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2018 (5) TMI 945
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....nds of appeal:- "Based on the facts and circumstances of the case, Clearwater Capital Partners (Cyprus) Limited [hereinafter referred to as the Appellant'] respectfully craves leave to prefer an appeal under section 253 of the Income-tax Act, 1961 (Act) against the order dated 28 December 2015 passed by the Deputy Commissioner of Income-tax (International Taxation)- 2(1)(1), Mumbai [hereinafter referred to as the learned AO], in pursuance of the directions issued by Hon'ble Dispute Resolution Panel - I, Mumbai (DRP). 1. Ground of Objection No. 1 1.1 On facts and circumstances of the case and in law, the learned AO erred in not granting the credit for taxes deducted at source (TDS) in respect of interest income earned by the Appellant on Foreign Currency Convertible Bonds (FCCBs) merely because Appellant, on account of procedural difficulties could not furnish TDS certificates although the payment were received net of taxes. 1.2 Without prejudice to above, on facts and in circumstances of the case and in law, the learned A.O erred in raising a demand, in respect of taxes which are already deducted at source by the deductor appropriately, which is no....
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.... Foreign currency convertible bonds (FCCBs) was determined at Rs. 26,72,01,300/- 3. The assessee assailed the draft order of assessment, dated 25.03.2015 before the Dispute Resolution Panel-III, Mumbai (for short' DRP'). The DRP vide its order dated 09.12.2015 issued directions under Sec. 144C(5) of the Act. The A.O in compliance to the directions of the DRP passed the impugned order dated 28.12.2015 under Sec. 144C(13) r.w. Sec. 143(3) and determined the total income of the assessee at Rs. 24,52,45,870/-. 4. Aggrieved, the assessee had assailed the order of assessment dated 28.12.2015 passed by the A.O under Sec. 144C(13) r.w. Sec. 143(3) for A.Y. 2011.12 in appeal before us. The ld. Authorized Representative (for short 'A.R') for the assessee, at the very outset of the hearing of the appeal submitted that the authorities below had erred in not granting the credit of TDS on the interest income which was earned by the assessee on the investments made in FCCBs issued by certain Indian corporate. It was submitted by the ld. A.R that as per the issuance mechanism of FCCBs the non-residents subscribes to the FCCBs issued in foreign currency which are convertible into shares of th....
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....that the assessee company had during the year under consideration received interest of Rs. 5,32,63,492/- (USD 11,91,577) on FCCBs from the following parties:- Sr. No. Name of the issuing company Amount (in USD) Amount (in INR) 1. Sayaji Hotels Limited 37,500 16,76,250 2. Kamat Hotels (India) Limited 6,32,971 2,82,93,804 3. Dolphin Offshore Enterprises (India) Ltd. 4,468 1,99,719 4. Videocon Industries Limited (4.5%) 3,36,881 1,50,58,581 5. Videocon IndustriesLimited (5%) 1,79,757 80,35,138 Total 11,91,577 5,32,63,492 (USD 1=INR 44.70) We have given a thoughtful consideration to the issue before us and are persuaded to be in agreement with the contention of the ld. A.R that under the scheme of issuance of FCCBs, as the identity of the FCCB holder is generally not known to the Domestic Custodian Bank, therefore, the issuing company withholds taxes at the rate of ten percent prior to remitting the interest payments and even though in fiduciary capacity, the Overseas Depository Bank's name is indicated as the deductee in the TDS certificate. Given the above mechanism of issuance of....
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....assed by the A.O. 7. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record in context of the issues under consideration. The assessee, as emerges from the records, had received interest amounting to Rs. 156,982,378/- on fully convertible debentures issued by Clear Capital Partners India Private Limited, a company incorporated under the Indian Companies Act, 1956. We find that as per Article 11 of the India-Cyprus tax treaty, the interest arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state. However, such interest may also be taxed in the contracting state in which it arises according to the laws of that state, but if the beneficial owner of the interest is a resident of the other contracting state, the tax so charged shall not exceed 10% of the gross amount of the interest. We are of the considered view that as per Sec. 90(2) of the Act, where the government of India had entered into an agreement with the government of any country outside India or specified territory outside India, as the case may be, under sub-section (1)....
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.... gross amount of the consultancy receipts. We thus direct the A.O to subject the fee from consultancy services received by the assessee at the rate of 10% as provided in Article 12 of the India-Cyprus tax treaty. 8. We are further persuaded to be in agreement with the contention of the ld. A.R that the interest income from FCCBs held by the assessee are subject to deduction of tax at source @ 10% as per Sec. 115AC(1)(a) of the Income Tax Act, 1961. We thus in terms of our aforesaid observations direct the A.O to subject the interest income from FCCBs to tax @ 10% as per the provision of Sec. 115AC of the Act. Before parting, we may herein observe that the A.O while bringing the aforesaid amount to tax shall duly consider the claim of the assessee that amount of tax already had been deducted at source on the aforesaid interest income by the issuer company and deposited in the Government treasury. The Ground of appeal No. 2 is allowed in terms of our aforesaid observations. 9. The ld. A.R had further assailed before us the levy of interest under Sec. 234B and 234C of the Act. The ld. A.R submitted that as the assessee is a non-resident company, therefore, as a duty was cast on ....
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....s of the case and in law, the ld. DRP is right in holding that the incentive fee on FCCBs accrues or arises from source outside India in view of the provisions of section 9(1)(1) of the Income-tax Act, 1961. 6. The Appel lant prays that the order of the ld. DRP on the above grounds be set aside and that of the Assessing Officer restored. 7. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 12. Briefly stated, the issue involved in the appeal of the revenue lies in a narrow compass. The assessee had during the year under consideration received interest of Rs. 1,15,27,370/- and incentive fee of Rs. 1,04,28,063/- from Suzlon Energy Limited, an Indian company in India in the business of wind power generation, carrying on business both in India and abroad. The entire proceeds of the funds borrowed by way of issuing the FCCB's, as mentioned in the Offering Circular, were utilized by Suzlon Energy limited in repayment of Acquisition facility through a credit agreement between ABN Amro Bank NV and Suzlon Energy Limited in order to assist with the financing of REpower Systems AG. Based on the above facts, it was claimed....
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....issue as regards chargeability of income in respect of the same FCCB of Suzlon Energy Limited had came up for consideration before the DRP in the immediately preceding year, viz. A.Y 2010-11, wherein it was observed as under:- "We have considered facts of the case, the written submissions and the oral arguments of the assessee as against the observations/findings of the AO in his draft order. It is noticed that the assessee has received interest income in respect of investment made in FCCBs issued by certain Indian corporate which inter alia included interest of Rs. 5,40,777/- (USD 12,010) on FCCBs issued by Suzlon. It was noticed that the entire proceeds of the funds borrowed by way of issuance of FCCN's were utilized by Suzlon in repayment of Acquisition facility which is understood to be a credit agreement between ABN Amro Bank NV and Suzlon in order to assist with the financing of Repower offer. Thus interest received was in respect of debt incurred or money borrowed and used by Suzlon for the purpose of making or earning an income from a source outside India. It cannot be said that interest income has accrued or arisen in India in all cases where the payer is an India....
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....ue as per the law available on the statute at the relevant point of time. We however find that it is an admitted fact that the entire proceeds of the funds which were borrowed by way of issuing of FCCB's were utilized by Suzlon Energy Limited in repayment of acquisition facility being a credit agreement between ABN Amro Bank NV and Suzlon Energy Limited in order to assist with the financing of REpower offer. We further find that the contention of the assessee that the money borrowed by Suzlon Energy Limited was used by it for the purpose of making or earning of income from source outside India has neither been rebutted by the lower authorities, nor any such claim had been raised by the D.R before us during the course of the hearing of the appeal. We shall thus in the backdrop of the aforesaid factual position, adjudicate upon the chargeability of tax on the interest income of Rs. 1,15,27,370/-on FCCB's issued by Suzlon Energy Limited. We find that as per Sec. 9(1)(v)(b) of the Act, where interest is payable by a resident person in respect of any debt incurred or moneys borrowed and used for the purpose of business or a profession carried on by such person outside India or for the p....