Abu Dhabi Commercial Bank PJSC We work India Management Private Limited Vs DCIT (International Taxation) 1(1)(1) (ITAT Mumbai)
ITAT Mumbai held that set off of loss of Permanent Establishment [PE] against the interest income received from External Commercial Borrowing, on which benefit of concessional rate tax availed, is allowable. Accordingly, appeal allowed to that extent.
Facts- The assessee is a non-resident banking company having its head office in United Arab Emirates (‘U.A.E’ for short) and is a tax resident of U.A.E. In course of assessment proceeding, the A.O., while verifying the return of income filed by the assessee and financial statements, noticed that in the previous year corresponding to the assessment year under dispute, the assessee had earned interest income of Rs.138,48,09,049/- from Indian customers on the ECB loans advanced to them. Taking benefit of India-UAE Double Taxation Avoidance Agreement (DTAA), the assessee had claimed that the interest income so earned would fall within the ambit of Article 11(2) of DTAA. Hence, the assessee, being the beneficial owner of such interest income, would be subject to tax on gross basis at a concessional rate of 5%. Undoubtedly, in the return of income, the assessee has offered the interest income under the head ‘income from other sources’. However, in the assessment year under dispute, the assessee’s PE in India has suffered losses under the head ‘business and profession’. While computing the income in the return of income, the assessee set off the business losses of PE amounting to Rs.75,32,51,032/- against the interest income and on the balance interest income of Rs.63,15,58,017/-, the assessee computed tax at 5% in terms with Article 11(2) of DTAA.
