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2021 (9) TMI 1530 - ITAT DELHIIncome taxable in India - gains arising from transfer of CCDs - taxability as capital gains OR interest income - CIT(A) held that the gains arising to the assessee on the transfer of Compulsorily Convertible Debentures (CCDs) is in the nature of capital gains and shall not be taxable in India under Article 11 of the DTAA between India and Mauritius - HELD THAT:- The issue has been dealt by the Hon’ble Authority of Advance Ruling (AAR) [2012 (4) TMI 154 - AUTHORITY FOR ADVANCE RULINGS] while dealing with Article 11 and Article 13 as held that the entire gains arising to the applicant on the sale of equity shares and CCDs are not exempt from capital gain tax in India under DTAC with Mauritius. The gains arising on the sale of CCDs being interest within the meaning of Section 2(28A) of the Act and Article 11 of the DTAC and are taxable as such. Against the above ruling of AAR the assessee filed writ petition before Hon’ble Delhi High Court [2014 (8) TMI 9 - DELHI HIGH COURT] has decided the issue against the findings of the AAR and has held that pre-mature exit options as recorded in the SHA and the minimum return assumed by Vatika on its investment are clearly commercial agreements between the parties. These by itself do not change the legal nature of the transaction entered into between the parties. The terms of the arrangements between Vatika and the petitioner reveal that the JV was a genuine commercial venture, in which both partners had management rights. The call and put options were defined commercial options capable of being elected by the parties. In our opinion, there is, thus, no reason to ignore the legal nature of the instrument of a Compulsorily Convertible Debenture or to lift the corporate veil to treat the JV Company and Vatika as Single entity. In view of the above, the writ petition is allowed and the impugned ruling is set aside. As held that the revenue has not accepted the above order of Hon’ble Delhi High Court and has filed SLP before Hon’ble Supreme Court which is pending for adjudication and made addition on the amount in contravention to the existing ruling of the Hon’ble Jurisdictional High Court. Thus grounds raised by the revenue that the appeal has been filed before the Tribunal solely based on the foundation that the SLP filed by the revenue has been admitted and notice has been issued in this case. Since, at this juncture the order of the Hon’ble High Court prevails on the substantive question of law which stands adjudicated in favour of the assessee, we hereby dismiss the appeal of the revenue.
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