M/S. THE BANK OF TOKYO-MITSUBISHI, UFJ LTD.,NEW DELHI V. DDIT, NEW DELHI

ITA 3708/DEL/2014

AI Insights

The case involves cross-appeals by M/S The Bank of Tokyo Mitsubishi UFJ Ltd. and the Deputy Director of Income Tax (DDIT), Circle-1(1), New Delhi, concerning the assessment year 2006-07. The appeals were against the order of the Commissioner of Income-tax (Appeals)-XXV, New Delhi, which had confirmed certain disallowances and taxations made by the Assessing Officer under various sections of the Income-tax Act, 1961. The Tribunal examined issues such as the deductibility of salaries paid to expatriates, the applicability of MAT under Section 115JB, and the tax treatment of interest and deferred bank guarantee commissions. The Tribunal's decision was influenced by precedents and interpretations of the Double Taxation Avoidance Agreement (DTAA) between India and Japan, as well as relevant judicial decisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717495 (ITAT-DELHI)
• Duration Of Justice: 11 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 23-06-2014
• Other Referred Cases: ABN Amro Bank v. JCIT, CIT v. Emirates Commercial Bank Ltd., Commissioner of Income Tax v. M/s. Emirates Commercial Bank Ltd., Commissioner of Income Tax v. Deutsche Bank AG, DIT (I.T.) v. Credit Agricole Indosuez
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside; Question of law; TDS; Competent authority; Deemed to accrue or arise in india; Double taxation relief; Permanent establishment
• Section: 143(3); 90; 14A; 115JB

Judgement Text

"1 ITA Nos. 3708 & 3756/Del/2014 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘D’ NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No. 3708/Del/2014 Asstt. Yr.: 2006-07 M/S The Bank of Tokyo Mitsubishi UFJ Ltd., Jeevan Vihar Building, 3, Parliament Street, New Delhi-110001. PAN: AABCT 3880 D Vs DDIT, Circle-1(1), New Delhi. APPELLANT RESPONDENT AND ITA No. 3756/Del/2014 Asstt. Yr.: 2006-07 DDIT, Circle-1(1), New Delhi. Vs M/s The Bank of Tokyo Mitsubishi UFJ Ltd., Jeevan Vihar Building, 3, Parliament Street, New Delhi-110001. PAN: AABCT 3880 D APPELLANT RESPONDENT Assessee represented by Shri Hiten Thakkar, Adv. & Ms. Ritu Sharma, CA Department represented by Sh. Nikhil Kumar govila, CIT Date of hearing 16.07.2025 Date of pronouncement 13.08.2025 Printed from counselvise.com 2 ITA Nos. 3708 & 3756/Del/2014 O R D E R PER SATBEER SINGH GODARA, J.M: These assessee’s and Revenue’s cross appeals ITA Nos. 3708/Del/2014 & ITA Nos. 3756/Del/2014, respectively, for A.Y. 2006-07, arise against Commissioner of Income-tax (Appeals)-XXV, New Delhi’s order dated 31.03.2024 [Appeal No. 78/2010-11 (Old A. No. 135/2008-09, CIT(A)-XXIX)], in proceedings u/s 143(3) of the Income-tax Act, 1961, hereinafter referred to as the ‘Act’. Heard both the parties at length. Case files perused. 2. The assessee’s appeal in ITA No. 3708/Del/2014 raises the following substantive grounds: “1 Disallowance of salary paid overseas to expatriates of the Appellant working in India by the Head Office and the Indian taxes paid thereon by the Head Office: Rs. 127,955,895 That on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the action of the Ld. AO of not allowing deduction in respect of a sum of Rs. 127,955,895 paid as salaries by the Head Office overseas, in foreign currency, to the expatriates working in India exclusively for the permanent establishment ('PE') of the Appellant in India, on which taxes have been duly deducted/deposited in India, and accordingly the order of the Hon'ble CIT(A) is erroneous in law as well as on facts on the following counts: a) That the Hon'ble CIT(A) has failed to appreciate that the salary has been paid to the expatriates who are stationed in India and are Printed from counselvise.com 3 ITA Nos. 3708 & 3756/Del/2014 working exclusively for business operations of the Indian PE of the Appellant and is thus an allowable expenditure as per Article 7(3) of DTAA; b) That the Hon'ble CIT(A) has erred in observing that the nature of expense is covered under section 44C of the Act, even though, the said amount is incurred exclusively and for direct benefit of Indian operations of the Appellant. c) That the Hon'ble CIT(A) erred in not appreciating that the allowability of deduction is not dependent upon the entries in books of accounts of the Indian PE. 2 Non-applicability of the provisions of Sec 115JB of the Act relating to Minimum Alternate Tax ('MAT') That on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the contention of the Ld. AO of Invoking the provisions of 115JB of the Act in the assessment order, and accordingly the order of the Hon'ble CIT(A) is bad in law on the following counts: a) The Hon'ble CIT(A) has erred in not appreciating the contention of the Appellant that being a banking company, the provisions of section 115JB of the Act is not applicable to the Appellant for the subject year. b) The Hon'ble CIT(A) has erred in not appreciating the contention of the Appellant that operations of its Indian PE are taxable in accordance with provisions of Article 7(3) of the India-Japan DTAA and in view of the provisions of section 90 of the Act, the provisions of section 115JB of the Act cannot be applied. 3 Taxability of interest received by Indian branches of BTMU from its HO/overseas branches: Rs 13,184,751 That on the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) has erred in taxing the interest received by the Indian branches of BTMU from its HO/overseas branches amounting to Rs 13,184,751 on the following counts: a) The Hon'ble CIT(A) has erred in not appreciating that the interest received by the Indian branches is not chargeable to tax in India in accordance with the provisions of the Act, being 'receipts from self\". Printed from counselvise.com 4 ITA Nos. 3708 & 3756/Del/2014 b) The Hon'ble CIT(A) has erred in not appreciating that in terms of the provisions of Article 11 of the India-Japan DTAA, dealing with the taxability of Interest, the interest received by the Indian branches from the head office/overseas branches Is not in respect of a 'debt- claim' as contemplated under Article 11 of the India-Japan DTAA. c) That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in not admitting the ground of appeal of the Appellant that interest received by Indian branches from HO/overseas branches is not taxable. 4 Applicable Rate of Tax That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in not upholding the contention of the Appellant that under the provisions of Article 24 of the India-Japan DTAA, the applicable rate of tax on the income of the Appellant attributable to its PE in India cannot exceed the applicable rate of tax (as per the Finance Act for the subject assessment year) in the case of Domestic Companies and consequential directions may kindly be issued in this regard. 3. The revenue’s cross appeal in ITA 3756/Del/2014 on the other hand canvasses the following substantive grounds: 1. On the facts and in the circumstances of the case and law, Ld. CIT(A) has erred in deleting the addition of Rs. 4696,100/- made by the AO on account of Deferred Bank Guarantee Commission, as he has ignored the fact recorded by AO that the commission received in respect of Deferred Bank Guarantee is like a fees for issuing the guarantee and is not a contingent receipt or advance and this is also not returnable at the end of guarantee period. 2. On the facts and in the circumstances of the case and law, Ld. CIT(A) has erred in deleing the addition made by the AO on account of provision of wealth tax to the P&L account for computing the book profit u/s 115JB, as he has ignored the fact that the provision for wealth tax was neither reflected in liability side nor was reduced from the asset side against the advance made by the bank. Printed from counselvise.com 5 ITA Nos. 3708 & 3756/Del/2014 3. On the facts and in the circumstances of the case and law, Ld. CIT(A) was correct in deleting the addition on account of interest paid to Head Office and income received on account of interest from Indian branches of Rs. 54414609/-, when it was clearly recorded by the AO that not only the PE of the assessee bank is separate entity for the purpose to taxation but the assessee has also claimed the deduction of the same in the income-tax return. The interest paid by this PE to the Head Office is liable to tax in India. 4. On the facts and in the circumstances of the case and law, Ld. CIT(A) has erred in allowing the deduction on account of Head Office expenditure u/s 44C ignoring the fact that there was no invoice raised and also no debit note raised. Merely, on deemed basis, no deduction u/s 44C was allowable to the assessee.” 4. We start with the assessee’s former twin substantive grounds seeking to reverse both the lower authorities’ action disallowing its salary paid overseas to expatriates working in India by the Head Office and the Indian tax paid thereupon by the Head Office of Rs. 127,955,895 and applicability of Section 115JB MAT provisions; respectively. A perusal of the case file indicates that both these issues between the parties are very much recurring ones as the tribunal’s order involving the asessee’s and the Revenue’s cross appeals [ITA Nos. 3707 & 3755/Del/2014 for A.Y. 2005-06 dated 19.09.2017], has already rejected the latter’s identical contentions as under: “9.1 As relates to Ground No. 1 of the Assessee's appeal, the Hon'ble Delhi High Court in Assessce's own case (ITA No. 604/2015 order dated 08.04.2016 held that \"Salaries paid to expatriates Printed from counselvise.com 6 ITA Nos. 3708 & 3756/Del/2014 9. The first question urged concerns the payment of salaries to the expatriates. In deciding this issue in favour of the Assessee, the ITAT has in the impugned common order referred to and relied upon the decision of its coordinate bench at Kolkata in ABN Amro Bank v. JCIT (2005)97 ITD 1(ITAT (Kol). Further the ITAT followed the decision of the Bombay High Court in CIT v. Emirates Commercial Bank Ltd. (2003) 262 ITR 55 (Bom.) where the Bombay High Court approved the view taken by the ITAT. The ITAT agreed that the expenses have been incurred wholly and exclusively by the Indian branch and therefore no part of these expenses can be allocated to any other branch and the HO and that there was no dispute with regard to the non-applicability of Section 44C of the Act. 10. This Court has perused the order of the Bombay High Court in Emirates Commercial (supra) where on identical facts, the issue was decided in favour of the Assessee. This order of the Bombay High Court has been affirmed by the Supreme Court by order dated 26th August 2008 in Commissioner of Income Tax v. M/s. Emirates Commercial Bank Ltd., which in turn referred to an order of the same date in Commissioner of Income Tax v. Deutsche Bank AG (CA No. 1544 of 2006). 11. In that view of the matter, this Court declines to frame a question on this issue\" The facts of the present appeal are also identical therefore, Ground No. 1 is allowed.” “9.2 As relates to Ground No: 2 of the Assessee's appeal, the Hon'ble Delhi High Court in Assessee's own case (ITA No. 604/2015 order dated 08.04.2016 held that \"Applicability of Section 115.JB 20. The ITAT has after an elaborate discussion had come to the conclusion that the Assessee's claim for lower tax will have to be accepted because Section 115JB is subject to Section 90(2) of the Act and the taxable income of the Assessee would have to be computed in terms of Article 7(3) of the DTAA. What is significant is that the profit and loss account of the Assessee has not been prepared in terms of Part II of Schedule VI of the Companies Act, 1956 and in fact could not have been prepared in terms thereof. Consequently, the question Printed from counselvise.com 7 ITA Nos. 3708 & 3756/Del/2014 of applicability of Section 115JB did not arise. As rightly pointed out till the insertion of Section 115JB, banking companies were required to prepare their accounts in terms of special acts that they were governed by, and therefore there were no computation provisions as regards such banking companies. The change brought out by Section 115JB was therefore not retrospective. 21. The reasoning and the conclusion of the ITAT on this issue appears to suffer from no legal infirmity. Consequently, the Court declines to frame any question on this issue as well.\" The facts of the present appeal is also identical therefore, Ground No. 2 is allowed.” 6. We, thus, adopt judicial consistency in absence of any distinction on facts and law to accept the assessee’s instant former two grounds in very terms. 7. The assessee’s third substantive ground is that both the lower authorities have erred in law and on facts in taxing its interest income derived by the Indian branches from its Head Office/overseas branches amounting to Rs 13,184,751, in assessment order dated 31.12.2008 and upheld in the lower appellate discussion. We notice herein as well that the very issue had reached hon’ble jurisdictional high court in the Revenue’s Tax Appeals ITA 773/2018 & 887/2018 for A.Y. 2003-04 wherein their lordships have confirmed the tribunal’s findings vide judgment dated 28.05.2024, reading as under: 2. While dealing with Question Nos. (1) to (iv) as proposed, the Coun took note of the decision rendered on ITA 604/2015 and ITA 605/2015 inter partes on 08 April 2016 and which would have been determinative of the issue which stood raised. Thus, the appeal now stands confined to Question (v) which reads as follows:- Printed from counselvise.com 8 ITA Nos. 3708 & 3756/Del/2014 \"(v)) Whether the interest received by the Indian PE on deposit maintained with Head Office Overseas Branch is not taxable in India? 3. The aforesaid issue arises in the context of interest received by the Permanent Establishment of the Bank of Tokyo Mitsubishi UFJ Ltd., now known as MUFG Bank, comprising of branches in India from its overseas branches and Head Office, During the Assessment Year in question, namely AY 2003-04, that sum was quantified at INR 7,002,400. The aforesaid constituted interest earned by the PE in India on balances maintained either with its Head Office or other Overseas branches outside India. The taxability of interest received has been answered in favour of the respondent assessee with the Tribunal observing as follows:- 20. Ground No. 5 of the appeal for Assessment year 2003-04 of the assessee is with respect to the interest of Rs. 7002160/- received by the Indian PE of the appellant on deposit maintained with head office and its taxability. Undisputedly in the case the appellant had itself included the interest received by Indian PE on deposits maintained with Head office in the total table income. However, the same was challenged before the ld. CTT(A) stating that such interest income is payment to self as payer and payee both are the same person. Further it has been submitted that interest paid by HO is not in connection with any indebtedness but on account of deposits. The ld CTT(A) stated that claim is not eligible in view of the decision of the Hon'ble Supreme Court in case of Goetz India Lat Vs. CIT 284 ITR 323. xx xx xxx 23. We have carefully considered the rival contentions and also perused the order of the coordinate bench in ITA No. 306/Del/2016 for Assessment Year 2011-12 wherein, the claim of the assessee is discussed and allowed vide para No. 5 to 8 of the order Therefore, we are of the view that issue is covered in favour of the assessee by the above order of the coordinate bench. Accordingly, we set aside the impugned order and direct the ld AO to delete the above addition. In the result ground No. 5 of the appeal of assessee for both the years are allowed\" 4. Although the appellants have referred to the pendency of other appeals before this Court, we note that the orders passed on 08 April 2016 on ITA 604/2015 and ITA 605/2015 would bind parties insofar as the first four questions which were proposed are concerned. Printed from counselvise.com 9 ITA Nos. 3708 & 3756/Del/2014 5. Before us, there is no dispute that it would be the provisions of the India- US Double Taxation Avoidance Agreement which would govern and, according to the appellants, be liable to be read as supportive of its challenge on the issue of taxability. 6. Mr. Pardiwalla, learned senior counsel appearing for the respondent- assessee, had submitted that Article 7(2) of the India-US DTAA deals with the aspect of attribution of income to a PE. However, insofar as Article 7(3) is concerned, it makes special provisions in respect of a banking enterprise. Article 7(3) of the India-US DTAA is extracted hereinbelow: - ARTICLE 7 BUSINESS PROFITS xxx xxx xxx 3. In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including a reasonable allocation of executive and general administrative expenses, research and development expenses, interest, and other expenses incurred for the purposes of the enterprise as a whole (or the part thereof which includes the permanent establishment), whether incurred in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specific services performed or for management, or, except in the case of a banking enterprises, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than toward reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other Printed from counselvise.com 10 ITA Nos. 3708 & 3756/Del/2014 offices, by way of royalties, fees or other similar payments in return for the use of patents, know-how or other rights, or by way of commission or other charges for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise or any of its other offices \" 7. Mr. Pardiwalla drew our attention to the aforesaid Article in clear terms providing that no account would be taken while determining the profits of a PE for amounts charged by it by way of royalties, fees or other similar payments or for that matter commission or other charges for specific services performed or by way of interest on monies lent to the head office of the enterprise or any of its other offices except in the case of a banking enterprise. 8. It was submitted that Article 14(3) of the India-US DTAA, however, and more specifically deals with a reverse situation where interest is paid by the PE of such a company in India to the Head Office and makes the following provisions: - ARTICLE 14 PERMANENT ESTABLISHMENT TAX xxx xxx xxx 3. In the case of a banking company which is a resident of the United States, the interest paid by the permanent establishment of such a company in India to the head office may be subject in India to a tax in addition to the tax imposable under the other provisions of this Convention at a rate which shall not exceed the rate specified in paragraph 2(a) of Article 11 (Interest).\" 9. Mr. Pardiwalla also highlighted the similarity between the terms as they stand incorporated in the India-US DTAA insofar as banking enterprises are concerned and the position that emerges from a reading of covenants contained in other tax treaties. Learned senior counsel firstly drew our attention specifically to identical provisions which stand incorporated in Article 7(3) of the India-Netherlands DTAA and which reads thus: - ARTICLE 7 BUSINESS PROFITS Printed from counselvise.com 11 ITA Nos. 3708 & 3756/Del/2014 xxx xxx xxx 2. (a) In determining the profits of a permanent establishment, there shall be allowed as deductions, expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the taxation laws of that State. Provided that where the law of the State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and that restriction is relaxed or overridden by any Convention between that State and a third State which enters into force after the date of entry into force of this Convention, the competent authority of that State shall notify the competent authority of the other State of the terms of the corresponding paragraph in the Convention with that third State immediately after the entry into force of that Convention and, if the competent authority of the other State or requests, the provisions of this sub-paragraph shall be amended by protocol to reflect such terms. (b) However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments except in the case of a banking enterprise, by way of interest on moneys lent to the head office of the enterprise, or any of its other offices.\" Printed from counselvise.com 12 ITA Nos. 3708 & 3756/Del/2014 10. Learned senior counsel also placed for our consideration the India- Japan DTAA and where the following provisions stand incorporated and would be relevant to answer the question which stands posited:- ARTICLE 7 xxx xxx xxx 1. The profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in that other Contracting State but only so much of them as is directly or indirectly attributable to that permanent establishment. 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business 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 separate enterprise 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 determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment is situated or elsewhere. 4. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this article. Printed from counselvise.com 13 ITA Nos. 3708 & 3756/Del/2014 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 provisions of the preceding paragraphs of this article, 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. 7. Where profits include items of income which are dealt with separately in other articles of this Convention, then the provisions of those articles shall not be affected by the provisions of this article.\" 11. Although Article 7(2) of the India-Japan DTAA stands framed on lines similar to other treaties while dealing with the principle of attribution, the Protocol to the aforesaid Treaty makes the following significant provisions insofar as interest on monies paid or charged by a PE and the exception made in respect of a banking institution come to the fore. Clause 8 of the Protocol to the India-Japan DTAA reads as under: \"8. With reference to paragraph 3 of article 7 of the Convention, no deduction shall be allowed in respect of amounts paid or charged (other than reimbursement of actual expenses) by a permanent establishment of an enterprise to the head office of the enterprise or any other offices thereof, by way of: (a) royalties, fees or other similar payments in return for the use of patents or other rights, or for the use of know-how; (b) commission or other charges, for specific services performed or for management; and (c) interest on moneys lent to the permanent establishment; except where the enterprise is a banking institution.\" 12. On a more fundamental plane, it was Mr. Pardiwalla's submission that it would be wholly incorrect to view a branch or a subsidiary office of a parent entity as constituting a separate legal personality. It was his submission that branches do not have a separate legal entity and thus the taxability of the interest that was received must necessarily be answered in favour of the assessee. Learned senior counsel in this connection drew our attention to the Printed from counselvise.com 14 ITA Nos. 3708 & 3756/Del/2014 following pertinent observations as rendered by the Bombay High Court in DIT (I.T.) v. Credit Agricole Indosuez. \"Regarding question 5 (a) Mr. Tejveer Singh, the learned counsel for the Revenue, submitted that this question ought to be admitted as a similar issue has been admitted by this court. In support Mr. Singh tenders the order dated February 14, 2013, of this court in Income Tax Appeal (L.) No. 2078 of 2012, in DIT v. Antwerp Diamond Bank N. V. The question on which the above appeal was admitted reads as under: \"(a) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that interest payable by the Indian permanent establishment of the foreign bank to its head office and other overseas branches, is deductible in computing the total income?\" (b) Mr. Pardiwala, the learned senior counsel for the respondent, contests the submission on behalf of the Revenue and submits that in the present case the question as raised by the Revenue is not in respect of deducting the payment of interest to compute the total income but with regard to the chargeability to tax of the interest received by the Indian permanent establishment from its head office in computing the total income. It is pointed out that the Indian permanent establishment and the head office are one and the same person. It is settled position that one cannot make a profit out of oneself as held by the apex court in Sir Kikabhai Premchand v. CIT (1953) 24 ITR 506 (SC). The impugned order of the Tribunal also places reliance upon the Special Bench decision in the case of Sumitomo Mitsui Banking Corpn. v. Deputy DIT (2012) 16 ITR (Trib) 116 (Mumbai) [SB]; (2012) 19 taxmann.com 364 (Mum) [SB] to hold that man cannot make profit out of himself and, therefore, the interest received by the assessee from its own head office is not chargeable to tax. (c) So far as the reliance by the Revenue on order dated April 14, 2013, of this court admitting the appeal in Antwerp Diamond Bank N. V. (supra), is concerned, deduction on account of interest paid by the Printed from counselvise.com 15 ITA Nos. 3708 & 3756/Del/2014 Indian permanent establishment to its head office was in the specific context of articles 7(2) and 7(3) of the Indo-Belgium DTAA. The case of Antwerp Diamond Bank N. V. (supra) before the Tribunal was a part of the Special Bench decision in SumitomoMitsui Banking Corporation. (supra) wherein at paragraph 50, it is held as under (page 149 of 16 ITR (Trib): \"50. As regards the deduction of interest payable to the head office in the hands of Indian permanent establishment for the purpose of computing profits attributable to the said permanent establishment, there is no dispute that such deduction is not permissible under the Indian Income-tax Act (domestic law) being the payment made to self. Both the Indian permanent establishment and the foreign general enterprise of which it is a part are not separate entities for the purpose of taxation under the domestic law and the same being one and the same entity recognised as one assessee under the domestic law, interest payable by Indian permanent establishment to foreign general enterprise of which it is a part, cannot be treated as expenditure allowable as deduction being payment to self. This position which is well settled under the domestic law has not been disputed even by the learned representatives of the assessees during the course of hearing before us. They, however, have relied on the relevant tax treaties in support of the assessee's claim for deduction on account of interest payable to general enterprise while computing the profits attributable to permanent establishment in India as per article 7(2) and 7(3) read with paragraph 8 of the protocol. 52. A combined reading of article 7(2) and 7(3) of the treaty and paragraph 8 of the protocol thus makes it clear that for the purpose of computing the profits attributable to the permanent establishment in India, the said permanent establishment is to be treated as a distinct and separate entity which is dealing wholly independently with the general enterprise of which it is a part and deduction has to be allowed for all the expenses which are incurred for the purpose of permanent establishment whether in India or elsewhere barring the amount paid by a Printed from counselvise.com 16 ITA Nos. 3708 & 3756/Del/2014 permanent establishment to the head office of general enterprise or any other offices thereof, inter alia, by way of interest on moneys lent to the permanent establishment except where the enterprise is a banking institution.\" (emphasis supplied) It would thus be noticed from the order of this court dated February 14, 2013, admitting the Revenue's appeal, in the case of Antwerp Diamond (supra) arose from a different factual matrix, viz., specific provision of the DTAA allowing deduction and not under the regular provisions of Income- tax Act. Thus, the fact that the appeal in the case of Antwerp Diamond (supra) is admitted would have no relevance for admitting the present appeal on the proposed question No. 5. It is also necessary to point out that the Tribunal in the impugned order has recorded the fact that the respondent-assessee has admitted before it that to bring about parity, it is not claiming any deduction of interest paid by it to its head office while computing the taxable income. (d) Accordingly, in view of the above settled position that no person can make profit out of itself, the proposed question of law not being substantial, is not entertained.\" 13. As is evident from the aforesaid passages of the judgment in Credit Agricole, the Bombay High Court had taken note of the indubitable and well settled position of branch offices not being separate personalities or juridical entities and that one person cannot thus profit from itself. Since the receipt of interest was from the Head Office of the respondent-assessee, it was according to Mr. Pardiwalla, the aforesaid principles which would govern. 14. Our attention was also drawn to the Central Board of Direct Taxes Circular No. 19/2015 and which while explaining the provisions of Finance Act, 2015 had this to state insofar as the Explanation to Section 9(1)(v) of the Income Tax Act, 1961 is concerned. We deem it apposite to extract the following paragraphs from that Circular: - Printed from counselvise.com 17 ITA Nos. 3708 & 3756/Del/2014 \"9.4 The CBDT, in its Circular No. 740 dated 17/4/1996 had clarified that branch of a foreign company in India is a separate entity for the purpose of taxation under the Income-tax Act and, accordingly, TDS provisions would apply along with separate taxation of interest paid to head office or other branches of the non-resident, which would be chargeable to tax in India. 9.5 Some of the judicial rulings in this context have held that although under the provisions of the Income-tax Act the payment of interest by the branch to head office is non-deductible under domestic law, being payment to the self, however, such interest is deductible due to computation mechanism provided under the DTAA but it is not taxable in the hands of the Bank, being income generated from self. The view expressed in the CBDT circular has not found favour in these judicial decisions. If the legal fiction created under the treaty were treated to be of limited effect, it would have led to base erosion. The interest paid by the permanent establishment to the head office or other branch etc. is an interest payment sourced in India and is liable to be taxed under the source rule in India. This position is also recognised in some of our DTAAS, in particular Article 14 (3) the Indo-USA DTAA which reads as under.- \"In the case of a banking company which is resident of the United States, the interest paid by the permanent establishment of such a company in India to the head office may be subject in India to tax in addition to the tax imposable under the other provisions of this Convention at a rate which shall not exceed the rate specified in paragraph 2(a) of Article 11 (Interest)\" 9.6 The Special Bench of the ITAT in the case of Sumitomo Mitsui Banking Corporation [136 ITD-66 TBOM] had mentioned that there are instances of other countries providing for specific provisions in their domestic law which allows for the taxability of interest paid by a permanent establishment to its head office and other branches and had pointed out absence of such a specific provision in the Income-tax Act. Considering that there were several disputes on the issue which were pending and likely to arise in future, it was essential that necessary clarity and certainty is provided for in the Income-tax Act. Printed from counselvise.com 18 ITA Nos. 3708 & 3756/Del/2014 9.7 Accordingly, the Income-tax Act has been amended to provide that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head office or any permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India. The permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Income-tax Act relating to computation of total income, determination of tax and collection and recovery would apply. Accordingly, the PE in India shall be obligated to deduct tax at source on any interest payable to either the head office or any other branch or PE, etc. of the non-resident outside India. Further, non-deduction would result in disallowance of interest claimed as expenditure by the PE and may also attract levy of interest and penalty in accordance with relevant provisions of the Income-tax Act 9.8 Applicability: These amendments take effect from 1\" April, 2016 and will, accordingly, apply to the assessment year 2016-17 and subsequent assessment years. 15. It becomes pertinent to note that the Explanation to Section 9(1)(v) of the Act is principally concerned with entities engaged in the business of banking and a PE in India once remitting payments to its Head Office, the statute giving rise to a legal fiction of such remittances being deemed to have accrued or arisen in India. The Explanation to Section 9(1)(v) of the Act is reproduced hereinbelow: - \"Explanation. For the purposes of this clause,- (a) it is hereby declared that in the case of a non-resident, ocimg person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head office or any permanent establishment or any other part of such non- resident outside India shall be deemed to accrue or arise in India and Printed from counselvise.com 19 ITA Nos. 3708 & 3756/Del/2014 shall be chargeable to tax in addition to any income attributable to the permanent establishment in India and the permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery shall apply accordingly; (b) \"permanent establishment\" shall have the meaning assigned to it in clause (iii-a) of Section 92-F;]\" 16. It is the aforenoted provision which introduces a statutory fiction by ordaining that a PE of a banking enterprise in India would be deemed to be a person separate and independent of the non-resident person of which it is a PE. However, it was the undisputed position before us that the said Explanation would have no application since it came into effect only from 01 April 2016 and by virtue of Finance Act, 2015. 17. That only leaves us to examine the challenge that stands raised based on the well settled position of the law clearly not contemplating a person profiting out of itself. Once we come to the firm conclusion that the branch office would not partake the character or attribute of a separate legal personality, the view as taken by the Tribunal is clearly rendered unexceptional. In any event, it would be the exception carved out in the DTAA with respect to banking enterprises which would govern. 18. At this juncture, we deem it apposite to extract the following passages from the decision rendered by the Supreme Court in Kikabhai Premchand KT v. Commissioner of Income Tax (Central), Bombay:- \"10. It is well recognised that in revenue cases regard must be had to the substance of the transaction rather than to its mere form. In the present case disregarding technicalities, it is impossible to get away from the fact that the business is owned and run by the assessee himself. In such circumstances we are of the opinion that is wholly unreal and artificial to separate the business from its owner and treat them as if they were separate entities trading with each other and then Printed from counselvise.com 20 ITA Nos. 3708 & 3756/Del/2014 by means of a fictional sale introduce a fictional profit which in truth and in fact is non-existent. Cut away the fictions and you reach the position that the man is supposed to be selling to himself and thereby making a profit out of himself which on the face of it is not only absurd but against all canons of mercantile and income tax law. And worse. He may keep it and not show a profit. He may sell it to another at a loss and cannot be taxed because he cannot be compelled to sell at a profit. But in this purely fictional sale to himself he is compelled to sell at a fictional profit when the market rises in order that he may be compelled to pay to Government a tax which is anything but fictional.\" 19. Accordingly, and for the aforesaid reasons, we find no merit in these appeals. They shall consequently stand dismissed.” 8. That being the case, we hereby adopt judicial consistency to reverse both the lower authorities action holding the impugned interest income as taxable in the assessee’s hands in very terms. We must also make it clear that the CIT(A) did not have the benefit of either the tribunal’s or their lordships’ above adjudication since he had passed his impugned lower appellate order way back on 31.03.2014. The assessee succeeds in all of its instant three substantive grounds in very terms therefore. 9. Next comes the Revenue’s cross appeal in ITA No. 3756/Del/2014 wherein it’s first and foremost substantive ground is directed against the CIT(A)’s action reversing the assessment findings disallowing adding the assessee’s deferred bank guarantee commission of Rs. 46,96,100/- in question. Printed from counselvise.com 21 ITA Nos. 3708 & 3756/Del/2014 10. We are taken to the Tribunal’s order dated 03.08.2017 in Revenue’s appeal ITA No. 3754/Del/2014 in A.Y. 2002-03 deciding the same in the assessee’s favour as under: “3. The ground No. 1 of the appeal relates to addition of Rs.1,75,34,052/- on account of deferred bank guarantee commission, which has been deleted by the Ld. CIT-A. 3.1 The Assessing Officer observed guarantee commission of Rs.2,11,53,402/- received by the assessee during the year under consideration out of which, a sum of Rs.1,75,34,052/- was taken to unearned income i.e. an advance. The assessee explained that the Commission receivable on guarantees, in respect of the period which is not expired, is not income accrued during the year and same was treated as advance in accordance with the accounting policy followed by the assessee Bank. According to the Assessing Officer, the Commission received was like a fee for issuing guarantee and was not a contingent receipt or advance and which accrued at the time of bank issues the guarantee. According to the Assessing Officer, the income gets accrued to the assesses, the moitment right to receive has arisen. Accordingly, he added the sum of Rs. 1.75.34.052/- to the income of the asses 3.2 The La CIT-(A), following the order of the Hon'ble Calcutta High Court in the case of the assessee for assessment year 1981-82. adjudicated the issue in the favour of the assessee 3.3 Before us, the Ld. CIT(DR) supported the order of the Assessing Officer and submitted that guarantee commission accrued to the assessee, the moment it issued guarantee and thus the entire guarantee commission was lable to be assessed in the year under consideration. Without prejudice to above, he also submitted that from the facts of the case it was not clear whether the assessee declared any income for guarantee commission in respect of the guarantees granted in earlier years, but continued during the year under consideration. 3.4 On the other hand, the Ld. counsel of the assessee submitted that issue in dispute was covered by the decision of the Hon'ble Calcutta High Court in Printed from counselvise.com 22 ITA Nos. 3708 & 3756/Del/2014 the case of the assessee for assessment year 81-82. He further submitted that decision of the Hon'ble Calcutta High Court has been followed by the Hon'ble Delhi High Court in the case of the assessee for assessment year 2007-08 in ITA 604 and 605 of 2015. He further referred to statement of facts filed before the Ld. CIT-A and submitted that though the assessee received a total sum of Rs.2,11,53,402/- being guarantee commission during the year, however an amount of Rs.2,34,37,053/- was recognized as income for relevant year on accrual basis, in respect of guarantee issued earlier years as well as in this year. 3.5 We have heard the rival submission and perused the relevant material on record. As part of the banking activities, the assessee gives guarantee on behalf of its customers and in consideration thereof, the assessee charged commission from such customers. The commission income arising from the guarantee given on behalf of the customer has been recognized by the assessee over the life of the bank guarantee. The Ld. CIT-A adjudicated the issue in dispute as under. \"I have carefully considered the facts of the case along with the submissions made on behalf of appellant. It is pertinent to note that Hon'ble Calcutta High Court in the case of appellant for A.Y. 1981-82 (supra) decided the issue in favour of appellant as under: \"In the result, the Tribunal was justified in holding that the income deferred guarantee commission did not accrue or arise in the year in which the guarantee agreements were entered, and that the same should be spread over the period to which the guarantee commission related and should be assessed proportionately.\" Respectfully following the order of the Hon'ble Calcutta High Court in the case of the appellant itself, this ground of appeal is allowed as indicated above. 4.6 We find that the Ld. CIT-(A) has followed the finding of the Hon'ble Calcutta High Court (supra) in the case of the assessee itself for assessment year 1981-82. The decision of the Hon'ble Calcutta High Court has further been followed by Hon'ble Delhi High Court in the case of the assessee for Printed from counselvise.com 23 ITA Nos. 3708 & 3756/Del/2014 assessment year 2007-08. The findings of the Hon'ble Delhi High Court are reproduced as under: \"Deferred bank guarantee commission 16. This issue appears to be covered in favour of the Assessee by the decision of the Calcutta High Court in CIT Vs. Bank of Tokyo Ltd. (1993) 71 Taxman 85 (Cal). 17. Accordingly, this Court declines to frame any question on this issue.\" 4.7 On perusal of page 11 & 12 the statement of facts filed before the Ld. CIT-(A), it is evident that assessee has followed consistent method of accounting of crediting income over the period of life of the bank guarantee, following the decision of the Hon'ble Calcutta High Court (supra) in its own case for assessment year 1981-82. The Ld. CIT-(A) has allowed relief to the assessee following the above decision of the Hon'ble Calcutta High Court. In view of above, we do not find any error in the finding of the Ld. CIT-(A) on the issue in dispute, accordingly, we uphold the same and the ground No. 1 of the appeal is dismissed.” 11. The department could hardly pinpoint any distinction on facts or law, as the case may be. We, thus, uphold the ld. CIT(A)’s impugned lower appellate findings deleting deferred bank guarantee disallowance in question in very terms. 12. Coming to the Revenue’s second substantive ground seeking to invoke Section 115JB; MAT computation for the purpose of invoking provisions of wealth-tax to P&L A/c, we are of the considered view that once we have already accepted the assessee’s contentions contesting applicability of MAT provisions in principle, the same herein becomes academic. Rejected accordingly. Printed from counselvise.com 24 ITA Nos. 3708 & 3756/Del/2014 13. The Revenue’s third substantive ground in its instant cross appeal is that the CIT(A) has erred in law and on facts in deleting the addition of Rs. 5,44,14,609/- representing interest paid to head office and income received on account of interest from Indian branches; as the case may be, made by the Assessing Officer in his assessment order. We note herein as well that the tribunal’s earlier order for A.Y. 2005-06 has further decided the very issue against the department and in assessee’s favour as under: “9.6 As relates to Ground No. 2 of the Revenuc's appeal, the same is covered in favour of assessee by the Hon'ble Delhi High Court vide order dated 8.04.2016 wherein it is held as under: \"12. This issue appears to be covered against the revenue by the decision of the Calcutta High Court dated 23rd December 2010 in ABN Amro Bank(2012) 343 ITR 81 (Cal). The ITAT has followed the above decision of the Calcutta High Court and decided the question in favour of the Assessee. 13. On this issue, the Court further finds that the order of the Calcutta High Court dated 17th November 2014 in ITA No. 175 of 2001 (Bank of Tokyo Mitsubishi Ltd. v. Director of Income Tax, International Taxation, Mumbai) has also decided this issue in favour of the Assessee by following its judgment of ABN Amro Bank (supra). The two specific questions urged by the Assessee in that case were answered in its favour: (i) Whether interest payment made by the budian Branch of the appellant to its head office abroad was to be allowed as a deduction in computing the profits of the appellant's branch in India Printed from counselvise.com 25 ITA Nos. 3708 & 3756/Del/2014 (ii) Whether making such payment to the bad office, the appellant's said branch was required to deduct torture under section 195 of the Income Tax Act, 1961? 14. It is significant that in the aforementioned order, the Calcutta High Court noted the fact that the Special Leave Petition preferred by the Revenue against the judgment of the Calcutta High Court in ABN Amro Bank (supra) was dismissed by the Supreme Court on 3rd August 2012. 15. Accordingly, this Court declines to frame any question on this issue of interest paid to the HO as well as the interest received from the Indian branches.\" The facts of the present appeal is also identical therefore, Ground No 2 of the Revenue's appeal is dismissed.” 14. That being the case, we hereby adopt judicial consistency as the instant issue of interest paid and received from the assessee’s Indian branches as well and reject the Revenue’s instant third substantive ground. 15. Coming to the Revenue’s fourth substantive ground herein seeking to disallowance of the assessee’s Head Office expenditure deduction u/s 44C of the Act, the Revenue could hardly dispute that the very issue had arisen between the parties in A.Y. 2005-06 a well (supra), wherein the learned coordinate bench had upheld the CIT(A)’s identical findings, since the issue stood settled in A.Y. 2007- 08. Rejected accordingly. 16. Our attention is lastly invited to Revenue’s additional ground raised vide its petition dated 5.7.2017 reading as under: Printed from counselvise.com 26 ITA Nos. 3708 & 3756/Del/2014 “Whether provisions of Section 14A of the Income-tax Act, 1961 will be applicable, in the event it is held that interest to/from the Head Office/branches is not taxable.” 17. The assessee does not express any objection regarding admissibility thereof at this stage. He further states very fairly that the Assessing Officer’s consequential assessment has not made any addition regarding the same which is not contested at the Revenue’s behest. We, thus reject the Revenue’s instant additional/ last substantive ground in above terms. 18. No other ground or argument has been raised before us. 19. This assessee’s appeal in ITA No. 3708/Del/2014 is allowed the Revenue’s cross appeal in ITA No. 3756/Del/2014 is dismissed in above terms. A copy of this common order be placed in respective case files. Order pronounced in open court on 13.08.2025. Sd/- Sd/- (S. RIFAUR RAHMAN) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 13.08.2025. *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI Printed from counselvise.com "