Interest on FCCBs not taxable in India under Section 9(1)(v)(b). No TDS required under Section 196C.

The Tribunal upheld the CIT(A)'s decision that interest paid on FCCBs did not accrue or arise in India, falling under exceptions in Section 9(1)(v)(b). The assessee was not required to deduct tax at source under Section 196C r.w.s. 115AC. The appeal by the Assessing Officer was dismissed, with the Tribunal citing the Adani Enterprise Ltd case as precedent. The assessee's cross-objection was deemed infructuous.

---

---

Issues Involved:
1. Liability to deduct tax at source under Section 196C r.w.s. 115AC on interest payable on FCCBs.
2. Applicability of Section 5(2) and Section 9(1)(v) to determine the situs of interest income for non-residents.
3. Determination of whether the interest paid on FCCBs falls under the exceptions of Section 9(1)(v)(b).
4. Contradiction in CIT(A)'s observation regarding Section 115AC being a code itself and then referring to another charging section.
5. Applicability of Section 201 for treating the assessee as in default for non-deduction of tax at source.

Detailed Analysis:

1. Liability to Deduct Tax at Source under Section 196C r.w.s. 115AC:
The appeal filed by the Assessing Officer (AO) challenges the CIT(A)'s decision that the assessee was not liable to deduct tax at source on the interest payable on Foreign Currency Convertible Bonds (FCCBs). The CIT(A) relied on the Tribunal's decision in the Adani Enterprise Ltd case, which held that interest payments to non-resident investors did not accrue or arise in India and thus no TDS was required. The AO argued that the interest was taxable in India under Section 5(2) and should have been subjected to withholding tax under Section 195.

2. Applicability of Section 5(2) and Section 9(1)(v):
The AO contended that the interest income accrued or arose in India under Section 5(2) and that the deeming provisions of Section 9(1) were not applicable. The CIT(A), however, held that both sections were relevant to determine the situs of interest income for non-residents. The Tribunal affirmed that interest paid on FCCBs is covered by exceptions to Section 9(1)(v)(b), thus it does not fall within the ambit of deemed income accruing in India.

3. Determination of Whether Interest Paid on FCCBs Falls under Exceptions of Section 9(1)(v)(b):
The CIT(A) concluded that the interest paid on FCCBs was covered by the exception to Section 9(1)(v)(b), meaning it did not accrue or arise in India. The AO's argument that the interest income was taxable under Section 5(2) was rejected, as the Tribunal in the Adani case had established that such interest payments are excluded from the deeming provisions of Section 9(1)(v)(b).

4. Contradiction in CIT(A)'s Observation Regarding Section 115AC:
The AO argued that the CIT(A) contradicted his own observation by stating that Section 115AC is a code in itself and then referring to another charging section to decide the taxability of interest income. The Tribunal found that the CIT(A) correctly followed the precedent set by the Tribunal in the Adani case and did not find any contradiction in his approach.

5. Applicability of Section 201 for Treating the Assessee as in Default:
The AO treated the assessee as in default under Section 201 for failing to deduct tax at source. However, the CIT(A) and the Tribunal held that since the interest income did not accrue or arise in India, the assessee was not liable to deduct tax at source, and thus, could not be treated as in default under Section 201.

Conclusion:
The Tribunal upheld the CIT(A)'s order, affirming that the interest paid on FCCBs did not accrue or arise in India and was covered by the exceptions under Section 9(1)(v)(b). Consequently, the assessee was not liable to deduct tax at source under Section 196C r.w.s. 115AC, and the appeal by the AO was dismissed. The Tribunal's decision was based on the precedent set by the Adani Enterprise Ltd case, which had similar facts and legal issues. The appeal was dismissed, and the assessee's cross-objection was rendered infructuous.

---