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Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य लेखा सद�य,राजे�� के अनुसार लेखा सद�य लेखा सद�य राजे�� के अनुसार राजे�� के अनुसार -Per Rajendra,AM: राजे�� के अनुसार Challenging the orders dated 27/11/2014 of CIT(A)-55, Mumbai the assessee and the Assessing Officer (A.O.) are in appeal for the above mentioned assessment year (A.Y). Aassessee,engaged in banking operations,having head office in France,filed its return of income on 15/10/2010 declared total income at Rs.37.14 crores. The case was selected for scrutiny upon service of notice u/s. 143(2) dated 07/09/2011. The A.O completed assessment u/s. 143(3) r.w.s. 144C(3) of the Act vide order dated 30/04/2014 and determined the total income at Rs.38.45 crores.
2.During the course of hearing before us, the Authorised Representative (AR) and the Departmental Representative (DR) fairly conceded that issue raised by the assessee as well as the AO have been dealt with and decided by the Tribunal while adjudicating the appeals for the earlier years. ITA/1182/Mum/2015: 3.The solitary Ground of appeal, raised by the assessee is about not accepting its claim about rate of taxes. The assessee had objected to the rate of tax applicable to domestic companies
1182&1374/M/15 M/s.BNP Paribas SA and co-operative banks were also applicable to it in accordance with the provisions of Article-26 (non discrimination) of Indo French Tax Treaty. We find that while deciding the appeal for the AY 1996-97 (ITA/2760/Mum/2000 dt.28/8/2013) the Tribunal has decided the issue as under : “4.The third issue is relating to tax rate. The assessee has submitted that the tax levied at higher rate in the case of foreign companies is discriminatory in nature and, accordingly, relief has 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 & 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.
5. Resultantly, appeal of the assessee is partly allowed. Following the above, effective Ground of appeal raised by the assessee is decided against it. : 4.First Ground of appeal, raised by AO is payment made by India Branch to Overseas Branch / HO.The issue is about data processing fees paid by Indian Branch office of the assessee to its Singapore branch to the tune of Rs.13,17,18,199/- under Article-13 of the India France tax Treaty. We find that while deciding the appeal for AY -2009-10 (ITA/3541/Mum/2014 ; dtd.31.03.2016) the Tribunal has decided the issue against the AO 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. 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 2
1182&1374/M/15 M/s.BNP Paribas SA 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. ClT (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. CT (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).
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 I 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. 5.1The 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 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 whish 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 3
1182&1374/M/15 M/s.BNP Paribas SA 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 peri materia, 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”
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 on 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.
Ground no. 2 is thus allowed.
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 Officer to delete the impugned disallowance of Rs.18,53,83,446/-. The assessee gets the relief accordingly.”
Respectfully following the above first Ground is dismissed.
4.1.Second Ground of appeal about interest paid by Indian Branch offices to the assessee , amounting to Rs.4,19,26,420/-.It was brought to our notice that identical issue was decided by the Tribunal in AY 2005-06(ITA/339/Mum/2010 ;16/07/2014) which reads as under :-
4. In ground No.2, the assessee is aggrieved by the action of the lower authorities for taxing the interest paid by the Indian branch of the assessee to its head office and overseas branches amounting to Rs.3,09,48,018/-, applying the provisions of Article 12 (Interest of IndiaFrance Tax Treaty). In this regard, learned AR placed on record the order of the Tribunal in assessee’s own case for the AYs. 2001-02 to 2002-03. In AY 2001-02, the Tribunal has dealt with the issue at para 13, 14, 15 & 16 at page 5 and decided the issue in favour of the assessee. Similarly the Tribunal in assessee’s own case in the AY 2002-03 & 2003-04 decided the issue at page 2, 3 & 6 at para 3,4,5, &
13. Learned AR also placed reliance on the decision of ITAT Special Bench in the case of Sumitomo Mitsui Banking Corporation Vs. DDIT(IT), reported in (2012) 145 TTJ (Mumbai)(SB) 649, wherein exactly similar issue has been dealt at para 88 page 700 & 701. 4.1 On the other hand, it was contended by the learned DR that mutuality issue was not argued before the lower authorities, whether transaction is covered by the Special Bench, the issue of mutuality was not considered by the Special Bench. He also relied on the observation made by Hon’ble Supreme Court in the case of Bangalore Club Vs. CIT, reported in (2013) 350 ITR 509 (SC) and our attention was invited to para
23. It was contended by the learned DR that taking loan from HO at interest itself shows that borrowing is on commercial basis, therefore, there is no question of applying principle of mutuality. He further contended that if principle of mutuality is applied in all the cases, Section 44C will be redundant. The CITDR Mr. Ajay Kumar Shrivastava further contended that the ITAT SB in case of Sumitomo Mitsui banking corporation 136 ITD 66(Mum)(SB) has held that the interest received by HO(GE) is not taxable in hands of GE in India under domestic law on principles of mutuality as the interest paid by PE to GE is payment to self. As per learned DR, before the SB, the counsels from both the sides did not dispute the position that such interest payments were covered by principles of mutuality being payment to self, though the revenue argued that for purpose of 4
1182&1374/M/15 M/s.BNP Paribas SA taxation under domestic laws also the PE and GE should be treated as separate entities. This argument was rejected by ITAT on grounds that under the domestic law there is only one assessable entity i.e. GE and PE is not an independent person and it is part of GE. 4.2 In view of the above, learned CITDR strongly defended the order of the AO on the plea that the decision of SB hinges on the assumption that the impugned transactions are covered by principles of mutuality being payment to self whereas the non applicability of mutuality to such transaction was neither argued by any side nor was any objection raised to such assumption. 4.3 By referring to the decision of the Hon’ble Supreme Court in the case of Bangalore Club (supra), ld. DR submitted that following principles were followed by apex court in Bangalore club(supra) with regard to applicability of principles of mutuality: (i) There should be complete identity between the contributors and participators. (ii) The mutual activity is restricted to within members of mutual group (contributors and participators) and not with outsiders. (iii) Only that surplus which is earned out of the transactions between the closed group of members only as a class is exempt but income arising from operations with third parties was outside of the mutuality, rupturing the 'privity of mutuality', consequently, violating the one to one identity between the contributors and participators. (iv) The transactions resulting in income are not in nature akin to business, or tainted with commerciality. (v) It cannot be said that incorporation which brings into being a legal entity separate from its constituent members is to be disregarded always and that the legal entity can never make a profit out of its own members ... " The principle that no one can make a profit out of himself is true enough but may in its application easily lead to confusion, At what point, does the relationship of mutuality end and that of trading begin" is a difficult and vexed question. As per learned DR the next test of mutuality to apply is that all transactions must be within the members of mutual group. The assessee being in banking business is dealing with third parties as well as its own branches to earn its business income. The money advanced by BO to HO or HO to BO are during the course and part of regular banking activities which are also carried in similar fashion with third parties. Hence these are commercial transactions not limited amongst the mutual entities but extended to third parties also and the privity of mutuality gets diluted for this reason. Again referring to the decision of Hon’ble Supreme Court, learned DR contended that all transactions between legal entity and its constituent members (such as BO and HO) are not always covered by principles of mutuality. The principle that no one can trade with himself is not universally applicable. It might here be pointed out that it has been held by the House of Lords in Sharkey Vs. Wernher (1956) AC 58 ; (1956) 29 lTR 962 (HL) that the general proposition that no one could trade with himself and make in its true sense or meaning taxable profits by dealing with himself is not universally true and that there are situations in which a man could be said to make a profit out of the consumption of his own goods. The Hon’ble Supreme Court in Bangalore club (supra) also bas held that this maxim is not universally applicable. When the business activity of banking by assessee bank comprises of continuous/integrated inflows and outflows of money with several entities including customers, other banks and its own branches, then the profit of the bank’s business would depend on net inflows out of all operations and it cannot be said that a part of such transactions are governed by mutuality by disintegrating some of the constituent transactions between BO and HO out of the one composite business of banking and then to say that such transactions are governed by mutuality. When the total profit of a bank represents the resultant aggregation of different items of activity then how could it be said that the profit from each item of activity (including from activity between BO & HO) which makes up that total is only a notional one to the extent it arises from transactions between BO & HO and not the actual or real profit. If the profits from multiple activity as a banking by BO or HO is considered in its entirety as two independent operating entities, then the principle that no one can trade with itself will not arise at all. The applicability of principle of mutuality has to be tested qua the entire activity of banking business and not quo. the part of business activity comprising of transactions between BO and HO only when the ultimate business profit is sum total of all the activities carried by the BO or HO in its jurisdiction of operation of banking business, The principle of trading with one 5