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TMI Blog2018 (2) TMI 1927X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived from ECB given to Indian borrowers Excess levy of the tax under section 234D - AO levied the interest under section 234D of the Act on the amount of refund granted to the assessee in the intimation under section 143(1) of the Act from the date of intimation i.e. 7th October, 2009 to the date of assessment order i.e. 28th July, 2016 passed pursuant to the remand back proceedings i.e. for a period of 82 months. - HELD THAT:- In the present case, the AO considered the regular assessment which was passed by the AO on 28th July, 2016 pursuant to the remand back proceedings on the direction of the ITAT. However, in the present case the regular assessment was framed by the AO on 29th August, 2012 in pursuant to the direction issued by the learned DRP, therefore, the interest on the excess refund was to be charged up to the date of regular assessment i.e. 29th August, 2012 and not to the assessment made on 28th July, 2016 in pursuant to the appellate order passed by the ITAT. We, therefore, direct the AO to charge the interest under Section 234D, if any, up to the date of regular assessment i.e. 29.8.2012 and not up to the date of subsequent assessment order passed i.e. 28.07.2016 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent debt-claim is connected with the PE, the taxability of interest shifts from Article 11 to Article 7 of the DTAA completely, and not partially. (iv) The Ld. AO has erred in not granting credit for tax deducted at source ('TDS') by the Indian borrowers on ECB interest taxed in the hands of the Appellant, while determining the tax liability of the Appellant in the impugned assessment order. It is respectfully submitted that if complete TDS credit is granted to the Appellant in respect of ECB interest taxed for the subject assessments year, in accordance with the undertaking filed with the Hon'ble DRP, the Appellant shall not press the ground for non-taxability of ECB interest. 3. Deduction under section 44C of the Act Without prejudice to Ground 1 and 2 above, on the facts and circumstances of the case and in law, the Hon'ble DRP and the Ld. AO have erred in not considering the addition made towards ECB interest received from the Indian borrowers while determining the amount of deduction allowable under section 44C of the Act. 4. Excess levy of interest under section 234D of the Act That on the facts and circumstance of the case and in law, the Ld. AO has erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 144(C)(i) of the Act wherein addition of ₹ 114,43,54,024/- was proposed towards interest received by the head office / other overseas branches of the assessee on ECBs extended to the Indian borrowers. 4. Now, the assessee is in appeal. 5. During the course of hearing, the learned CIT DR, at the very outset, stated that this issues is squarely covered vide order dated 26.4.2017 for the assessment year 2011-12 in ITA No. 306/Del/2016 passed by the ITAT [I-1] Bench New Delhi in assessee's own case. Copy of the said order was furnished which is placed on record. The learned counsel for the assessee could not controvert the aforesaid contention of the learned CIT DR. 6. After considering the submissions of both the parties and the material on record, it is noticed that an identical issue having similar facts was a subject matter of the departmental appeal for the AY 201112 in ITA No. 306/Del/2016 wherein the issue has been decided in favour of the department and against the assessee, the relevant findings are given in para 20 to 26 of the said order dated 26.04.2017 which are reproduced verbatim as under:- "20. Ground No. 7: It is regarding addition on account of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit that due to lack of the details/information, the Tribunal in the order passed for AYs 2007-08 and 2008-09 had remanded back the issue of taxability of ECB interest to the file of the AO for denovo consideration. However, as noted by the DRP, since all the requisite details have been filed by the assessee for AY 2010-11 and the issue has been decided accordingly, it is submitted that the matter is not required to be restored back to the AO for AY 2010-11 and the same be decided by the Tribunal on merits. (ii) ECBs given to the Indian customers are effectively connected with the Indian PE of the assessee and an amount i.e. syndication fee, which is commensurate with the role played by the Indian PE and is attributable to the Indian PE has already been offered to tax, by the assessee, in the computation of its income taxable in India as per the provisions of Article 7 of the Indo-Japanese treaty; and therefore, in view of Article 11(6) read with Article 7 of Indo-Japanese treaty, nothing further can be brought to tax in India. (iii) During the year under consideration, the Indian PE/branches of the assessee received an amount of ₹ 14,58,92,297 as syndication fee from i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee is subject to tax deduction at source. 24. The ld. CIT [DR], on the other hand, contended that ECB interest has been earned by the HO/other overseas branches of the assessee from third party. Such ECB is not the debt claim of the Indian branches of the assessee and, therefore, ECB interest is not effectively connected with the Indian branches. If tax is borne by the borrowers, credit for TDS on ECB interest is not allowable to the assessee. If direction is issued for allowability of TDS credit, the same should be granted to the assessee subject to verification of the same from the deductors/borrowers. 25. The ld. AR rejoined with the submission that when the tax is born by the payer of the income, income is grossed up by the amount of tax born by the payer and such grossed up interest is taxed in the hands of the payee. Any taxes with-held by the payer is allowable as credit to the payee of income against the income taxed in the hands of the payee. He submitted that CBDT vide its Circular No. 785 dated 24.11.1999 has also clarified that where the payment is made of taxes i.e. tax is borne by the payer of the income, the payer is under obligation to issue TDS certifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of 82 months. 9. Now the assessee is in appeal. 10. The learned counsel for the assessee submitted that the assessee had claimed income tax refund amounting to ₹ 8,49,53,089/- in the return filed for the assessment year under consideration. It was further submitted that the return of income was processed under Section 143(1) of the Act wherein an amount of ₹ 9,30,13,120/- (including interest under section 244A of the Act amounting to ₹ 80,69,683/-) was determined as refundable to the assessee vide intimation dated 7th October, 2009 and the refund was subsequently adjusted against the tax demand for the AY 2007-08. It was further submitted that where no refund is due to the assessee on regular assessment, the assessee is liable to pay interest under section 234D of the Act on the amount refunded under section 143(1) of the Act from the date of grant of refund to the assessee till the date of regular assessment and in the present case, interest under section 234D could have been levied only from the date on which the refund was granted to the assessee till the date of regular assessment and since the refund determined for the assessment year under consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd granted under sub section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, the, the interest chargeable, if any, under sub-section (1) shall be reduced accordingly." 12. From the above provisions, it is clear that where the refund has been granted to the assessee under sub section 1 of section 143 and no refund is due on regular assessment or the amount of refund exceeded the amount refundable on regular assessment the assessee shall be liable to pay simple interest @ one and half per cent on the whole or the excess amount so refunded from every month or a part of a month comprised in the period from the date of grant of refund to the date of such regular assessment and subsequently if the amount of refund granted under sub section 1 of section 143 of the Act is held to be correctly allowed either in whole or in part as the case may be as a result of an order under section 154 or Section 155 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264 or Section 245D(4) of the Act then the interest chargeable, if any, under sub section 1 shall be reduced accordingly. Therefore, the interest on the ..... 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