DEUTCHE BANK A.G. Vs. ASSTT. DIRECTOR OF INCOME TAX
INCOME TAX APPELLATE TRIBUNAL
Deutche Bank A.G.
Asstt. Director Of Income Tax
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Amit Shukla, Member (J) -
(1.) THE aforesaid appeal was heard by the Tribunal along with the appeals for other assessment years and consolidated order dated 17th July 2013, was passed. However, while adjudicating the various grounds, the Tribunal omitted to decide ground No. 4, as raised by the assessee. Thereafter, in the miscellaneous application filed by the assessee, the Tribunal vide order dated 26th March 2014, has recalled the order for the limited purpose of adjudication of ground No. 4. Accordingly, ground No. 4, is to be adjudicated by us. The said ground, reads as under: -
4 The CIT(A) erred in confirming the action of the A.O. in not allowing a deduction for Rs. 70,97,938, being interest paid to Head Office/Overseas branches.
(i) The amount is not taxable as one cannot derive income from self and no tax is required to be deducted at source.
(ii) Article -7(1) of the Treaty provides that if an enterprise carried on business in India, profits that can be attributed to its Permanent Establishment (PE) may only be taxed in India. Article 7(2) of the Treaty created a fiction by which a PE is deemed to be separate and distinct from the enterprise of which it is a PE. Carrying the fiction to its logical conclusion, charge by HO/APHO and overseas branches could be treated as a payment by Indian PE to third parties. However, as these third parties do not have a PE in India to which "profit" if any can be attributed, as per Article 7(1), such profits would not be chargeable to tax in India.
(iii) Without prejudice and in any event, tax paid by appellant is adequate to cover tax if any, payable thereon and hence, section 40(a)(i) is not attracted.
(2.) FACTS in brief: -The assessee company has paid sum of Rs. 70,97,738, by way of interest to Head Office and other overseas branches on Nostro account lying with the head office and the other overseas branch. On such payment, no tax has been deducted at source by the assessee. In response to the show cause notice, the assessee submitted that the payment made by the Indian Branch to the head office and other overseas branch is not a payment in legal terms as the payer and the payee are the same and, therefore, the provisions of section 195, will not attract and, hence, no disallowance can be made under section 40(a)(i). The Assessing Officer rejected the assessee's contention and disallowed the said amount of Rs. 40(a)(i) as per the reasoning given in Para -5.13. Before the learned Commissioner (Appeals), the assessee reiterated the same contention which has been dealt by the learned Commissioner (Appeals) in Para -8.4. However, the learned Commissioner (Appeals) too rejected the assessee's contention that such an interest payment to the head office should be ignored because it is a payment to self only. The sum and substance of his reasoning was that the global income of the assessee bank is not a subject matter of determination but only for part of its income which has accrued or arisen in India. He also distinguish the decision of the Hon'ble Calcutta High Court as relied upon by the assessee in Betts Hartley Hutte and Co., :  116 ITR 425 (Cal.).
(3.) BEFORE us, the learned Senior Counsel, Mr. P.J. Pardiwala, on behalf of the assessee, submitted that now this issue stands covered by the decision of the Special Bench of the Tribunal, Mumbai, in Sumitomo Mitsui Bank Corp. v/s. DDIT, :  136 ITD 66 (SB), wherein it has been held that where any Indian branch of a foreign bank passing interest to its head office and other overseas branches of the said foreign bank on advance received by it, the said interest is neither deductible in the hands of the Indian branch nor chargeable to tax in the hands of the head office and overseas branches, as all being single entity. In the domestic law, such an income cannot be taxed.;
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