IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, D: NEW DELHI BEFORE VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.- 7212/Del/2017 [Assessment Year: 2013-14]

The Bank of Tokyo-Mitsubishi UFJ The DCIT, Circle-3(1)(1), Ltd. International Taxation, New Delhi

5^th Floor, Worldmark-2, Asset 8, Vs Aerocity, NH-8, New Delhi 110037 PAN- AABCT-3880-D Assessee Revenue Assessee by Shri Percy Pardiwala, Sr. Advocate with Shri Hiten Thakkar, Advocate Revenue by Shri M.S Nethrapal, Sr. DR Date of Hearing 16.12.2025 Date of Pronouncement 13 .03.2026 ORDER PER BRAJESH KUMAR SINGH, AM, This appeal filed by the assessee is directed against the Final Assessment Order (FAO) passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 31-10-2017 pursuant to the directions of the Hon’ble Dispute Resolution Panel (DRP) vide order dated 18-09-2017 u/s

144C(5) of the Act for Assessment Years (AY.) 2013-14.

2. Brief facts of the case : The assessee filed its return of income for assessment year 2013-14 on 30-11-2013 declaring total income of Rs. 499,28,25,060/-. Later, the return was revised by the assessee on 31-03-2015 and income from ECBs amounting to Rs. 668,07,07,663/- was also declared by the assessee. The revised return was filed at the total income of Rs. 1167,35,32,730/-. The case was selected for scrutiny and notice under section 143(2) of the Act dated

04-09-2014 was issued to the assessee.

2.1 During the year under consideration, the assessee had received an amount of Rs, 668,07,07,663/- (after grossing with the amount of tax) in respect of interest income of its head office and other overseas branches on External Commercial Borrowing (ECB) from India. The assessee had not included this income in its computation of total income in original return, however, in revised return the same was offered to tax. During the assessment proceedings the assessee claimed that this amount should be excluded from its income since the same was not taxable in India. The assessee was asked by the Assessing Officer to explain the reasons for including this income in the computation of total income and the reasons for claiming it as exempt during the course of assessment its proceedings. The assessee filed reply in support of its claim.

2.2 However, the same was not accepted by the Assessing Officer and AO taxed the said amount of Rs, 668,07,07,663/- in the draft assessment order dated 26-12- 2016 under section 144 C (1) of the Act. Further, the Assessing Officer did not allow the claim of the assessee for deduction u/s 44C of the Act in respect of ECB interest income by observing that if any addition is made in assessee’s income on the ground that the income of ECB interest is taxed under the provisions of Article 11(2) of the India-Japan DTAA on gross basis then there was no question of allowing any deduction from such income. The relevant extracts of the draft assessment order are reproduced as under :

16. The assessee's contentions are duly considered. However, it is found that in the light of provisions of the Act as well as provisions of India-Japan DTAA the contentions of assessee are not acceptable. The fact that income from ECB interest has accrued or arose in India is not under dispute. The only disputed whether it is chargeable to tax in India or not. In this regard, assessee has taken the help of Article-11(6) of the India-Japan DTAA and has claimed that the income is not taxable in India as it is effectively connected to the assessee's PE in India. This argument needs to be examined in the light of the provisions of Article- 11(6) which is reproduced below-

"6. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, through a permanent establishment situated therein, or performs in that other Contracting State in