2022 (12) TMI 1307 - AT - Income Tax

Income deemed to accrue or arise in India - definition of interest as provided under article 12 of the India U.K. DTAA - justification on the part of the lower authorities in treating the receipts of the assessee as income from other sources - whether income was rightly declared as Rental Income under the head House Property and the Statutory Deduction of 30% was rightly claimed? - HELD THAT - We see no reason to deviate from the view already taken by the Coordinate Benches and following the same, the amount received by the assessee is in the nature of interest taxable @ 15% under Article 12 of India-UK DTAA. In the result, ground of the assessee s appeal is allowed in favour of the assessee and against the Revenue.

Summary

Issues Involved:
1. Legality and jurisdiction of notice and assessment under Section 153A.
2. Nature of income received from M/s Omaxe Ltd. and its classification under the Income Tax Act and Indo-UK DTAA.
3. Applicability of statutory deductions and tax rates.
4. Interpretation of Double Taxation Avoidance Agreement (DTAA) between India and UK.
5. Deduction of interest paid on borrowed capital.
6. Computation and assessment of income.
7. Charging of interest under Sections 234A, 234B, and 234C.

Detailed Analysis:

1. Legality and Jurisdiction of Notice and Assessment under Section 153A:
The assessee challenged the legality and jurisdiction of the notice issued under Section 153A and the subsequent assessment. The assessee argued that the notice and assessment were "illegal, bad in law, and without jurisdiction," as the additions were not based on any material found during the search. The Tribunal noted that these appeals were initially dismissed for want of prosecution and later recalled for hearing. The Tribunal did not find merit in the assessee's arguments and upheld the issuance of notice and assessment under Section 153A.

2. Nature of Income Received from M/s Omaxe Ltd.:
The primary issue was whether the income received from M/s Omaxe Ltd. should be classified as "Income from House Property" or "Income from Other Sources." The Assessing Officer (AO) held that the assured return paid by M/s Omaxe Ltd. did not qualify as income from house property since the property was not constructed or let out. The AO classified it as "income from other sources" under Section 56(1) of the Act. The CIT(A) upheld this view, stating that the payments were not in the nature of damages for late delivery but were assured returns of a fixed amount per month.

3. Applicability of Statutory Deductions and Tax Rates:
The assessee argued that the income should be treated as "interest income" under Article-12 of the Indo-UK DTAA and taxed at 15%. The AO and CIT(A) disagreed, stating that the assured return was not interest as defined under Article-12 of the DTAA or Section 2(28A) of the Act. The Tribunal, however, referred to a similar case (Shri Mohinder Singh Sanghera Vs. Astt. DIT) where it was held that the assured return was in the nature of interest. The Tribunal followed this precedent and ruled that the assured return should be treated as interest income taxable at 15% under Article-12 of the Indo-UK DTAA.

4. Interpretation of Double Taxation Avoidance Agreement (DTAA):
The Tribunal analyzed Article-12 of the Indo-UK DTAA, which defines "interest" as income from debt-claims of every kind. The Tribunal found that the assured return received by the assessee was in the nature of interest, as the assessee had a debt claim against M/s Omaxe Ltd. until the property was constructed and possession handed over. The Tribunal ruled in favor of the assessee, allowing the income to be taxed as interest under the DTAA.

5. Deduction of Interest Paid on Borrowed Capital:
The assessee claimed that the interest paid on borrowed capital for acquiring the immovable property should be allowed as a deduction. The AO and CIT(A) disallowed this deduction. However, the Tribunal's ruling on the nature of income (as interest) rendered this issue academic and dismissed it as infructuous.

6. Computation and Assessment of Income:
The assessee contended that the income was wrongly computed and assessed at a higher amount than declared. The Tribunal's decision to classify the assured return as interest income resolved this issue, leading to the dismissal of related grounds as academic.

7. Charging of Interest under Sections 234A, 234B, and 234C:
The assessee argued that interest under Sections 234A, 234B, and 234C was wrongly charged. Given the Tribunal's ruling on the primary issue, this ground was also rendered academic and dismissed as infructuous.

Conclusion:
The Tribunal allowed the appeal of the assessee, ruling that the assured return received from M/s Omaxe Ltd. should be treated as interest income under Article-12 of the Indo-UK DTAA and taxed at 15%. Other grounds of appeal were dismissed as academic. The Tribunal's findings were applied mutatis mutandis to related appeals, all of which were decided in favor of the assessee.