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TMI Blog2005 (2) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ber) Mr. K.D. Singh (Member) Present for the Department Shri N.P. Bhagat, Director of Income-tax (Intl.Tax.), Kolkata Present for the Applicant - RULING (By Mr. A.S.Narang) - In this case the applicant filed an application on 27.10.2004 under section 245Q(1) of the Income-tax Act, 1961 seeking advance ruling on the following question:- "Whether in the facts and circumstances of the case, interest paid to M/s. Rabobank will constitute income in the hands of the non-resident and whether TDS u/s 195 of the Income Tax Act, 1961 is deductible." 2. The application was admitted vide the Authority's Order dated 10.1.2005 and the case was listed for hearing on 9th February, 2005. The applicant filed a rejoinder on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax (International Taxation), Kolkata appeared before the Authority and filed written submissions. The first point raised is that a resident cannot seek advance ruling pertaining to his own tax liability. The applicant, a resident company, has taken a loan of US$ 34,00,000 from Rabobank of Singapore at an interest of 1.5% per annum above 6 month LIBOR. As per para (c) of schedule 5 of the loan agreement detailing general terms and conditions, the tax liability of the Rabobank (a non-resident) is to be borne by the applicant and payment of interest is to be made net of all taxes. These facts are not in dispute. Reliance is placed on the ruling of the Authority in the case of Hindustan Power Plus Ltd. 267 ITR 685 (2004) by Shri Bhag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. However, such interest may also be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed: • 10% of the gross amount of the interest if such interest is paid on a loan granted by a bank carrying on a bona fide banking business or by a similar financial institution (including an insurance company); • 15% of the gross amount of the interest in all other cases. 3. The term "interest" as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed base is situated. 6. Where, by reason or a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement." 5. In this context, it would be useful to notice Article 3(c) which defines the expression "contracting state" and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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