TaxTMI 
TaxTMI 
2018 (8) TMI 1917
X X X X Extracts X X X X
X X X X Extracts X X X X
.... India and Mauritius ("India-Mauritius Tax Treaty') and upholding the contentions of the Assessing Officer in taxing interest income of Rs. 258,94,38,991 earned on foreign currency loans and thereby raising a tax demand of Rs. 106,61,82,043 on the Appellant on the ground that the interest income is not beneficially owned by the Appellant. The Appellant prays that the additions made by the Assessing Officer which has been upheld by the CIT(A) in respect of interest income on foreign currency loans be deleted. Ground 2 - Failed to appreciate the information placed by Appellant to demonstrate that it is the 'beneficial owner' of interest income While upholding the assessment order, the CIT(A) erred on the following counts: * By not following the Circular No. 789 dated 13 April 2000 issued by the Central Board of Direct Taxes, the decision of Supreme Court in case ofAzadi Bachao Andolan v. DCIT [2003] 263 ITR 706 (SC) and the jurisdictional Bombay High Court in the case of DIT v. Universal International Music B. V [2013] 31 taxman.com 223 (Bombay HC) and considering the Appellant as not the 'beneficial owner' of the interest incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enalty proceedings under section 271(l)(c) of the Act. The Appellant prays that to instruct the Assessing Officer to drop the initiation of penalty proceedings. 3. The assessee is a limited liability company and registered as Tax Resident of Mauritius. It is also an FII registered with SEBI. The issue in dispute raised by the assessee pertains to the exigibility to taxation of the interest income earned under the provision of the Income Tax Act, 1961 ('the Act' for short). As per the assessee, being a resident of Mauritius, it has the benefit of India - Mauritius Tax Treat w.r.t. section 90(2) of the Act and article 11(3)(c) of the Tax Treaty. However, assessee's plea was negated by the Assessing Officer ('A.O.' for short) and the A.O.'s order was confirmed by the ld. CIT(A). 4. At the outset, the ld. Counsel of the assessee submitted that the issue is squarely covered in favour of the assessee by the decision of the Tribunal in assessee's own case vide order dated 02.07.2018. 5. Upon careful consideration, we deem it apposite to refer to the Income Tax Appellate Tribunal ('ITAT' for short) decision as under: 3. The appellant before us is a limited li....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he Id. DR appearing for the Revenue did not dispute the assertions of the assessee and, in fact, our attention was also invited to two Affidavits filed by the Assessing Officer dated 21.03.2018 and 15.03.2018 before the Hon'ble Bombay High Court wherein the Revenue took the stand that the order passed by the Tribunal dated 16.12.2016 (supra) was recalled u/s 254(2) of the Act vide order dated 10.01.2018 (supra) only to the extent of the issue of 'beneficial ownership'. 4. In this background, we have heard both the parties on the issue of 'beneficial ownership' under Article ll(3)(c) of the India-Mauritius Tax Treaty qua the interest income of Rs. 94,57,45,8567- earned by the assessee. On this aspect, we find that the DRP required the assessee to explain as to how it fulfils one of the requirements of Article ll(3)(c) of the India-Mauritius Tax Treaty which prescribes that such interest must be 'beneficially owned' by the assessee. As per the DRP, the aforesaid was one of the pre-requisites before Article ll(3)(c) of the IndiaMauritius Tax Treaty could be applied to say that the interest income in question was not taxable in India. The DRP has re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....000 (supra) continues to be in force. Another aspect which is brought out by the learned representative is based on the decision of Chennai Bench of the Tribunal in the case of Hyundai Motor India Ltd. vs DOT, [2017] 81 taxmann.com 5. In this case, the interest paid by Hyundai Motor India Ltd. to the assessee was disallowed u/s 40(a)(i) of the Act on the ground that the payer therein, i.e. Hyundai Motor India Ltd. had not deducted the requisite tax at source. The Tribunal in the aforesaid decision, inter-alia, examined the provisions of Article 11 of the India-Mauritius Tax Treaty and concluded that the assessee was indeed the'beneficial owner' of such interest income. The relevant extract of the decision referred to reads as under:- "The doubts expressed by the DRP with regard to beneficial owner of the interest income ore devoid of any legally sustainable basis. No cose has been made out by the revenue for the beneficial owner of the interest income being entities other than Mauritian entities in question. In terms of article 11(3), interest arising in a Contracting State (i.e. India, in this case) shall be exempt from tax in that State (i.e. India) provided it i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Paper Book at pages 268 to 270. Factually speaking, there is no dispute on this aspect. The only controversy is whether such Tax Residency Certificate enables an inference that the interest income in question is beneficially owned by the assessee. In this context, the CBDT Circular no. 789 dated 13.04.2000 (supra) of the CBDT is quite eloquent, whose relevant content reads as under :- "2. ........... .......It is hereby clarified that wherever a Certificate of Residence is issued by the Mauritian Authorities, such Certificate will constitute sufficient evidence for accepting the status of residence as well Q5 beneficial ownership for applying the DTAC accordingly. " [underlined for emphasis by us] Ostensibly, as per the clarification issued by the CBDT, wherever a Certificate of Residency is issued by the Mauritian authority, such Certificate will constitute sufficient evidence for accepting the status of residence as well as the beneficial ownership for applying the provisions of the India-Mauritius Tax Treaty. Thus, in our considered opinion, the aforesaid clarification by the CBDT supports the assertion of the assessee that based on the Certific....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gard, the ld. Departmental Representative (ld. DR for short) submitted that though the ITAT had decided the issue in favour of the assessee, it has erred inasmuch as interest has not been covered in the CBDT Circular no. 789 dated 13.04.2000 referred by the ITAT. He claimed that the said circular was only with respect to the dividend and capital gain on sale of shares. That ITAT had extrapolated the same to interest income without any cogent reasoning or mentioning the underlying principle. He submitted that he would rely on the order of the ld. CIT(A). 7. Per contra, the ld. Counsel of the assessee submitted that the ITAT has already dealt with the issues raised by the ld. DR and the Revenue. That the ITAT has also referred to the Hon'ble Bombay High Court decision in the case of Universal International Music B. V (supra), where the same circular was held to be applicable in the context of the royalty income. 8. Upon careful consideration, we note that on same facts, the ITAT has already decided the issue in favour of the assessee. The matter is already before the Hon'ble High Court. Hence, we do not find any reason to deviate from the decision of the co-ordinate bench o....