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TMI Blog2021 (4) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) and restore the matter back to the file of the Assessing Officer to decide the issue of beneficial ownership of interest afresh in the light of financial statement of the assessee and documents. The Assessing Officer may examine all the tests laid down in the decision in case of Golden Bella Holdings Ltd. (supra). Ground of the assessee is accordingly allowed for statistical purposes. - ITA No.7717/Del./2019 - - - Dated:- 2-3-2021 - Shri O.P. Kant, Accountant Member And Shri K.N. Chary, Judicial Member For the Appellant : Shri Ajit Jain, CA Shri Siddhesh Chaugule, Adv. For the Respondent : Shri Umesh Takyar, Sr.DR ORDER PER O.P. KANT, AM: This appeal by the assessee is directed against order dated 05/07/2019 passed by the learned CIT(Appeals)-42, New Delhi [in short the Ld. CIT(A) ] for assessment year 2016-17 raising following grounds: 1 That on the facts and in the circumstances of the case and in law, the order passed by the Id. CIT(A) dismissing the appeal filed under section 246A(l)(a) of the Act is wrong and bad in law and should be quashed. 2 That on the facts and in the circumstances of the case and in law, learned CIT(A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The assessee is a company registered under the laws of Cyprus and is tax resident of Cyprus. The main activity of the assessee has been claimed as providing financial services. The assessee subscribed to 11% Compulsorily Convertible Debentures (CCDs) issued by an Indian company, namely, M/s Eden Private Limited during the period from 2007 to 2009. During the year under consideration, the assessee earned interest of ₹ 3,27,36,055/- on those CCDs and in the return of income filed on 26/07/2016, the assessee offered the same at the tax rate of 10% under Article 11 of India Cyprus Double Tax Avoidance Agreement (DTAA). This benefit of lower rate of tax of 10% is available if an assessee is beneficial owner of the interest. During assessment proceeding, the Assessing Officer asked the assessee to demonstrate the beneficial owner-ship of the interest and documentary evidence in support of possession, use, risk and control of interest demonstrating beneficial ownership of interest. After considering the documents/information filed by the assessee, the Assessing Officer held that the beneficial ownership of the interest lies with the holding company of the assessee, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant company was a conduit company. It is noteworthy that the fact of maintaining back office in Gibraltar and filing of company from IP address at Gibraltar are quite critical findings to hold the appellant as Conduct Company. 4.2 The issue in dispute involved in the instant case is whether the assessee is entitled to the beneficial provisions of Article 11(2) of the India Cyprus Double Tax Avoidance Agreement (DTAA), which provides, lower tax rate of 10% on interest income arising in India. For ready reference, said Article is reproduced as under: Cyprus Double Taxation Avoidance Agreement Article 11 INTEREST 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest. 3. Notwithstanding the provisions of paragraph 2: a. interest arising in a Contracting State shall be exempt from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement. 4.3 Thus, for requirement of eligibility of lower tax rate of 10%, the recipient should be beneficial owner of the interest. The Tribunal in the case of Golden Bella Holdings Ltd Vs. DCIT (International taxation) in ITA No. 6958/Mum/2017 for assessment year 2013-14 in identical circumstances has allowed the benefit of lower rate of tax of 10%. The relevant part of the order of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... @ 10%. 4.4 Thus, for holding that the assessee is not the beneficial ownership of the interest, the Learned Assessing Officer was required to establish that the assessee has failed in the tests as laid down in the decision of the Tribunal above. 4.5 Before us, the learned Counsel of the assessee referred to the financial statements including balance-sheet and profit and loss account for the year under consideration available on page 55 onwards of the paper-book. On page 61 of the paper-book, details of assets and liabilities at the year and have been mentioned. The assessee has shown investment in subsidiaries of US dollar 22,133,635 on 31/03/2016. Details of the investment in subsidiaries have been mentioned in note-8 to the balance-sheet, which is reproduced as under: INVESTMENTS IN SUBSIDIARIES 2016 US$ 2015 US$ Balance at 1 April 22,133,635 22,133,635 Balance at 31 Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D 2230 and reserve and surplus USD 3,516,512. The assessee has shown borrowings of USD 16,052,011/-, details of which available on page 72 of the paper-book are reproduced as under: 12. LOANS AND BORROWINGS 2016 US$ 2016 US$ Balance at 1st April 15,793,053 15,575,152 Interest charged 258,958 217,901 Balance on 31st March 16,052,011 15,793,053 31/03/2016 US$ 31/03/2015 US$ Non-current liabilities - 9,840,000 Loan from parent company {note 15(v)} - 9,840,000 Current Liabilties 16,052,011 5,953,053 Other Loans 16,052,011 5,953,053 Total 16,052,011 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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