Bank of Ceylon, CHENNAI V. Addl. DIT, CHENNAI

ITA 1967/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64516 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 08-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR S MOHARANA
• Assessee Lawyers: V S JAYAKUMAR
• Keywords: Double taxation relief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 1967/MDS/2011 ASST. YEAR : 2006-07 BANK OF CEYLON, 1090, POONAMALLEE HIGH ROAD CHENNAI 600 084. PAN AAACB2218C. (APPELLANT) V. THE ADDL. DIRECTOR OF INCOME TAX(INTERNATIONAL TAXATION-I(1) (RESPONDENT) APPELLANT BY : SHRI VS JAYAKUMAR, AD VOCATE RESPONDENT BY : DR. S. MOHARANA, CIT(DR) DATE OF HEARING : 18 OCT 2012 DATE OF PRONOUNCEMENT : 14 NOV 2012 O R D E R PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX DATED 18.3.2011 IN DC NO.113(6)/263/2010-11 UNDER SEC.263 OF THE I.T. ACT FOR THE ASST. YEAR 2006-07. THE ONLY ISSUE CONTESTED BEFORE US I S WHETHER THE ITA 1967MDS/11 2 INTEREST REMITTED BY THE INDIAN BRANCH OF BANK OF C EYLON TO ITS HEAD OFFICE AT CEYLON IS TAXABLE FOR TDS UNDER SEC.195 O F THE I.T. ACT AND FOR NON-DEDUCTION OF TDS UNDER SEC.195 WHETHER SUCH INTEREST EXPENDITURE IS LIABLE FOR DISALLOWANCE UNDER SEC.40 (A)(I) OF THE ACT. THE ASSESSEE ALSO AGITATES THAT THE ASSESSMENT ORDE R PASSED UNDER SEC.143(3) OF THE ACT IS NOT ERRONEOUS AND PREJUDIC IAL TO THE INTEREST OF REVENUE FOR THE REASON THAT THE ASSESSING OFFICE R, WHILE COMPLETING THE ASSESSMENT CONSIDERED/EXAMINED THE A SPECT OF ELIGIBILITY OF TAX/TDS ON THE INTEREST REMITTED BY THE ASSESSEE BRANCH TO ITS HEAD OFFICE AT CEYLON. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A BRANCH OF A NON-RESIDENT BANKING COMPANY M/S. BANK OF CEYLON. IT FILED ITS RETURN DECLARING TOTAL INCOME AT E.7,27,7 8,860/- ON 27.11.2006 AND THE ASSESSMENT WAS FINALIZED UNDER S EC.143(3) OF THE ACT ON 12.12.2008 DETERMINING THE INCOME AT E.7,38, 21,385/-. IN THE OPINION OF THE COMMISSIONER OF INCOME TAX, THE INTEREST PAID BY THE BANK TO ITS HEAD OFFICE WAS OMITTED TO BE DISAL LOWED UNDER SEC.40(A)(I) OF THE ACT BY THE ASSESSING OFFICER WH ILE COMPLETING THE ASSESSMENT UNDER SEC.143(3) OF THE ACT. HENCE, THE COMMISSIONER ITA 1967MDS/11 3 OF INCOME TAX HELD THAT THE ASSESSMENT MADE UNDER S EC.143(3) IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND DIRECTED THE ASSESSING OFFICER TO CARRY OUT NECESSARY CLARIF ICATIONS WITH REGARD TO INTERESTS PAID WHICH ARE EXIGIBLE TO DEDUCTION OF TAX UNDER SEC.195 OF THE ACT WITH REFERENCE TO CBDT CIRCULAR NO.740 DATED 17.4.1996 RECOMPUTED THE TOTAL INCOME. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 3. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE COMMISSIONER OF INCOME TAX ERRED IN HOLDING THAT TH E ORDER PASSED BY THE ASSESSING OFFICER UNDER SEC.143(3) OF THE AC T IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE COUNS EL FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER HAS SPECIFICALLY GONE INTO THE QUESTION OF APPLICABILITY OF SEC115A(II) OF THE ACT WHILE COMPLETING THE ASSESSMENT ORDER UNDER SEC.143(3) OF THE ACT AND, T HEREFORE, THE ASSESSING OFFICER CANNOT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE, HE SUBMITS THAT TH E ORDER PASSED BY THE COMMISSIONER OF INCOME TAX UNDER SEC.263 OF THE ACT IS CONTRARY TO LAW. ITA 1967MDS/11 4 4. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT NO TD S IS REQUIRED TO BE DEDUCTED ON THE INTEREST PAID PAID B Y INDIAN BRANCH OF BANK OF CEYLON TO HEAD OFFICE OUTSIDE INDIA SINCE AS PER THE DTAA BETWEEN THE GOVT. OF INDIA AND GOVT. OF SRILANKA, INTEREST REMITTED OUTSIDE INDIA BY BRANCH IS NOT TAXABLE AND THE ASSE SSEE IS ENTITLED TO CLAIM THE DEDUCTION ON THE INTEREST PAID TO ITS HEA D OFFICE OUTSIDE INDIA. THE COUNSEL FOR THE ASSESSEE VEHEMENTLY ARG UED THAT THE CBDT CIRCULAR NO.740 DATED 17.4.1996 RELIED ON BY T HE COMMISSIONER OF INCOME TAX IN HOLDING THAT THE INTEREST REMITTED BY BRANCHES OF BANKS TO ITS HEAD OFFICE OUTSIDE INDIA IS LIABLE FO R TAX HAS NO APPLICATION TO THE ASSESSEE. THE COUNSEL SUBMITS T HAT AS PER DTAA BETWEEN INDIA AND SRILANKA THE ASSESSEE IS ENTITLED TO CLAIM CONCESSION RATE OR TAX ON THE INTEREST REMITTED BY ASSESSEE TO ITS HEAD OFFICE. THEREFORE, HE SUBMITS THAT THE PROVI SIONS OF SEC.195 OF THE ACT HAVE NO APPLICATION TO THE FACTS OF THE ASS ESSEES CASE AND, THEREFORE, NO DISALLOWANCE CAN BE MADE UNDER SEC.40 (A)(I) OF THE ACT. HE SUBMITS THAT THE DIRECTIONS OF COMMISSIONER OF INCOME TAX UNDER SEC.263 OF THE I.T. ACT TO APPLY THE CIRCULAR IS BAD IN LAW. IN ITA 1967MDS/11 5 SUPPORT OF HIS ARGUMENT, THE COUNSEL FOR THE ASSES SEE RELIED ON THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF ABN AMRO BANK V. CIT & ANOTHER (343 ITR 81). 5. THE DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, STRONGLY SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME TAX AND SUBMITTED THAT THE CONCLUDING PARAGRAPH OF THE CBDT CIRCULAR NO.740 DATED 17.04.1996, MAKES IT OSTENSIBLY CLEAR THAT I NTEREST PAID/PAYABLE BY SUCH BRANCH TO ITS HEAD OFFICE OR A NY BRANCH LOCATED ABROAD WOULD BE LIABLE TO TAX IN INDIA AND WOULD BE GOVERNED BY THE PROVISIONS OF SEC.115A OF THE ACT. MAKING HIS STA ND FIRM ON THE CBDT CIRCULAR, HE VEHEMENTLY ARGUED THAT THE INTERE ST INCOME PAID TO THE HEAD OFFICE OF THE ASSESSEE BANK HAS CLEARLY ES CAPED ASSESSMENT AND THE COMMISSIONER OF INCOME TAX WAS FULLY JUSTIF IED IN SETTING ASIDE THE ASSESSMENT ORDER AND DIRECTING THE ASSESS ING OFFICER TO RECOMPUTED THE TOTAL INCOME OF THE ASSESSEE, AS THE ASSESSMENT ORDER PASSED UNDER SEC.143(3) OF THE ACT WAS ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. ITA 1967MDS/11 6 5. WE HAVE HEARD BOTH PARTIES, PERUSED THE ORDER I MPUGNED AND THE CASE LAW RELIED ON BY ASSESSEE. IN THE CAS E OF ABN AMRO BANK V. CIT & ANOTHER (SUPRA). AS FAR AS THE CONT ENTION OF THE COUNSEL FOR THE ASSESSEE THAT THE ASSESSMENT ORDER PASSED UNDER SEC.143(3) OF THE ACT IS NEITHER ERRONEOUS NOR PREJ UDICIAL TO THE INTEREST OF REVENUE IN AS-MUCH-AS THE ASSESSING OFF ICER WHILE COMPLETING THE ASSESSMENT, GONE INTO THE QUESTION O F APPLICABILITY OF SEC.115A(II) OF THE ACT IS CONCERNED, WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS ONLY STATED TH AT INTEREST EARNED ON MONIES LENT IN FOREIGN CURRENCY WAS SHOWN AS ELI GIBLE FOR CONCESSIONAL RATE OF TAXATION UNDER SEC.115A(II) OF THE I.T. ACT. THE ASSESSING OFFICER, EXCEPT STATING THAT THE INTEREST EARNED ON MONIES LENT IN FOREIGN CURRENCY WAS SHOWN AS ELIGIBLE FOR CONCESSIONAL RATE OF TAXATION UNDER SEC.115A(II), HAS NOT GONE INTO T HE APPLICABILITY OF DEDUCTION OF TAX AT SOURCE UNDER SEC.195 OF THE ACT AND CONSEQUENT DISALLOWANCE UNDER SEC.40(A)(I) ON THE INTEREST REM ITTED BY THE ASSESSEE TO ITS HEAD OFFICE OUTSIDE INDIA AT CEYLON . FURTHER, NOTHING IS PLACED ON RECORD BY THE ASSESSEE TO SHOW THAT EI THER THE ASSESSING OFFICER HAD CALLED FOR DETAILS OF THIS ASPECT OR TH E ASSESSEE HAS ITA 1967MDS/11 7 SUBMITTED ANY DETAILS IN THIS CONNECTION IN THE COU RSE OF ASSESSMENT PROCEEDINGS. THEREFORE, IN THE ABSENCE OF ANY FIND INGS BY THE ASSESSING OFFICER ON THIS ASPECT, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS GONE INTO THE QUESTION OF APPLICABILITY OF TAXABILITY OF INTEREST INCOME REMITTED BY THE ASSESSEE BRANCH TO ITS HEAD OFFICE OUTSIDE INDIA. IN VIEW OF THE ABOVE DISCUSSION, WE UPHOLD THE ACTION OF THE COMMISSIONER OF INCOME TAX IN INVOKING THE P ROVISIONS OF SEC.263 OF THE I.T. ACT. 6. HOWEVER, COMING TO THE MERITS OF THE CASE, WE F IND THAT THE HON'BLE CALCUTTA HIGH COURT IN THIS CASE IN TH E CASE OF ABN AMRO BANK V. CIT & ANOTHER (SUPRA) HAS CONSIDERED SIMILA R ISSUE. THE HON'BLE CALCUTTA HIGH COURT HELD THAT THERE IS NO CONFLICT BETWEEN THE AGREEMENT BETWEEN INDIA AND THE NETHERLANDS AND THE ACT. THE ASSESSEES BRANCH OFFICE IN INDIA AND HEAD OFFICE I N NETHERLAND HAD TO BE TAKEN AS SEPARATE ENTITIES FOR ALL PURPOSES. BUT IN THE MAKING OF PAYMENT OF INTEREST, NO TAX HAD TO BE DEDUCTED U NDER SEC.195(1) OF THE I.T. ACT FOR THE REASON THAT HEAD OFFICE WAS NOT CHARGEABLE TO TAX ON SUCH PAYMENTS BY VIRTUE OF AGREEMENT ENTERED INTO BETWEEN INDIA AND NETHERLAND. THEREFORE, THE HIGH COURT HE LD THAT THERE WAS ITA 1967MDS/11 8 NO OBLIGATION ON THE BRANCH IN INDIA TO DEDUCT TAX WHILE MAKING INTEREST REMITTANCES TO ITS HEAD OFFICE OR ANY OTH ER FOREIGN BRANCH. THUS, IT WAS HELD THAT IF NO TAX WAS DEDUCTED UNDER SEC.195(1) OF THE ACT, SEC.40(A)(I) HAD NO APPLICATION. IN THE CASE OF THE ASSESSEE, THIS ASPECT WAS NOT EXAMINED BY THE COMMISSIONER OF INCOME TAX WHILE PASSING ORDER UNDER SEC.263. THE ASSESSEE AL SO DID NOT PRODUCE COPY OF DTAA BETWEEN GOVT. OF INDIA AND GOV T. OF SRILANKA, IF ANY, IN SUPPORT OF ITS CONTENTION THAT THE INTE REST REMITTED BY THE INDIAN BRANCH OF THE BANK TO ITS HEAD OFFICE AT SRI LANKA IS EITHER NOT TAXABLE AT ALL OR ENTITLED FOR CONCESSIONAL RATE OF TAX. EVEN THE CBDT CIRCULAR NO.740 DATED 17/4/1996 STATES THAT IT THE DOUBLE TAXATION AVOIDANCE AGREEMENT WITH THE COUNTRY WHERE THE PARE NT COMPANY IS ASSESSED TO TAX PROVIDES FOR A LOWER RATE OF TAXATI ON THE SAME WOULD BE APPLICABLE. THIS ASPECT WAS ALSO NOT EXAMINED. IN THE CIRCUMSTANCES, WE REMIT THE MATTER BACK TO THE FILE OF THE COMMISSIONER OF INCOME TAX WITH A DIRECTION TO DECI DE THE ISSUE IN THE LIGHT OF THE DECISION OF THE HON'BLE CALCUTTA H IGH COURT IN THE CASE OF ABN AMRO BANK V. CIT & ANOTHER(SUPRA) IN A CCORDANCE WITH ITA 1967MDS/11 9 LAW, AFTER AFFORDING THE ASSESSEE REASONABLE OPPORT UNITY OF HEARING IN THE MATTER. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 7. ORDER PRONOUNCED IN THE OPEN COURT ON WEDNESDA Y, THE 14 TH OF NOVEMBER 2012. SD/- SD/- ( DR. O.K. NARAYANAN) (CHALLA NAGENDR A PRASAD) VICE PRESIDENT JUDICIAL MEMBE R CHENNAI, DATED : 14 TH NOVEMBER 2012. JLS. COPY TO:- (1) APPELLANT (2) RESPONDENT (3) CIT-VIII, CHENNAI (4) D.R. (5) GUARD FILE