TaxTMI 
TaxTMI 
2018 (2) TMI 1927
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.... on External Commercial Borrowings ('ECBs') extended to Indian borrowers (i) That on the facts and circumstances of the case and in law, the Hon'ble DRP erred in confirming the addition of Rs. 114,43,54,024/- proposed by the learned AO towards interest received by the Appellant's Head Office/overseas branches on ECBs extended to the Indian borrowers. (ii) The Hon'ble DRP and Ld. AO have erred in not appreciating that in accordance with the provisions of Article 7 of the India - Japan Double Taxation Avoidance Agreement ('DTAA'), an amount commensurate to the role played by the Permanent Establishment ('PE') of the Appellant in India has already been offered to tax by the Appellant and therefore, nothing further could be brought to tax in India. (iii) The Hon'ble DRP and Ld. AO have erred in observing that the interest would continue to be taxable under Article 11 of the DTAA, even though it has been acknowledgement by the AO himself that the ECBs may be partially connected with the PE of the Appellant in India. Such an observation is contrary to the express provisions of Article 11 of the DTAA, which clearly provides that in the express....
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....ranches located in Mumbai, New Delhi and Chennai. For the year under consideration, the assessee filed its return of income under section 139(1) of the Income Tax Act, 1961 (hereinafter referred to as the 'the Act') declaring therein total income of Rs. 95,6,62,163/- after the set - off of brought forward losses of assessment year 2000-01 amounting to Rs. 34,49,96,933/-. Later on, the case was selected for scrutiny. The AO passed the draft assessment order dated 27th December, 2011 wherein certain additions / disallowances were proposed. Aggrieved by the assessment order, the assessee filed objections before the learned DRP who rejected the objections and confirmed the draft assessment order passed by the AO. In pursuant to the directions issued by the learned DRP, the AO passed the final assessment order on 27.12.2011 at an income of Rs. 36,39,97,239/-. Against the said order, the assessee preferred an appeal in ITA No. 5104/Del/2012 before the ITAT challenging the additions / disallowances made by the AO and the ITAT vide its order dated 19th September, 2014 set aside the order on certain issues to the file of the AO for fresh adjudication. Thereafter in compliance to the directi....
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....enants etc. On receipt of the information from the Indian branches of the assessee, the overseas branches of the bank do the booking of the loan based on the terms and conditions of the approval. The agreement and security documentations are entered between overseas branches and the borrowers. Indian branches receive syndication fees from its head office / other overseas branches for the services rendered by it in relation to ECB. 22. The case of authorities below is that interest income accrues and arises as under : (i) Interest income accrues and arises in India under section 9(1)(v) of the Act. Since the ECB do not form part of the asset base of the PE in India and is not effectively connected with the PE, ECB interest is chargeable to tax under Article 11 of the Treaty between India and Japan (para 9.2 and 9.3 at page nos. 207-208 of appeal set). (ii) No tax credit, however is allowable to the assessee, since, any new claim can be made by the assessee only through a revised return of income (para 9.7 at page 210 of appeal set) (iii) Since interest is payable on a net of tax ....
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....ITA No. 1935/Mum/2007) has held that ECB interest is not attributable to the Indian branches of the assessee and only the fee is taxable in the hands of the Indian branches of the assessee for the role played by it in arranging the ECBs. (v) Without prejudice to the claim of non-taxability of ECB interest income, the AO has erred in not allowing the credit for tax deducted at source on ECB interest. Sample copies of TDS certificates were also furnished to the AO. Further, that the taxes have been deducted is an admitted position since the AO has himself grossed up the entire amount of ECB interest by the amount of tax borne by the borrowers. Once this is so, in view of section 205 of the Act, the necessary credit has to be given to the assessee. (vi) Tax at source has been deducted as evident from the sample copies of TDS certificates furnished before the AO and the AO has also admitted the same by grossing up the ECB interest by the amount of tax borne by the borrowers, therefore, no interest under section 234B of the Act can be levied for the tax demand on account of ECB interest. (vii) Even on merits, interest under section 234B of....
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.... of the Act can be levied where the payment to non-resident payee is subject to tax deduction at source. In the present case, the Assessing Officer himself had admitted by grossing up the ECB interest by the amount of tax borne by the borrowers that tax at source has been deducted. We are thus of the view that no interest under section 234B of the Act can be levied for the tax demand on account of ECB interest and interest under section 234B is also not chargeable since ECB interest received by the assessee from the borrowers was subject to tax deduction at source under section 195 of the Act. The Assessing Officer is thus directed to delete the addition made on account of interest received from ECB given to Indian borrowers. The ground No. 7 is accordingly allowed." So respectfully following the aforesaid referred to order dated 26.4.2017 of the ITAT [I-1] Bench in assessee's own case, this issue is decided against the assessee and in favour of the department. 7. As regards to the ground no. 3 relating to deduction under section 44 C of the Act, it was common contention of both the parties that this issue becomes academic if ground n....
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....ment made pursuant to the appellate order cannot be regarded as regular assessment. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Modi Industries Limited and Others vs. CIT and Anr reported at (1995) 216 ITR 795. Accordingly, it was submitted that in the present case as well since the regular assessment u/s 143(3) of the Act for the year under consideration was made on 29th August, 2012 interest under section 234D should have been levied up to the said date and not the 28th July, 2016 i.e. the date of the passing of the remand back order. In his rival submissions, the learned CIT DR supported the order of the AO. 11. We have considered the submissions of both the parties and carefully gone through the material available on the record. To resolve the present controversy, it is relevant to discuss the provisions contained in Section 234D of the Act, which read as under:- "234D. (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143, and- (a) No refund is due on regular assessment; or (b) The amount refunded under sub-secti....