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TMI Blog2017 (4) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... quarely falling under the exclusion clause of income deemed to accrue or arise in India u/s 9(l)(v)(b) of the Act, it cannot fall within the ambit of income accrued and arisen in India, and hence, the same cannot be said to be covered u/s 5(2) of the Act. Since the recipient non-resident are not taxable on this income in India, there was no obligation to deduct tax at source on such remittance. Hence, assessee cannot be held liable u/s. 201(1)/(1A) of the Act. - Decided in favour of assessee - ITA No. 2750/Ahd/2013 & CO No.63/Ahd/2014 - - - Dated:- 29-3-2017 - Pramod Kumar AM and S S Godara JM OP Sharma for the appellant TP Hemani for the respondent ORDER Per Pramod Kumar AM: ITA No. 2750/Ahd/2013 By Revenue 1. This appeal filed by the Assessing Officer challenges correctness of the order dated 27.09.2013 passed by the CIT(A) in the matter of tax withholding demands raised under Section 201 r.w.s. 196C and 115AC of the Income-tax Act, 1961 for the assessment year 2011-12. 2. Grievances raised by the appellant are as follows: i) The Id. CIT(A) has erred in law and on facts in holding that the assessee was not liable to deduct tax at source u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement from these payments which is subject matter of dispute before us. 5. The Assessing Officer was of the view that the amount so paid by the assessee, as consent incentive, was taxable, under Section 5(b), in India as interest , and, accordingly, tax should have been withheld under Section 195. Learned CIT(A), however, relying upon a decision of this Tribunal in the case of ACIT vs. Adani Enterprise Ltd [(2013) 141 ITD 206 (Ahd)], reversed the action of the Assessing Officer and observed as follows:- 3.3 The Hon'ble Tribunal in Adani (supra) after considering all the aspects has held that (a) interest payment by the assessee to non-resident investors cannot be said to have accrued or arisen in India and it also cannot be said that this interest income can be deemed to have accrued or arisen in India; and therefore (b) no TDS is to be deducted by the assessee from this payment in question. Since the entire issue is squarely covered by Jurisdictional Ahmedabad Tribunal's order in Adani (supra), I respectfully follow the same; adopt the findings given therein. 3.4 Therefore, on both the counts, following the order of my predecessor in the immediate A.Y.2010- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duly recognized in his books of account prepared for Indian regulatory authorities, resulting into income accruing and arising to the non-resident under section 5(2) of the Act for which the deeming provisions of Section 9(1) are not applicable. 3. The Ld. CIT (A) erred in law and on facts in holding that both sections 5(2) and 9(1) (v) of the Act, are applicable to determine the situs of interest income in case of non resident. 4. The Ld. CIT(A) also erred in law and on facts in holding that the interest paid by the appellant on its FCCBs is covered by exception to Section 9(1)(v)(b) of the Act and consequently it falls outside the ambit of deemed income arising and accruing in India and as a result out of Section 5 also. 5. The Ld. CIT(A) erred in law and on facts in holding that there is ambiguity in determining whether income has been received or arisen in India and thus there is a need to travel from Section 5(2) to Section 9(1) of the Act. 6. The Ld. CIT (A) has erred in law by contradicting his own observation that section 115AC is a code itself and then traveling to another charging section of the Act for deciding the taxability of interest income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, when income is actually received or accrued in India, the provisions contained in section 5(2) is sufficient to create a charge in respect of a non-resident's income and resort to deeming provisions of section 9(1)(v) was not warranted, Commenting on the assessee's reference to the words Subject to provisions of this Act , in section 5. Assessing Officer stated that this does not lead to the conclusion that charging provisions of section 5(2) is controlled by another charging provision in section 9(1). At the strength of above legal portion, Assessing Officer came to the conclusion that income derived from non- resident bondholders is chargeable u/s. 5(2] as income accrued in India and once it is covered u/s. 5(2) section 9(l)(v)(b) is not applicable. Assessing Officer also stated that Circular of CBDT (supra) cited by the assessee is not applicable to the present case as the same has been issued with regard to section 9(l)(i) and 9(l)(v) of the Act, but in present case, the provisions of section 5(2) are applicable and one need not travel to the provisions of section 9 of the Act. 14.1 Assessing Officer, in para 7.2 of the assessment order, went further to estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee in default as per provisions of section 201(1), since the entire consent incentive and interest payable stands remitted without deduction of tax. 14.2 Matter was carried before the First Appellate Authority, wherein contentions were raised on behalf of assessee including synopsis of argument and having considered the same, CIT(A) granted relief to assessee. Same has been opposed on behalf of Revenue inter alia submitted that CIT(A) erred in law and facts in holding that assessee company was not liable to deduct tax at source 196C r.w.s. 115AC on the interest payable on FCCBs (i.e. consent incentive). CIT(A) erred on facts and law in not considering the issue that an Indian company has taken liability of issuing FCCBs from India after taking approval of Reserve Bank of India (Indian Authority) as per rules and guidelines of RBI and has remitted interest from India as liability duly recognized in his books of account prepared for Indian regulatory authorities, resulting into income accruing and arising to non-resident u/s.5(2) of the Act for which deeming provisions of Section 9(1) are not applicable. CIT(A) erred in holding that both Sections 5(2) and 9(1)(v) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Section 195A of the Act whereas the said Section is not applicable to any income referred to in Section 196C of the Act. In view of this, learned Authorized Representative supported the order of CIT(A). 14.3 After going through rival submissions and material on record, we find that assessee had issued two series of Foreign Currency Convertible Bonds (FCCB) in F.Y. 2007-08, namely, FCCB for US $ 300 millions maturing in June 2012 and another FCCB for US$ 200 millions maturing in October 2012. The proceeds of subject FCCB were used for acquisition of shares in overseas subsidiary which is carrying on business outside India resulting in source of income outside India. The bonds have been issued under the permission of Reserve Bank of India under External Commercial Borrowing (ECB) guidelines. Assessee carried out restructuring of subject FCCB in May 2009 with permission of Reserve Bank of India and as a part of it and as a part of it assessee replaced Zero coupon FCCB amounting to US$ 9,40,04,000/- with 7.50% interest bearing FCCB amounting to US$ 5,63,88,000/-. As a part of restructuring assessee company has made payment to non- resident bond holders on account of con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Section 9(1)(v)(b), and therefore, such interest payment cannot be covered in the definition of income deemed to accrue or arise in India. It is further held that since income in question is falling within the ambit of this exclusion clause of income deemed to accrue or arise in India as per Section 9(1)(v)(b), it cannot fall within the ambit of income accrued and arisen in India, and hence, the same cannot be said to be covered u/s.5(2) of the Act. Therefore, there was no need to deduct tax at source on such remittance. 14.4 In the present appellate proceedings ,the appellant submitted a paper book on 10-09-2010 containing the copy of all the documents; and submissions made to AO from time to time as well as written submissions once again compiling the argument advanced before AO along with explanation on the finding of AO. It was argued that the question of applying provisions of section 196C r.w.s 115AC arises only when the income is chargeable to tax in l:idia and in present case none of the remittances are not at all chargeable to tax in India in hands of FCCB Bondholders and hence there was no obligation on appellant to deduct tax at source and thus appellant can no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct investment in its Singapore subsidiary such as Adani Shipping PTE Ltd., Adani Global PTE Ltd. etc.; (b) Adani remitted interest to the Bank of New York, Mellon towards the interest payable on FCCBs issued by Adani. (c) Tribunal in its order on pg. no. 14 vide para 11 has reproduced the para 4.7 of AO's order, which shows that AO was of the view that the Bonds were issued by an Indian Company and interest has been paid by an Indian Company from India only and further the obligation to pay the interest rested with the Assessee only and accordingly chargeable u/s 5(2) of the Act; (d)For the said contention, AO relied upon the Supreme Court decision in the case of Performing Rights Society Ltd. case (supra) and Allahabad High Coyrt decision in the case of Hira Mills Ltd. (supra) (refer pg. no. 12 of the order); (e) AO was further of the view that once the income is covered u/s 5(2), S.9(l)(v)(b) is not applicable; (f) AO was further of the view that the issue of FCCB is governed by Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depositary Receipt Mechanism) Scheme, 1993 and the said scheme is notified scheme for the purpose of S.115AC(i)(a)of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised.(Pg.nos.l0-14 vide paras 6.2 to 6.6) (g)In the present case also, AO further went to establish that even if the provisions of S.9(l)(v)(b) is applicable, the assessee's case will not be covered by the exclusions stated therein; (Pg. nos.14-15 vide paras 7 to 7.3) Therefore, Tribunal in Adani Enterprises Ltd.'s (supra) after considering the rival contentions, held that interest paid by assessee to non-resident investor is specifically excluded from the deeming provisions as per S.9(l)(v)(b), and therefore, such interest payment cannot be covered in definition of income deemed to accrue or arise in India. It was thus held that since the income in question is falling within the ambit of this exclusion clause of income deemed to accrue or arise in India as per S.9(l)(v)(b), it cannot fall within the ambit of income accrued and arisen in India, and hence, same cannot be said to be covered u/s 5(2) of the Act. Therefore, there was no occasion to deduct tax at source on such remittance. Respectfully following the decision of the co- ordinate bench of the Tribunal in the case of the Adani (supra), which is identical both in terms of the facts and laws r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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