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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 ..... rrowers (i) That on the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the addition of Rs. 114,43,54,024/- proposed by the learned AO towards interest received by the Appellant's Head Office/overseas branches on ECBs extended to the Indian borrowers. (ii) The Hon'ble DRP and Ld. AO have erred in not appreciating that in accordance with the provisions of Article 7 of the India - Japan Double Taxation Avoidance Agreement ('DTAA'), an amount commensurate to the role played by the Permanent Establishment ('PE') of the Appellant in India has already been offered to tax by the Appellant and therefore, nothing further could be brought to tax in India. (iii) The Hon'ble DRP and Ld. AO have erred in observing that the interest would continue to be taxable under Article 11 of the DTAA, even though it has been acknowledgement by the AO himself that the ECBs may be partially connected with the PE of the Appellant in India. Such an observation is contrary to the express provisions of Article 11 of the DTAA, which clearly provides that in the express provisions of Article 11 of the DTAA, which clearly provides that in the event debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 139(1) of the Income Tax Act, 1961 (hereinafter referred to as the 'the Act') declaring therein total income of Rs. 95,6,62,163/- after the set - off of brought forward losses of assessment year 2000-01 amounting to Rs. 34,49,96,933/-. Later on, the case was selected for scrutiny. The AO passed the draft assessment order dated 27th December, 2011 wherein certain additions / disallowances were proposed. Aggrieved by the assessment order, the assessee filed objections before the learned DRP who rejected the objections and confirmed the draft assessment order passed by the AO. In pursuant to the directions issued by the learned DRP, the AO passed the final assessment order on 27.12.2011 at an income of Rs. 36,39,97,239/-. Against the said order, the assessee preferred an appeal in ITA No. 5104/Del/2012 before the ITAT challenging the additions / disallowances made by the AO and the ITAT vide its order dated 19th September, 2014 set aside the order on certain issues to the file of the AO for fresh adjudication. Thereafter in compliance to the directions given in the aforesaid order, the AO conducted the remand proceedings and passed the draft assessment order 21st December, 2015 under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the terms and conditions of the approval. The agreement and security documentations are entered between overseas branches and the borrowers. Indian branches receive syndication fees from its head office / other overseas branches for the services rendered by it in relation to ECB. 22. The case of authorities below is that interest income accrues and arises as under : (i) Interest income accrues and arises in India under section 9(1)(v) of the Act. Since the ECB do not form part of the asset base of the PE in India and is not effectively connected with the PE, ECB interest is chargeable to tax under Article 11 of the Treaty between India and Japan (para 9.2 and 9.3 at page nos. 207-208 of appeal set). (ii) No tax credit, however is allowable to the assessee, since, any new claim can be made by the assessee only through a revised return of income (para 9.7 at page 210 of appeal set) (iii) Since interest is payable on a net of tax basis i.e. tax has been borne by the borrowers, the ECB interest is grossed up for arriving at the income to be included in the computation of total income of the assessee (para 9.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n arranging the ECBs. (v) Without prejudice to the claim of non-taxability of ECB interest income, the AO has erred in not allowing the credit for tax deducted at source on ECB interest. Sample copies of TDS certificates were also furnished to the AO. Further, that the taxes have been deducted is an admitted position since the AO has himself grossed up the entire amount of ECB interest by the amount of tax borne by the borrowers. Once this is so, in view of section 205 of the Act, the necessary credit has to be given to the assessee. (vi) Tax at source has been deducted as evident from the sample copies of TDS certificates furnished before the AO and the AO has also admitted the same by grossing up the ECB interest by the amount of tax borne by the borrowers, therefore, no interest under section 234B of the Act can be levied for the tax demand on account of ECB interest. (vii) Even on merits, interest under section 234B of the Act is not applicable since ECB interest received by the assessee from the borrowers is subject to tax deduction at source under section 195 of the Act. Reliance is placed on the judgment of the Delhi High Court in the case of GE Pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been deducted. We are thus of the view that no interest under section 234B of the Act can be levied for the tax demand on account of ECB interest and interest under section 234B is also not chargeable since ECB interest received by the assessee from the borrowers was subject to tax deduction at source under section 195 of the Act. The Assessing Officer is thus directed to delete the addition made on account of interest received from ECB given to Indian borrowers. The ground No. 7 is accordingly allowed." So respectfully following the aforesaid referred to order dated 26.4.2017 of the ITAT [I-1] Bench in assessee's own case, this issue is decided against the assessee and in favour of the department. 7. As regards to the ground no. 3 relating to deduction under section 44 C of the Act, it was common contention of both the parties that this issue becomes academic if ground no. 2 is allowed in favour of the department. We order accordingly. 8. Vide ground no. 4, the grievance of the assessee relates to the excess levy of the tax under section 234D. The facts related to this issue, in brief, are that the AO levied the interest under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that in the present case as well since the regular assessment u/s 143(3) of the Act for the year under consideration was made on 29th August, 2012 interest under section 234D should have been levied up to the said date and not the 28th July, 2016 i.e. the date of the passing of the remand back order. In his rival submissions, the learned CIT DR supported the order of the AO. 11. We have considered the submissions of both the parties and carefully gone through the material available on the record. To resolve the present controversy, it is relevant to discuss the provisions contained in Section 234D of the Act, which read as under:- "234D. (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143, and- (a) No refund is due on regular assessment; or (b) The amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of [one half] per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment passed under section 143 or 144. If any consequential order has to be passed by the Income tax Officer to give effect to an order passed by the higher authority, that consequential order cannot be treated as "regular assessment" nor can the date of the consequential order be treated as the date of regular assessment." 13. 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 in pursuant to the order of the higher authority i.e. the ITAT, in this case. 14. As rega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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