2020 (1) TMI 612 - AT - Income Tax

Tribunal rules in favor of assessee on tax rates, TDS liability, and foreign exchange loss treatment

Citibank Overseas Investment Corporation C/o Deloitte Haskins & Sells LLP Versus Dy. CIT (International Taxation) – 2 (1) (1), Mumbai And (Vice-Versa) And Citibank Overseas Investment Corporation C/o Deloitte Haskins & Sells LLP Versus Dy. CIT (International Taxation) – 2 (1) (1), Mumbai

The Tribunal partly allowed the assessee's appeal by directing the Assessing Officer to adopt the tax rate specified in the India-USA DTAA for interest ... Rate of tax to be charged on the interest on refund u/s. 244A - India-USA DTAA - CIT(A) held that scope of the definition of ‘interest” as per Article 11(4) of India – USA DTAA does not cover interest granted u/s. 244A and held that asset on which the interest income accrued viz TDS is not a debt claim or government bond or security - HELD THAT:- We restore this issue to the file of the Assessing Officer to adopt the tax rate as specified in India–USA DTAA in the light of the decision of the Hon’ble Special Bench in the case of ACIT v. Clough Engineering Ltd (2011 (5) TMI 562 - ITAT, DELHI) and the decision of the Hon'ble Jurisdictional High Court in the case of the DIT(IT) v. Credit Agricole Indosuez [2015 (6) TMI 974 - BOMBAY HIGH COURT] Charging of interest u/s.234B - HELD THAT:- It is not in dispute that for the relevant assessment year i.e. A.Y. 2012-13 as per the provisions of the section 209 of the Act advance tax was not payable by the assessee being a non-resident company. We find that the Hon'ble Jurisdictional High Court in the case of the DIT (IT) v. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] held that when a duty is cast on payer to deduct and pay tax at source, on payer’s failure to do so interest u/s. 234B cannot be imposed on payee assessee - We direct the Assessing Officer to delete the interest levied u/s. 234B of the Act. Gain arising from roleover of foreign exchange contracts is assessable as capital gains/losses - See assessee own case [2019 (7) TMI 1560 - ITAT MUMBAI] Issues Involved:1. Rate of tax on interest refund under section 244A of the Income-tax Act in relation to the India-USA DTAA.2. Levy of interest under section 234B of the Income-tax Act.3. Levy of interest under section 234C of the Income-tax Act.4. Taxability of foreign exchange loss on underlying Forward Foreign Exchange Contracts.Issue-wise Detailed Analysis:1. Rate of Tax on Interest Refund under Section 244A:The primary issue was whether the interest on income tax refund under section 244A qualifies as 'interest' under Article 11 of the India-USA DTAA for concessional tax treatment. The assessee argued that the income tax refund is a debt claim from the tax authority, falling under the definition of 'interest' as per Article 11(4) of the DTAA. The CIT(A) held that the interest on the tax refund does not qualify as 'interest' under the DTAA, and thus, the normal tax rate of 16.2225% applies. The Tribunal, however, restored the issue to the Assessing Officer to adopt the tax rate specified in the India-USA DTAA, following the decision of the Special Bench in ACIT v. Clough Engineering Ltd. and the Bombay High Court in DIT(IT) v. Credit Agricole Indosuez.2. Levy of Interest under Section 234B:The assessee contested the levy of interest under section 234B, arguing that as a non-resident, it was not liable to pay advance tax since the entire income was subject to TDS under section 195. The CIT(A) directed the AO to verify the reasons for non-deduction of TDS by the payer. The Tribunal, following the Bombay High Court's decision in DIT(IT) v. NGC Network Asia LLC, held that when the payer fails to deduct TDS, the payee cannot be held liable for interest under section 234B. Thus, the Tribunal directed the AO to delete the interest levied under section 234B.3. Levy of Interest under Section 234C:The issue of interest under section 234C was raised, with the assessee arguing that no tax was due as per the return of income. The Tribunal restored the issue to the AO for verification and to decide in accordance with the law, as the computation of income for the relevant assessment year needed to be verified.4. Taxability of Foreign Exchange Loss on Forward Foreign Exchange Contracts:The revenue's appeal challenged the CIT(A)'s decision that foreign exchange loss on forward contracts should be considered a capital loss and not taxable under 'Income from Other Sources.' The CIT(A) relied on the Tribunal's decisions in the assessee's own case for previous years, holding that gains/losses from such contracts are taxable under 'Capital Gains.' The Tribunal upheld the CIT(A)'s order, finding no infirmity and rejecting the revenue's grounds.Conclusion:The Tribunal partly allowed the assessee's appeal regarding the tax rate on interest refund and deleted the interest under section 234B. The issue under section 234C was remanded for verification. The revenue's appeal on foreign exchange loss was dismissed, and the cross-objection by the assessee was deemed infructuous. The order was pronounced on January 10, 2020.