NRI expense for business purpose by non-resident bank allowable

Reetu | Nov 5, 2020 |

NRI expense for business purpose by non-resident bank allowable

NRI expense for business purpose by non-resident bank allowable

IN THE INCOME TAX APPELLATE TRIBUNAL

The Relevant Text of the Order as follows :

35. In ITA No. 2995/Del/2008, fol lowing grounds have been raised by the revenue:

“1. On the facts and in circumstances of the case the learned CIT(A) has erred

(a) In deleting the expenses of Rs. 84,63,275/- incurred by various units outside India for mobilization of NRI deposits for the purpose of Assessee’s business in India.

(b) In deleting the addition of Rs. 10,00,00,000/- on account of commission earned in by foreign branches of ANZ Grindlays Bank on their credit card business overseas, where transactions were completed in India.

(c) In disallowing the expenditure of Rs. 69,93,427/- on the payments made to clubs.

(d) In restricting the disallowance to Rs. 30,15,52,101/- out of Rs. 68,10,18,767/- made after rejecting the deduction claimed u/s 37(1) of the IT Act, 1961 and without considering the facts that the amount has not been debited in books of accounts.“

36. Ground No. 1(a): Disallowance of NRI expenses is dealt in the ground no. 1 of the assessee’s appeal . Hence, we hereby hold that the ratio of the adjudication applies to the ground of the revenue.

37. Ground No. 1(b): Commission payment

The AO made estimated addition of Rs.10 crores on account of the commission earned on Credit Cards issued by the foreign branches and used in India. The relevant portion of the order of the Assessing Officer is as under:

“For the last five A.Ys., the assessee has been asked to give the details of commission received by the branches of ANZ Grindlays Bank abroad on the International Credit Cards issued by them, where the card holders had completed their transactions in Indict and the settlement of these transactions was done, using these cards in India. Whatever income arises in/from India to ANZ Grindlays Bank is to be taxed as income of its permanent establishment. The assessee however, did not furnish any details on this point as it has argued all along that the commission earned on the Credit Cards issued by foreign branches and used in India, is not taxable in the hands of Grindlays Bank in India. Since A.Y. 1996-97, it has been estimated that the commission income on this account was Rs. 10 crores, as the assessee gave no specific information. Accordingly, in this year also, the said income is estimated at Rs. 10 crores and the same is added to the returned income, for the reasons cited in detail in A.Y. 1998-99.”

38. The ld. CIT (A) deleted the addition holding that the question of attributing income to the PE, under the DTAA, it has to be said that as per Article 7, only such income can be brought to tax as can be attributed to its assets and activities in India. In India its income has been earned as commission received by it for honoring the transaction in India on behalf of the foreign branch. This commission is earned from its activity as an Acquiring bank and has to be taxed in the country where the PE is situated. The income earned by the foreign bank from its client outside India on the credit given by it there and recovered there, cannot be said to have arisen in India. But the commission received from the merchant in India can be said to have arisen in India, as mentioned by the Assessing Officer, and this has been retained by the Acquiring bank, while making the acquiring bank would have been received by the foreign bank, But since the Indian branch, being a PE played a role, this income will be taxed in India in the hands of the Indian branch, being attributable to its activities in India. But, this in fact is the income which has already been included by the Indian branch in its ‘Commission Income’ in its P&L Account and offered for tax in India. Hence, no other income can be brought to tax in India. Thus, while the Assessing Officer is right that the income arising in India from transactions in India by using credit cards of foreign branches should be taxed in India, this income can only be the commission income received by the Indian branch and such commission income already stands included in the hands of the Indian branch acting as an Acquiring bank. The income to the foreign branch from the credit given to its card holders outside India cannot be taxed in the hands of the Indian branch since it has not arisen in India and also it cannot be attributed to the assets and activities of the Indian branch, as is required by Article 7 of the DTAA.

39. The matter also stands covered by the order of the ITAT in ITA No. 1345/Del/2006 for the assessment year 1997-98. The relevant portion of the order is as under:

“At the outset, we find that the issue is already covered in favour of assessee in its own case in ITA No. 4988/Del/2003 for the AY 1996-97. The relevant extract of the order is reproduced below:-

“We have considered the rival submissions. We are in agreement with the finding of the Learned CIT(A). Where the-foreign branch has issued credit care and even if the transaction takes place in India, the credit is given to the customer outside India and the debt has also arisen outside India. The merchant shipment in India may receive the payment but the merchant shipments do not incur any debt They merely receive charges for the goods sold or services rendered. However, the charges are received by the foreign branch for providing credit to their card holders outside India. The amount payable by the card holders who have acquired the credit card from branches outside India incur the debt outside India. Therefore, the fees in respect of such transaction are not taxable in India. We, therefore, uphold the deletion of addition of Rs. 10 crores.”

40. Respectfully following the order of the above order in the own case of the assessee, we dismiss the ground of appeal filed by the Revenue.

41. Ground No. 1(c) deals with the club expenses. The club expenses have been al lowed as allowable business expenses by the ITAT from the assessment years 1992-93 to 1998-99. Since, the AO could not bring anything on record contrary to the established facts of the earlier years, we hereby decline to interfere with the order of the Ld. CIT(A).

42. Ground No. 1(d) stand dealt along with Ground No.3 of the appeal of the assesee. With regard to the appeal of the revenue for the similar expenses which have been deleted by the ld. CIT (A), we concur with the reasoning given by the ld. CIT (A) which has been duly mentioned above while dealing with the similar grounds. Hence, the appeal of the revenue on this ground is hereby dismissed.

43. In the result, the appeal of the assessee is allowed and the appeal of the revenue is dismissed.

Order Pronounced in the Open Court on 26/10/2020.

 

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