The Income Tax Appellate Tribunal (ITAT) Mumbai bench held that the interest amount paid by the Indian Branch to Foreign Head office was not taxable in India under India France Double Taxation Avoidance Agreement(DTAA).
Assessee, BNP Paribas is a commercial bank having its head office in France. The assessee has 8 branches in India and is involved in normal banking activities including financing of foreign trade and foreign exchange transactions. The assessee filed the return of income for A.Y. 2016-17 by declaring total income of Rs.705,48,99,620/-.
During the assessment proceedings AO noted that the assessee has paid a sum of Rs.7,07,97,939/- to its head office as interest. Then the interest expenses have been claimed as not taxable in accordance with the provisions of Article 7(3) the India-France Tax Treaty.
The Assessing Officer without considering the submission of assessee denied the claim and made addition.
Aggrieved by the order, the assessee filed an objection before the Dispute Resolution Panel (DRP), who dismissed the objections. Therefore the assessee filed another appeal before the tribunal.
Before the bench Farrokh Iran, counsel for the assessee submitted that his issue is also covered by the decision of the co-ordinate bench in assessee’s own case for A.Y. 2018-19.
Counsel also pointed out that revenue had made the addition for the reason that Explanation was inserted to section 9(1)(v)(c) whereby the payments made by the PE to its head office is to be brought to tax if income deemed to accrue in India and accordingly should be taxed in India.
Further, co-ordinate bench in assessee’s own case for A.Y. 2018-19 has considered the insertion of the Explanation with effect from 01/04/2016 and has given an elaborate finding to hold that as per DTAA, the said payment are not taxable in India and, therefore, the Explanation could not be applied in assessee’s case.
Sandeep Raj, Counsel for the revenue, supported the decision of lower authorities.
After considering the facts submitted by both parties, the two member bench of Padmavathy S (Accountant Member) and Vikas Awasthy (Judicial Member) held that interest paid by the Indian branch/PE to the head office/GE is not taxable in India.
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