2020 (3) TMI 1372 - AT - Income Tax

Income accrued in India - Addition on account of interest income on securities- including T bills - India-Mauritius Tax Treaty - Satisfaction of beneficial ownership requirement - treaty protection under article 11(3) of the India Mauritius Double Taxation Avoidance Agreement - HELD THAT - As decided in assessee's own case 2018 (7) TMI 2122 - ITAT MUMBAI CBDT Circular no. 789 dated 13.04.2000 (supra) is specifically in the context of incomes by way of dividend and capital gain on sale of shares. So, however, in our considered opinion, 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 - even 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 11(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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition of ?496,678,73,353 on account of "interest income on securities- including T bills."
2. Remitting the issue of levy of interest under section 234B to the file of the Assessing Officer.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of ?496,678,73,353 on Account of "Interest Income on Securities- Including T Bills":
The appellant, a limited liability company incorporated, registered, and tax resident of Mauritius, earned interest income of ?94,57,45,856 from investments in debt securities. The appellant claimed this interest income as non-taxable in India under Article 11(3)(c) of the India-Mauritius Double Tax Avoidance Agreement (DTAA). The Assessing Officer denied this exemption, arguing that the conditions of Article 11(3)(c) were not met: the interest was not "derived" by the assessee, not "beneficially owned" by the assessee, and the assessee was not carrying on bona fide banking business.

The Tribunal, in earlier orders, had accepted that the interest income was derived by the assessee and that the assessee was carrying on bona fide banking business. However, the issue of "beneficial ownership" was remanded to the Assessing Officer. The Tribunal, upon reconsideration, found that the appellant was indeed the beneficial owner of the interest income, supported by a Tax Residency Certificate from the Mauritian authorities and CBDT Circular no. 789 dated 13.04.2000, which clarified that such a certificate is sufficient evidence of beneficial ownership.

The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered by previous decisions in the appellant's favor and that the CIT(A) had followed these precedents. The Tribunal emphasized that this decision was specific to the India-Mauritius DTAA and the peculiar facts of the case.

2. Remitting the Issue of Levy of Interest Under Section 234B to the File of the Assessing Officer:
The appellant's grievance regarding the remittance of the issue of levy of interest under section 234B to the Assessing Officer was noted and rejected. The CIT(A) had followed his order for the assessment year 2010-11, which was approved by a coordinate bench of the Tribunal. Both parties agreed that no interference was necessary. The Tribunal approved the CIT(A)'s order on this point and declined to interfere.

Conclusion:
The appeal was dismissed, with the Tribunal upholding the CIT(A)'s decisions on both issues. The Tribunal's decision was pronounced in the open court on March 2, 2020.