TaxTMI 
TaxTMI 
2023 (2) TMI 789
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.... justice. 2. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making an adjustment of Rs.26,58,12,530/- as income in the hands of assessee company on account of notional interest, is bad in law and against 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 considering/appreciating the following submissions of the assessee. * That the return filed for the year under consideration has not been treated as non-est/nullity in the eyes of law. * That the assessee company is incorporated outside India and no income accrued or arose or deemed to accrues or arise in India to the assessee company and thus the assessee company is not liable to file Income Tax Return in India. * That no interest was 'paid' to the assessee company. * That the impugned interest income is not taxable in view of the provisions of DTAA between India and Cyprus as the amount was never paid by AE's. Therefore, the reference made to TPO was illegal, the adjustment proposed by the TPO is illegal and con....
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.... FCDs have been converted into 0% FCDs without assigning any reason. Therefore, by applying internal CUP as most appropriate method. Further, the TPO charged the interest on FCDs as the same rate of 15% as was being charged prior to 01/01/2009. The income generated during the year under consideration was only interest income on FCDs which was offered to tax at the treaty rate of 10%. Thus, the TPO has determined the Arms Length Price and made adjustment of Rs.26,58,12,530/- in following manners:- Name of the A.E No. of FCD Face Value Date of Issue No of days Interest@15% Total interest charged ALP of interest on FCD Opening Balance 10891745 1089174500 365 163376175 163376175 ARVPL 22247 2224700 29.08.2012 213 194737 194737 ERVPL 8238045 823804500 02.06.2011 297 100549289 100549289 ERVPL 174400 17440000 30.08.2011 212 1519430 1519430 SRVPL 14359 1435900 06.06.2011 293 172989 172898 Total Adjustment 265812530 5. The assessment order came to be passed on 18/04/2016 u/s 143(3) r.w.s 144C(3) of the Act in continuation with the order passed by the ....
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.... or a local authority of the other Contracting State; or (b) in the case of India, the Reserve Bank of India, the Export- Import bank of India, the National Housing bank; and (c) any other institution as may be agreed upon from time to time between the Competent authorities of the Contracting States through exchange of letters. 4. The term " interest" as used in this Article means income from debt claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor 's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late 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 sit....
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....r technical services, this Court had confirmed the decision of tribunal holding that such service can be taxed only on receipt . This decision was later on followed in Income Tax Appeal No. 1033/11 dated 20/11/2012 and thereafter in Income Tax Appeal No.2356/ 11 and connected Appeals vide the order dated 07/03/2013. 9. On the same principle, the Appeal is dismissed. " 13. We have also gone through the order of the Co-ordinate Bench of ITAT in the case of DCIT Vs. TMW ASPF i Cyprus Holding Company Ltd. in ITA No. 879/Del/2016 dated 09.08.2019. 14. In the appeal filed by the revenue against the order of the ld. DRP reads as under: "( i) Whether on the facts and in the circumstances of the case, the DRP erred in holding that as per Article 11(1) and (2) of Indo- Cyprus DTAA, interest income is chargeable 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....
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.... pricing adjustment on interest which has neither been received nor accrued to the assessee cannot be held to be chargeable in terms of the Income Tax Act read with Article 11(1) of DTAA. Here it cannot be the case of accrual of interest also, because none of the investee companies have acknowledge that any interest payment is due, albeit they have been requesting for waiving of interest of even coupon rate of 4%, leave alone the return of 18% which was dependent upon some future contingencies. Assessee despite all its efforts has acceded to such request. Further, in the India Cyprus DTAA wherein similar phrase has been used pertaining to FTS and Royalty in India Cyprus DTAA, Hon'ble Bombay High Court held that assessment of royalty or FTS should be made in the year in which amount have actually received and not otherwise. The coordinate bench of Mumbai ITAT in the case of Pramerica ASPF I I Cyprus Holding Ltd. vs. DCIT (supra) on exactly similar set of facts, addition on account of notional interest was made; the Tribunal has held that the interest income in question can only be taxed on payment /receipt basis. The relevant observation has already been incorporated above. The ....