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TMI Blog2020 (9) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Agreement applies and any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State . What essentially follows is that unless the context otherwise requires, the definition of the undefined treaty term, under the domestic law of the source country i.e. India- and preferably under the domestic tax laws, is to be adopted. It is in this context, Section 43(2) of the Income Tax Act, 1961 may perhaps be relevant because it provides that paid means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head Profits and gains of business or profession (Emphasis, by underlining, supplied by us). While it is indeed true that this meaning cannot be imported in the tax treaty mechanically, without any application of mind and as a sort of automated process, undoubtedly a call is to be taken by the bench as to whether or not this domestic law meaning of the expression paid will be relevant. There cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances of the case and in law, the Hon ble DRP, the learned Assessing Officer and the learned Transfer Pricing Officer have: 2. Erred in making transfer pricing adjustment of ₹ 2,62,69,721 as notional interest and charging it to tax, disregarding the provisions of Article 11 of India Cyprus DTAA 2.1 Erred in imputing and charging notional interest of ₹ 2,62,69,721 by applying transfer pricing provisions (under chapter X of the Act) to tax in India disregarding the provisions of Article 11 of India-Cyprus DTAA, which provides for taxability of interest only on paid basis; 2.2 Ought to have considered the fact that assessee is a resident of Cyprus and liable to be taxed on interest income as per Article 11 of Indo Cyprus DTAA, which states that interest is chargeable to tax only when it is arising and paid to non-resident. 2. The additional ground of appeal for the assessment year 2011-12 is exactly the same but the amount of interest adjustment involved, impugned in this appeal, is ₹ 55,08,678. 3. On a perusal of petitions seeking admission of additional grounds, and having heard the rival contentions on the same, these additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g so. 6. In response to a question from the bench whether the expression paid is defined under the treaty, and, if not, why should the meanings of expression paid , as assigned under section 43(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) be considered under article 3(2) of Indo Cyprus tax treaty, learned counsel submitted that there are direct decisions of the coordinate benches on the issues which hold that taxability of interest under Indo Cyprus tax treaty could only be done on cash basis. When he was asked whether these decisions have dealt with the implications of article 3(2), read with definition under section 43(2), and whether, in the absence of such an analysis- which is relevant in the present context, these decisions could be treated as per incuriam, learned counsel submitted that answering this question will need reference to a lot of papers. He then withdrew his consent for the virtual court and prayed that the matter be adjourned for hearing before a physical court. 7. While we refrain from making any observations on the manner in which, and stage at which, the consent for virtual hearing was withdrawn, we see merits in this matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in the books of the Indian company does amount to its receipt by the assessee and is accordingly taxable and that it is immaterial when did it actually receive it in UK , will have any bearing on the connotations of expressions paid appearing in the Indo Cyprus tax treaty. As a corollary to these discussions, connotations of the expression paid appearing in article 11 of Indo Cyprus tax treaty are required to be examined in some detail, and that exercise can at best be conducted by a bench of three or more members so that the decision is unfettered by the decisions of the division benches in this regard. The issue raised in these appeals needs to be decided in a holistic manner, unfettered by the decisions of the division benches, examining all the relevant facets, including the facets which are germane in the present context have remained to be examined by the coordinate benches. 8. Having said that we may add that we are alive to the fact that there is a decision of Hon ble jurisdictional High Court, in the case of Director of Income Tax Vs Siemens AG which does observe as follows: As regards first question is concerned, the Income Tax Appellate Tribunal r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term) has at that time under the law of that State (i.e. under the Indian law) . It is also worth examining whether, in this context, the scope of Indian law will include not only the law legislated by the Parliament but also the law laid down by Hon ble Courts above. A view is thus indeed worth exploring as to whether the meaning assigned to the expression received by an assessee , which essentially corresponds to and has to treated as equivalent to paid to the payee , by Hon ble Supreme Court is to be assigned to the treaty of the undefined treaty expression paid . Obviously, this exercise was not done by the coordinate bench, nor this aspect of the matter was pointed out by the learned counsel appearing before Their Lordships, and thus Their Lordships had no occasion to examine this aspect of the matter either. To this extent, the impact of judgment of Hon ble Supreme Court s judgment in the case of Standard Triumph Motor (supra) remained unexamined. That aspect of the matter is thus, de hors the judgment of Hon ble jurisdictional High Court, does seem to be in an unchartered territory on which call may indeed be taken by the Tribunal. 10. As we part with this note reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... world, should put their faith in dicta. A brief experience on the bench was enough to reveal to me all sorts of cracks and crevices and loopholes in my own opinions when picked up a few months after delivery, and reread with due contrition. The persuasion that one's own infallibility is a myth leads by easy stages and with somewhat greater satisfaction to a refusal to ascribe infallibility to others. That is equally, and perhaps much more, true for many of us too. As Hon ble Supreme Court has said, in the case of Distributors (Baroda) (P.) Ltd. v. Union of India [(1985) 155 ITR 120 1 (SC)], To perpetuate an error is no heroism. To rectify it is the compulsion of the judicial conscience. In this, we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pierce v. Delameter (A.M.Y. at page 18) : a judge ought to be wise enough to know that he is fallible and, therefore, ever ready to learn : great and honest enough to discard all mere pride of opinion and follow truth wherever it may lead : and courageous enough to acknowledge his errors . There is, thus, no heroism in perpetuating an error in approach to a judicial exercise. The conclusions, even ..... 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