Income Tax Appellate Tribunal - Delhi
China Trust Commercial Bank, New Delhi vs Department Of Income Tax on 3 March, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'B' BENCH
BEFORE SHRI R.P. TOLANI, JM & SHRI A.N. PAHUJA, AM
ITA no.3101/Del/2009
Assessment year:2005-06
Assistant Director of Income- V/s. M/s China Trust Commercial
tax, Circle 1(1), International Bank, A-1-16, W enger House,
Taxation, Room no. 204,Drum Rajeev Chowk, Connaught
Shaped Building, IP Place, New Delhi.
Estate,New Delhi
[PAN No.: AAACC 4000B]
C.O. no.265/Del/2009
( In I.T.A. No.3101/Del/2009)
Assessment year:2005-06
M/s China Trust V/s. Asstt. Director of Income-
Commercial Bank, A-1-16, tax, Circle 1(1),
W enger House, Rajeev International Taxation
Chowk, Connaught Place, New Delhi
New Delhi.
(Appellant) (Respondent)
Assessee by Shri K.V.S. Gupta,&
Sh. Pankaj Khanna, ARs
Revenue by Ms. Renu Javhri, DR
Date of hearing 27-02-2012
Date of pronouncement 29-02-2012
ORDER
A.N.Pahuja:- This appeal filed on 03.07.2009 by the Revenue and the corresponding cross-objection[CO] filed on 21-08-2009 by the assessee against an order dated 03.03.2009 of the learned CIT(A)-XXIX, New Delhi, raise the following grounds:-
I.T.A. no.3101/D/2009[Revenue]
1) "In the facts and circumstances of the case and in law the learned CIT(A), after holding that the branch has to be remunerated for help it rendered to head office in
2 ITA no.3101/Del./2009 & CO no. 265/Del./2009 the form of services for processing the case for the purpose of external commercial borrowings has erred in directing the Assessing Officer to examine the inclusion of service charges received from customers, which was not in dispute.
2) In the facts and circumstances of the case and in law the learned CIT(A) erred in directing the Assessing Officer not to add the fee from head office, if service charges from the customers is included in the profit and loss account.
3) In the facts and circumstances of the case and in law the learned CIT(A) erred in not appreciating the fact that the fee from customers is fee for services rendered to the customers and this fee is different from the fee it should have charged to the head office for services provided to head office.
4) The order of the CIT(A) be set aside and that of Assessing Officer be restored.
5) The appellant craves to add, amend, modify or alter any grounds of appeal at any time or before the hearing of the appeal.".
C.O. No.265/D/2009[Assessee]
1) "That on the facts and circumstances of the case, and in law the appeal of the revenue is highly misplaced in view of the fact that in the course of scrutiny assessment proceedings for the immediately succeeding year the revenue has itself accepted that the fee charged from the customers is the total revenue entitlement of the assessee from supporting services in respect of ECB loans without there being any other revenue due to the assessee from its head office in respect of ECB loans.
2) That on the facts and circumstances of the case and in law the Assessing Officer has grossly failed to appreciate that there cannot be a dual revenue entitlement for the assessee from the same activity of providing support services for ECB loans i.e. from the head office in a situation where the assessee has already recovered the said service charges from its customers.
3 ITA no.3101/Del./2009 & CO no. 265/Del./2009
3) That on the facts and circumstances of the case and in law the notional addition @1% of ECB loans has been made by the Assessing Officer on a highly arbitrary and unjust basis since the assessee has already recovered charges for providing services for ECB loans from the customers.
4) That on the facts and circumstances of the case and in law appeal cannot lie from a mere direction by the CIT(A) to verify whether charges for providing services in relation to ECB are included in the accounts.
2. Adverting first to ground nos.1 to 3 in the appeal of the Revenue, facts, in brief, as per relevant orders are that return declaring loss of ``24,71,640/- filed on 29.10.2005 by the assessee, a bank, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the 'Act') issued on 20.10.2006. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that ECB loans of USD 10,550,000 were lent to customers in India by the head office of the assessee. At the time of advancing the loan, the assessee was required to maintain the relationship with the customer, do the credit worthiness analysis of the customer, arrange the meetings, forward all the necessary information to the head office, arranging for the agreement, legal requirements, reporting to the regulators etc. and during the currency of agreement, the branch was required to continuously monitor the creditworthiness of the customer, follow up the payments etc. For such services, the AO was of the opinion that branch should be remunerated @ 1% of the referred loans by way of service fee. Accordingly, the AO added an amount of``46,02,965/- (equivalent to USD 105,500) to the income of the assessee.
3. On appeal, the ld. CIT(A) concluded as under:-
"5. Ground of appeal no. 3 relates to addition of Rs.46,02,965/- made by the AO treating 1 % of the ECB loan sanctioned and given by the Head Office (HO) as service fee receivable by the branch office (BO). In respect of this, the appellant has mentioned as under:-
4 ITA no.3101/Del./2009 & CO no. 265/Del./2009 "Appellant is a branch of Chinatrust Commercial Bank, Taiwan. During the relevant previous year and some earlier years also, clients approached the bank for granting external commercial borrowing to them. In this respect the appellant branch rendered services to clients in processing their application etc. and charged processing fee from them. Since no services were rendered to head office, nothing was charged from head office.
During the course of assessment proceedings, assessee was asked to furnish details of all ECB given by bank in earlier years, which continued during the year or new ECB provided by the head office or any other associated enterprises to Indian customers. In reply of the same, appellant made the following submissions vide point no.6 of submission dated 11th December 2007:
Chinatrust Commercial Bank, Head Office or associated enterprises has provided following ECB's to Indian customers.
S.No. Name of Amount Year
Borrower Borrowed of
Sanc
tion
1. American USD 3,000,000 1998
Embassy School
2. Polyplex Corpn. USD 4,000,000 2003
Ltd.
3. Polyplex Corpn. USD 800,000 2004
Ltd.
4. Scandent USD 2,750,000 2004
Network Pvt.
Ltd.
The AO made the addition of Rs.4,602,965/- i.e. @ 1% of the sanctioned amount in respect of all such Loans sanctioned by head office, without asking any information regarding type of services rendered to clients or head office.
The customers had approached the Indian Branch to provide certain support services vis-a-vis due diligence of the various documents/information being provided by them to head office.
5 ITA no.3101/Del./2009 & CO no. 265/Del./2009 The fee for providing the services was charged from the customer in India.
Application for admission of additional evidence is being submitted separately. We request that the evidence may kindly be admitted at this stage.
The appellant has charged processing fees totaling to Rs.4,947,5001- from the clients in respect of such Loans, which is higher than the alleged addition of Rs.4,602,9651- made by the AO without calling for adequate information."
The appellant has also submitted copies of sanction order for these loans. A perusal of the sanction order in respect of the above mentioned clients of the bank indicates that these loans in fact have been processed and sanctioned by the Indian branch. This is evident from the noting of the HO given in the credit approval form, copies of which have been filed by the appellant during the course of appellate proceedings. The HO credit information as given in the credit approval forms, indicates that it is the internal approval of Headquarters Credit Department but process of the loan and disbursal is done by the local office. Therefore, it is clear that income arising or accruing out of this loan should be included in the income of the BO. The appellant, however, made a point that the interest income has accrued to the HO and the TDS has been deducted in accordance with 115A and, therefore, according to the appellant, in case interest received by the HO is taxable in the hands of the BO then two consequences will follow:-
"(i) all expenses relating to such income incurred by HO would need to be allowed.
(ii) credit of tax withheld and deposited on behalf of HO would need to be given to the branch office.
The operating income of the HO of the appellant as on 31st December 2004 is 24.98%. Applying tax rate of 40%, net rate of which interest income is to be taxed comes to 10% (appx.) while tax has been withheld @ 20% (excluding surcharge and education cess). Therefore; a much higher tax has already been paid on this Income.
The points made by the appellant have been considered and it is seen that what is taxable in the hands of the appellant is its 6 ITA no.3101/Del./2009 & CO no. 265/Del./2009 income from India. The HO as well as the BO arr not to be considered as a two distinct entities for the purpose of the taxation of income. The concept of treating branch as a separate entity is only to limited purpose of computation of attributable income of the PE. The income is assessable in the hands of the non-resident only. Therefore, income earned by the appellant as interest will in any case remain taxable as per provisions of section 115A. At the same time, the BO has to be remunerated for the help it rendered to HO in the form of services for processing the case for the purpose of external commercial borrowing. Accordingly, the action of the AO in computing allocable service charges to the BO is upheld. However, appellant has in the letter dt.29.01.2009 has mentioned that such service charge is already included in the computation of income, The relevant part of the response is reproduced hereunder:-
"As mentioned in our earlier submission, the AO had worked out a notional income of Rs.46,02,965/- being equivalent to 1% of the total loan granted. This amount was worked out and assessed without seeking any explanation from the appellant.
In the next year i.e. A.Y 2006-07, similar loan of USD 1.80 million was granted. On this fee of Rs.1,000,000/- was received by the branch for processing. The AO taking into consideration the fact that fee received and incorporated in the books of branch being higher than 1% of the loan sanctioned did not compute any further notional income.
Copy of the submission made to the AO for A. Y 2006-07 is given below:
"Notional Income on ECB loans granted by HO The AO in the assessment order for AY 2005-06 made the addition Rs. 46,02,9651- @ 1% of the ECB loans by head office to the customers in India hoc basis.
The ECB Loans Granted by the head office and processing fees recovered by the assessee during the financial year 2005-06 is as under:-
Name of the Borrower - Pearl Global Limited Sanctioned Amount - USD 1.80 Million Date of Sanction - 02-09-2005
7 ITA no.3101/Del./2009 & CO no. 265/Del./2009 Processing Fees Recovered an 28.10.2005 - Rs.10,00,000 However, no addition on the above ground is called for on the above ground" in the year under reference. Our submission in this regard is as follows:-
Assessee is -a branch of China trust Commercial Bank, Taiwan. During the relevant previous year and some earlier years also, Clients approached the bank far granting external commercial barrowing to them. In this respect the appellant branch rendered services to clients in processing their application etc. and charged processing fee from them. Since no services were rendered to head office, no addition is called for on the above ground In any case, based on 1 % income determined in earlier year, the total income on the loan during the year will be Rs.7,92,720/- (computed on the basis of exchanged rate of USD1 = !NR44.04 prevailing as on the date of sanction i.e. 02/09/05). Against which income of Rs.10,00,000/- for the same has been shown by the assessee which is higher than 1% income as above."
The appellant has also mentioned that for subsequent year on the. basis of explanation given this amount has not been added. The Assessing Officer is, therefore, directed to examine whether this amount is already included in the accounts and finds place into the income in P&L A/c. If this amount is already included in the P & L account as income it need not be added again."
4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A) . The ld. DR supported the order of the AO. On the other hand, the ld. AR on behalf of the assessee supported the findings of the ld.
CIT(A) while admitting that their cross objection merely supported the said findings .
5. We have heard both the parties and gone through the facts of the case. As is apparent from the aforesaid findings in the impugned order ,the ld. CIT(A) while upholding the action of the AO in computing allocable service charges to the BO considered the plea of the assessee in their letter dt.29.01.2009 and directed the AO that if any amount is already included in the P & L account as income, it need not be added again . Apparently, these 8 ITA no.3101/Del./2009 & CO no. 265/Del./2009 directions are for obviating the possibility of taxing the same income twice. Since the Revenue have not placed before us any material, controverting the aforesaid directions of the ld. CIT(A) so as to enable us to take a different view in the matter, we are not inclined to interfere. Therefore, ground nos.1 to 3 in the appeal of the Revenue are dismissed.
6. Ground no.4 in the appeal of the Revenue being general in nature, nor any submissions having been made before us, does not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no.5 in their appeal, accordingly both these grounds are dismissed.
7. Grounds raised in the CO, being admittedly supportive of the findings of the ld. CIT(A) nor any submissions having been made before us on these grounds are, accordingly, dismissed.
8. No other submission or argument was made before us.
9. In result, both the appeal of the Revenue and the CO filed by the assessee, are dismissed.
Order pronounced in open Court
Sd/- Sd/-
(R.P. TOLANI) (A.N. PAHUJA)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. M/s China Trust Commercial Bank, A-1-16, W enger House, Rajeev Chowk, Connaught Place, New Delhi.
2. Asstt. Director of Income-tax, Circle 1(1), International Taxation, New Delhi.
3. CIT(A)-XXIX, New Delhi.
4. CIT concerned.
5. DR, ITAT,'B' Bench, New Delhi 9 ITA no.3101/Del./2009 & CO no. 265/Del./2009
6. Guard File.
BY ORDER, Deputy/Asstt.Registrar ITAT, Delhi