2017 (4) TMI 455 - AT - Income Tax

Non-resident company wins appeal for TDS credits on FCCBs, debentures & services fees.

M/s. Clearwater Capital Partners (Cyprus) Ltd. C/o SRB and Associates LLP Versus Dy. Commissioner of Income Tax, (Internatioal Taxation) – 2 (1) (1)

The Tribunal allowed the non-resident company's appeal, directing the Assessing Officer to verify and grant appropriate TDS credits for interest earned on ... Non grant of credit of TDS on interest earned on FCCBs - Held that:- Both parties to this issue are in agreement that this issue of the assessee’s claim of grant of credit for taxes deducted at source on interest received on FCCBs requires to be restored to the file of the AO for verification thereof in accordance with law, with which proposition we too are in agreement. We, therefore, restore this issue to the file of the AO with the direction to verify the assessee’s claim in accordance with law and before granting credit for the impugned TDS to the assessee, fully satisfying himself that the amount of TDS has been deposited into the Government’s account; that the assessee is the lawful deductee, that the gross amount of interest has been considered as the assessee’s income and that no other person has or will claim credit of the very same taxes. We hold and direct accordingly. This ground is accordingly treated as allowed for statistical purposes. Non grant of TDS credit on interest earned on fully convertible debentures and fees for technical services - Held that:- Both parties are in agreement that this issue of the assessee’s claim for grant of TDS credit on interest earned on fully convertible debenture and fees for technical services requires to be restored to the file of the AO for verification thereof in accordance with law; with which suggestion we are also in agreement. We, therefore, restore this issue to the file of the AO with the direction to verify the assessee’s claim in accordance with law and before granting credit for the impugned TDS to the assessee, fully satisfy himself that the amount of TDS has been deposited into the Government’s account; that the assessee is the lawful deductee; that the gross amount of interest has been considered as the assessee’s income and that no other person has or will claim credit of the very same taxes. Interest earned in respect of investments made in FCCBs issued by Dolphin Offshore Enterprises (India) Ltd. - Held that:- The assessee’s contention is that the AO erred in considering and taxing the entire interest amount of ₹ 20,97,204/- received by the assessee’s group companies from Dolphin Offshore Enterprises (India) Ltd. As agreed to and suggested by both parties, we set aside this issue also to the file of the AO to consider only the actual amount of interest received by the assessee from Dolphin Offshore Enterprises (India) Ltd. in the hands of the assessee company and not the entire amount of interest paid to the group companies. Issues Involved:1. Non-grant of credit for taxes deducted at source (TDS) on interest earned on Foreign Currency Convertible Bonds (FCCBs).2. Non-grant of TDS credit on interest earned on fully convertible debentures and fees for technical services.3. Incorrect taxation of interest earned in respect of investments made in FCCBs issued by Dolphin Offshore Enterprises (India) Ltd.Detailed Analysis:1. Non-grant of Credit for TDS on Interest Earned on FCCBs:The assessee, a non-resident company, received interest income from investments in FCCBs issued by various Indian companies. The assessee claimed that taxes were deducted at source on this interest income but were not granted credit for the same by the Assessing Officer (AO). The assessee provided detailed evidence, including confirmation letters and TDS certificates, to substantiate the deduction of tax at source. The AO denied the credit, arguing that the TDS was not reflected in the assessee's Form 26AS, and the identity of the FCCB holder was not known to the Domestic Custodian Bank due to the issuance mechanism under the Scheme.The Tribunal restored this issue to the file of the AO, directing the AO to verify the assessee's claim in accordance with law. The AO was instructed to ensure that the TDS amount has been deposited into the Government’s account, the assessee is the lawful deductee, the gross amount of interest has been considered as the assessee’s income, and no other person has or will claim credit for the same taxes.2. Non-grant of TDS Credit on Interest Earned on Fully Convertible Debentures and Fees for Technical Services:The assessee also received interest on fully convertible debentures and fees for technical services, with taxes appropriately deducted at source. The assessee furnished TDS certificates and Form 26AS reflecting the deducted amounts. However, the AO did not grant credit for these TDS amounts.The Tribunal agreed with both parties that this issue required verification and restored it to the file of the AO. The AO was directed to verify the assessee’s claim in accordance with law, ensuring that the TDS amount has been deposited into the Government’s account, the assessee is the lawful deductee, the gross amount of interest has been considered as the assessee’s income, and no other person has or will claim credit for the same taxes.3. Incorrect Taxation of Interest Earned in Respect of Investments Made in FCCBs Issued by Dolphin Offshore Enterprises (India) Ltd.:The assessee contended that the AO incorrectly taxed the entire interest amount received from Dolphin Offshore Enterprises (India) Ltd., while only a portion of this interest pertained to the assessee. The assessee provided evidence showing that out of the total interest, only a specific amount pertained to the assessee, and the balance belonged to other group entities.The Tribunal restored this issue to the file of the AO for verification. The AO was directed to consider only the actual amount of interest received by the assessee from Dolphin Offshore Enterprises (India) Ltd. and not the entire amount of interest paid to the group companies.Conclusion:The Tribunal allowed the assessee’s appeal for statistical purposes, directing the AO to verify the claims and grant appropriate TDS credits and correct the taxable interest amount in accordance with the law. The order was pronounced in the open court on 7th April 2017.