Shinhan Bank v. Dy. DIT (International Taxation)

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2013 TaxPub(DT) 0071 (Mum-Trib) : (2014) 055 (II) ITCL 0391 : (2012) 054 SOT 0140 INCOME TAX ACT, 1961 --Double taxation relief--Agreement between India and Korea Applicable tax rate--Assessee non-resident claimed lower rate of tax at the rate of 35 per cent as applicable to a resident tax payer by giving the benefit of non-discrimination clause as contained in article 25 of DTAA as against 40 per cent plus charges levied by assessing officer as well as Commissioner (Appeals). *Held:* Rightly so. This issue is squarely covered in favour of revenue as against assessee in view of decision in Chohung Bank v. CIT (2006) 6 SOT 145 (Mum-Trib) the tax rate applicable would therefore, be 40 per cent and surcharge as applicable to foreign company and amendment made in section 90(2) by way of insertion of Explanation is applicable insofar as it is not in conflict with provision of DTAA. Income Tax Act, 1961, Section 90 DTAA between India & Korea, Article 25 INCOME TAX ACT, 1961 --IncomeAddition Unrealized profit in securities--Assessee Korean company was doing banking business at its branch at Mumbai. As a part of its banking business, assessee claimed to have invested 'M' securities which were categorized as 'available for sale'. As per accounting policy consistently followed, the net profit in the said securities was not recognized as income by assessee on the ground that it represented unrealized and notional profits. Assessing officer following the stand taken in the case of assessee for earlier years treated such net appreciation in the value of securities and added in total income as taxable. *Held:* Not so. Unrealized profit on realization of securities could not be treated as income of assessee because in earlier years similar addition made by assessing officer and confirmed by Commissioner (Appeals) was deleted. Income Tax Act, 1961, Section 4 INCOME TAX ACT, 1961 --Income--Accrual Upfront guarantee commission--Assessee non-resident banking company as a part of its banking business was providing bank guarantees and charging guarantee commission for such services. As per accounting policy consistently followed, guarantee commission is being recognized over the life of guarantee accrual basis. For the relevant assessment year assessee did not recognize guarantee commission as its income on the ground that the guarantee period relating to said commission was subsequent to 31-3-2004. Assessing officer taxed the same income as accrued in relevant year. *Held:* Period of guarantee commission had nothing to do with assessee's right to receive the said commission and accordingly the said commission accrued as assessee's income from the relevant assessment year. However, the said amount would not be taxed in subsequent year. Income Tax Act, 1961, Section 5 INCOME TAX ACT, 1961 --Income deemed to accrue or arise in India under section 9(1)(vi)--Business profit Deductibility of interest paid to HO by foreign banks Indian branch--Interest paid by foreign bank's Indian branch to HO was disallowed by the revenue authorities. *Held:* Although interest paid to HO by Indian branch constituted its PE in India was not deductible as expenditure in the domestic law being payment to self, the same was deductible while determining profit attributable to the PE which is taxable in India as per provision of article 7(2) and 7(3) of the relevant DTAA read with paragraph 8 of protocol. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0071 (Mum-Trib) : (2014) 055 (II) ITCL 0391 : (2012) 054 SOT 0140

INCOME TAX ACT, 1961

--Double taxation relief--Agreement between India and Korea Applicable tax rate--Assessee non-resident claimed lower rate of tax at the rate of 35 per cent as applicable to a resident tax payer by giving the benefit of non-discrimination clause as contained in article 25 of DTAA as against 40 per cent plus charges levied by assessing officer as well as Commissioner (Appeals). Held: Rightly so. This issue is squarely covered in favour of revenue as against assessee in view of decision in Chohung Bank v. CIT (2006) 6 SOT 145 (Mum-Trib) the tax rate applicable would therefore, be 40 per cent and surcharge as applicable to foreign company and amendment made in section 90(2) by way of insertion of Explanation is applicable insofar as it is not in conflict with provision of DTAA.

Income Tax Act, 1961, Section 90

DTAA between India & Korea, Article 25

INCOME TAX ACT, 1961

--IncomeAddition Unrealized profit in securities--Assessee Korean company was doing banking business at its branch at Mumbai. As a part of its banking business, assessee claimed to have invested 'M' securities which were categorized as 'available for sale'. As per accounting policy consistently followed, the net profit in the said securities was not recognized as income by assessee on the ground that it represented unrealized and notional profits. Assessing officer following the stand taken in the case of assessee for earlier years treated such net appreciation in the value of securities and added in total income as taxable. Held: Not so. Unrealized profit on realization of securities could not be treated as income of assessee because in earlier years similar addition made by assessing officer and confirmed by Commissioner (Appeals) was deleted.

Income Tax Act, 1961, Section 4

INCOME TAX ACT, 1961

--Income--Accrual Upfront guarantee commission--Assessee non-resident banking company as a part of its banking business was providing bank guarantees and charging guarantee commission for such services. As per accounting policy consistently followed, guarantee commission is being recognized over the life of guarantee accrual basis. For the relevant assessment year assessee did not recognize guarantee commission as its income on the ground that the guarantee period relating to said commission was subsequent to 31-3-2004. Assessing officer taxed the same income as accrued in relevant year. Held: Period of guarantee commission had nothing to do with assessee's right to receive the said commission and accordingly the said commission accrued as assessee's income from the relevant assessment year. However, the said amount would not be taxed in subsequent year.

Income Tax Act, 1961, Section 5

INCOME TAX ACT, 1961

--Income deemed to accrue or arise in India under section 9(1)(vi)--Business profit Deductibility of interest paid to HO by foreign banks Indian branch--Interest paid by foreign bank's Indian branch to HO was disallowed by the revenue authorities. Held: Although interest paid to HO by Indian branch constituted its PE in India was not deductible as expenditure in the domestic law being payment to self, the same was deductible while determining profit attributable to the PE which is taxable in India as per provision of article 7(2) and 7(3) of the relevant DTAA read with paragraph 8 of protocol.