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2017 (2) TMI 952 - ITAT MUMBAIInterest income earned on the debt securities - India-Maritius Tax Treaty - AO includes that the assessee being FII and unregistered as a bank in India, the interest income earned by such FII cannot be considered as earning out of bona fide business activities, thus invoked the provisions of section 11(2) of the treaty - the said interest income was proposed to be taxed u/s 115AD of the Income Tax Act, 1961 which provides for taxing such interest income of FII @ 20% - Held that:- We do not agree with the reasoning given by the DRP on the expressions relating to ‘derived from’ and ‘bona fide banking activities’. It is also not a case of the Revenue that the assessee must be doing banking activities in India. Thus, the assessee should be considered as an eligible bank, who earned interest income out of bona fide banking activities. We order accordingly. That leaves us with the other issue relating to the ‘beneficial ownership’ of the interest income earned by the assessee out of FII activities in India. As discussed by us in the preceding paras of this order, the assessee is under obligation to furnish basic data relating to the source of funds that entered into the FII activities in India, the end utilization of the interest income earned by the assessee etc. Assessee must demonstrate that the invested funds beneficially belong to the assessee and the interest income earned out of FII activities in India are also beneficially owned by the assessee. Since, the assessee is claiming DTAA exemptions on the said interest income, the onus is on the assessee to demonstrate that the assessee is not a conduit company for the benefit of any third person and also no back to back transactions are involved in the FII activities of the bank. Further also, the Assessing Officer should understand the expression ‘beneficial ownership’ relates to the international fiscal concept and it should be given such a meaning respecting the secrecy clauses of the assessee, if any. For this limited purpose, we remand this issue to the file of the AO for bringing clarity on various aspects of the issue relating to the ‘beneficial ownership’. Accordingly, Grounds raised by the assessee are allowed protanto. Levy of interest u/s 234B - Held that:- After hearing both the parties and on perusal of the said judgment DIT vs. NGC Network Asia LLC [2009 (1) TMI 174 - BOMBAY HIGH COURT] we find, the said judgment is relevant for the proposition that when a duty is cast on the payer to deduct and pay the tax at source, on payer’s failure to do so, interest u/s 234B cannot be imposed on the payee-assessee. Considering the settled position of the issue, we are of the opinion, Ground no.4 raised by the assessee should be allowed in its favour. Levy of penalty u/s 271(1)(c) of the Act, in our opinion is premature in nature and demands no specific adjudication at this point of time.
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