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The Bank of Tokyo-Mitsubishi UFJ Ltd., 5th Floor, Worldmark-2, Asset 8, Aerocity, NH-8, New Delhi-110037 Vs. Dy. C.I.T Circle-3(1)(1), International Taxation, New Delhi
September, 16th 2019
                                    1


   IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI `A' BENCH,
                         NEW DELHI

      BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND
           SHRI AMIT SHUKLA, JUDICIAL MEMBER

                        ITA No. 4584/DEL/2016
                            [A.Y 2007-08]


The Bank of Tokyo-Mitsubishi            Vs   Dy. C.I.T
UFJ Ltd., 5th Floor, Worldmark-2,            Circle-3(1)(1), International
Asset 8, Aerocity, NH-8,                     Taxation, New Delhi
New Delhi-110037

PAN No. AABCT3880 D

(APPELLANT)                                         (RESPONDENT)


              Assessee By      :    Shri Percy Pardiwala

              Department By    :    Shri G.K. Dhall, CIT- DR [Intll. Tax]


                Date of Hearing                :   12.09.2019
                Date of Pronouncement         :    16.09.2019


                               ORDER


PER N.K. BILLAIYA, ACCOUNTANT MEMBER,

     This appeal by the assessee is preferred against the order dated

28.07.2016 framed u/s 143(3) r.w.s 144C of the Income-tax Act, 1961

[hereinafter referred to as 'The Act'] pertaining to assessment year

2009-10.
                                   2


2.   Ground No. 1 is general in nature and needs no separate

adjudication.



3.   Vide Ground No. 2, the assessee has challenged the addition on

account of interest received on External Commercial Borrowings [ECB],

extended to Indian borrowers.



4.   At the very outset, the ld. counsel for the assessee stated that on

identical set of facts, this issue was considered by the Tribunal in

Assessment Year 2011-12 in ITA No. 306/DEL/2016 vide Ground No. 2 of

that appeal and vide adjudicating the issue in favour of the assessee,

the Tribunal relied on the decision of the co-ordinate bench for

Assessment Year 2010-11 in ITA No. 1174/DEL/2015.



5.   The ld. counsel for the assessee further pointed out that this

issue came up for adjudication again in Assessment Year 2013-14 and

again the Tribunal in ITA No. 7212/DEL/2017 has decided it in favour of

the assessee and against the Revenue. The ld. counsel for the assessee

supplied copies of the orders of the co-ordinate bench.
                                   3


6.   Per contra, the ld. DR stated that this issue was also considered

by the Tribunal in ITA No. 4548/DEL/2016 for Assessment Year 2008-09

and has decided the issue against the assessee and in favour of the

Revenue.



7.   The ld. counsel for the assessee stated that due to typographical

error, it has been mentioned as "in favour of the department and

against the assessee" and a Misc Application has already been filed for

rectification of the mistake. The ld. DR further stated that since the

issue was decided against the revenue, the Revenue preferred appeal

before the Hon'ble High Court of Delhi, which appeal has been

admitted. The ld. counsel for the assessee furnished copy of the order

of the Hon'ble High Court bearing ITA No. 1066/2017 and 1072/2017.



7.   We have heard the rival submissions and have carefully perused

the orders of the co-ordinate benches as mentioned hereinabove. We

find force in the contention of the ld. counsel for the assessee. The

issue stands covered in favour of the assessee and against the Revenue

vide order of the Tribunal in ITA No. 1174/DEL/2015. The relevant

findings of the Tribunal read as under:
                               4


"Ground No. 7 : It is regarding addition on account of interest

received from external commercial borrowings (ECB) given to

Indian borrowers.


21. The facts in brief are that the head office / other

overseas branches of the assessee are in receipt of interest

earned from the external commercial borrowings (ECB) given

to the Indian borrowers parties. Indian branches of assessee

help its Indian customers in arranging funds through its

overseas branches and the dealer in India cannot lend in

foreign currency except for providing export credit to its

concern as per the extant Reserve Bank of India Regulations.

Indian branches of the assessee but on the request of the

customers pass on the lead to the overseas branches along

with the credit evaluation report, terms and conditions of

approval and details of security documents to be entered into.

Indian branches evaluate the customer on an on-going basis

and passes on the lead information to its overseas branches

on activities related to credit rating, monitoring of covenants

etc. On receipt of the information from the Indian branches

of the assessee, the overseas branches of the bank do the

booking of the loan based on the terms and conditions of the

approval. The agreement and security documentations are

entered between overseas branches and the borrowers.

Indian branches receive syndication fees from its head office
                                  5


 / other overseas branches for the services rendered by it in

 relation to ECB.



 22.The case of authorities below is that interest income

 accrues and arises as under:








 (i)   Interest income accrues and arises hr India under

 section 9(l)(v) of the Act. Since the ECB do not form part of

 the asset base of the PE in India and is not effectively

 connected with the PE, ECB interest is chargeable to tax

 under Article 11 of the Treaty between India and Japan (para

 9.2 and 9.3 at page nos. 207-208 of appeal set).


(ii)   No tax credit, however is allowable to the assessee,

 since, any new claim can be made by the assessee only through

 a revised return of income (para 9.7 at page 210 of appeal

 set) (iii) Since interest is payable on a net of tax basis i.e. tax
 has been borne by the borrowers, the ECB interest is grossed

 up for arriving at the income to be included in the

 computation of total income of the assessee (para 9.8 at page

 210 of appeal set).


23.     In support of the ground the Id. AR made following

 submissions :-
                                6


(i)     At the outset, we wish to submit that due to lack of the

 details/information, the Tribunal in the order passed for

 Assessment Years 2007-08 and 2008-09 had remanded back

 the issue of taxability of ECB interest to the file of the

 Assessing Officer for de novo consideration.      However, as

 noted by the DRP, since all the requisite details have been

 filed by the assessee for AY 2010-11 and the issue has been

 decided accordingly, it is submitted that the matter is not

 required to be restored back to the Assessing Officer for

 Assessment Year 2010-11 and the same be decided by the

 Tribunal on merits.




 (ii)   ECBs given to the Indian customers are effectively

 connected with the Indian PE of the assessee and an amount

 i.e. syndication fee, which is commensurate with the role

 played by the Indian PE and is attributable to the Indian PE

 has already been offered to tax, by the assessee, in the

 computation of its income taxable in India as per the

 provisions of Article 7 of the Indo-Japanese treaty; and

 therefore, in view of Article 11(6) read with Article 7 of

 Indo-Japanese treaty, nothing further can be brought to tax

 in India.
                                7


(iii)   During the year under consideration, the Indian

PE/branches of the assessee received an amount of Rs

14,58,92,297 as syndication fee from its HO/other overseas

branches for the services performed by the Indian branches

in relation to ECBs, which has been credited to profit & loss

account of the Indian branches of the assessee and offered

to tax in the return of income filed by the assessee. Apart

from this, the assessee has offered to tax an amount of Rs

2,14,77,903 as transfer pricing adjustment with respect to

ECB syndication fee in the return of income. Therefore, the

assessee has already offered to tax an amount of Rs

16,73,70,200 (Rs.14,58,92,297 + Rs 2,14,77,903) as fee

received by the Indian PE of the assessee from its HO/other

overseas branches for the services performed in relation to

ECBs, which has been accepted to be an arms' length price by

the Revenue.


(iv)    The Mumbai Tribunal in the case of Credit Lyonnais

(ITA No. 1935/Mum/2007) has held that ECB interest is not

attributable to the Indian branches of the assessee and only

the fee is taxable in the hands of the Indian branches of the

assessee for the role played by it in arranging the ECBs.


(v)     Without prejudice to the claim of non-taxability of ECB

interest income, the AO has erred in not allowing the credit

for tax deducted at source on ECB interest. Sample copies of
                               8


TDS certificates were also furnished to the AO. Further,

that the taxes have been deducted is an admitted position

since the AO has himself grossed up the entire amount of ECB

interest by the amount of tax borne by the borrowers. Once

this is so, in view of section 208 of the Act, the necessary

credit has to be given to the assessee.




i)   Tax at source has been deducted from the sample

copies of TDS certificates furnished before the Assessing

Officer and he has admitted the same by grossing up the ECB

interest by the amount of tax borne by the borrowers,

therefore, no interest under section 234B of the Act can be

levied for the tax demand on account of ECB interest.



(vii) Even on merits, interest under section 234B of the Act is

not applicable since ECB interest received by the assessee

from the borrowers is subject to tax deduction at source

under section 195 of the Act. Reliance is placed on the

judgment of the Delhi High Court in the case of GE Packaged

Power Inc. [2015] 373 ITR 65 wherein it has been held by the

Delhi High Court that no interest under section 234B of the

Act can be levied where the payment to non-resident payee is

subject to tax deduction at source.
                               9


24.   The Id. CIT [DR], on the other hand, contended that


ECB interest has been earned by the HO/other overseas

branches of the assessee from third party. Such ECB is not

the debt claim of the Indian branches of the assessee and,

therefore, ECB interest is not effectively connected with the

Indian branches.


If tax is borne by the borrowers, credit for TDS on ECB

interest is not allowable to the assessee.


If direction is issued for allowability of TDS credit, the same

should be granted to the assessee subject to verification of

the same from the deductors/borrowers.


25.    The Id. AR rejoined with the submission that when the

   tax is born by the payer of the income, income is grossed

   up by the amount of tax born by the payer and such

   grossed up interest is taxed in the hands of the payee. Any

   taxes with-held by the payer is allowable as credit to the

   payee of income against the income taxed in the hands of

   the payee. He submitted that CBDT vide its Circular No.

   785 dated 24.11.1999 has also clarified that where the

   payment is made of taxes i.e. tax is borne by the payer of

   the income, the payer is under obligation to issue TDS

   certificate to the payee, since such grossed up income is

   taxable in the hands of the payee and the payee is eligible
                             10


  to claim credit of such taxes with held against the income

  taxed in the hands of the payee.


26.   After having gone through the above cited decision, we

  find that Mumbai Bench of the Tribunal in the case of

  Credit Lyonnais (supra) has held that ECB interest is not

  attributable to the Indian branches of the assessee and

  only the fee is taxable in the hands of the Indian branches

  of the assessee for the role played by it in arranging the

  ECB. The Hon'ble High Court of Delhi in the case of GE

  Package Powerink (supra) has been pleased to hold that no

  interest under section 234B of the Act can be levied

  where the payment to nonresident payee is subject to tax

  deduction at source. In the present case, the Assessing

  Officer himself had admitted by grossing up the ECB

  interest by the amount of tax borne by the borrowers that

  tax at source has been deducted. We are thus of the view

  that no interest under section 234B of the Act can be

  levied for the tax demand on account of ECB interest and

  interest under section 234B is also not chargeable since

  ECB interest received by the assessee from the borrowers

  was subject to tax deduction at source under section 195

  of the Act. The Assessing Officer is thus directed to

  delete the addition made on account of interest received

  from ECB given to Indian borrowers. The ground No. 7 is

  acaccordingly allowed."
                                   11


8.    We further find that similar view was taken by the co-ordinate

bench in Assessment Years 2008-09, 2011-12 and 2013-14. Respectfully

following the findings of the co-ordinate bench, Ground No. 2 is

decided in favour of the assessee and against the Revenue.



9.    Ground No. 3 relates to the deduction u/s 44C of the Act.



10.   This Ground is taken without prejudice to Ground No. 2 above.

Since Ground No. 2 stands decided in favour of the assessee, Ground

no. 3 becomes otiose.








11.   Ground No. 4 relates to the levy of interest u/s 234D of the Act.



12.   Before us, the ld. counsel for the assessee furnished an

intimation u/s 143(1) of the Act and pointed out that refund was

adjusted against the demand on 31.10.2012. This shows that refund

was never granted to the assessee but was adjusted against the

demand. The ld. counsel for the assessee also furnished Income tax

computation form and pointed out that interest has been levied u/s

234D of the Act for the period 10.07.2009 to July 2016. The date of

this Income tax computation is 28.07.2016. It is the say of the ld.
                                    12


counsel for the assessee that on these facts, no interest is leviable u/s

234D of the Act since the refund has been adjusted against the demand

vide order dated 31.10.2012.



13.   On the other hand, the ld. DR could not point out any factual

defects in the submissions of the ld. counsel for the assessee.



14.   We have carefully considered the intimation u/s 143(1) of the Act

dated 31.10.2012 and the Income tax computation form dated

28.07.2016. We find force in the contention of the ld. counsel for the

assessee that refund was adjusted against the outstanding demand

vide order dated 31.10.2012. Therefore, in our considered opinion,

the Revenue erred in levying interest u/s 234D of the Act for the

period July 2009 to July 2016. We, accordingly, direct the Assessing

Officer to delete the interest so levied.



15.   Ground No. 5 relates to the claim of set off of brought forward

business losses and unabsorbed depreciation.
                                 13


16.    We direct the Assessing Officer to allow set off of brought

forward business losses and unabsorbed depreciation as per provisions

of law.



17.    In the result, the appeal of the assessee in ITA No.

4584/DEL/2016 is allowed.

       The order is pronounced in the open court on 16.09.2019.



            Sd/-                                       Sd/-


       [AMIT SHUKLA]                           [N.K. BILLAIYA]
      JUDICIAL MEMBER                        ACCOUNTANT MEMBER



Dated:    16th September, 2019



VL/


Copy forwarded to:
1.   Appellant
2.   Respondent
3.   CIT
4.   CIT(A)
5.   DR
                                                      Asst. Registrar,
                                                     ITAT, New Delhi
                                       14


Date of dictation
Date on which the typed draft is placed before the
dictating Member
Date on which the typed draft is placed before the Other
Member

Date on which the approved draft comes to the Sr.PS/PS
Date on which the fair order is placed before the
Dictating Member for pronouncement
Date on which the fair order comes back to the Sr.PS/PS

Date on which the final order is uploaded on the website
of ITAT
Date on which the file goes to the Bench Clerk
Date on which the file goes to the Head Clerk
The date on which the file goes to the Assistant Registrar
for signature on the order
Date of dispatch of the Order

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