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CASE LAWS
2017-TII-67-HC-DEL-INTL
CIT Vs BANK OF TOKYO MITSUBISHI UFJ LTD: DELHI HIGH COURT (Dated: November 28, 2017)
Income tax - Sections 115JB & 234(B)
Keywords - salary to expatriate employees - PE - permanent establishment - TDS obligation
The Assessee company, concededly a PE, had filed its return, consequent to which, the AO made certain disallowances i.e. on account of salary paid to the expatriate employees based in Japan where the assessee’s Head Office was located; and also held that Section 115JB of Income Tax Act applied. Furthermore, the AO also sought to apply Section 234(B) of Income Tax Act charging interest, on the basis that, the deducter was bound to ensure that the TDS payments were retained. On appeal, the ITAT was of the opinion that all the said income sought to be brought to tax could not be sustained and accordingly deleted them.
On appeal, the HC held that,
Whether provisions of Section 115JB will apply to, salary paid by an Indian PE to expatriate employees of its overseas HO - NO: HC
+ this Court notices that so far as first payments made to expatriate employees in the assessee’s Head Office and the applicability of Section 115JB are concerned, common order for AY 2007-08 and 2008-09 in Commissioner of Income Tax Vs. Bank of Tokyo Mitsubishi UFJ Ltd. was decided, wherein this Court had then observed that: ".....Assessee's claim for lower tax will have to be accepted because Section 115JB is subject to Section 90(2) of the Act and the taxable income of the Assessee would have to be computed in terms of Article 7(3) of the DTAA. What is significant is that the profit and loss account of the Assessee has not been prepared in terms of Part II of Schedule VI of the Companies Act, 1956 and in fact could not have been prepared in terms thereof. Consequently, the question of applicability of Section 115JB did not arise. As rightly pointed out, till the insertion of Section 115JB, banking companies were required to prepare their accounts in terms of special acts that they were governed by, and therefore there were no computation provisions as regards such banking companies. The change brought out by Section 115JB was therefore not retrospective....";
+ so far as applicability of Section 234B goes, the Court notices that the issue is covered by the judgment of the Division Bench in JE Packaged Inc. Vs. Commissioner of Income Tax, against the Revenue, consequently no such question of law arises;
+ this Court is however of the opinion that certain questions arise for consideration as yo whether the ITAT fall into error with respect to additions relating to interest received by the assessee’s Permanent Establishment in India of deposits made by it with the Head Office/Overseas Branch. This Court therefore admits the appeals on such questions.
Case deferred
2017-TII-68-HC-DEL-INTL
PR CIT Vs MIRA EXIM LTD: DELHI HIGH COURT (Dated: November 29, 2017)
Income tax - Sections 9(2) Explanation 7 & 40(a)(ia)
Keywords - overseas payment - foreign partnership firm - fees for technical services
The Revenue Department preferred present appeal challenging the treatment given by the CIT(A) as well as ITAT to the amounts paid by the assessee to overseas entities. The findings of the CIT(A) and the ITAT concurrently were that one of the overseas recipients was a partnership firm, which influenced the treatment under Article 12 of the Indo-Canada DTAA.
On appeal, the HC held that,
Whether deduction u/s 40(a)(ia) is mandated, when the payment made overseas were not in the nature of 'FTS' under Explanation 7 to Section 9(2) - NO: HC
Whether disallowance u/s 40(a)(ia) can be invoked relying upon the retrospective amendment of the said provision - NO: HC
+ this Court is of the opinion that since the ITAT has rendered findings that the amounts paid were not Fee for Technical Services (FTS) under Explanation 7 to Section 9(2), similar treatment would arise. As far as this is concerned, the Court notices that the ITAT relied upon the interpretation given to similar provisions of various DTAAs in Cushman & Wakefield Pte. Ltd. in Re - 2008-TII-08-ARA-INTL; Dieter Eberhard Gustav v. CIT - 2002-TII-53-ARA-INTL etc. and held that since these were not in the nature of FTS, the disallowance u/s 40(a)(ia) was not warranted. Reliance by the Revenue upon the retrospective amendment, in the opinion of this Court, is not justified, given the ruling in Director of Income Tax v. New Skies Satellite BV - 2016-TII-06-HC-DEL-INTL. No question of law, therefore, arises.
Revenue's appeal dismissed