ADIT (IT)-3(1), MUMBAI V. M/S. THE HONG KONG & SHAHGHAI BANKING CORPORATION LTD., MUMBAI

ITA 3688/MUM/2009

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4001 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 09-02-2016
• Assessment Year: 2000-2001
• Appeal Filed On: 05-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JASBIR CHA UHAN
• Assessee Lawyers: ARVIND SONDE
• Keywords: Double taxation relief; Rule of consistency; Competent authority

Judgement Text

1 , INCOME TAX APPELLATE TRIBUNAL,MUMBAI L BENCH , ,, , , , , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & RAM LAL NEGI,JUDICIAL MEMBER /.ITA NO.3688/MUM/09 , /ASSESSMENT YEAR-2000-01 /.ITA NO.3689/MUM/09 , /ASSESSMENT YEAR-2001-02 AND /.ITA NO.2358/MUM/14 , /ASSESSMENT YEAR-2003-04 ADIT(IT)-3(1) SCINDIA HOUSE, ROOM NO.132, 1 ST FLOOR, N.M. ROAD MUMBAI-400 038. VS. THE HONG KONG AND SHANGHAI BANKING CORPORATION LTD. 52/60, MAHATMA GANDHI ROAD, FORT,MUMBAI-400 001. PAN:AAACT 2786 P ( / APPELLANT) ( / RESPONDENT) /C.O.NO.244/MUM/2009 ARISING OUT OF ITA NO.3688/MUM /09(2000-01) /C.O.NO.245/MUM/2009 ARISING OUT OF ITA NO.3689/MUM/09(2001-02) AND /C.O.NO.129/MUM/2015 ARISING OUT OF ITA NO.2358/MU M/09(2003-04) THE HONG KONG AND SHANGHAI BANKING CORPORATION LTD. MUMBAI-400 001. VS. ADIT(IT)-3(1) MUMBAI-400038. ( / CROSS OBJECTOR) ( / RESPONDENT) /ASSESSEE BY: SHRI ARVIND SONDE / REVENUE BY : SHRI JASBIR CHAUHAN / DATE OF HEARING : 09.02.2016 / DATE OF PRONOUNCEMENT : 12.02.2016 , 1961 1961 1961 1961 254 254 254 254( (( (1 11 1) )) ) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER BENCH - CHALLENGING THE ORDERS DATED 26.3.2009,31.3.2009 A ND 22.10.2013FOR THE ASSESSMENT YEARS 2000-01,2001-02 AND 2003-04 RESPECTIVELY OF THE CIT (A),THE ASSESSING OFFICERS(AO.S) HAVE FILED THE PRESENT APPEALS.THE ASSESSEE HAS FILED CR OSS-OBJECTIONS(CO.S)FOR THE ABOVE MENTIONED ASSESSMENT YEARS(AY.S.).AS THE ISSUES INV OLVED IN THE APPEALS AND THE CO.S. ARE COMMON, SO,WE ARE ADJUDICATING THEM BY A SINGLE COM MON ORDER. ITA/3688/MUM/2009 & CO 244/MUM/2009,AY.2000-01 : ASSESSEE,A NON-RESIDENT COMPANY,IS ENGAGED IN THE B USINESS OF BANKING.IT FILED ITS RETURN OF INCOME ON 29.11.2000,DECLARING INCOME OF RS.2,91,30 ,08,800 /-.THE AO COMPLETED THE ASSESSMENT, U/S.143(3) OF THE ACT, ON 21.03.2003.A NOTICE U/S.148 OF THE ACT WAS ISSUED FOR RE-OPENING THE ASSESSMENT.THE ASSESSEE OBJECTED THE RE-OPENING. THE AO FINALISED THE ASSESSMENT ON 31.12.2007,U/S.147 R.W.S.143(3)OF THE ACT,DETERMINING THE INCOME OF THE ASSESSEE AT RS.2,78,27,09,380 /-. 2. EFFECTIVE GROUND OF APPEAL,FILED BY THE AO,IS ABOUT INTERCHANGE INCOME(FEES)RECEIVED BY THE HEAD OFFICE(HO)/FOREIGN BRANCHES OF THE ASSESSE E.DURING THE RE-ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAD PAID AN AMOUN T OF RS.3.16 CRORES TO VISA CARD AND RS. 4.75 CRORES TO MASTER CARD,THAT THERE WERE TWO TYPE S OF TRANSACTIONS WITH REGARD TO THE CREDIT CARDS,THAT FOREIGN BANKS WOULD EARN SUBSTANTIAL AMO UNT OF DISCOUNT/COMMISSION/INTER CHANGE MERCHANT ESTABLISHMENT DISCOUNT(ICMED),THAT THE ASS ESSEE HAD NOT OFFERED THE SAID DISCOUNT 3688-89/09,C.O-244-45/09,2358/14,C.O.129/15 HSBC 2 IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CO NSIDERATION,THAT THE ICMED TOWARDS THE USE OF CREDIT CARDS HAD DEEMED TO ACCRUE OR ARISE IN IN DIA AS PER THE PROVISIONS OF THE ACT,THAT THERE WAS NO TAX TREATY WITH HONGKONG,THAT PROVISIO NS OF SECTION 5 AND 9 OF THE ACT WERE APPLICABLE,THAT THE ASSESSEE HAD NOT PROVIDED THE D ETAILS OF INTERCHANGE RECEIVED BY IT.THE AO ESTIMATED THE TOTAL INTER CHANGE FEES RECEIVED BY T HE NON INDIA BRANCHES/HO OF THE ASSESSEE ON ACCOUNT OF USE OF CARDS IN INDIA @1% OF THE INTE RCHANGE RECEIVED. THE AO MADE AN ADDITION OF RS.50,75,990/- TO THE TOTAL INCOME OF T HE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM IT WAS ARGUED THAT RE-OPENING OF THE ASSESSMENT WAS BAD IN LAW,THAT THERE WAS NO FAILURE ON PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS,THAT THE ICMED WAS NOT TAXABLE IN INDIA.AFTER CONSIDERING TH E SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER,THE FAA HELD THAT ACTION TAKEN BY THE AO U/S.147 OF THE ACT WAS JUSTIFIED, THAT HIS PREDECESSOR HAD,WHILE DECIDING THE APPEALS FOR THE AY.S.2000-01 AND 2001-02, DECIDED THE IDENTICAL ISSUE AGAINST THE ASSESSEE.F OLLOWING THE RULE OF CONSISTENCY,HE UPHELD THE RE-OPENING.ON MERITS,HE HELD THAT IN THE EARLIE R AY.S.HIS PREDECESSOR HAD ADJUDICATED THE ISSUE OF ICMED IN FAVOUR OF THE ASSESSEE,THAT THERE WAS NO CHANGE IN THE FACTS OF THE CASE.FINALLY,HE DELETED THE ADDITION MADE BY THE AO . 4. BEFORE US,THE DEPARTMENTAL REPRESENTATIVE(DR)SUPPOR TED THE ORDER OF THE FAA WITH REGARD TO THE ISSUE OF REASSESSMENT AND RELIED UPON THE OR DER OF THE AO FOR TAXABILITY OF ICMED.THE AUTHORISED REPRESENTATIVE(AR)STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL DELIVERED IN THE CASE OF S TANDARD CHARTERED GRINDLAYS BANK LTD. (127TTJ319).WITH REGARD TO THE CO,THE AR CONTENDED THAT THE NOTICE U/S.148 OF THE ACT WAS ISSUED WITHOUT THE PRIOR APPROVAL OF THE CIT,THAT T HE ASSESSEE HAD DISCLOSED ALL THE MATERIAL FACTS AT THE TIME OF FILING OF ORIGINAL RETURN,THAT THE SANCTIONING AUTHORITY HAD NOT APPLIED HIS MIND WHILE APPROVING THE PROPOSAL OF RE-OPENING SUB MITTED BY THE AO,THAT SANCTION ITSELF WAS BAD IN LAW.HE RELIED UPON THE CASES OF DESAI BR OTHERS(272ITR335),MAHARASHTRA SUGAR MILLS LTD.(263ITR180),KELVINTAOR INDIA LTD.(320ITR5 61),GOVIND CHAUDHARY & SONS (109 ITR370). 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE MATTER OF STANDARD CHARTERED GRINDLAYS BANK LTD.(SU PRA),THE ISSUE OF TAXABILITY OF COMMISSION WITH REGARD TO CREDIT CARDS WAS DELIBERA TED UPON AND DECIDED BY THE TRIBUNAL. WE WOULD LIKE TO RE-PRODUCE THE RELEVANT PORTION OF THE ORDER THAT DEALS WITH THE FACTS AS WELL AS THE REASONING,GIVEN BY THE FAA AND THE TRIBUNAL, FOR DECIDING THE ISSUE AGAINST THE AO.IT READS AS UNDER: 43. NEXT GROUND OF APPEAL IS AGAINST DELETION OF AD DITION OF RS. 10 CRORES BEING MADE ON ALLEGED COMMISSION EARNED BY FOREIGN BRANCHES OF AN Z GRINDLAYS BANK ON THEIR CREDIT CARD BUSINESS OVERSEAS WHERE TRANSACTIONS HAVE TAKEN PLA CE IN INDIA. 44. DURING THE COURSE OF ASSESSMENT THE AO REQUIRED THE ASSESSEE TO GIVE DETAILS OF TOTAL COMMISSION RECEIVED BY THE FOREIGN BRANCHES OF THE ASSESSEE BANK ON INTERNATIONAL CREDIT CARDS ISSUED BY THEM WHERE THE TRANSACTIONS WERE CO MPLETED IN INDIA BY THE CARD HOLDERS AND THE CARDS WERE HONOURED BY THE BRANCHES OF THE ASSE SSEE BANK OR BRANCHES OF ANY OTHER BANK IN INDIA. THE AO WAS OF THE VIEW THAT WHATEVER INCO ME AROSE IN OR FROM INDIA TO ANY FOREIGN BRANCH OF THE ASSESSEE IS ALSO TAXABLE IN INDIA. TH E ASSESSEE COULD NOT FURNISH ANY DETAILS; AT THE SAME TIME IT DID NOT DENY THAT NO INCOME AROSE FROM THE TRANSACTION IN INDIA ON CREDIT CARDS ISSUED BY ITS FOREIGN BRANCHES. THE AO, THERE FORE, ESTIMATED THE INCOME.THE AO STATED THAT COMMISSION INCOME FROM CARDS ISSUED BY INDIAN BRANCHES WAS RS. 9.90 CRORES. IT WOULD BE REASONABLE TO ESTIMATE INCOME OF RS. 10 CRORES E ARNED BY FOREIGN BRANCHES FROM TRANSACTIONS ENTERED INTO INDIA. 45. XXXXXXXX 3688-89/09,C.O-244-45/09,2358/14,C.O.129/15 HSBC 3 THE LEARNED CIT(A) HELD THAT THE INCOME EARNED EIT HER BY WAY OF ISSUING BANK OF CREDIT CARD OR ACQUIRING BANK OF CREDIT CARD, TRANSACTION IS AC COUNTED FOR. HE ALSO HELD THAT UNDER S. 9 OF THE IT ACT ALL INCOMES ACCRUING OR ARISING DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR THROUGH OR FROM ANY SOURCE O F INCOME IN INDIA CAN BE TAXED. AS PER S. 9(1)(V)(C), INCOME CAN BE DEEMED TO HAVE ACCRUED IN INDIA ONLY IF PAYMENT IS MADE FOR THE DEBT THAT HAS BEEN INCURRED IN INDIA BY A NON-RESID ENT WHICH WILL NOT BE THE CASE HERE SINCE THE ISSUING BANK WHICH PROVIDES DEBT IS OUTSIDE IND IA BEING A FOREIGN BRANCH.AS PER ART. 7 OF INDO-UK DTAA, INCOME THAT CAN BE BROUGHT TO TAX IN INDIA MUST BE DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THE PE IN INDIA. SINCE THE TRANSACT IONS WERE WITH APPELLANT'S FOREIGN BRANCHES WHERE THE ISSUING BANK AND THE ACQUIRING BANK IN IN DIA WAS SOME BANK OTHER THAN THE INDIAN BRANCH OF THE ASSESSEE, IT CANNOT BE SAID THAT INDI AN BRANCH WAS IN ANY WAY CONNECTED WITH THE TRANSACTION OR THAT INCOME EARNED COULD IN ANY WAY BE SAID TO HAVE BEEN DIRECTLY OR INDIRECTLY THROUGH PE IN INDIA.HE ACCORDINGLY HELD THAT THE INCOME ARISING IN INDIA FROM TRANSACTION IN INDIA BY USING CREDIT CARDS OF FOREI GN BRANCHES SHOULD BE TAXED IN INDIA. THIS INCOME CAN ONLY BE THE INCOME RECEIVED BY THE INDIA N BRANCH AND SUCH COMMISSION INCOME BEING ALREADY INCLUDED AS AN ACQUIRING BANK. THE IN COME TO THE FOREIGN BRANCH FROM THE CREDIT GIVEN TO ITS CARD HOLDERS OUTSIDE INDIA CANN OT BE TAXED IN THE HANDS OF THE INDIAN BRANCH SINCE IT IS NOT ARISING IN INDIA AND ALSO IT CANNOT BE ATTRIBUTED TO THE ASSETS AND ACTIVITIES OF THE INDIAN BRANCH AS IS REQUIRED UNDE R ART. 7 OF DTAA.THEREFORE, THERE IS NO NEED TO FURTHER ESTIMATE ANY INCOME. HE ACCORDINGLY DELE TED THE ADDITION. XXXXXXXXXX 48. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE AR E IN AGREEMENT WITH THE FINDING OF THE LEARNED CIT(A). WHERE THE FOREIGN BRANCH HAS ISSUED CREDIT CARD AND EVEN IF THE TRANSACTION TAKES PLACE IN INDIA, THE CREDIT IS GIVEN TO THE CU STOMER OUTSIDE INDIA AND THE DEBT HAS ALSO ARISEN OUTSIDE INDIA. THE MERCHANT SHIPMENTS IN IND IA MAY RECEIVE THE PAYMENT BUT THE MERCHANT SHIPMENTS DO NOT INCUR ANY DEBT.THEY MEREL Y RECEIVE CHARGES FOR THE GOODS SOLD OR SERVICES RENDERED. HOWEVER, THE CHARGES ARE RECEIVE D BY THE FOREIGN BRANCH FOR PROVIDING CREDIT TO THEIR CARD HOLDERS OUTSIDE INDIA.THE AMOU NT PAYABLE BY THE CARD HOLDERS WHO HAVE ACQUIRED THE CREDIT CARD FROM BRANCHES OUTSIDE INDI A INCURS THE DEBT OUTSIDE INDIA.THEREFORE, THE FEES IN RESPECT OF SUCH TRANSACTION ARE NOT TAX ABLE IN INDIA. WE, THEREFORE, UPHOLD THE DELETION OF ADDITION OF RS. 10 CRORES. . AS THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE ABOVE REFERRED ORDER OF THE TRIBUNAL, SO,WE HOLD THAT THE ORDER OF THE FAA DOES NOT SUFFE R FROM ANY LEGAL OR FACTUAL INFIRMITY AS FAR AS ISSUE OF TAXABILITY OF ICMED IS CONSIDERED.CONFI RMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. 6. THOUGH,WE HAVE DISMISSED THE APPEAL FILED BY THE AO ,YET,WE WOULD LIKE TO DECIDE THE JURISDICTIONAL ISSUE,RAISED BY THE ASSESSEE IN ITS CO.I.E.RE-OPENING OF THE ASSESSMENT U/S.147 OF THE ACT.WE FIND THAT IN THE CASE UNDER CONSIDERA TION THE NOTICE FOR RE-OPENING WAS ISSUED WITHOUT THE APPROVAL OF THE COMPETENT AUTHORITY.THE REFORE,WE HOLD THAT THE ASSESSMENT ORDER PASSED BY THE AO WAS INVALID.CO.FILED BY THE ASSESS EE IS ALLOWED. ITA/3689/MUM/09-AY.2001-02,ITA/2358/MUM/14AY.2003-0 4& CO./245/MUM/2009,AY.2001-02 , CO./129/MUM/2015 AY.2003-04: 7 .GROUNDS OF APPEAL FILED BY THE AO.S. AND GROUNDS O F CO FILED BY THE ASSESSEE FOR THE ABOVE MENTIONED TWO AY.S.ARE IDENTICAL TO THE GROUNDS OF AY.2000-01-THE ONLY DIFFERENCE IS THE AMOUNT INVOLVED.FOR THE AY.S.2001-02 AND 2003-04,TH E AO HAD DISALLOWED RS.33,66,213/- AND RS.50,75,990/-RESPECTIVELY UNDER THE HEAD ICMED .THE ASSESSEE CHALLENGED THE ADDITION AS WELL AS RE-OPENING OF THE ASSESSMENT FOR BOTH TH E YEARS BEFORE THE FAA.FOLLOWING THE ORDERS OF THE EARLIER YEARS,HE DECIDED THE ISSUE OF RE-OPENING ASSESSMENTS AGAINST THE ASSESSEE.HOWEVER,THE ISSUE OF TAXABILITY OF ICMED W AS DECIDED IN FAVOUR OF THE ASSESSEE. 3688-89/09,C.O-244-45/09,2358/14,C.O.129/15 HSBC 4 7.1 AS THE FACTS AND CIRCUMSTANCES OF THE BOTH THE AY.S .ARE IDENTICAL TO THE FACTS OF AY.2000- 01,SO FOLLOWING THE ORDER FOR THAT YEAR,WE DECIDE T HE EFFECTIVE GROUND (DELETION OF ADDITION ON ACCOUNT OF ICMED)AGAINST THE AO. 8. AS FAR AS CO.S FILED BY THE ASSESSEE ARE CONCERNED, WE WOULD LIKE TO MENTION THAT DURING THE ORIGINAL ASSESSMENT PROCEEDINGS THE AO HAD CALLED F OR THE DETAILS OF ICMED AND THE ASSESSEE HAD FILED DETAILED REPLY IN THIS REGARD(PG-166-185 OF THE PAPER BOOK). THOUGH THE AO HAD MENTIONED THAT THE ASSESSEE HAD FAILED TO DISCLOSE THE MATERIAL FACTS, YET HE HAD NOT EXPLAINED AS TO WHICH INFORMATION WAS NOT FILED. WE FURTHER F IND THAT WHILE APPROVING THE RE-OPENING PROPOSAL THE CIT HAD MENTIONED THAT HE WAS SATISFIE D. THE REASONS FOR HIS SATISFACTION ARE NOT AVAILABLE ON RECORD.IN OUR OPINION, MERE MENTIONING THAT SANCTIONING AUTHORITY WAS SATISFIED IS NOT SUFFICIENT TO INITIATE RE-ASSESSMENT PROCEED INGS, WHERE DURING THE ORIGINAL ASSESSMENT PROCEEDINGS AO TAKES A PARTICULAR VIEW AFTER CONSID ERING THE SUBMISSION OF THE ASSESSEE.IT IS NOT THE CASE WHERE ASSESSEE HAD NOT FILED DETAILS R EQUIRED BY THE AO.IF THE AO DECIDED NOT TO CALL FOR PARTICULAR INFORMATION THE ASSESSEE CANNOT HE HELD RESPONSIBLE FOR THAT OMISSION/ COMMISSION. THEREFORE, WE HOLD THAT THERE WAS NO FA ILURE ON PART OF THE ASSESSEE TO DISCLOSE MATERIAL FACTS TRULY AND FULLY.CONSIDERING ALL THE FACTS CUMULATIVELY, WE ARE OF THE OPINION, THAT THE ORDER PASSED BY THE AO FOR BOTH THE AY.S W ERE INVALID. C.O.S FILED BY THE ASSESSEE ARE DECIDED IN ITS FAVOUR. AS A RESULT, APPEALS FILED BY THE AO FOR THE AY.S 2 000-01, 2001-02 AND 2003-04 STAND DISMISSED. THE CROSS OBJECTIONS FILED BY THE ASSESS EE ARE ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY , 2016. 12 , 2016 SD/- SD/- ( /RAM LAL NEGI) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /MUMBAI, /DATE: 12.02. 2016 . . . .. . JV.SR.PS.. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , L , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.