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2017 (3) TMI 674 - AT - Income TaxTDS u/s 195 - Assessee in default as per the provisions of section 201(1) - non TDS on interest payments - India - Mauritius DTAA - Held that:- While remitting the interest payments to SCB (Mauritius) Limited in the financial years 2005-06, 2006-07 and 2007-08, the assessee did not withhold tax by relying on the provisions of Article 11(3) of the India Mauritius tax treaty which provide that where the interest income is derived and beneficially owned by a bank (which is a resident of Mauritius) carrying on a bonafide banking business, such interest income is exempt from tax in India. Ballarpur Industries Ltd (B-lLT) also a company incorporated in India, engaged in manufacturing and export of paper for the payment of interests and principal amount to Standard Chartered Bank, Mauritius, the assessee did not deducted at source relying upon the Certificate of their Chartered Accountant Certificate. The stated reason in support of the Certificate was stated to be Article 11 of DTAA between India and Mauritius. The AO apart from other reasons was of the view that there was no transaction of the assessee with Standard Chartered Bank, Mauritius as the said bank according to the AO was neither recipient of the beneficial owner of the interest. It was held that the interest is taxable as per the provisions of section 115A(1)(a)(ii) of the Act in the case of the payee. The assessee was deemed to have been assessee in default as per the provisions of section 201(1) of the Act with regard, tax was not deducted. Interest under section 201(1A) was also charged raising a total demand of ₹ 7,57,32,656. The assessee challenged the order before the CIT(A) both on merits as well as on jurisdiction and the limitation grounds. However, the Ld. CIT(A) while deciding the appeal on merits and failed to address the jurisdictional issue and on the limitation issue, he failed to give any finding. Thus we find that the impugned order cannot be upheld. As per settled legal precedents the Ld. CIT(A) ought to have first decided the jurisdictional issue and only thereafter should have proceeded to decide the issue on merits if so warranted in law. It is only when the jurisdiction of the AO is held to be established that the CIT(A) was required to decide the issue on merits. Without having addressed the jurisdictional issue the decision on merits has to be set aside back to the CIT(A) with a direction to decide the issues denovo after giving the assessee a reasonable opportunity of being heard.
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