2018 (7) TMI 2122 - AT - Income Tax

Income accrued in India - interest income earned from investments in debt securities made in accordance with the SEBI Regulations - India-Mauritius Tax Treaty - whether assessee was indeed the beneficial owner of the interest income in question? - whether such Tax Residency Certificate enables an inference that the interest income in question is beneficially owned by the assessee? - HELD THAT - Ostensibly, as per the clarification issued by the CBDT, wherever a Certificate of Residency is issued by the Mauritian authority, such Certificate will constitute sufficient evidence for accepting the status of residence as well as the beneficial ownership for applying the provisions of the India-Mauritius Tax Treaty. Thus,aforesaid clarification by the CBDT supports the assertion of the assessee that based on the Certificate of Tax Residency issued by the Mauritian authority there is sufficient evidence to accept the position that the beneficial ownership of the impugned interest income is with the assessee. CBDT Circular no. 789 dated 13.04.2000 is specifically in the context of incomes by way of dividend and capital gain on sale of shares. It would equally apply even in the situation before us where the application of the provisions of the India-Mauritius Tax Treaty is sought to be applied for considering the taxability of interest income as per Article 11(3)(c) of the India-Mauritius Tax Treaty. Drawing strength from the judgment of Universal International Music B.V 2013 (4) TMI 641 - BOMBAY HIGH COURT as relating to the taxability of Royalty income in the context of India-Netherlands Double Taxation Avoidance Agreement. In the said decision also, CBDT Circular no. 789 dated 13.04.2000 (supra) was held applicable in the context of Royalty income - even in the context of the impugned interest income, Circular no. 789 dated 13.04.2000 of the CBDT is applicable while applying the provisions of Article 11(3)(c) of the India-Mauritius Tax Treaty - 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. 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 qua the provisions of Article 11(3)(c) of the India-Mauritius Tax Treaty and thus, such income is not taxable in India. - Decided in favour of assessee.

Summary

Issues:
Interpretation of beneficial ownership under Article 11(3)(c) of India-Mauritius Tax Treaty for interest income of ?94,57,45,856 earned by the assessee.

Analysis:
The appeal concerns the denial of exemption on interest income by the Assessing Officer, based on the directions of the Dispute Resolution Panel, due to the failure to fulfill conditions under Article 11(3)(c) of the India-Mauritius Tax Treaty. The Tribunal previously accepted that the interest income was derived by the assessee and that it was engaged in a bona fide banking business. However, the issue of 'beneficial ownership' was remanded to the Assessing Officer, leading to a subsequent order recalling the decision specifically for this issue.

The key contention revolves around whether the assessee beneficially owns the interest income, as required by the tax treaty. The assessee relied on a Tax Residency Certificate from Mauritian authorities and legal precedents to support its claim. The Dispute Resolution Panel rejected the plea, citing lack of evidence regarding the immediate source of funds and application of the income. The assessee appealed, emphasizing the validity of the Tax Residency Certificate and relevant legal interpretations.

The Tribunal analyzed the provisions of the tax treaty and relevant circulars, notably CBDT Circular no. 789 dated 13.04.2000, which states that a Certificate of Residence from Mauritian authorities is sufficient evidence for beneficial ownership. Referring to legal precedents, including a decision by the Chennai Bench of the Tribunal, the Tribunal concluded that the assessee was indeed the beneficial owner of the interest income.

The Tribunal upheld the assessee's position, stating that the Tax Residency Certificate provided by Mauritian authorities, along with legal interpretations and precedents, supported the claim of beneficial ownership. Citing the Chennai Bench decision, the Tribunal ruled that the interest income was not taxable in India as the assessee met the criteria of beneficial ownership under Article 11(3)(c) of the India-Mauritius Tax Treaty.

In conclusion, the appeal of the assessee was allowed, emphasizing the beneficial ownership of the interest income and the non-taxability in India as per the provisions of the tax treaty.

This comprehensive analysis delves into the core issue of beneficial ownership under the India-Mauritius Tax Treaty, highlighting the legal arguments, precedents, and interpretations that led to the favorable judgment for the assessee.