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2023 (1) TMI 1312 - AT - Income TaxChargeability of redemption premium on FCCBs borrowed from outside India and utilized for the purpose of making investments or loans to overseas subsidiaries in the hands of the recipient of such premium - TDS u/s 196C r.w.s. 115 AC on the interest payable on FCCBs - assessee had remitted ‘FCCBs’ without deduction of tax at source, thus should be treated as “an assessee in default” u/s 201(1) - as per CIT(A) no interest income had accrued to the non-recipient in terms of provisions of section 5(2) r.w.s. 9(1)(v) - whether both sections 5(2) and 9(1)(v) of the Act, are applicable to determine the situs of interest income in case of non-resident? - HELD THAT:- As per scope of the provisions of section 9(1)(v) explained by the CBDT Circular dated 05.07.1976 it would be cleared that the interest paid by the resident in respect of loan that was incurred or money borrowed utilized for the purpose of making or earning any income from outside India is not taxable in India. In the present case, it is not disputed that FCCBs were utilized for the purpose of making investments in share of overseas subsidiaries or on the loans given to overseas subsidiaries. No doubt, the redemption premium partakes interest as defined u/s 2(28A) of the Act, however, by virtue of exclusive clause of the provisions of section 9(1)(v), the interest income in the hands of recipient cannot be said to have accrued or arisen in India. When the income has not arisen in India in the hands of recipient/non-resident, there is no obligation on the part of the respondent-assessee to deduct tax at source on payment of interest as held by GE India Technology Cen. (P.) Ltd [2010 (9) TMI 7 - SUPREME COURT] followed by Karnataka Power Transmission Corporation Ltd [2016 (2) TMI 412 - KARNATAKA HIGH COURT] We find that the order of the ld. CIT(A) is in consonance with the legal position discussed above. Therefore, the order of the ld. CIT(A) is just, proper and reasoned order. Thus, we do not find any reason to interfere with order of the ld. CIT(A). Penalty u/s 271C - failure on the part of the assessee to deduct tax at source on the redemption premium - HELD THAT:- As Tribunal sustained the findings of the ld. CIT(A) in quashing of the order u/s 201(1) of the Act. Since the basis on which the penalty was levied, no longer survive, therefore, the penalty order cannot be sustained in the eyes of law. Therefore, the ld. CIT(A) rightly deleted the penalty levied u/s 271C.
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