2021 (8) TMI 920 - AT - Income Tax

Special rate of tax qua the interest income of the assessee - exigibility to tax of the interest income on fixed deposits bank interest - assessee had failed to substantiate that the interest income in question was offered for tax in his return of income filed in U.S.A. - whether or not the assessee was eligible to avail special rate of tax on the interest income on fixed deposits bank interest @10% and 15% as per the India-USA DTAA? - CIT(A) had concluded that the assessee having failed to file the TRC and Form 10F with the A.O, thus, could not have sought exigibility to tax of the interest income on fixed deposits bank interest @10% and 15% on the basis of the India-USA DTAA - HELD THAT - Assessee could not furnish the TRC in the course of the assessment proceedings because of paucity of time there were justifiable reasons for the assessee in not filing the TRC in the course of the assessment proceedings. But then, we cannot also remain oblivious of the fact that the A.O had declined to apply the special rate of tax as per the DTAA, for the reason, that the assessee had failed to substantiate that the interest income in question was offered by him for tax in his return of income filed in U.S.A. As observed by us hereinabove, the very basis of rejection of the assessee s claim for applying of special rate of tax as per the India-USA DTAA by the A.O is absolutely misconceived and in fact misplaced. As stated by the A.R rightly that the assessee was not seeking credit of taxes paid on his income abroad, but was seeking taxing of his interest income as per the special rates on the basis of the India-USA DTAA. Considering the fact that the assessee had filed the TRC with the A.O though after the conclusion of the assessment, coupled with the reasons that had led to delay in obtaining of the same alongwith the Form 10F, we are unable to persuade ourselves to the summarily rejection or in fact discarding of the same by the CIT(A). As the assessee had filed the TRC and Form 10F, therefore, there was no justification in declining the applying of the special rate of tax qua the interest income on fixed deposits bank interest amounting to ₹ 17,87,709/- @10% and 15% that was claimed by him on the basis of the India-USA DTAA in his return of income. - we direct the A.O to determine the taxability of the interest income as per the special rate of tax on the basis of India-USA tax treaty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of the assessee to avail special tax rates on interest income under the India-USA DTAA.
2. Requirement of filing a Tax Residency Certificate (TRC) and Form 10F for claiming DTAA benefits.
3. Justifiability of CIT(A)'s rejection of additional evidence (TRC and Form 10F) submitted by the assessee.

Issue-wise Detailed Analysis:

1. Eligibility of the assessee to avail special tax rates on interest income under the India-USA DTAA:
The core issue in the appeal was whether the assessee, a non-resident individual, was eligible to avail special tax rates on interest income from fixed deposits and bank interest under the India-USA Double Taxation Avoidance Agreement (DTAA). The assessee had declared interest income amounting to ?17,87,709/- and sought to tax it at special rates of 10% and 15% as per the DTAA. However, the Assessing Officer (A.O) denied this benefit because the assessee did not substantiate that the interest income was offered for tax in the U.S.A. The Appellate Tribunal clarified that the non-submission of the U.S. tax return could not be a condition for denying the special tax rate under the DTAA.

2. Requirement of filing a Tax Residency Certificate (TRC) and Form 10F for claiming DTAA benefits:
The CIT(A) held that for claiming DTAA benefits, the assessee must obtain a TRC and file information in Form 10F. The CIT(A) noted that Rule 21AB(2A) of the Income-tax Rules, 1962, mandates maintaining and furnishing such documents to the A.O. The assessee had not obtained the TRC before filing the return of income and failed to submit it during the assessment proceedings. The Tribunal emphasized that sub-sections (4) and (5) of Section 90 of the Income Tax Act require a non-resident assessee to provide a TRC and other prescribed documents to claim DTAA benefits. The Tribunal acknowledged that the assessee filed the TRC after the assessment proceedings and highlighted the justifiable reasons for the delay.

3. Justifiability of CIT(A)'s rejection of additional evidence (TRC and Form 10F) submitted by the assessee:
The assessee submitted additional evidence, including the TRC and Form 10F, during the appellate proceedings. The CIT(A) rejected this additional evidence, stating that the documents should have been available at the time of filing the return. However, the Tribunal found the assessee's reasons for the delay in obtaining the TRC reasonable. The Tribunal noted that the A.O's rejection of the special tax rate was based on the incorrect premise that the interest income must be offered for tax in the U.S.A. The Tribunal concluded that the assessee's submission of the TRC and Form 10F, even if delayed, should not have led to the denial of the DTAA benefits.

Conclusion:
The Tribunal set aside the CIT(A)'s order and directed the A.O to determine the taxability of the interest income as per the special tax rates under the India-USA DTAA. The appeal filed by the assessee was allowed, recognizing the justifiable reasons for the delay in submitting the TRC and Form 10F and emphasizing that the non-submission of the U.S. tax return should not preclude the application of the DTAA benefits.