M/S. CALYON BANK (FORMERLY CREDIT AGRICOLE INDUSUER),MUMBAI vs. DDIT (I.T) 1(2), MUMBAI

The captioned appeal was originally disposed of by the Tribunal vide order dated 7.8.2013. Subsequently, vide order in MA No. 3/Mum/2015 dated 27.1.2016, the order of Tribunal dated 7.8.2013

To further elaborate the limited issue before us, the following discussion is relevant. The appellant before us is a non-resident banking company, which is incorporated in France. For the Assessment Year 2001-02, its branch office in India has been assessed u/s 143(3) of the Act vide order dated 3.3.2004. Originally, assessee came in appeal before the Tribunal raising various Grounds which, inter-alia, included the following Ground of appeal no. 7 :-

The relevant details of the dispute relating to disallowance of Rs.33,55,026/- is contained in para 6 of the assessment order whereby it is clear that the issue related to interest/commission paid to the Head office/overseas branches as well as commission paid to correspondents. Out of the total disallowance of Rs.33,55,026/-, a sum of Rs.12,03,487/- related to commission paid to the correspondents. As per para 6.4 of

In view of our decision on grounds no. 5 and 6, taxing the interest income received from HO/Overseas branches, the natural consequence is that the interest paid by the assessee to its HO/Overseas branches would become deductible. However, we find that the amount of interest disallowed has been wrongly taken in this ground. On the perusal of the assessment order, it was noticed that the amount actually disallowed by the AO is Rs.21,51,539/- and not Rs.33,55,026/-. The AO is therefore, directed to grant deduction for the correct amount of Rs.21,51,539/-.”

A perusal of the aforesaid order reveals that the issue relating to determination of dispute regarding disallowance of Rs.12,03,487/- representing commission to overseas correspondents remained to be adjudicated and, therefore, on a Miscellaneous Application (M.A) moved by the assessee, the Tribunal vide order dated 27.1.2016 held that “The impugned order is, accordingly, recalled for adjudicating the assessee’s Ground No. 7 in-so-far as it relates to the assessee’s claim toward commission paid/allowed to correspondents, i.e., for Rs.12,03,487/-”.

Thus, in the aforesaid background, the captioned proceedings have been listed and the parties have been heard. At the time of hearing, the learned representative for the assessee pointed out that both the lower authorities have not made any specific adjudication on the issue of disallowance of commission of Rs.12,03,487/- relating to the overseas correspondents. It has been pointed out that before the CIT(A) also, assessee had made specific arguments, which can be seen from page 39 of the Paper Book, wherein is placed a copy of the written submissions made to the CIT(A) in this regard. The learned representative referred to the discussion in the order of CIT(A) and pointed out that only the aspect relating to application of Sec. 40(a)(i) of the Act on account of interest and commission paid to Head office/overseas branches and correspondents has been discussed whereas the impugned sum of Rs.12,03,487/- was not in the nature of interest but commission paid to overseas correspondents. It is pointed out that such distinction is also emerging from para 6.1 of the order of Assessing Officer wherein the break-up of the sum of Rs.33,55,026/- is tabulated, which clearly shows commission paid to overseas correspondents at Rs.12,03,487/-. At the time of hearing, the learned representative for the assessee pointed out that assessee would be satisfied if the matter is restored back to the file of Assessing Officer for a specific adjudication in this regard.

The ld. DR appearing for the Revenue has not contested the factual matrix brought out by the learned representative for the assessee.

We have carefully considered the rival submissions. Factually speaking, the discussion in the assessment order clearly bring out that the total disallowance of Rs.33,55,026/- comprised of two facets; firstly, interest/commission paid to Head office and overseas branches; and secondly, commission paid to correspondents, who were third parties. Insofar as the issue relating to interest and commission paid to Head office/branches is concerned, same has already been adjudicated by the Tribunal in its order dated 7.8.2013 (supra). It is also clear that the other limb of the disallowance of Rs.12,03,487/- relating to commission paid to correspondents, i.e., third parties has not been addressed. It is also emerging from a perusal of the order of authorities below that the distinctive features between the two limbs have not been properly addressed and rather both the type of payments have been considered in an identical fashion. However, it would be in the fitness of things that the complete facts with regard to nature of the payment made on account of commission to correspondents, who are third parties, is brought out and only thereafter appropriate conclusions are reached. In its written submission to the CIT(A), copy of which has been placed at pg. 39 of the Paper Book, various points have been raised by the assessee which, inter-alia, purport to canvass that no income accrued or arose in India to the correspondents and, therefore, they is no requirement of deduction of tax at source u/s 195 of the Act. In the said submissions, assessee has also brought out the mechanism by which such charges have been paid, namely, that assessee was maintaining current account with non-resident third party correspondents and such current accounts were being debited/credited in respect of various transactions carried out by the assessee relating to

Thus, the plea of assessee is allowed, as above.