MAT provisions in s. 115JB do not apply to foreign companies
The MAT provisions were introduced in statute by the Finance Bill, 1996 and the Finance Minister while introducing this provision observed that the company engaged in the power and infrastructure sector will remain exempt from the levy of MAT.
The Tribunal further relying on the Finance Bill, 2002 vide clause (49) which amended Section 115JB of the Act observed that the intention of legislature was very clear that the MAT provisions are applicable only to domestic companies and not to the foreign companies.
On interest paid to HO by BO: As per Article 7(2) and 7(3) of DTAA between India and Japan, the interest paid by BO (being the PE) to HO is to be allowed as deduction in computation of profits of the BO as BO and HO are to be treated as a distinct and separate enterprise. However, interest received by HO from the branch cannot be taxed in the hands of HO on the ground of mutuality as held by Special Bench in the case of Sumitomo Corporation (147 TTJ 649)(Mum).
On interest received by BO from HO: Under the Act, specific deeming provision u/s. 9(1)(v) will override the concept of mutuality and hence interest income of BO would be taxable in India. As a result interest earned by Indian branch is taxable in India.
Under the DTAA, no exemption has been provided for taxation of interest income of BO. Once the interest received by BO is deemed to be income of BO and there is no bar in the DTAA on its taxability then it cannot be excluded from computation of income earned by virtue of Article 7. Thus interest accrued or received by BO on funds lying with HO and other foreign branches should be taxable in India.