TMI Blog2019 (11) TMI 1045X X X X Extracts X X X X X X X X Extracts X X X X ..... ally not been taken place during the year. The aforesaid decision of the Coordinate Bench squarely applies to the assessee s case, since, not only the facts involved are more or less common but the relevant provisions of the applicable DTAAs i.e. Article 11(1) of both India Mauritius and India Cyprus treaties are identically worded. No contrary decision has been brought to our notice by the learned Departmental Representative. Even, the Revenue is unable to prove that interest on CCDs was actually received by the assessee. Therefore, we hold that the addition made on account of transfer pricing adjustment is unsustainable as the assessee has actually not received any interest income, hence, would be protected by Article 11(1) of India Mauritius tax treaty. Since, the treaty provision is more beneficial to the assessee as per section 90(1) of the Act, it will override all other provisions of the Act. Additions made are deleted. - Decided in favour of assessee. - ITA no.6821/Mum./2017, ITA no.1499/Mum./2014, ITA no.7359/Mum./2016 - - - Dated:- 15-11-2019 - Shri Saktijit Dey, Judicial Member And Shri N.K. Pradhan, Accountant Member For the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the assessee on account of waiver of interest. It was submitted, even VCPL has not claimed any deduction in respect of interest on CCDs. After considering the submissions of the assessee, the Transfer Pricing Officer did not find merit in them. He observed, the assessee has bought CCDs from its AE in Mauritius for a consideration of ₹ . 34.3 Crore and carrying coupon rate of interest of 12% per annum. He observed, at the time of purchase of debentures the investor considers the coupon rate for the purpose of making investment. The coupon rate represents the fair return that the investor can expect on this investment made in the debentures. He observed, the assessee is also holding around 26% shares in VCPL. The Transfer Pricing Officer observed, the assessee company has waived the interest to help its AE. Therefore, he held that the interest due on the debentures has to be adjusted to the income of the assessee. Accordingly, he computed the interest on debentures at the rate of 12% per annum and worked out adjustment in different assessment years on the basis of period of holding of debentures. The adjustment made in this regard in different assessment years are as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the transaction between BPTP Limited and BPCL Limited being a controlled transaction cannot be applied as CUP. He observed, as per the scheme of the Act income from international transaction is to be treated as additional and separate source of income and such income has to be determined having regard to the arm s length principle. Thus, ultimately, learned Commissioner (Appeals) sustained the addition made on account of transfer pricing adjustment on interest on debentures. It is relevant to observe, in assessment year 2012 13 the assessee additionally pleaded that as per Article 11 of India Mauritius treaty, interest is taxable only on paid/receipt basis. It was submitted, since, no interest was paid, there is no question of any interest income accruing to the assessee. Hence, the question of determining arm's length price would not arise. It was submitted, the assessee should be given treaty benefit as per Section 90 (1) of the Act. However, the aforesaid contention of the assessee also did not find favour with the first Appellate Authority. 5. Shri. Percy J. Pardiwala, learned Senior counsel for the assessee submitted, the short issue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) Vodafone India Services Pvt. Ltd v/s DCIT, [2014] 368 ITR 1 (Ahd.); ii) DCIT v/d M/s. PMW ASPF I Cyprus Holding Co. Ltd. ITA no. 879/Del./2016, dated 09.08.2019. 5. The learned Departmental Representative strongly relying upon the observations of learned Commissioner (Appeals) submitted, the Transfer Pricing Officer is mandated under the act to determine the arm's length price of any international transaction by applying any one of the prescribed method. He submitted, the TP provisions having been brought into the statue as anti avoidance measure have to be applied notwithstanding the other provisions of the Act. Therefore, he submitted, determination of arm's length price under the TP provision would not be governed by the provisions of DTAA. Thus, he submitted, the contention of the assessee that under Article 11(1) of the India Mauritius tax treaty interest income is chargeable only on receipt basis should not be accepted. Without prejudice, he submitted, the submissions of learned Senior counsel with regard to applicability of DTAA is taken for the first time before the Tribunal and was never argued before the departmental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has not been disputed by the Revenue. Therefore, the validity of TP adjustment on account of interest on debentures has to be examined keeping in view the treaty provision. Article 11(1) of the India Mauritius treaty which is relevant for our purpose reads as under: 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 7. The language used in the aforesaid Article is interest arising and paid . Therefore, what is chargeable to tax under Article 11(1) of the treaty is the interest paid to the recipient. The expression paid as used in Article 11(1) of the India Mauritius tax treaty has come up for judicial scrutiny and interpretation in various cases as the same term has been used in various other treaties, though, in similar as well as different context. In case of Director of Income Tax (International Taxation) Vs. M/s Siemens Aktiengesellschaft, Income Tax Appeal No.124 of 2010 dated 22.10.2012 the Hon ble Bombay high court while interpreting similar terminology used in Article IIX-A of India- Germany DTAA with reference to royalty and fees for technical service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avoidance/evasion. In a recent decision in case of DCIT (International Taxation) Vs. M/s TMW ASPF i Cyprus Holding Company Limited, (supra), the Coordinate Bench while considering identical issue of taxability of interest income on accrual basis by applying TP provisions has held as under: 17. We have heard the rival submissions and also perused the relevant findings given in the impugned orders and the materials referred to before us. The assessee is a Cyprus based company engaged in the business of making investment in real estate sectors via fully convertible debentures. It was due to these investments in the investee companies that they are treated as associated enterprises as per the provisions of TP. As per the agreement between the investee companies and the assessee, the assessee was entitled to a coupon rate of 4% and further post the conversion of FCCDs into equity shares, the promoters of the Indian Companies would buy back shares at an agreed option price. The option price was stipulated to be such that the investor gets the original investment paid on subscription to the FCCD s plus a return of 18% per annum. Undisputedly, the assessee has only rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Waiver of interest DD Housing Ltd. 16 Oct 2006 146,82,00,000 Not converted Nil Waiver of interest with effect from Sep 16, 2008 (including interest for the full subject year) Supreme Buildcap Pvt. Ltd. 22 Dec 2006 75,00,00,000 Converted on 11 May 2010 Nil Waiver of inter est with effect from Sep 15, 2009 (including inter est for 1 month 11 days pertain ning to the subject year) Ritesh Spinning Mills Ltd. 16 Feb 2007 30,00,00,000 Not converted 60,46,895 (For Half the year) Waiver of inte rest with effect from Sep 15, 2010 granted orally as per mutual agree ment (including second install me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arising from international transactions with regard to the ALP. Only the interest income chargeable to tax can be subject matter of transfer pricing in India. Making any transfer 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 II Cyprus Holding Ltd. vs. DCIT (supra) on exactly similar set of facts, addition on account of notional interest was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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