In a recent decision, the Mumbai Bench of the Income-tax Appellate Tribunal found that:
Services provided by a taxpayer bank were “crucial services” and the services were not a “mere facilitation” for concluding or signing of the loan agreements, which identified by provisions of a Protocol to the India-France income tax treaty.
In the case the Transfer Pricing Officer computed the arm’s length charges to be 25% of the total amount of interest and fees received by the offshore branches. But, the Commissioner of Income Tax (Appeals) – CIT(A) – reduced the adjustment to 20%.
The tribunal supported the order of the CIT(A) to attribute 20% of the fees charged by foreign branches as agent fees, commitment fees, and arrangement fees, finding that the adjustment could apply for such fees only. But, the tribunal held that this would apply only with respect of the fees and changes, and not the interest received by the foreign branches.
