DCIT Vs Mizuho Corporate Bank Ltd. (ITAT Mumbai)
We shall now advert to the issue as regards the allowability of the interest paid by the branch of the assessee bank to its head office as an expenditure in the hands of the branch office. We find that the claim of the assessee as regards the interest expenditure was disallowed by the A.O, for the reason that he held a conviction that as the branch and head office of the assessee bank were not separate entities as per domestic law as well as DTAA, thus the payment of the interest by the branch office to its head office, being in the nature of a payment to self could not be allowed as an expenditure. We find that the A.O while arriving at the aforesaid view had taken support of the order passed by the ‘Special Bench’ of ITAT, Kolkata in the case of ABN Amro Bank N.V. Vs. ADIT (2005) 97 ITD 89 (SB). However, as observed by us hereinabove, the decision of the ‘Special Bench’ of ITAT, Kolkata in the case of ABN Ambro N.V. (supra) had thereafter been reversed by the Hon’ble High Court of Calcutta in the case of ABN Amro Bank, N.V. Vs. CIT & Anr. (2012) 343 ITR 81 (Cal). The High Court in its aforesaid order had observed that though a branch and head office are the same person in general law, the Article 5 and Article 7 of the India-Netherland DTAA provided that the PE shall be assessable as a separate entity. We find that in the backdrop of the aforesaid facts the Hon’ble High Court had held that the payment of interest by the Indian PE of the Bank to its head office was to be allowed as deduction while computing the income of the PE chargeable to tax. We find that in the case of the assessee before us, the Article 7(3) of India-Japan DTAA expressly provides for deduction of interest on money advanced by the Head office to its Indian PE when such foreign enterprise is a banking institution. We are of the considered view that in the backdrop of our aforesaid observations, the interest paid by the branch office of the assessee bank in India to the head office of the bank on the amounts advanced by the latter in the normal course of its banking business is allowable as a deduction while computing the income of the Indian PE i.e. the branch of the assessee bank in India. We thus, not finding any infirmity in the order of the CIT(A) that the interest paid by the branch of the assessee bank to its head office is allowable as a deduction in the hands of the branch of the assessee bank, uphold the same.
