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TMI Blog2021 (9) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,970/- as income in the hands of assessee company on account of deemed interest income and that too by recording incorrect facts and findings and without observing the principles of natural justice. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making an adjustment of ₹ 4,02,72,970/- as income in the hands of assessee company on account of deemed interest income is bad in law and against the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in rejecting the analysis followed by the appellant and in determining the price of the impugned transaction on the basis of TPO's order. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not giving due cognizance to the fact that the appellant had to undertake stewardship activities by financial supporting their group companies and reducing their financial burden. 5. That having regard to the facts and circumstances of the case, Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. B. Perigee Reality Ventures Pvt. Ltd. C. Symmetree Realty Ventures Pvt. Ltd. D. Energy Realty Ventures Pvt. Ltd. 4. The debentures were converted into 0% FCDs w.e.f. 01.01.2009. Further, on 23rd December 2009, in addition to the conversion of 15% FCDs into 0% FCDs, the assessee has subscribed to 0% FCDs of face value of ₹ 100/- each issued by the above AEs. 5. The TPO held that 15% of the FCDs have been converted into 0% FCDs without assigning any reason, therefore by applying internal CUP as MAM. The TPO charged the interest on FCDs as the same rate of 15% as was being charged prior to 01.01.2009. It has further been submitted that the income generated during the subject year was only interest income on FCDs which was offered to tax at the treaty rate of 10%. 6. Thus, the TPO made adjustments on the interest earned from various investee entities of ₹ 4,02,72,970/- which is as under: Name of the AE No. Of FCD(15%FCD) Face Value of FCD Interest(A) Fresh0%FCD Face Value of FCD Interest(B) Total Interest Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sident 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 beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 percent of the gross amount of the interest. 3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State, provided that it is derived and beneficially owned by: (a) the Government, a political sub-division or a local authority of the other Contracting State; or (b) in the case of India, the Reserve Bank of India, the Export-Import bank of India, the National Housing bank; and (c) any other institution as may be agreed upon from time to time between the Competent authorities of the Contracting States through exchange of letters. 4. The term interest as used in this Article means income from debt claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and in particular, income fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the ground that interest income was liable to be assessed on accrual basis? . 12. The Hon'ble Bombay High Court dismissed the appeal filed by the revenue department and held that followed its earlier decision in DDIT v. Siemens Aktiengesellschaft (2009) taxmann.com 1019 to hold that taxability in a case where the article is worded in the aforesaid manner, taxability can only be fastened on receipt of payment. Relevant Paragraph has been reproduced: 8. Thus, while interpreting similar clause of Indo-German DTAA in relation to taxing royalty or fees for technical services, this Court had confirmed the decision of tribunal holding that such service can be taxed only on receipt. This decision was later on followed in Income Tax Appeal No. 1033/11 dated 20/11/2012 and thereafter in Income Tax Appeal No. 2356/11 and connected Appeals vide the order dated 07/03/2013. 9. On the same principle, the Appeal is dismissed. 13. We have also gone through the order of the Co-ordinate Bench of ITAT in the case of DCIT Vs. TMW ASPF i Cyprus Holding Company Ltd. in ITA No. 879/Del/2016 dated 09.08.2019. 14. In the appeal filed by the revenue against the order of the ld. DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g provisions. Here in this case, nowhere the TPO/AO has been able to establish that notional interest satisfy the test of income arising or received under the charging provision of Income Tax Act. If income is not taxable in terms of section 4, then chapter X cannot be made applicable, because section 92 provides for computing the income arising from international transactions with regard to the ALP. Only the interest income chargeable to tax can be subject matter of transfer pricing in India. Making any transfer pricing adjustment on interest which has neither been received nor accrued to the assessee cannot be held to be chargeable in terms of the Income Tax Act read with Article 11(1) of DTAA. Here it cannot be the case of accrual of interest also, because none of the investee companies have acknowledge that any interest payment is due, albeit they have been requesting for waiving of interest of even coupon rate of 4%, leave alone the return of 18% which was dependent upon some future contingencies. Assessee despite all its efforts has acceded to such request. Further, in the India Cyprus DTAA wherein similar phrase has been used pertaining to FTS and Royalty in India Cyprus DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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