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2015 (4) TMI 1284 - AT - Income TaxIncome accrued in India - Permanent Establishment in India under Article 5 of the DTAA between India and Switzerland - transfer of debt securities assessable as capital gain OR business income - HELD THAT - We have gone through the order of the lower authorities as well as the order of the Tribunal in the case of LG Asian Plus Ltd. 2011 (5) TMI 371 - ITAT, MUMBAI . We have also gone through the order of the Mumbai Bench of the Tribunal placed by the ld. AR on record, wherein the Tribunal relying on the decision in the case of LG Asian Plus Ltd. (supra) has decided the very same issue while deciding the case of Platinum Investment Management Ltd 2012 (12) TMI 1057 - ITAT MUMBAI - Taxability of capital gains on sale of government securities would be governed by Article 13 of the Treaty. Articles 13(1) to 13(5) of the Treaty deal with taxability of capital gains on transfer of specified properties, which do not cover government securities. According to Article 13(6) of the Treaty, gains from allenation of any property other than that referred to in Articles 13(1) to 13(5) shall be taxable only in the contracting state of which allenaior is resident. Therefore, hold that appellant's income by way of capital gains on transfer of government securities would be exempt for tax in India under Article 13(6) of the Treaty. No infirmity in the findings recorded by the CIT(A) in holding that the gain arising from transactions in debt securities amounting is assessable as capital gains and not as business income. Charging of interest u/s.234B 234C - HELD THAT - We found that since the alleged income was liable to tax deduction at source u/s.195, therefore, there was no liability to pay advance tax u/s.208 of the Act and in the absence of any liability to pay advance tax, the provisions of Section 234B 234C could not be invoked. The CIT(A) has rightly directed to delete the interest levied u/s.234B 234C, in which our interference is uncalled for. Accordingly, we do not find any infirmity in the findings of the CIT(A).
Issues Involved:
1. Permanent Establishment (PE) in India under Article 5 of the DTAA between India and Switzerland. 2. Classification of gain on transfer of debt securities as capital gain or business income. 3. Imposition of interest under sections 234B and 234C of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Permanent Establishment (PE) in India: The revenue contended that the assessee, a Swiss company, had a Permanent Establishment (PE) in India under Article 5 of the DTAA between India and Switzerland, making the underwriting fee taxable in India. The Assessing Officer (AO) argued that the assessee had a service PE in India as employees or other personnel were present in India for more than 90 days within a 12-month period. The AO also noted that the representative office of the assessee was upgraded to a branch office, which constituted a fixed base PE. However, the CIT(A) held that the underwriting commission was taxable as Fees for Technical Services (FTS) under Article 12 of the treaty, not under Article 7 read with Article 5(2)(1). The CIT(A) directed the AO to tax the underwriting commission on a gross basis as per Article 12 of the Treaty and section 9(1)(vii) of the Act as FTS, thus ruling out the existence of a fixed base PE in India. 2. Classification of Gain on Transfer of Debt Securities: The revenue challenged the CIT(A)'s decision to classify the gain on transfer of debt securities amounting to Rs. 18,86,80,359/- as capital gain rather than business income. The AO had held that the gains should be characterized as business income due to the high frequency and systematic nature of the transactions. However, the CIT(A) and the Tribunal, relying on various judicial pronouncements including the case of LG Asian Plus Ltd., held that gains from transfer of securities by a Foreign Institutional Investor (FII) should be treated as capital gains. The Tribunal emphasized that FIIs are allowed to invest in securities and the income from such investments should be taxed as capital gains under section 115AD of the Income Tax Act, which provides for the taxation of FIIs' income from securities. The Tribunal upheld the CIT(A)'s decision, noting that the characterization of gains as capital gains had been accepted in previous years and there was no change in facts to warrant a different treatment. 3. Imposition of Interest under Sections 234B and 234C: The revenue argued that the CIT(A) erred in holding that no interest under sections 234B and 234C could be imposed on the assessee. The CIT(A) had concluded that since the income was subject to tax deduction at source under section 195, there was no liability on the assessee to pay advance tax under section 208. Consequently, the provisions of sections 234B and 234C, which impose interest for failure to pay advance tax, were not applicable. The Tribunal agreed with the CIT(A)'s findings and upheld the deletion of interest levied under these sections. Conclusion: The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s findings on all issues. The cross-objection filed by the assessee was also dismissed as infructuous. The decision clarified the tax treatment of underwriting fees, gains from debt securities, and the applicability of interest provisions under sections 234B and 234C in the context of FIIs and the DTAA between India and Switzerland. The order was pronounced in the open court on 17/04/2015.
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