Home Case Index All Cases Income Tax Income Tax + AAR Income Tax - 2019 (7) TMI AAR This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (7) TMI 1848 - AAR - Income TaxIncome taxable in India - interest earned by the applicant from secured, redeemable, non-convertible debentures (NCDs) of JKL Ltd. - whether taxable at the rate of 10 per cent. in the hands of the applicant as per article 11(2)(a) of the India-Singa pore tax treaty - Liability to withhold taxes at the rate of 10 per cent. based on the provisions of section 195 read with article 11(2)(a) of the India-Singapore tax treaty on payment/credit of interest on non-convertible debentures to the applicant - HELD THAT:- Applicant is approved as merchant banker under section 28 of the Monetary Authority of Singapore Act. Under MAS framework, the merchant banker falls under umbrella term financial institution. It is also undisputed that the applicant is not a bank as otherwise it would have been approved so under the Banking Act (Cap.19) - the applicant has not secured any banking licence under the Reserve Bank of India. On the basis of the activities elaborated the learned authorised representative has laboured hard to justify that the applicant is a similar financial institution eligible for concessional rate under India-Singapore treaty. The applicant is a foreign institutional investor and has no mandate to grant loans. Even otherwise the Indian entity, i. e., JKL Ltd. requires to comply with external commercial borrowing (ECB) and Foreign Exchange Management Act guidelines in order to raise loans from foreign entity and for issuing non-convertible debentures no such guidelines need to be followed. For argument sake even it is taken that the activities of the applicant permit giving loans as per the Monetary Authority of Singapore Act and memorandum of association, in the instant case, the applicant has only invested in debentures of JKL Ltd. and not granted any loan. Thus, we hold that investment in non-convertible debentures of JKL Ltd. does not tantamount to granting of loan and neither the activity is similar to granting of loan and the applicant cannot be covered under the category of similar financial institution as per India-Singapore treaty and is not entitled to concessional rate of 10 per cent. The recourse of learned authorised representative to Organisation for Economic Co-operation and Development and United Nations Commentaries are of no avail once it is held that the transaction in question is not of granting of loan similar to that by bank carrying banking business. We are in agreement with the learned authorised representative that the applicant's case falls under article 11(2)(b) of the India-Singapore treaty and the applicant is eligible for lower rate of 15 per cent. in comparison of rate of 20 per cent. laid down in section 115AD of the Income-tax Act for the simple reason that the applicant is well within its rights to choose more beneficial provisions between treaty and local tax laws. Ruling: Question No. 1 - The interest earned by the applicant on non-convertible debentures of JKL Ltd. is taxable at the rate of 15 per cent. as per article 11(2)(b) of the India-Singapore tax treaty. Question No. 2 - JKL Ltd. is liable to withhold tax at the rate of 15 per cent. under the provision of section 195 of the Income-tax Act on payment of interest to applicant.
|