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2013 (1) TMI 518 - AT - Income TaxInterest payable on FCCBs - Liability to TDS u/s 196C r.w.s. 115AC - applicability of sections 5(2) and 9(1)(v) - whether interest income is accruing or arising to the non-resident investors in India? - Held that:- As per the provision of Section 5(2) in the case of non-resident, scope of total income includes all income from whatever source which are received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise to such non-resident in India and the provisions of Section 9(1)(v) are regarding the conditions under which income can be deemed to accrue or arise in India in respect of interest payable by a person who is resident in India as per clause (b) of Section 9(1)(v). Hence, there is no contradiction in the provisions of these two sections and there is no overriding effect of anyone provisions over the other provisions. Hence, for the purpose of examining as to whether any income is deemed to accrue or arise in India or not, the applicability of the provisions of Section 9(1)(v)(b) is to be examined and for the purpose of examining the scope of total income of a non-resident, applicability of the provisions of Section 5(2) which includes income received in India, income deemed to be received in India, income accruing or arising in India and incomes deemed to accrue or arise in India. Hence, it is seen that for the purpose of holding that any income is taxable in the hands of non-resident, it has to be shown that either any income is received by him in India or such income is deemed to be received in India or any income is accruing or arising to him in India or any income is deemed to accrue or arise in India. As in the present case it does not come out from the finding of the A.O. as to on what basis, it is stated by him that the income has accrued or arisen in India. It cannot be said that interest income has accrued or arisen in India in all cases where the payer is an Indian resident because if that be so, then the provisions of clause (b) of Section 9(1)(v) becomes redundant. The only basis adopted by the A.O. for holding that the interest income has accrued or arisen in India is this that the payer is an Indian company and he has totally ignored this aspect of the matter as to where the money lending transaction has taken place. This is admitted factual position that money lending transaction has taken place outside India and hence, it cannot be said that the interest has accrued or arisen in India as per this judgment of Hon'ble Madras High Court in C.G. Krishnaswami Naidu v. CIT [1965 (9) TMI 38 - MADRAS HIGH COURT]. The case of the assessee is falling under clause-b of Section 9(1)(v) because in the present case, the money borrowed was utilized for the oversees business of the assessee company and the assessee has not deducted tax in respect of that portion of interest payment which is relating to borrowing for investment outside India and hence, as per this clause also, no income can be said to have deemed to accrue or arisen in India in the hands of non-resident investors and therefore no TDS is deductible - no hesitation in holding that interest payment by the assessee to non-resident investors cannot be said to have accrued or arisen in India and it also cannot be said that this interest income can be deemed to have accrued or arisen in India. Therefore, no TDS is to be deducted by the assessee from this payment in question - in favour of the assessee
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