TaxTMI 
TaxTMI 
TaxTMI 
2025 (6) TMI 1930
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....sideration. Copy of Tax Residency Certificate issued by the Inland Revenue Authority of Singapore is filed in paper book at page no. 1 to 3. The Company is a Category II Foreign Portfolio Investor (FPI) registered with the Securities and Exchange Board of India (SEBI) and the copy of the FPI certificate and the renewal letter dated 31 August 2018 is filed in PB at page no. 4 to 6. The Appellant has subscribed to debt instruments i.e., Non-Convertible Debentures (NCDs), Compulsory Convertible Debenture (CCDs) and Optionally Convertible Debenture (OCDs) issued by its Associated Enterprises (AEs) in India and during the year AY 2020-21, the Appellant earned a total interest income of INR 82,86,22,790 on the aforesaid investment in debentures made in the AEs. The Appellant claimed to be eligible to seek a concessional tax rate of 5.46% (including applicable surcharge and cess) as per section 115A(1)(a)(BA)(ii) r.w.s. 194LD of the Act on the interest earned on aforesaid debentures. However, out of the aforesaid interest only INR 34,73,79,527 pertaining to interest earned on NCDs was offered to tax at the concessional tax rate of 5.46% (including applicable surcharge and cess) as per sec....
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....nated, the instrument should be issued by an Indian company to the specified foreign investors and the interest should be payable during the period specified in the section. No other condition is attached to the nature of the debt security mentioned in the section. It is also seen that under Section 2 of the Companies Act the term 'debenture' includes debenture stock and bonds or any other instrument of a company evidencing a debt. Further, the SEBI Regulations of 2008 relating to issue and listing of debt securities define debt securities to mean non-convertible debt securities, which include debentures and bonds. Certain FAQs issued by SEBI on the secondary market also define the term debenture to mean bonds issued by a company bearing a fixed rate of interest, payable periodically on specific dates where the principle amount is repayable on a particular date on redemption 4. Considering the above and in the absence of any specific definition of bonds in the income-tax Act or in Section 194 LD, the term 'bonds' used in the section should be considered as including non-convertible debentures. The concessional rate of 5% may therefore be allowed in respect of interest on ....
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....e taxable at the rate provided in the said section. Further, section 194LD of the Act provides that any person who is responsible for paying to a person being a Foreign Institutional Investor (FIIs) / Qualified Foreign Investors (QFIs), any income by way of interest, which satisfies the specified conditions, shall, at the time of credit or payment of such income to the account of the payee whichever is earlier, deduct income-tax thereon at the rate of 5.46% (including applicable surcharge and cess). On a bare perusal of section 194LD of the Act, it is evident that the following conditions need to be satisfied for the applicability of the concessional tax rate of 5.46% (including applicable surcharge and cess): * Condition 1: Interest is paid/payable to a FIIs or QFIs * Condition 2: Interest is payable within the time period of 1 June 2013 up to 1 July 2020 (extended up to 1 July 2023 through a subsequent amendment) * Condition 3: Interest is payable on securities specified in the section - i.e., Rupee denominated bond of an Indian company or Government security. * Condition 4: Rate of interest in respect of Rupee denominated bond of an Indian company should not exceed the i....
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.... Section 71 "(1) A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption: Provided that the issue of debentures with an option to convert such debentures into shares, wholly or partly, shall be approved by a special / resolution passed at a general meeting...." 8. Ld. Sr. Counsel has referred to the decision of co-ordinate bench in the case of Heidelberg Cement AG, vs. ACIT, International Taxation, [2022] 143 taxmann.com 79 (Delhi - Trib.), where the bench has held that in absence of a specific definition of bonds in Act, term 'bonds' used in section 194LD of the Act should be considered as including NCDs and accordingly concessional rate of 5 percent was to be allowed. In the said case, relying on the decision of Hon'ble Delhi High Court in the case of Shree Visheshwar Nath Memorial Public Ch. Trust [2010] 194 Taxman 280 (Delhi) bench has set aside the orders passed by the revenue authorities and decided the issue in favour of the assessee and held that a 'debenture' be considered as 'bond' for the purpose of section 194LD of the Act. The relevant extracts of the judgement are: "..........
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....ers, whether convertible or not; 10. The aforesaid makes it patently clear that the two instruments viz., "debenture" and "share" are separate and distinct instruments with separate rights and obligations of both the issuer company and the subscriber. For instance, instrument of debenture is evidence of existence of a debt with the issuing company. Unlike, debentures, instruments in the nature of shares (be it equity or preference) is not in the nature of debt, but form part of the permanent capital of the company, entitling the holder to certain preferential rights, like voting rights, dividend, etc. 11. Further, the issue as to the nature of OCDs / CCDs, viz, whether the same are in the nature of debt or equity, is no longer res-integra. In the case of R.D. Goyal v. Reliance Industries Ltd.: 113 Comp. Cas. 1/ 40 SCL 503, the Hon'ble Supreme Court of India, after detailed analysis of the difference between debenture and shares, noted that the expression "share" has been defined in section 2(46) of the Companies Act, 1956 to mean share in the share capital of a company, while debenture is simply an instrument of debt executed by the company acknowledging its liability to repay th....