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Order u/s.254(1)of the Income-tax Act,1961(Act) खंडपीठ खंडपीठ केकेकेके अनुसार खंडपीठ खंडपीठ अनुसार अनुसार PER BENCH- अनुसार Challenging the orders dated 26.3.2009,31.3.2009 and 22.10.2013for the assessment years 2000-01,2001-02 and 2003-04 respectively of the CIT(A),the Assessing Officers(AO.s) have filed the present appeals.The assessee has filed Cross-Objections(CO.s)for the above mentioned Assessment Years(AY.s.).As the issues involved in the appeals and the CO.s. are common, so,we are adjudicating them by a single common order. ITA/3688/Mum/2009 & CO 244/Mum/2009,AY.2000-01 : Assessee,a non-resident company,is engaged in the business of banking.It filed its return of income on 29.11.2000,declaring income of Rs.2,91,30,08,800 /-.The AO completed the assessment, u/s.143(3) of the Act, on 21.03.2003.A notice u/s.148 of the Act was issued for re-opening the assessment.The assessee objected the re-opening. The AO finalised the assessment on 31.12.2007,u/s.147 r.w.s.143(3)of the Act,determining the income of the assessee at Rs.2,78,27,09,380 /-. 2.Effective Ground of appeal,filed by the AO,is about interchange income(fees)received by the Head Office(HO)/foreign branches of the assessee.During the re-assessment proceedings, the AO observed that the assessee had paid an amount of Rs.3.16 Crores to Visa Card and Rs. 4.75 Crores to Master Card,that there were two types of transactions with regard to the credit cards,that foreign banks would earn substantial amount of discount/commission/inter change merchant establishment discount(ICMED),that the assessee had not offered the said discount 1 3688-89/09,C.O-244-45/09,2358/14,C.O.129/15 HSBC in the return of income filed for the year under consideration,that the ICMED towards the use of credit cards had deemed to accrue or arise in India as per the provisions of the Act,that there was no tax treaty with Hongkong,that provisions of section 5 and 9 of the Act were applicable,that the assessee had not provided the details of interchange received by it.The AO estimated the total inter change fees received by the non India branches/HO of the assessee on account of use of cards in India @1% of the interchange received. The AO made an addition of Rs.50,75,990/- to the total income of the assessee. 3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him it was argued that re-opening of the assessment was bad in law,that there was no failure on part of the assessee to disclose material facts,that the ICMED was not taxable in India.After considering the submissions of the assessee and the assessment order,the FAA held that action taken by the AO u/s.147 of the Act was justified, that his predecessor had,while deciding the appeals for the AY.s.2000-01 and 2001-02, decided the identical issue against the assessee.‘Following the rule of consistency’,he upheld the re-opening.On merits,he held that in the earlier AY.s.his predecessor had adjudicated the issue of ICMED in favour of the assessee,that there was no change in the facts of the case.Finally,he deleted the addition made by the AO. 4.Before us,the Departmental Representative(DR)supported the order of the FAA with regard to the issue of reassessment and relied upon the order of the AO for taxability of ICMED.The Authorised Representative(AR)stated that the issue is covered in favour of the assessee by the decision of the Tribunal delivered in the case of Standard Chartered Grindlays Bank Ltd. (127TTJ319).With regard to the CO,the AR contended that the notice u/s.148 of the Act was issued without the prior approval of the CIT,that the assessee had disclosed all the material facts at the time of filing of original return,that the sanctioning authority had not applied his mind while approving the proposal of re-opening submitted by the AO,that sanction itself was bad in law.He relied upon the cases of Desai Brothers(272ITR335),Maharashtra Sugar Mills Ltd.(263ITR180),Kelvintaor India Ltd.(320ITR561),Govind Chaudhary & Sons (109 ITR370). 5.We have heard the rival submissions and perused the material before us.We find that in the matter of Standard Chartered Grindlays Bank Ltd.(supra),the issue of taxability of commission with regard to Credit Cards was deliberated upon and decided by the Tribunal. We would like to re-produce the relevant portion of the order that deals with the facts as well as the reasoning,given by the FAA and the Tribunal,for deciding the issue against the AO.It reads as under: “43. Next ground of appeal
is against deletion of addition of Rs. 10 crores being made on alleged commission earned by foreign branches of ANZ Grindlays Bank on their credit card business overseas where transactions have taken place in India.
44. During the course of assessment the AO required the assessee to give details of total commission received by the foreign branches of the assessee bank on international credit cards issued by them where the transactions were completed in India by the card holders and the cards were honoured by the branches of the assessee bank or branches of any other bank in India. The AO was of the view that whatever income arose in or from India to any foreign branch of the assessee is also taxable in India. The assessee could not furnish any details; at the same time it did not deny that no income arose from the transaction in India on credit cards issued by its foreign branches. The AO, therefore, estimated the income.The AO stated that commission income from cards issued by Indian branches was Rs. 9.90 crores. It would be reasonable to estimate income of Rs. 10 crores earned by foreign branches from transactions entered into India.
45. XXXXXXXX 3688-89/09,C.O-244-45/09,2358/14,C.O.129/15 HSBC The learned CIT(A) held that the income earned either by way of issuing bank of credit card or acquiring bank of credit card, transaction is accounted for. He also held that under s. 9 of the IT Act all incomes accruing or arising directly or indirectly through or from any business connection in India or through or from any source of income in India can be taxed. As per s. 9(1)(v)(c), income can be deemed to have accrued in India only if payment is made for the debt that has been incurred in India by a non-resident which will not be the case here since the issuing bank which provides debt is outside India being a foreign branch.As per art. 7 of Indo-UK DTAA, income that can be brought to tax in India must be directly or indirectly attributable to the PE in India. Since the transactions were with appellant's foreign branches where the issuing bank and the acquiring bank in India was some bank other than the Indian branch of the assessee, it cannot be said that Indian branch was in any way connected with the transaction or that income earned could in any way be said to have been directly or indirectly through PE in India.He accordingly held that the income arising in India from transaction in India by using credit cards of foreign branches should be taxed in India. This income can only be the income received by the Indian branch and such commission income being already included as an acquiring bank. The income to the foreign branch from the credit given to its card holders outside India cannot be taxed in the hands of the Indian branch since it is not arising in India and also it cannot be attributed to the assets and activities of the Indian branch as is required under art. 7 of DTAA.Therefore, there is no need to further estimate any income. He accordingly deleted the addition. XXXXXXXXXX 48. We have considered the rival submissions. We are in agreement with the finding of the learned CIT(A). Where the foreign branch has issued credit card and even if the transaction takes place in India, the credit is given to the customer outside India and the debt has also arisen outside India. The merchant shipments in India may receive the payment but the merchant shipments do not incur any debt.They merely receive charges for the goods sold or services rendered. However, the charges are received by the foreign branch for providing credit to their card holders outside India.The amount payable by the card holders who have acquired the credit card from branches outside India incurs the debt outside India.Therefore, the fees in respect of such transaction are not taxable in India. We, therefore, uphold the deletion of addition of Rs. 10 crores.” .” As the issue is squarely covered by the decision of the above referred order of the Tribunal, so,we hold that the order of the FAA does not suffer from any legal or factual infirmity as far as issue of taxability of ICMED is considered.Confirming his order,we decide the effective ground of appeal against the AO. 6.Though,we have dismissed the appeal filed by the AO,yet,we would like to decide the jurisdictional issue,raised by the assessee in its CO.i.e.re-opening of the assessment u/s.147 of the Act.We find that in the case under consideration the notice for re-opening was issued without the approval of the competent Authority.Therefore,we hold that the assessment order passed by the AO was invalid.CO.filed by the assessee is allowed. ITA/3689/Mum/09-AY.2001-02,ITA/2358/Mum/14AY.2003-04& CO./245/Mum/2009,AY.2001-02,CO./129/Mum/2015 AY.2003-04: 7.Grounds of appeal filed by the AO.s. and grounds of CO filed by the assessee for the above mentioned two AY.s.are identical to the grounds of AY.2000-01-the only difference is the amount involved.For the AY.s.2001-02 and 2003-04,the AO had disallowed Rs.33,66,213/- and Rs.50,75,990/-respectively under the head ICMED.The assessee challenged the addition as well as re-opening of the assessment for both the years before the FAA.Following the orders of the earlier years,he decided the issue of re-opening assessments against the assessee.However,the issue of taxability of ICMED was decided in favour of the assessee.