DZ BANK INDIA REPRESENTATIVE OFFICE, MUMBAI V. DCIT (IT) 2(1)(2), MUMBAI

ITA 1815/MUM/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2067 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 20-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Residential status; Double taxation relief; International transaction; Deemed to accrue or arise in india; Permanent establishment; TDS; Capital Gains
• Section: 143(3); 5(2); 205; 201; 139(1); 115A; 13; 153; 22

Judgement Text

ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 1 OF 21 INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI [CORAM: PRAMOD KUMAR, VICE PRESIDENT, AND, PAVAN K UMAR GADALE , JUDICIAL MEMBER] ITA NO . : 1815 /MUM/18 ASSESSMENT YEAR: 201 4 - 15 DZ BANK AG INDIA REPRESENTATIVE OFFICE .. APPELLAN T C/O S R B C & ASSOCIATES LLP, 14 TH FLOOR, THE RUBY, 29 SENAPATI BAPAT MARG, DADAR WEST, MUMBAI 400 028 [PAN: AABCD6455E ] VS. DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION CIRCLE 2 ( 1 ) (2) , MUMBAI .RESPONDENT APPEARANCES: P J PA R D I W ALLA AND NITESH JOSHI , FOR THE A PPEL L ANT S S IYENGAR , FOR THE RE SPONDENT DATE OF CONCLUD ING THE HEARING: NOVEMBER 24, 2020 DATE OF PRONOUNC ING TH E ORDER : DECEMBER 04 , 2020 O R D E R PER PRAMOD KUMAR, VP : 1. BY WAY OF THIS APPEAL, THE A S S ESSEE APPELLANT HAS CALLED INTO QUESTION CORRECTNESS OF THE ORDER DATE D 20 TH DECEMBER 2017 PASSED BY T HE LEARNED COMMISSIONER (APPEALS) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 144 C(13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEA R 2 014 - 15. 2. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICATE IN THIS APPEAL , AS LEARNED REPRESENTATI VES AGREE , IS WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE, THE INTEREST INCOME OF RS 29,41,57,201 AND COMMITMENT FEES ETC OF RS 1,98,14,9 38 E A RNED BY DZ BANK FROM ITS INDIAN CLIENTS CAN BE TAXED IN THE HANDS OF THE AS SESSEE BEFORE US , UNDER ARTICLE 7 OF THE INDIA GERMAN DOUBLE TAXATION AVOIDANCE AGREEMENT [ (199 6 ) 223 ITR (STAT) 1 3 0 ; INDO GERMAN TAX TREATY, IN SHORT], OR IS THE SAID INCOME O NL Y R EQUIRED TO BE TAXED IN THE HANDS OF THE DZ BANK AG GERMANY, IF AT ALL HELD TO BE TAXABLE, UNDER ARTICL E 11 OF THE INDO GERMAN TAX TREATY. THAT IS THE ISSUE SOUGHT TO BE AGITATED BY BEFORE US , THOUGH, IN TH E COURSE OF THIS HEARING, MANY OTHER FACETS OF THE MATTER CAME UP FOR DISCUSSIONS, AND, HAVING HEARD PARTIES ON TH OSE ASPECTS AT LENGTH , HAVE BEEN ADJUDICATED UPON. ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 2 OF 21 3. GROUNDS OF APPEALS , AS SET OUT IN THE MEMORANDUM OF APPEA L - FOR THE SAKE OF COM PLETENESS , ARE AS FOLLOWS: 1. ERRED IN CONCLUDING THAT THE APPELLA NT CONSTITUTES A PERMANENT ESTABLISHMENT ('PE') OF DZ BAN K, AG DEUTSCHE ZENTRAL GENOSSENSCHAFTSBANK ('DZ BANK AGDZ')/ OVERSEAS BRANCHES, IN INDIA AS PER THE PROVISIONS OF ARTICLE 5 O F THE INDIA - GERMANY DOUBLE TAXATION AVOIDANCE AGREEMENT (' IG TREATY'); 2. ERRED IN TAXING THE INTEREST INCOME EARNED BY DZ BANK A GDZ/ OVERSEAS BRANCHES FROM FOREIGN CURRENCY LOANS ('CREDIT FACILITIES') PROVIDED TO INDIAN COMPANIES/BORROWERS AT THE R A TE OF 40% (PLUS APPLICABLE SURCHARGE AND EDUCATION CESS) INS TEAD OF TAXING IT AS PER ARTICLE 11 OF THE IG TREATY AT THE RATE OF 10%, P A RTICULARLY WHEN THE CREDIT FACILITIES ARE NOT EFFECTIVELY CONNECTED TO THE ALLEGED PE; 3. ERRED IN TAXING THE FEES F O R TECHNICAL SERVICES EARNED BY DZ BANK AGDZ/ OVERSEAS BRANCH ES FROM CREDIT FAC ILITIES PROVIDED TO INDIAN COMPANIES/BORROWERS AT THE RAT E OF 25% (PLUS APPLICABLE SURCHARGE AND EDUCATION CESS) UNDER SECTION 115A OF THE ACT INSTEAD OF TAXING IT AS PER ARTICL E 1 2 OF THE IG TREATY AT THE RATE OF 10%; 4. ERRED IN TAX ING THE COMMITMENT FEES EARNED BY DZ BANK AGDZ/ OVERSEAS BRANCHES FROM LOANS GU ARANTEED BY HERMES DECKUNG, EVEN THOUGH THE SAME WOULD NOT BE TAXABLE IN INDIA UNDER THE PROVISIONS OF ARTICLE 11 OF TH E IG TREATY AS INTEREST AND IN THE ABSENCE OF A PE IN INDI A, THE SAME SHOULD NOT BE CHARGEABLE TO TAX UNDER ARTICLE 7 OF THE IG TREATY . E VEN ASSUMING WITHOUT ADMITTING THAT COMMITMENT FEES CONSTITUTES 'INTEREST', THE SAID INCOME SHOULD NOT BE CHARGEABL E T O TAX IN INDIA UNDER THE PROVISIONS OF ARTICLE 11 (3)(B) O F THE IG TREATY. 5 . WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ERRED IN NOT TAXIN G THE INTEREST INCOME FROM CREDIT FACILITIES AS PER THE PROVISIONS OF SECTION 115A(1) OF THE ACT AT THE RATE OF 20 % ; 6. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ERRED IN BRI NGING TO TAX THE EN TIRE INCOME FROM CREDIT FACILITIES EARNED BY DZ BANK AGDZ INSTE AD OF ONLY THAT WHICH CAN BE SAID TO BE ATTRIBUTABLE TO THE ALLEGED PE IN INDIA; 7. WITHOUT PREJUDICE TO THE A B OV E GROUNDS, WHILE BRINGING TO TAX WHOLE OF THE INCOME FROM CREDIT FACILITIES, THE LEARNED AO IN THE OGE TO THE CIT(A) ORDER ERRED IN NO T ALLOW ING EXPENSES INCURRED OUTSIDE INDIA BY DZ BANK AGDZ IN RELATION TO THE CREDIT FACILITIES ON ACCOUNT OF NON - FURNI S HI NG OF DOCUMENTARY EVIDENCE; 8. ERRED IN CONCLUDING THAT THE APPELLANT CONS TITUTES A BUSINESS CONNECTION IN INDIA AS PER THE PROVISI ONS OF S ECTION 9(1 )(I) OF THE ACT; 9. ERRED IN NOT GRANTING CREDIT FOR TAX DEDUCTED AT SOURCE (IDS), INCLUDING CRED I T FOR WHICH THE APPELLANT COULD NOT FURNISH CERTIFICATES BUT THE PAYMENTS WERE RECEIVED NET OF TAXES; 10. ERRED IN RAISING A DEMAND, I N RESPECT OF TAXES ALREADY DEDUCTED AT SOURCE APPROPRIATELY BY THE DEDUCTOR AND, MAKING A DEMAND OF THE SAID TAXES WHIC H I S NOT IN CONSONANCE AS PER PROVISIONS OF SECTION 205 OF TH E ACT. ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 3 OF 21 4. TO ADJ UDICATE ON THIS APPEAL, ONLY A FEW MATERIAL FACTS, AS CUL LED OUT FR OM MATERIAL ON RECORD, NEED TO BE TAKEN NOTE OF . DZ BANK AG, A COMPANY INCORPORATED UNDER THE LAWS OF GERMANY A ND HAVING ITS PRINCIPAL PLACE OF BUSINESS IN GERMANY, IS ENG AGED IN THE BANKIN G BUSINESS, AND IT HAS, WITH THE PERMISSION OF THE RESERV E BANK, A REPRESENTATIVE OFFICE IN INDIA. IN TERMS OF THE RESERVE BANK OF INDIAS CONDITIONS, SUBJECT TO WHICH THIS OFFI C E W AS PERMITTED, INTER ALIA , THE REPRESENTATIVE OFFICE SHOU LD FUNCTION PURELY AS A LIAISON OFFICE WITHOUT TRANSACTING ANY TYPE OF BANK ING BUSINE SS AND ALL THE EXPENSES OF THE REPRESENTATIVE OFFICE SHOULD BE MET OUT OF INWARD REMITTANCES FROM THE BANK. IN EFFECT THUS, THIS OFFICE WAS ONLY A LIAISON OFFICE AND WA S NOT, ON ITS OWN, ENGAGED IN THE CORE BUSINESS OF THE ASSESSEE, I.E. BANKI NG. 5. O N 25 TH SEPTEMBER 2014, THE ASSESSEE FILED AN INCOME TAX RETURN IN THE NAME OF DZ BANK AG - INDIA REPRESENTATI V E OF FICE, APPARENTLY TREATING THE INDIA REPRESENTATIVE OFFI CE AS A TAXABLE EN TITY, DISCLOSING NIL TAXABLE INCOME. THIS RETURN WAS SUB JECTED TO S CRUTINY ASSESSMENT PROCEEDINGS, AND, IN THE ENSUING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THA T DU RING THE RELEVANT PREVIOUS YEAR DZ BANK AG PROVIDED FOR EIGN CURRENCY LOAN S TO INDIAN COMPANIES AND THESE LOANS WERE IN THE NATUR E OF EXTERN AL COMMERCIAL BORROWINGS (ECB) AS PERMITTED UNDER THE INDIAN EXCHANGE CONTROL REGULATIONS. HE FURTHER NOTED TH AT ON PERUSAL OF ITS DETAILS GENERATED IN THE CASE OF THE ASSESSEE IT WAS S EEN THAT HUGE SUMS OF TDS HAS BEEN MADE ON THE INTEREST P AID/PAYABLE BY INDIAN CUSTOMERS TO THE ASSESSEES. IN THIS BACKDROP WHEN THE ASSESSING OFFICER PROBED THE MATTER FURTHER , I T WAS EXPLAINED BY THE ASSESSEE THAT TDS ON INTEREST PAYAB LE BY THE INDIAN B ORROWERS IS BORNE BY THEM, AND THAT, AS PER SECTION 115A( 5) OF THE I NCOME TAX ACT, 1961, A FOREIGN COMPANY IS EXEMPT FROM FURNISHING A RETURN OF INCOME IN INDIA WHEN IT ONLY EAR N S IN TEREST INCOME FROM FOREIGN CURRENCY LOANS PROVIDED TO IN DIAN COMPANIES, AN D THE APPROPRIATE TAXES HAVE BEEN DEDUCTED AT SOURCE FROM THE SAME. THE ASSESSING OFFICER WAS, HOWEVER, NOT CONTENT WITH THE SAID EXPLANATION. HE REQUIRED THE ASSESSEE TO SHOW C A US E AS TO WHY DZ BANK INDIA REPRESENTATIVE OFFICE NOT BE CO NSIDERED A PERMANE NT ESTABLISHMENT, OF THE HEAD OFFICE, IN INDIA, AND THE I NTEREST INC OME AND ANY OTHER INCOME EARNED BY THE HEAD OFFICE FROM THE OPERATIONS IN INDIA SHOULD NOT BE TAXED @ 40% AS P ER T HE PROVISIONS OF THE INCOME TAX ACT. IT WAS EXPLAINED BY THE ASSESSEE TH AT UNDER ARTICLE 7 OF INDO GERMAN TAX TREATY, ONLY SO MUC H OF THE BU SINESS PROFITS OF A GERMAN ENTERPRISE CAN BE BROUGHT TO TAX IN INDIA AS ARE ATTRIBUTABLE TO ITS PERMANENT EST A BL IS HMENT IN INDIA, THAT THE REPRESENTATIVE ASSESSEE DID NO T CONSTITUTE PE OF THE DZ BANK AG INASMUCH AS NO BUSINESS ACTIVITIES WERE C ARRIED OUT FROM THE SAME, WHICH IS A SINE QUA NON FOR PE COMING INTO EXISTENCE UNDER THE BASIC RULE, THAT MAINTENANCE O F A F IXED PLACE OF BUSINESS INTER ALIA FOR ANY ACTIVITY OF P REPARATORY OR AUXI LIARY CHARACTER , WHICH IS WHAT AT BEST THE INDIAN REPRES ENTATIVE OF FICE IS ENGAGED IN, IS ANYWAY EXCLUDED FROM THE DEFINITION OF PE , AND THAT THE INDIAN REPRESENTATIVE OFFICE C A NN OT BE SAID TO A DEPENDENT AGENT PERMANENT ESTABLISHMENT (D APE) INASMUCH AS A DMITTEDLY IT HAS NO AUTHORITY TO CONCLUDE CONTRACTS ON BE HALF OF THE GERMAN BANK AND ITS BRANCHES ELSEWHERE. THE ASSESSING OFFICER, HOWEVER, REJECTED THESE ARGUMENTS, AND, INTER AL IA , OBSERVED AS FOLLOWS: ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 4 OF 21 7.19 ADMITTEDLY, THE ASSESSES DZ BANK INDIA, IS A REPRESENTATIVE OFFICE OF DZ BANK, AG , IN INDIA AND IS ACTUALLY I NVOLVED IN THE FOLLOWING ACTIVITIES IN INDIA ON BEHALF OF ITS HEAD OFFICE: A. DZ BANK INDIA APPROACHES INDI A N B AN KS, FINANCIAL INSTITUTIONS AND CORPORATES AND APPRISES THEM ABOUT THE PRO DUCTS AND SERVICES THAT DZ BANK AGDZ COULD OFFER. B. IT INITIATE S A DISCUSSION WITH THE POTENTIAL CUSTOMER . C. DZ BANK INDIA APPROACHES ITS HEAD OFFICE/ OVERSEAS BRANCHES WIT H THE FUNDING OPPORTUNITY, D. DZ BANK INDIA COLLECTS FROM THE CUSTOMERS AND PROVIDES THE NECESSARY INFORMATION TO FACILITATE TH E DUE DILIGEN CE AT THE HEAD OFFICE/ OVERSEAS E. DZ BANK INDIA COLLECTS AND PROVIDES INFORMATION IN RESPECT OF THE FIN A NCI AL STATEMENTS OF THE CLIENT, REVENUE PROJECTIONS, HISTORY AND BACKGROUND OF THE COMPANY, ETC FOR THE HEAD OFFICE/ OVERSEAS BRANCHES . F. DZ BAN K INDIA COLLECTS AND PROVIDES ALL ADDITIONAL CLARIFICATION/ DOCUMENTATION REQUIRED IN A TRANSACTION BY THE HEA D OFFICE / OVERSEAS BRANCHES. G. THE HEAD OFFICE/ OVER SEAS BRANCHES EXAM INE THE DOCUMENTS (INCLUDING THE FINANCIAL STATEMENTS) A ND IF SPECIFIC F URTHER INFORMATION IS REQUIRED, THEY REQUEST THE CRO OF DZ BANK INDIA TO OBTAIN SUCH INFORMATION. H. T H E C RO ALSO PROVIDES THE LOCAL MARKET OPINION ON THE CLIENT S UCH AS RATING BY T HE LOCAL RATING AGENCIES, HISTORICAL REPUTATION OF THE C LIENT, DECLARED F UTURE PLANS, ETC. AND ALSO IF THERE ARE ANY REGULATORY ISSUES INVOLVED WITH SUCH CREDIT. I. WHERE THE CUS TO MER HAS A QUERY ON THE TERMS OF THE CREDIT FACILITY, TH EY CONTACT DZ BANK INDIA. J . DZ BANK INDIA IS ALSO INVOLVED IN DISCUSS ING THE TERMS OF TH E CREDIT FACILITY ON THE INSTRUCTIONS OF HEAD OFFICE/ OVERSEAS BRANCH. K. THE CRO UNDER A LIMITED P O WER O R ATTORNEY MAY ALSO BE INSTRUCTED BY THE HEAD OFFICE/ O VERSEAS BRANCHES T O BE A SIGNATORY FOR THE CREDIT FACILITY DOCUMENTS, AS A LREADY APPROVED BY T HEM FOR EXECUTION OF THE CREDIT FACILITIES. L. POST DISBURSAL OF THE CREDIT FACILITY, THE HEAD OF F ICE / OVERSEAS BRANCHES ASCERTAIN THE REASONS FOR THE DELAY I N REPAYMENTS AND I NTEREST PAYMENTS AS PER THE AGREED REPAYMENT SCHEDULE T H ROUGH DZ BANK INDIA, AND DZ BANK INDIA EVEN ASSISTS IN RECOVERY WHERE THERE ARE SUCH DELAYS. 7.20 THUS, THE BUS IN ESS T RANSACTION BY THE ASSESSEE'S HEAD OFFICE AND OVERSEAS B RANCHES WITH ITS I NDIAN CLIENTS WOULD NOT BE COMPLETE WITHOUT THE INVOLVEM ENT AND ACTIONS BY IT S REPRESENTATIVE OFFICE IN INDIA, DZ BANK INDIA. THERE IS, THEREFORE, A REAL RELATION BETWEEN THE B US INE SS CARRIED ON BY THE ASSESSEE FOR WHICH IT RECEIVES INTER EST AND PROCESSING CHARGES ABROAD AND THE ACTIVITIES OF ITS REPRESENTATIVE OFFICE IN INDIA, WHI CH CONTRIBUTES DIRECTLY OR INDIRECTLY TO THE EARNING OF THE INCOME BY THE ASSESSEE. THEREFORE, IT F OL LOW S THAT ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 5 OF 21 INCOME SHALL BE DEEMED TO ACCRUE/ARISE TO THE ASSE SSEE IN GERMANY FR OM 'BUSINESS CONNECTION' IN INDIA. 7.21 AS FAR AS THE CONTENTION OF THE ASSESSEE BASED ON DTAA IS CONCERNED, REFERENCE TO THE RELEVANT PROVISIONS OF ARTICLE 7 OF DTAA WH ICH D EAL WITH THE BUSINESS PROFITS WOULD BE NECESSARY. ARTI CLE 7: BUSINESS PR OFITS 1. THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STATES SHALL BE TAXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISES CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE TH ROU GH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IF THE ENTERP RISE CARRIES ON BU SINESS AS AFORESAID, THE PROFITS OF THE ENTERPRISE MAY B E TAXED IN THE OTHER ST ATE BUT ONLY SO MUCH OF THEM AS IS ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT. 7.22 A PE RUS AL OF PARA (1) OF ARTICLE 7 SHOWS THAT THE PROFITS OF AN ENTERPRISE OF GERM ANY ARE TAXABLE IN THAT COUNTRY PROVIDED THAT ENTERPRISE DOES NOT CARRY ON BUSIN ESS THROUGH A PERMANENT ESTABLISHMENT (PE) IN INDIA. IF THE ENTERPRISE CARRIES ON BUSINESS, TH ROUG H A ' PE' IN INDIA ITS PROFITS MAY BE TAXED IN INDIA BUT ONLY SO MUCH OF THEM A S ARE ATTRIBUTABLE TO THAT PE. THIS PROVISION IS IN LINE WITH SUB - CLAUSE (A) OF EXPLANATION (I) TO CLAUSE (I) OF SECTION (1) OF SECTION 9 OF THE ACT. 7.23 THE EXPRE SSION 'P ER MANENT ESTABLISHMENT1 IS DEFINED IN ARTICLE 5. WE SHALL ADVERT TO PARAS 1 TO 3 THEREOF, WHICH ARE RELEVANT FOR OUR PURPOSE AND AR E REPRODUCED BELOW: ART ICLE 5 PERMANENT ESTABLISHMENT 1 . FOR THE PURPOSES OF THIS AGREEMENT, THE TERM 'PERMANENT ES TABLIS HME NT ' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUS INESS OF AN ENTERP RISE IS WHOLLY OR P ARTLY CARRIED ON. 2 . THE TERM PERMANEN T ESTABLISHMENT INCLUDES ES PECIALLY, - ( A ) A PLACE OF MANAGEMENT; ( B ) A BRANCH; (C) AN OFFICE; (D) A FACTORY; (E) A WORKSHO P; (F) A MINE, AN OIL OR GAS WELL, A QUARRY OR ANY OTHER PLACE OF EXTRACTION OF N ATURAL RESOURCES, INCLUDING AN INSTALLATION OR STRUCTURE USED FOR THE EXPLORATION OR EXPLOITATION ; (G) A WAREHOUSE OR SALES OUTLET; (H) A FARM, PLANTATION OR OTHER PLACE WHERE AG RI CULTURAL, FORESTRY, PLANTATION OR RELATED ACTIVITIES AR E CARRIED ON; AND (I) A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR ASSEMBLY PROJECT OR SUPERVIS ORY ACTIVITIES IN CONNECTION THEREWITH, WHERE SUCH SITE, PROJECT OR ACTIVITIES CONTINUE FOR A PER IO D EXCEEDING SIX MONTHS. 3 . AN ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANEN T ESTABLISHMENT IN A CONTRACTING STATE AND TO CARRY ON B USINESS THROUGH THAT PERMANE NT ESTABLISHMENT IF IT PROVIDES SERVICES OR FACILITIES IN CONNECTION WITH, OR SUPPLIES P LANT A ND MA CHINERY ON HIRE USED ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 6 OF 21 FOR OR TO BE USED IN THE PROSPECTI NG FOR OR EXTRACTI ON OR EXPLOITATION OF MINERAL OILS IN THAT STATE. 4. NO TWITHSTANDING THE PRECEDING PROVISIONS OF THIS ARTICLE, THE TERM 'PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT TO IN CLUDE, (A ) THE USE OF FACILITIES SOLELY FOR THE PURPOSE OF STO RAGE, DISPLAY OR D ELIVERY OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPR ISE; (B) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF STORA GE, D ISPLAY OR DELIVERY; (C) THE MAINTENANCE OF A STOCK O F GOODS OR MERCHAN DISE BELONGING TO - THE ENTERPRISE SOLELY FOR THE PURPOSE OF PROCESSING BY ANOTHER ENTER PRISE; (D) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF PURCHA SIN G GOODS OR MERCHANDISE OR OF COLLECTING INFORMATION, FOR THE ENTERPRISE; ( E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF CARRYING ON, FOR THE ENTERPRISE, ANY OTHER ACTIVITY OF A PREPARATORY OR AUXILIARY CHARACTER; (F ) TH E M AI NTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR ANY CO MBINATION OF ACTIV ITIES MENTIONED IN SUB - PARAGRAPHS (A) TO (E), PROVIDED T HAT THE OVERALL ACTIVITY OF THE FI XED PLACE OF BUSINESS RESULTING FROM THIS COMBINATION IS OF A PREPARATORY OR AUXIL IARY C HAR AC TER. 7.24 TO SUMMARIZE THE EXPRESSION 'PERMANENT ESTA BLISHMENT' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF A N ENTERPRISE IS WHOLLY OR PARTLY CA RRIED ON AND INCLUDES WITHIN ITS AMBIT PLACES ENUMERATED IN CLAUSES (A) TO (I) OF PARA 2 B UT EXCLUDES PLACES SPECIFIED IN CLAUSES (A) TO (E) OF PAR A 4, REFERRED TO 7.25 IT IS CONTENDED BY THE ASSESSEE THAT IT IS MERELY REPRESENTATIVE OFFICE SOLELY FOR THE PURPOSE OF ACTING AS COMMUNICATION OFFICE OF ITS HEAD OFFICE AND IS COVE RED BY TH E EXCLUSIONARY CLAUSE (E). IT IS EMPHASIZED THAT NO INCOM E IS RECEIVED IN T HE REPRESENTATIVE OFFICE, NO BUSINESS IS ENTERTAINED AND NO ACTIVITY IN VIOLATION OF CONDIT IONS PRESCRIBED BY RBI IS CARRIED ON THERE. 7.26 THE MOOT QUESTION, HOWE VER, I S W HE THER THE EXCLUSIONARY CLAUSE (E) OF PARA 4 IS ATTRACTED ; IF SO, WHETHER T HE ASSESSEE AS A REPRESENTATIVE OFFICE WOULD STAND EXCLU DED FROM THE MEANING OF THE EXPRESS ION 'PERMANENT ESTABLISHMENT'. IT IS OFTEN DIFFICULT TO DISTINGUISH BETWEEN ACTIV ITIES WHI CH HAVE A PREPARATORY OR AUXILIARY CHARACTER AND THOSE WH ICH HAVE NOT. THE DECISIVE CRITERION IS WHETHER OR NOT THE ACTIVITY OF THE FIXED PLACE OF BUSINESS IN ITSELF FORMS AN ESSENTIAL AND SIGNIFICANT PART OF THE ACTIVITY OF THE ENTERPRISE AS A WH OLE. I N A NY CASE, A FIXED PLACE OF BUSINESS WHOSE GENERAL PURPOSE IS ONE WHICH IS ID ENTICAL TO THE GENERAL PURPOSE OF THE WHOLE ENTERPRISE, DOES NOT EXERCISE A PREPARATORY OR AUXILIARY ACTIVITY. A FIXED PLACE OF BUSINESS WHICH HAS THE FUNCTION OF MANAGING EVEN O NLY A PART OF AN ENTERPRISE CANNOT BE REGARDED AS DOING A PR EPARATORY OR AUXIL IARY ACTIVITY. THE FUNCTION OF A REPRESENTATIVE OFFICE, EVEN IF IT ONLY COVERS A CERTAIN AR EA OF THE OPERATIONS OF THE CONCERN WHICH CONSTITUTES AN ESSENTIAL PART OF THE BU SINESS OP ER ATIONS OF THE ENTERPRISE, IT CAN IN NO WAY BE REGARDED AS AN ACTIVITY WHI CH HAS A PREPARATORY OR AUXILIARY CHARACTER WITHIN THE M EANING OF SUBPARAGRAPH (E) OF PARAG RAPH 4 OF ARTICLE 5 OF THE INDIA GERMANY DTAA, ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 7 OF 21 7.27 CLAUSE (E] OF PARA 4 SAYS T HAT TH E E XP RESSION 'PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT T O INCLUDE THE MAIN TAINING OF A FIXED PLACE OF BUSINESS SOLELY FOR THE P URPOSE OF CARRYING ON FOR AN ENTERP RISE ANY OTHER ACTIVITY OF A PREPARATORY OR AUXILIARY CHARACTER . THE ASSESSEE HA S RELI ED ON THE DICTIONARY MEANING OF THE WORDS 'AUXILIARY', 'ANCI LLARY', 'AID' AND 'PREPARE' IN SUPPORT OF ITS CONTENTION THAT ITS REPRESEN TATIVE OFFICE IN INDIA IS COVERED B Y THE EXCLUSIONARY CLAUSE (E). IT IS UNNECESSARY TO REFER TO ALL OF THEM HERE. SU FFICE IT TO SAY THAT THE WORD 'AUXILIARY' IN COMMON ENGLISH USAGE MEANS HELPING, ASS ISTING OR SUPPORTING THE MAIN ACTIVITY. THEREFORE, THE O NLY TASK AT HAND IS TO ASCERTAIN WH ETHER THE ACTIVITIES CARRIED ON IN THE REPRESENTATIVE OFFICE IN INDIA ARE ONLY SU PPORTI VE OF THE MAIN BUSINESS OR FORM ONE OF THE MAIN FUNCTIONS OF THE BUSINESS. IN THE INSTANT CASE OF THE ASSESSEE, HOWEVER, IT IS SEEN TH AT EVEN IF SOME OF THE FUNCTION OF THE REPRESENTATIVE OFFICE MAY BE AUXILIARY CHARACTER, THE INVOLVEMENT OF REPRESEN TATIVE OF FI CE IN SCOUTING FOR CUSTOMERS IN INDIA, GIVING SPECIFIC INPUTS TO THE HEAD OFFICE AND ITS OVERSEAS BRANCHES ABOUT THE PROSPECTIVE CLIENT AND THEN NEGOTIATING WITH TH EM, SIGNING LOAN AGREEMENTS AND FOLLOWING UP ON DELAYED REPAYMENTS OF PRINCIPAL A ND DEL AYE D PAYMENTS OF INTEREST, ARE ALL FUNCTIONS WHICH PLAY AN I MPORTANT ROLE IN I TS MAIN BUSINESS. THESE ROLES OF THE REPRESENTATIVE OFFI CE ARE NOTHING SHORT OF PERFORMING A MAJOR ROLE IN THE LENDING BUSINESS OF THE ASSESSEE IN INDIA AND CANNOT BE SAID TO BE WOR K OF AUXILIARY CHARACTER. IT IS INDEED A SIGNIFICANT PART OF THE MAIN WORK OF THE HEAD OFFICE AND ITS OVERSEAS BRANCHES. 7.28 IT F OLLOWS THAT THE REPRESENTATIVE OFFI CE OF THE ASSESSEE IN INDIA WOULD BE A 'PERMANENT ESTABLISHMENT' WITHIN THE MEANI NG OF THE E XPRESSION IN DTAA. FROM THE ABOVE DISCUSSION IT CAN SAF ELY BE CONCLUDED T HAT SO MUCH OF THE PROFITS AS SHALL BE DEEMED TO ACCRUE OR ARISE TO THE APPLICANT IN INDIA WHICH ARE ATTRIBUTABLE TO THE 'PERMANENT ESTABLISHMENT', NAMELY, THE REPRESENTATI VE OFF ICE I N INDIA, WOULD BE TAXABLE IN INDIA EVEN UNDER THE DTAA [UAE EXCHANGE CENT RE LLC IN A.A.R. NO. 608 OF 2003 DATED 26 - 05 - 2004]. 7.2 9 FURTHER, IT WILL ALSO BE WORTHWHI LE TO CONSIDER THE PROVISIONS OF PARA (5) OF ARTICLE 5 OF THE DTAA. THE SAME IS R EPRODU CED A S UNDER: 5. NOTWITHSTANDING THE PROVISIONS OF PARAGRAP HS 1 AND 2, WHERE A PERSON - 'OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHOM PARAGRAPH 6 APPLIES - IS AC TING IN A CONTRACTING STATE ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING S TATE T HAT E NTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISH MENT IN THE FIRST - MENTIONED STATE, IF THIS PERSON, (A) HAS AND HABITUAL LY EXERCISES IN THAT STATE AN AUTHOR ITY TO CONCLUDE CONTRACTS ON BEHALF OF THE ENTERPRISE, UNLESS HIS ACTIVITIES ARE LIMIT ED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE ENTERPRIS E; (B) HAS NO S UCH AUTHORITY, BUT HABITUALLY MAINTAINS IN THE FIRST - MEN TIONED STATE A STOCK OF GOODS OR MERC HANDISE FROM WHICH HE REGULARLY DELIVERS GOODS OR MERCHANDISE ON BEHALF OF THE ENTERP RIS E; OR (C) HABITUALLY SECURES ORDERS IN THE FIRST - MENTI ONED STATE, WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE ITSELF OR FOR THE E NTERPRISE AND OTHER ENTERPRISES CONTRO LLING, CONTROLLED BY, OR SUBJECT TO THE SAME COMMON CONTROL, AS THAT ENTERPRIS E. 7. 30 ON E WOULD APPRECIATE THAT THE PROVISIONS OF THE AFORESAID PARA ARE THE SAME AS EXPLANATION 2 TO CLAUSE (I) OF SUB - SECTION (1) OF SE CTION 9. IT HAS ALREADY CONCLUDED WHIL E DISCUSSING EXPLANATION 2 THAT THE ASSESSEE, DZ BANK INDIA, HABITUALLY EXERCI SES IN IN DI A, ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 8 OF 21 AN AUTHORITY TO CONCLUDE CONTRACTS FOR OR ON BEHALF OF THE ENTERPRISE AT THE INSTRUCTIONS OF THE HEAD OFFICE OR OVERSEAS BRANC HES. DZ BANK INDIA ALSO HABITUALLY SEC URES ORDERS IN INDIA, WHOLLY FOR THE DZ BANK AGDZ AND ITS OVERSEAS BRANCHES. 7.31 T HUS , EVEN IF THE PROVISIONS OF THE DTAA BETWEEN INDIA AND GE RMANY ARE APPLIED TO THE CASE OF THE ASSESSEE, THE ASSESSEE IS A PERMANENT ESTABLISHMENT OF DZ BANK AGDZ IN INDI A, AND ALL THE INCOME EARNED BY ITS HEAD OFFICE FROM CLIENTS IN INDIA IS TAXAB LE AS ITS B USINESS INCOME IN INDIA @40% + SURCHARGE + EDUCATION CE SS. 7.32 THE ASSE SSEE VIDE ITS LETTER DATED 21/12/2016 HAS SUBMITTED THAT DURING THE YEAR DZ BANK INDIA EARNED INTEREST INCOME ON OVERSEAS CREDIT FACILITIES PROVIDED TO INDIA CLIENTS AMOUNT ING TO RS . 43,18,31,765/ - WHICH INCLUDES AN AMOUNT OF RS 10,78,74, 218 AS INTEREST RE CEIVED ON LOANS GIVEN TO INDIAN COMPANIES/BORROWERS AND RS 32,39,57,547 AS INTEREST ON LOANS G UARANTEED BY HERMES DECKUNG AND HENCE THEY ARE EXEMPT FROM TAXATION IN INDIA A S PER ART IC LE 11 (3)(B) OF INDIA_GERMANY DOUBLE TAXATION AVOIDANCE AGREEMENT. AN AMO UNT OF, RS. 18,62,82,983 HAS BEEN SUBMITTED BY THE ASSES SEE VIDE LETTER DATED 9/12/2016. ACCOR DINGLY, IN VIEW OF THE ABOVE FACTS AND DISCUSSION, THIS INTEREST INCOME OF RS. 29,41 ,57 ,2 01 SHALL BE SUBJECT TO TAX @40% ALONG WITH SURCHARGE AN D EDUCATION CESS. 6. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAS FURTHER EARNED A COMMITMENT FEE O F RS 1,91,08,038 AND AGENCY FEES OF RS 7,06,900, IN CONNECTION WITH THE LOANS GUA RAN TEED BY HERMES DECKUNG, GERMANY. HE NOTED THE PLEA OF THE ASSESSEE THAT THE SE AMOUNTS CANNOT BE TAXED IN INDIA UNDER ARTICLE 7 FOR WAN T OF PE, AND UNDER ARTICLE 11 AS THESE AMOUNTS ARE NOT COVERED BY THE DEFINITION OF INTEREST. HE WAS, HOWEVER, OF THE VI EW T HAT AS THE ASSESSEE HAS A PE IN INDIA, AND ALL THESE AMOUNTS PERTAIN TO THE SAID PE, THESE AMOUNTS ARE TAXABLE IN THE HANDS OF THE ASSESSEE AS BUSINESS RECEIPTS UNDER A RTICLE 7. THE ASSESSING OFFICER THUS PROCEEDED TO TAX ENTIRE INTEREST INCOME, COM MIT MENT FEES AND AGENCY FEES AS INCOME OF THE ASSESSEE, AND, WHILE COMPUTING T AXABLE INCOME, ALLOWED A DEDUCTION OF RS 2,77,77,831 BEING EXPENSES OF THE REPRESENTATIVE OFFICE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHO UT A NY SUCC ESS. THE ASSESSEE IS AGGRIEVED AND IS IN APPEAL BEFOR E US. 7. THE HE ARING IN THIS CASE WAS CONCLUDED ON 20 TH NOVEMBER 2 020, AND THE MATTER WAS REFIXED THEREAFTER ON 24 TH NOVEMBER 2020 IN THE LIG HT OF, INTER AL IA , THE FOLLOWING SHOW CAUSE NOTICE IS SUED BY US TO DZ BANK A G, WITH A CO PY THEREOF TO THE PARTIES BEFORE US : YO U ARE HEREBY REQUIRED TO SHOW CAUSE AS TO WHY THE INCOME ARISI NG ON ACCOUNT OF DZ BANK AG S INDIA REPRESENTATIVE OFFICE, EVEN IF ANY, NOT BE EXCLUDED FROM INCOME , IF ANY AN D TO T H E EX TEN T TAXABLE , IN THE HANDS OF DZ BANK AG - INDIA REPRESE NTATIVE OFFICE, AND BROUGHT TO TAX IN YOUR HANDS, AS YOU ARE THE TAXABLE UNIT , IN RESPECT OF ANY O F YOUR OFFICES OR ANY OTHER FORM OF PRESENCE IN INDIA, IN TERMS OF THE PROVISIONS OF THE INCOM E T AX A CT, 1 961, AS IS HIGHLIGHTED BELOW BY HONBLE SUPREME COU RTS JUDGMENT IN THE CASE OF CIT VS HYUNDAI HEAVY INDUSTRIES CO LTD [(2007) 29 1 ITR 482 (SC)] : THE REFORE, IT IS CLEAR THAT UNDER THE ACT, A TAXABLE UNIT IS A FOREIGN COMPANY AND NOT ITS BRANCH OR PE IN IN DIA . A NON - RESIDENT ASSESSEE MAY HAVE SEVERAL INCOM ES ACCRUING OR A RISING TO IT IN INDIA OR OUTSIDE INDIA BUT SO FAR AS TAXABILIT Y UNDER SECTION 5(2) IS CONCERNED, IT IS RESTRICTED TO INCOMES WHICH ACCRUE OR ARISE OR IS ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 9 OF 21 DEEMED TO ACCRUE OR ARIS E I N IN DIA. THE SCOPE OF THIS DEEMING FICTION IS MENTIONED IN S ECTION 9 OF THE ACT. THEREFORE, AS FAR AS THE INCOME ACCRUING OR ARISING IN IN DIA, AN INCOME WHICH ACCRUES OR ARISES TO A FOREIGN ENTERPRISE IN INDIA CAN BE ONLY SUCH PORTION OF INCOME ACCRUING OR ARI SING TO SUCH A FOREIGN ENTERPRISE AS IS ATTRIBUTABLE TO ITS BUSINESS CAR RIED OUT IN INDIA. THIS BUSINESS COULD BE CARRIED OUT THROUGH ITS BRANCH(ES) OR THR OUGH SOME OTHER FORM OF ITS PRESENCE IN INDIA SUCH AS OFFICE, PROJECT SITE, FACTORY, SALES OUT LET ETC . (HE REINAFTER CALLED AS 'PE OF FOREIGN ENTERPRISE'). IT IS, THEREFORE, IMPORTANT TO NOTE THAT UNDER THE ACT, WHILE THE TAXABLE SUBJEC T IS THE FOREIGN GENE RAL ENTERPRISE (FOR SHORT, 'GE'), IT IS TAXABLE ONLY IN RESPECT OF THE INCOME INCLUDING BUSINE SS PROF ITS, WHICH ACCRUES OR ARISES TO THAT FOREIGN GE IN INDIA . [EMPHASIS, BY UNDERLINING, SUPPLIED BY US] IT MAY BE CLARIFIED THAT THE USE OF EXPRESSION PE RMANENT ESTABLISHMENT IN THE ABOVE CONTEXT WAS WITH REFERENCE TO THE PROVISIONS OF THE INDIAN IN COME TAX ACT, 1961, UNDER WHICH PERMANENT ESTABLISHMENT H AS BEEN ASSIGNED AN INCLUSIVE DEFINITION WHICH INCLUDES, UNDER SECTION 92F(III A), A FIXED PLACE O F BUSINESS THROUGH WHICH THE BUSINESS OF THE ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. THIS REF EREN CE TO PERMANENT ESTABLISHMENT DOES NOT, THEREFORE, PRE JUDICE YOUR ARGU MENT THAT YOU DID NOT HAVE A PERMANENT ESTABLISHMENT IN TERM S OF THE REQUIREMENTS OF INDO GERMAN DOUBLE TAXATION AVOIDANCE AGREEMENT. THIS NOTICE IS BEING ISSUED TO YOU IN TE RMS OF TH E REQUIREMENTS OF EXPLANATION 2 (B) TO SECTION 153 AS IT EXISTS NOW AND IN TERMS OF REQUIREMENTS OF EXPLANATION 3 TO SECTION 153 AS IT STOOD AT THE RE LEVANT POINT OF TIME. IT IS FURTHER CLARIFIED THAT CONSIDERING THE REQUIREMENTS OF THE PRESENT CO NTEX T, IN OUR CONSIDERED VIEW, THE INCLUSIVE DEFINITION OF PERSON UNDER SE CTION 2(31) FOR THIS PURPOSE ALSO IN CLUDES ANY ENTITY ON WHICH AN ASSESSMENT UNDER THE INCOME TAX ACT, 1961 IS FRAMED. THE MATTER IS FIXED FOR HEARING, THROUGH VIDEOCONFERENCIN G O N WE BEX P ORTAL, ON 24 TH NOVEMBER 2020 AT 2.30 PM. THE MEETI NG ID AND THE PA SSWORD WILL BE PLACED IN THE PUBLIC DOMAIN ON OUR OFFICIAL WEB SITE WWW.ITAT.GOV.IN . 7 . WE HAVE HEARD THE RIVAL CONTENTIONS AT LENGTH , PERU SED THE M ATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE A PPLICABLE LEGAL POSITION. 8. THE FIRST QUESTION THAT ARISES IS WHETHER THE ASSE SSEE BEFORE US IS A TAXAB LE UNIT , AND WHETHER , GIVEN THE FACT THAT NONE OF THE PARTIES HA S RA I SED T H IS ISSUE BEFORE US AND HAVING REGARD TO VER Y PECU LIAR FACT S OF THIS CASE , WE HAVE TO ESSENTIALLY TAKE A JUDICIAL CALL ON THAT AS PECT OF THE MATTER AND DIRECT THAT THE ADDITIONS IMP UGNED IN THIS APPEAL MAY BE CO NSIDERE D, IF AT ALL TA X ABLE, IN THE RIGHT HAND S. 9. LEARN ED C OUNSEL FAIRLY ACCEPTS THAT THE T AXABLE UNIT C AN ONLY BE TH E FOREIGN ENTERPRISE, DZ BANK AG, IN THIS CASE, AND NOT THE DZ BANK A G - INDIA REPRESENTATIVE OFFICE PER SE . HE, HOW EV ER, SEEKS TO RATIONALIZE THE P RESENT SITUATION BY SUBMITTING THAT THE PERMA NENT A CCOUNT NUMBER, UNDER WHI CH THE RETURN IN Q UESTION IS FI LED IS A LLOTTED TO DZ BANK A G , AND, THEREFORE I N SUBSTANCE THE PRESENT ASSESSMENT IS FRAMED ON DZ BANK AG. H E RELI ES UP ON SECTION 292B TO PLEAD THAT THE MISTAKE OF THE INCOME TAX RETURN HA VING B EEN FILED IN THE NAME OF DZ BANK ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 10 OF 21 AG - INDIA REPRESEN TATIVE OFFICE , IF THAT BE SO, IGNORED . HOWEVER , WHEN ASKED WHETHER THE INTEREST INCOME EARNED BY THE DZ BANK AG WAS I NC LUDE D I N T H IS RETURN OF INCOME, HIS REPLY WAS IN NEGATIVE. IN RESPONSE TO OUR QUESTI ON THAT IF WE ARE TO TREAT THIS AS AN INCOME TAX RETURN OF DZ BANK AG, WILL IT NOT RE SULT IN A SITUATIO N THAT ASSESSMENT OF THE DZ BANK AG WILL REACH FINALITY WITH TAKING INTO A CC OU NT THE SAID INTERE ST INCOME , AND THE TAX ES WITHHELD FROM THOSE INTEREST PA Y MENTS WILL TECHNI CALLY BECOME REFUNDA BLE TO THE DZ BANK AG, IF SO CLAIMED , LEA RNE D SENIOR COUNSEL DID NOT HAVE MUCH TO SAY BEYOND SUBMITTING THAT IT IS A HYPOTHETICAL SIT UATION AS N O SUCH REFUND I S , AND WILL BE, CLAIMED . HE SUBMITS THAT SUCH AN AP PROACH IS TOO TECHNICAL AN APPROACH TO THE SU BJECT MATTER, AND THE LA PSE OF TH E ASSESSEE , IF AT ALL A LAPSE , IS A N INADVERTENT A ND TRI VIAL PROCEDURAL MISTAKE WHICH MU ST NOT OBSTRU CT THE PA TH OF SUBSTANTIAL JUSTICE. LEARNED COUNSEL SUBMITS THAT , IF THE FOREIGN E NTER PRISE AND ITS REPRESENTATIVE ENTITY ARE TO BE TREATED AS THE SAME UNIT - AS I S THE CORRECT POSITION , IN SUBSTANCE WHAT IS BEING SOUGHT TO BE TAXED I S INTEREST INCOME UNDE R ARTI CLE 7 WHICH HAS ALREADY BEEN OFFERED TO TAX UNDER ARTICLE 11 , AND THIS C LAIM IS PATENTLY INCO RRECT . THEREFORE , IN CA SE WE AGREE WITH THAT PROPOSITION ON MERITS , THERE IS NO PO INT IN P ROLO NGING THE AGONY OF THE FOREIGN ENTERPRISE BY FURTHER DELA YING THE MATTER BEING DEC ID ED ON MERITS IN A DIFFERENT SET OF PROCEEDINGS . L E ARNED COUNSEL SUBMI TS T HAT SECTION 15 3 CANNOT COME INT O PLA Y IN THIS CASE BE CAUSE THAT WOULD BE APPLICABLE ONL Y WHEN A N INCOM E IS EXCLUDED FROM THE H AND S OF ONE PERSON AND SOUGHT TO BE TAXED IN T HE HAN D S OF SOME OTHE R PERSON, BUT HERE IS A SITUATION IN WHICH DZ BANK A G - INDIA REPRESENTATIVE OFFICE AND DZ B ANK AG A RE ONE AND THE SAME THING, HA V E A COMMO N PERMANENT ACCOUNT NUMBER AND REPRESENT THE SAME A RTIFICIAL JURI DIC AL PERSON. HE DOES NOT SHARE OUR PE RCEPT ION THAT GIVEN THE PRESENT CONTE XT, THE EXPRESSION PERSON CAN INDEED BE GIVEN THE EXTENDED MEANING AS P R OPO SED BY US, AND ARGUES AT LENGTH ON THAT ASPECT. LEARNED COUNSEL THEN EXPLAINS TO US THE PRA CTICAL PROBLEMS THAT THE ASSESSEE WILL HAVE T O FACE IN T HE EVENT OF OUR ADOPTING THE PRO POSED COURSE O F ACTION INASMUCH AS FRESH INCOME T AX RETURNS WILL HA VE TO BE F ILED WHEN, IN EFFE CT, THERE IS NO INCOME OTHER THAN THE IN TEREST INCOME IN RESPECT OF WHICH, BY THE VIRT UE OF SECTIO N 115A(5), FIL ING OF INCOM E TAX RETURN UNDER SECTION 139(1) IS NOT REQUIRED ANYWAY. IT IS SUBMITTED THAT T HE INCOME WHICH HAS BEEN T A XED IN THE IM PUGNED ASSESSME NT HAS BEEN WRONGLY T AXED, AND IT DESERVES TO BE VACATED ON MERITS IN ANY EV E NT. WE ARE URGED TO TAKE A HOLIS TIC AND PRA CTICAL VIEW OF T HE MAT TER. L EARNED DEPARTMENTAL REPRESENTAT IVE, ON THE O THER HAND , DOES NOT MAKE ANY SPE CIF IC SUBM ISSIONS AND LEAVES THE MATTER TO US. IN ANY CASE, HE IS UNABLE TO BRING ON RECORD ANY THING TO CH ALLENGE THE LEGAL P ROPOSITION T HAT THE TAXABLE UNIT IN INDIA IS ONL Y THE FOREIGN COMPANY , AND NOT IT S PE OR OTHER CONSTITUENTS IN INDIA. 10. WE HAVE NOT ED THAT THE ENTIRE PROCEED INGS IN THIS CASE PROCEED ON THE BASIS THAT THE DZ BANK AG AND ITS INDIAN REPRESENTATIVE OFFICE ARE TWO DISTINCT TAXABLE ENTITIES. SO FA R AS TH E INT EREST I NCOME TAXABLE IN INDIA UN DER ARTICLE 11 OF THE INDO GERMAN TAX TREATY IS CO NCERNED, IT HAS BEEN CONTE NDED THAT IN VIEW OF THE PROVISIONS OF SECTION 115A (5), AS IT STOOD AT THE RELEVANT POINT OF TIME, DZ BANK AG WAS NOT REQUIRED TO FILE THE INC OME T AX RETU RN UNDER SECTION 139(1) B ECAUSE THE TAX DEDUCTIBLE UNDER CHAPTER XVII B WAS DULY DEDUCTED FROM SUCH I NCOME. THE ASSESSEE HAS FILED THE INCOME TAX RETURN IN THE NAME OF DZ BANK - INDIA REPRESENTATIVE OFFICE, AND HAS NOT DISCLOSED THEREIN T HE AMOU NTS A DMITTED LY TAXABLE IN THE HANDS O F DZ BANK AG, GERMANY UNDER ARTICLE 11 OF THE I NDO GERMAN TAX TREATY. BY IM PLICATION, THEREFORE, DZ BANK AG AND ITS INDIAN REPRESENTATIVE OFFICE ARE TREATED AS TWO DISTINCT TAXABLE UNITS OR TAXABLE ENTITIES , EVE N THOUG H THE RE IS ONLY ONE PERMANENT ACCOUNT NUMBER ALLOTTED TO THE DZ BANK A G, WHICH IS U S ED F OR FILING THE INCOME TAX RETURN OF DZ BAN K AG - INDIA REPRESENTATIVE OFFICE . THAT POSITION, ON THE FIRST PRINCIPLES, IS UNSUSTAINABLE IN LAW. IT IS ONLY ELEMENTAR Y THAT THE T AX SUBJECT IS ONLY THE FOREIGN E NTERPRISE ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 11 OF 21 AND NOT ITS PE IN INDIA, THOUGH, SO F AR AS PROFIT ATTRIBUTABLE TO THE PE ARE CONCERNED, THE SAME ARE TAXABLE IN THE HANDS OF THE FOREIGN EN TERPRISE. THAT IS WHAT A COORDINATE BENCH OF THIS TRIBUNAL, SPE AKING T H ROUG H ONE OF US (I.E. THE VIC E PRESIDENT) IN THE CASE OF DRESDNER BANK AG VS ACIT [ (2006) 11 SOT 158 (MUM)] HAS HELD BY OBSERVING, INTER AL IA , T HAT UNDER SECTION 4 OF THE ACT, IT IS TOTAL INCOME OF EVERY PERSON WHICH IS TAXABLE. SECTION 2(31), I N TURN, DEFI NES PERSON AS INCLUDING A COMPANY, WHICH IN TERMS OF THE PROVISIONS OF SECT ION 2( 23A), INCLUDES A FOREIGN COMPANY AS WELL. SECTION 6(4) OF THE ACT LAYS DOWN THAT A COMPANY, UNLESS IT IS AN INDIAN COMPANY OR UNLESS IT IS CONTROLLED OR MANA GED ENT IRELY FROM INDIA, CANNOT BE SAID TO BE RESIDENT IN INDIA. A FOREIGN COMPANY, WHICH I S NOT WHOLLY CONTROLLE D OR MANAGED IN INDIA, IS THEREFORE A NON - RESIDENT SO FAR AS RESIDENTIAL STATUS UNDER THE ACT IS CONCERNED. SECTION 5(2) FURTHER LAYS DOWN THAT AS FAR AS A NON - RESIDENT ASSESSEE IS CONCERNED SCOPE OF TOTAL INCOME OF SUCH AN ASSESSEE I S CONF INED TO (I) AN I NCOME WHICH ACCRUES OR ARISES IN INDIA OR IS DEEMED TO ACCRUE OR ARISE IN INDIA AND (II) AN INCOME WHICH IS RECEIVED OR IS DEEMED TO BE REC EIVED B Y OR ON BEHALF OF SUCH FOREIGN COMPANY. THIS ELEMENTARY ANALYSIS MAKES IT CLEAR THAT UNDER THE INCOME - TAX ACT, SO FAR AS FOREIGN COMPANIES ARE CONCERNED, TAXABLE UNIT IS A FOREIGN COMPANY AND NOT ITS BRANCH OR PERMANENT ESTABLISHMENT IN INDIA, EVEN THOUGH THE T AXABILITY OF SUCH FOREIGN COMPANIES IS CONFINED TO (I) AN INCOME WHICH ACCRUES OR AR ISES IN INDIA OR IS DEEMED TO ACCRUE OR ARISE IN INDIA, AND (II) AN INCOME WHICH IS RECEIVED OR IS DEEMED TO BE RECEIVED BY OR ON BEHALF OF SUCH FOREIGN COM PANY TO D ETERMINE INCOME ACCRUING OR ARISING IN INDIA TO A FOREIGN ENTERPRISE (HEREINAFT ER REFERRED TO AS GENERAL E NTERPRISE OR AS GE), THEREFORE, WE HAVE TO COMPUTE INCOME ATTRIBUTABLE TO SUCH BRANCH(ES) IN INDI A, OR OTHER FORM(S) OF PRESENCE IN IN DIA SUC H AS OFFICE, PROJECT SITE, FACTORY, SALES OUTLET ETC., (HEREINAFTER COLLECTIVELY REF ERRED TO AS PERMANENT ESTAB LISHMENT OR PE) OF FOREIGN ENTERPRISE [ EMPH ASIS, BY UNDE RLINING SU PPLIED BY US] . SUBSE QUENTLY IN T HE CASE OF CIT VS HYUNDAI HEAVY INDUSTRIES CO LTD [(2007) 291 ITR 482 (SC)] SIMILAR WERE THE VIEWS OF HONBLE SUPREME COURT. THEIR LORDSHIPS ALSO OBSERVED THAT IT IS CLEAR THAT UNDER THE ACT, A TAXABLE UNIT IS A FOREIGN COMPANY AND NOT ITS BRANCH OR PE IN INDI A .. , AS FAR AS THE INCOME ACCRUING OR ARISING IN INDIA, AN INCOME WHI CH ACCR UES O R ARISES TO A FOREIGN ENTERPRISE IN I NDIA CAN BE ONLY SUCH PORTION OF INCOME ACCRUING OR ARISING TO SUCH A FOREIGN ENTERPRISE AS IS ATTRIBUTABLE TO ITS BUSINESS CARRIED OUT IN INDIA [ EMPH ASIS, BY UNDE RLINING SU PPLIED BY US] . THE EXPRESSION PE , AS USED HERE, IS NOT IN THE STRIC T TREA TY SEN S E BUT IT ALSO CO VERS ANY FORM OF PRESENCE LEADING TO TAXATION IN SOURCE JURISDICTION . A FOREIGN ENTERPRISE MAY HAVE SEVERAL TYPES OF INCOME TAXABLE IN INDIA, INCLUDING, OF COURSE, INCOME ATTRIBUTABLE TO ITS PE(S) IN INDIA . THESE DIFFERENT STR EAMS O F INCO M E, EV EN IF THAT BE SO, APART, WHAT IS TAXABLE UNIT IS ONLY T HE FOREIGN ENTERPRISE. THEREFORE, IRRESPECTIVE OF WH ETHER THE ASSESSEE WAS LIABLE TO FILE INCOME TAX RETURN UNDER SECTION 139(1) OR NOT, ONCE THE ASSESSEE CH OSE TO FILE THE INCOME TAX RETUR N, IT W OULD SEEM TO US THAT THE ASSESSEE COULD HAVE FILED THE INCOM E TAX RETURN ONLY FOR DZ BANK AG, AND NOT FOR INDIA OFFICE OF DZ BANK AG, AND ALL THE INCOME, UNDER WHICHEVER ARTICLE OF THE APPLICABLE TAX TREATY - ARTICLE 11, ARTICLE 7 OR ANY OTHER ARTICL E , WER E LIAB LE TO BE DISCLOSED THEREIN , AND THE INCOME WAS REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE APPLI CABLE LE GAL PROVISION, INCLUDING THE TRANSFER PRICING PROVISIONS , IF APPLICABLE. IN THE PRESENT CASE, THOUGH THE ASSESSEE HAS USED THE PAN NUMBER AS WA S ALLO TTED TO THE DZ BANK AG , IT HAS APPARENTLY FILED THE INCOME TAX RETURN IN THE NA ME OF DZ BANK AG - INDIA REPR ESENTATIVE OFFICE, THE INCOME TAX RETURN IS VER IFIED BY THE IN DIA REPRESENTATIVE OFFIC IALS AND CREATED AN ARTIFICIAL DEMARCATION OF INCOM E OF T H E H O AND BRANCH BY EXC LUDING THE IN TEREST INCOME RECEIVED BY DZ BANK AG DIRE CTLY AND TAXED UNDER ARTICLE 11 , AND DECLARING THAT TH E ASSESSEE, STYLED AS DZ BANK AG - INDIA REPRESENTATI VE OFFICE, DID NOT HAVE ANY ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 12 OF 2 1 TAX ABLE INCOME. THE ASSESSING OFFICER H AS CAT E GOR I C ALLY NOTED THAT THE ASSESSEE HA S FILED AN INCOME TAX RETU RN DISCL OSING NIL INCOME - SOMETHING WHICH IS EX FA CIE INCORRECT , IF DZ BANK AG AND DZ BANK AG - INDIA REPRESENTATI VE OFFICER WERE INDEED T O BE TREATED BY THE ASSESSEE AS ONE TA XABLE ENTITY , AS T HE DZ BANK AG ADMITTEDLY HA S PAID TAX ES ON INTEREST I NCOME UNDER ARTICLE 11. 11. IT IS , HOWE VER , EQUALLY TR U E, AS LEARNED SE NIOR COUNSEL RIGHTL Y POINTS OUT, T HA T IN THE EVENT OF THE ISSUE REGARDING TAX ABILITY OF THE IMPUGNED INCOME UNDER ARTICLE 7 B EING DECIDE D IN FAVOUR OF THE ASSESSEE, THE FILING OF INCOME TAX RETURN IN THE NAME OF DZ BANK A G - INDIA REPRESENTATIVE OFFICE WILL END UP BEING NO THING BUT A SEEMINGLY INADVERTENT ERROR WITHOUT ANY CONSEQUENCE S I N TER MS OF LOSS OF REVENU E , AND WE M UST , TH EREFO RE, AD OPT A PRAGMATIC APPROACH ON THE ISSUE , AND ENSURE THAT OUR ACTIONS DO NOT SUBJECT ASSESSEE TO ANY AVOIDABLE INCONVENIENCE - PARTICULARLY WHEN THE INCOME TAX DEPART MENT HAS N OT REALLY OBJECTED TO THE STAND OF THE ASSESSEE AT ANY STAGE , AND WHEN TH ERE I S N O L OSS TO THE REVENUE IN TERMS OF THE B AS IC TAX LIABILIT IES . CLEARLY, T HE MISTAKE IS NOT OF THE ASSESSE E ALONE. W E WILL INFRING E NEUTRALITY IF WE ARE TO DO ANYTHIN G WHICH HELPS REVENUE MAKE OUT A NEW CASE A T THIS STAGE OR WHICH P UT S THE ASSESSEE W ORSE OFF AS A RESULT OF HIS COMI NG IN A PPEAL BEFORE US. WE ARE ALI VE TO THESE CONCERNS, AND WE WERE ALSO ALI VE T O THESE CONCERNS WHILE R AISING THE ISSUE IN QUESTION , BUT IT IS EQUALLY IMPORTANT TO US THAT IF WE ARE TO UPHOLD ANY PART OF TAXABILITY IMPUGNED IN A PPEAL BEFORE US , WE MUST NOT DO SO IN THE NAME OF AN ASSESSEE WHICH IS NOT , AND CANNOT BE, A TAXABLE UNIT AT ALL. OF COURS E, IN THE EVENT OF OUR HOLDING THAT N O PART OF THE INCOME BROUGHT TO TAX IN THE IMP UGNED ASSESSMENT IS SUSTAIN ABLE IN LAW, TH E A S PECT AS TO IN WHOSE HANDS IT COULD HAVE BEEN TAXED WILL BE RENDERED ACA DEMIC ANYWAY. WE , THEREFORE, ACCEPT LEARNED SENIOR COUNSEL S SUGGESTION TO TAKE A CALL ON TAXABILITY , AS IMPUGNED IN APPEAL BEFORE US, ON MERITS FI RST . TODAY, WHEN EASE OF DOING BUSINE SS , D EMYST I FICATION OF TAX SYSTEM , AND A N EMPHASIS O N CATCHING TAX EVADERS RATHER THAN GETTING BO GGED DOWN TO THE TECHNICALITIES , ARE T H E KEY MANTRAS AND TOP PRIORITIES OF ALL THE ORGANS OF THE STATE, WE CANNOT ALSO BE HYPER PEDANTIC IN OUR APPROACH . IT IS, T HERE F O RE, ESSENTIAL TO FIRST EXAMI NE THE TAXABILITY OF AMOUNTS BROUGHT T O TAX IN THE ASSESSMENT BEFORE US , BECAUSE UNLE SS T HERE IS ANY REAL OF LOSS OF REV ENUE ON THAT COUNT, ALL THESE ISSUES WITH RESPECT OF FILING OF TAX RETURNS DISCLO SIN G THIS INCOME IN T HE HA N DS OF CORRECT ENTITIES ARE P URELY ACAD EMIC DELIGHTS. IT IS ALSO IMPORTANT TO UNDERSTAND THAT ONC E WE APPR ECIATE THE FUN DAMENTAL PO SITION THAT THE FOREIGN ENTERPR ISE AND ITS REPRESENTATIV E OFF ICE IN INDIA ARE ON E AND THE SAME THING, SO FA R TAXATI ON OF INC O ME IN INDIA IS CONCERNED, WH AT ESSENTIALLY F OLLOWS IS THAT THE INCOME BEING SOUGHT TO BE TAXED UNDER ARTICLE 7 , ON NET BASIS, IN THE IMPUGNED ASSESSMENT , H AS ALREAD Y BEEN TAXED IN THE HAN DS OF THE SAME ASSESSEE UNDER ARTICLE 11, ON GROS S BASIS, AND T HAT A S PECT OF THE MATTER HAS REAC HED FINALITY. IT I S ALSO NOT IN DISPUTE THAT IN TERMS OF TH E P ROVISIONS OF SECT ION 115A ( 5 ), AS THEY THEN STOOD , THE ASSESSEE DID NOT HAVE OBLIGATION TO FILE ANY INCOME TAX RETURN IN RESPECT OF THE SAID TAXABILITY. VIE WED T HUS, T H E ASSESSEE MAY NOT BE AT FAULT , ON TH AT SCORE, ON TECHNI CALITIES EITHER. COMING TO THE SUBSTA NCE OF THE MATTER, WE FIN D THAT W HAT HAS ALREADY BEEN TAXED , AS SUCH , UNDER ARTICLE 11 IS ENTIRE INTEREST REVENUE RELATABLE TO INDIA OPERATIONS OF DZ B ANK A G, AND WHAT IS NOW BEING SOU GHT TO BE TAXED , UNDER ARTICLE 7, IS THE PROFIT ELEMENT IN RESPECT OF THESE INTEREST REVENUES RECEIVED BY DZ BANK AG RELATABLE TO ITS INDIA OPERATIONS . W HEN WE TAKE NOTE OF THE FACT THAT THE DZ BANK AG - INDIA REPRESENTATIV E OFF ICE IS NOT A TAX ABLE UNIT, AND THE TAXA BLE ENTITY IS ONL Y DZ BANK AG, IT IS SO GLARING T HAT SAME INCOME IS NO W BEING SOUGHT TO BE TAXED , UNDER ARTICLE 7, IN THE HANDS OF THE ASSESSEE WHICH HAS ALREADY BEEN TAXED IN THE HANDS OF THE ASSES SEE, UNDER ART ICLE 11, IN THE SAME ASSESSMENT YEAR UNDER THE SAME TAX TREATY. T HAT IS CLEARLY , TO PUT IT MILDLY, INCONGRUOUS ON THE FIRST PRINCIPLES, AN D , AS WE WILL SEE A LITTLE LATER IN OUR ANALYSIS, SIMPLY CONTRARY TO THE SCHEME OF ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 13 OF 21 TAXATION IN ARTICLE 7 AND ARTICLE 1 1. B E THAT AS IT MAY, L ET US EXAMINE THE B ROADER QUESTION ABOUT TAXABILITY OF THE AMOUNTS IN QUESTION , IN TERMS OF THE TREATY PROVISIONS, IN THE HANDS OF THE ASSESSEE. WE MAY ADD, AT THE COST OF STA TING THE OBVIOUS THOUGH, THAT THE P ROVISIONS OF THE DOMESTIC L AW COME INTO PLAY , BY THE VI RT UE OF PROV ISIONS OF SECT ION 90(2) OF THE INCOME TAX A C T, 1961, AND, THEREFORE, IF CASE OF THE ASSESSING OFFIC ER FAILS ON THE TREATY PROVISIONS, THERE IS NO NEED TO EXAMINE THE SAME IN THE LIGHT OF THE PROVISIONS OF THE DOMESTI C TAX LAW . 12. AS THE FUNDAM ENTA L ISSUE IN APPEAL BEFORE US I S TAXATION OF INTEREST INCOME UND ER ARTICLE 7 OF THE INDO GERMAN TAX TREATY, LET US BEGIN BY LOOKING AT THE PROVISIONS OF ARTICLE 7 F IRST. THE ARTICLE IS BEING REPRODUCED BELOW FOR READY RE FEREN CE: ARTICLE 7 - BUSINESS PRO F ITS 1. THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE SHALL BE TAXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IF TH E ENTERPRISE CARRIES ON BUSIN E SS AS AFORESAID, THE PROFITS OF THE ENTERPRISE MAY BE TAXED IN THE OTHER STATE BUT ONLY SO MUCH OF THEM AS IS ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT. 2. SUBJECT TO THE PROVISIONS OF PARAGRAPH 3, WHERE AN ENTERPRISE OF A CONTRACTING STATE CARRIES ON BUS IN ESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, THERE SHALL IN EACH CONTRACTING STATE BE ATTRIBUTED TO THAT PERMANENT ESTABLISHMENT THE PROFITS WHICH IT MIGHT BE EXPECTED TO MAKE, IF IT WERE A DISTINCT AND SEPAR A TE EN TERPRISE ENGAGED IN THE SAME OR SIMILAR ACTIVITIES UNDER THE SAME OR SIMILAR CONDITIONS AND DEALING WHOLLY INDEPENDENTLY WITH THE ENTERPRISE OF WHICH IT IS A PERMANENT ESTABLISHMENT. 3. IN THE DETERMINATION OF THE PROFIT S OF A PERMANENT ESTABLISHMEN T , T HE RE SHALL BE ALLOWED AS DEDUCTIONS, EXPENSES WHICH ARE INCURRED FOR THE PURPOSES OF THE BUSINESS OF THE PERMANENT ESTABLISHMENT INCLUDING EXECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES SO INCURRED, WHETHER IN THE STATE IN W HICH THE PERMANENT ESTABLISHM E NT IS SITUATED OR ELSEWHERE, AND ACCORDING TO THE DOMESTIC LAW OF THE CONTRACTING STATE IN WHICH THE PERMANENT ESTABLISHMENT IS SITUATED. 4. INSOFAR AS IN A CONTRACTING STATE AND IN EXCEPTIONAL CASES THE DETERMINATION OF THE PROFITS TO BE ATTRIBUTED TO A PER MA NENT ESTABLISHMENT IN ACCORDANCE WITH PARAGRAPH 2 IS IMPOSSIBLE OR GIVES RISE TO UNREASONABLE DIFFICULTIES, NOTHING IN PARAGRAPH 2 SHALL PRECLUDE THE DETERMINATION OF THE PROFITS TO BE ATTRIBUTED TO A PERMANENT ESTABLISHM ENT BY MEANS OF EITHER APPORT I ONI NG THE TOTAL PROFITS OF THE ENTERPRISE TO THAT PERMANENT ESTABLISHMENT OR ESTIMATING ON ANY OTHER REASONABLE BASIS; THE METHOD OF APPORTIONMENT OR ESTIMATION ADOPTED SHALL, HOWEVER, BE SUCH THAT THE RESULT SHALL BE IN ACCOR DANCE WITH THE PRINCIPLES CON T AIN ED IN THIS ARTICLE. 5. NO PROFITS SHALL BE ATTRIBUTED TO A PERMANENT ESTABLISHMENT BY REASON OF THE MERE PURCHASE BY THAT PERMANENT ESTABLISHMENT OF GOODS OR MERCHANDISE FOR THE ENTERPRISE. 6. FOR THE PURPOSES OF THE PREC EDING PARAGRAPHS, THE PROFITS TO BE ATTRIBUTED TO THE PERMANENT ESTABLISHMENT SHALL BE DETERMINED BY THE SAME METHOD YEAR BY YEAR UNLESS THERE IS GOOD AND SUFFICIENT REASON TO THE CONTRARY. ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 14 OF 21 7. WHERE PROFITS INCLUDE ITEMS OF INCOME WHICH ARE DEALT WITH SEP ARATELY IN OTHER ARTICLES OF T HIS A GREEMENT, THEN THE PROVISIONS OF THOSE ARTICLES SHALL NOT BE AFFECTED BY THE PROVISIONS OF THIS ARTICLE . [EMPH ASIS, BY UNDERLINING, SUPPLIED BY US] 13. AS IS GLARING FROM A PLAIN READING OF THE ABOVE PRO V I SION, UNDER A RTICLE 7 (7), WHERE PROFITS SO UG HT TO BE TAXED UNDER ARTICLE 7 INCLUDE ANY ITE M OF INCOME WHICH IS DEALT WITH SEP ARATELY IN OTHER ARTICLE S OF THE INDO GERMAN TAX TREATY, ARTICLE 7 WIL L YIELD TO THOSE SPECIFIC PROVISIONS IN RESPECT OF THAT INCOME. THAT TREAT Y APPROACH IS IN CONSONANCE W IT H THE WELL SETT LED PR INCIPLE OF LAW CONTAINED IN THE L ATIN MAXIM GENERALIA SPECIALIBUS NON DEROGA NT , I.E. GEN ERAL PROVISIONS DO NOT OVERRIDE THE SPECIFIC PROVI SIONS . QUITE C LEARLY, THEREFORE, WH EN A PARTICULAR TYPE OF INCOME IS SPECIFICA LLY COV ERED BY A TR EATY PROVIS ION, TH E TAXABILITY OF THAT TYPE OF INCOME IS GOVERNED BY THE SPECIFIC PROVISIONS SO CONTAINED IN THE TREATY. OF COURSE, EVEN IN THE SCHEME OF TAXA BILITY OF SU CH SPECIFIC INCOMES UNDER THE TREATY PROVISIONS, AS WE WILL SEE A LITTLE LATER, THE S ITUATIONS ARE SPECIFI ED IN WHICH THE TAXABILIT Y UNDER THOSE SPECIFIC PROVISIONS CEAS E TO COME INTO PLAY , AND T HE TAXABILITY CAN SHIFT TO T HE GENERAL PROVISIONS OF ARTICLE 7. 14. THE QUESTION THEN WE MUST ASK OURSELVES BE FORE EM BARKING UPON EXAMINING TA XABILITY OF AN INCOME UNDER ARTICLE 7 IS WH ETH ER SUCH AN INCOME CA N BE TAXED UND ER ANY OTHER SPECIFIC PROV ISIONS OF THE TREATY, AND , IF SO, WHETHER THERE ANY SITUATIONS IN T HOSE SPECIFIC PROVISIONS OF THE TREATY WHICH PROVID E FOR TAXATION OF THE SAID IN COM E UNDER ARTICLE 7. THERE IS NO D ISPUTE THAT WH AT HAS BEEN EARNED BY THE ASSESSEE BANK FROM INDIAN CLIENTS IS IN THE NATURE OF INTEREST INCOME, AND THAT ART ICLE 11 HAS SPECIFIC PROVISIONS FOR TAXATION OF INTEREST INCOME , IN THE HANDS OF A RES IDENT OF O NE CONTRACTING STA TE , FRO M THE OTHER CONTRACTING STATE. WE MUST, THEREFORE, DEAL WITH THE PROV ISIONS OF ARTICLE 11, AND EXA MINE THE SCHEME OF TAXABILITY OF INTEREST INCOME IN THE HANDS OF THE ASSESSEE BEFORE US. 1 5 . LET US , THEREF OR E, MOVE ON TO DEAL WITH , AND EXAMINE, THE TAXABILITY OF INTEREST INCOM E UNDER ARTICLE 11 . THE RELATED TREATY PROV ISION IS SET OUT BELOW FOR READY R EFERENCE: ARTICLE 11 - INTERES T 1. INTEREST ARISING I N A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CON TRACTING STA TE M AY BE TAXED IN THAT OTHER STATE . 2. HOWEVER, S UCH INTEREST MAY ALSO BE TAXED IN CONTRACTING STATE IN WHICH IT ARISES AND AC CORDING TO THE LAWS OF THAT STA TE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE INTEREST THE TAX SO CHARGED S HALL NOT EXC EED 10 PER CENT OF THE GROSS AMOUNT OF THE INTEREST . 3. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 AND 2 ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 15 OF 21 (A) INTEREST A RISING IN THE FEDERAL REPUBLIC O F GERMANY AND PAID TO TH E GOVERNMENT OF THE REPUBLIC OF INDIA, THE RESERVE BANK OF INDIA, THE IN DUST RIAL FINANCE CORPORATION OF INDIA, THE INDUSTRI AL DEVELOPMENT BANK OF INDIA, THE EXPORT - IMPORT BANK OF INDIA , NATIONAL HOUSI NG BANK AND SMALL INDUSTRIES DEV ELOPMENT BANK OF INDIA S HALL BE EXEMPT FROM GERMAN TAX; (B) INTE REST ARISING IN THE REPUBLIC OF I NDIA AND PAID TO THE GOVERNMENT OF THE FEDERAL REPUBLIC OF GERMANY, THE DEUTSCHE BUNDESBANK, THE KREDITANSTAT FUR WIEDERAUFB AU OR THE DEUTSCHE INVESTITIONS - U ND ENTWICKLUNGSGESELLSCH AFT (DEG) AND INTEREST PAID IN CONSIDERATI ON OF A LOAN GUARANTEED BY HE RMES - DECKUNG SHALL BE EXEMPT FROM INDIAN TAX. 4. T HE TERM 'INTEREST' AS USED IN THIS ARTICLE MEANS INCOME FROM DE BT - CLAIMS OF E VERY KIND, WHETHER OR NOT SECURED BY MORTGAGE AND WHETHER OR NOT CARRYING A RIGHT TO PARTICIPATE IN THE DEBTOR'S PROFITS, AND IN PAR TICULAR, INCOME FROM GOVERNMENT SECURITIES AND INCOME FROM BONDS OR DEBENTURES, INCLUDING PREMIUMS AND PRIZES ATTACHING TO S UCH SECURITIES, BONDS OR DEBENTUR ES. PENALTY CHARGES FOR LATE PAYMENT SHALL NOT BE REGARDED AS INTE REST FOR THE PURPOSE OF THIS ARTI CLE. 5. THE PROVISIONS OF PARAGRAPHS 1, 2 AND 3 SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE INTEREST, BEING A RESIDENT O F A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER C ONTRACTING STATE IN WHICH THE INTEREST ARI SES, THROUGH A PERMANENT ESTA BLIS HMENT SITUATED THEREIN, OR PERFORMS IN THAT OTH ER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AN D THE DEBT - CLAIM IN RESPECT OF WH ICH THE INTER EST IS PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMAN ENT ESTABLISHMENT OR FIXED BA SE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR AR TICLE 14, AS THE CASE MAY BE, SHALL APPLY . 6. INTEREST SHALL B E DEEMED TO AR ISE IN A CONTRACTING STATE WHEN T HE PAYER IS THAT STATE I TSELF, A LAND OR POLITICAL SUB - DIVISION, A LOCAL AUTHORITY OR A RESIDEN T OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THE INTEREST, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE O R NOT, HAS IN A CONTRACTING STATE A PERMANENT E STABLISHMENT OR A FIXED BASE IN CONNECTION WITH WH ICH THE INDEBTED NESS ON WHICH THE INTEREST IS PAI D WAS INCURRED, AND SUCH INTEREST IS BORNE BY S UCH PERMANENT ESTABLISHMENT OR FIXED BASE, THEN SUCH INTEREST S HALL BE DEEMED TO ARISE IN THE STATE IN WHICH T HE PERMANENT ESTABLISHME NT OR FIXED BASE IS SITUATED. 7. WHERE, B Y REASON OF A SPECIAL RELATIO NSHI P BETWEEN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF THEM AND SOME OTHER PERSON, THE AMOUNT OF THE INTEREST, HAVI NG REGARD TO THE DEBT - CLAIM FOR W HICH IT IS PAID, EXCEEDS THE AMOUNT WHICH WOULD HAVE BEEN AGREED U PON BY THE PAYER AND THE BENE FICI AL OWNER IN THE ABSENCE OF SUCH RELATIONSHIP, T HE PROVISIONS OF THIS ARTICLE SHALL APPLY ONLY TO THE LAST - MENT IONED AMOUNT. IN SUCH CASE, THE EXCESS PART OF THE PAYMENTS SHALL REMAI N TAXABLE ACCORDING TO THE LAWS OF EACH CO NTRACTING STATE, DUE REGARD B EING HAD TO THE OTHER PROVISIONS OF THIS AGREEMENT. [EMPHASIS, BY UNDERLINING, SUPPLIED BY US] 1 6 . THERE CANNOT BE, AND THERE IS NO , DISPUTE THAT INTEREST INCOM E IS SPECIFICALLY COVERE D BY ARTICLE 11 WHICH, INTER ALIA , PROVI DES THAT INTEREST INCOME ARI SING IN A CONTRACTING STATE AND PAID T O A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THE OTHER CONTRACTING STATE A ND RESTRICTS THE TAXABILITY OF SUCH INTEREST INCOME, IN THE CASES IN WHICH RECIPIENT OF THE INTERES T INCOME IS BENEFICIAL OWNER THER EOF, TO 10% OF THE GROS S AMOUNT OF INTEREST. T HERE IS AL SO NO DISPUTE THAT THE INTEREST REVENUES RELATING TO THE INDIA OPER ATIONS OF ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 16 OF 21 THE DZ BANK AG H AVE BEEN OFFERED TO TAX UNDER ART ICLE 11, AND THE MATTER HAS REACHED FINA LITY AS SUCH. IN THE ASSESS MENT ORDER ITSELF, THAT ASPECT OF THE MATTER HAS BE EN CATE G ORICALLY NOTED BY THE ASSESSING OFFICER. 1 7 . CLEARLY, THEREFORE, TH E INTEREST INCOME IS TAXABLE ON GRO SS BASIS , IN THE SOURCE JURISDICTION - SUBJECT TO, OF COURSE, CE RTAIN EXEMPTIONS WHICH ARE NO T RE LEVANT IN THE PRESENT CONTEXT AS ON NOW. WE WILL DEAL WITH ONE OF THESE EXEMPTIONS A LITTLE LATER, AS THE SAME I S RELEVANT IN THE CONTEXT OF EXAMINING ASSESSING OFFICER S CASE O N TAXAT I ON O F COMMITMENT FEES. 1 8 . COMING B ACK TO THE TAXATI ON OF INTERE ST UN DER ARTICLE 11, T HE EXCEPTION TO THIS SCHEME OF TAXABILI TY OF INTER EST IS SET OUT IN ARTICLE 11(5 ) A BOV E. AS IS SO SET OUT I N THIS PROVISION, UNLESS BENE FICIAL OWNER OF INTEREST, RESI DENT IN A CONTRACTING STAT E, I.E. THE FOREIGN ENTERPRISE , CARRIES ON BU SINESS IN THE OTHER CONTRACTING STATE IN WHICH THE INTEREST ARISES, THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN AND U NLESS DEBT CLAIM IN RESPECT OF WHI CH THE INTEREST PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMAN EN T ESTABLISH MENT , THE EXCLU SION CLAUSE UNDER ARTICLE 11(5) WILL NOT COME INTO P LAY. 1 9 . LET US IN THE LIGHT OF THE PROVISIONS OF A RTICLE 11(5), REVERT TO THE FACTS OF THIS CASE . 20 . AS A PLAIN READING OF THE ASS ESSMENT ORDER WOULD SHOW, IT IS NOT EVEN CASE OF THE REVENUE THAT THE BUSINESS OF DZ BANK AG IS CARRIED ON THROUGH IT S INDIA REPRESENTATIVE OF FICE, BUT T HAT THERE IS A REAL RELATION BETWEEN THE BUSINESS CARRIED ON BY THE ASSESSEE F OR WHICH IT RECEIVES INT EREST AND PROCESSING CHARGES ABROAD AND ACTIVITIES OF ITS REPRESE NTATI VE OFFICE IN INDIA WHICH CONTRIBUTE DIRECTLY OR INDIRECTLY TO THE EARNIN G OF INCOME OF THE ASSESSEE (I.E. DZ BANK AG, GERMANY ) . ONE HAS TO UNDERSTAND THE SUBTLE DISTINCTION , AS THE ASSE SSING OFFICER HAS HIMSELF SO WELL ID ENTIFIED IN THE ASSESSMENT OR DER, BETWEEN CARRYING ON BUSINESS OF BANKING VIS - A - V IS CARRYING ON ACTIVITIES WHICH CONT RIBUTE DIRECTLY OR INDIRECTLY EARNING OF I NCOME BY THE BANKING BUSINESS. THE CA SE OF THE REVENUE AUTHOR ITIES IS BEST CONFINED TO THE LATTER CATEGORY, BUT THEN, EVEN IF THAT BE A CORRECT CLAIM, THAT CAN NOT BE REASON ENOU GH TO INVOKE EXCLUSIONARY CLAUSE IN ARTICLE 11(5). 21 . UNDER ARTICLE 5(4)(E), ON A SOMEWHAT PARALLEL NOTE, EVEN WHEN AN ASSESSEE MAINTAI NS A FIXED PLACE OF BUSINESS BUT T HAT PLACE IS SO MAINTAINED SO LELY F OR THE PURPOSE OF AN ACTIVITY OR PREPARATORY CH ARACTER , THE MAINTENANCE OF SUCH A P LACE OF BUS INESS DOES NOT AMOUNT TO A PERMANENT ESTA BLISHMENT, AND, THEREFORE, T O TAXATION OF BUSINESS P ROFITS UNDER ARTICLE 7. IN OTHER W ORDS, THEREFORE, EVEN IF THER E IS A REAL RELATION BETWEEN THE BUSINESS CARRIED ON BY THE ASSESSE E FOR WHICH IT RECEIVES INTEREST AND PROCESSING CHARGES ABROAD AND ACTIVI TIES OF ITS REPRESENTATIVE O FFICE IN INDIA WHICH CON TRIBUTE DIRECTLY OR INDIRECTLY TO THE EARNING OF INCOME OF THE ASSESS EE , AS IS STATED IN THE ASSESSMENT ORDER, THAT RELA TIONSHIP PER SE WILL NOT MAKE IT TAXABLE IN I NDIA. ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 17 OF 21 22 . IT IS ALSO IMPORTANT T O BEAR IN MIND THE FACT THAT THE EXCLUSION CLAUSE UN DER ARTICLE 11(5) WILL BE TRIGGERED ONLY WHEN THE TWIN CONDITION S THAT THE FOREIGN ENTERPRISE CARRIED ON BUSINESS I N THE SOURCE JURISDICTION AND THAT THE DEBT CLAIM BEIN G EFFECTIVELY CONNECTED WITH THE PE RMANENT ESTABLISHMENT ARE SA TISFIED. SO FAR AS THE D EBT CLAIM BEING EFFECTIVELY CONNECT ED WITH THE PE IS CONCERNED, THAT CA NNOT COME INTO PLAY ONLY MERELY BECAUSE THE PE HAD A SUPPORTING ROLE IN CREATION OF THE DEBT CLAIM . UNLESS A DEBT CLAIM IS PART OF TH E ASSETS OF THE PE OR INCOME ARISING THEREFROM CAN B E SAID TO BE INCOME OF THE PE, IT C ANNOT NORMALLY BE TREATED AS EFFECTI VELY CONNECTED WITH THE PE. IN ANY CASE, THE ASSESSING OFFICER HAS NOT BROUGHT ON RECOR D ANY MATER IAL TO ESTABLISH, OR EVEN INDICATE, THAT THE DEBT CLAIM IS EFFE CTIVELY CONNECTED WITH T HE PE, SAVE AND EXCEPT FOR THE SUPP ORTING SERVICES RENDERED BY T HE INDI AN REPRESENTATIVE OFFICE IN CONNECTION WITH DEALING WITH THAT DEBT CLAIM BUT THEN REND ITION OF S E RVICE BY THE PE, IN CONNECTION WIT H A DEBT CLAIM, BY ITSELF WO ULD NOT MAKE THE DEBT CL AIM EFFECTIVELY CONNECTED WITH THE PE. WHAT ESSENTIALLY FOLLOWS IS THA T UNLESS THE FOREIGN ENTERPRISE, I.E. DZ BAN K AG GERMANY, CARRIES ON BUSINESS THROUGH T HE PERMANEN T ESTABLISHMENT IN INDIA, EVEN IF T HERE BE ANY, INTEREST INCOME EARNED BY THE FOREIGN E NTERPRISE, EVEN IF EARNING OF THE S AID INCOME IS ON ACCOUNT OF A SIGNIF ICANT CONTRIBUTION FROM THE ACTIVITIES OF SU CH A PERMANENT ESTABLISHMENT, CANNOT BE TAK EN OUT OF T AXABILITY UNDER ARTICLE 11(5). CLEA RLY, THEREFORE, THE CONDITIO NS LAID DOWN UNDER ARTIC LE 11(5) ARE NOT SATISFIED ON THE F ACTS OF THIS CASE, AND, THE E NTIRE I NTEREST INCOME, THEREFORE, IS REQUIRED TO BE TAXED UNDER ARTICLE 11. FOR THIS REASON ALONE, THE INTEREST INCOME CANNOT BE BROUGHT TO TAX UN DER ARTICLE 7 BECAUSE THE CONDITION PRECEDENT FOR AN INTEREST INCOME BEING BROUG HT TO TAX UNDER ARTICLE 7, I. E. FULF ILLING THE TWIN CONDITIONS SET OUT IN ARTICL E 7 , ARE NOT SAT ISF I ED. 2 3 . ON A CONCEPTUAL NOTE, T HERE CAN PERHAPS BE SITUATIONS IN WHICH AN I NTERES T INCOME FROM I NDIA, IN THE HANDS OF A FOREIGN ENTERPRISE, COULD BE A COMB INED FRUIT OF BU SINESS CARR IED ON B Y THE FOREIGN ENTERPRISE OUTSIDE INDIA, AS A LSO IN INDIA BY THE VIRTUE OF SUPPORTING SERVICES PROVIDED BY ITS R E PRESENTATI VE OFFICE IN INDIA. UNLESS THE CONDITIO NS SET OU T IN ARTICLE 11 (5) ARE NOT SATISFIED , AS IN THIS C ASE , THERE CANNOT BE , IN TH E LI GHT OF PRE CEDING DISCUSSIONS, ANY OCCASION TO T A KE SUCH INTEREST OUT OF THE AM BIT OF ARTICL E 11, AND , WHEN ENTIRE INTEREST REVENUES ARE T AXABLE UNDER ARTICLE 11, NOTH ING SURVIVES FOR TAXATIO N , OR IS PERMITTED TO BE TAX ED, UND ER ARTICL E 7. 2 4 . IN CER TAIN SITUATIONS, THE FRUITS OF SERVICES RENDERED BY THE INDIAN LIAISON OFFICE TO THE FOREIGN ENTERPRISE , COULD AT BEST BE TAXED BY MAKING AN ALP ADJUSTMENT TO FREE SERVICES RENDERED BY THE I NDIAN LIAISON OFFICE . THE L INE OF RE ASONI NG , IN SUPPORT OF THIS PR OP OSITION, COULD BE AS FOLLOWS. THE DOM ESTIC LAW DEFINITION OF THE EXPRESSION ENTER PRISE UNDER SECTION 92F(III) INCLUDES A PERMANENT ESTABLISHMENT WHICH, FOR THAT PURPOSE A ND AS FURTH ER DEFINED IN SEC TION 9 2F(IIIA), INCLUD ES A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF THE ENTER PRISE IS WHOLLY OR PARTLY CARRIED ON. THERE FORE, EVEN WHEN BUSINESS OF A FOREIGN ENTERPRISE IS PARTLY , NO MATTER EVEN IF THAT PART BE RELATIV ELY INSIGNI FICANT GIVE N THE OVERALL SCHEME O F BUS INESS, CARRIED ON THROUGH ITS FIXED PLAC E OF BUSINE SS IN INDIA, SUCH AN ESTABLISHMENT COULD QUALIFY TO BE A PERMANENT ESTABLISHMENT FOR THE PURPOSES OF THE TRANSFER PRICING REGULATIONS. THERE IS ALSO A SCHOOL OF T HOUGHT THAT WH ATEVER BE THE TREATY P ROTEC TION UNDER SECTION 90, SU CH A TREATY PR OTECTION DO ES NOT EXTEND TO TRANSFER PRICING REGULATIONS. AS NOTED BY A COOR DINATE BE NCH OF THIS TRIBUNAL, IN THE CASE OF SHE LL GLOBAL SOLUTIONS BV VS DDIT [(2016) 75 TAXMANN .234 (AHD)] , T H E PROF IT ADJUSTMENT ME CHANI SM, ENVISAGED IN TAX TREA TIES, DO NOT DEAL WITH SUPRA NATIO NAL I NCOME DETERMINATION, AND, THEREFORE, THE PROV ISIONS OF TAX TREATIES CANNOT BE SEEN AS RESTRICTING, OR OVERRIDING, DOMESTIC ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 18 OF 21 LAW MECHANISM ON THIS ASPECT . IT IS NOT EVEN I N DISPUTE THAT I NDIA REPRESENTATIVE OFFICE S OF FOREIGN ENTERPR ISE DO PERFORM CERTAIN SERVICES WHICH ARE PART OF THE BUSINESS ACTIV ITIES, EVEN TH OUGH SUCH SERVICES ARE AT BEST PREPARATORY AND AUXILIARY ACTIVIT IES . AS A COROLLARY TO THIS LEGAL AND FACT UAL PO SITION, A SUITAB LE AR MS LENGTH PRICE ADJUSTME NT FOR THE FREE SERVICES RENDERED BY TH E INDIAN OFFICE TO THE FOREIGN ENTERPRISE COU LD PROBABL Y BE IN ORDER . SUCH AN ALP ADJUSTMENT COULD FACTOR FOR THE FUNCTIONS PERFORMED, ASSETS EMPLOYED AND THE RISKS ASSUME D BY THE INDIAN OFFIC E. UNDOUBTEDLY, IN TERMS OF THE RESERVE BANK OF INDIA RESTRICTIO NS, THE REPRESENTATIVE OFFICE FUNCTIONS PUREL Y AS A LIAISON OFFICE WITHOUT TRANSACTING ANY TYPE O F BANKING B USINESS BUT THEN THE SOURCE OF INCOME IN SUCH A SITUATI ON WIL L BE FROM THE SE RVICE S RENDERED BY AN ENTERPR ISE TO ITS ASSOCIATED ENTERPRISE , AN D, IN TERMS OF THE MANDATE OF SECTION 92, A NY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION S HALL BE COM PUTED HAVING REGARD TO THE ARMS LENGTH PRICE. THE RBI RESTRI CTIONS ARE ON CA RRYIN G ON OF BANKING BUSINESS BY THE INDIA REPRESENTATIVE OFFICE S , BU T THESE OFFICES CAN, AND ADMITTEDLY DO , CARRY ON ECONOMIC ACTIVITIES NEVERTHELESS, AND IT IS AS A R ESULT OF TH ESE ECONOMIC ACTIVITIES, ALP ADJUSTMENTS COU LD POSSIBLY BE MA DE . 2 5 . HOWE V ER, W HEN WE P UT THE ABOVE PRO P OSITIO N S TO THE LEARNED SEN IOR COUNSEL , HE VEHEMENTLY OPPOSED THE SAME. HIS FIRST O B JECTION WA S T HAT SU CH A DIRECTION, IF MADE, WILL BROADE N THE SCOPE OF THE APPEAL BECAUSE THE ISSUE RE GARDING A LP ADJUSTM ENT IS NOT EVEN MADE O UT B Y ANY OF THE AUTHO RITIES BELOW , AND BY DIREC TING THE SAME, OR EV EN OBLIQUELY SUGGESTING THE SAME , WE WILL END UP ENLARGING THE SCOPE OF THIS APPEAL . HIS SECOND OBJECTION WAS THAT I T IS INCORRECT TO PROC EED ON THE B ASIS THAT THE TR EATY PR OVISIONS DONOT RESTR ICT THE APPLICATION OF T RANSFER PR ICING PROVI SIONS, AND HE RELI ED UPON HIS ANALYSIS ABOUT THE SCOPE OF ARTICL E 9 WITH RESPECT TO ASSOCIATE ENTERPRI SE . HIS THIRD POINT WAS THAT WHEN PRO FITS OF THE LIAISON OFFICE ARE NOT TAXABLE IN IND IA, THERE CANNO T BE ANY QUESTION OF ALP AD JU ST MENT WITH RESPECT TO SO CALLED FREE R ENDITION OF SERVICES BY THE IN DIAN REPRESENTAT IVE OR LIAISON OFFICE TO THE FOREIGN ENTERPRISE. HIS LAST POINT WAS THAT WHE N WHAT IS TO BE EVENT UALLY TAXED IN THE HAND S OF TH E F ORE IGN ENTER P RISE IN INDIA CAN NEVER EXCE ED THE RECEIPTS OF THE F OREIGN ENTERPRI SE FROM INDIA, AND WHEN ENTIRE RECEIPTS ON ACC OUNT OF IN TEREST ARE TAX ED IN THE HANDS OF THE FOREIGN ENTERP RISE , UNDER AR T ICLE 11 , THERE CANNOT BE FURTHER ATTRIBUTION OF IN C OME ON ACCOUNT OF AL P ADJUSTMENT IN RESPECT OF RELATED SERVICES. THE FACT THAT TH IS INCOME IS TAXED ON THE GROSS BASIS, AC CORDI NG TO LEA RNED COUNSEL, DOES NOT REALLY MATTER , BECAUSE SO FAR AS THIS ASPECT IS CONCERNED , WE ARE CONC ERNED ABOUT THE FACT OF TAX ATION PER SE AN D NOT THE MOD AL ITIES OF TAXAT ION . LEARNED DEPARTMENTAL REP RESENTATI V E, ON THE OTHER HAND, RELIES UPON HIS STAND TH AT AT LEAST SOME INCOME MUST BE ATTRIBUTED TO THE OPERATIONS OF THE INDIA REPRESENTATIVE OFFICE. 2 6. WE SEE MERITS IN T HE STAND OF THE LEARNED SE N IOR COU NSEL FOR A VERY SHORT REAS ON . IT IS A N UND ISPUTED FACT THAT THE ENTIRE RE LATED INTEREST INCOME HAS B EE N BROUGH T TO TAX IN THE HANDS OF THE FOREIGN ENTERPRI SE, EV EN THOUGH ON G ROSS BASIS UNDER ARTICLE 11 . IN CASE ANY INCOME IS BROU GHT TO TAX ON A C CO UNT OF ALP ADJUSTMENT , A ND B EARING IN MIND THE F ACT THAT SUCH A N INCOME WILL ALSO BE RELATABLE TO EARNING THE SAME INTEREST INCOME, IT WI LL IND EED RESULT IN A S ITUATION THAT FOR REVENUE OF X AMOU NT EARNED FROM INDIA , WHAT WILL BE COME TA XAB LE IN INDIA W IL L B E AN AMOUNT MORE THAN X AM OUNT - SOMETHING W HICH IS CL EARLY INCO NGRUOUS. THE TAXABLE A MOUNT IN A TAX JURI SDICTION CA NNOT, UNDER ANY CIRCUMSTA NCES , BE MORE THAN THE ENT IRE REVENUE ITSELF IN THAT JURISDICTION. IN THIS VIEW OF THE MATTE R, EVEN AN INCO M E ON ACCOUNT OF ALP ADJUST MENT FOR FREE RENDITION OF SERVICES BY THE INDIAN REPRESENT ATIVE OFFI CE TO THE FOREIGN E NTERPRISE I TSELF - EVEN IF THAT BE TREATED AS A N ASSOCIATED ENTER PR ISE AND A HYPOTHETICALLY INDEPENDENT ENTITY , IN THE CA SES OF BANKS WHERE EN T IR E INTEREST REVENUES ARE ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 19 OF 21 TAXED ON GROSS BASIS, IS RULED OUT. IN THIS VIEW OF THE MATTER, WE SEE NO NEED TO DEAL WITH THE OTHER ISSUES RAISED IN LEARNED SENI OR COUNSE L S DEFENCE , AND LEAVE THOSE ISSUES OPEN F OR ADJUDICATION IN THE APPROPRIA TE C ASES. 2 7 . IN VIEW OF THE ABOVE LEG AL ANALYSIS, ONCE ENTIRE INTEREST REVE NUES EARNED IN INDIA IN THE HANDS OF THE FOREIGN ENTERPRIS E IS TAXED IN ITS HANDS UNDER ARTICLE 11 - AS IS THE UNDISPUTED POS ITION IN THIS CASE, NO THING SURVIVES FOR TAXATION UND ER ARTICLE 7, A ND , GIVEN THE FACT THAT EN TIRE RELATED RE VENUES ARE TA XED IN THE HANDS OF THE ASSESSEE ON GROSS BASIS UNDER A RTIC LE 11, DIRECTLY OR IN D IRECTLY, NO THING MO RE THAN ENTIRE BUSINESS RECE IPTS C AN BE B ROU GHT TO TAX IN INDIA . IN ANY CASE, UN DER THE SCHEME OF TAX ABI LITY IN ARTICLE 7 AND BY THE VIRTUE OF SPECIFIC PRO VISIONS OF ARTICLE 7(7), AS LONG AS AN INCOME IS TA XABLE UND ER ANY OTHER SPECI FIC PROVISIONS OF THE TREATY, [ SUCH AS ARTICLE 8 (SHIPPING AND AIR TRANSPORT BUSINESS INCOME) , ARTICLE 10 (DIVIDENDS) , ARTICLE 11 ( INTEREST) , ARTICLE 12 (ROYALTIES AND FEES FOR TECHNICAL SER VICES ) , ARTICLE 13 (CAPITAL GAINS) ] , AND UNLESS I T IS EXCLUDED FRO M THE OPERATION OF SUCH SPECIFIC PROVISIONS [ S UCH AS UND ER AR TICLE 10(4), ARTICLE 11(5 ) , ARTICLE 12(5)] , IT CANNOT BE TAX ED UND ER ART ICLE 7. 28. IT IS ALSO IMPOR TANT TO BEAR IN MIND THE FACT THAT, AS WE HAVE INDICATED EA RLI ER AS WELL, T HAT THE CASE OF THE REVENUE PROCEED S ON THE FALLACY THAT INDIAN REPRESENTATIVE OFFICE OF DZ BANK AG AND DZ BANK AG ARE TWO DIST INC T ENTITIES , AN D THAT IS APPAREN TLY CON CEPTUAL JUSTI FICATION FOR AC CEPTING TA XABILITY OF THE ENTIRE RELAT ED INTEREST INCOME IN THE HANDS OF THE DZ BANK AG ON GROSS BASIS UNDER ARTICLE 11 AND THEN SEEKING TO TAX PROFITS RELATING TO EARNING OF SUCH INCOME IN THE HANDS OF D Z BANK AG - INDIA REPRESE NTATIVE OFFIC E , UNDER ARTICL E 7 . IT IS ONLY A COROLLARY OF THE UNAMBIGUOUS POSITION THAT THE DZ BANK AG AND DZ BANK IND IA REPRESENTATIVE OFFICE ARE ONLY ONE TAXAB LE UNIT, THAT THE SAME INCOME C ANNOT BE TAX ED IN THE HANDS OF THE SAME ASSESSEE TWICE - ONCE UN DER ONE ARTIC LE OF THE TREAT Y I.E. ART ICLE 11 , AND THEN U NDER ANOTHER ARTI CLE OF THE TRE ATY , I.E. ARTICLE 7. THE SCHEME OF TAXABILITY UNDER AR TICLE 7 AND ARTICL E 11, DOES NOT VISUALIZE , OR PERMIT, SUCH INC ONGRUOUS SITUATIONS . 2 9 . THA T LEAVES US WITH THE TAXABILITY OF COMMITMENT FEE OF RS 1, 91,08,038 AN D AGENCY FEES OF RS 7,06,900 . SO FAR AS THES E RECE IPTS ARE CONCERNED, THE ASSESSING OFF I CER, IN PARAGRAPH 9.1 OF THE ASSESSMENT ORDER, HAS NOTED THE CLAIM OF THE ASSESSEE THAT THESE WERE IN CONNECTION WITH A LOAN GUARANTEED BY HERMES - DECKUNG , G ERMANY, AND FOR THAT REASON NOT TAXABLE UNDER ARTIC LE 11(3)(B) OF THE INDO G E RMAN TAX TREATY . WHILE HE DID NOT DISPUTE THE CLAIM OF THE ASSESSEE THAT THESE AMOUNTS THESE AMOUNTS ARE IN THE NA TUR E OF INTEREST, AND AS SU CH ELI GIBLE FOR EXEMPTION UNDER ART ICL E 11(3)( B), HE REJECTED THE CLAIM FOR THE SH ORT REA SON THAT IT HAS BEEN HELD THAT THE ASSESSEE IS A PERMANENT EST ABLISHMENT OF DZ BANK AG IN INDIA, AND ALL THE INCOME EARNED BY THE HEAD OFFICE FROM CLIENTS IN INDIA IS TAXABLE AS ITS B U SINESS I NCOME IN I ND IA . THAT RE ASON IS CLEARLY INCORRECT. AS WE REPEAT EDLY EMPHASIZED, THE DZ BANK AG AND DZ BANK AG - INDIA R EPRESEN TATIVE OFF ICE ARE ONE AND THE SAME THING SO F AR AS TAXATION IN INDIA IS CONCERNED . T H ESE PAYMENTS TO DZ B A NK A G WERE SUBJECT MATTER OF REMIT TAN CES BY I NDIA N CLIENTS TO THE DZ BANK AG. IF THESE W ERE NOT TAXABLE AT TH AT STAGE, THERE IS NOTHING FURTHER BY WAY OF DZ BANK INDIA REPRESENTATIVE OFFICE WHERE THE SAME C AN B E TAXED. THE VERY APP ROAC H OF THE ASSESSING O FFICER PROCEEDS ON GROSS MISCONCEPT ION OF FACTS. IN ANY EVENT, WHEN PRINCIPAL TRANSACTIO N (I.E. INTEREST INCOME IN QUESTION) ITSELF DOES NOT LEAD TO TAXABLE INCOME IN INDIA, A TRANSACTION SUBSIDIARY THERETO (I.E. COMMITMENT FEES AN D AG ENCY FEES RELATABLE THERETO) CANNOT RESULT IN AN INCOME TA XABLE IN IND IA E ITHER. WE HA VE TAKEN NOTE ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 20 OF 21 OF THE FA CT THAT WHAT ARE T ERMED AS COMMITMENT CHA RGES AND AG ENCY FEES ARE IN FACT INTE GRAL PART OF THE LOAN ARRANGEMENTS , RELATABLE TO THE SAME LOAN, A ND P ART OF CONSIDERATION FOR THE SAME LOAN HAVING BEEN EXTE NDE D BY DZ B A NK AG TO I NDIA. UNLESS THERE IS SOMETHING IN A TAX TRE A TY TO INDICATE TO THE CO N TRARY, A S NOTED IN THE CASE OF HI NDALCO INDUSTRIES LTD VS A CIT [ (2005) 9 4 ITD 242 ( MUM)] , BY A COORDINAT E BE NCH OF THIS TRIBUNAL , SUBSIDIARY TRANSACTION TAKES COLO UR FROM THE PRI NCIPAL TRANSACTION. THE COORDINATE BE NC H HAD NOTE D THAT .. WHEN PRINCIPAL TRANSACTION IS SUCH THAT IT DOES NOT GENERALLY GIVE RISE TO TAXABILITY IN THE SOURCE COUNTRY, THE TRANSA CTIO N SUBSIDIARY AND INT EGRAL TO SUCH A TRANSACTION ALSO DO ES NOT GIVE RIS E TO TAXABI LITY IN THE SOURCE COUNTRY. IN OTHER WORDS, THE SUBSIDIARY AND INTEGRAL TRANSACTIONS HAVE TO TAKE COLOURS FROM THE PRINCIPAL TRANSACTION ITSELF AND ARE NOT TO BE VIEWED IN ISO LATION . IN ANY EVE NT, ARTICLE 11(4) DEFINES INTEREST AS USED IN T HIS ARTICLE MEANS INCOME FROM DEBT - CLAI MS OF EVERY KIND [EMPHASIS, BY UNDERL INING , SUPP LIED B Y US ] , IN MOST EXHAUSTIVE MANNER AND CO VERING ALL INCOME FROM A DEB T CLAIM. THE COMMITME NT FEE AND AGENCY FEE CL EARLY FI T IN THIS DESCR IP TION , AND NOT HING TO THE CONTRARY HAS BEEN EVEN BROUG HT TO OUR N OTIC E BY THE LEARNED D R OR IN THE MATERIAL ON RECOR D. 30 . IN THE LIGHT OF THE AB OVE DISCUSSIONS , AS ALSO BEARING IN MIND ENTIRETY OF THE CASE , IT IS CLEAR THAT , ON THE FACTS AND IN THE CIRCUMSTANCES OF TH I S CASE AND IN LAW, THERE IS NO INCOME , OTHER THAN THE IN TEREST INCOME OF DZ BANK AG FROM ITS CLIENTS IN INDIA, ON W HICH TAX LIABILITY UNDER ARTICLE 1 1 HAS ALREADY BEEN DISCHARGED , TAXABLE IN T HE HANDS OF THE AS SESSEE BANK. SO FAR AS THIS TAX A BILITY IS CONCERNE D, THE ASSESSEE DID NOT HA VE ANY OBLIGATIO NS TO FILE THE INCOME TAX RETURN UNDER SECTION 115A( 5 ) AS IT EXISTED AT TH E RELEVANT POINT OF TIME. IT IS DIFFICULT NOT TO MISS THE FACT THAT WE A RE LOOKING AT A SITUATION IN WHICH AN INCOME , WHICH HAS ALRE ADY BEEN BROUGHT TO T AX IN THE H ANDS OF THE ASSESSEE UNDER A TREATY PROVISION , IS BEING SOUGHT TO BE TAXED A GAIN IN THE HANDS OF THE SAME ASSESSEE, IN THE SAME ASSESSMENT YEAR BUT ONLY UNDER A DI F FERENT PROVISION IN THE SAME T AX TREATY. WE CANNOT , AND DONOT, APPROVE SUCH A N APPROACH. THE IMPUGNED DEMANDS ARE , THUS , ALS O D EVOID OF LEGALLY SUSTAINABLE MERITS FROM THIS POINT OF VIEW AS WELL. WE , THEREFORE, UPHOLD THE PLEA OF THE ASSESSEE A GAINST TAXAB ILITY OF INTERE ST INCOME OF RS 29,41,57,201 AND COMMI TMENT FEES ETC OF RS 1,98,14,938 , IN THE H ANDS O F TH E ASS ESSEE BANK, ADDITIONALLY UNDER ARTICLE 7 OF THE INDO GERMAN TAX TREATY ALSO . THAT FINDING IS, HOWEVER, WITHOUT PREJUDICE TO THE TAXABILITY OF THE INTEREST INC OME UNDER ARTICLE 11 OF THE IND O GERMAN T AX TREATY. WE MAKE IT CLEAR THAT T HE INCOME IN QUES TION COULD ONLY BE TAXED UNDER ARTICL E 11, AND NOT ADDITIONALLY UNDER ARTICLE 7 ALSO , BUT THE INCOME IS TAXA BLE NEVERTHELESS , SUB JECT TO THE EXEMPTIONS SET OUT IN AND UNDER THE SCHEME OF ARTICLE 11 , ON GR OSS BASIS . 31 . GIVEN OUR LINE OF REASONING , AS A BO VE, IT IS WHO LL Y A CA DEMIC IS SUE AS T O WHETHER OR NOT THE ASSESSEE HAD A PERMANENT ESTABLISHMENT IN INDIA , BECAUSE PE OR NO PE, THE DEBT CLAIM IN QUEST ION COULD NOT BE SAID TO B E EFFECTI VELY CONNECTED TO THE A LLE GED PE, A ND, THEREFORE , NEITH ER THE EXCLU SION ARTICLE 11(5 ) COU LD HAVE BE EN TRIGGERED , NOR THE TAXABILITY U NDE R ARTICLE 7 COULD NOT H AVE COME INTO PLA Y . IT IS N OT E VEN ASSESSING OFFICER S CASE TH AT THE DEBT CL AIMS IN QUESTION ARE EFFECTIVELY CONNE CTED WITH THE PE, BUT AT B EST T HAT THERE IS A REAL RE LATION BETWEE N THE BUSINESS CARRIED ON BY THE ASSESSEE FOR WHICH IT RECEIVES INTEREST AND PROCESSING CHARGES ABROAD AND ACTIVITIES OF ITS REPRESENTATI VE OFFICE IN I NDIA WHICH CONTRIBUTE DIRECTLY OR INDI RECTLY TO THE EARNIN G OF INCOME OF THE ASSESSEE (I.E. DZ BANK AG, G ERMANY ) - SOME TH ING IS MUCH LESS THAN THE THRESHOLD NEXUS LEVEL TO TRIGGER ART ICLE 11(5) EXCLUSION C LAUSE. THE EXISTENCE OF PERMANENT ESTA BLISHMENT, IN THE LIGHT OF OUR ANALYSIS OF ITA NO .: 1815 /MUM /18 ASSESSMENT YEAR: 2014 - 15 P AGE 21 OF 21 LEGAL POS ITION, IS NOT RE ALLY RELEVANT FOR DETERMINING THE ISSU E OF T A XABILITY UNDER ARTICLE 7 ON THE FACTS OF THE PRESENT CASE. 32. IN VIEW OF OUR DETAILED FINDINGS AB O VE , THE QUESTION THAT WE HAD RAISED ON OU R OWN , WITH RES PE C T TO THE RIGHT HANDS IN WHICH IMPU GNED DEMANDS COULD BE BROUGHT TO T AX, IS RENDERED INFRUC TUOUS , AND IT DOES NOT CALL FOR OUR ADJUDICATION AS ON NOW AND IN THIS CASE. SUFFICE TO SAY THAT THE TAX DEMANDS RAISED IN THE IMPUGNED ASSESSMENTS , FOR THE DETAIL ED REASONS SET OUT A BOVE, ARE W HOLLY UNSUSTAINA BLE IN LAW, AND IT IS , T HEREF ORE, WHOLLY ACADE MIC QUESTION AS TO, IF AT ALL THESE WERE DEMANDS COULD BE LAWFULLY RAISE D, WHETHER THESE DEMANDS COULD HAVE BEEN LAWFULLY RAISED IN TH E IMPUGNED ASS ESS MENT O R WHET HER SEPA RATE PROCEEDINGS WERE REQUIRE D TO BE INITIATED IN THE HAND S OF THE DZ BANK AG . FOR TH IS REASON , WE ALSO DO NOT SEE NEED TO D EAL WITH THE SCOPE OF SECTION 153 ON THE F ACTS OF THIS CASE, AS AL SO THE QUESTIO N WHETHER , GIVEN THE PRESENT CONTEXT, APPELL ANT BEFORE US COULD BE TREATED AS A PERSON IN THE INCLUSIVE DEFI NITION OF SECTION 2(31) UND ER THE INCOME T A X ACT, 1961 . A LL THESE ISSUES A RE RENDERED ACADE MIC IN THE PRESENT SITUATIO N . 33 . IN THE RESULT, THE APPEAL IS ALLOWED IN THE TER M S INDICATED ABO VE. PRONOUNCED IN THE OPEN CO URT TODA Y ON THE 04 DAY OF D ECEMBER , 2020. SD/ - S D/ - PAVAN KUMAR GADALE PRAMOD KUMAR ( JUDICIAL MEMBER ) (V ICE P RESIDENT) MUMBAI, DATED THE 04 DAY OF DECE MBER , 20 20 CO PIES TO: (1) T HE APP ELLANT (2) THE RESP ONDENT (3) CIT (4) CIT(A) (5 ) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI