THE DY DIT (IT) 3(2), v. M/S. BNP PARIBAS,

ITA 1539/MUM/2005 | 2001-2002
Pronouncement Date: 01-07-2013 | Result: Partly Allowed

Appeal Details

RSA Number 153919914 RSA 2005
Assessee PAN AAACB4868Q
Bench Mumbai
Appeal Number ITA 1539/MUM/2005
Duration Of Justice 8 year(s) 4 month(s) 4 day(s)
Appellant THE DY DIT (IT) 3(2),
Respondent M/S. BNP PARIBAS,
Appeal Type Income Tax Appeal
Pronouncement Date 01-07-2013
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted L
Tribunal Order Date 01-07-2013
Date Of Final Hearing 05-12-2012
Next Hearing Date 05-12-2012
Assessment Year 2001-2002
Appeal Filed On 25-02-2005
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI RAJENDRA ACCOUNTANT MEMBER ITA NO. 7857/MUM/2004 (ASSESSMENT YEAR: 2000-01) ITA NO. 1539/MUM/2005 (ASSESSMENT YEAR: 2001-02) DDIT (I.T.) - 3(2) M/S. BNP PARIBAS SCINDIA HOUSE FRENCH BANK BUILDING BALLARD ESTATE VS. 62 HORNI MAN STREET FORT MUMBAI 400038 MUMBAI 400001 PAN - AAACB4868Q APPELLANT RESPONDENT ITA NO. 1122/MUM/2005 (ASSESSMENT YEAR: 2001-02) M/S. BNP PARIBAS DDIT (I.T) 1(1) FRENCH BANK BUILDING SCINDIA HOUSE 62 HOMJI STREET FORT VS. BALLARD ESTATE MUMBAI 400001 MUMBAI 400038 PAN - AAACB4868Q APPELLANT RESPONDENT REVENUE BY: SHRI NARENDER KUMAR ASSESSEE BY: SHRI F.V. IRANI DATE OF HEARING: 01.07.2013 DATE OF PRONOUNCEMENT: 01.07.2013 O R D E R PER BENCH THESE APPEALS ARE DIRECTED AGAINST THE ORDERS PASSE D BY THE CIT(A) 31 MUMBAI AND THEY PERTAIN TO A.Y. 2000-01 AND A.Y. 20 01-02. 2. FOR A.Y. 2000-01 ONLY THE REVENUE PREFERRED AN APPE AL WHEREAS THERE ARE CROSS APPEALS FILED IN RESPECT OF A.Y. 2001-02. WE SHALL FIRST DEAL WITH THE APPEAL FILED BY THE REVENUE IN RESPECT OF A.Y. 2000-01. THE ONLY GROUND URGED BY THE REVENUE READS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) ERRED IN HOLDING THAT THERE IS NO NEXUS BETWEEN TAX ITA NO. 7857 1539 & 1122/MUM/2005 M/S. BNP PARIBAS 2 FREE INCOME AND INTEREST BEARING FUNDS AND THUS THE AO IS NOT CORRECT IN DISALLOWING RS.82 69 047/- AS INTEREST E XPENDITURE INCURRED FOR EARNING DIVIDEND ON SHARES ON THE GROU ND THAT ONLY THE NET DIVIDEND INCOME FROM SHARES IS ELIGIBLE FOR EXEMPTION. 3. IT MAY BE NOTICED HERE THAT THE AO IN PARA 4.14 S OUGHT TO DISALLOW ONLY INTEREST EXPENDITURE ATTRIBUTABLE TO EARNING T AX FREE INCOME. THE LEARNED CIT(A) OBSERVED THAT IDENTICAL ISSUE HAD CO ME UP BEFORE HIM FOR A.Y. 1998-99 WHEREIN THERE WAS A CATEGORICAL FINDING THA T NO NEXUS HAS BEEN PROVED TO SHOW THE CONNECTION WITH TAX FREE INCOME AND INTEREST BEARING FUNDS. HE FURTHER OBSERVED THAT THERE WAS SUFFICIEN T FUNDS TO FINANCE THE INVESTMENTS AND HENCE THE ACTION OF THE AO IN DISAL LOWING EXEMPTION UNDER SECTION 10(33) OF THE ACT IS NOT IN ACCORDANCE WITH LAW. 4. IT MAY BE NOTICED THAT IT IS NOT THE CASE OF THE RE VENUE THAT SOME ADMINISTRATIVE EXPENDITURES OUGHT TO HAVE BEEN INCU RRED FOR EARNING DIVIDEND INCOME. RATHER THE ONLY CASE OF THE REVENU E IS THAT INTEREST BEARING FUNDS WERE UTILISED FOR EARNING INTEREST FR EE INCOME WHICH WAS FOUND TO BE INCORRECT BY THE LEARNED CIT(A). 5. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS VERY ISSUE CAME UP BEFORE THE ITAT L BE NCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 & 2003-04 WHEREIN THE BENCH OBSERVED THAT THE INVESTMENTS ARE MADE BY THE ASSESSEE FORM ITS OWN FUNDS. THE HON'BLE HIGH COURT OF JUDICATURE AT MUMBAI VIDE IT S JUDGEMENT DATED 14 TH FEBRUARY 2013 UPHELD THE ORDER OF THE ITAT ON THE GROUND THAT THE FINDING OF FACT THAT THE INVESTMENTS WERE MADE OUT OF ASSES SEES OWN FUNDS WAS NOT CHALLENGED. EVEN AT THIS STAGE THE LEARNED D.R. COU LD NOT FURNISH ANY EVIDENCE TO SHOW THAT INTEREST BEARING FUNDS WERE U TILISED FOR THE PURPOSE OF MAKING INVESTMENTS TO EARN TAX FREE INCOME. UNDER T HESE CIRCUMSTANCES BY RESPECTFULLY FOLLOWING THE AFORECITED DECISIONS WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS THE APPEAL FILED B Y THE REVENUE. ITA NO. 1539/MUM/2005 6. FOLLOWING TWO GROUNDS WERE URGED BY THE REVENUE: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO DELETE THE ADDITION OF RS.67 63 204/- MADE IN RESPECT OF GUARANTEE COMMISS ION. ITA NO. 7857 1539 & 1122/MUM/2005 M/S. BNP PARIBAS 3 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING TO DELETE THE DISALLOWANCE MADE UNDER SECTION 10(33) OF RS.10 58 121/-. 7. GROUND NO. 2 IS IDENTICAL TO THE GROUND URGED IN TH E APPEAL FOR A.Y. 2000-01. THE FACTS AND CIRCUMSTANCES BEING IDENTICA L WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE CIT(A) ON THIS ISSUE AND THEREFORE WE DISMISS GROUND NO. 2 OF REVENUE. 8. WITH REGARD TO GROUND NO. 1 THE CASE OF THE REVENUE IS THAT THE ASSESSEE COMPANY FOLLOWED MERCANTILE SYSTEM OF ACCO UNTING FOR ACCOUNTING THE GUARANTEE COMMISSION. FOR EXAMPLE IF THE GUARA NTEE COMMISSION IS FOR THE GUARANTEE GIVEN FOR A PERIOD OF FIVE YEARS THE N THE COMMISSION RECEIVED WAS BROUGHT TO TAX BY SPREADING OVER TO FIVE YEARS I.E. 1/5 TH IN EACH YEAR. THEREFORE THERE IS NO JUSTIFICATION TO ASSESS THE ENTIRE INCOME IN ONE YEAR. THE LEARNED COUNSEL SUBMITTED THAT IDENTICAL ISSUE HAS COME UP BEFORE THE ITAT L BENCH MUMBAI AS WELL AS THE HON'BLE BOMBAY HIGH COURT (SUPRA) WHEREIN IT WAS HELD THAT INCOME EARNED IN THE FORM OF DIFFERED GUARANTEE COMMISSION DID NOT ACCRUE TO THE ASSESSEE IN THE YE AR IN WHICH THE GUARANTEE AGREEMENT WAS ENTERED INTO BUT IT HAS TO BE SPREAD OVER THE GUARANTEE PERIOD PROPORTIONATELY. PARA 10 OF THE O RDER PASSED BY THE ITAT L BENCH (SUPRA) MENTIONS THAT THE ASSESSEE RECEIV ED COMMISSION TO THE EXTENT OF ` 4 25 41 914/- AND THE COMMISSION ATTRIBUTABLE TO TH E PERIOD ENDED ON 31 ST MARCH 2001 AMOUNTS TO ` 3 57 78 710/- WHICH SHOWS THAT EACH AGREEMENT HAS TO BE CONSIDERED INDEPENDENTLY D EPENDING ON THE TERMS OF THE AGREEMENT AS TO WHETHER IT HAS TO BE SPREAD OUT PROPORTIONATELY OVER A STIPULATED NUMBER OF YEARS. IN OTHER WORDS IF ` 4 25 41 914/- HAS TO BE SPREAD OVER A PERIOD OF FIVE YEARS OR SIX YEARS THE RE WOULD HAVE BEEN NO NEED TO OFFER A SUM OF ` 3 57 78 710/- IN A.Y. 2001-02 WHICH IN TURN IMPLIE S THAT IT MIGHT BE LINKED TO THE CONDITIONS IN THE AGREEME NT. THEREFORE THE BENCH CALLED UPON THE LEARNED COUNSEL FOR THE ASSESSEE TO FURNISH THE AGREEMENTS WHICH GAVE RISE TO COMMISSION IN THE YEAR UNDER CON SIDERATION I.E. FOR A.Y. 2001-02 AND ALSO THE AGREEMENTS FOR SUBSEQUENT TWO YEARS SO THAT IT CAN BE COMPARED AND IF THE CONDITIONS ARE THE SAME THE ORD ER OR THE TRIBUNAL AS WELL AS THE ORDER OF THE HON'BLE HIGH COURT CAN BE FOLLOWED. COPIES OF THE AGREEMENTS WERE NOT IMMEDIATELY AVAILABLE WITH BOTH THE PARTIES. THEREFORE ITA NO. 7857 1539 & 1122/MUM/2005 M/S. BNP PARIBAS 4 IN THE INTEREST OF JUSTICE WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO WHO IS DIRECTED TO VERIFY THE AGREEMENTS AND IF IT CAN BE CULLED OUT THAT THE AGREEMENT(S) FOR THE YEAR UNDER CONSIDERATION ARE A KIN TO THE AGREEMENT UNDER WHICH THE APPEALS WERE DECIDED BY THE ITAT L BENCH MUMBAI IN ASSESSEES OWN CASE FOR A.Y. 2002-03 AND 2003-04 AS WELL AS THE ORDERS PASSED BY THE HON'BLE HIGH COURT (IT APPEALS (L) NO . 1775 & 1776 OF 2012) THE AO IS DIRECTED TO DECIDE THE MATTER BY FOLLOWIN G THE AFORECITED DECISIONS. TO EXAMINE THE DOCUMENTS THE MATTER IS SET ASIDE TO THE FILE OF THE AO. 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE FOR A.Y. 2001-02 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 10. THIS LEAVES US WITH ASSESSEES APPEAL FOR A.Y. 2001 -02. VIDE GROUND NO. 1 THE ASSESSEE CONTENDS THAT THE RATE OF TAX OF 39.55% (INCLUDING SURCHARGE) APPLICABLE TO DOMESTIC COMPANIES IS ALSO APPLICABLE TO ASSESSEE COMPANY WHICH IS A NON-RESIDENT COMPANY BY VIRTUE OF ARTICLE 26 OF INDO- FRANCE DOUBLE TAX AVOIDANCE AGREEMENT. 11. THE AO AS WELL AS THE CIT(A) HOWEVER OBSERVED THA T THE ASSESSEE DESERVES TO BE TAXED @48% BEING THE RATE APPLICABL E TO NON-RESIDENT COMPANIES. THE LEARNED CIT(A) FOLLOWED THE DECISION RENDERED BY HIM IN ASSESSEES OWN CASE FOR A.Y. 1997-98 TO 2000-01 WHE REIN THE COMMISSIONER IN TURN FOLLOWED THE DECISION OF THE ITAT F BENC H MUMBAI IN THE CASE OF DCIT VS. SAKURA BANK (ITA NO. 1230/BOM/95 DATED OCT OBER 31 2003) TO HOLD THAT THE CONTROVERSY GETS SETTLED BY INSERTION OF EXPLANATION IN SECTION 90 WITH RETROSPECTIVE EFFECT FROM 01.04.1962. IN TH E LIGHT OF THE RETROSPECTIVE AMENDMENT AND ALSO THE RATIO LAID DOWN BY THE HON'B LE APEX COURT IN THE CASE OF J.K. SYNTHETICS THE ISSUE WAS DECIDED IN FA VOUR OF THE REVENUE. THOUGH THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THERE ARE FEW DECISIONS OF THE ITAT WHEREIN A CONTRARY VIEW WAS T AKEN THE LEARNED COUNSEL DID NOT PLACE BEFORE US ANY ORDER IN THAT R EGARD. THE LEARNED CIT(A) FOLLOWED THE DECISION OF THE ITAT F BENCH MUMBAI WHEREIN IDENTICAL ISSUE WAS CONSIDERED AND DECIDED IN FAVOUR OF THE REVENUE . 12. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE WE D O NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) AND THEREFORE REJECT GROUND NO. 1 OF THE ASSESSEE. ITA NO. 7857 1539 & 1122/MUM/2005 M/S. BNP PARIBAS 5 13. VIDE GROUND NO. 2 THE ASSESSEE CONTENDS THAT THE AO ERRED IN TAXING THE INTEREST PAID TO THE HEAD OFFICE/OVERSEAS BRANCHES AMOUNTING TO ` 2 21 01 800/- AS INTEREST INCOME IN THEIR HANDS AS PER ARTICLE 1 2 OF THE TREATY. 14. AT THE TIME OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE ITAT L BENCH MUMBAI IN ASSESSEES OWN CASE IN ITA NO. 2022 & 2023/MUM/2008 FOR A.Y. 2002-03 & 2003-04 WHEREIN THE BENCH OBSERVED A S UNDER: - 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LD. R EPRESENTATIVES OF BOTH THE SIDES THE ISSUE INVOLVED IN THIS APPEAL OF THE ASSESSEE NOW STANDS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BEN CH OF ITAT IN THE CASE OF SUMITOMO BANKING CORP. MUMBAI WHEREIN IT WAS HEL D AFTER ELABORATELY DISCUSSING THE LEGAL POSITION EMANATING FROM THE INTERPRETATION OF RELEVANT PROVISIONS OF INDIAN INC OME-TAX ACT AS WELL AS TREATY THAT INTEREST PAID TO THE HEAD OFFICE OF TH E ASSESSEE BANK AS WELL AS ITS OVERSEAS BRANCHES BY THE INDIAN BRANCH CANNO T BE TAXED IN INDIA BEING PAYMENT TO SELF WHICH DOES NOT GIVE RISE TO I NCOME THAT IS TAXABLE IN INDIA AS PER THE DOMESTIC LAW OR EVEN AS PER THE RELEVANT TAX TREATY. RESPECTFULLY FOLLOWING THE SAID DECISION OF SPECIAL BENCH OF THE ITAT WHICH IS DIRECTLY APPLICABLE IN THE PRESENT CASE W E DELET THE ADDITION OF ` 1 48 30 613/- MADE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) ON THIS ISSUE AND ALLOW THE APPEAL OF THE ASSESSEE. 15. THE LEARNED D.R. FAIRLY ADMITTED THAT THE ISSUE STA NDS COVERED IN FAVOUR OF THE ASSESSEE. 16. BY RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT SPECIAL BENCH WE DELETE THE ADDITION MADE BY THE AO. GROUND NO. 2 IS ACCORDINGLY DECIDED IN FAVOUR OF THE ASSESSEE. 17. IN THE RESULT REVENUES APPEAL IN ITA NO. 7857/MUM /2004 IS DISMISSED ITA NO. 1539/MUM/2005 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND ASSESSEES APPEAL IN ITA NO. 1122/MUM/2005 IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST JULY 2013. SD/- SD/- (RAJENDRA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI DATED: 1 ST JULY 2013 ITA NO. 7857 1539 & 1122/MUM/2005 M/S. BNP PARIBAS 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXI MUMBAI 4. THE DIT (INTERNATIONAL TAXATION) MUMBAI 5. THE DR L BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.