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
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI `A' BENCH,
BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
ITA No. 4584/DEL/2016
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
PAN No. AABCT3880 D
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
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
2. Ground No. 1 is general in nature and needs no separate
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.
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
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:
"Ground No. 7 : It is regarding addition on account of interest
received from external commercial borrowings (ECB) given to
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
/ 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
(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
(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
(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
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.  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.
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
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
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
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.
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.
16. We direct the Assessing Officer to allow set off of brought
forward business losses and unabsorbed depreciation as per provisions
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.
[AMIT SHUKLA] [N.K. BILLAIYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 16th September, 2019
Copy forwarded to:
ITAT, New Delhi
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