DIT v. ANZ Grindlays Bank (2024)

🏦 DIT vs. ANZ Grindlays Bank – Delhi High Court on Taxability of Fees Charged by Foreign Branches for Credit Card Services under Section 9(1)(i) (2024)

📌 Background

Under Section 9(1)(i) of the Income-tax Act, 1961, income is deemed to accrue or arise in India if it is directly or indirectly attributable to a business connection in India. However, determining whether a foreign branch of an Indian bank has earned income taxable in India depends on where the source of income arises and where services are rendered or utilized.

In DIT v. ANZ Grindlays Bank [(2024) 301 Taxman 599 / (2025) 476 ITR 624 (Delhi)(HC)], the Delhi High Court upheld the Income Tax Appellate Tribunal’s (ITAT) ruling that fees charged by a foreign branch of the assessee-bank for credit lines extended to customers outside India—even when those credit cards were used in India—were not taxable in India, as the income arose outside India.

📂 Facts of the Case

• Assessee: ANZ Grindlays Bank
• Assessment Years: 1992–93, 1994–95, 1995–96
• Nature of Business: Banking and financial services with operations in India and foreign branches abroad.
• Foreign Operations: The bank had branches outside India (in foreign jurisdictions) that issued credit cards to customers located outside India.

Transaction in Question:

• Foreign branches issued credit cards to their non-resident account holders abroad.
• These credit cards were occasionally used in India for purchases or cash withdrawals.
• The foreign branches charged fees and interest on credit lines extended to those customers.
• The Assessing Officer (AO) sought to tax such income in India, arguing that since the credit cards were used in India, the source of income arose in India.

ITAT’s Decision:

• The ITAT ruled in favor of the assessee, holding that the income arose outside India since both the credit facility and debt obligation originated abroad.
• The use of credit cards in India was only incidental and did not create a business connection within India for the foreign branch.

Revenue’s Appeal:

• The Department of Income Tax (DIT) appealed before the Delhi High Court under Section 260A, contending that the credit card usage in India constituted a business connection, making such income taxable in India.

❓ Point of Dispute

Whether the fees and interest income earned by a foreign branch of an Indian bank from credit lines extended to customers outside India, in respect of credit cards used in India, are taxable in India under Section 9(1)(i) of the Income-tax Act.

📑 Submissions by the Revenue

• The Revenue argued that since credit cards were used in India, the source of income (transaction usage) was situated in India.
• Contended that a business connection existed in India, as the card usage facilitated transactions with Indian merchants and consumers.
• Therefore, the foreign branch’s income was deemed to accrue in India and taxable under Section 9(1)(i).
• Cited that the parent bank had a presence in India, thereby connecting the income to its Indian operations.

📑 Submissions by the Assessee

• The assessee contended that:
  • The foreign branch operated independently of Indian operations and was a separate taxable unit under Indian law and the DTAA.
  • The credit facility was granted outside India, and the debt originated outside India.
  • The fees and interest were earned by the foreign branch abroad, not by the Indian head office or Indian branch.
  • The mere usage of a credit card in India did not change the place of accrual of income, as the obligation to pay and interest accrual were outside India.
• Relied on judicial precedents holding that foreign-source income earned by a foreign branch is not taxable in India unless directly linked to Indian operations.

⚖️ Legal Principles & Court’s Findings

1. Section 9(1)(i) – Business Connection

The Court reiterated that income is deemed to accrue or arise in India only when:

• It arises from a business connection in India, or
• Is attributable to activities carried out in India.

The foreign branch operates as a distinct entity for tax purposes in respect of its foreign-sourced income.

2. Place of Accrual

• The credit facility was granted abroad.
• The customer’s obligation to repay arose outside India.
• Interest and service charges were computed and collected abroad.

Thus, the source of income was entirely outside India.

3. Use of Credit Cards in India

• The Court observed that the physical use of credit cards in India by non-resident customers did not shift the situs of accrual.
• The transaction processing through international payment gateways was a cross-border activity, and Indian usage was incidental.

Hence, there was no business connection created within India.

4. Tribunal’s Findings Affirmed

The Court held that the ITAT’s conclusion—that fees charged by the foreign branch were not taxable in India—was based on correct legal interpretation and factual findings.

5. Distinction Between Indian and Foreign Operations

• The Indian branch and foreign branch of a bank are separate profit centers.
• The foreign branch’s income from non-resident customers is foreign-source income, even if the service is incidentally utilized in India.

6. Section 260A Appeal

The Court noted that the Tribunal’s order was factual and legally sound, raising no substantial question of law, and hence dismissed the Revenue’s appeal.

🏁 Held

The Delhi High Court held that:

✅ The credit cards were issued and credit facilities extended abroad, with debts arising outside India.

✅ The fees and interest earned by the foreign branch were foreign-source income, not taxable under Section 9(1)(i).

✅ Use of credit cards in India did not create a business connection for the foreign branch in India.

✅ The ITAT’s order was upheld, and the Revenue’s appeal under Section 260A was dismissed.

✅ Practical Impact for Taxpayers

• Foreign branch income remains exempt: Income earned by foreign branches from services or credit facilities extended abroad is not taxable in India, even if used incidentally within India.
• No business connection created: Mere usage of foreign-issued credit cards in India does not constitute a business connection under Section 9(1)(i).
• Clear source rule: Income accrues where the credit facility originates, not where it is utilized.
• Certainty for cross-border banks: The ruling affirms the tax neutrality of foreign branch operations for multinational banks.

🔑 Key Takeaways

1. Place of accrual determines taxability: Credit extended and debt incurred abroad means income accrues outside India.
2. Mere use in India ≠ business connection: Incidental card usage in India does not shift the situs of income.
3. Foreign branches are separate for tax purposes: They are not liable for income earned independently abroad.
4. Revenue’s appeal dismissed: No substantial question of law arose from the Tribunal’s well-reasoned order.

📢 Why This Case Matters

The DIT v. ANZ Grindlays Bank (2024) decision reinforces India’s source-based taxation principle and provides clarity on cross-border financial transactions.

It ensures that foreign branches of Indian banks are not unfairly taxed in India for income generated abroad, aligning domestic law with international tax norms and DTAA principles. The ruling offers much-needed certainty for the banking and financial services sector engaged in global credit operations.

🔍 SEO Meta Details

• Meta Title: DIT vs. ANZ Grindlays Bank – Delhi HC Rules Fees from Foreign Credit Lines Not Taxable in India (2024)
• Meta Description: Delhi HC in DIT v. ANZ Grindlays Bank (2024) held that fees earned by a foreign branch for credit cards issued abroad and used in India are not taxable under Section 9(1)(i).
• Target Keywords: ANZ Grindlays Bank Delhi HC case, Section 9(1)(i) business connection, foreign branch income India, credit card taxability India, source rule taxation India, cross-border banking taxation.