2012 (10) TMI 817

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....the Respondent. ORDER P.C.: 1. This appeal by the revenue under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "the Act") challenges an order dated 10/11/2010 of the Income Tax Appellate Tribunal (hereinafter referred to as the "Tribunal") in ITA No.4249/Mum./2007 relating to Assessment year 2002-03. 2. Being aggrieved, the revenue has formulated the following que....

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....xable in India and all its expenses are deductible in ascertainment of its taxable income ignoring the fact that the interest payment was made to the share holders of the assessee with the debt equity capital ratio of 248:1 and which can be considered as payment to self covered by the provisions of Article 7(3)(b) of the DTAA and, therefore, not allowable expenditure? 3. The appeal is admitted ....

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....pondent had equity capital of Rs. 38.00 lacs and debt capital of Rs.9410 lacs. Thus, debt equity ratio worked out is to 248:1. 5. The respondent assessee paid interest of Rs. 5.73 crores on the aforesaid borrowing of Rs.57.09 crores and Rs.37.01 crores from NV Basix SA and Kier International (Investments) Limited respectively. However, the Assessing Officer disallowed the payment of interest in....

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.... Article 7(3)(b) of the Double Taxation Avoidance Agreement forbids allowance of any interest paid to the head office by permanent establishment in India as a deduction. Further, the payment of interest also directly violates the conditions imposed by RBI in its letter dated 3/11/1998. Therefore, the order of the Assessing Officer was upheld. 7. However, the Tribunal allowed the respondent-asse....