ANTWERP DIAMOND BANK NV, MUMBAI V. ADDL DIT (IT) RG-1,

ITA 1798/MUM/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70943 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 04-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 19-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S E DASTUR
• Keywords: Permanent establishment; Non-deduction of tax

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - L BENCH. . .. . , !'#$ !'#$ !'#$ !'#$ '%&'( '%&'( '%&'( '%&'( , &' &' &' &' )* )* )* )* BEFORE S/SH.D.MANMOHAN,VICE-PRESIDENT & RAJENDR A,ACCOUNTANT MEMBER ./ ././ ./ ITA NO.1798/MUM/2009 , ' ' ' ' , , , ,/ // / ASSESSMENT YEAR-2005-06 ANTWERP DIAMOND BANK NV 2 ND FLOOR, ENGG. CENTRE, 9 MATHEW ROAD, OPERA HO USE MUMBAI- 400004 THE ADDITIONAL DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION), RANGE 1, MUMBAI. PAN: AADCA2713J ( '-. / // / APPELLANT ) ( /0-. / RESPONDENT ) '-. '-. '-. '-. 1 1 1 1 & && & / APPELLANT BY : MR. S.E. DASTUR & NITESH JOSHI /0-. 2 1 & / RESPONDENT BY : MR. NEERAJA PRADHAN ' ' ' ' 2 22 2 3' 3' 3' 3' / DATE OF HEARING : 04/07/2013 4, ' 2 3' / DATE OF PRONOUNCEMENT : 04/09/2013 , 1961 2 22 2 '' '' '' '' 254(1) & && & '353 '353 '353 '353 )&6 )&6 )&6 )&6 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M: CHALLENGING THE ORDER DT.26-12-2008 OF THE CIT(A)-X XXI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.THE LEARNED CIT(A) ERRED IN NOT HOLDING THAT THE ORDER PAS SED BY THE LEARNED ADDITIONAL DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION),RANGE 1,MUMBAI (ADIT)WAS S ERVED ON APPELLANT BEYOND THE TIME PRESCRIBED AND THEREFORE OUGHT TO BE CANCELLED. 2.HEAD OFFICE EXPENDITURE I)GENERAL ADMINISTRATIVE EXPENDITURE A. THE LEARNEDCIT(A)ERRED IN CONFIRMING THE ORDER OF THE LE ARNED DDIT DISALLOWING THE PAYMENT OF RS. 8,856,354/- MADE BY THE BRANCH TO THE HEAD OFFICE BEING IN THE NATURE OF SPEC IFIC TASKS PERFORMED BY THE HEAD OFFICE. B.HE ERRED IN NOT APPRECIATING THAT THE SAID PAYMENTS ARE REIMBUR SEMENT OF COSTS AND EXPENSES INCURRED IN RELATION TO CREDIT ANALYSIS AND ADMINISTRATION,HEAD OFFICE CONTROL,SOFT WARE IMPLEMENTATION (INCLUDING IMPLEMENTING ANY UPGRADE,PATCHES OR MODS ETC.TO SOFTWARE) AND HEAD OFFICE SUPPORT ACT IVITIES PERFORMED BY THE HEAD OFFICE FOR ALL THE BRANCHES INCLUDING MUMBAI BRANCH. C.HE ERRED IN NOT APPRECIATING IN THE CORRECT PERSPECTIVE THE SUBMISSIONS MADE BY THE APPELLANT. D.HE ERRED IN NOT APPRECIATING THAT PAYMENT TO HEAD OFFICE FOR CREDIT ANALYSIS AND ADMINISTRATION,HEAD OFFICE CONTROL,SOFTWARE IMPLEMENTATION(INCLUDING IMPLEMENTING ANY UPGRADE, PATCHES OR MODS ETC. TO THE SOFTWARE) AND HEAD OFFICE SUPPORT ACTIVITIES IS IN THE NATURE OF GENERA L ADMINISTRATIVE EXPENDITURE AND THEREFORE ALLOWABLE UPTO THE LIMITS SPECIFIED UNDER SECTION 44C OF THE ACT. E.WITHOUT PREJUDICE TO THE ABOVE, HE ERRED IN NOT APPRECIATING THAT THE EXPENDITURE RELATING TO CREDIT ANALYSIS AND CREDIT ADMINISTRATION WAS ONLY RS. 1,689,204 AND OTHER EXPENDITUR E LIKE OFFICE CONTROL, SOFTWARE IMPLEMENTATION AND HEAD OFFICE SUPPORT ARE NOT IN THE NATURE OF CREDIT ANALYSI S SERVICES. F.THE APPELLANT THEREFORE PRAYS THAT THE LEARNED DDIT BE D IRECTED TO GRANT DEDUCTION FOR THE GENERAL ADMINISTRATIVE EXPENDITURE OF RS. 8,856,354 IN ACCORDANCE WITH SECTION 44C OF THE ACT. 3.INTEREST PAID TO HEAD OFFICE A. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ORDER OF DDIT DI SALLOWING THE INTEREST PAID TO HEAD OFFICE OF RS. 85,715,525 WHILE COMPUTING THE INCOME FROM BUSINESS OF THE INDIA BR ANCH. B.THE LEARNED CIT(A) ERRED IN RELYING ON THE DECISION OF KOLKATA TRIBUNAL, SPECIAL BENCH IN THE CASE OF ABN AMRO BANK. THE LEARNED CTT(A) ERRED IN NOT CONSIDERING CIRCULAR NO . 740 DATED 17 APRIL 1996 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES. C.THE LEARNED CIT(A) ERRED IN NOT APPRECIATING IN THE CORRECT PERSPECTIVE THE SUBMISSIONS MADE BY THE APPELLANT. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE APPELLANT AND THE HEAD OFFICE IN BELGIUM CONSTITUTE SEPARATE LEGAL ENTITY FOR THE PURPOSE OF TAXATION IN INDIA AND, THEREFOR E, INTEREST PAID BY. BRANCH TO HEAD OFFICE WAS FULLY ALLOWABLE AS A DEDUCTION. E.THE APPELLANT, THEREFORE, PRAYS THAT THE LEARNED ADIT BE DIRECTED TO GRANT DEDUCTION IN RESPECT OF INTEREST OF RS. 85,715,525 PAID TO HEAD OFFICE AS CLAIMED BY THE APPELLANT. 2 ITA NO. 1798/MUM/2009(AY-2005-06) ANTWERP DIAMOND BA NK NV 3.EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 4.THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO ANY OF THE ABOVE GROUNDS OF APPEAL. FOLLOWING ADDITIONAL GROUNDS WERE ALSO FILED BY THE ASSESSEE : 1.INTEREST INCOME NOT TAXABLE IN THE HANDS OF THE HEAD OFFICE A. THE APPELLANT SUBMITS THAT THE INTEREST OF RS. 85,715,525 RECEIVED BY THE HEAD OFFICE FROM THE BRANCH ON SUBORDINATED DEBT AND TERM BORROWINGS IS NOT TAXABLE IN TH E HANDS OF THE HEAD OFFICE. B.RELIANCE IN THIS CONNECTION IS PLACED ON THE FOLLOWING DECISIONS: DECISION OF THE CALCUTTA HIGH COURT IN THE CASE OF ABN AMRO B ANK (198 TAXMAN 376) DECISION OF THE LARGER SPECIAL BENCH OF THE MUMBAI TRIBUNA L IN THE CASE OF SUMITOMO MITSUI BANKING CORPORATION (ITA NOS. 5402 AND 5458/MUM/2006) 2.THE ABOVE GROUND OF APPEAL IS WITHOUT PREJUDICE TO THE GRO UNDS FILED BY THE APPELLANT VIDE LETTER REF NO.115605/12317 DATED 19 MARCH 2009. 3.THE APPELLANT RESERVES THE RIGHT TO AMEND,ALTER OR ADD TO ANY OF THE ABOVE GROUNDS OF APPEAL. 2 .ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF FINANC ING OF DIAMOND TRADE,FILED ITS RETURN OF INCOME ON 30.10.2005 DECLARING A TOTAL INCOME OF RS .21,91,10,834/-.ASSESSING OFFICER(AO) FINALISED THE ASSESSMENT ON 28.12.2007 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 23.87 CRORES. 2.1 .FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT DISALLOW ANCE OF RS. 88,56,354/-UNDER THE HEAD PAYMENT MADE BY THE BRANCH OFFICE TO THE HEAD OFFIC E(HO ).DURING THE ASSESSMENT PROCEEDINGS,AO FOUND THAT ASSESSEE HAD CLAIMED EXPE NSES OF RS. 1.54 CRORES INCURRED BY THE HO AS DIRECTLY RELATED TO BUSINESS CARRIED OUT IN INDIA, THAT OUT OF THE SAID EXPENSES OF RS. 1.2 CRORES WERE INCURRED FOR GENERAL ADMINISTRATION WHE REAS RS. 33.37 LACS WERE INCURRED FOR DATA PROCESSING. HE DIRECTED THE ASSESSEE TO FILE DETAIL S IN THIS REGARD.AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,HE HELD THAT EXPENSES A TTRIBUTABLE TO CREDIT ANALYSIS AND CONNECTED SERVICES PROVIDED BY THE HO AMOUNTED TO RS. 88.56 LACS, THAT FOR COMPUTING BUSINESS PROFIT OF THE PERMANENT ESTABLISHMENT (PE) OF THE NON-RESIDEN T ASSESSEE IN INDIA ARTICLE 7 OF THE TAX TREATY BETWEEN INDIA AND BELGIUM HAD TO BE APPLIED, THAT NO DEDUCTION WAS ALLOWABLE IN RESPECT OF AMOUNTS WHICH WERE IN THE NATURE OF CHARGES FOR SPECIFIC SERVICES PERFORMED TO THE PE,THAT NO DEDUCTION WAS ALLOWABLE IF ANY SUM WAS PAID BY THE PE TO THE HO BY WAY OF ROYALTIES, FEES OR OTHER SIMILAR PAYMENTS IN THE RETURN FOR THE USE OF PATENTS OTHER RIGHTS OR BY WAY OF COMMISSION OR OTHER CHARGES FOR SPECIFIC SERVICES PERFORMED OR FOR THE MANAGEMENT.FINALLY,AO DISALLOWED THE SAID EXPENDITURE. 2.2 .ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPE LLATE AUTHORITY(FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, FAA HELD THAT EXPENDITURE AMOUNTING TO RS. 88.56 LACS PERTAINED TO CREDIT ANALYSIS AND CONNECTED SERVICES, THAT CREDIT PROPOSALS WERE SUBMITTED BY THE MUMBAI BRANCH TO THE HO THAT OF T HIS HAD NOT INCURRED BY THE ASSESSEE FOR THE FIRST TIME, THAT THE CREDIT PROPOSALS SUBMITTED BY THE ASSESSEE TO ITS HO WERE ANALYSED IN ACCORDANCE WITH THE POLICIES AND PROCEDURES IN LYIN G WITH THE GROUP STANDARDS, THAT THE HO HAD PROVIDED SPECIFIC SERVICES TO INDIAN BRANCH IN FORM OF CREDIT ANALYSIS AND RISK MITIGATION, THAT THE LOCAL BRANCH DEPENDED ON THE INTERNATIONAL CREDIT D EPARTMENT OF THE BANK FOR THE WORLD WIDE INFORMATION DATA BASE, THAT BASED ON THE NUMBER OF MAN HOURS DEVOTED BY THE PERSONNEL OF HO CREDIT DEPARTMENT LEVIED A CHARGE ON MUMBAI BRANCH, THAT THE EXPENDITURE ATTRIBUTABLE TO CREDIT ANALYSIS AND CONNECTED SERVICE PROVIDED BY THE HO W AS COVERED BY ARTICLE 7 OF INDO-BELGIUM DTTA,THAT NO DEDUCTION WAS ALLOWABLE IN RESPECT OF AMOUNTS WHICH ARE IN NATURE OF CHARGES FOR SPECIFIC SERVICES PERFORMED TO THE PERMANENT ESTABL ISHMENT (PE) THAT OUT OF TOTAL GENERAL ADMINISTRATIVE EXPENDITURE OF RS. 1.20 CRORES,THAT THE AO HAD ALLOWED EXPENDITURE TO THE TUNE OF RS.32.10 LACS RELATED TO REIMBURSEMENT OF EXECUT IVE AND GENERAL ADMINISTRATIVE EXPENDITURE INCURRED BY THE HO,THAT THE ASSESSEE HAD CLAIMED TH AT ONLY SUM OF RS. 16.89 LACS PERTAINED TO CREDIT ANALYSIS SERVICE THAT COULD BE DISALLOWED U/ S.40(A)(I) OF THE ACT,THAT THE TOTAL EXPENDITURE AMOUNTING TO RS. 88,56,354/- PERTAINED TO CREDIT AN ALYSIS AND CONNECTED SERVICES AS PER BIFURCATION SUPPLIED BY THE ASSESSEE ITSELF, THAT T HE EXPENDITURE INCURRED BY THE HO WAS IN NATURE OF SPECIFIC SERVICES PERFORMED BY THE HO, THAT THE CASES CITED BY THE ASSESSEE WERE NOT RELEVANT 3 ITA NO. 1798/MUM/2009(AY-2005-06) ANTWERP DIAMOND BA NK NV TO THE FACTS OF THE CASE UNDER CONSIDERATION, HAT T HE EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT IN THE NATURE OF REIMBURSEMENT BUT FOR SPECIFIC SER VICES PROVIDED AND COVERED BY ARTICLE 7 OF THE INDO-BELGIUM DTTA. 2.3 .BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED THAT THE PAYMENT WAS BY WAY OF REIMBU -RSEMENT,THAT AO HAD NOT GIVEN ANY FINDING ABOUT T HE NATURE OF THE EXPENDITURE AS WHETHER IT WAS REIMBURSEMENT OR NOT,THAT IN SUBSEQUENT YEARS A O HAD ACCEPTED THE EXPENSES AS HO EXPENSES. HE REFERRED TO PAGE NOS.9,10 AND 19 OF TH E PAPER BOOK (PB) SPECIALLY THE CERTIFICATE ISSUE BY ERNST AND YOUNG.HE RELIED UPON THE ORDER O F THE SPECIAL BENCH OF MUMBAI TRIBUNAL DELIVERED IN THE CASE OF SUMITOMO MITSUI BANKING CO RPORATION.(ITA5402/MUM/2006-AY.2003- 04,DATED 30.03.2012).HE ALSO REFERRED TO ORDER OF T HE L BENCH OF MUMBAI TRIBUNAL DELIVERED IN ASSESSEES OWN CASE FOR THE AY 2004-05(ITA7224/MUM/ 2007-DATED 28.02.2013).DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO A ND FAA.HE RELIED UPON THE CASES OF MERSEN INDIA PRIVATE LIMITED(249CTR345-AAR),PERFETT I VAN MELLE HOLDING B.V.(342ITR200- AAR),SHELL INDIA MARKETS PVT.LTD.(342ITR223-AAR),DA NFOSS INDUSTRIES LTD.(268ITR1-AAR) 2.4 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE ISSUE AO/FAA HAD NOT GONE IN THE FULL DETAILS OF EXPENDITURE INCURRED UNDER THE HEAD CREDIT ANALYSIS.DETAILS OF EXPENDITURE INCURRE D ON ACCOUNT OF HEAD OFFICE CONTROL, SOFTWARE IMPLEMENTATION (INCLUDING IMPLEMENTING ANY UPGRADE, PATCHES OR MODS ETC.TO SOFTWARE) AND HEAD OFFICE SUPPORT ACTIVITIES HAVE NOT BEEN CONSID ERED.TERMS AND CONDITIONS OF AGREEMENT, IF ANY,TO CARRY OUT CREDIT ANALYSIS JOB HAVE NOT BEEN DISCUSSED IN THE ORDERS OF THE AO AND FAA. WE ARE NOT AWARE WHETHER AS SUCH DETAILS WERE CALLE D FOR OR NOT AND WHETHER SUCH PIECES OF INFORMATION WERE PROVIDED OR NOT BY THE ASSESSEE.IN OUR OPINION THESE ARE VITAL FACTORS TO DECIDE THE TAXABILITY OF THE AMOUNT IN QUESTION.WE FIND TH AT THE CERTIFICATE ISSUED BY ERNEST AND YOUNG HAD BEEN ISSUED FOR THE INFORMATION OF AND ASSISTAN CE TO THE BANKS MANAGEMENT IN CONNECTION WITH THE REVIEW BY LOCAL TAX AUTHORITIES .IT WAS NOT TO BE USED ,CIRCULATED QUOTED OR OTHERWISE REFERRED TO FOR ANY OTHER PURPOSES .(PG.12 OF PB).FAA HAS NOT INQUIRED IN TO THE RELE VANCE OF THE SAID CERTIFICATE AS PER THE INDIAN TAX LAWS.ASS ESSEE ITSELF HAS DISALLOWED AN EXPENDITURE OF RS. 16.89 LACS INCURRED UNDER THE HEAD FOR THE YEAR UNDER CONSIDERATION AND SIMILAR EXPENDITURE IN SUBSEQUENT YEARS HAS BEEN ALLOWED BY THE AO.WHAT WERE THE CIRCUMSTANCES FOR SUCH DIVERSE COURSE OF ACTION IS NOT CLEAR FROM THE ORDER OF THE REVENUE AUTHORITIES.FAA HAS HELD THAT EXPENDITURE INCURRED BY THE ASSESSEE WAS NOT REIMB URSEMENT, BUT THE BASIS FOR ARRIVING AT THIS CONCLUSION HAS NOT BEEN MENTIONED.IT IS ACCEPTED P RINCIPLE OF TAXATION THAT IF ANY PAYMENT IS ONLY REIMBURSEMENT IT CANNOT BE TAXED-BUT IF PROFIT IS EMBEDDED IN IT SAME HAS TO BE TAXED.A CLEAR FINDING BASED ON FACTS HAS TO BE GIVEN AS HOW A PAYMENT CAN BE TREATED A SUM EMBEDDED WITH PROFIT AND NOT A MERE REIMBURSEMENT PAYMENT. C ONSIDERING THE ABOVE,WE ARE OF THE OPINION THAT MATTER NEEDS FURTHER VERIFICATION.THEREFORE,IN THE INTEREST OF JUSTICE MATTER IS RESTORED BACK TO THE FILE OF THE FAA FOR FRESH ADJUDICATION.HE IS DIRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE . GROUND NO. 1 IS PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE . 3. NEXT GROUND OF APPEAL IS ABOUT DISALLOWANCE OF INTE REST PAID BY THE ASSESSEE TO HO AMOUNTING TO RS.8.57CRORES.DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT INTEREST OF RS.8,56,15, 525/- WAS PAID BY THE ASSESSEE TO HO ON SUBORDINATE DEBT S AND TERM BORROWING.THAT IT HAD CLAIMED THE INTEREST AS AN EXPENSE OF THE BRANCH. HOWEVER, THE SAID INTEREST WAS OFFERED FOR TAXATION IN THE HANDS OF THE HO AS PER THE ARTICLE 11 OF THE IN DO-BELGIUM DTTA. RELYING ON THE DECISION OF SPECIAL BENCH OF KOLKATA DELIVERED IN THE CASE OF A BN AMRO BANK (97 ITD 89),HE DISALLOWED THE INTEREST PAID TO HO. 3.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA . AFTER CONSIDERING THE SUBMISSION OF THE 4 ITA NO. 1798/MUM/2009(AY-2005-06) ANTWERP DIAMOND BA NK NV ASSESSEE,HE HELD THAT AO HAD FOLLOWED THE DECISION OF SPECIAL BENCH OF ITAT KOLKATA,THAT HE WAS INCLINED TO AGREE WITH THE STAND TAKEN BY THE A O ,THAT SUCH DISALLOWANCES WERE UPHELD BY HIS PREDECESSOR FOR THE EARLIER ASSESSMENT YEARS,TH AT ASSESSEE HIMSELF HAS DISALLOWED AN AMOUNT OF RS. 43.68 LACS FOR FAILURE TO DEDUCT TAX AT SOUR CE U/S. 40(A)(I) OF THE ACT. FINALLY,RELYING UPON THE ORDER OF THE SPECIAL BENCH DELIVERED IN THE CAS E OF ABN AMRO BANK (SUPRA), HE CONFIRMED THE DISALLOWANCES MADE BY THE AO. 3.2. BEFORE US,AR SUBMITTED THAT ORDER OF THE SPECIAL BE NCH OF KOLKATA IN THE CASE OF ABN AMRO BANK HAD BEEN OVERRULED BY THE HONBLE HIGH CO URT OF KOLKATA.HE FURTHER RELIED UPON THE JUDGMENT OF SUMITOMO MITSUI BANKING CORPORATION (ITA NOS. 5402 AND 5458/MUM/2006) DR SUPPORTED THE ORDER OF THE FAA. 3.2 .WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US.AO AND THE FAA HAD RELIED UPON THE ORDER OF THE SPECIAL BENCH OF K OLKATA FOR DISALLOWING THE CLAIM OF THE ASSESSEE ,BUT NOW THE SAID ORDER HAS BEEN REVERSED. WE FURTHER FIND THAT ISSUE IN QUESTION HAS BEEN DEALT EXTENSIVELY IN THE CASE OF SUMITOMO MITS UI BANKING CORPORATION (SUPRA).WHILE DECIDING THE APPEAL FILED BEFORE IT ,TRIBUNAL HAS H ELD AS UNDER: KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE INTERPRETATION OF THE RELEVANT PROVISIONS OF THE DOMESTIC LAW AS WELL AS THAT OF THE TREAT Y AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT ALTHOUGH INTEREST PAID TO THE HEAD OFFICE OF THE ASSESSEE-BANK B Y ITS INDIAN BRANCH WHICH CONSTITUTES ITS PERMANENT ESTABLISHMENT 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 PER MANENT ESTABLISHMENT WHICH IS TAXABLE IN INDIA AS PER THE PROVISIONS OF ARTICLE 7(2) AND (3) OF THE INDO-JAPANESE T REATY READ WITH PARAGRAPH 8 OF THE PROTOCOL WHICH ARE MORE BENEFICIAL TO THE ASSESSEE. THE SAID INTEREST, HO W-EVER, CANNOT BE TAXED IN INDIA IN THE HANDS OF THE ASSESSEE-BANK, A FOREIGN ENTERPRISE BEING PAYMENT TO SELF WHI CH CANNOT GIVE RISE TO INCOME THAT IS TAXABLE IN INDIA AS PER THE DOMESTIC LAW. EVEN OTHERWISE, THERE IS NO EX PRESS PROVISION CONTAINED IN THE RELEVANT TAX TREATY WHICH IS CONTRARY TO THE DOMESTIC LAW IN INDIA ON THIS I SSUE. 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 SIDES HAVE ALSO NOT MADE ANY SEPARATE SUBMISSIONS ON THIS AS PECT 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 SECT ION 195 WOULD NOT BE ATTRACTED AND THERE BEING NO FAILURE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT OF INTER EST MADE BY THE PERMANENT ESTABLISHMENT, THE QUESTION OF DISALLOWANCE OF THE SAID INTEREST BY INVOKING THE PROVISIONS OF SECTION 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 THE ASSESSEE AND QUES-TION 2 IN AFFIRMATIVE, I.E., AGAIN IN FAV OUR OF THE ASSESSEE. RESPECTFULLY, FOLLOWING THE SAME, WE REVERSE THE O RDER OF THE FAA. GROUND NO 2 IS DECIDED I N FAVOUR OF THE ASSESSEE-BANK. 4. AS FAR AS ADDITIONAL GROUNDS OF APPEAL ARE CONCERNE D, THEY PERTAIN TO TAXABILITY OF INTEREST PAID OF HO.WHILE DECIDING THE GROUND NO.2 WE HAVE ALREAD Y REVERSED THE ORDER OF THE FAA.SO,THE ADDITIONAL GROUNDS FILED BY THE ASSESSEE BECOME ACA DEMIC IN NATURE AND ARE ALLOWED FOR STATISTICAL PURPOSE. AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED. 7 '*8 '73 9'' )': 6 *;3 2 %'3 <. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH SEPTEMBER, 2013 )&6 2 4, ' & ''' = >) ' 4 FLRACJ 2013 2 5 ? 5 ITA NO. 1798/MUM/2009(AY-2005-06) ANTWERP DIAMOND BA NK NV SD/- SD/- ( . / D. MANMOHAN ) ( '%&'( '%&'( '%&'( '%&'( / RAJENDRA) !'#$ !'#$ !'#$ !'#$ / VICE-PRESIDENT &' &' &' &' )* )* )* )* /ACCOUNTANT MEMBER / MUMBAI, >) ' /DATE:04 .09 . 2013 SK )&6 )&6 )&6 )&6 2 22 2 /3@ /3@ /3@ /3@ A&@,3 A&@,3 A&@,3 A&@,3 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '-. 2. RESPONDENT / /0-. 3. THE CONCERNED CIT(A)/ B C , 4. THE CONCERNED CIT / B C 5. DR L BENCH, ITAT, MUMBAI / @D'5 /3 . , . . ''' . 6. GUARD FILE/ 5' E' 0'@3 /3 //TRUE COPY// )&6' ' / BY ORDER, ! / ' %' DY./ASST. REGISTRAR , /ITAT, MUMBAI