Interest paid by a Foreign Bank Branch to overseas HO and other Branch – Non Resident Taxation

Interest paid by a Foreign Bank Branch to overseas HO and other Branch – Non Resident Taxation – International Taxation Case Study

LLM Bank Ltd. carrying on banking business is incorporated in Melbourne, Australia. It has branches in different countries including India. During   financial year 2018-19, the Indian branch of the bank paid interest of ₹ 20 lakhs and ₹ 15 lakhs, respectively, to its head office in Melbourne,  and to the branch office in California. State with reasons whether interest so paid shall be liable to tax in India in the hands of head office and California branch ?

Interest paid by a Foreign Bank Branch to overseas HO and other Branch – Non Resident Taxation – International Taxation Case Study – Solution:-

As per Explanation to Section 9(1)(v) of the IT Act, interest payable by Indian PE of foreign bank would be deemed to accrue or arise in India if recipient is : –

a)Head office of bank located outside India; or

b)PE of bank located outside India; or

c)Any other branch outside India.

In this case, the Indian branch, being a fixed place of business, shall be treated as the PE of LLM Bank Ltd. in India

Accordingly,  interest of Rs 20 lakhs paid by Indian branch of LLM Bank [‘being PE of foreign bank LLM] to its head office in Melbourne,  and Rs. 15 lakhs paid to the other branch office in California shall be deemed to accrue or arise in India. Accordingly, such interest income shall be taxable in the hands of Head office and California branch, respectively, in addition to any income attributable to the PE in India.

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