate of 20% along with attraction rules and proposed to tax at the rate of 20% along with applicable surcharge and cess under the provision of sectio applicable surcharge and cess under the provision of sectio applicable surcharge and cess under the provision of section 115A of the Act read with Article Article 7(3) of DTAA.

8.1 But the Ld. CIT after CIT after perusal of records observed perusal of records observed that from Form No. 3CEB of Income Income-tax Rules, 1962 (in short in short ‘the Rules’) that Indian branches, which are permanent establishment of the Indian branches, which are permanent establishment of the Indian branches, which are permanent establishment of the assessee in India, has made payments of ia, has made payments of ₹ 1,86,06,181/ 181/- as interest to the head office/overseas branches but the to the head office/overseas branches but the Assessing Officer Assessing Officer did not make any query for taxing of not make any query for taxing of said interest receipt of receipt of the head office/overseas branches as a separate item of income of the HO as office/overseas branches as a separate item of income of the HO as office/overseas branches as a separate item of income of the HO as distinct from the business profit of the branch PE in India. distinct from the business profit of the branch PE in India. distinct from the business profit of the branch PE in India.

8.2 According to the According to the Ld. CIT said interest income is taxable in the CIT said interest income is taxable in the hands of the PE in India under the provisions of of the PE in India under the provisions of DTAA as well as DTAA as well as under the Income-tax tax Act, whereas according to the assessee, said , whereas according to the assessee, said income is not taxable in the hands of t income is not taxable in the hands of the PE in India under the he PE in India under the

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Income-tax Act in view of the decision of the special in view of the decision of the special Bench of in view of the decision of the special Tribunal in the case of Sumitomo Mitsui in the case of Sumitomo Mitsui Banking Corp (supra). Corp (supra).

8.3 In the case of Sumitomo Mitsui banking Corp (supra), following In the case of Sumitomo Mitsui banking Corp (supra), following In the case of Sumitomo Mitsui banking Corp (supra), following two questions were raised before the two questions were raised before the Special Bench Special Bench of Five Members:

“1. Whether or not on the facts and in the circumstances of the case, Whether or not on the facts and in the circumstances of the case, Whether or not on the facts and in the circumstances of the case, the CIT(A) was justified in holding that interest payable by the Indian the CIT(A) was justified in holding that interest payable by the Indian the CIT(A) was justified in holding that interest payable by the Indian PE of the foreign bank to its HO and other Overseas Branches, PE of the foreign bank to its HO and other Overseas Branches, PE of the foreign bank to its HO and other Overseas Branches, deductible in computing its total income. deductible in computing its total income. 2. Whether or not, on the facts and in the circumstances the case in not, on the facts and in the circumstances the case in law, the ld. CIT(A) law, the ld. CIT(A) erred in holding that interest income payable by holding that interest income payable by the Indian of a foreign to its HO and branch the Indian of a foreign to its HO and branch offices abroad cannot be abroad cannot be taken into account for the purpose of computing income HO li taken into account for the purpose of computing income HO li taken into account for the purpose of computing income HO liable to be taxed in India.” in India.” 8.4 The Special Bench Bench of the Tribunal after considering arguments after considering arguments of both side decided the questions as under: of both side decided the questions as under:

“88. Keeping in view all the facts of the case and the legal position 88. Keeping in view all the facts of the case and the legal position 88. Keeping in view all the facts of the case and the legal position emanating from the interpretation of the emanating from the interpretation of the relevant provisions of ant provisions of domestic law as wellias that of the treaty as discusse domestic law as wellias that of the treaty as discussed above. we are d above. we are of the view that of the view that although interest paid to the head lkce of the although interest paid to the head lkce of the assessee bank by its Indian b bank by its Indian branch which constitutes Its PE in ranch which constitutes Its PE in India is

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not deductible as expenditure not deductible as expenditure under the domestic law being payment under the domestic law being payment to self. the same to self. the same is deductble while determining the profit while determining the profit attributable to the PE which is taxable in India as per the provisions attributable to the PE which is taxable in India as per the provisions attributable to the PE which is taxable in India as per the provisions of article 7(2) of article 7(2) and 7(3) of the Indo-Japanese treaty read with Japanese treaty read with paragraph 8 of the protoc paragraph 8 of the protocol which are more beneficial to the ol which are more beneficial to the assessee. The said interest, however, cannot be taxed in India in the assessee. The said interest, however, cannot be taxed in India in the assessee. The said interest, however, cannot be taxed in India in the hands of assess hands of assessee bank, a foreign enterprise being payment to self being payment to self which cannot give rise to income that is taxable in India as per the which cannot give rise to income that is taxable in India as per the which cannot give rise to income that is taxable in India as per the domestic law. Even Even otherwise, there is no express provision contained otherwise, there is no express provision contained in the relevant tax treaty which is contrary to the domestic in the relevant tax treaty which is contrary to the domestic 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 India on this issue. This position applicable in the case of interest paid India on this issue. This position applicable in the case of interest paid by Indian branch of a foreign by Indian branch of a foreign bank to its Head Office equ bank to its Head Office equally holds good for the payment of interest made by the Indian branch of a good for the payment of interest made by the Indian branch of a 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 bank to its branch offices abroad as the same stands on the bank to its branch offices abroad as the same stands on the same footing as the payment of interest made to the same footing as the payment of interest made to the Head Office. At Head Office. At the time of hearing before us, the learned re the time of hearing before us, the learned representatives of both the presentatives of both the sides have also not made sides have also not made any separate submissions on this aspect of any separate submissions on this aspect of the matter specifically. Having held that the interest paid by the the matter specifically. Having held that the interest paid by the the matter specifically. Having held that the interest paid by the Indian branch of the assessee Bank to its head office and other Indian branch of the assessee Bank to its head office and other Indian branch of the assessee Bank to its head office and other branches outside India is not c branches outside India is not chargeable to tax in India, it follows India, it follows that the provisions of section 195 would not be attracted and there that the provisions of section 195 would not be attracted and there that the provisions of section 195 would not be attracted and there being no failure to deduct being no failure to deduct tax at source from the said payment of tax at source from the said payment of interest made by the PE, the question of disallowance of the said interest made by the PE, the question of disallowance of the said interest made by the PE, the question of disallowance of the said interest by invoki by invoking the provisions of section 40(a)j) does not arise. ng the provisions of section 40(a)j) does not arise. Accordingly we answer question No.1 referred to Accordingly we answer question No.1 referred to this Special Bench this Special Bench in the negative i.e. in favour of the assessee and question No.2 in in the negative i.e. in favour of the assessee and question No.2 in in the negative i.e. in favour of the assessee and question No.2 in affirmative i.e. again in affirmative i.e. again in favour of the assessee.”

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8.5 The issue relat ating treatment of interest paid by domestic ing treatment of interest paid by domestic branches to head office/overseas branches has been decided in branches to head office/overseas branches has been decided in branches to head office/overseas branches has been decided in question No. 2 above. The above. The Tribunal (supra) has held that interest has held that interest paid by the domestic b paid by the domestic branches of a foreign enterprise ranches of a foreign enterprise, cannot be taxed in the hand of Foreign Enterprise of Foreign Enterprise under the domestic law under the domestic law on the principle of mutuality. the principle of mutuality.

8.6 As the assessee before us has option to choose beneficial As the assessee before us has option to choose beneficial As the assessee before us has option to choose beneficial provisions out of the domestic law vis provisions out of the domestic law vis-à-vis DTAA, irrespective vis DTAA, irrespective whether said interest income is taxable in the hands whether said interest income is taxable in the hands whether said interest income is taxable in the hands of the PE of bank under the provisions of the bank under the provisions of the DTAA between India and USA, it is DTAA between India and USA, it is not taxable under the domestic law as held in the case of Sumitomo not taxable under the domestic law as held in the case of Sumitomo not taxable under the domestic law as held in the case of Sumitomo Mitsue banking Corp (supra). Mitsue banking Corp (supra).

8.7 Further the Ld. CIT has held that the domestic law has been Further the Ld. CIT has held that the domestic law has been Further the Ld. CIT has held that the domestic law has been amended by way of Finance of Finance Act, 2015 wherein an Explanation Explanation has been introduced to section 9(1)( been introduced to section 9(1)(v)(c) of the Act which says that which says that interest payable by the PE in India of a non interest payable by the PE in India of a non-resident bank to the resident bank to the

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head office or any other perman head office or any other permanent establishment outside India, ent establishment outside India, same shall be deemed to accrue or arise in India and shall be deemed to accrue or arise in India and shall be deemed to accrue or arise in India and shall be chargeable to tax in the hands of PE in India. According to the Ld chargeable to tax in the hands of PE in India. According to the Ld chargeable to tax in the hands of PE in India. According to the Ld. CIT said amendment being CIT said amendment being clarificatory in nature, it is applicable in nature, it is applicable retrospectively and therefore mutuality principle will not apply in retrospectively and therefore mutuality principle will not apply in retrospectively and therefore mutuality principle will not apply in the case of the assessee. case of the assessee.

8.8 But we find that But we find that Tribunal in the case of DCIT Vs BNP Paribas DCIT Vs BNP Paribas SA in ITA No. 1689/Mum/2018 SA in ITA No. 1689/Mum/2018 for assessment year 2012 for assessment year 2012-13 has held that operation of explanation introduced by the Finance held that operation of explanation introduced by the Finance held that operation of explanation introduced by the Finance Act 2015 is prospective. The relevant finding o 2015 is prospective. The relevant finding of the Tribunal Tribunal (supra) is reproduced as under: reproduced as under:

“21. We have considered rival submissions and perused the material 21. We have considered rival submissions and perused the material 21. We have considered rival submissions and perused the material on record. We have also applied our mind to the decisions relied on record. We have also applied our mind to the decisions relied on record. We have also applied our mind to the decisions relied upon. Undisputedly, the issue relating to the taxability of interest upon. Undisputedly, the issue relating to the taxability of interest upon. Undisputedly, the issue relating to the taxability of interest paid by the Indian Branch to the Head Office is a recurr paid by the Indian Branch to the Head Office is a recurr paid by the Indian Branch to the Head Office is a recurring dispute between the assessee and the Revenue from preceding assessment between the assessee and the Revenue from preceding assessment between the assessee and the Revenue from preceding assessment years. While deciding the issue in the preceding assessment years, the years. While deciding the issue in the preceding assessment years, the years. While deciding the issue in the preceding assessment years, the Tribunal following the Special Bench decision in case of Sumitomo Tribunal following the Special Bench decision in case of Sumitomo Tribunal following the Special Bench decision in case of Sumitomo Mitsui Banking Corporation (supra) has consi Mitsui Banking Corporation (supra) has consistently held that stently held that

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interest paid by the Indian Branch to the Head Office being a interest paid by the Indian Branch to the Head Office being a interest paid by the Indian Branch to the Head Office being a payment made to self is governed by the principles of mutuality, payment made to self is governed by the principles of mutuality, payment made to self is governed by the principles of mutuality, hence, not taxable. In the latest order passed by the Tribunal in hence, not taxable. In the latest order passed by the Tribunal in hence, not taxable. In the latest order passed by the Tribunal in assessee’s own case in assessment year 2011 assessee’s own case in assessment year 2011–12, vide ITA 2, vide ITA no.444/Mum./2017, dated 29th August 2018, the Tribunal again no.444/Mum./2017, dated 29th August 2018, the Tribunal again no.444/Mum./2017, dated 29th August 2018, the Tribunal again reiterated the same view. Thus, as could be seen from the facts on reiterated the same view. Thus, as could be seen from the facts on reiterated the same view. Thus, as could be seen from the facts on record, the issue has been consistently decided by the Tribunal in record, the issue has been consistently decided by the Tribunal in record, the issue has been consistently decided by the Tribunal in favour of the assessee up to the assessment year favour of the assessee up to the assessment year 2011–12. As regards 12. As regards the contention of the Department that as per the provision contained the contention of the Department that as per the provision contained 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 under section 9(1)(v)(c) of the Act interest income is taxable in India 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 and the applicability of such provision has been ignored by the and the applicability of such provision has been ignored by the appellate authority, we must ob appellate authority, we must observe, this particular aspect relating serve, this particular aspect relating to the applicability of section 9(1)(v)(c) of the Act was also under to the applicability of section 9(1)(v)(c) of the Act was also under 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 consideration of the Special Bench in case of Sumitomo Mitsui consideration of the Special Bench in case of Sumitomo Mitsui Banking Corporation (supra) and the Special Bench clearly and Banking Corporation (supra) and the Special Bench clearly and Banking Corporation (supra) and the Special Bench clearly and categorically held that categorically held that since the interest payable by the Indian since the interest payable by the Indian Branch to the Head Office is a payment to self, it cannot be brought to Branch to the Head Office is a payment to self, it cannot be brought to 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. tax by relying upon the provision of section 9(1)(v)(c) of the Act. 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 Therefore, insofar as the applicability of the aforesaid provision is Therefore, insofar as the applicability of the aforesaid provision is concerned, it stands settled in favour of the assessee by the decision of rned, it stands settled in favour of the assessee by the decision of rned, it stands settled in favour of the assessee by the decision of the Tribunal, Special Bench, referred to above. Moreover, by virtue of the Tribunal, Special Bench, referred to above. Moreover, by virtue 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 explanation to section 9(1)(v)(c) of the Act, it is provided that in case explanation to section 9(1)(v)(c) of the Act, it is provided that in case of non–resident engaged in banking busines resident engaged in banking business any interest payable by s any interest payable by the PE in India to the Head Office would be chargeable to tax in India. the PE in India to the Head Office would be chargeable to tax in India. 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, However, the aforesaid explanation has been inserted by Finance Act, However, the aforesaid explanation has been inserted by Finance Act, 2015, w.e.f. 1st April 2016. From the notes and memorandum as well 2015, w.e.f. 1st April 2016. From the notes and memorandum as well 2015, w.e.f. 1st April 2016. From the notes and memorandum as well as CBDT Circular expla as CBDT Circular explaining the object and purport of introducing ining the object and purport of introducing such explanation, it is evident that such explanation was introduced such explanation, it is evident that such explanation was introduced such explanation, it is evident that such explanation was introduced to overcome the effect and implication of the Special Bench decision to overcome the effect and implication of the Special Bench decision to overcome the effect and implication of the Special Bench decision

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of the Tribunal in case of Sumitomo Mitsui Banking Corporation of the Tribunal in case of Sumitomo Mitsui Banking Corporation of the Tribunal in case of Sumitomo Mitsui Banking Corporation (supra). However, it has been made clear by the CBDT that such wever, it has been made clear by the CBDT that such wever, it has been made clear by the CBDT that such amendment by way of explanation will apply from the assessment amendment by way of explanation will apply from the assessment amendment by way of explanation will apply from the assessment year 2016–17 onwards. That being the case, as per the relevant 17 onwards. That being the case, as per the relevant 17 onwards. That being the case, as per the relevant statutory provisions applicable to the impugned assessment year and statutory provisions applicable to the impugned assessment year and statutory provisions applicable to the impugned assessment year and as per the ratio laid down by the Tribunal, Special Bench in case of ratio laid down by the Tribunal, Special Bench in case of ratio laid down by the Tribunal, Special Bench in case of Sumitomo Mitsui Banking Corporation (supra), which is applicable to Sumitomo Mitsui Banking Corporation (supra), which is applicable to Sumitomo Mitsui Banking Corporation (supra), which is applicable to the impugned assessment year, the interest income received by the the impugned assessment year, the interest income received by the the impugned assessment year, the interest income received by the assessee from its Indian Branch being a payment made to self, i assessee from its Indian Branch being a payment made to self, i assessee from its Indian Branch being a payment made to self, is not taxable at the hands of the assessee. Therefore, respectfully following taxable at the hands of the assessee. Therefore, respectfully following taxable at the hands of the assessee. Therefore, respectfully following the Special Bench decision of the Tribunal, Mumbai Bench, in the Special Bench decision of the Tribunal, Mumbai Bench, in the Special Bench decision of the Tribunal, Mumbai Bench, in Sumitomo Mitsui Banking Corporation (supra) and the decisions of Sumitomo Mitsui Banking Corporation (supra) and the decisions of Sumitomo Mitsui Banking Corporation (supra) and the decisions of the Co–ordinate Bench in assessee’s own case in the ordinate Bench in assessee’s own case in the ordinate Bench in assessee’s own case in the preceding assessment years, which we are bound to follow adhering to the assessment years, which we are bound to follow adhering to the assessment years, which we are bound to follow adhering to the norms of judicial discipline in the absence of any material difference norms of judicial discipline in the absence of any material difference norms of judicial discipline in the absence of any material difference in facts, we have no hesitation in upholding the decision of the in facts, we have no hesitation in upholding the decision of the in facts, we have no hesitation in upholding the decision of the learned Commissioner (Appeals) on the issue. Gr learned Commissioner (Appeals) on the issue. Grounds are dismissed. ounds are dismissed.” 8.9 Moreover, the Ld. Ld. CIT cannot hold the said order CIT cannot hold the said order as erroneous in view of an amendment introduced retrospectively ment introduced retrospectively, which was not ment introduced retrospectively available to the Assessing Officer Assessing Officer at the time of pa at the time of passing of the assessment order. Thus Thus in our view the order passed by the e order passed by the Assessing Officer is not erroneous as far as the issue of assessing is not erroneous as far as the issue of assessing is not erroneous as far as the issue of assessing interest payment in the hands of the assessee interest payment in the hands of the assessee, is concerned. , is concerned.

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8.10 Regarding the claim of the Ld Regarding the claim of the Ld. CIT that no enquiry has been CIT that no enquiry has been made by the Assessing Officer Assessing Officer on the issue in dispute, we find that sue in dispute, we find that Assessing Officer has followed has followed finding of his predecessors wherein finding of his predecessors wherein no income has been added in the hands of assessee income has been added in the hands of assessee for interest income has been added in the hands of assessee payment by the domestic branches to the head office/overseas payment by the domestic branches to the head office/overseas payment by the domestic branches to the head office/overseas branches. The said assessment . The said assessment records of the earlier years were of the earlier years were available with the Assessing Officer Assessing Officer and further assessee also made and further assessee also made submission making its claim that said interest received was not submission making its claim that said interest received was not submission making its claim that said interest received was not taxable in the hands of the PE in India in view of the taxable in the hands of the PE in India in view of the taxable in the hands of the PE in India in view of the judicial precedents. In background of such facts and circumstances, in our precedents. In background of such facts and circumstances, in our precedents. In background of such facts and circumstances, in our opinion, the Assessing Officer Assessing Officer was not ought to to have carry out further enquiry on the issue in dispute, therefore the finding of the further enquiry on the issue in dispute, therefore the finding of the further enquiry on the issue in dispute, therefore the finding of the Ld. CIT that no enquiry has been carried out by Ld. CIT that no enquiry has been carried out by the Assessing Officer Assessing Officer on the issue in dispute is without any basis and fallacious. on the issue in dispute is without any basis and fallacious. on the issue in dispute is without any basis and fallacious. The explanation below section 263 of the explanation below section 263 of the Act is also not applicable is also not applicable over the facts of the case. The said explanation, prescribe that the the facts of the case. The said explanation, prescribe that the the facts of the case. The said explanation, prescribe that the

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assessment order is deemed to be er assessment order is deemed to be erroneous insofar as prejudicial roneous insofar as prejudicial to the interest of the revenue if the to the interest of the revenue if the Assessing Officer Assessing Officer has not carried out the inquiries which ought to have been carried out in the facts of out the inquiries which ought to have been carried out in the facts of out the inquiries which ought to have been carried out in the facts of the case. In the case the case. In the case, in background of the earlier years and in background of the earlier years and submission of the as submission of the assessee, there was no requirement of carrying was no requirement of carrying out further inquiries on the issue inquiries on the issue-in-dispute.

8.11 The Tribunal in the case of in the case of JP Morgan chase Bank NA in ITA an chase Bank NA in ITA No.3747/Mum/2013 Mum/2013 for assessment year 2012- -13 in identical circumstances quashed the order under section 263 passed by the circumstances quashed the order under section 263 passed by the circumstances quashed the order under section 263 passed by the CIT. The relevant finding of the CIT. The relevant finding of the Tribunal is reproduced as under: is reproduced as under:

“4. We have considered rival submissions and perused the material 4. We have considered rival submissions and perused the material 4. We have considered rival submissions and perused the material on record. We have on record. We have also applied our mind to the decisions relied also applied our mind to the decisions relied upon. Undisputedly, learned CIT has exercised his power of revision upon. Undisputedly, learned CIT has exercised his power of revision upon. Undisputedly, learned CIT has exercised his power of revision conferred under section 263 of the Act on the issue of taxability of conferred under section 263 of the Act on the issue of taxability of conferred under section 263 of the Act on the issue of taxability of interest paid by the Indian Branch to the Head Office and other interest paid by the Indian Branch to the Head Office and other interest paid by the Indian Branch to the Head Office and other overseas branches. As could be seen from the facts on record, in the branches. As could be seen from the facts on record, in the branches. As could be seen from the facts on record, in the returns of income filed for the respective assessment years, the returns of income filed for the respective assessment years, the returns of income filed for the respective assessment years, the assessee had appended notes stating in detail the reasons for which assessee had appended notes stating in detail the reasons for which assessee had appended notes stating in detail the reasons for which the interest paid to the Head Office/overseas branches are not the interest paid to the Head Office/overseas branches are not the interest paid to the Head Office/overseas branches are not taxable at the hands of the assessee in India. On a perusal of the said taxable at the hands of the assessee in India. On a perusal of the said taxable at the hands of the assessee in India. On a perusal of the said

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note, it appears that during the relevant assessment years, Indian note, it appears that during the relevant assessment years, Indian note, it appears that during the relevant assessment years, Indian branch had received interest from Head Office/overseas branches branch had received interest from Head Office/overseas branches branch had received interest from Head Office/overseas branches and had also paid interest to them. In the course of and had also paid interest to them. In the course of and had also paid interest to them. In the course of assessment proceedings, the Assessing Officer has issued notice under section proceedings, the Assessing Officer has issued notice under section proceedings, the Assessing Officer has issued notice under section 142(1) of the Act raising specific query regarding the interest 142(1) of the Act raising specific query regarding the interest 142(1) of the Act raising specific query regarding the interest received from the Indian Branches. In response to the query raised by received from the Indian Branches. In response to the query raised by received from the Indian Branches. In response to the query raised by the Assessing Officer, the assessee has als the Assessing Officer, the assessee has also furnished detailed reply o furnished detailed reply stating the reasons why the interest received from Indian Branches is stating the reasons why the interest received from Indian Branches is stating the reasons why the interest received from Indian Branches is not taxable. In support of its claim, the assessee has relied upon not taxable. In support of its claim, the assessee has relied upon not taxable. In support of its claim, the assessee has relied upon certain judicial precedents. The Assessing Officer after considering certain judicial precedents. The Assessing Officer after considering certain judicial precedents. The Assessing Officer after considering the submissions of the the submissions of the assessee has ultimately concluded the assessee has ultimately concluded the assessments excluding from taxation the interest income received assessments excluding from taxation the interest income received assessments excluding from taxation the interest income received from Indian Branch. As could be seen from the impugned orders of from Indian Branch. As could be seen from the impugned orders of from Indian Branch. As could be seen from the impugned orders of learned CIT, the primary reason on which he considers the learned CIT, the primary reason on which he considers the learned CIT, the primary reason on which he considers the assessment orders to be errone assessment orders to be erroneous and prejudicial to the interest of ous and prejudicial to the interest of Revenue is, interest received from the Indian Branch is taxable in Revenue is, interest received from the Indian Branch is taxable in Revenue is, interest received from the Indian Branch is taxable in India as per Article 14(6) of the India India as per Article 14(6) of the India–USA Tax Treaty. According to USA Tax Treaty. According to learned CIT, the provisions of Tax Treaty will prevail over the learned CIT, the provisions of Tax Treaty will prevail over the learned CIT, the provisions of Tax Treaty will prevail over the provisions of the provisions of the Act. Of course, learned CIT by referring to the Act. Of course, learned CIT by referring to the Explanation (a) to section 9(1)(v)(c) of the Act, has also held that the Explanation (a) to section 9(1)(v)(c) of the Act, has also held that the Explanation (a) to section 9(1)(v)(c) of the Act, has also held that the interest income is taxable even under the provisions of the Act. The interest income is taxable even under the provisions of the Act. The interest income is taxable even under the provisions of the Act. The issue relating to the taxability of the interest paid by Indian B issue relating to the taxability of the interest paid by Indian B issue relating to the taxability of the interest paid by Indian Branch to the Head Office/other overseas branches of non to the Head Office/other overseas branches of non-resident Banking resident Banking Company came up for consideration before the Special Bench of the Company came up for consideration before the Special Bench of the Company came up for consideration before the Special Bench of the Tribunal in Sumitomo Mitsui Banking Corporation (supra). The Tribunal in Sumitomo Mitsui Banking Corporation (supra). The Tribunal in Sumitomo Mitsui Banking Corporation (supra). The Special Bench after considering all the aspects of the i Special Bench after considering all the aspects of the issue, including ssue, including the interplay between the provisions of the Act and the Tax Treaty, the interplay between the provisions of the Act and the Tax Treaty, the interplay between the provisions of the Act and the Tax Treaty, held that since the interest paid by Indian Branch to foreign Head held that since the interest paid by Indian Branch to foreign Head held that since the interest paid by Indian Branch to foreign Head Office/overseas branches is in the nature of payment made to self, it Office/overseas branches is in the nature of payment made to self, it Office/overseas branches is in the nature of payment made to self, it

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will be governed by the principle o will be governed by the principle of mutuality, hence, would not be f mutuality, hence, would not be taxable under the provisions of the Act. The Special Bench observed, taxable under the provisions of the Act. The Special Bench observed, taxable under the provisions of the Act. The Special Bench observed, that since the provisions of the Act are more beneficial to the assessee that since the provisions of the Act are more beneficial to the assessee that since the provisions of the Act are more beneficial to the assessee qua the interest income, it will prevail over the provisions of the Tax qua the interest income, it will prevail over the provisions of the Tax qua the interest income, it will prevail over the provisions of the Tax Treaty. In this context, the Special Bench decision also referred to the n this context, the Special Bench decision also referred to the n this context, the Special Bench decision also referred to the CBDT Circular no.740, dated 17th April 1996, and held that if the CBDT Circular no.740, dated 17th April 1996, and held that if the CBDT Circular no.740, dated 17th April 1996, and held that if the interest income is not chargeable to tax under the provisions of interest income is not chargeable to tax under the provisions of interest income is not chargeable to tax under the provisions of domestic law, it cannot be brought to tax by way of a Board C domestic law, it cannot be brought to tax by way of a Board C domestic law, it cannot be brought to tax by way of a Board Circular. The ratio laid down by the Special Bench in the decision referred to The ratio laid down by the Special Bench in the decision referred to The ratio laid down by the Special Bench in the decision referred to above, squarely applies to the facts of the present case. Inasmuch as, above, squarely applies to the facts of the present case. Inasmuch as, above, squarely applies to the facts of the present case. Inasmuch as, the issue of taxability of interest received by a foreign bank from its the issue of taxability of interest received by a foreign bank from its the issue of taxability of interest received by a foreign bank from its Indian branch, in our considered op Indian branch, in our considered opinion, is squarely covered by the inion, is squarely covered by the aforesaid decision of the Special Bench and we are bound by such aforesaid decision of the Special Bench and we are bound by such aforesaid decision of the Special Bench and we are bound by such decision. Therefore, according to us, the interest received from the decision. Therefore, according to us, the interest received from the decision. Therefore, according to us, the interest received from the Indian Branch being a payment received from self is governed by the Indian Branch being a payment received from self is governed by the Indian Branch being a payment received from self is governed by the principle of mutuali principle of mutuality, hence, not taxable under the provisions of the ty, hence, not taxable under the provisions of the Act. Further, since the provisions of the Act are more beneficial to the Act. Further, since the provisions of the Act are more beneficial to the Act. Further, since the provisions of the Act are more beneficial to the assessee, it will prevail over the provisions of the Tax Treaty as per assessee, it will prevail over the provisions of the Tax Treaty as per assessee, it will prevail over the provisions of the Tax Treaty as per section 90(2) of the Act, as held by the special Bench. After section 90(2) of the Act, as held by the special Bench. After section 90(2) of the Act, as held by the special Bench. After the decision of the special Bench in Sumitomo Mitsui Banking decision of the special Bench in Sumitomo Mitsui Banking decision of the special Bench in Sumitomo Mitsui Banking Corporation (supra), the legislature, though, had thought it prudent Corporation (supra), the legislature, though, had thought it prudent Corporation (supra), the legislature, though, had thought it prudent to make amendment to the provisions of section 9(1)(v)(c) of the Act to make amendment to the provisions of section 9(1)(v)(c) of the Act to make amendment to the provisions of section 9(1)(v)(c) of the Act to nullify the effect of the Special Bench decision. Acc to nullify the effect of the Special Bench decision. Acc to nullify the effect of the Special Bench decision. Accordingly, amendment was made to the aforesaid provision by introducing amendment was made to the aforesaid provision by introducing amendment was made to the aforesaid provision by introducing Explanation (a) and (b) by Finance Act, 2015, w.e.f. 1st April 2016. As Explanation (a) and (b) by Finance Act, 2015, w.e.f. 1st April 2016. As Explanation (a) and (b) by Finance Act, 2015, w.e.f. 1st April 2016. As per Explanation (a) to section 9(1)(v)(c) of the Act, it was clarified per Explanation (a) to section 9(1)(v)(c) of the Act, it was clarified per Explanation (a) to section 9(1)(v)(c) of the Act, it was clarified that the interest paid by an Indian Branch that the interest paid by an Indian Branch of a non–resident banking resident banking company shall be deemed to be accruing or arising in India and shall company shall be deemed to be accruing or arising in India and shall company shall be deemed to be accruing or arising in India and shall be chargeable to tax in addition to any income attributable to the PE be chargeable to tax in addition to any income attributable to the PE be chargeable to tax in addition to any income attributable to the PE

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in India. It further says that the PE in India shall be deemed to be a in India. It further says that the PE in India shall be deemed to be a in India. It further says that the PE in India shall be deemed to be a person separate and person separate and independent of the non–resident person. In our resident person. In our view, the aforesaid provision would apply prospectively from 1st view, the aforesaid provision would apply prospectively from 1st view, the aforesaid provision would apply prospectively from 1st April 2016 and not prior to that. The aforesaid view has been April 2016 and not prior to that. The aforesaid view has been April 2016 and not prior to that. The aforesaid view has been expressed by the Co expressed by the Co–ordinate Bench in DCIT v/s BNP Paribas S.A. ordinate Bench in DCIT v/s BNP Paribas S.A. (supra). Therefor (supra). Therefore, Explanation (a) to section 9(1)(v)(c) of the Act e, Explanation (a) to section 9(1)(v)(c) of the Act cannot be pressed into action for bringing to tax the interest income cannot be pressed into action for bringing to tax the interest income cannot be pressed into action for bringing to tax the interest income in the impugned assessment years. In any case of the matter, the in the impugned assessment years. In any case of the matter, the in the impugned assessment years. In any case of the matter, the issue, whether or not interest received by the Head Office/overseas issue, whether or not interest received by the Head Office/overseas issue, whether or not interest received by the Head Office/overseas Branches from the Indian Branch is taxable in India is a highly ranches from the Indian Branch is taxable in India is a highly ranches from the Indian Branch is taxable in India is a highly debatable issue and the position of law prevailing at the time of debatable issue and the position of law prevailing at the time of debatable issue and the position of law prevailing at the time of completion of assessments as per the available judicial precedents on completion of assessments as per the available judicial precedents on completion of assessments as per the available judicial precedents on the issue, clearly held that the interest income was not the issue, clearly held that the interest income was not taxable as it is taxable as it is governed by the principle of mutuality. Therefore, it cannot be said governed by the principle of mutuality. Therefore, it cannot be said governed by the principle of mutuality. Therefore, it cannot be said that it is not a possible view. Rather, the assessment orders would that it is not a possible view. Rather, the assessment orders would that it is not a possible view. Rather, the assessment orders would have been erroneous had the Assessing Officer taxed the interest have been erroneous had the Assessing Officer taxed the interest have been erroneous had the Assessing Officer taxed the interest income received from the Indian Branc income received from the Indian Branch overlooking the decision of h overlooking the decision of the Special Bench in case of Sumitomo Mitsui Banking Corporation, the Special Bench in case of Sumitomo Mitsui Banking Corporation, the Special Bench in case of Sumitomo Mitsui Banking Corporation, which was available at the time of completion of assessments. Even, which was available at the time of completion of assessments. Even, which was available at the time of completion of assessments. Even, assuming for the sake of argument that Explanation (a) to section assuming for the sake of argument that Explanation (a) to section assuming for the sake of argument that Explanation (a) to section 9(1)(v)(c) of the Act will 9(1)(v)(c) of the Act will apply retrospectively, however, proceedings apply retrospectively, however, proceedings under section 263 of the Act cannot be initiated on the basis of such under section 263 of the Act cannot be initiated on the basis of such under section 263 of the Act cannot be initiated on the basis of such retrospective amendment as the Assessing Officer has to proceed on retrospective amendment as the Assessing Officer has to proceed on retrospective amendment as the Assessing Officer has to proceed on the basis of law prevailing as on the date of assessments. Thus, looked the basis of law prevailing as on the date of assessments. Thus, looked the basis of law prevailing as on the date of assessments. Thus, looked at from any angle, the assessment orders cannot be considered to be from any angle, the assessment orders cannot be considered to be from any angle, the assessment orders cannot be considered to be erroneous and prejudicial to the interests of Revenue for not bringing erroneous and prejudicial to the interests of Revenue for not bringing erroneous and prejudicial to the interests of Revenue for not bringing to tax the interest received from the Indian Branch. Accordingly, we to tax the interest received from the Indian Branch. Accordingly, we to tax the interest received from the Indian Branch. Accordingly, we hold that the impugned orders of learned CIT passe hold that the impugned orders of learned CIT passed under section d under section 263 of the Act are unsustainable in law, hence, have to be quashed. 263 of the Act are unsustainable in law, hence, have to be quashed. 263 of the Act are unsustainable in law, hence, have to be quashed.

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Accordingly, we quash the orders passed under section 263 of the Act Accordingly, we quash the orders passed under section 263 of the Act Accordingly, we quash the orders passed under section 263 of the Act and restore the assessment orders passed by the Assessing Officer for and restore the assessment orders passed by the Assessing Officer for and restore the assessment orders passed by the Assessing Officer for the impugned assessment years. Gr the impugned assessment years. Grounds are allowed.” 8.12 In view of the discussion above In view of the discussion above, respectfully following the espectfully following the finding of the Tribunal Tribunal in the case of JP Morgan Chase NA (supra), in the case of JP Morgan Chase NA (supra), the impugned order passed by the L the impugned order passed by the Ld. CIT is unsustainable in law a d. CIT is unsustainable in law as the condition of order being erroneo the condition of order being erroneous has not been fulfilled. us has not been fulfilled. Accordingly, we quash the order passed under 263 of the quash the order passed under 263 of the quash the order passed under 263 of the Act and restore the assessment order passed by the restore the assessment order passed by the Assessing Officer Assessing Officer. The grounds of the appeal of the assessee of the appeal of the assessee are accordingly allowed. accordingly allowed.

Order pronounced in the open Court in ounced in the open Court in 26/08/2022. /08/2022. Sd/- Sd/- Sd/ (RAHUL CHAUDHARY RAHUL CHAUDHARY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 26/08/2022 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT

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