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TMI Blog2024 (5) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... taxability at a concessional rate as provided under Article 11(2) of India-Cyprus Treaty. Hence, the action of the AO in taxing the interest income @ 40% as per domestic law by denying the treaty benefit is not upheld and same is hereby reversed. We hold that the interest income on CCDs would be taxed @10% as per Article 11 of the India Cyprus DTAA Treaty. Accordingly, grounds raised by the assessee are allowed. - Shri Saktijit Dey, Vice President And Shri M. Balaganesh, Accountant Member For the Assessee : Shri J. Srivastav, Adv, Shri Karav Malhotra, Adv For the Revenue : Shri Manish Kumar Davas, Sr. DR ORDER PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.1513/Del/2022 for AY 2017-18, arises out of the order of the Commissioner of Income Tax (Appeals)-43, New Delhi [hereinafter referred to as ld. CIT(A) , in short] in Appeal No. 10407/2019-20 dated 28.03.2022 against the order of assessment passed u/s 144C(3) r.w.s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) dated 28.12.2019 by the Assessing Officer, ACIT, Circle-2(2)(1), International Taxation, New Delhi (hereinafter referred to as ld. AO ). 2. At the outset, there is a delay in filing of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to pass on the same to any other person. 1.4 That on the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the Appellant is not the beneficial owner of the interest income merely on the ground that it is a 100% subsidiary of a Mauritian entity. 1.5 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the shareholders and company are distinct and separate legal entities and that the legal personality of a company is separate and independent from the identity of its shareholders. 2. That on the facts and in circumstances of the case and in law, the Ld. CIT(A) has failed to appreciate that the A.O. was not consistent in his approach that was followed in concluding the assessment of AY 2014- 15, wherein no addition was made to the returned income of the Appellant and that his action was liable to be set aside on that account. 3. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in denying the Treaty benefit and levying tax at the rate of 40 percent under the domestic law, as against the applicable tax rate of 10 percent mentioned in Article 11 of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantially independent of changes in market interest rates as the Company has no significant interest-bearing assets. The Company is exposed to interest rate risk in relation to its non-current financial assets. Financial assets issued at variable rates expose the Company to cash flow interest rate risk. Financial assets issued at fixed rates expose the Company to fair value interest rate risk. The Company's management monitors the interest rate fluctuations on a continuous basis and acts accordingly. At the reporting date the interest rate profile of interest-bearing financial instruments was: 2017 US$ 2016 US$ US$ Fixed rate instruments Financial assets 5,490,557 27,400,545 5,490,557 27,400,545 5. It is pertinent to note that investment agreement dated 10.01.2012 was entered into pursuant to a Director s meeting held at the assessee s registered office on 09.01.2012, which is evident from the minutes of the meeting held on 09.01.2012 which is enclosed in page 94 of the factual paper book. M/s. IL FS India Realty Fund II LLC, being the sole shareholder of the assessee company, was entitled to the interim dividend declared by the assessee. This interim dividend was remitted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a conduit for channelizing the interest funds. We find that the assessee shares office space with Amicorp (Cyprus) Ltd, the local administrator of the assessee. The assessee reimburses the local administrator for use of its office space which is evident from its bank statements. As stated earlier, the assessee, being an investment company, does not require any personnel other than directors in its payroll to carry out day to day operations. The Directors of the assessee company are well qualified and competent to run the company and take its business investment decisions. Furthermore, the assessee had availed services of Amicorp(Cyprus) Ltd, the professional administrator for general administration, such as book-keeping, company secretarial services, etc, and there was no need to have any employee on its own payroll. 9. It is not in dispute that assessee is a tax resident of Cyprus as per Article 4 of India-Cyprus Double Taxation Avoidance Agreement (DTAA). The assessee also furnished the tax residency certificate issued by Republic of Cyprus, Ministry of Finance clearly stating that its worldwide income is liable to income tax in accordance with income tax law and Republic of Cyp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue is not sustainable. 10. Yet, another objection raised by the ld AO is that there was no definite rationale for the assessee to make investment in India bulls on account of CCDs that the assessee does not have any independent office/ qualified employees to carry out any business or investment activity in Cyprus ; that the directors of the assessee who are professional and not having any expertise in the field of real estate investment and that it is not possible to run the affairs of the assessee company in this manner in Cyprus. All these allegations have already been answered by us and same are not repeated herein for the sake of brevity. 11. To conclude, we hold that the assessee is tax resident of Cyprus and has complete right to receive the interest income on CCDs and that there is no compulsion or contractual obligation to simultaneously pass on the same to another entity. The foreign currency risk as well as counter party risk in relation to the interest income was completely borne by the assessee herein. All these facts categorically go to prove that the assessee is indeed the beneficial owner of the interest income on CCDs from the Indian entity. When it is held to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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