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TMI Blog2018 (5) TMI 945X X X X Extracts X X X X X X X X Extracts X X X X ..... been considered as the income of the assessee and that no other person has or will claim credit of the said amount of taxes. We hold and direct accordingly. The Ground of appeal No.1 is allowed for statistical purposes. Taxing the total assessed income of the assessee at the rate of 42.23% [i.e tax rate of 40% (plus) 2.5% surcharge and 3% education cess] as against the applicable rate of 10% as per India-Cyprus Double Taxation Avoidance Agreement - Held that:- The consultancy receipts of the assessee, being in the nature of FTS would thus justifiably be brought to tax as per Article 12 of the India-Cyprus tax treaty at the rate of 10% of the gross amount of the consultancy receipts. We thus direct the A.O to subject the fee from consultancy services received by the assessee at the rate of 10% as provided in Article 12 of the India-Cyprus tax treaty. We are further persuaded to be in agreement with the contention of the ld. A.R that the interest income from FCCBs held by the assessee are subject to deduction of tax at source @ 10% as per Sec. 115AC(1)(a) of the Income Tax Act, 1961. We thus in terms of our aforesaid observations direct the A.O to subject the interest income from FCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RAVISH SOOD, JM For The Applicant : Shri Niraj Sheth, A.R For The Respondent : Shri. Samuel Darse, D.R ORDER PER RAVISH SOOD, JUDICIAL MEMBER: The present set of cross appeals filed by the assessee and the revenue are directed against the assessment order passed by the Deputy Commissioner of Income tax (International Taxation)-2(1)(1), Mumbai under Sec. 144C(13) r.w. Sec. 143(3) of the Income tax, 1961 (for short 'Act'), dated 28.12.2015. That as inter connected issues are involved in the aforementioned appeals, therefore, the same are being taken up together and disposed off by way of a common order. We shall first take up the appeal filed by the assessee. The assessee assailing the order of the DCIT (International Taxation), Mumbai, had raised before us the following grounds of appeal:- "Based on the facts and circumstances of the case, Clearwater Capital Partners (Cyprus) Limited [hereinafter referred to as the Appellant'] respectfully craves leave to prefer an appeal under section 253 of the Income-tax Act, 1961 (Act) against the order dated 28 December 2015 passed by the Deputy Commissioner of Income-tax (International Taxation)- 2(1)(1), Mumbai [hereinafter refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short 'FDIS'). During the year under consideration, the assessee had earned interest income, capital gains, fee for technical services and dividend income. That as the assessee had international transactions exceeding ₹ 15 crore, therefore, its case was referred to the Transfer Pricing Officer-2(3), Mumbai (for short 'TPO'). The TPO vide his order passed under Sec. 92CA(3) of the Act, dated 23.01.2015 did not propose any adjustments to the international transactions of the assessee. The draft order of assessment was passed by the A.O under Sec. 143(3) r.w. Sec. 144C(1) of the Act, vide order dated 25.03.2015 and the income of the assessee pursuant to an addition of ₹ 7,52,18,925/- on account of interest income and incentive fees on Foreign currency convertible bonds (FCCBs) was determined at ₹ 26,72,01,300/- 3. The assessee assailed the draft order of assessment, dated 25.03.2015 before the Dispute Resolution Panel-III, Mumbai (for short' DRP'). The DRP vide its order dated 09.12.2015 issued directions under Sec. 144C(5) of the Act. The A.O in compliance to the directions of the DRP passed the impugned order dated 28.12.2015 under Sec. 144C(13) r.w. Sec. 143(3) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echanism of FCCBs, restored the matter to the file of the A.O for making necessary verification as regards the entitlement of the assessee towards grant of credit for taxes deducted at source on interest received on FCCBs. It was submitted by the ld. A.R that on similar lines the matter may be restored to the file of the A.O to make necessary verifications as regards the claim of the assessee for grant of credit for taxes deducted at source on interest received on FCCBs. Per contra, the ld. Departmental Representative (for short 'D.R') did not object to the aforesaid contention of the ld. A.R. 5. We have heard the rival contentions of both the parties and perused the orders of the lower authorities and the material available on record. We find that the assessee company had during the year under consideration received interest of ₹ 5,32,63,492/- (USD 11,91,577) on FCCBs from the following parties:- Sr. No. Name of the issuing company Amount (in USD) Amount (in INR) 1. Sayaji Hotels Limited 37,500 16,76,250 2. Kamat Hotels (India) Limited 6,32,971 2,82,93,804 3. Dolphin Offshore Enterprises (India) Ltd. 4,468 1,99,719 4. Videocon Industries Limited (4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther submitted by the ld. A.R that the A.O had also erred in bringing to tax the interest income from FCCBs @ 40% (plus applicable surcharge and cess) as against the rate of 10% contemplated in Sec. 115AC of the Act. It was submitted by the ld. A.R that against the interest on FCCB's the issuing corporate had already withheld tax at the rate of 10%. It was submitted by the ld. A.R that necessary directions may be issued to the A.O to tax the aforementioned respective incomes as per the correct rates contemplated in the India-Cyprus tax treaty and the aforementioned statutory provision in the Act. Per contra, the ld. Departmental Representative (for short 'D.R') relied on the orders passed by the A.O. 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record in context of the issues under consideration. The assessee, as emerges from the records, had received interest amounting to ₹ 156,982,378/- on fully convertible debentures issued by Clear Capital Partners India Private Limited, a company incorporated under the Indian Companies Act, 1956. We find that as per Article 11 of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be in agreement with the contention advanced by the ld. A.R that in the backdrop of the India-Cyprus tax treaty, the provisions of the Act shall apply to the assessee who is a resident of Cyprus, to the extent they are more beneficial to it. Since the provisions of the India-Cyprus tax treaty are more favorable to the assessee, therefore, the consultancy fees received by the assessee are liable to be taxed at the rate of 10%. We thus are of the considered view that in terms of our aforesaid observations the consultancy receipts of the assessee, being in the nature of FTS would thus justifiably be brought to tax as per Article 12 of the India-Cyprus tax treaty at the rate of 10% of the gross amount of the consultancy receipts. We thus direct the A.O to subject the fee from consultancy services received by the assessee at the rate of 10% as provided in Article 12 of the India-Cyprus tax treaty. 8. We are further persuaded to be in agreement with the contention of the ld. A.R that the interest income from FCCBs held by the assessee are subject to deduction of tax at source @ 10% as per Sec. 115AC(1)(a) of the Income Tax Act, 1961. We thus in terms of our aforesaid observations dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the case and in law, the Ld. DRP is r ight in directing the A.O to exclude the incentive fee of ₹ 1,04,28,063 / -received f r om FCCBs pertaining to Suzlon, an Indian Company:- 3. Whether on the facts and in the circumstances of the case and in law, the ld. DRP is r ight in holding that the interes t and incentive fee on the FCCBs do not accrue or arise in India 4. Whether on the facts and in the circumstances of the case and in law, the ld. DRP is right in holding that the interest income on FCCBs fal ls wi thin the exclusion clause of section 9(1) (v) (b) of the Income-tax Act, 1961. 5. Whether on the facts and in the circumstances of the case and in law, the ld. DRP is right in holding that the incentive fee on FCCBs accrues or arises from source outside India in view of the provisions of section 9(1)(1) of the Income-tax Act, 1961. 6. The Appel lant prays that the order of the ld. DRP on the above grounds be set aside and that of the Assessing Officer restored. 7. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 12. Briefly stated, the issue involved in the appeal of the revenue lies in a narrow co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia for the purpose of business of assessee company in terms of provisions of section 9(1)(v)(b). (iv). Suzlon is into business of Wind Power Generation, and use of FCCB amount for repayment of loan and that too which was used to acquire a company, cannot be said to be used for the purpose of earning any income from a source outside India in terms of provisions of section 9(1)(v)(b)." 13. The assessee objecting to the draft assessment order carried the matter before the Dispute Resolution Panel-1, Mumbai (for short 'DRP'). The DRP after deliberating on the contentions of the assessee observed that an identical issue as regards chargeability of income in respect of the same FCCB of Suzlon Energy Limited had came up for consideration before the DRP in the immediately preceding year, viz. A.Y 2010-11, wherein it was observed as under:- "We have considered facts of the case, the written submissions and the oral arguments of the assessee as against the observations/findings of the AO in his draft order. It is noticed that the assessee has received interest income in respect of investment made in FCCBs issued by certain Indian corporate which inter alia included interest of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to Suzlon Energy Limited after making necessary verifications. 13. We have heard the rival contentions of both the parties, perused the orders of the lower authorities and the material available on record in context of the issue under consideration. We find that an identical issue in respect of chargeability of interest income received on FCCB's issued by Suzlon Energy Limited had been adjudicated upon by the DRP in the assessee's own case for A.Y. 2010-11. However, the order of the DRP was not further carried assailed by the revenue before the Tribunal, because no such right to appeal was vested with the revenue as per the law available on the statute at the relevant point of time. We however find that it is an admitted fact that the entire proceeds of the funds which were borrowed by way of issuing of FCCB's were utilized by Suzlon Energy Limited in repayment of acquisition facility being a credit agreement between ABN Amro Bank NV and Suzlon Energy Limited in order to assist with the financing of REpower offer. We further find that the contention of the assessee that the money borrowed by Suzlon Energy Limited was used by it for the purpose of making or earning of income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after making necessary verifications. 14. We further find that the DRP had concluded that the incentive fees of ₹ 1,04,28,063/- received by the assessee for revision in conversion price of the FCCB's of Suzlon Energy Limited was not liable to be brought to tax in India. The DRP while concluding as hereinabove, had observed that as the FCCB's were issued outside India and the monies were raised and utilized by Suzlon Energy Limited outside India, therefore, the income emanating from the source outside India cannot be deemed to accrue or arise in India in view of the provisions of Sec. 9(1)(i) of the Act. We have given a thoughtful consideration to the observations of the DRP and are persuaded to subscribe to the same. We find ourselves to be in agreement with the view taken by the DRP that as the monies were raised by Suzlon Energy Limited outside India, therefore, as per Sec. 9(1)(i) of the Act, the income emanating on the FCCB's from the sources outside India is not to be deemed to accrue or arise in India. We thus finding no infirmity in the order of the DRP, therefore, uphold its order in context of the issue under consideration. The Grounds of appeal Nos. 1 to 7 raised ..... X X X X Extracts X X X X X X X X Extracts X X X X
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