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2018 (8) TMI 1917 - AT - Income TaxIncome accrued in India - Additions in respect of interest income earned on foreign currency loans given to Indian Corporates - DTAA between India and Mauritius - HELD THAT - As decided in own case in the context of the impugned interest income, Circular no. 789 dated 13.04.2000 (supra) of the CBDT is applicable while applying the provisions of Article II(3)(c) of the India-Mauritius Tax Treaty. On this aspect itself we uphold the plea of the assessee that assessee is the 'beneficial owner' of the impugned interest income on the strength of the Tax Residency Certificate issued by the Mauritian authorities. In the context of element of interest income earned by the assessee from Hyundai Motor India Ltd., the Chennai Bench of the Tribunal in its decision in the case of Hyundai Motor India Ltd. 2017 (4) TMI 1193 - ITAT CHENNAI has already observed that the recipient therein (i.e. the assessee before us), was the 'beneficial owner' of the interest income qua the provisions of Article 11 of the India-Mauritius Tax Treaty. Be that as it may, in view of our aforesaid discussion, we uphold the stand of the assessee that it is the 'beneficial owner' of the interest income quo the provisions of Article 11(3)(c) of the India-Mauritius Tax Treaty and thus, such income is not taxable in India. Interest u/s. 234B - HELD THAT - In view of the decision of CIT v. Sedco Forex International Drilling Co. Ltd. 2003 (10) TMI 40 - UTTARANCHAL HIGH COURT it was to be held that when a duty is cast on the payer to deduct and pay the tax at source, on payer's failure to do so, no interest under section 234B can be imposed on the payee assessee. Be as it may, we have already decided the issue of exigibility to taxation in favour of the assessee. Hence, this issue is consequential.
Issues Involved:
1. Additions in respect of interest income earned on foreign currency loans given to Indian Corporates. 2. Consideration of the assessee as the 'beneficial owner' of the interest income. 3. Levy of interest under section 234B of the Income Tax Act. 4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act. Detailed Analysis: 1. Additions in respect of interest income earned on foreign currency loans given to Indian Corporates: The assessee appealed against the CIT(A)'s decision to tax interest income of ?258,94,38,991 earned on foreign currency loans, arguing that the benefits of Article 11(3)(c) of the India-Mauritius Tax Treaty were wrongly denied. The assessee contended that the interest income should not be taxable in India as it is derived and beneficially owned by the appellant, a tax resident of Mauritius. The Tribunal referred to a previous decision in the assessee's own case, which had accepted the assessee's plea, confirming that the interest income was derived by the assessee and that it was carrying on bona fide banking business. 2. Consideration of the assessee as the 'beneficial owner' of the interest income: The Tribunal examined whether the assessee was the beneficial owner of the interest income under Article 11(3)(c) of the India-Mauritius Tax Treaty. The assessee relied on the Tax Residency Certificate issued by the Mauritian authorities and CBDT Circular no. 789 dated 13.04.2000, which clarifies that such a certificate constitutes sufficient evidence of beneficial ownership. The Tribunal upheld the assessee's position, noting that the Circular supports the assertion that the beneficial ownership of the interest income lies with the assessee. The Tribunal also referenced the decision of the Chennai Bench of the Tribunal in the case of Hyundai Motor India Ltd., which supported the assessee's claim of beneficial ownership. 3. Levy of interest under section 234B of the Income Tax Act: The CIT(A) had upheld the levy of interest under section 234B on the assessee, a non-resident, arguing that the assessee had a mutual agreement with the payer to not deduct taxes at source. The Tribunal, however, referred to the decision of the Hon'ble Bombay High Court in the case of Director of Income-tax (International Taxation) v. Ngc Network Asia LLC, which held that when a duty is cast on the payer to deduct and pay tax at source, no interest under section 234B can be imposed on the payee assessee. Consequently, the Tribunal decided in favor of the assessee, stating that the levy of interest under section 234B was not justified. 4. Initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act: The assessee also contested the initiation of penalty proceedings under section 271(1)(c) of the Act. Given that the Tribunal decided in favor of the assessee on the primary issue of taxation of interest income, the initiation of penalty proceedings was rendered moot. The Tribunal instructed the Assessing Officer to drop the initiation of penalty proceedings. Conclusion: The Tribunal allowed the assessee's appeal, setting aside the orders of the CIT(A) and deciding the issue of beneficial ownership of interest income in favor of the assessee. Consequently, the Revenue's cross-objection was dismissed. The Tribunal's decision was pronounced in the open court on 30.08.2018.
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