Interest Received by Head Office of Bank from Indian Branch not Taxable in India: ITAT [Read Order]

Interest - Taxscan

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the interest income received by the head office of the assessee bank was not chargeable to tax in India as per the Double Taxation Avoidance Agreement (DTAA) between India and Japan.

Assessee is a foreign bank incorporated in Japan and carrying out its banking operations in India through branches situated at Mumbai and Delhi. During the relevant period, the Assessing Officer noted that the branches of the assesses bank at Mumbai and Delhi would constitute Permanent Establishment (PE) of the assessee in India within the meaning of the India-Japan Double Taxation Avoidance Agreement. He, therefore, concluded that the interest amount paid by these branches would be taxable under the Income Tax Act.

However, the CIT (Appeals) deleted the order by holding that the interest income received by the head office of the assessee bank was not chargeable to tax in India.

Before the tribunal, the Revenue contended that the PE in India has to be treated as separate entity and the interest payable by the said PE is to be taxed in India in the hands of PE as income.

Relying on the past decisions, the Tribunal noted that interest paid by the Indian branch of the assessee bank to its overseas head office would not be chargeable to tax in India.

“We thus, are of the considered view that in the backdrop of the fact that the issue as regards the chargeability to tax of the interest income received by the head office of the assessee bank from its Indian PE had already been adjudicated by the Tribunal in the assesses own case in A.Y. 2005-06 by following the order passed by the ‘Special Bench’ of the Tribunal in the case of Sumitomo Mitsui Banking Corporation (supra), thus finding no reason to take a different view, we respectfully follow the same. We thus, uphold the order of the CIT(A) to the extent the latter had concluded that the interest income received by the head office of the assessee bank would not be chargeable to tax in India,” the bench said.

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