TaxTMI 
TaxTMI 
2026 (8) TMI 665
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....ng facts of the case, the ld. AR of the assessee submits that for purchase of telecom equipments from Ericsson, a Swedish supplier, the assessee sought foreign exchange credit facility from ABN AMRO Bank, NV, Stockholm Branch (in short 'ABN Amro'). The Term Loan was advanced in the foreign currency. The said loan was guaranteed by Swedish Export Credits Guarantee Board-EXPORT KREDIT NAMNDEN (EKN). The assessee entered into four facility agreements with the original lender for availing the Foreign Currency Term Loan. The assessee paid principal amount of the loan and interest thereon to ABN Amro which in turn, to the extent of loans novated remitted the amount to the designated bank account of the novated lenders without any retention. The assessee on the basis of a letter from ABN Amro dated 12.09.2002 (at page 662 of the paper book) and Tax Residency Certificate (TRC) issued by Swedish Tax Authorities dated 11.09.2002 (at page 661 of the paper book) and dated 14.03.2007 (at page 431 to paper book) was under the bonafide belief regarding Swedish tax residence status of the bank, hence, did not deduct tax at source on the interest payments made to ABN Amro. The Assessing Officer (AO....
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....weden (in short Holstein), the ld. AR submits that the payment amounting to USD 43,366/- was made on 18.08.2008. No other payment was made during the relevant period. The assessee did not deduct tax at source, relying on certificate of residence dated 27.02.2009 issued by Swedish Tax Authority in respect of said entity. Copy of said TRC is at page 501 of the paper book. Thus, the assessee was under bonafide belief that Holstein is a tax resident of Sweden. Considering said TRC, the assessee did no deduct tax at source on the interest payment to Holstein. It was subsequently in the year 2017 that the Swedish Tax Agency confirmed that during the period from 01.04.2008 to 31.03.2010 Holstein was not registered as tax payer or tax resident in Sweden within the meaning of India-Sweden Double Tax Avoidance Agreement (DTAA). The ld. AR thus prayed for reversing finding of the CIT(A) in upholding the assessee as, deemed to be an assessee in default under provisions of section 201(1) and 201(1A) of the Act. 3. Per contra, Shri Vikram Singh Sharma representing the department vehemently supporting the impugned order prayed for dismissing appeal of the assessee. The ld. DR submits that ABN ....
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....he CIT(A) decided the issue in favour of the assessee deleting the disallowance made u/s. 40(a)(i) of the Act. Against the findings of CIT(A), the Revenue filed appeal before the Tribunal in ITA Nos.6078 & 6079/Del/2019 inter alia assailing findings of the CIT(A) in deleting disallowance of interest paid to ABN Amro u/s. 40(a)(i) of the Act. The Coordinate Bench after considering submissions of the assessee allowed the ground raised by the Revenue, rejecting assessee's plea of 'bonafide'. For the sake of completeness, the relevant findings of the Coordinate Bench on this issue are extended herein under:- 8. Both sides heard. The short issue for our consideration in the second round of litigation before us is the taxability of interest in the light of factual findings on tax residency status of beneficial owner of the interest paid by the assessee and also the assessee's plea of 'bonafide' in not deducting tax at source on interest payment to ABN Amro. 9. Before proceeding further, it would be imperative to refer to the findings of the Coordinate Bench in the First round of litigation before the Tribunal. The Coordinate Bench in a succinct manner has culled out the....
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.... "the company is registered for taxes as a firm under number 516401-9761". This plea was rejected by the Assessing Officer on the ground that the ABN Amro Bank NV was in fact a Dutch resident and it had a limited tax liability in Sweden in respect of its Swedish sourced income only. Reliance was also placed on the letter dated 17th April 2008 received from the Swedish Tax Authority, in terms of exchange of information provisions under the Indo Swedish tax treaty, which confirmed that the Stockholm branch of ABN Amro bank is liable to income tax Sweden within the meanings of the tax treaty, i.e. Article 7, and that it not a resident of Sweden as required by Article 4 of the treaty. It appears that the demands under section 201(1) r.w.s 195 were also raised on the assessee which are right now pending in appeal before this Tribunal. It was in this backdrop of facts that the claim of deduction for interest paid to ABN Amro Bank, amounting to Rs. 87,83,92,587 was disallowed under section 40(a)(i). The assessee's objection, raised before the DRP, was also rejected. Aggrieved by the disallowance so made, the assessee is in appeal before us. 23. We have heard the rival contentions....
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....countries which are party to the Indo-Dutch DTAA, i.e. in India or in Netherlands, such a person cannot be treated as 'resident of one of the states' for the purposes of the DTAA. Coming to specific tests laid down in the DTAA, as far as 'domicile test' is concerned, in common law, 'domicile' has a somewhat restricted meaning, denoting a fixed and lasting attachment to a country or state with its own separate legal system-one only in each case-which initially is acquired by birth ('domicile by origin'), and capable of being altered later by a personal decision ('domicile by choice'). In the case before us, the assessee-companies were incorporated in United Kingdom and there is nothing on record to even remotely suggest that the assessee-company was domiciled in the Netherlands. Since there can only be one country of domicile and since the assessee-companies are already domiciled in United Kingdom by the virtue of its incorporation in that country, the assessee-companies cannot be said to be domiciled in the Netherlands. Coming to the 'residence test', it is admittedly not the assessee's case that the assessee - companies are residents of Netherlands. Similarly, it is also not in di....
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....erms of art. 4(1) of the Indo -Netherlands DTAA. We are also of the considered view that cases before us clearly fail on this test. 25. In view of the above discussions and bearing in mind the fact that ABN- S did not have any locality related attachment in Sweden which could lead to residence type taxation on global basis, in our considered view, ABN-S cannot be treated as tax resident of Indo Swedish tax treaty. Accordingly, the benefit of Article 11 (3) of Indo Swedish tax treaty cannot be applicable on the ground that the interest remittances are made to ABN-S. However, for the reasons we will now set out, the mere fact that the interest has been remitted to ABN-S and that the benefit of Article 11(3) of Indo Swedish tax treaty or benefit of Article 11(3) of the Indo Dutch tax treaty are not available in respect of these remittances, does not imply that the amounts so paid are taxable in India. 26. We find that there is no dispute about the fact that the ABN- S, was arranger of the loan and there were also other financial institutions termed as 'original lenders' who had actually financed this transaction. The role of the ABN-S, except to the extent of financi....
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....s an integral part of ABN Amro Bank, Netherlands. ABN Amro, Stockholm Branch cannot be treated as tax resident of Sweden, in terms of Article 4 of Indo-Sweden DTAA, hence, Indo-Sweden DTAA will not apply. The transaction of payment of interest shall have to be examined in light of the provisions of Article 11(2) of Indo-Dutch Tax Treaty. In the backdrop of aforesaid definite findings of the Coordinate Bench, the assessee's plea of 'bonafide' for non deduction of tax at source on payment of interest to ABN Amro is to be tested. 11. The assessee has built its plea of 'bonafide' only on the ground that TRC issued by Swedish Tax Authority indicated ABN Amro to be Tax resident of Sweden. The TRC issued by Swedish Tax Authority dated 11.09.2002 is at page 159-160 of the paper book. Except for the said TRC there is no other document on record to show that ABN Amro at any point of time had asked the assessee not to deduct tax at source on the payment of interest or deduct tax at source at concessional rate. The Revenue has been disputing non deduction of tax at source on payment of interest to ABN Amro right through. This is evident from the order passed u/s. 201(1) and 201(1A) of....
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....a of 'bonafide'. 13. Here we would also hasten to refer to observations of Tribunal in the case of Google India P Ltd. vs. JDIT (Int. Taxation) (supra) wherein the plea of bonafide was rejected even after considering the decision rendered in the case of Kotak Securities Ltd. (supra) for the following reason: "253..............A non- obstante clause is usually used in a provision to indicate that the provision should prevail despite anything to the contrary in the mentioned in such non-obstante clause. In case there is any inconsistency or a departure between the non-obstante clause and another provision, one of the objects of such a clause is to indicate that it is the non-obstante clause which would prevail over the other clause [see CIT v. Navabharat Enterprises [1987] 31 Taxman 173/[1988] 170 ITR 332)(AP). Therefore, the plea of bona fide belief has no place in the non-obstante provisions of the Act." For the aforesaid reason as well, the assessee's plea of bonafide is rejected. 14. In light of our above findings, the Revenue succeeds on ground no. 1 of appeal. [Emphasized by us] The Coordinate Bench jettisoned assessee's plea of bonafid....