Case Law Details

Case Name : Deputy Director of Income-tax (International Taxation) Vs Mizuho Corporate Bank Ltd. (ITAT Mumbai)
Appeal Number : IT Appeal No. 7479 (Mum.) of 2007
Date of Judgement/Order : 25/07/2012
Related Assessment Year : 2004-05
Courts : All ITAT (4457) ITAT Mumbai (1469)

IN THE ITAT MUMBAI BENCH ‘L’

Deputy Director of Income-tax (International Taxation)

v/s.

Mizuho Corporate Bank Ltd.

IT Appeal No. 7479 (Mum.) of 2007

[Assessment year 2004-05]

July 25, 2012

ORDER

P.M. Jagtap, Accountant Member

This appeal is preferred by the revenue against the order of the Ld. CIT (A)-33, Mumbai dated 28.09.2007 on the following grounds:

“1.  On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in directing the Assessing Officer to delete the disallowance of Rs. 40,32,971/- made under section 40(a)(i) of the Act.

“2.  On the facts and in the circumstances of the case and in law, the Ld. CIT (A) erred in directing the Assessing Officer to delete the interest income of Rs. 60,32,971/- of the Head Office.”

2. The assessee in the present case is a banking company incorporated in Japan. It carries on banking business in India through a Branch at Mumbai which constitutes its PE. The return of income for the year under consideration was filed by the assessee on 30.10.2004 declaring total income of Rs. 4,33,11,260/-. In the said return, the interest of Rs. 60,32,971/- paid by the Mumbai Branch of the assessee bank to its Head office in Japan was claimed as deduction while computing the profit of the assessee attributable to its PE in India. According to the AO, the said interest paid by the Indian Branch constituted income of the Head office of the assessee chargeable to tax in India. Accordingly, he brought the same to tax in the hands of the assessee @ 10% on gross basis. In so far as deductibility of the said interest paid to the HO while computing the profits attributable to the PE in India, the AO found that the assessee has deducted tax at source from the payment of interest only to the extent of Rs. 20 lakhs. Since no tax at source was deducted by the assessee from the interest paid to the Head office by the Mumbai Branch to the extent of Rs. 40,32,971/-, he disallowed the deduction claimed by the assessee in respect of interest paid to the Head office to that extent by invoking the provisions of sec.40(a)(i) of the Act.

3. Against the assessment order passed by the AO, an appeal was preferred by the assessee before the Ld. CIT (A) challenging both the additions made by the AO on account of interest paid to Head office by the Indian branch treating the same as income of the Head office and the disallowance of such interest made by invoking the provisions of sec.40(a)(i). After considering the submissions made on behalf of the assessee and perusing the relevant material on record, the Ld. CIT (A) deleted the addition made by the AO on account of interest paid by the Indian Branch to the overseas Head office treating the same as income of the Head office chargeable to tax in India by following the decision of Kolkota Special Bench of the ITAT in the case of ABN Amro Bank NV v. Asstt. DIT, International Taxation [2005] 97 ITD 89. He also deleted the disallowance of interest expenditure made by the AO by invoking the provisions of sec.40(a)(i) following the decision of Kolkota Special Bench of the ITAT in the case of ABN Amro Bank NV (supra) wherein it was held that the interest paid to HO not being taxable in India, no tax was required to be deducted by the Indian Branch from the payment of interest made to HO. Aggrieved by the order of the Ld. CIT (A), the revenue has preferred this appeal before the Tribunal.

4. At the time of hearing before us, nobody has appeared on behalf of the assessee. The Ld. DR, however, has fairly and frankly conceded that both the issues involved in this appeal of the revenue are squarely covered by the recent decision of Special Bench of the Tribunal in the case of Sumitomo Mitsui Banking Corpn. v. Dy. DIT [2012] 136 ITD 66 wherein it has been held that interest paid by the Indian Branch of the assessee bank to its overseas head office is not chargeable to tax in India. As further held by the Special Bench in the said case, the provisions of sec.195 consequently would not be attracted in case of such payment of interest by the Indian Branch to overseas Head office and the question of disallowance of the said interest by invoking the provisions of sec.40(a)(i) does not arise. Respectfully following the said decision of the Special Bench of this Tribunal, we uphold the impugned order of the Ld. CIT (A) giving relief to the assessee on both the issues involved in this appeal of the revenue and dismiss the said appeal.

5. In the result, the appeal of the revenue is dismissed.

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