DDIT (IT) 1(1), MUMBAI v. ANTWERP DIAMOND BANK NV, MUMBAI

ITA 1704/MUM/2010 | 2004-2005
Pronouncement Date: 19-01-2011 | Result: Dismissed

Appeal Details

RSA Number 170419914 RSA 2010
Assessee PAN AADCA2713J
Bench Mumbai
Appeal Number ITA 1704/MUM/2010
Duration Of Justice 10 month(s) 16 day(s)
Appellant DDIT (IT) 1(1), MUMBAI
Respondent ANTWERP DIAMOND BANK NV, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 19-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 19-01-2011
Assessment Year 2004-2005
Appeal Filed On 04-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI R.S. SYAL (AM) & SHRI R.S. PADVEKAR (J M) I.T.A.NOS.1704 1705 & 1712/MUM/2010 (A.YS. 2003-04 2004-05 &2005-06) ASSTT.DIRECTOR OF INCOME-TAX (IT)- 1(1) R.NO.117 SCINDIA HOUSE 1 ST FLOOR BALLARD ESATE N.M.ROAD MUMBAI-400 038. VS. M/S. ANTWERP DIAMOND BANK N.V. 2 ND FLOOR ENGG. CENTRE 9 MATHEW RD. OPERA HOUSE MUMBAI-400 004. PAN: AAD CA 2713 J APPELLANT RESPONDENT APPELLANT BY SHRI S.K. PAHWA. RESPONDENT BY MS.HEM A LOHIYA/SHIBANI BAKSHI. O R D E R PER R.S. SYAL AM : THESE THREE APPEALS BY THE REVENUE ARISE OUT OF TH E ORDERS PASSED BY THE LD. CIT (APPEALS) ON 22-12-2009 IN RELATION TO THE ASSTT. YEAS 2003-04 2004-05 & 2005-06. SINCE ALL THESE APPEALS ARE BASED ON IDE NTICAL FACTS AND COMMON GROUNDS OF APPEAL WE ARE THEREFORE PROCEEDING TO D ISPOSE THEM OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FOLLOWING COMMON EFFECTIVE GROUND IS RAI SED IN ALL THESE APPEALS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSE SSING OFFICE TO GIVE CREDIT FOR THE TAX DEDUCTED BY THE BRANCH O FFICE WITHOUT APPRECIATING THAT AS PER THE THEN EXISTING PROVISIONS OF SECTION 199 OF THE INCOME TAX ACT CREDIT SHALL B E GIVEN ONLY WHEN THE INCOME IS ASSESSABLE TO TAX FOR THAT YEAR. 3. THE LD. D.R. TOOK APPEAL FOR ASSTT. YEAR 2005-06 FOR ARGUMENTS. THE FACTS OF THIS CASE ARE THAT THE ASSESSEE IS A NON-RESIDEN T BANK WHO FILED ITS RETURN ITA NOS.1704-1705-1712/M/10. 2 DECLARING TOTAL INCOME OF RS.21 91 10 834/-. ASSESS MENT WAS COMPLETED U/S.143(3) ON TOTAL INCOME OF RS.23 87 79 120/-. TH EREAFTER THE AO ISSUED NOTICE U/S. 154 INTER ALIA ON THE GROUND THAT WHI LE COMPUTING THE INCOME HE HAD NOT ALLOWED DEDUCTION TOWARDS INTEREST PAID OR PAYA BLE TO THE HEAD OFFICE WHICH WAS OFFERED FOR TAXATION IN THE HANDS OF HEAD OFFIC E ON THE GROUND THAT ONE CANNOT EARN ANY INCOME BY TRANSACTING WITH ITSELF. TO BUTTRESS HIS POINT RELIANCE WAS PLACED ON THE SPECIAL BENCH ORDER IN ABN AMRO B ANK NV (97 ITD 89). IT WAS NOTICED THAT WHILE LEVYING TAX THE TDS DEDUCTED O N INTEREST PAYMENT MADE TO HEAD OFFICE AMOUNTING TO RS.87 16 665/- WAS WRONGLY ALLOWED AS TAX PAID. SINCE THE INCOME EARNED ON THE TDS CERTIFICATE WAS NOT AS SESSED THE AO IN PROCEEDINGS U/S.154 HELD THAT THE ASSESSEE WAS NO T ELIGIBLE FOR CREDIT OF TAX DEDUCTED ON INTEREST PAYMENT MADE TO HEAD OFFICE. 4. WHEN THE MATTER CAME UP BEFORE THE FIRST APPELL ATE AUTHORITY IT WAS ARGUED THAT THE RETURN WAS FILED BY THE ASSESSEE IN RESPECT OF INCOME OF HEAD OFFICE AND BRANCH OFFICE ON A CONSOLIDATED BASIS. INTEREST OF RS.8.57 CRORES WAS PAID BY THE BRANCH OFFICE TO THE HEAD OFFICE WHICH WAS CLAIMED AS INTEREST EXPENDITURE IN THE HANDS OF THE BRANCH OFFICE AND O FFERED FOR TAXATION IN THE HANDS OF THE HEAD OFFICE @ 10% UNDER ARTICLE 11 OF DTAA. AS THE BRANCH OFFICE DEDUCTED TAX ON THE PAYMENT MADE TO HEAD OFFICE IT WAS CLAIMED THAT THE AMOUNT OF TAX DEDUCTED AT SOURCE WAS IN RESPECT OF PAYMENT MADE TO SELF AND HENCE SUCH AMOUNT WAS LIABLE TO BE CONSIDERED AS TA X PAID BY THE ASSESSEE. THE LD. CIT(A) CONCURRED WITH THE SUBMISSIONS ADVANCED ON BEHALF OF THE ASSESSEE AND ORDERED FOR ALLOWING THE CREDIT FOR TAX DEDUCTE D BY THE BRANCH OFFICE. 5. BEFORE US THE LD. D.R. SUMMARIZED THE FACTUAL P OSITION BY STATING THAT THE HEAD OFFICE AND BRANCH OFFICE FILED A CONSOLIDATED RETURN OF INCOME WHICH WAS ITA NOS.1704-1705-1712/M/10. 3 ASSESSED AS SUCH. RELYING ON THE MANDATE OF THE THE N EXISTING PROVISIONS OF SEC. 199 THE LD. D.R. CONTENDED THAT SINCE NO INCOME ON ACCOUNT OF INTEREST WAS OFFERED FOR TAXATION THE BENEFIT OF TDS COULD NOT HAVE BEEN GRANTED. 6. PER CONTRA THE LD. COUNSEL FOR THE ASSESSEE HEA VILY RELIED ON THE IMPUGNED ORDER BY CONTENDING THAT THE PAYMENT OF INTEREST BY THE BRANCH OFFICE TO THE HEAD WAS NOTHING BUT A PAYMENT TO SELF AND RESULTAN TLY THE TAX SO DEDUCTED ON SUCH PAYMENT TO HEAD OFFICE SHOULD HAVE BEEN CONSID ERED AS PAYMENT OF TAX BY THE ASSESSEE AS WAS RIGHTLY DONE AT THE TIME OF O RIGINAL ASSESSMENT. 7. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELE VANT MATERIAL ON RECORD IT IS CLEAR THAT THE HEAD OFFICE AND BRANCH OFFICE FILED A CONSOLIDATED RETURN OF INCOME AND ASSESSMENT WAS DONE ACCORDINGLY. WHEN TH E INCOME OF BRANCH OFFICE AND HEAD OFFICE HAS BEEN COMBINED FOR THE PURPOSE O F TAXATION INTER SE TRANSACTIONS HAVE TO BE CONSIDERED AS HAVING NOT AC TUALLY TAKEN PLACE. WHEN THE BRANCH OFFICE PAID INTEREST TO THE HEAD OFFICE SUC H INTEREST CONSTITUTED EXPENDITURE IN THE HANDS OF THE BRANCH OFFICE AND I NCOME IN THE HANDS OF THE HEAD OFFICE. WHEN BOTH THE INCOMES AND EXPENDITURES OF THE HEAD OFFICE AND BRANCH OFFICE WERE COMBINED THE NET EFFECT WAS THA T NEITHER ANY EXPENDITURE WAS PAID NOR ANY INCOME WAS EARNED ON ACCOUNT OF TH IS TRANSACTION. THE DEDUCTION AND PAYMENT OF TAX AT SOURCE BY THE BRANC H OFFICE IN SUCH CIRCUMSTANCES WILL CONSTITUTE PAYMENT OF TAX BY TH E ASSESSEE AS THERE IS NO OUTSIDE RECIPIENT OF THE INTEREST. 8. THE VIEWPOINT OF THE DEPARTMENT ABOUT THE APPLICABILITY OF SEC. 199 IS PATENTLY ERRONEOUS. AT THE MATERIAL TIME SEC. 199 PROVIDED THAT ANY DEDUCTION IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVIIB AND PAID TO THE CENTRAL GOVT. ITA NOS.1704-1705-1712/M/10. 4 SHALL BE TREATED AS A PAYMENT OF TAX ON BEHALF OF T HE PERSON FROM WHOSE INCOME THE DEDUCTION WAS MADEAND THE CREDIT SHALL BE A LLOWED FOR THE AMOUNT SO DEDUCED IN THE ASSESSMENT MADE UNDER THE CHAPTER FO R THE ASSESSMENT YEAR FOR WHICH SUCH INCOME IS ASSESSABLE. IN SIMPLE WORDS T HIS PROVISION PROVIDES THAT THE BENEFIT OF TDS SHALL BE ALLOWED TO THE RECIPIEN T OF THE INCOME IN THE YEAR IN WHICH THE INCOME ON WHICH SUCH TAX WAS DEDUCTED IS ASSESSABLE. 9. COMING BACK TO THE FACTS OF THE INSTANT CA SE PRIMARILY WE CANNOT CONSTRUE BRANCH OFFICE AND HEAD OFFICE AS TWO SEP ARATE ENTITIES FOR THE PURPOSE OF TAXATION AS A COMMON ASSESSMENT HAS BEEN MADE. SECONDLY EVEN IF WE GO BY THE MANDATE OF SEC. 199 IN TECHNICAL TERMS THE INTEREST INCOME WAS OFFERED BY THE HEAD OFFICE IN ITS ACCOUNTS AS IT WAS CREDIT ED TO ITS P&L ACCOUNT ALBEIT THERE WAS EQUAL DEBIT IN THE P&L ACCOUNT OF THE BR ANCH OFFICE FOR THE SAME TRANSACTION. IN THIS VIEW OF THE MATTER ALSO THE B ENEFIT OF TDS WAS LIABLE TO BE GRANTED. 10. IF WE ACCEPT THE CONTENTION OF THE DEPARTMENT THAT THE ASSESSEE SHOULD NOT BE ALLOWED THE BENEFIT OF TDS AGAINST ITS TAX L IABILITY IT WOULD MEAN THAT THE TAX ACTUALLY PAID BY THE ASSESSEE TO THE CENTRAL GO VT. WOULD NEVER BE ADJUSTED AGAINST ANY TAX LIABILITY. EVERY DEDUCTION OF TAX AT SOURCE PRE-SUPPOSES TWO THINGS VIZ. FIRSTLY THE EXISTENCE OF TWO DISTIN CT PERSONS AND THE TAXABILITY OF INCOME IN THE HANDS OF THE RECIPIENT. IF THE PAYER AND RECEIVER OF AN AMOUNT IS THE SAME PERSON AS IS THE CASE BEFORE US NATURALL Y THE AMOUNT OF TAX DEDUCTED AND PAID BY THE ASSESSEE TO THE CENTRAL GOVERNMENT SHALL PARTAKE OF CHARACTER OF TAX PAID BY THE ASSESSEE AGAINST ITS TAX LIABIL ITY. WE THEREFORE HOLD THAT THE AMOUNT OF TAX DEDUCTED AT SOURCE WAS RIGHTLY ALLOWE D CREDIT BY THE AO IN THE ORIGINAL ASSESSMENT PROCEEDINGS AND THE AO WAS NOT JUSTIFIED IN INITIATING ITA NOS.1704-1705-1712/M/10. 5 RECTIFICATION PROCEEDINGS ON THIS COUNT. WE THEREF ORE APPROVE THE VIEW TAKEN BY THE LD. CIT(A) ON THIS ISSUE. 11. BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THE OTHER TWO APPEALS ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF ASSTT. YEAR 2005-06 DISCUSSED SUPRA. FOLLOWING THE VIEW TAKEN HEREINAB OVE WE UPHOLD THE IMPUGNED ORDERS FOR THESE TWO YEAS AS WELL. 12. IN THE RESULT ALL THE THREE APPEALS STAND DISM ISSED. ORDER PRONOUNCED ON THE 19TH DAY OF JANUARY 20 11. SD/- SD/- (R.S. PADVEKAR) (R.S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 19TH JANUARY 2011. NG: COPY TO : 1. DEPARTMENT. 2.ASSESSEE. 3 CIT(A)-10 MUMBAI. 4 DIT (IT) MUMBAI. 5.DR A BENCH MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER ASST.REGISTRAR ITAT MUMBAI. ITA NOS.1704-1705-1712/M/10. 6 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 12-01-2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 14-01-2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER *