Interest paid by a branch of a Foreign Bank
to its Head Office is deductible in the hands of the branch?
CASE: ABN AMRO Bank NV vs. CIT
Sections: section 90 of the Income-Tax Act, 1961,
Facts
Calcutta High Court in its verdict opined
that the appellant before us is a foreign company
incorporated in Netherlands and having its principal branch
office in India. In course of its banking activities the appellant’s said
branch in India remits substantial funds to its head office as payment of
interest.
There is a continuous process
of the said branch receiving interest from its head office and other branches
and remitting of interest by
the branch to the head office
and other branches.
There are principally only two issues in this appeal, namely,
1. Whether interest payment made
by the Indian branch of the appellant to its head office abroad was to be
allowed as a deduction in computing the profits of the appellant’s branch in
India?
2. Whether in making such payment
to the head office, the appellant’s said branch was required to deduct tax at
source under Section 195 of the said Act?
Under section 90 of the Income-Tax Act, 1961,the Government of India has
entered into the above agreement with the government of Netherland for relief of tax and avoidance of
double taxation. The appellant is an assessee to whom such agreement applies.
Therefore, for the purpose of relief of tax which is related to avoidance of
double taxation, a more beneficial provision amongst rival provisions in the
agreement and the Act will apply to the assessee.
Therefore, if no tax is deductible under section 195(1) & section
40(a)(i) of the Income Tax Act , 1961 will not come in the way of the appellant
claiming such deduction as from its income. Therefore, in the circumstances the
appellant would be entitled todeduct such interest paid, as permitted by the
convention or agreement, in the computation of its income.
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