Wednesday, July 13, 2011

There is no obligation on part of a foreign bank's Indian branch to deduct

There is no obligation on part of a foreign bank's Indian branch to deduct tax at source while making interest remittance to its head office abroad

Income-tax : Section 195 - Deduction of tax at source - Payment to Non-resident : In making payment of interest by an Indian branch of a foreign bank to its head office abroad, no tax has to be deducted by it under section 195(1).

l By virtue of the Indo-Netherlands convention, the head office of the foreign bank is not liable to pay any tax under the Income-tax Act; therefore, there was and still is no obligation on the part of the foreign bank's said branch to deduct tax while making interest remittance to its head office or any other foreign branch

l Therefore, there is no scope for any argument that for the purpose of computation of expenditure the branch and the head office are to be taken as separate entities but for the purpose of payment of tax to be deducted at source on interest payment, it is to be taken as one bank and no deduction is to be made as sought to be made by the foreign bank. - [2011] 10 taxmann.com 89 (Cal.)

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