Dy. Director of IT (International Taxation) v. Toronto Dominion Bank Ltd.

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The Tax Publishers2013 TaxPub(DT) 0992 (Mum-Trib) : (2012) 138 ITD 0506 : (2013) 153 TTJ 0303 : (2013) 084 DTR 0377 INCOME TAX ACT, 1961 --IncomeAccrual Time of--Assessee-bank received advisory fees in lumpsum from parties, a part of which was recognized as income and balance was deferred over the term of loan. Assessing officer however, observed that fees were charged on the basis of some percentage of loan granted and same accrued at the time of granting of loan and it was not returnable after receipt. *Held:* Rightly so, because assessee did not furnish supporting copy of agreement with parties. Besides it was admitted that advisory fees were one time non-returnable receipt. Income Tax Act, 1961 Section 5 INCOME TAX ACT, 1961 --Business disallowance under section 40(a)(i)--Interest paid to branch--Assessee is a permanent establishment (PE) of a Canadian firm which had a branch in Singapore as well. Assessing officer disallowed under section 40(a)(i) certain amount of interest paid by assessee to the Singapore branch. However, the interest amount was however taxed in the hands of Singapore branch according to the provisions of article 11 of the DTAA between India and Canada. *Held:* Not Rightly so. Interest was deductible in the hands of assessee and was not taxable in the hands of Singapore Branch. Article 11 of the DTAA between India and Canada was not applicable to this case. Income Tax Act, 1961 Section 40(a)(i) Double Taxation Avoidance Agreement between India and Canada Article 11 In The Itat, Mumbai L Bench R. S. Syal, A.M. & I. P. Bansal, J.m. Dy. DIT v. Toronto Dominion Bank Ltd. IT Appeal Nos. 8465, 8466, 8483 & 8484 (Mum.) of 2004 A.Ys. 2000-01 & 2001-02 8 August, 2012 Appellant by : Narendra Kumar Respondent by : Dhanesh Bafna and Aliasger Rampurawala ORDER *R. S. Syal, A.M.* These four cross appeals relating to the assessment years 2000-2001 and 2001-2002 involve common issues. For the sake of convenience, these have been clubbed for disposal by a consolidated order. Assessment Year 2000-2001 2. The assessee is aggrieved against the sustenance of disallowance of Rs. 15,21,000 being interest paid to its Singapore branch under section 40(a)(i) of the Act and simultaneously taxing the interest received by Singapore branch amounting to Rs. 15,21,000 as interest income in its hand under the provisions of Article 11of the DTAA between India and Canada. 3. At the very outset the learned Counsel for the assessee contended that the issue raised in this appeal is covered by the recent Special Bench order in the case of Sumitomo Mitsui Banking Corpn. v. Dy. DIT (IT) 2012 TaxPub(DT) 2235 (Mum-Trib) : (2012) 136 ITD 66 (Mum.) holding that interest paid by the PE to head office or to other branches outside India is deductible in the hands of the PE and the same interest is not taxable in the hands of the head office. The learned Counsel for the assessee submitted that the language of the DTAA with Japan as considered by the Special Bench in the case of Sumitomo Mitsui Banking Corpn. (supra) along with its protocol is similar to the language of the DTAA between India and Canada. It was, therefore, submitted that similar view be taken in the instant case as well by deleting both the additions sustained in the first appeal. The learned Departmental Representative candidly accepted the position so stated on behalf of the assessee. Respectfully following the precedent we hold that neither the amount of Rs. 15.21 lakh can be added under section 40(a)(i) nor it can be taxed as per Article 11 of the DTAA with Canada as has been accepted by the ld. DR that the language of DTAA with Canada and Japan on this issue is similar. The impugned order is, therefore, reversed. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0992 (Mum-Trib) : (2012) 138 ITD 0506 : (2013) 153 TTJ 0303 : (2013) 084 DTR 0377

INCOME TAX ACT, 1961

--IncomeAccrual Time of--Assessee-bank received advisory fees in lumpsum from parties, a part of which was recognized as income and balance was deferred over the term of loan. Assessing officer however, observed that fees were charged on the basis of some percentage of loan granted and same accrued at the time of granting of loan and it was not returnable after receipt. Held: Rightly so, because assessee did not furnish supporting copy of agreement with parties. Besides it was admitted that advisory fees were one time non-returnable receipt.

Income Tax Act, 1961 Section 5

INCOME TAX ACT, 1961

--Business disallowance under section 40(a)(i)--Interest paid to branch--Assessee is a permanent establishment (PE) of a Canadian firm which had a branch in Singapore as well. Assessing officer disallowed under section 40(a)(i) certain amount of interest paid by assessee to the Singapore branch. However, the interest amount was however taxed in the hands of Singapore branch according to the provisions of article 11 of the DTAA between India and Canada. Held: Not Rightly so. Interest was deductible in the hands of assessee and was not taxable in the hands of Singapore Branch. Article 11 of the DTAA between India and Canada was not applicable to this case.

Income Tax Act, 1961 Section 40(a)(i)

Double Taxation Avoidance Agreement between India and Canada Article 11

In The Itat, Mumbai L Bench

R. S. Syal, A.M. & I. P. Bansal, J.m.

Dy. DIT v. Toronto Dominion Bank Ltd.

IT Appeal Nos. 8465, 8466, 8483 & 8484 (Mum.) of 2004

A.Ys. 2000-01 & 2001-02

8 August, 2012

Appellant by : Narendra Kumar

Respondent by : Dhanesh Bafna and Aliasger Rampurawala

ORDER

R. S. Syal, A.M.

These four cross appeals relating to the assessment years 2000-2001 and 2001-2002 involve common issues. For the sake of convenience, these have been clubbed for disposal by a consolidated order.

Assessment Year 2000-2001

2. The assessee is aggrieved against the sustenance of disallowance of Rs. 15,21,000 being interest paid to its Singapore branch under section 40(a)(i) of the Act and simultaneously taxing the interest received by Singapore branch amounting to Rs. 15,21,000 as interest income in its hand under the provisions of Article 11of the DTAA between India and Canada.

3. At the very outset the learned Counsel for the assessee contended that the issue raised in this appeal is covered by the recent Special Bench order in the case of Sumitomo Mitsui Banking Corpn. v. Dy. DIT (IT) 2012 TaxPub(DT) 2235 (Mum-Trib) : (2012) 136 ITD 66 (Mum.) holding that interest paid by the PE to head office or to other branches outside India is deductible in the hands of the PE and the same interest is not taxable in the hands of the head office. The learned Counsel for the assessee submitted that the language of the DTAA with Japan as considered by the Special Bench in the case of Sumitomo Mitsui Banking Corpn. (supra) along with its protocol is similar to the language of the DTAA between India and Canada. It was, therefore, submitted that similar view be taken in the instant case as well by deleting both the additions sustained in the first appeal. The learned Departmental Representative candidly accepted the position so stated on behalf of the assessee. Respectfully following the precedent we hold that neither the amount of Rs. 15.21 lakh can be added under section 40(a)(i) nor it can be taxed as per Article 11 of the DTAA with Canada as has been accepted by the ld. DR that the language of DTAA with Canada and Japan on this issue is similar. The impugned order is, therefore, reversed.