TaxTMI 
TaxTMI 
2017 (4) TMI 356
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....erest from India as its liability duly recognized in his books of account prepared for Indian regulatory authorities, resulting into income accruing and arising to the non- resident u/s 5(2) of the Act for which the deeming provisions of Section 9(1) are not applicable. iii) The Ld. CIT(A) erred in law and on facts in holding that both sections 5(2) and 9(1)(v) of the Act are applicable to determine the situs of interest income in case of non-resident. Iv) The Id. CIT(A) erred in law and on facts in holding that the interest paid by the assessee on its FCCBs is covered by exception to Sec. 9(1)(v)(b) of the Act and consequently it falls outside the ambit of deemed income arising and accruing in India and as a result out of Sec. 5 also. v) The Id. CIT(A) erred in law and on facts in holding that there is ambiguity in determining whether income has been received or arisen in India and thus there is a need to travel from Sec. 5(2) to Sec. 9(1) of the Act. vi) The Id. CIT(A) has erred in law by contradicting his own observation that Sec. 115AC is a code itself and then travelling to another charging section of the Act for deciding the taxability of i....
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.... in India and therefore not hit by first limb of section 5(2) of the IT. Act and also not deemed to accrue or arise in India since it is covered by exceptions to section 9(l)(v)(b) and consequently it is in no way chargeable to tax in India under any of the provision of I.T. Act in the hands of the Non-Resident FCCB Bond Holders; (b) the appellant company was not liable to deduct tax at source u/s 196C r.w.s. 115AC, on the consent incentive and interest on subject FCCBs issued by appellant and (c) Since there is no liability to deduct tax at source, as a consequence, therefore, there was no failure u/s 201 and the appellant- company cannot be treated as the assessee in default u/s 201(1) and 201(1A) of the Act." 6. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 7. Having heard the rival contentions and having perused the material on record, we find that the issue is now covered, by a decision of the co-ordinate bench, in assessee's own case for the assessment year 2010-11 wherein tax withholding liability from similar payments came up for examination. In the present case, the CIT(A) has simply followed his predecessor's o....
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....: "1. Both the lower authorities have failed to appreciate that no surcharge is to be added while determining withholding tax on remittance being made to the Non- resident, and therefore, surcharge ought not have been included while determining liability of TDS u/s.201(1) of the Act." 13.2 Similar issues arose In ITA No.3476/Ahd/2010 for same year and similar C.O. No.62/Ahd/2014 was filed on behalf of assessee. 13.3 Learned Counsel for assessee was fair enough not to press both Cross Objections. So, same are dismissed as not pressed. 14. In ITA No.3475/Ahd/2010, Assessing Officer observed that consequent to remittance by assessee amounting to Rs. 68,70,18,465/- for consent incentive (interest) in the month of June 2009 and Rs. 10,63,50,697/- for interest during year ended March 31, 2010 to Deutsche Bank AG, London Branch payable on Foreign Currency Convertible Bonds (FCCBs), issued by assessee i.e. Suzlon Energy Limited. No tax has been deducted at the time of remittance. Assessing Officer issued a show cause notice to assessee as to why proceedings u/s.201(1) & 201(1A) r.w.s. 196C be not initiated for the above fault. Assessing Officer ....
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....ble are as under: "7.2 A close reading of the above subsection makes it dear that interest paid by a resident is chargeable to income tax except when the interest is payable in respect of any debt incurred for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India. This exclusion covers, the cases where the assessee through a 'branch office' or through a 'permanent establishment' carries out its business outside India or makes or earns income outside India. But in the present case there is no such branch office or permanent establishment of the assesses through -which the business of the assesses is carried out or through which it can source income. In view of the above, the exemption available as per sub clause (b) of clause (v) of sub-section (2) of section 9 of the Act, is not applicable in present case and thus same is chargeable to tax in India." Assessing Officer analysed the issue in context of issue of FCCB which is governed by "Issue of foreign currency convertible bonds and ordinary shares (through Depositary Receipt (Mechanism) Sch....
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....9(1)(v)(b) of the Act and consequently it falls outside the ambit of deemed income arising and accruing in India and as a result out of Section 5 also. CIT(A) erred in holding that there is ambiguity in determining whether income has been received or arisen in India and thus, there is a need to travel from Section 5(2) to Section 9(1) of the Act. CIT(A) erred in law by contradicting its own observation that Section 115AC is a code itself and then travelling to another charging Section of the Act for deciding the taxability of interest income. In view of above, learned Departmental Representative requested to set aside the order of CIT(A) and that of Assessing Officer be restored. On other hand, learned Authorized Representative supported the order of CIT(A) and stated that Assessing Officer erred in law and on facts in holding that assessee company was liable to deduct tax at source u/s.196C r.w.s. 115AC of the Income Tax Act on remittance to Deutsche Bank AG, London Branch for making payment of consent incentive on is behalf of foreign currency convertible bond holders. Assessing Officer erred in not appreciating the income of recipient non- resident is not at all chargeable to ta....
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....unting to Rs. 10,63,50,697/- to non- resident bond-holders through Dutsche Bank AG London Branch. However, Assessing Officer passed the order invoking provisions of Section 201(1)/(1A) of Act after holding that assessee was liable to deduct tax at source u/s.196C r.w.s. 115AC of the Act on remittance made by assessee. Assessing Officer gave following reasoning while passing order: (a) Assessing Officer was of the view that the Bonds were issued by an Indian Company and interest has been paid by an Indian Company from India only and further the obligation to pay the interest rested with assessee only and accordingly chargeable u/s.5(2) of the Act; (b) For the said contention, Assessing Officer relied upon the Supreme Court decision in the case of Performing Rights Society Ltd. v. CIT [1977] 106 ITR 11 and Allahabad High Court decision in the case of Hira Mills Ltd. v. ITO [1946] 14 ITR 417; (c) Assessing Officer was further of the view that once the income is covered u/s.5(2), Section 9(1)(v)(b) is not applicable; (d) Assessing Officer was further of the view that the issue of FCCB is governed by "Issue of Foreign Currency Convertible Bonds and Or....
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....rrency Convertible Bonds ('FCCB") in F.Y: 2007-08 namely; FCCB for US$ 300 Millions maturing in June 2012 and another FCCB for US$ 200 Millions maturing in October 2012. We find that proceeds of subject FCCB were used to be used and as a matter of fact used, for acquisition of shares in overseas subsidiary which was carrying on business outside India resulting in source of income outside India. We also find that the bonds have been issued under the permission of Reserve Bank of India under External Commercial Borrowing ('ECB') guidelines. However, due to financial constraint, assessee carried out restructuring of subject FCCB in May 2009 with the permission of Reserve Bank of India and pursuant to the same, assessee replaced Zero coupon FCCB amounting to US$ 9,40,04,000/- with 7.50% interest bearing FCCB amounting to US$ 5,63,88,000/-. As a part of restructuring of assessee company has made payment to non-resident bond holders on account of 'consent incentive' for changes in the financial covenants of the Foreign Currency Convertible Bonds amounting to Rs. 68,70,18,465/- through Deutsche Bank AG London Branch. Assessee company had also remitted interest on said ....
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....)AO further went to establish that even if the provisions of S.9(l)(v)(b) is applicable, the assessee's case will not be covered by the exclusions stated therein. (a) The assessee has issued FCCB in London and the proceeds of such FCCBs were utilized for the purpose of investments and acquisition of foreign subsidiaries outside India through foreign subsidiaries; (b)The assessee remitted the amount due on account interest and consent incentives to Deutsche Bank AG, London Branch as its agent to distribute the interest and consent incentive amount; which in turn gave to Deutsche Trustees Co Limited London who stood nominated as the trustee of the bond holders and the said trustee made the payment in foreign currency to the clearing system where individual bond holders are having accounts. (c) In the present case also the AO on pg. no.9 vide para 6.1.4 has passed the same observations as noted in para 4.7 of Adani Enterprise Ltd. order. In the present case also, AO was of the view that the Bonds were issued by an Indian Company and interest has been paid by an Indian Company from India only and further the obligation to pay the interest rested with the Assessee onl....