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2019 (9) TMI 302 - AT - Income TaxBenefit of India - Cyprus Double Taxation Avoidance Agreement (DTAA) - income on compulsorily convertible debentures (“CCD”) issued by ABPL to the Appellan - back-to-back transaction lacking economic substance - AO taxing the entire amount of interest income received by the Appellant at 40% (plus surcharge and cess) and denying the Appellant relief of beneficial rate or interest at 10% under Article 11 of the India - Cyprus DTAA HELD THAT:- Mere fact that the CCDs were funded using monies received by the appellant from its immediate shareholder does not make the arrangement a back-to-back transaction. The appellant had the absolute control over the funds received from its immediate shareholder. Further, in the instant case the appellant wholly assumed and maintained the foreign exchange risk on the CCDs (as they were INR denominated), and the counter party risk on interest payments arising on the CCDs. In the instant case, the AO/DRP have failed to prove that (i) the appellant did not have exclusive possession and control over the interest income received, (ii) the appellant was required to seek approval or obtain consent from any entity to invest in ABPL, or to utilize the interest income received at its own discretion and (iii) the appellant was not free to utilize the interest income received at its sole and absolute discretion, unconstrained by any contractual, legal, or economic arrangements with any other third party. The transaction between the appellant and ABPL cannot be considered a mere back-to-back transaction lacking economic substance. Therefore, we direct the AO to accept the return of income filed by the appellant for the impugned assessment year disclosing a total income from interest on CCDs in ABPL, wherein it has offered such interest to tax @ 10%. - Decided in favour of assessee
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