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2019 (1) TMI 1688 - AT - Income TaxTDS u/s 195 - Addition of interest income earned on foreign currency loans given to Indian Corporates - HELD THAT - Assessee reiterated the reliance on the CBDT Circular no. 789 dated 13.04.2000 (supra) whose validity, according to the learned representative, has also been upheld by the Hon'ble Supreme Court in the case of UOI vs Azadi Bachao Andolan, 2003 (10) TMI 5 - SUPREME COURT . Furthermore, it is pointed out that the Ministry of Finance vide Press Clarification dated 01.03.2013 clarified that the CBDT Circular no. 789 dated 13.04.2000 (supra) continues to be in force. Another aspect which is brought out by the learned representative is based on the decision of Chennai Bench of the Tribunal in the case of Hyundai Motor India Ltd. Vs. DCIT 2017 (4) TMI 1193 - ITAT CHENNAI . In this case, the interest paid by Hyundai Motor India Ltd. to the assessee was disallowed u/s 40(a)(i) of the Act on the ground that the payer therein i.e. Hyundai Motor India Ltd. had not deducted the requisite tax at source. The Tribunal in the aforesaid decision inter alia, examined the provisions of Article 11 of the India Mauritius Tax Treaty and concluded that the assessee was indeed the 'beneficial owner' of such interest income. We noticed that the claim of the assessee has also been allowed by Hon ble ITAT in the assessee s own case for the A.Y. 2010-11.In view of the decision of the Hon ble ITAT in the assessee s own case (supra) we set aside the finding of the CIT(A)on this issue and allowed the claim of the assessee. Levy of interest u/s 234B - assessee has argued that the payer is under obligation to deduct the tax at source and on account of failure of payer to deduct the tax at source, the penalty interest u/s 234B cannot be imposed on the payee - HELD THAT - In the instant case the assessee received the payment without deduction of TDS. No doubt, the payer was liable to be deduct the TDS who failed to do so, therefore, the penalty is not leviable to be payee in view of the law settled in Director of Income Tax (International Taxation) Vs. Ngc Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT . Therefore, in the said circumstances, it is quite clear that the interest and penalty cannot be imposed upon the payer. Accordingly, we decide this issue in favour of the assessee against the revenue.
Issues Involved:
1. Additions in respect of interest income earned on foreign currency loans given to Indian Corporates. 2. Additions in respect of interest income earned on debt securities. 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: Issue No. 1: Additions in respect of interest income earned on foreign currency loans given to Indian Corporates The assessee challenged the addition of ?3,08,25,79,613/- as interest income earned on foreign currency loans given to Indian Corporates. The CIT(A) denied the benefits of Article 11(3)(c) of the India-Mauritius Double Taxation Avoidance Agreement (DTAA), upholding the Assessing Officer's (AO) contention that the interest income was not beneficially owned by the assessee. The assessee argued that this issue was covered in its favor by the ITAT’s decision for A.Y. 2011-12, which confirmed that the interest income was derived and beneficially owned by the assessee, and it was carrying on bona fide banking business. The ITAT had previously remanded the issue of 'beneficial ownership' to the AO, who later confirmed the assessee’s beneficial ownership based on the Tax Residency Certificate issued by Mauritian authorities, supported by CBDT Circular No. 789 dated 13.04.2000. The Tribunal upheld the plea that the assessee was the beneficial owner of the interest income and thus, the income was not taxable in India. Issue No. 2: Additions in respect of interest income earned on debt securities The CIT(A) set aside the issue of chargeability of interest income on securities amounting to ?4,96,68,73,353 to the AO for fresh adjudication in accordance with the ITAT’s view for A.Y. 2011-12. The ITAT had previously determined that the interest income was derived and beneficially owned by the assessee, and the assessee was carrying on bona fide banking business. The Tribunal’s decision for A.Y. 2011-12 was applied to this case, and the findings of the CIT(A) were set aside, allowing the assessee's claim. Issue No. 3: Levy of interest under section 234B of the Income-tax Act The assessee contested the levy of interest under section 234B amounting to ?79,49,35,017/-. The assessee argued that the payer was obligated to deduct tax at source, and the failure of the payer to do so meant that penalty interest under section 234B could not be imposed on the payee. The assessee relied on the Bombay High Court's ruling in Director of Income Tax (International Taxation) Vs. NGC Network Asia LLC, where it was held that the penalty interest could not be levied on the payee if the payer failed to deduct TDS. The Tribunal decided this issue in favor of the assessee, ruling that interest and penalty could not be imposed on the payee. Issue No. 4: Initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act The assessee challenged the initiation of penalty proceedings under section 271(1)(c). Given the Tribunal's findings on the other issues, the initiation of penalty proceedings was deemed unwarranted. The Tribunal instructed the AO to drop the initiation of penalty proceedings. Conclusion: The Tribunal allowed the appeal filed by the assessee, setting aside the findings of the CIT(A) and ruling in favor of the assessee on all issues. The order was pronounced in the open court on 02.01.2019.
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