ABN Amro Bank, Stockholm not Swedish Resident as per DTAA: ITAT holds Bharti Airtel required to Deduct TDS on Loan Interest [Read Order]

The decision was rendered by the ITAT while adjudicating two-part cross appeals filed by Bharti Airtel Ltd. against the Assistant Commissioner of Income Tax, Circle 4(2), Delhi and vice versa originating from the finances of Airtel from assessment years (A.Y.) 2007-08 and 2008-09.

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Bharti Airtel had acquired telecom equipment from the Swedish supplier Ericsson, which was financed through loans arranged by ABN Amro Bank’s Stockholm branch. Bharti Airtel, relying upon a Tax Residency Certificate (TRC) issued by the Swedish tax authorities in 2002, abstained from deducting TDS on interest paid to ABN Amro, presuming the Bank to be a tax-resident in Sweden under the India-Sweden Double Taxation Avoidance Agreement (DTAA).

However, the IncomeTax Department was of the view that ABN Amro was a tax resident of the Netherlands and not Sweden, with the Branch in Sweden being a Permanent Establishment (PE) of the Bank.

Consequently, the Assessing Officer (AO) disallowed these interest payments amounting to approximately ₹25.35 crore for the assessment year 2007-08 and ₹20.27 crore for 2008-09 under Section 40(a)(i) of the Income Tax Act, 1961, due to non-deduction of TDS.

Bharti Airtel contested the issue before the Commissioner of Income Taxes (Appeals) ( CIT(A) ), which provided partial relief accepting Airtel's plea regarding bona fide belief, leading to the present appeal by the Revenue.

Bharti Airtel, represented by senior advocates Rohit Jain and Deepesh Jain along with Chartered Accountant Shivam Gupta, argued that the Tax Residency Certificate from Sweden established their genuine belief of ABN Amro's tax residency status and that ABN Amro had not at any point of time asked the assessee to not deduct tax at source on the payment of interest or deduct tax at source at concessional rate.

Conversely, Departmental Representative Javed Akhtar argued that the Swedish TRC had bearing only to the Stockholm branch and not ABN Amro Bank's global income, which was taxable in the Netherlands, where it is originally based.

The Bench of Vikas Awasthy, Judicial Member and Amitabh Shukla, Accountant Member observed that the Stockholm branch of ABN Amro could by no means be considered a Swedish resident under Article 4 of the Indo-Sweden DTAA since it was merely a branch of ABN Amro Bank headquartered in the Netherlands.

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The Tribunal referred to the decision of the ITAT, Bangalore in Google India P Ltd. vs. Joint Director of Income Tax(International Taxation) (2023 TAXSCAN (ITAT) 798) and disregarded Airtel’s plea of bona fide belief, while clarifying that statutory provisions requiring TDS under Section 40(a)(i) held precedence over the assessee's purported bona fide belief

Thus, the Tribunal held that Bharti Airtel was indeed required to deduct TDS on interest payments made to ABN Amro Bank under the Indo-Netherlands DTAA.

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