Interest from Overseas Head Office & Branches Not Taxable as It Constitutes Transactions with Self

DDIT Vs American Express Bank Pvt. Ltd. (ITAT Mumbai)

Section 14A Disallowance Deleted Because Mutuality Receipts Are Not Income; Broken Period Interest Allowed Because Earlier Supreme Court Rulings Covered the Issue; ATM Software Cost Allowed as Revenue Expenditure Because It Facilitated Banking Operations: ITAT Mumbai.

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) disposed of the cross appeals filed by the Revenue and the assessee for Assessment Year 1999-2000 concerning several issues relating to taxation of a non-resident bank operating in India through its Permanent Establishment (PE). The Tribunal decided issues relating to taxation of interest received from the head office and overseas branches, deductibility of head office expenses under Section 44C, disallowance under Sections 14A and 40(a)(i), broken period interest, software expenditure, and expenditure relating to income taxable under Section 115A.

On the Revenue’s appeal regarding taxation of interest received from the overseas head office and branches, the Tribunal upheld the Commissioner (Appeals)’ decision that interest received from and paid to the head office and overseas branches represented transactions with self and was not taxable under the domestic law. Relying on the Special Bench decision in Sumitomo Mitsui Banking Corporation, the Bombay High Court’s decision in Credit Agricole Indosuez, and the Tribunal’s order in the assessee’s own case for AY 1998-99, it held that the principle of mutuality applied and dismissed the Revenue’s ground.