TaxTMI 
TaxTMI 
2020 (12) TMI 1192
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....CCDs i.e. from 27.03.2010. Hence, as per the agreement, it was clear that interest accrued for the period 27.03.2010 to 27.03.2011(i.e. for FY 2010-11), was to be payable on 30.04.2011 which means the interest accrued for FY 2010-11 was payable in FY 2011-12. This was wrongly construed by the CIT(A) as interest accrued for and payable in FY 2011-12. 2. The Ld. CIT(A) erred in not appreciating that as per the provisions of section 195 of the I.T. Act, the liability to withhold tax arises at the time of credit of interest income to the account of the payee or at the time of payment whichever is earlier. In the present case, the assessee company was required to pay interest for the FY 2010-11 and hence the expenditure has accrued for the assessee (as per the agreement) and hence the liability to deduct also has accrued in FY 2010-11. Just because the payment/credit was not paid till 31.03.2011, this does not absolve the assessee's responsibility of deducting the taxes on interest accrued which was to be paid. 3. The Ld. CIT(A) erred in considering that the assessee has not claimed any such interest expenditure for the FY 2010-11. Whether the assessee claims the e....
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.... taxes on the interest payment. 7. Similarly, the observation of the Ld. CIT(A) that the assessee has voluntarily agreed to offer the benefit accrued (i.e. 7% of the amount of the investment equivalent to Rs. 25.20 cr. for A.Y. 2011-12) implies that the benefit has accrued for the FY 2010-11. If that is so, then the liability to deduct had also arisen in FY 2010-11 contrary to the observations of the CIT(A). 8. For these and such other grounds that may be urged at the time of hearing, it is prayed that the order of the Assessing Officer be restored and that of the CIT(A) be cancelled. 3. The assessee has raised the following grounds in its Cross objection: 1. The order of the learned Commissioner of Income Tax(Appeals) is opposed to the facts of the case and applicability of provision of section 201(1) of the Act for the A.Y. 2011-12 for non residents. 2. The CIT(A) has erred in ignoring the position of law that, the order passed by the Assessing Officer under the provisions of section 201(1) and 201(1A) of the Act for the F.Y. 2010-11 relevant to A.Y. 2011-12 on 31.03.2018 is barred by limitation and hence deserves to be annulled. 3.....
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....esumed to have been accrued in F.Y. 2010-11, since the period of four years has elapsed. 8. The respondent craves permission to add, delete or alter any of the grounds at the time of hearing. The respondent requests that the Tribunal to kindly hold that the proceedings initiated under the provisions of section 201(1) and consequently order passed u/s. 201(1) and 201(1A) of the Act on 31.03.2018 is barred by limitation, bad in law and deserves to be annulled. 4. The facts of the case are that an order u/s. 201(1) and 201(1A) of the I.T. Act was passed in the case of the assessee for interest accrued/paid to the non resident entity subsequent to the search and seizure u/s. 132 of the I.T. Act on 21/09/2017 in the case of M/s. Coffee Day Enterprises Limited, M/s. Coffee Day Global Limited and Shri V.G. Siddhartha. It was noticed that M/s. Coffee Day Enterprises Ltd. (earlier Coffee Day Resort Pvt. Ltd.) had entered into subscription agreement with a Cyprus based company, M/s. Arduino Holding Limited with another Mauritius LLC on 27th March, 2010. As per the provisions of the agreement, the Cyprus company M/s. Arduino Holdings Limited had invested an amount of Rs. ....
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....ment of interest be deducted by the source country. In view of all the above, it was observed by AO that in order to avoid the deduction of withholding taxes in the form of TDS on the payment of interest, the assessee company claimed having received a waiver agreement. However, it was noticed that no waiver agreement copy was submitted to the company, M/s. Arduino Holdings Limited. According to the Assessing Officer, the assessee company ought to have deducted the TDS u/s. 195 of the I.T. Act for this transaction as the income was accrued in the hands of M/s. Arduino Holdings Limited also. For the non deduction of TDS, the Assessing Officer held the assessee is in default and an order u/s. 201 & 201(1A) of the I.T. Act dated 31/03/2018 was passed. 4.3. According to the Assessing Officer, the assessee had submitted the following additional evidences before CIT(A): (i) first amendment agreement dated 01.07.2011: The agreement was entered into on 01.07.2011, wherein the following clause was introduced in place of the earlier clause in regard to coupon payment: "The coupon will be payable on an yearly basis on April 30th of each year and paid on or before 7th May o....
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....o read as follows: "Investor 3 has an option to invest the entire coupon (excluding gross-ups) each year for acquiring by way of subscription, additional Equity shares (Collectively called the investor 3 subsequent Subscription Shares)." Schedule 5 reads as follows: TERMS AND CONDITIONS OF INVESTOR 3 CCDs The compulsorily convertible debentures to be issued and allotted to the investor pursuant to the Agreement by the Company shall be called Investor 3 CCD shall be subject to the terms and conditions contained herein. The terms and conditions set out in this Schedule shall be (i) endorsed on the reverse of the certificate representing the Investor 3 CCDs along with a reference to this Schedule and the Transaction Documents: 1. DEFINITIONS Capitalized terms used but not defined in this Schedule V shall have the same meaning as ascribed to such terms in the Transaction Documents. 2. INVESTOR 3 CCDs 2.1 Face Value: The face value of each Investor 3 CCD shall be INR 100/- (Indian Rupees One Hundred). 2.2 Investor 3 CCDs shall be Indian Rupee denominated compulsorily convertible debentures issued by the Com....
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....tion Shares") as below: 3.3.1.1 Reinvestment of Fixed Coupon: Each holder of Investor 3 CCDs shall reinvest in the Company the entire Fixed Coupon in the manner set out below: (a) After the first Coupon Payment Date but before May 15th 2011 for the first year at pre money equity value equal to investor 3 Post-Money Company Equity Valuation. (b) After the Coupon Payment Date but before May 15th 2012 for the second year at pre money equity value equal to investor 3 Post-Money Company Equity Valuation plus Coupon paid as per 3.3.1.1(a) above. 3.3.1.2 Reinvestment of Floating Coupon: After each Coupon Payment Date and within 15 days of the Coupon Payment Date, Investor 3 shall have the right to acquire, by way of subscription, every year such number of additional Investor 3 Subsequent Subscription Shares at a pre-money equity value equal to the equity valuation of the Company determined for external placement of minimum of USD 50 Million which has been completed successfully within 6 months prior to Coupon Payments. Date: Provided however, if no such placement has occurred, then the Investor 3 shall invest at a pre-money equity value which i....
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.... 18. From the above analysis and from the perusal of the terms and conditions of the subscription agreement, it may be opined that the company M/s. Coffee Day Enterprises Limited should have deducted TDS u/s. 195 of the Income Tax Act, 1961 for the payment of interest to M/s. Arduino Holdings Limited. However, the company has not deducted the TDS even though the interest payment is accrued in the hands of M/s. Arduino Holdings Ltd. as per the provisions of the agreement. Instead it claims to have received a waiver of interest from M/s. Arduino Holdings Limited even though no such agreements have been produced during the course of proceedings. On the other hand interest accrued on the CCDs is compensated by way of reduction in the rate of price of equity shares allotted to M/s. NLS Mauritius LLC on conversion of CCDs." 4.8. In view of the above, the Assessing Officer concluded that the additional details furnished by the assessee before the CIT(A) is clearly an imitation of its tax evasion arrangement. The assessee had failed to produce any of the relevant details during the course of the proceedings under section 201, even after giving sufficient opportunity in contention o....
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.... the liability to withhold taxes arrears at the time of payment/credit of any interest (or any other sum) which is chargeable under the provisions of the Act. The CIT(A) observed that the payment/credit was not made till 31.03.2010 and also in terms of the Agreement, interest was due on 30.04.2011, i.e., in F.Y. 2011-12 relevant to A.Y. 2012-13. No such interest expenditure was claimed by the assessee. The CIT(A) examined the financials of the assessee company for F.Y. 2010-11 and found that the total finance charges claimed were to the tune of Rs. 16,05,86,054/- which comprise of interest and finance charges on term loans(Rs. 15,99,576,468/-) and other bank charges (Rs. 6,28,586/-). Thus, the CIT(A) observed that the assessee had not claimed interest expenditure pertaining to the transaction with M/s. Arduino Holdings Limited. Further, the CIT(A) observed that in view of the waiver of the interest and the benefit having accrued to the assessee company, the assessee voluntarily agreed to offer the benefit accrued (i.e. 7% of the amount of investment) which implied that the amount was not treated as chargeable to tax in the hands of the non-resident entity. For the aforesaid reasons....
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....issue, Shri V.G. Siddhartha, M.D., M/s. Coffee Day Enterprises Ltd. in answer to Q. No. 67 of the statement recorded during the course of search and seizure u/s. 132 of the I.T. Act stated that the assessee company ought to have accounted for the interest payable. 7.2. Further, the Ld. DR submitted that on 05/05/2015, M/s. Arduino Holdings Limited, which is a Cyprus based company had transferred the CCDs to M/s. NLS Mauritius LLC, a Mauritius based company for a total consideration of equivalent Indian Rupees of Rs. 8,12,88,74,787/-. Under these circumstances, the Ld. DR submitted that for having such high value of appreciation of the value of the CCDs, it shall also include the interest otherwise should have been received by M/s. Arduino Holdings Limited and also, the arrangement of transfer is between two foreign entities and the basis of valuation is not known. According to the Ld. DR the old DTAA between India and Cyprus, as in paragraph 2 of Article 11 of the agreement, the withholding tax for the payment of interest be deducted by the source country. In view of all the above, the Ld. DR submitted that it was evident that in order to avoid the deduction of withholding taxes....
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....d by sufficient cause from producing any evidences. The Ld. DR submitted that the assessee was given sufficient opportunity and the order was passed only on the last day of March, 2018. Hence, the Ld. DR submitted that the details now submitted by the assessee are part of the tax evasion scheme of the assessee and a misrepresentation of the actual facts of the case. 7.5. According to the Ld. DR, the assessee mentioned that first amendment agreement dated 01.07.2011, the interest payment for FY 2010-11 and 2011-12 were waived. But from the agreement, the Ld. DR submitted that there was no waiver of interest for any Financial Year. According to the Ld. DR, the relevant clause 3.2.1 only talks about the date of payment of interest for any financial year. Further, clause 2.2.5 of first amendment agreement also states that the investor has an option to invest the entire coupon (interest) each year for acquiring additional equity shares. "Clause 3.3.1 of Schedule V shall stand amended to read as follows: "Investor 3 has an option to invest the entire coupon (excluding gross-ups) each year for acquiring by way of subscription, additional Equity shares (Collectively ca....
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.... Payments 3.2.1 The coupon will be payable on a yearly basis on April 30th of each year and paid on or before 7th may of each year(the "Coupon Payment Date"). The first Coupon Payment Date shall be April 30, 2011. 3.2.2 The Coupon will be grossed up for withholding tax, if any (limited to a maximum of 10% of Fixed Coupon or Floating Coupon). 3.2.3 The Coupon along with the gross up shall at no point exceed the maximum rate under Law (which currently is State Bank of India prime lending ("SBI PLR") rate plus a maximum of 300 bonus points as on the date of the issuance of the Investor 3 CCDs. 3.3 Reinvestment of Fixed Coupon and Floating Coupon: 3.3.1 Investor 3 shall compulsorily invest in the Company the entire Fixed Coupon (excluding gross-ups) and has an option to invest the entire Floating Coupon (excluding gross-ups) each year for acquiring by way of subscription, additional Equity Shares (collectively called the "Investor 3 Subsequent Subscription Shares") as below: 3.3.1.1 Reinvestment of Fixed Coupon: Each holder of Investor 3 CCDs shall reinvest in the Company the entire Fixed Coupon in the manner set out below: ....
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....ent was made only to evade the deduction of tax. The investors were compensated by giving the equity share at discounted price of Rs. 43/- per share less than as agreed in the original subscription agreement and discussions in paras 17 and 18 of the order which reads as follows: "17. However, from the perusal of the terms of the agreement, the company M/s. NLS Mauritius LLC shall be allotted the equity shares at the rate of 38% of discount price of Value of liquidity event which is Rs. 328 Per share. Thus, the actual allotment price should have been Rs. 203.36 Per share (which is 62% of Rs. 328). However, in this case the value of price allotted is Rs. 160.36 Crore. The differential value per share if Rs. 43. Accordingly, the total differential value of 2,24,12,192 share is Rs. 96,37,24,256/-. It may be observed that this differential price is comparable with the actual interest, as per the abovementioned table, that should have been paid over the previous years. 18. From the above analysis and from the perusal of the terms and conditions of the subscription agreement, it may be opined that the company M/s. Coffee Day Enterprises Limited should have deducted TDS u....
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....d that in the said report, the search party had quantified the interest payable for different years as under: Asst Year Amount of investment (in Rs.) Coupon Rate Alleged interest 2011-12 360,00,00,000 7% 25,20,00,000/- 2012-13 360,00,00,000 7% 25,20,00,000/- 2013-14 360,00,00,000 6.28% 22,61,00,000/- 2014-15 360,00,00,000 6.27% 22,44,00,000/- 2015-16 360,00,00,000 6.27% 22,57,00,000/- Total 118,02,00,000/- 8.2. Thus, the Ld. AR submitted that the Assessing Officer considered the alleged interest payable at Rs. 25,20,00,000/- for the A.Y. 2011-12 which was deleted by the CIT(A). However, it was submitted that the Department had not initiated any action u/s. 201(1) & 201(1A) of the I.T. Act or passed any order or raised any demand for the A.Ys. 2012-13 to 2015-16 after considering the order of the CIT(A) for the A.Y. 2011-12. It was submitted that since the Department refrained itself from raising demand for the A.Ys. 2012-13 to 2015-16, the question of any demand for A.Y. 2011-12 does not arise and hence, the appeal cannot sustain. 8.3. The Ld. AR submitted that during the c....
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....subsequent and not relevant to A.Y. 2011-12. It was submitted that the assessee company was not a party to this transfer and hence, the value at which the debentures were transferred is of no consequence to the issue on hand. Further, it was submitted that equity shares were allotted to the debenture holder in lieu of debentures held by the assessee company at a mutually agreed price during the F.Y. 2015-16 relevant to assessment year 2016-17 and hence, this event cannot have a bearing on the transaction for the A.Y. 2011-12. 8.6. Regarding non deduction of tax at source on interest paid during the F.Y. 2010-11 relevant to A.Y. 2011-12, the Ld. AR submitted that there was no interest claimed in the books for the FY 2010-11 since the said interest was waived by debenture holder and once the interest is waived and no provision made in the books and also in the absence of any such claim as expenditure, the provisions of section 195 of the Act are not attracted and hence, there was no tax deductible at source. Hence, it was submitted that in the absence of any default as contemplated u/s. 195 of the Act, there could not have been any demand u/s. 201(1) and 201(1A) of the Act for A.Y....
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...., there was no interest required to be credited also. The Ld. AR submitted that there was no expenditure accrued during the previous year and also claimed and hence, the provisions of section 195 of the Act has no application. The Ld. AR submitted that the interest payable was eventually waived, therefore, the assessee had not paid any interest. It was submitted that since no interest was paid or claimed as expenditure, the provisions of section 195 of the Act cannot be applied. 8.9. The Ld. AR relied on the judgment of the Karnataka High Court in the case of Karnataka Power Corporation Ltd. vs. DCIT(TDS) (ITA No. 750 & 758-759/2009 wherein it was held that even if a provision is made in the books, no taxes would be deductible at source, if the provision is reversed and no payment made. It was submitted that in the case of the assessee even the provision itself was not made. Thus, it was submitted that in view of the above judgment of the Karnataka High Court, the issue of tax deduction does not arise. 8.9.1. The Ld. AR relied on the decision of the ITAT, Mumbai in the case of National Organic Chemical Industry vs. DCIT 5 SOT 317 (Mum) wherein it was held that the expressed "....
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....erest payable. In the light of these facts, we find that the provisions of section 195 of the Act is not applicable. As per the terms of agreement, the interest for the F.Y. 2010-11 was required to be credited on 30.04.2011 and during this period, there was no interest required to be credited also. There was no expenditure accrued during the previous year and also claimed and hence, the provisions of section 195 of the Act has no application. The interest payable was eventually waived, therefore, the assessee had not paid any interest. Since no interest was paid or claimed as expenditure, the provisions of section 195 of the Act cannot be applied. 9.2. Reliance is placed on the judgment of the Karnataka High Court in the case of Karnataka Power Transmission Corporation Ltd. vs. DCIT(TDS) (ITA No. 750 & 758-759/2009 wherein it was held that when interest has not been paid to the payee and the provision of the same has been reversed in the books of accounts, there would be no liability to deduct tax as no income has accrued in the hands of the payee. Since interest is not considered to be an income of the payee, Section 194A(1) of the Income-tax Act, 1961 (the Act) is not applicab....
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..../2018 is dismissed. C.O. No. 42/Bang/2019 10. The assessee has filed cross objection against the Revenue appeal. The facts of the case is that CIT(A) held that the time limit for passing the order by the Assessing Officer under the provisions of section 201(1) and 201(1A) of the Act for the F.Y. 2010-11 relevant to A.Y. 2011-12 from 01.10.2014 is not applicable to non residents. 10.1. Against this, the assessee has filed Cross Objection. The Ld. AR submitted that various High Courts/Supreme Court have held that certain time limits as reasonable and should have held that the order passed by the Assessing Officer is barred by limitation and hence, deserves to be annulled. The Ld. AR relied on the judgment of the Supreme Court in the case of State of Punjab vs. Bhatinda Co-op Milk Producers' Union Ltd. (2007) 11 SCC 363 wherein it is held that action must be initiated by the competent authority under the Act where no limitation is prescribed, as in section 201 within a period of four years and not later. The Ld. AR relied on the judgment of the High Court of Delhi in the case of Commissioner of Income Tax vs. Hutchison Essar Telecom Ltd. (2010) 323 ITR 230 (Del), wherein ....
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....e under sub-section (1) deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time after the expiry of (i) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed. (ii) six years from the end of the financial year in which payment is made or credit is given, in any other case Provided that such order for a financial year commencing on or before the 1st day of April, 2007 may be passed at any time on or before the 31st day of March, 2011. 10.4. The question whether the order passed u/s. 201(1) and 201(1A) of the Act for the assessment year 2011-12, was barred by limitation was decided against the assessee by the CIT(A), on the reason that it is observed from the provisions of section 201(3) that the time limit period of six years is applicable for the failure to deduct whole or any part of the tax from the person resident in India and in the appellant's case the deductee is not an Indian resident company and therefore the time limit period of six years prescribed u/s. 201(3) will n....
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....held that the Commissioner has to pass an order within a reasonable time and what is a reasonable time limit depends on the facts of that particular case. 10.7. The Hon'ble Delhi High Court in the case of CIT v. NHK Japan Broadcasting Corporation reported in [ (2008) 305 ITR 137 (Delhi)] had held that the order passed u/s. 201 of the I.T. Act beyond four years was not reasonable and had quashed the same as barred by limitation. Similar view was taken by the Hon'ble Himachal Pradesh High Court in the case of CIT v. Satluj Jal Vidyut Nigam Ltd. reported in [ (2012) 345 ITR 552 (HP)]. As mentioned earlier, the learned DR submitted that the time limit prescribed in sub-section (3) of section 201 does not have application since the payee is a non-resident. The Hon'ble Bombay High Court in the case of Director of Income-tax (International Taxation) v. Mahindra & Mahindra Ltd. (supra) had held even if there is no time limit prescribed under the statute for passing an order u/s. 201(1)/201(1A) of the I.T. Act, a reasonable time limit should be read into the provision. The Hon'ble Bombay High Court had confirmed the Special Bench order of the Tribunal, wherein the time li....