9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (6) TMI 29 - AT - Income TaxTP Adjustment - TPO / AO in proposing the interest rate on fully compulsory convertible debentures at LIBOR 200 basis points - HELD THAT - As already held that the currency involved herein is not Euro only. The alleged safe harbor rules also do not pertain to these four assessment years. We thus affirm the TPO s identical action in all these four assessment years adopting LIBOR 200 interest rate coming to 2.9% as against that claimed @ 11% at assessee s behest. Ground no. 2 dismissed. Benefit of section 11(7) of India Cyprus DTAA - whether only 10% of the gross amount of the interest is required to be taxed in the hands of the assessee and the remaining interest amount cannot be taxed as per clause 7 of Article 11 of the DTAA or not ? - HELD THAT - In our view, the conjoint reading of Clauses 2 and 7 of Article 11 of DTAA made it abundantly clear that interest paid over and above the interest mentioned in clause 7 of Article 11 of DTAA, shall be chargeable at Income Tax rate as applicable in Contracting State namely, India, as mentioned in Article 11(7) of DTAA. No error in the order passed by the lower authorities. AR argued that excess amount of the interest paid / received by the assessee shall be chargeable under the head Income from business and thereafter, it may be taxed under the other provisions of DTAA - AO/CIT(A) cannot be changed the characteristics of head of income when the assessee itself has admitted that the amount received by it was in the nature of interest only and hence, it would be improper either on the part of the AO or the assessee to change or recharacterize the amount received by it as business income within the meaning of DTAA. Once the assessee itself admits that the amounts received by it on the FCCDs were in the nature of Interest income , then the same cannot be converted into income from business and therefore, the submissions of the ld. AR are without any basis and hence, the same are rejected. Accordingly, the appeal of the assessee is dismissed.
Issues Involved:
1. Interest Rate on Fully Compulsory Convertible Debentures (FCCDs) 2. Application of Article 11(7) of the India - Cyprus Double Taxation Avoidance Agreement (DTAA) 3. Application of the Second Proviso to Section 92(4) 4. Recharacterization of Interest Payment Transactions 5. Taxation of Excess Interest Income 6. Inclusion of Surcharge and Education Cess in Tax Rate under DTAA Summary: 1. Interest Rate on Fully Compulsory Convertible Debentures (FCCDs): The assessee argued that the interest rate on FCCDs denominated in INR should be benchmarked to the SBI Prime Lending Rate (PLR) instead of LIBOR+200 basis points as proposed by the TPO/Assessing Officer. The Tribunal referenced its decision in M/s. Watemarke Residency Limited, confirming that FCCDs are debt instruments until conversion to equity and should be benchmarked at LIBOR+200 basis points, not the SBI PLR. 2. Application of Article 11(7) of the India - Cyprus DTAA: The assessee contended that the benefit of Article 11(7) of the DTAA should be provided, limiting the tax rate to 10% on the interest income. The Tribunal upheld the Assessing Officer's decision, stating that excess interest paid over the arm's length price (ALP) is taxable at the normal rates prescribed under the Act, as per Article 11(7) of the DTAA. 3. Application of the Second Proviso to Section 92(4): The Tribunal agreed with the lower authorities that the second proviso to Section 92(4) bars adjustment in the income of the appellant due to TPO adjustments in the hands of the associated enterprise (WRPL). The interest income received by the assessee was taxed at the applicable rate, and no recomputation of income was necessary. 4. Recharacterization of Interest Payment Transactions: The assessee argued against the recharacterization of interest payment transactions into two tranches. The Tribunal found no merit in this argument, stating that the TPO/Assessing Officer did not recharacterize the transaction but correctly treated FCCDs as debt instruments based on their terms and conditions. 5. Taxation of Excess Interest Income: The Tribunal upheld the Assessing Officer's decision to tax the excess interest income at 40% and the ALP at 10% under the DTAA. The Tribunal found no error in the lower authorities' approach and dismissed the assessee's appeal on this ground. 6. Inclusion of Surcharge and Education Cess in Tax Rate under DTAA: The Revenue argued for the inclusion of surcharge and education cess over the 10% tax rate under the DTAA. The Tribunal, referencing Article 3 and Article 11(2) of the DTAA, held that the tax rate should not exceed 10% of the gross amount of interest, including any surcharge and education cess. The Tribunal supported its decision with precedents from other cases, dismissing the Revenue's appeal. Conclusion: Both the appeals of the assessee and the Revenue were dismissed, with the Tribunal upholding the decisions of the lower authorities on all issues.
|
