M/s. The Bank Of Tokyo-Mitsubishi UFJ Ltd., New Delhi V. DDIT, New Delhi

ITA 1162/DEL/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0155 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-05-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 22-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 28-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: HITEH CHANDE
• Keywords: Transfer pricing; Double taxation relief; Principle of natural justice; International transaction; Rule of consistency; Retrospective amendment; Permanent establishment; Advance ruling; TDS
• Section: 244A; 234B; 115JB; 133(6); 205; 195; 201; 13; 22; 90

Judgement Text

, -2 , IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I-2, NEW DELHI , '# . $ , & ' BEFORE MS. SUSHMA CHOWLA, V.P. & DR. B.R.R. KUMAR, A .M. ( / ITA NO. 1162/DEL/2014 ) / ASSESSMENT YEAR: 2009-10 THE BANK OF TOKYO-MITSUBISHI UFJ LTD., JEEVAN VIHAR BUILDING, 3, PARLIAMENT STREET, NEW DELHI-110001. PAN-AABCT3880D .... ......... /APPELLANT VS THE DDIT (INTERNATIONAL TAXATION), CIRCLE-1(1), NEW DELHI . / RESPONDENT / APPELLANT BY: SH. PERCY PARDIWALA, SR.A DV & SH. HITEH CHANDE, ADV. / RESPONDENT BY: SH. H.K.CHOUDHARY, CIT DR ) / DATE OF HEARING : 30.01.2020 / DATE OF PRONOUNCEMENT: 21.05.2020 / ORDER PER SUSHMA CHOWLA, V.P. THE PRESENT APPEAL FILED BY ASSESSEE IS AGAINST ORDER OF DDIT (INTERNATIONAL TAXATION), NEW DELHI DATED 29.01.201 4 RELATING TO ASSESSMENT YEAR 2009-10 AGAINST THE ORDER PASSED UNDER SECTIO N 143(3)/144C(13) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL:- 1. DISALLOWANCE OF SALARY PAID OVERSEAS TO EXPATRIATES OF THE APPELLANT WORKING IN INDIA BY THE HEAD OFFIC E AND THE INDIAN TAXES PAID THEREON BY THE HEAD OFFICE: R S. 161,332,006 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE DISPUTE RESOLUTION PANEL ('DRP' ) ERRED IN CONFIRMING THE ADDITION, AS PROPOSED IN THE DRAFT A SSESSMENT ORDER, IN RESPECT OF A SUM OF RS. 161,332,006 PAID AS SALARIES BY THE HEAD OFFICE OVERSEAS, IN FOREIGN CURRENCY, TO T HE EXPATRIATES WORKING IN INDIA EXCLUSIVELY FOR THE PERMANENT ESTA BLISHMENT (PE) OF THE APPELLANT IN INDIA, ON WHICH TAXES HA VE BEEN DULY DEDUCTED/DEPOSITED IN INDIA, AND ACCORDINGLY THE OR DER OF THE LD. AO, BASED ON THE DRPS DIRECTIONS IS ERRONEOUS IN L AW AS WELL AS ON FACTS ON THE FOLLOWING COUNTS: A) THAT THE HONBLE DRP AND LD. AO HAVE FAILED TO APPR ECIATE THAT THE SALARY HAS BEEN PAID TO THE EXPATRIATES WH O ARE STATIONED IN INDIA AND ARE WORKING EXCLUSIVELY FOR BUSINESS O PERATIONS OF THE INDIAN PE OF THE APPELLANT AND IS THUS AN ALLOW ABLE EXPENDITURE AS PER ARTICLE 7(3) OF INDIA-JAPAN DTAA (DTAA) B) THAT THE HONBLE DRP AND LD. AO HAVE ERRED IN OBSER VING THAT THE NATURE OF EXPENSE IS COVERED UNDER SECTION 44C OF THE INCOME- TAX ACT, 1961 READ WITH CLAUSE (B) OF EXPLA NATION (IV) TO THE SECTION, EVEN THOUGH, THE SAID AMOUNT IS INCURR ED EXCLUSIVELY AND FOR DIRECT BENEFIT OF INDIAN OPERATIONS OF THE APPELLANT. 2. ADDITION ON ACCOUNT OF INTEREST PAID TO HEAD OFFICE AND OTHER OVERSEAS BRANCHES OF THE BANK AMOUNTING T O RS. 339,135,887 THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP ERRED IN CONFIRMING THE ADDITION PR OPOSED BY THE LD. AO IN THE DRAFT ASSESSMENT ORDER BY HOLDING THA T THE APPELLANT WAS REQUIRED TO DEDUCT TAX AT SOURCE UNDE R SECTION 195 OF THE ACT ON THE PAYMENT OF INTEREST TO OVERSEAS B RANCHES/HEAD OFFICE, AND ACCORDINGLY, THE ORDER PASSED BY THE LD . AO ON THE BASIS OF DRPS DIRECTIONS, IS BAD IN LAW ON THE FOL LOWING COUNTS: A) THAT THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APPRECIATING THE FACT THAT THERE IS NO REQUIREMENT TO DEDUCT TAX AT SOURCE ON THE PAYMENT WHICH IS NOT TAXABLE UNDER TH E ACT BEING PAYMENT TO SELF AND INTEREST PAID IS ALLOWABLE AS D EDUCTION UNDER THE DTAA. ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 3 B) THAT THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT FOLLOWING THE DIRECT JUDGMENT OF THE MUMBAI SPECIAL BENCH IN THE CASE OF SUMITOMO MITSUI BANKING JJ CORPORATION (136 ITD 66) WHEREIN THE APPELLANT WAS AN INTERVENER. C) THAT THE HONBLE DRP AND LD. AO HAVE ERRED IN PLACI NG RELIANCE ON THE CBDT CIRCULAR NO. 740 DATED 17 APRI L 1996 IN ORDER TO DISALLOW THE INTEREST PAID TO OVERSEAS BRA NCHES/HEAD OFFICE, WITHOUT COMPREHENDING THE TRUE IMPORT OF TH E CIRCULAR. 3. ADDITION ON ACCOUNT OF INCOME OF THE APPELLANT PERTAINING TO RECEIPT OF INTEREST FROM INDIAN BRANC HES AMOUNTING TO RS. 339,135,887 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE DRP ERRED IN CONFIRMING THE SEP ARATE ADDITION OF RS. 339,135,887, AS PROPOSED IN THE DRAFT ASSESS MENT ORDER, WITH RESPECT TO THE INTEREST PAID BY INDIAN BRANCHE S OF THE APPELLANT TO HEAD OFFICE/OVERSEAS BRANCHES, AND ACC ORDINGLY THE ORDER OF THE LD. AO BASED ON DRPS INSTRUCTIONS IS INCORRECT, UNJUSTIFIED AND BAD-IN LAW AS WELL AS ON FACTS, ON THE FOLLOWING COUNTS: A) THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APPREC IATING THAT THE RECEIPT OF THE INTEREST FROM THE INDIAN BR ANCHES IS NOT TAXABLE UNDER THE PROVISIONS OF THE ACT, BEING REC EIPT FROM SELF. B) THE HONBLE DRP AND LD. AO HAVE ERRED IN MAKING ADDITION IN RESPECT OF THE RECEIPT OF INTEREST FROM INDIAN BRANCHES BY MAKING THE FOLLOWING OBSERVATIONS: THAT PROVISIONS OF SECTION 9(1)(V)(C) OF THE ACT A RE APPLICABLE. THAT THE CBDT CIRCULAR NO. 740 IS APPLICABLE TO TH E APPELLANTS CASE. C) THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APPRE CIATING THE CONTENTION OF THE APPELLANT THAT IT HAS OPTED T O BE GOVERNED BY THE PROVISIONS OF THE DTAA (SO FAR AS THEY ARE MORE BENEFICIAL) AND HAS WRONGLY APPLIED THE PROVISIONS OF ACT. D) THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APPREC IATING THAT IN TERMS OF THE PROVISIONS OF ARTICLE 11 OF TH E DTAA, DEALING WITH THE TAXABILITY OF INTEREST, THE INTEREST RECEI VED BY THE APPELLANT FROM THE INDIAN BRANCHES IS NOT IN RESPEC T OF A DEBT- CLAIM AS CONTEMPLATED UNDER ARTICLE 11 OF THE DTAA . E) THAT THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT FOLLOWING THE DIRECT JUDGMENT OF THE MUMBAI SPECIAL BENCH IN THE CASE OF SUMITOMO MITSUI BANKING CORPORATION (136 IT D 66) WHEREIN THE APPELLANT WAS AN INTERVENER. ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 4 F) WITHOUT PREJUDICE TO GROUND NO. 2, THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APPRECIATING THAT SEPARATE ADD ITION OF RS. 339,135,887 RELATING TO INTEREST PAID ON BORROWINGS FROM HO/OVERSEAS BRANCHES WOULD TANTAMOUNT TO DOUBLE TAX ATION, WHICH IS AGAINST ALL CANONS OF TAXATION. 4. INTEREST AMOUNTING TO RS 15,956,253 ACCRUED/ RECEIVED BY THE INDIAN PE FROM ITS HO/ OVERSEAS BRA NCHES. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE DRP ERRED IN CONFIRMING THE ADDITION, A S PROPOSED IN THE DRAFT ASSESSMENT ORDER, FOR AN AMOUNT OF RS. 15 ,956,253 BEING THE INTEREST ACCRUED/ RECEIVED BY THE INDIAN PE OF THE APPELLANT ON FUNDS WITH THE HEAD OFFICE / OVERSEAS BRANCHES AND ACCORDINGLY THE ORDER OF THE AO BASED ON DRPS INST RUCTIONS IS BAD IN LAW AS WELL AS ON FACTS, ON THE FOLLOWING CO UNTS: A) THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APP RECIATING THAT THE INTEREST RECEIVED BY THE INDIAN BRANCHES I S NOT CHARGEABLE TO TAX IN INDIA IN ACCORDANCE WITH THE PROVISIONS O F THE ACT, BEING 'RECEIPTS FROM SELF. B) THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APPREC IATING THAT IN TERMS OF THE PROVISIONS OF ARTICLE 11 OF TH E DTAA, DEALING WITH THE TAXABILITY OF INTEREST, THE INTEREST RECEI VED BY THE INDIAN BRANCHES FROM THE HEAD OFFICE/OVERSEAS BRANCHES IS NOT IN RESPECT OF A DEBT-CLAIM AS CONTEMPLATED UNDER ARTICLE 11 OF THE DTAA. 5. NON-APPLICABILITY OF THE PROVISIONS OF SEC 115JB OF THE ACT RELATING TO MINIMUM ALTERNATE TAX (MAT) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE DRP ERRED IN CONFIRMING THE ACTION OF T HE LD. AO OF INVOKING THE PROVISIONS OF 115JB OF THE ACT, AS PRO POSED IN THE DRAFT ASSESSMENT ORDER, AND ACCORDINGLY THE ORDER O F THE AO BASED ON DRPS DIRECTIONS IS BAD IN LAW ON THE FOLL OWING COUNTS: A) THE HONBLE DRP AND THE LD. AO HAVE ERRED IN NOT APPRECIATING THE CONTENTION OF THE APPELLANT THAT B EING A BANKING COMPANY, THE PROVISIONS OF SECTION 115JB OF THE ACT IS NOT APPLICABLE TO THE APPELLANT FOR THE SUBJECT YEAR. B) THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APPRE CIATING THE CONTENTION OF THE APPELLANT THAT OPERATIONS OF ITS INDIAN PE ARE TAXABLE IN ACCORDANCE WITH PROVISIONS OF ARTICLE 7( 3) OF THE DTAA AND IN VIEW OF THE PROVISIONS OF SECTION 90 OF THE ACT, THE PROVISIONS OF SECTION 115JB OF THE ACT CANNOT BE AP PLIED. C) THE HONBLE DRP AND LD. AO HAVE ERRED IN DISTINGUI SHING THE RELEVANT BINDING JUDGMENTS REFERRED TO BY THE A PPELLANT, WHICH SUBSTANTIATES THE VIEW OF THE APPELLANT THAT PROVIS IONS OF SECTION 115JB OF THE ACT CANNOT BE APPLIED ON THE FACTS OF THE APPELLANTS ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 5 CASE AND HAVE FURTHER ERRED IN RELYING ON THE DECIS ION OF THE ADVANCE RULINGS AUTHORITY (AAR), WHICH IS DISTING UISHABLE ON FACTS AND IS NOT APPLICABLE AT ALL. 6. ADDITION ON ACCOUNT OF INTEREST RECEIVED ON EXTERN AL COMMERCIAL BORROWINGS (ECBS) GIVEN TO INDIAN BORR OWERS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE DRP ERRED IN CONFIRMING THE ADDITION, A S PROPOSED IN THE DRAFT ASSESSMENT ORDER, IN RESPECT OF INTEREST RECEIVED BY THE APPELLANT ON ECBS GIVEN TO INDIAN BORROWER PARTIES, AND ACCORDINGLY THE ORDER OF THE LD. AO BASED ON DRPS DIRECTIONS IS BAD IN LAW AS WELL AS ON FACTS ON THE FOLLOWING COU NTS: A) THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT APPREC IATING THAT UNDER THE PROVISIONS OF ARTICLE 7 OF THE DTAA, AN AMOUNT, COMMENSURATE WITH THE ROLE PLAYED BY THE PE, HAS AL READY BEEN OFFERED TO TAX BY THE APPELLANT, IN COMPUTATION OF ITS INCOME TAXABLE IN INDIA AS PER THE PROVISIONS OF THE DTAA; AND THEREFORE NOTHING FURTHER COULD BE BROUGHT TO TAX IN INDIA. B) THE HONBLE DRP AND LD. AO HAS ERRED IN OBSERVIN G THAT THE INTEREST WOULD CONTINUE TO BE TAXABLE UNDER ARTICLE 11 OF THE DTAA, EVEN THOUGH IT HAS BEEN ACKNOWLEDGED BY THE A O HIMSELF THAT THE ECBS MAY BE PARTIALLY CONNECTED WITH THE P E. SUCH AN OBSERVATION IS CONTRARY TO THE EXPRESS PROVISIONS O F ARTICLE 11 OF THE DTAA, WHICH CLEARLY PROVIDES THAT IN THE EVENT DEBT-CLAIM IS CONNECTED WITH THE PE, THE TAXABILITY OF THE INTERE ST SHIFTS FROM ARTICLE 11 TO ARTICLE 7 OF THE DTAA COMPLETELY, AND NOT PARTIALLY, AND ACCORDINGLY, THE FINDINGS OF THE LD. AO ARE INC ORRECT AND BAD IN LAW. C) THE HONBLE DRP AND LD. AO HAVE ERRED IN TAXING THE INTEREST WHICH IS NOT TAXABLE IN TERMS OF ARTICLE 1 1 (3) AND 11 (4) OF THE DTAA. D) WITHOUT PREJUDICE TO ABOVE, THE LD. AO HAS ERRED I N LEVYING TAX @ 10% ON AMOUNT OF INTEREST ALLEGEDLY RECEIVED (GROSSED UP), BY IGNORING THE FACT THAT BY GROSSING UP THE INTERE ST IN THE FIRST PLACE, THE AO ACKNOWLEDGED THAT THE SAID INTEREST W AS SUBJECT TO TDS, AND THE INTEREST SHOWN TO HAVE BEEN RECEIVED B Y THE APPELLANT WAS NET OF TDS, AND THEREFORE, SINCE THE APPELLANT HAS RECEIVED ONLY NET INTEREST, NO RECOVERY CAN BE MADE FROM THE APPELLANT AS PER THE PROVISIONS OF SECTION 205 OF T HE ACT. E) WITHOUT PREJUDICE TO THE ABOVE, THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT ALLOWING THE CREDIT FOR THE TDS, DEDUCTED BY THE INDIAN BORROWER PARTIES BEFORE MAKING THE PAYMENT O F INTEREST TO THE APPELLANT. ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 6 F) WITHOUT PREJUDICE TO THE ABOVE, THE LD. AO HAS ERRE D IN CHARGING INTEREST UNDER SECTION 234B OF THE ACT IN RESPECT OF THE AFORESAID INTEREST ON ECB, EVEN THOUGH IT HAS BEEN HELD IN THE ASSESSMENT ORDER THAT SUCH INTEREST IS SUBJECT TO T DS. 7 DEDUCTION UNDER SECTION 44C OF THE ACT WITHOUT PREJUDICE TO GROUNDS 1 TO 6 ABOVE, ON THE F ACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HA S ERRED IN NOT DETERMINING THE CORRECT AMOUNT OF DEDUCTION UNDER S ECTION 44C OF THE ACT, BY IGNORING THE ADDITION MADE TO THE TOTAL INCOME ON ACCOUNT OF INTEREST RECEIVED BY THE APPELLANT ON EC BS. 8 TREATMENT IN RESPECT OF DEFERRED BANK GUARANTEE COMMISSION. A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND LD. AO HAVE ERRED IN TREATING T HE COMMISSION RECEIVED ON GUARANTEE AS TAXABLE ON RECE IPT BASIS IN THE YEAR IN WHICH THE COMMISSION IS RECEIVED. B) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND LD. AO HAVE FAILED TO APPRECIAT E THAT THE APPELLANT FOLLOWS MERCANTILE METHOD OF ACCOUNTING A CCORDING TO WHICH, THE COMMISSION FALLING DUE FOR THE RELEVANT PREVIOUS YEAR ON ACCRUAL BASIS CAN ONLY BE TAXED. C) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT F OLLOWING THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE APPELLANTS OWN CASE FOR THE ASSESSMENT YEAR 1981-82. 9. NON-GRANT OF TAX CREDIT AMOUNTING TO RS.64,314,2 30 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. ASSESSING OFFICER HAS ERRED IN NOT PROVIDING THE TA X CREDIT OF RS. 64,314,230 (RESULTING FROM THE EXCESS ADVANCE TAX/T DS PAID BY THE APPELLANT FOR ASSESSMENT YEAR 2009-2010) WHILE RAISING THE IMPUGNED TAX DEMAND BY IGNORING THE FACT THAT NO RE FUND HAS BEEN RECEIVED BY APPELLANT. 10. ERRONEOUS WITHDRAWAL OF INTEREST UNDER SECTION 244A OF THE ACT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. AO HAS ERRED IN WITHDRAWING THE INTEREST UNDER SECTION 244A(3) OF THE ACT WITHOUT APPRECIATING THE FACT THAT NO REFUND HA S BEEN RECEIVED BY THE APPELLANT FOR ASSESSMENT YEAR 2009- 2010 . 11. APPLICABLE RATE OF TAX THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND LD. AO HAVE ERRED IN NOT ADJUDICATI NG THAT UNDER ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 7 THE PROVISIONS OF ARTICLE 24 OF THE DTAA, THE APPLI CABLE RATE OF TAX ON THE INCOME OF THE APPELLANT ATTRIBUTABLE TO ITS PE IN INDIA CANNOT EXCEED THE APPLICABLE RATE OF TAX (AS PER TH E FINANCE ACT FOR THE SUBJECT ASSESSMENT YEAR) IN THE CASE OF DOMESTI C COMPANIES AND CONSEQUENTIAL DIRECTIONS MAY KINDLY BE ISSUED I N THIS REGARD. 12. TRANSFER PRICING ADJUSTMENT A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND LD. AO/TPO HAVE ERRED IN REJECT ING THE PRIMARY AS WELL AS CORROBORATIVE ANALYSIS UNDERTAKE N BY THE APPELLANT FOR DETERMINING THE ARMS LENGTH PRICE ( ALP) OF THE INTERNATIONAL TRANSACTION, GUARANTEE COMMISSION ( IMPUGNED INTERNATIONAL TRANSACTION), IN ACCORDANCE WITH THE PROVISIONS OF THE ACT READ WITH THE INCOME TAX RULES, 1962 (RULES). B) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND LD. AO/ TPO HAVE ERRED IN CHARA CTERIZING THE IMPUGNED INTERNATIONAL TRANSACTION AS CORPORATE / FINANCIAL GUARANTEE WITHOUT APPRECIATING THE DISTINCTION IN F UNCTIONS PERFORMED, RISKS UNDERTAKEN & ASSET UTILIZED (FAR ) BETWEEN THE TWO TRANSACTIONS. C) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND LD/ AO/TPO HAVE ERRED IN USING ERRONEOUS COMPARABLE UNCONTROLLED PRICE DATA, OBTAINED BY ISS UANCE OF 133(6) NOTICE FOR COMPUTING THE ALP OF THE IMPUGNED INTERNATIONAL TRANSACTION. D) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE DRP AND LD/ AO/TPO HAVE ERRED IN NOT PR OVIDING ANY OPPORTUNITY TO CROSS EXAMINE THE 133(6) DATA RELIED FOR THE PURPOSE OF DETERMINING THE ALP OF THE IMPUGNED TRAN SACTION THEREBY VIOLATING THE PRINCIPLE OF NATURAL JUSTICE. E) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP AND LD. AO/TPO HAVE ERRED IN NOT CO NSIDERING THE PRINCIPLE OF CONSISTENCY WHILE DETERMINING THE ALP OF THE IMPUGNED TRANSACTION. 13 . THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. ASSESSING OFFICER HAS ERRED IN INIT IATING PENALTY PROCEEDINGS, BEING AGAINST THE PROVISIONS OF THE AC T. ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 8 3. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE DISALLOWANCE OF SALARY PAID OVERSEAS TO EXPATRIATES WORKING IN INDI A BY THE HEAD OFFICE AND INDIAN TAXES PAID THEREON BY THE HEAD OFFICE, AT R S.16,13,32,006/-. 4. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE IS A BANKING COMPANY INCORPORATED IN JAPAN AND WAS A TAX RESIDENT OF JAP AN. THE ASSESSEE WAS ONE OF THE OLDEST FOREIGN BANKS IN INDIA, WHICH WAS ENG AGED IN WHOLESALE BANKING OPERATIONS. THE ASSESSEE OPERATED IN INDIA UNDER T HE LICENSE OF RESERVE BANK OF INDIA (IN SHORT RBI) AND WAS COVERED BY THE B ANKING REGULATIONS ACT, 1949. FOR THE YEAR UNDER CONSIDERATION, THE ASSESS EE E-FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.1,44,03,05,977/-. THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY. THE ASSESSING OFFICER FIRST RAISED THE ISSUE AS TO WHY THE SALARY PAID TO EXPATRIATES MAY NOT BE DISALLOWED, I N TURN RELYING ON THE OBSERVATIONS OF THE ASSESSING OFFICER IN ASSESSMENT YEAR 2007-08. THE ASSESSING OFFICER HAD DISALLOWED SUM OF RS.9,92,36, 315/- IN ASSESSMENT YEAR 2007-08, WHICH WAS INCURRED ON ACCOUNT OF OVERSEAS SALARIES PAID TO EXPATRIATES BEING IN NATURE OF HEAD OFFICE EXPENSES AND COULD NOT BE ALLOWED AS A DEDUCTION AS PER THE PROVISIONS OF SECTION 44C OF THE ACT. APPLYING THE SAID REASONING , THE ASSESSING OFFICER DISALLOWED OVERSE AS SALARIES PAID TO JAPANESE EXPATRIATES AND TAX THEREON AT RS.16,13,32,006/- 5. BEFORE THE DRP, THE PLEA OF THE ASSESSEE WAS THA T THE EXPATRIATES WERE WORKING IN INDIA EXCLUSIVELY FOR THE PE OF THE ASSE SSEE IN INDIA AND WERE CARRYING OUT DAY TO DAY BUSINESS OPERATIONS OF PE I N INDIA. IT WAS STRESSED THAT THE SALARY AND TAXES WERE NOT COVERED WITHIN THE AM BIT OF THE PROVISION OF ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 9 SECTION 44C OF THE ACT. ANOTHER SUBMISSION WHICH W AS MADE WAS THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS ALLOWABLE AS A DEDUCTION IRRESPECTIVE OF WHETHER SUCH EXPENDITURE WERE INCURRED IN INDIA OR OUTSIDE INDIA, IN TERMS OF ARTICLE 7(3) OF THE DTAA. FURTHER, TDS WAS DEDU CTED AND DEPOSITED IN INDIA AND THE EXPATRIATES EMPLOYEES ENTIRE SALARY WAS SUB JECTED TO TAX IN INDIA. THE DRP NOTED THAT THE REMUNERATION WAS PAID FOR SERVIC ES PARTLY IN INDIA AND PARTLY IN JAPAN. THE REASON FOR PART PAYMENT IN JA PAN WAS EXPLAINED TO BE DUE TO SHORT TERM DEPUTATION IN DIFFERENT BRANCHES. THE DRP WAS OF THE VIEW THAT IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICERS CONTENTION WAS THAT IT COULD NOT BE VERIFIED AND WAS COVERED BY SECTION 44 C OF THE ACT, HAD MERIT. HENCE, THE OBJECTIONS FILED BY THE ASSESSEE WERE RE JECTED. THE ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER PASSED ON 29.01.2014 MADE THE ADDITION ON ACCOUNT OF DISALLOWANCE OF SALARY PAID OVERSEAS TO EXPATRIATES OF THE ASSESSEE WORKING IN INDIA BY THE HEAD OFFICE AND THE INDIAN TAXES PAID THEREON BY THE HEAD OFFICE AT RS.16,13,32,006/-. 6. THE LD.AR FOR THE ASSESSEE REFERRING TO THE ORDE R OF THE ASSESSING OFFICER/DRP POINTED OUT THAT THE DISALLOWANCE WAS M ADE BEING HEAD OFFICE EXPENSES. THE LD.AR FOR THE ASSESSEE FAIRLY POINTE D OUT THAT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSE SSEE IN THE EARLIER YEARS. 7. THE LD.DR FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND THAT THE SAID ISSUE AROSE BEFORE THE TRIBUNAL IN AS SESSEES OWN CASE STARTING ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 10 FROM ASSESSMENT YEAR 2007-08 ONWARDS. THE TRIBUNAL IN APPEALS RELATING TO ASSESSMENT YEARS 2007-08 & 2008-09 VIDE ORDER DATED 19.09.2014 REPORTED IN 49 TAXMANN.COM 441 (DELHI-TRIB.) [2014] AND CONSEQU ENT ORDER PASSED RELATING TO ASSESSMENT YEAR 2010-11 IN ITA NO.1174/DEL/2015, ORDER DATED 25.01.2017 AND FOR ASSESSMENT YEAR 2011-12 IN ITA N O.306/DEL/2016, ORDER DATED 26.04.2017 HAD DECIDED THE SAID ISSUE IN FAVO UR OF THE ASSESSEE IN TURN RELYING ON THE RATIO LAID DOWN BY THE HONBLE BOMBA Y HIGH COURT IN CIT VS M/S. EMIRATES COMMERCIAL BANK LTD. [2003] 262 ITR 5 5 (BOM.). 9. WE FURTHER FIND THAT THE APPEALS OF THE REVENUE HAVE BEEN DISMISSED BY CONSOLIDATED ORDER PASSED BY THE HONBLE DELHI HIGH COURT IN ITA NOS.604 & 605/2015, VIDE ORDER DATED 08.04.2016. THE HONBLE HIGH COURT WHILE DECIDING THE ISSUE OF WHETHER DEDUCTION IS TO BE AL LOWED, ON ACCOUNT OF SALARY PAID TO EXPATRIATES, OBSERVED AS UNDER:- 9. THE FIRST QUESTION URGED CONCERNS THE PAYMENT O F SALARIES TO THE EXPATRIATES. IN DECIDING THIS ISSUE IN FAVOUR OF T HE ASSESSEE, THE ITAT HAS IN THE IMPUGNED COMMON ORDER REFERRED TO AND RELIED UPON THE DECISION OF ITS COORDINATE BENCH AT KOLKATA IN ABN AMRO BANK V. JCIT (2005) 97 ITD 1 (ITAT [KOL]). FURTHER THE ITAT FOLLOWED THE DECISI ON OF THE BOMBAY HIGH COURT IN CIT VS EMIRATES COMMERCIAL BANK LTD. (2003 ) 262 ITR 55 (BOM.) WHERE THE BOMBAY HIGH COURT APPROVED THE VIEW TAKEN BY THE ITAT. THE ITAT AGREED THAT THE EXPENSES HAVE BEEN INCURRED WH OLLY AND EXCLUSIVELY BY THE INDIAN BRANCH AND THEREFORE NO PART OF THESE EXPENSES CAN BE ALLOCATED TO ANY OTHER BRANCH OF THE HO AND THAT TH ERE WAS NO DISPUTE WITH REGARD TO THE NON-APPLICABILITY OF SECTION 44C OF THE ACT. 10. THIS COURT HAS PERUSED THE ORDER OF THE BOMBAY HIGH COURT IN EMIRATES COMMERCIAL (SUPRA) WHERE ON IDENTICAL FACT S, THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THIS ORDER OF THE BOMBAY HIGH COURT HAS BEEN AFFIRMED BY THE SUPREME COURT BY ORDER DAT ED 26 TH AUGUST 2008 IN COMMISSIONER OF INCOME TAX VS. M.//S. EMIRATES C OMMERCIAL BANK LTD. WHICH IN TURN REFERRED TO AN ORDER OF THE SAME DATE IN COMMISSIONER OF INCOME TAX VS DEUTSCHE BANK AG (CA NO.1544 OF 2006) . ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 11 10. THE APPEAL OF THE REVENUE WAS DISMISSED ON THIS GROUND. THE ISSUE ARISING IN THE PRESENT APPEAL BEFORE US VIDE GROUND NO.1 STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE HONBLE HIGH COURT DATED 08.04.2016. HENCE, WE ALLOW THE CLAIM OF THE ASSES SEE. GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE STANDS ALLOWED. 11. THE SECOND ISSUE RAISED VIDE GROUND NO.2 IS ON ACCOUNT OF INTEREST PAID TO HEAD OFFICE AND OTHER OVERSEAS BRANCHES OF THE B ANK AMOUNTING TO RS.33,91,35,887/-. 12. GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS AGAINST THE ADDITION ON ACCOUNT OF INCOME OF ASSESSEE PERTAINING TO RECEIPT OF INTEREST FROM INDIAN BRANCHES AMOUNTING TO RS.33,91,35,887/-. 13. BRIEFLY IN THE FACTS OF THE CASE RELATING TO T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THERE WAS PAYMENT OF INTEREST TO HEAD OFFICE AND OTHER OVERSEAS BRANCHES AMOUNTING TO RS.33.91 CRORES (APP ROX.). AS PER THE ASSESSEE, THE SAID INTEREST REPRESENTED, INTEREST O N LOAN TAKEN BY THE INDIAN BRANCHES TO SUPPLEMENT THEIR CAPITAL BASE TO FUND T HE ASSET LIABILITY MANAGEMENT GAPS. THE ASSESSEE CLAIMED THAT THE BRA NCHES OF THE BANK IN INDIA AND ITS HEAD OFFICE, OVERSEAS BRANCHES WERE N OT SEPARATE AND DISTINCT LEGAL ENTITIES, FOR THE PURPOSES OF TAXATION IN IND IA, THEREFORE, NO DEDUCTION ON TAX AT SOURCE WAS REQUIRED TO BE MADE U/S 195 OF TH E ACT, ON SUCH INTEREST PAYMENT. THE SECOND PLEA WAS THAT THE PAYMENT WERE NOT TAXABLE IN THE HANDS OF THE OVERSEAS BRANCHES AND HENCE NO REQUIREMENT T O DEDUCT TAX AT SOURCE. ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 12 14. THE ASSESSING OFFICER WAS OF THE VIEW THAT FOR THE PURPOSE OF TAXATION, PE OF THE ASSESSEE WAS A SEPARATE ENTITY AND HENCE, TH ERE WAS OBLIGATION TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT. SINCE THE ASSESS EE HAD FAILED TO DEDUCT TAX AT SOURCE, THE AMOUNT WAS PROPOSED TO BE DISALLOWED AN D ALSO REFERENCE WAS MADE TO CBDT CIRCULAR NO.740 DATED 17.04.1996. THE ASSESSING OFFICER PLACED RELIANCE ON THE ASSESSMENT ORDER RELATING TO ASSESSMENT YEAR 2007-08 AND DISALLOWED THE SAID AMOUNT IN THE HANDS OF THE ASSESSEE. THE DRP UPHELD THE ORDER OF THE ASSESSING OFFICER AND THE FINAL AS SESSMENT ORDER WAS THUS PASSED. 15. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE RE IS NO REQUIREMENT TO DEDUCT THE TAX AT SOURCE ON THE INTEREST PAYMENT MA DE TO HEAD OFFICE AND OTHER OVERSEAS BRANCHES. HE REFERRED TO THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 AND 2008-09 WH EREIN THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE RELYING ON THE DE CISION OF SPECIAL BENCH OF THE TRIBUNAL (LARGER BENCH) IN SUMOTOMO MITSUBISHI BANK ING CORPN. VS DY. DIT [2012] 136 ITD 66 (MUM.) (SB). HE FURTHER POINTED O UT THAT THE HONBLE HIGH COURT HAS DECIDED ISSUE VIDE PARAS 12 & 13 OF THE J UDGEMENT DATED 08.04.2016. HE ALSO POINTED OUT THAT THE ISSUE RAI SED IN GROUND NO.3 IS TO BRING TO TAX THE AFORESAID AMOUNT IN THE HANDS OF T HE ASSESSEE. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS A FOREIGN BANK WITH OPERATION IN INDIA UNDER LICENSE FROM RESERVE BANK OF INDIA. IT HAS THREE BRANCHES IN INDIA AT T HE RELEVANT TIME AND THE SAID BRANCHES IN INDIA CONSTITUTED PERMANENT ESTABLISHME NT (IN SHORT PE) OF THE ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 13 ASSESSEE IN INDIA, WITHIN THE MEANING OF ARTICLE 5 OF DTAA BETWEEN INDIA AND JAPAN. THE ASSESSEE WAS SUBJECTED TO TAX IN INDIA, ON THE PROFIT EARNED BY THE PE. THE ASSESSEE HAD DURING THE YEAR PAID INTEREST TO THE HEAD OFFICER AND OTHER OVERSEAS BRANCHES, WHICH WAS CLAIMED AS DEDUC TIBLE, WHILE DETERMINING THE PROFIT ATTRIBUTABLE TO THE PE IN INDIA, UNDER T HE PROVISIONS OF ARTICLE 7 OF INDIA JAPAN TREATY R.W.PARA 8 OF THE PROTOCOL, WHIC H WAS MORE BENEFICIAL TO THE ASSESSEE. THE SAID ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH IN THE CASE OF SUMOTOMO MITSUBISHI BA NKING CORPN. VS DY. DIT (SUPRA) AND ALSO BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE STARTING FROM ASSESSMENT YEARS 2007-08 & 2008-09.THE HONBLE HIGH COURT VIDE JUDGEMENT DATED 08.04.2016 IN APPEAL RELATING TO AS SESSMENT YEAR 2007-08 & 2008-09 VIDE PARAS 12 TO 15 HELD AS UNDER:- 12. THIS ISSUE APPEARS TO BE COVERED AGAINST THE R EVENUE BY THE DECISION OF THE CALCUTTA HIGH COURT DATED 23 RD DECEMBER 201 0 IN ABN AMRO BANK(2012) 343 ITR 81 (CAL). THE ITAT HAS FOLLOWED THE ABOVE DECISION OF THE CALCUTTA HIGH COURT AND DECIDED THE QUESTION IN FAVOUR OF THE ASSESSEE. 13. ON THIS ISSUE, THE COURT FURTHER FINDS THAT THE ORDER OF THE CALCUTTA HIGH COURT DATED 17TH NOVEMBER 2014 IN ITA NO. 175 OF 2004 (BANK OF TOKYO- MITSUBISHI LTD. V. DIRECTOR OF INCOME TAX, I NTERNATIONAL TAXATION, MUMBAI) HAS ALSO DECIDED THIS ISSUE IN FAVOUR OF TH E ASSESSEE BY FOLLOWING ITS JUDGMENT OF ABN AMRO BANK/SUPRA}. THE TWO SPECI FIC QUESTIONS URGED BY THE ASSESSEE IN THAT CASE WERE ANSWERED IN ITS F AVOUR: (I) WHETHER INTEREST PAYMENT MADE BY THE INDIAN BRA NCH OF THE APPELLANT TO ITS HEAD OFFICE ABROAD WAS TO BE ALLOW ED AS A DEDUCTION IN COMPUTING THE PROFITS OF THE APPELLANT'S BRANCH IN INDIA? (II) WHETHER MAKING SUCH PAYMENT TO THE HEAD OFFICE , THE APPELLANT'S SAID BRANCH WAS REQUIRED TO DEDUCT TAX AT SOURCE UN DER SECTION 195 OF THE INCOME TAX ACT, 1961? 14. IT IS SIGNIFICANT THAT IN THE AFOREMENTIONED OR DER, THE CALCUTTA HIGH COURT NOTED THE FACT THAT THE SPECIAL LEAVE PETITIO N PREFERRED BY THE ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 14 REVENUE AGAINST THE JUDGMENT OF THE CALCUTTA HIGH C OURT IN ABN AMRO BANK(SUPRA) WAS DISMISSED BY THE SUPREME COURT ON 3 RD AUGUST 2012. 15. ACCORDINGLY, THIS COURT DECLINES TO FRAME ANY Q UESTION ON THIS ISSUE OF INTEREST PAID TO THE HO AS WELL AS THE INTEREST REC EIVED FROM THE INDIAN BRANCHES. 17. THE HONBLE HIGH COURT HAD DECIDED THE FIRST IS SUE OF INTEREST PAID TO THE HEAD OFFICE AND OVERSEAS BRANCHES AND HAD ALSO APPL IED THE SAME PRINCIPLE FOR DECIDING THE ISSUE OF TAXABILITY OF INTEREST RECEIV ED ON INDIAN BRANCHES. 18. THE ISSUE RAISED BEFORE US VIDE GROUND OF APPEA L NOS. 2 & 3 I.E. INTEREST PAID TO HEAD OFFICE AND OVERSEAS BRANCHES AND INTER EST RECEIVED FROM INDIAN BRANCHES AMOUNTING TO RS.33.91 CRORES (APPROX.), FO R WHICH TWO SEPARATE ADDITIONS WERE MADE BY THE ASSESSING OFFICER, THUS , STANDS COVERED BY THE ORDER OF THE HONBLE HIGH COURT OF DELHI (SUPRA) IN ASSESSEES OWN CASE. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD TH AT THERE IS NO MERIT IN BOTH THE ADDITIONS MADE IN THE HANDS OF THE ASSESSEE IN THIS REGARD. GROUND OF APPEAL NOS. 2 & 3 RAISED BY THE ASSESSEE ARE THUS A LLOWED IN FAVOUR OF THE ASSESSEE. 19. NOW, COMING TO THE NEXT GROUND OF APPEAL NO.4 W HEREIN THE INTEREST AMOUNTING TO RS.1,69,56,253/- ACCRUED/RECEIVED BY T HE INDIAN PE FROM ITS HEAD OFFICE/OVERSEAS BRANCHES WAS BROUGHT TO TAX I N THE HANDS OF THE ASSESSEE. 20. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE H AD DECLARED THE SAID INTEREST AS CREDIT TO THE P&L A/C BUT IN THE NOTES TO THE RE TURN OF INCOME FILED, IT HAD DECLARED THAT SUCH INTEREST BEING PAYMENT TO SELF W AS NOT LIABLE TO THE TAX IN ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 15 INDIA. IN THIS REGARD, TWO PROPOSITIONS WERE RAISE D THAT THE INTEREST INCOME RECEIVED FROM THE HEAD OFFICE WAS RECEIPT FROM SELF AND ALSO THE INTEREST WAS NOT TAXABLE IN VIEW OF THE PROVISIONS OF DTAA BETWEEN I NDIA AND JAPAN. THE ASSESSING OFFICER BROUGHT THE SAME TO TAX IN THE HA NDS OF THE ASSESSEE AND THE OBJECTIONS FILED BY THE ASSESSEE WERE REJECTED AND CONSEQUENT THERETO, THE FINAL ASSESSMENT ORDER WAS PASSED IN THE HANDS OF THE ASS ESSEE. 21. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 VIDE PARA 46 AT PAGE 26 OF THE ORDER HOLDING IT TO BE TAXABLE ON TWO ACCOUNTS. THE LD.AR FOR THE ASSESSEE THEN BROUGHT TO OUR ATTENTION THE ORDE R OF THE TRIBUNAL IN ASSESSMENT YEAR 2010-11 DATED 25.01.2017. VIDE PAR A 15 ONWARDS, THE ISSUE WAS DECIDED IN TURN RELYING ON THE DECISION OF HON BLE BOMBAY HIGH COURT IN DIT VS M/S. CREDIT AGRICOLE INDOSEUZ IN ITA NO.1430 OF 2013 VIDE ORDER DATED 17.06.2015. THE TRIBUNAL HELD THAT NO PERSON COULD MAKE PROFIT OUT OF SELF AND THERE WAS NO JUSTIFICATION IN TAXING THE INTERE ST RECEIVED BY THE INDIAN PE FROM ITS HEAD OFFICE/OVERSEAS BRANCHES. IT WAS FUR THER BROUGHT TO OUR NOTICE THAT SAID PROPOSITION WAS ALSO APPLIED BY THE TRIBU NAL IN ASSESSMENT YEAR 2011-12. 22. THE LD. DR FOR THE REVENUE POINTED OUT THAT THE PRO VISION OF SECTION 9(1)(V) HAS NOT BEEN CONSIDERED BY THE TRIBUNAL. T HE LD.AR FOR THE ASSESSEE IN RE-JOINDER POINTED OUT THAT THE PROVISION OF SECTIO N 9(1)(VI) EVEN AFTER AMENDMENT DO NOT COVER THE PROPOSITION RAISED BY T HE ASSESSING OFFICER. ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 16 23. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED IN THE PRESENT APPEAL IS WHETHER THE INTERES T RECEIVED BY THE INDIAN BRANCHES FROM ITS OWN HEAD OFFICE/ OVERSEAS BRANCHE S WAS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE. THE ISSUE STANDS COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT VS M/S. CREDIT AGRICOLE INDOSEUZ (SUPRA). THE SAID PROPOSI TION HAS BEEN APPLIED BY THE TRIBUNAL WHILE DECIDING THE APPEALS IN ASSESSMENT Y EARS 2010-11 & 2011-12. THE TRIBUNAL ALSO NOTED THE FACT THAT WHILE DECIDIN G THE ISSUE IN ASSESSMENT YEARS 2007-08 & 2008-09, THE TRIBUNAL DID NOT HAVE THE BENEFIT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT. APPLYING THE SAM E PARITY OF REASONING, WE FIND NO MERIT IN THE AFORESAID ADDITION MADE IN THE HANDS OF THE ASSESSEE AND THE SAME IS DELETED. GROUND OF APPEAL NO.4 RAISED BY THE ASSESSEE IS THUS ALLOWED. 24. THE ISSUE RAISED IN GROUND NO.5 BY THE ASSESSEE IS WHETHER THE PROVISIONS OF SECTION 115JB OF THE ACT ARE APPLICAB LE OR NOT. THE CASE OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT IT W AS CARRYING ON THE BANKING BUSINESS THROUGH ITS BRANCHES AND WAS PREPARING TH E P&L A/C FOR INDIAN OPERATION IN ACCORDANCE WITH THE BANKING REGULATION ACT AND THE SECOND PLEA RAISED BY THE ASSESSEE WAS THAT IT WAS A FOREIGN CO MPANY AND THE PROVISIONS OF THE INDIA-JAPAN TREATY OVERRIDE THE PROVISION OF IN COME TAX ACT; HENCE THE PROVISION OF SECTION 115JB OF THE ACT WERE NOT APPL ICABLE. THE ASSESSING OFFICER HELD OTHERWISE AND THE OBJECTION FILED BY THE ASSESSEE WAS DISMISSED AND FINAL ASSESSMENT ORDER WAS PASSED BY THE ASSESS ING OFFICER. ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 17 25. THE LD.AR FOR THE ASSESSEE POINTS OUT THAT THE ISSUE STANDS DECIDED BY THE DECISION OF TRIBUNAL IN ASSESSMENT YEAR 2007-08 & 2008-09 WHEREIN THE SAID ISSUE WAS ELABORATED UPON BY IN PARAS 47 ONWAR DS FROM PAGE 26 OF THE ORDER. THE TRIBUNAL VIDE PARA 76 HOLD THAT MAT PRO VISIONS WERE APPLICABLE TO DOMESTIC COMPANIES AND NOT TO FOREIGN COMPANIES AND ALSO WHERE THE PROVISIONS OF DTAA HAVE OVERRIDING EFFECT, AS THE I NCOME HAD BEEN COMPUTED IN THE HANDS OF THE ASSESSEE UNDER DTAA PROVISIONS. TH E LD.AR FOR THE ASSESSEE POINTED OUT THAT THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL IN ASSESSMENT YEARS 2007-08 & 2008-09 AND THEREAFTER, THE APPEAL OF THE REVENUE HAS BEEN DISMISSED BY THE HONBLE DELHI HIGH COURT. 26. THE LD. DR FOR THE REVENUE FAIRLY SUBMITTED THA T THE ISSUE STANDS DECIDED BY THE HONBLE HIGH COURT. 27. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ISSUE ARISING BEFORE US IS WHETHER THE PROVISION OF SECTI ON 115JB OF THE ACT ARE APPLICABLE TO THE ASSESSEE COMPANY. THE ASSESSEE I S A BANKING COMPANY WHICH DRAWS UP ITS ACCOUNT AS PER THE BANKING REGULATION ACT AND NOT AS PER PART II & III OF THE SCHEDULE VI OF THE COMPANIES ACT. FUR THER, THE ASSESSEE COMPANY WAS A FOREIGN COMPANY AND IT DETERMINED ITS TAXABIL ITY AS PER ARTICLE 7 OF THE DTAA BETWEEN INDIA AND JAPAN. THE TRIBUNAL IN ASSE SSEES OWN CASE FOR ASSESSMENT YEAR 2007-08 VIDE PARA 47 ONWARDS TILL 7 6 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE HONBLE HIGH COURT VID E ITS JUDGEMENT DATED 08.04.2016 VIDE PARAS 20 & 21 HELD AS UNDER:- ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 18 20. THE ITAT HAS AFTER AN ELABORATE DISCUSSION HAD COME TO THE CONCLUSION THAT THE ASSESSEE'S CLAIM FOR LOWER TAX WILL HAVE TO BE ACCEPTED BECAUSE SECTION 115JB IS SUBJECT TO SECTION 90(2) O F THE ACT AND THE TAXABLE INCOME OF THE ASSESSEE WOULD HAVE TO BE COM PUTED IN TERMS OF ARTICLE 7(3) OF THE DTAA. WHAT IS SIGNIFICANT IS TH AT THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE HAS NOT BEEN PREPARED IN TE RMS OF PART II OF SCHEDULE VI OF THE COMPANIES ACT, 1956 AND IN FACT COULD NOT HAVE BEEN PREPARED IN TERMS THEREOF. CONSEQUENTLY, THE QUESTI ON OF APPLICABILITY OF SECTION 115JB DID NOT ARISE. AS RIGHTLY POINTED OUT TILL THE INSERTION OF SECTION 115JB, BANKING COMPANIES WERE REQUIRED TO P REPARE THEIR ACCOUNTS IN TERMS OF SPECIAL ACTS THAT THEY WERE GOVERNED BY , AND THEREFORE THERE WERE NO COMPUTATION PROVISIONS AS REGARDS SUCH BANK ING COMPANIES. THE CHANGE BROUGHT OUT BY SECTION 115JB WAS THEREFORE N OT RETROSPECTIVE. 21. THE REASONING AND THE CONCLUSION OF THE IT AT O N THIS ISSUE APPEARS TO SUFFER FROM NO LEGAL INFIRMITY. CONSEQUENTLY, THE C OURT DECLINES TO FRAME ANY QUESTION ON THIS ISSUE AS WELL. 28. IN VIEW THEREOF AND APPLYING THE SAID PARITY OF REASONING, WE HOLD THAT THE PROVISION OF SECTION 115JB OF THE ACT ARE NOT A PPLICABLE TO THE ASSESSEE COMPANY. GROUND OF APPEAL NO.5 RAISED BY THE ASSES SEE IS THUS ALLOWED. 29. THE NEXT ISSUE RAISED VIDE GROUND NO.6 IS AGAI NST THE TAXABILITY OF INTEREST RECEIVED ON ECB, GIVEN TO INDIAN BORROWER S. 30. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSEE H AD RECEIVED INTEREST ON ECBS GIVEN TO INDIAN CUSTOMERS. THE ASSESSEE POINT ED OUT THAT THE INDIAN BRANCHES OF THE BANK HELPED THE INDIAN CUSTOMERS IN ARRANGING FUNDS THROUGH ITS OVERSEAS BRANCHES, AS THE BANKING IN INDIA COUL D NOT LEND IN FOREIGN CURRENCIES. THUS, THE REQUEST OF THE CUSTOMERS ALO NGWITH NECESSARY REPORT WAS FORWARDED TO THE OVERSEAS BRANCHES, FOR BOOKING OF LOAN. THE TAXABILITY OF THE INTEREST, AS PER THE ASSESSEE, WAS GOVERNED BY ARTI CLE 7(3) OF THE DTAA AND NOT AS PER ARTICLE 11 OF THE DTAA. THE ASSESSEE EXPLAI NED TO THE ASSESSING OFFICER THAT ECBS WERE CONNECTED WITH THE PE AND THE INTE REST WAS TAXABLE AS PER ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 19 ARTICLE 7 OF THE DTAA AND PORTION RELATABLE TO ASSE SSEE HAD BEEN OFFERED TO TAX. THE ASSESSING OFFICER REJECTING THE PLEA OF THE ASS ESSEE BROUGHT TO TAX INTEREST ON ECBS IN THE HANDS OF THE ASSESSEE, IN TURN RELYI NG ON THE ASSESSMENT ORDER FOR ASSESSMENT YEAR 2007-08 AND PASSED FINAL ASSESS MENT ORDER AS DRP REJECTED THE OBJECTIONS OF THE ASSESSEE. 31. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL IN ASSESSEES OWN CASE SENT BACK THE MATTER TO THE ASSESSING OFFI CER. HOWEVER, WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2010-11 (SU PRA), THE TRIBUNAL VIDE PARAS 20 TO 26 CONSIDERED THE PLEA OF THE ASSESSEE AND ALLOWED THE CLAIM OF THE ASSESSEE. SIMILAR VIEW WAS TAKEN IN ASSESSMENT YEA R 2011-12. THE LD.AR FOR THE ASSESSEE FURTHER POINTED OUT THAT THE REMAND OR DER WAS PASSED ON THE ISSUE OF INTEREST ON ECBS BY THE TRIBUNAL RELATING TO ASSESSMENT YEAR 2007-08 AND FINAL ORDER WAS PASSED ON 16.09.2019 AND THE AP PEAL OF THE ASSESSEE HAS BEEN ALLOWED. 32. THE LD.DR FOR THE REVENUE PLACED RELIANCE ON TH E ORDERS OF THE AUTHORITIES BELOW. 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE RELEVANT FINDINGS OF THE TRIBUNAL IN ASSESSMENT YEAR 2010-11 ARE IN PARAS 21 TO 26 WHICH ARE BEING REFERRED BUT NOT BEING REPRODUCED F OR THE SAKE OF BREVITY. THE TRIBUNAL HELD THAT THE INTEREST ON ECBS WAS NOT A TTRIBUTABLE TO THE INDIAN BRANCHES OF THE ASSESSEE AND ONLY THE PORTION WAS T AXABLE IN THE HANDS OF THE INDIAN BRANCHES FOR THE ROLE PLAYED IN ARRANGING TH E ECBS. WE FIND THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS FULLY COVERED IN FAVOUR OF THE ASSESSEE AND ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 20 WHERE THE ASSESSEE HAD ALREADY OFFERED TO TAX, THE PORTION ATTRIBUTABLE TO IT, THEN THERE IS NO MERIT IN MAKING ANY OTHER ADDITION S IN THE HANDS OF THE ASSESSEE. THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 HAD ALSO ALLOWED THE CLAIM IN THE HANDS OF ASSESSEE. GROUND OF APPEAL N O.6 RAISED BY THE ASSESSEE IS THUS ALLOWED. 34. THE ISSUE RAISED IN GROUND OF APPEAL NO.7 IS WI THOUT PREJUDICE TO GROUND NO.6 AND THE SAME IS THUS DISMISSED. 35. THE ISSUE RAISED IN GROUND NOS. 9 & 10 BY THE A SSESSEE ARE NOT PRESSED AND THE SAME ARE DISMISSED. 36. THE ISSUE RAISED IN GROUND NO.11 BY THE ASSESSE E IS TREATMENT IN RESPECT OF DEFERRED BANK GUARANTEE COMMISSION. 37. BRIEFLY IN THE FACTS RELATING TO THE ISSUE, THE ASSESSEE RECEIVED BANK GUARANTEE COMMISSION FOR A PERIOD OF THREE YEARS BU T OFFERED THE SAME TO TAX OVER TENURE OF GUARANTEE. THE CASE OF THE REVENUE WAS TO ASSESS THE SAME IN THE YEAR OF RECEIPT ITSELF. 38. THE ISSUE STANDS FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE HIGH COURT IN ASSESSEES OWN CASE VIDE PARA 16 & 17 WHEREIN THE APPEAL OF THE REVENUE WAS DISMISSED. THE RELEVANT FINDINGS OF THE HONBLE HIGH COURT ARE AS UNDER:- 16. ITA 244/2014, ALSO IN THE CASE OF ASSESSEE SHI N, WAS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE ITAT APPLYING THE JUDGMENT OF ASIA SATELLITE TELECOMMUNICATION CO. LTD. '.I' CASE (SUP RA). HERE TOO THE ITAT HAD OVERTURNED THE ASSESSMENT ORDER DATED 09.04.2012. T HE ORDER WAS SIMILAR IF NOT WHOLLY IDENTICAL TO THE ONE PASSED I N ITA 500/2012. ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 21 17. ITA 473/2012 AND 474/2012 ARE FILED BY THE REVE NUE AGAINST THE ORDER OF THE ITAT OVERTURNING COMMON ASSESSMENT ORD ER DATED 17.08.2011, IN THE CASE OF ASSESSEE NEW SKIES. HERE THE RETURN OF INCOME FOR THE AY 2008-09 WAS TILED ON 10.10.2008 DECLARIN G NIL INCOME. FOR THE SAME REASONS AS ABOVE, THE AO HELD THE INCOME TAXAB LE UNDER SECTION 9(I)(VI). HOWEVER, IN ADDITION TO THIS, THE AO ALSO WENT INTO THE DIFFERENCE BETWEEN THE DEFINITION OF ROYALTY UNDER SECTION 9(1 )(VI) AND THE TREATY, IN THAT CASE, THE INDO-NETHERLANDS DT AA. HERE, THE DE FINITION OF ROYALTY UNDER ARTICLE 12(4) IS AS FOLLOWS: 'THE TERMS 'ROYALTIES' AS USED IN THIS ARTICLE MEAN S PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC W ORK INCLUDING CINEMATOGRAPH FILMS, ANY PATENT, TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCE RNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE.' COMPARED TO THE DEFINITION IN EXPLANATION 2(III) OF 9(1 )(VI) THE ONLY DISTINCTION BETWEEN THE TWO WAS ONE OF PUNCTUATION, SPECIFICALLY, THE EXISTENCE OF A SINGLE 'COMMA' FOLLOWING THE WORD 'P ROCESS' IN ARTICLE 12(4), A COMMA WHICH IS ABSENT FROM THE DEFINITION UNDER DOMESTIC LAW. THE ONLY QUESTION WAS WHETHER THIS COMMA DICTA TED A PARTICULAR CONSEQUENCE, NAMELY WHETHER ITS PRESENCE WOULD MEAN THAT THE WORD SECRET DID QUALIFY THE WORD PROCESS I N ARTICLE 12(4), AND THAT ITS ABSENCE UNDER DOMESTIC LAW WOULD MEAN THAT IT DID NOT. IN OTHER WORDS, IF THE COMMA WAS ALLOWED TO INFLUEN CE THE INTERPRETATION OF ARTICLE 12(4), IT WOULD MEAN THAT FOR THE PURPOSES OF CONSIDERATION TO BE TERMED AS ROYALTY UNDER THE DT AA, THE PROCESS UTILIZED WOULD NECESSARILY HAVE TO BE A 'SECRET PRO CESS', WHEREAS THE POSITION UNDER DOMESTIC LAW IS THAT THE SECRECY OR NOT OF THE PROCESS UTILIZED IS IRRELEVANT. AFTER DELVING INTO A LIST O F CASE LAW WHICH LAY DOWN THE RULES FOR WHEN PUNCTUATION IS NOT TO BE TA KEN SERIOUSLY WHILE INTERPRETING AN ACT OR TREATY, THE AO DECIDED THAT THE PRESENCE OF THE COMMA WAS INCONSEQUENTIAL. HERE TOO, WITHOUT PREJUDICE TO ITS ABOVE FINDING, THE AO HELD THAT THE PROCESS OF PROV IDING THE TRANSPONDER WOULD STILL QUALIFY AS A SECRET PROCESS . QUOTING THE OXFORD DICTIONARY, THE AO HELD THAT SECRET MEANS KE PT OR MEANT TO BE KEPT PRIVATE, UNKNOWN OR HIDDEN FROM ALL BUT A F EW. IT WAS HELD THAT THE PROCESS WAS WITHIN THE EXCLUSIVE KNOWLEDGE OF THE ASSESSEE. THE CUSTOMER IS NEITHER IN THE KNOW NOR I S IT EMPOWERED TO USE THE PROCESS IN ITS OWN WAY. 39. FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THERE IS NO MERIT IN THE ORDERS OF THE AUTHORITIES BELOW IN TREATING THE COMMISSION RECEIVED ON BANK GUARANTEE AS TAXABLE ON RECEIPT BASIS. WE FIND THA T THE SAID ISSUE STANDS ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 22 COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF T HE HONBLE HIGH COURT IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2007-08 AND 2008-09 JUDGEMENT DATED 08.04.2016. THUS, WE FIND NO MERIT IN THE OR DER OF AUTHORITIES BELOW. GROUND OF APPEAL NO.8 IS THUS ALLOWED. 40. THE ISSUE RAISED VIDE GROUND NO.11 IS AGAINST THE APPLICABLE RATE OF TAX ON THE INCOME OF THE ASSESSEE ATTRIBUTABLE TO ITS P E IN INDIA. 41. BRIEFLY IN THE FACTS OF THE CASE THE ASSESSING OFFICER HAD OBSERVED THAT THE RATE OF TAX APPLICABLE TO THE ASSESSEE WOULD BE @ 40% BEING THE RATE OF TAX APPLICABLE TO THE FOREIGN COMPANIES. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER AS THE APPLICABLE RATES OF TA X TO THE DOMESTIC COMPANIES WAS 30%. THE CONTENTION OF THE ASSESSEE IN THIS RE GARD IS APPLICATION OF ARTICLE 24 OF THE DTAA. THE LD.AR FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL IN ASSESSMENT YEAR 2000-01 HAD ADJUDICATED THE SAID IS SUE. HOWEVER, THE HONBLE HIGH COURT OF CALCUTTA VIDE JUDGEMENT DATE D 07.08.2019 HELD THAT THE RATE OF TAX APPLICABLE WOULD BE LOWER RATE I.E. RAT E ON DOMESTIC COMPANIES. HE FURTHER REFERRED THAT THE AMENDMENT IN THE INCOME T AX ACT WHICH WAS NOT BEFORE THE HONBLE HIGH COURT. REFERRING TO THE AM ENDMENT I.E. EXPLANATION (1) TO SECTION 90 OF I.T.ACT, IT WAS POINTED OUT BY THE LD.AR FOR THE ASSESSEE THAT THE AFORESAID AMENDMENT CANNOT OVERRIDE THE TERMS O F DTAA. HE PLACED RELIANCE ON THE DECISIONS OF HONBLE DELHI HIGH COU RT IN DIT VS NEW SKIES SATELLITE BV [2016] 68 TAXMANN.COM 8 (DEL.). THE L D.AR FOR THE ASSESSEE ALSO POINTED OUT THAT THOUGH THE TAX TREATY BETWEEN INDI A AND JAPAN IS SILENT WHETHER DIFFERENT RATE COULD BE APPLIED, BUT SUO MOTTO APPLICATION OF HIGHER ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 23 RATES OF TAX BY THE REVENUE AUTHORITIES WAS DISCRIM INATION. HE ALSO POINTED OUT THAT THE EXPLANATION (1) TO SECTION 90 OF THE A CT APPLIES TO DOMESTIC COMPANIES BUT COOPERATIVE SOCIETIES ARE NOT COVERED BY THE AMENDMENT. HE FURTHER POINTED OUT THAT DIFFERENT TREATIES HAVE US ED DIFFERENT LANGUAGES I.E. IN DTAA BETWEEN INDIA AND UK, THERE IS A PROVISION FOR CHARGING HIGHER RATE OF TAX TO THE PE OF A FOREIGN COMPANY THAN INDIAN COMPANY AND THE SAME WOULD NOT BE DISCRIMINATORY. 42. THE LD. DR FOR THE REVENUE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND THE AMENDED PROVISIONS OF THE ACT. 43. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND THAT THAT THE ISSUE WHICH IS RAISED IN THE PRESENT APPEAL IS AGAINST THE RATE OF TAX TO BE CHARGED I.E. RATE OF TAX ON FOREIGN COMPA NY @ 40% OR RATE OF TAX ON THE DOMESTIC COMPANY @ 30%. THE ASSESSEE IS AGGRIE VED BY THE ORDERS OF THE AUTHORITIES BELOW IN CHARGING HIGHER RATE OF TAX. THE PLEA OF THE ASSESSEE IS THAT IT CANNOT BE DISCRIMINATED BY WAY OF HIGHER RA TE OF TAXATION IN VIEW OF THE PROVISIONS OF DTAA. WE FIND THAT THE SAID ISSUE HA S ARISEN IN THE CASE OF THE ASSESSEE IN ASSESSMENT YEAR 1991-92 WHEREIN THE HON BLE HIGH COURT HAD HELD THAT LOWER RATE OF TAX WAS APPLICABLE TO THE PROFIT S OF THE BUSINESS. WE FURTHER FIND THAT THE TRIBUNAL HAS ALSO DECIDED THE SAID IS SUE IN ASSESSEES OWN CASE IN ASSESSMENT YEARS 2000-01 AND 2001-02 IN ITA NOS. 21 0 & 211/MUM/2005, ORDER DATED 13.09.2019 VIDE PARAS 13 TO 16 WHICH RE AD AS UNDER:- 13. THE ASSESSEE WAS AGGRIEVED TO THE APPLICATION O F 45% OF TAX RATE WHICH IS MUCH HIGHER THAN THE RATE APPLICA BLE TO A DOMESTIC COMPANY AND PLEADED THAT IN VIEW OF THE BE NEFITS OF ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 24 NON-DISCRIMINATION PROVIDED IN THE DTAA, THE COMPAN Y BE ASSESSED AT DOMESTIC RATE. THE LD. AR ARGUED THAT T HE ASSESSEE CANNOT BE DISADVANTAGED AND DISCRIMINATED BY WAY OF HIGHER RATE OF TAXATION IN VIEW OF THE PROVISIONS OF THE D TAA. IT WAS ARGUED THAT THE PROVISIONS OF ARTICLE 24 OF THE DTA A BETWEEN INDIA AND JAPAN READS AS UNDER: ARTICLE 24 . 2. THE TAXATION ON A PERMANENT ESTABLISHMENT WHICH AN ENTERPRISE OF A CONTRACTING STATE HAS IN THE OTHER CONTRACTING STATE SHALL NOT BE LESS FAVOURABLY LEVIED IN THAT OTHER CONTRACTING STATE THAN THE TAXATION LEVIED ON ENTERPRISES OF THAT OTHER CONTRACTING STATE CARRYIN G ON THE SAME ACTIVITIES. 14. THE LD. DR HAS ARGUED PLACING RELIANCE ON EXPLA NATION 1 TO SECTION 90 OF THE ACT WHICH READS AS UNDER: EXPLANATION 1 FOR THE REMOVAL OF DOUBTS, IT IS H EREBY DECLARED THAT THE CHARGE OF TAX IN RESPECT OF A FOR EIGN COMPANY AT A RATE HIGHER THAN THE RATE AT WHICH A D OMESTIC COMPANY IS CHARGEABLE, SHALL NOT BE REGARDED AS LESS FAVOURABLE CHARGE OR LEVY OF TAX IN RESPECT OF SUCH FOREIGN COMPANY. 15. WE FIND THAT THIS EXPLANATION HAS BEEN BROUGHT INTO STATUTE W.E.F. 01.04.2013. PRIOR TO THIS EXPLANATIO N READ AS SUBSTITUTED BY THE FINANCE (NO. 2) ACT, 2009 WITH E FFECT FROM 1ST OCTOBER, 2009. PRIOR TO SUBSTITUTION, SECTION 90 AS AMENDED BY THE FINANCE ACT, 2001, WITH RETROSPECTIVE EFFECT FR OM 1ST APRIL, 1962; FINANCE ACT, 2003, WITH EFFECT FROM 1ST APRIL , 2004; FINANCE (NO. 2) ACT, 2004, WITH RETROSPECTIVE EFFEC T FROM 1ST APRIL, 1962, STOOD AS UNDER: 90. AGREEMENT WITH FOREIGN COUNTRIES. (1) THE CENTRAL GOVERNMENT MAY ENTER INTO AN AGREEM ENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA - (A) FOR THE GRANTING OF RELIEF IN RESPECT OF- (I) INCOME ON WHICH HAVE BEEN PAID BOTH INCOME-TAX UNDER THIS ACT AND INCOME-TAX IN THAT COUNTRY; OR ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 25 (II) INCOME-TAX CHARGEABLE UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY TO PROMO TE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT, OR (B) FOR THE AVOIDANCE OF DOUBLE TAXATION OF INCOME UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT CO UNTRY, OR (C) FOR EXCHANGE OF INFORMATION FOR THE PREVENTION OF EVASION OR AVOIDANCE OF INCOME-TAX CHARGEABLE UNDER THIS ACT O R UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY, OR INVE STIGATION OF CASES OF SUCH EVASION OR AVOIDANCE, OR (D) FOR RECOVERY OF INCOME-TAX UNDER THIS ACT AND U NDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY, AND MAY , BY NOTIFICATION IN THE OFFICIAL GAZETTE, MAKE SUCH PRO VISIONS AS MAY BE NECESSARY FOR IMPLEMENTING THE AGREEMENT. (2) WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO A N AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSID E INDIA UNDER SUB-SECTION (1) FOR GRANTING RELIEF OF TAX, O R AS THE CASE MAY BE, AVOIDANCE OF DOUBLE TAXATION, THEN, IN RELA TION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, THE PROVIS IONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BE NEFICIAL TO THAT ASSESSEE. (3) ANY TERM USED BUT NOT DEFINED IN THIS ACT OR IN THE AGREEMENT REFERRED TO IN SUBSECTION (1) SHALL, UNLE SS THE CONTEXT OTHERWISE REQUIRES, AND IS NOT INCONSISTENT WITH TH E PROVISIONS OF THIS ACT OR THE AGREEMENT, HAVE THE SAME MEANING AS ASSIGNED TO IT IN THE NOTIFICATION ISSUED BY THE CE NTRAL GOVERNMENT IN THE OFFICIAL GAZETTE IN THIS BEHALF. EXPLANATION : FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED TH AT THE CHARGE OF TAX IN RESPECT OF A FOREIGN COMPANY AT A RATE HI GHER THAN THE RATE AT WHICH A DOMESTIC COMPANY IS CHARGE ABLE, SHALL NOT BE REGARDED AS LESS FAVOURABLE CHARGE OR LEVY OF TAX IN RESPECT OF SUCH FOREIGN COMPANY. 16. THE MATTER HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE IN THEIR OWN CASE BY THE ORDER OF THE HONBLE CALCUTTA HIGH COURT IN ITA NO. 39 OF 1998 DATED 07.08.2019 FOR THE ASSE SSMENT YEAR 1991-92 BY REFERRING TO THE PROVISIONS OF ARTI CLE 24 OF THE DTAA. WE ALSO FIND THAT THE EXPLANATION 1 TO SECTIO N 90 HAS NOT BEEN CONSIDERED BY THE HONBLE HIGH COURT OF CALCUT TA WHILE DEALING WITH THE CASE OF THE ASSESSEE FOR THE ASSES SMENT YEAR 1991-92. HOWEVER, FOR ASSESSMENT YEAR 1998-99, THIS ISSUE HAS BEEN DEALT WITH BY THE CO-ORDINATE BENCH OF ITAT DE LHI AND DECIDED AGAINST THE ASSESSEE VIDE ORDER DATED 03.06 .2019 IN ITA NO. 1783/KOL/2002 BY TAKING INTO CONSIDERATION THE ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 26 PROVISIONS OF EXPLANATION 1 TO SECTION 90(2) OF THE ACT. THE LD. AR HAS SUBMITTED THAT THE ISSUE FOR THAT YEAR IS ST ILL PENDING WITH THE HONBLE HIGH COURT OF DELHI. HENCE, KEEPIN G IN VIEW, THE ENTIRETY OF THE FACTS, WE HEREBY HOLD THAT THE ASSESSEE CANNOT BE REGARDED AS TREATED LESS FAVOURABLY BY TA XING AT A HIGHER RATE. AS A RESULT THE APPEAL OF THE ASSESSEE ON THIS GROUND IS DISMISSED. 44. THE ISSUE HAS ALREADY BEEN DECIDED BY THE TRIB UNAL IN ASSESSEES OWN CASE AND THE SAME IS PENDING BEFORE HIGHER FORUM AN D CONSEQUENTLY WE DO NOT EXPRESS ANY VIEW. APPLYING THE SAID RATIO, GROUND NO.11 RAISED BY THE ASSESSEE IS THUS DISMISSED. 45. THE ISSUE RAISED VIDE GROUNDS OF APPEAL NO. 12 IS AGAINST THE TRANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF GUARANTEE COM MISSION OF RS.7,12,08,840/-. 46. THE ASSESSEE HAD UNDERTAKEN VARIOUS INTERNATION AL TRANSACTIONS DURING THE YEAR. THE ASSESSING OFFICER MADE REFERENCE UNDE R SECTION 92CA(1) OF THE ACT FOR DETERMINING ARMS LENGTH PRICE OF THE SAID INTE RNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE WITH ITS AE. THE INTERNATIONAL TRANSACTION IN DISPUTE IS RECEIPT OF GUARANTEE COMMISSION AND WE WILL RESTRIC T OUR COMMENTS. THE ASSESSEE IS A FOREIGN BANK, RESIDENT OF JAPAN AND O PERATES ITS OPERATIONS ACROSS THE GLOBE. THE CUSTOMER REQUIRES GUARANTEE FROM TH E BANK IN INDIA, TO PARTICIPATE IN TENDER AND WOULD APPROACH THE OVERSE AS BRANCH TO ISSUE COUNTER GUARANTEE IN FAVOUR OF BRANCHES IN INDIA, FOR ISSUI NG FURTHER GUARANTEE IN FAVOUR OF BENEFICIARY IN INDIA. THE ENTITY IN INDIA CLAIMS TO HAVE PERFORMED THE FUNCTIONS OF ISSUING THE GUARANTEE IN FAVOUR OF THE BENEFICIARY IN INDIA, IN WHICH NO SEPARATE EVALUATION OF THE BENEFICIARY WAS UNDERTAKEN, WHICH WAS ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 27 PERFORMED BY THE OVERSEAS BRANCHES. FOR PERFORMING LIMITED FUNCTIONS, BRANCHES IN INDIA RECEIVED UPTO 1% GUARANTEE COMMIS SION FOR ISSUING LETTER OF GUARANTEE. 47. THE TPO FOR BENCHMARKING THE AFORESAID COMMISSI ON WAS OF THE VIEW THAT INTERNAL CUP DATA WAS SUBMITTED BY THE ASSESSEE, WA S NOT ACCEPTABLE AS IT WAS NOT IN COMPLIANCE WITH RULE 10D OF THE RULES. THE TPO COLLECTED DATA FROM VARIOUS BANKS FOR BENCHMARKING THE INTERNATIONAL TR ANSACTIONS OF PROVIDING CORPORATE GUARANTEE, ON THE GROUND THAT CUP METHOD WAS MOST APPROPRIATE METHOD. THE ARITHMETIC MEAN OF THE BANK GUARANTEE C HARGES CHARGED BY THE VARIOUS BANKS WAS AT 2.71% AND THE ASSESSEE WAS SHO W CAUSED AS TO WHY SAID RATE SHOULD NOT BE APPLIED TO BENCHMARK THE INTERNA TIONAL TRANSACTIONS. 48. THE ASSESSEE EXPLAINED THAT IT HAD APPLIED COMB INED TNMM APPROACH AS THE MOST APPROPRIATE METHOD AND THE SAME WAS AT ARM S LENGTH WHICH SHOULD HAVE BEEN ACCEPTED. IT WAS ALSO EXPLAINED THAT IN CASE OF THE LOCAL GUARANTEE ADVANCES TO REGULAR INDIAN CUSTOMERS, FOR WHICH RIS K AND REWARD WAS BORNE BY ASSESSEE COMPANY, IT CHARGES 1% OF AMOUNT AS GUARAN TEE WITH MINIMUM OF RS.500. IT WAS POINTED OUT THAT IN MOST CASES, GUAR ANTEE FEE WOULD BE LESS THAN OR MORE THAN 1%. AS FAR AS THE GUARANTEE FEE RECEI VED FROM OVERSEAS CUSTOMERS WAS CONCERNED, THERE WAS NO RISK BEARING WITH REGAR D TO THE DEFAULT OF THE CUSTOMERS AND THE ASSESSEE PROPOSED THAT THE INTERN AL CUP DATA WOULD BE TAKEN AS COMPARABLES TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. AS FAR AS THE EXTERNAL CUP METHO D APPLIED BY THE TPO, IT WAS POINTED OUT THAT THE SAME COULD NOT BE APPLIED. THE ASSESSEE POINTED OUT THAT ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 28 NO SUCH ADJUSTMENT WAS MADE IN ASSESSMENT YEAR 200 8-09 AND THE FACTS REMAINED THE SAME. THE TPO ON PAGE 24 OF THE ORDER NOTED THAT THE ASSESSEE COMPANY HAD PROVIDED GUARANTEE TO THE AE FOR OBTAIN ING BANK LOAN AND THIS TRANSACTION HAS RESULTED INTO A DIRECT BENEFITS TO THE AE. THE TPO HAS VIDE PARA 53 AT PAGE 27 OF THE TPOS ORDER APPLIED CUP A PPROACH BY MAKING COMPARISON WITH GUARANTEE FEE RATE CHARGES BY UNREL ATED 3 RD PARTIES PROVIDING SIMILAR GUARANTEE UNDER SIMILAR TERMS AND CONDITION S. THE PLEA OF THE ASSESSEE TO APPLY INTERNAL CUP DATA WAS NOT ACCEPTED ON THE GROUND THAT THERE WAS NO SIMILARITY IN TERMS AND CONDITIONS OF THE TRANSACTI ONS WITH 3 RD PARTY. REJECTING THE PLEA OF THE ASSESSEE OF INTERNAL CUP METHOD, TH E TPO PROPOSED AN AVERAGE BANK RATE COMMISSION @ 2.71% SHOULD HAVE BEEN CHARG ED ON THE VALUE OF THE BANK GUARANTEE; THUS, AN ADJUSTMENT OF RS.7,12,08,8 40/- WAS PROPOSED BY THE TPO. 49. THE DRP REJECTED THE OBJECTIONS RAISED BY THE A SSESSEE AND THE ASSESSING OFFICER MADE THE AFORESAID ADJUSTMENT IN THE HANDS OF THE ASSESSEE, AGAINST WHICH THE ASSESSEE IS IN APPEAL BEFORE US. 50. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT TH E ASSESSING OFFICER HAS MISINTERPRETED THE FACTS AND APPLIED EXTERNAL CUP M ETHOD TO BENCHMARK THE INTERNATIONAL TRANSACTION UNDERTAKEN BY THE ASSESSE E. THE LD. AR FOR THE ASSESSEE POINTED OUT THAT THE TRANSACTIONS OF THE A SSESSEE ARE DIFFERENT FROM WHAT THE TPO WANTS TO BENCHMARK. HE FURTHER POINTED OUT THAT CORRECT METHODOLOGY WAS TNMM METHOD AND SINCE, THE ASSESSIN G OFFICER/TPO HAD ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 29 ACCEPTED THE MARGINS OF THE ASSESSEE, THERE WAS NO MERIT IN THE SAID ADJUSTMENT. 51. THE THIRD PROPOSITION RAISED BY THE LD. AR FOR THE ASSESSEE WAS THAT THE TPO DID NOT APPLY THE INTERNAL CUP METHOD AS SUGGES TED BY THE ASSESSEE. IT WAS ALSO POINTED OUT THAT THE TPO HAS FAILED TO CON SIDER THE FACTS THAT THE ASSESSEE WAS NOT BEARING ANY RISK AS AGAINST THE CO MPARABLES PICKED UNDER EXTERNAL CUP METHOD APPLIED BY THE TPO, WHICH WERE RISK BEARING. OUR ATTENTION WAS DRAWN TO THE DETAILS FURNISHED AT PAG ES 275 TO 299 OF THE PAPER BOOK, WHERE GUARANTEE COMMISSION WAS EARNED FROM TH E CUSTOMERS IN INDIA, WHERE THE ASSESSEE WAS NOT BEARING RISK. HE SAID, I N THE PRESENT SCENARIO ONLY METHOD TO BE APPLIED WAS TNMM METHOD. 52. THE LD. DR FOR THE REVENUE POINTED OUT THAT THE RE WAS STRONG OBJECTIONS TO APPLICATION OF TNMM METHOD. IT WAS FURTHER POINT ED OUT BY HIM THAT IN ALL CASES, THE TRANSACTIONS WERE TAKEN AS SEPARATE TRAN SACTIONS AND HENCE NO MERIT IN APPLICATIONS OF TNMM METHOD. HE POINTED OU T THAT SECOND ALTERNATIVE PLEA OF THE ASSESSEE WAS TO APPLY INTERNAL COMPARAB LE UNCONTROLLED PRICE METHOD SHOULD BE SENT BACK TO THE ASSESSING OFFICER /TPO. 53. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.12 IS AGAINST THE T RANSFER PRICING ADJUSTMENT MADE ON ACCOUNT OF RECEIPT OF GUARANTEE COMMISSION. THE ASSESSEE WHILE BENCHMARKING ITS INTERNATIONAL TRANSACTIONS IN THE TRANSFER PRICING REPORT APPLIED COMBINED APPROACH AND HAS BENCHMARKED UNDER TNMM METHOD. THE CASE OF THE ASSESSEE IS THAT THE TRANSFER PRICING A NALYSIS UNDERTAKEN BY ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 30 APPLYING TNMM METHOD ON COMBINED APPROACH SHOULD BE ACCEPTED, AS THE MARGINS OF THE ASSESSEE HAS BEEN ACCEPTED AND NO AD JUSTMENT HAS BEEN MADE IN THE HANDS OF THE ASSESSEE. THE ONLY ADJUSTMENT W HICH WAS MADE IN THE HANDS OF THE ASSESSEE WAS ON ACCOUNT OF RECEIPT OF GUARANTEE COMMISSION. THE CASE OF THE ASSESSEE BEFORE US IS THAT AS PE IN IND IA, IT HAS LIMITED ROLE AND WAS NOT BEARING ANY RISKS. THE ASSESSEE RECEIVED PART O F GUARANTEE COMMISSION IN ITS CAPACITY AS FACILITATOR ONLY. WHEN THE PERSONS NEEDED GUARANTEE IN INDIA TO PARTICIPATE IN A TENDER, THEN SERVICE OF THE BANK WAS UTILIZED FOR ISSUING GUARANTEE IN FAVOUR OF THE BENEFICIARY. THE EVALUAT ION OF THE BENEFICIARY FOR THE CREDITWORTHINESS OF THE CUSTOMERS WAS PERFORMED BY THE OVERSEAS BRANCHES, WHEREAS THE ASSESSEE HAD LIMITED ROLE IN ISSUING LE TTER OF GUARANTEE, IT RECEIVED 1% GUARANTEE COMMISSION. IN THESE FACTS, THERE IS N O MERIT IN COMPARING THE RATE RECEIVED BY THE ASSESSEE WITH THE RATE CHARGED BY DIFFERENT BANKS WHO ARE OPERATIONAL IN INDIA AND PROVIDING FINANCIAL GUARA NTEE TO ITS CUSTOMERS, WITH ALL RISK INVOLVED THEREIN. IN SUCH FACTS AND CIRCUM STANCES, THE ASSESSING OFFICER/TPO ERRED IN APPLYING THE RATE CHARGED BY A XIS BANK, CANARA BANK, PUNJAB NATIONAL BANK AND STATE BANK OF INDIA, ETC. WITH ARITHMETIC MEAN OF 2.71% TO BENCHMARK THE INTERNATIONAL TRANSACTIONS B ETWEEN THE ASSESSEE AND ITS OVERSEAS BRANCHES OF RECEIPT OF BANK GUARANTEE COMMISSION. THE DETAILS OF THE INTERNATIONAL TRANSACTION ARE TABULATED IN THE ORDER OF THE TPO ITSELF AND THE SAME CLEARLY REFLECT THAT NO TRANSACTION IS UND ERTAKEN EXCEPT WITH OVERSEAS BRANCHES. THE ASSESSEE UNDOUBTEDLY IS ALSO PROVIDIN G THE SERVICES TO ITS CUSTOMERS IN INDIA WHERE IT A RISK BEARING ENTITY. WE ARE OF THE VIEW THAT WHERE THE ASSESSEE HAS UNDERTAKEN BUNDLE OF INTERNATIONAL TRANSACTIONS WITH ITS AE ITA NO. 1162/DEL/2014 ASSESSMENT YEAR: 2009-10 31 AND THE SAME HAS BEEN BENCHMARKED BY APPLYING COMBI NED APPROACH AND THE METHOD OF TNMM HAS BEEN USED AND THE MARGINS SHOWN BY THE ASSESSEE HAVE BEEN ACCEPTED; THEN THERE IS NO MERIT IN SEGREGATIN G THE INTERNATIONAL TRANSACTION OF THE RECEIPT OF THE GUARANTEE COMMISS ION AND BENCHMARKING THE SAME SEPARATELY. THE MARGINS OF THE COMBINED APPROA CH HAS BEEN ACCEPTED AT ARMS LENGTH. CONSEQUENTLY, THERE IS NO MERIT IN T HE TRANSFER PRICING ADJUSTMENT MADE IN THE HANDS OF THE ASSESSEE. THE S AME IS THUS DIRECTED TO BE DELETED. THE GROUND OF APPEAL NO.12 IS THUS DELETED . 54. THE GROUND OF APPEAL NO.13 IS PREMATURE; HENCE DISMISSED. 55. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MAY, 2020. SD/- SD/- SD/- (DR. B.R.R. KUMAR) (SUSHMA CHOWLA) /ACCOUNTANT MEMBER / VICE PRESIDENT / ) DATED : 21 ST MAY, 2020 * AMIT KUMAR * *)+),-./0)10.2 COPY OF THE ORDER IS FORWARDED TO : 1. 34) / THE APPELLANT 2. ,534) / THE RESPONDENT 3. ) 6. 7 8) / THE CIT(A) 4. 9)) 6.) / THE PR. CIT 5. 6. ) 0:;),-.- <) )) < ) / DR, ITAT, DELHI ;'=)>)2) GUARD FILE. ) * / BY ORDER , 50.),-. // TRUE COPY // ? @A'B , )) )< ) ASSISTANT REGISTRAR, ITAT, DELHI