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2020 (3) TMI 1242 - AT - Income TaxIncome accrued in India - Taxability of interest income of foreign currency loans and securities - Indo-Mauritius Tax Treaty - beneficial owner - HELD THAT - We have considered the decisions of the Tribunal in assessee s own case in the preceding assessment years. We observe that in the case of present assessee taxability of interest income of foreign currency loans and securities is a perennial issue. This issue had come up for consideration before the Tribunal for the first time in assessee s case in assessment year 2011-12. The Tribunal after considering the facts of the case, CBDT Circular No.789 dated 13/04/2000 , Indo-Mauritius Tax Treaty and decision rendered in the case of Director of Income Tax vs. Universal International Music BV 2013 (4) TMI 641 - BOMBAY HIGH COURT . Tribunal has considered the issue of assessee being beneficial ownership of the interest income. The Co-ordinate Bench in an unequivocal manner has held that the assessee is a beneficial owner of the interest income. Undisputedly, the nature of interest income in assessment year under appeal is no different preceding assessment years. Ergo, we do not concur with the argument of ld. Departmental Representative that the Tribunal has not considered the fact in the past that the interest is not beneficially owned by the assessee. In the light of decision of the Co-ordinate Bench on the issue raised in the appeal by Revenue we find no infirmity in the impugned order. - Decided against revenue.
Issues Involved:
1. Justification of CIT(A) in directing the Assessing Officer to follow ITAT's decision on interest income from foreign currency loans and securities. 2. Involvement in FII activity and lack of RBI banking license in India. 3. Demonstration of beneficial ownership of interest income. 4. Application of CBDT Circular No. 789 to interest income. 5. Reliance on the judgment of Bombay High Court in Universal International Music B.V. without a specific certificate of beneficial ownership. 6. Prayer to set aside the CIT(A)'s order and restore the Assessing Officer's order. Issue-wise Detailed Analysis: 1. Justification of CIT(A) in Directing the Assessing Officer to Follow ITAT's Decision: The Revenue challenged the CIT(A)'s directive to the Assessing Officer to follow the ITAT's decision on interest income from foreign currency loans and securities. The Revenue argued that the assessee failed to furnish financials and prove beneficial ownership of funds, a prerequisite for claiming exemption under Article 11(3)(c) of the India-Mauritius DTAA. However, the Tribunal noted that this issue had been previously decided in favor of the assessee in earlier assessment years (AY 2009-10, 2010-11, 2011-12, 2012-13, and 2013-14). The CIT(A) granted relief by following these precedents, and the Tribunal found no infirmity in the CIT(A)'s order. 2. Involvement in FII Activity and Lack of RBI Banking License in India: The Revenue contended that the assessee was involved only in FII activity and did not possess an RBI banking license, thus not engaged in bona fide banking activities required for exemption under Article 11(3)(c) of the India-Mauritius DTAA. The Tribunal referenced its earlier decisions, which established that the assessee was carrying on bona fide banking business. The Tribunal upheld the CIT(A)'s decision, emphasizing that the nature of the interest income remained consistent with prior assessment years where the assessee was deemed to be engaged in bona fide banking activities. 3. Demonstration of Beneficial Ownership of Interest Income: The Revenue argued that the assessee had not demonstrated beneficial ownership of the interest income, a prerequisite for exemption under Article 11(3)(c) of the India-Mauritius DTAA. The Tribunal examined the assessee's reliance on the Tax Residency Certificate (TRC) issued by Mauritian authorities, which the CBDT Circular No. 789 dated 13/04/2000 deemed sufficient evidence for beneficial ownership. The Tribunal also cited the Bombay High Court's decision in Universal International Music B.V., which supported the use of TRC for establishing beneficial ownership. The Tribunal concluded that the assessee was the beneficial owner of the interest income. 4. Application of CBDT Circular No. 789 to Interest Income: The Revenue contended that CBDT Circular No. 789 was applicable only to dividend and capital gains, not interest income. The Tribunal, however, drew strength from the Bombay High Court's judgment in Universal International Music B.V., which applied the circular to royalty income. The Tribunal extended this reasoning to interest income, affirming that the circular's principles applied to the case at hand, thereby supporting the assessee's claim of beneficial ownership based on the TRC. 5. Reliance on the Judgment of Bombay High Court in Universal International Music B.V.: The Revenue argued that the Tribunal's reliance on the Bombay High Court's judgment in Universal International Music B.V. was misplaced as the case involved a specific certificate of beneficial ownership, which was not present in the current case. The Tribunal noted that the TRC issued by Mauritian authorities, supported by the CBDT Circular, sufficed to establish beneficial ownership. The Tribunal also referenced its earlier decisions and the Chennai Bench's ruling in Hyundai Motor India Ltd., which upheld the assessee's beneficial ownership of interest income. 6. Prayer to Set Aside the CIT(A)'s Order and Restore the Assessing Officer's Order: The Revenue prayed for the CIT(A)'s order to be set aside and the Assessing Officer's order restored. The Tribunal, after considering the submissions and precedents, found no merit in the Revenue's appeal. The Tribunal upheld the CIT(A)'s decision, which followed the Tribunal's earlier rulings in favor of the assessee on the same issues. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order and reiterating that the assessee was the beneficial owner of the interest income, engaged in bona fide banking activities, and entitled to exemption under Article 11(3)(c) of the India-Mauritius DTAA based on the TRC and supported by CBDT Circular No. 789. The Tribunal found no merit in the Revenue's arguments and upheld the CIT(A)'s decision.
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