TaxTMI 
TaxTMI 
2021 (9) TMI 529
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....st the facts and circumstances of the case. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in rejecting the analysis followed by the appellant and in determining the price of the impugned transaction on the basis of TPO's order. 4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not giving due cognizance to the fact that the appellant had to undertake stewardship activities by financial supporting their group companies and reducing their financial burden. 5. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not giving due cognizance to the fact that it was a case of business exigency and commercial expediency that associated enterprises had to convert and issue fresh FCD at 0% especially considering that the AEs had not remitted the interest accrued earlier as well. 6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the actio....
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....l CUP as MAM. The TPO charged the interest on FCDs as the same rate of 15% as was being charged prior to 01.01.2009. It has further been submitted that the income generated during the subject year was only interest income on FCDs which was offered to tax at the treaty rate of 10%. 6. Thus, the TPO made adjustments on the interest earned from various investee entities of Rs. 4,02,72,970/- which is as under: Name of the AE No. Of FCD(15%FCD) Face Value of FCD Interest(A) Fresh0%FCD Face Value of FCD Interest(B) Total Interest Charged (A+B) ARVPL 13,34,140 13,34,14,000 49,34,490.4 9,648 9,64,800 39252.8 49,73,743.23 PRVPL 62,19,847 62,19,84,700 2,30,04,913.6 NIL NIL NIL 2,30,04,913.56 SRVPL 16,74,830 16,74,83,000 61,94,576.7 14,94,971 14,94,97,100 60,82,279.3 1,22,76,855.99 ERVPL NIL NIL NIL 4,291 4,29,100 17,457.9 17,457,90 Total 3,41,33,980.7 61,38,990.00 4,02,72,970.68 7. Aggrieved the assessee filed appeal before the ld. CIT(A) who held that the word "interest paid" includes "interest payable". 8. The verbatim of the order of the ld. CIT(A) is as under: Decision "I have considered the argume....
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....ate payment shall not be regarded as interest for the purpose of this Article. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises, "Trough a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply. 6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establis....
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....able to tax on paid basis when the usage of the word 'paid' always includes 'payable' and vice versa. (ii) Whether on the facts and in the circumstances of the case, the DRP erred in observing that it has been judicially held in various case laws relied upon by the assessee that as per Article 11(1) and (2) of Indo- Cyprus DTAA, interest income is chargeable to tax on paid basis when there are no such findings in any decision cited by the assessee before the Hon'ble DRP." 15. While adjudicating the core issue, it was held as under: India Cyprus DTAA Article 11(1) of India-Cyprus DTAA: "Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State." 20. The aforesaid para envisages that for taxing the interest income in the hands of a non-resident, it is necessary that the interest should arise in a contracting state, i.e., twin conditions of accrual as well as the payment are to be satisfied. If there is no accrual or actual payment received then same is to be decided within the scope of Article 11(1). What the TPO/AO have sought to tax is that, assessee was supposed to receive interest of....