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TMI Blog2023 (2) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... ee 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. As in view of Article 11(1) we hold that, only the interest which has actually been received can only be subject matter of taxation and no TP adjustment can be made on some hypothetical receivable amount which was contingent upon certain event which has actually not been taken place during the year. Thus, the order of the Direction of the DRP is upheld and the grounds raised by the revenue are dismissed. Since, the matter stands adjudicated by various orders of the Tribunal and Hon ble Courts that the word paid cannot be extended to payable in respect of interest under Article 11 of Indo-Cyprus treaty, we hereby allow the appeal of the assessee - Decided in favour of assessee. - I.T.A. No. 8076/DEL/2019 - - - Dated:- 30-11-2022 - DR. B. R. R. KUMAR, ACCOUNTANT MEMBER AND SH. YOGESH KUMAR US, JUDICIAL MEMBER For the Appellant : Shri Somil Aggarwal, Adv. Dr. Rakesh Gupta, Adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making the adjustment in contravention of circular 14/2001 issued by the CBDT and have failed to take into cognizance that charging of interest by the appellant would lead to an overall reduction of tax base in India. 6. 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 computing the arm s length price of the international transaction of the appellant by applying the internal comparable uncontrolled price method. 7. 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 treating the investment made by the appellant in the debenture as non-performing assets and has accordingly erred in recognizing income on such non-performing assets. 8. 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 charging the interest u/s 234A, 234B, 234C and 234D of the Income Tax Act, 1961. 3. Brief facts of the case are that, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The assessment order came to be passed on 18/04/2016 u/s 143(3) r.w.s 144C(3) of the Act in continuation with the order passed by the TPO. Aggrieved by the assessment order dated 18/04/2016, the assessee has preferred an appeal before the CIT(A). The Ld.CIT(A) vide order dated 31/07/2019 has confirmed the action of the A.O. in making adjustment of Rs.26,58,12,530/- on account of notional interest. 6. Aggrieved by the order dated 31/07/2019 the assessee has preferred the present appeal. 7. The Ld. Counsel for the assessee has contended that the issues involved in the present appeal has been decided in favour of the assessee for the Assessment Year 2009-10 in ITA No. 3303/Del/2016 vide order dated 02/09/2021, since there is no change of circumstances, the Ld. Counsel for the assessee submitted that the present appeal deserves to be allowed by following the order made in assessee s own case. 8. Per contra, the Ld. DR has not disputed the above fact and could not bring any contrary judicial pronouncements and further relied on the order of the Ld.CIT(A). 9. We have heard the parties, perused the material on record and gave our thoughtful consideration. The simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply. 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the assessee that as per Article 11(1) and (2) of Indo- Cyprus DTAA, interest income is chargeable to tax on paid basis when there are no such findings in any decision cited by the assessee before the Hon'ble DRP. 15. While adjudicating the core issue, it was held as under: India Cyprus DTAA Ar ticle 11(1) of India-Cyprus DTAA: Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 20. The aforesaid para envisages that for taxing the interest income in the hands of a non-resident, it is necessary that the interest should arise in a contracting state, i.e. , twin conditions of accrual as well as the payment are to be satisfied. If there is no accrual or actual payment received then same is to be decided within the scope of Article 11(1) . What the TPO/AO have sought to tax is that, assessee was supposed to receive interest of 18%, if the contingent event would have arisen, i.e. , if in the event, the option was exercised by the assessee to sell its converted shares to the promoters of investee company at an option price then it would have given the return of 18%. Thus, ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant observation has already been incorporated above. The Hon'ble Bombay High Court has confirmed the said finding. Similar view has been taken by the ITAT Chennai Bench in the case of DCIT vs. InziControl India Limited (supra) . Thus, in view of Article 11(1) we hold that, only the interest which has actually been received can only be subject matter of taxation and no TP adjustment can be made on some hypothetical receivable amount which was contingent upon certain event which has actually not been taken place during the year. Thus, the order of the Direction of the DRP is upheld and the grounds raised by the revenue are dismissed. 16. Since, the matter stands adjudicated by various orders of the Tribunal and Hon ble Courts that the word paid cannot be extended to payable in respect of interest under Article 11 of Indo-Cyprus treaty, we hereby al low the appeal of the assessee. 10. By respectfully following the order of the Co-ordinate Bench in assessee s own case for Assessment Year 2009-10 (supra), we are of the opinion that the appeal of the assessee deserves to be allowed in terms of the order made in ITA No. 3303/Del/2017. 11. In view of the above ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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