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TMI Blog2012 (5) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... t of interest free loan of Rs.28,00,000,00/- granted to sister companies?" 2. Before examining the aforesaid issue, we record that the Revenue has raised another issue/aspect, which relates to failure of the assessee to deduct tax at source on payment of US $ 86250 (Rs.75,90,001/-) on two occasions to M/s. HOK International (Beijing) Limited for the architectural work undertaken by them. 3. The tribunal has referred to the Article 14 of the Double Taxation Avoidance Agreement between India and China, which reads:- "ARTICLE 14 - Independent Personal Services "1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that Contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said income is taxable. In the present case, M/s. HOK International (Beijing) Limited was a China based company and had rendered "professional services" from there. No amount therefore will be taxable in India. The assessee was not liable to deduct tax at source on the said services and the tribunal has rightly held that Section 40(a)(ia) is not attracted. 6. The tribunal while examining the question of law mentioned above has reproduced the findings recorded by the Assessing Officer in paragraph 2 of the order and then quoted the findings recorded by the CIT (Appeals), who had deleted the said addition. For the sake of completeness, we are reproducing the findings recorded by the Assessing Officer and the CIT (Appeals):- Finding of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance the company's project with interest free loans. The plea of the assessee is not acceptable. Therefore, income attributable on interest free loans to the extent of interest paid is treated as income of the assessee, which comes to Rs.65,31,884/- (63,08,097/- + 2,23,787)." Finding of the CIT (Appeals) "4.6. I have perused the details along with the submission made by the assessee. I have also considered the Remand Report of the AO. I find that the notional income assessed by Assessing Officer as income does not have any corroboration with the interest bearing funds. Moreover, the assessee has noninterest bearing funds available with it which has not been denied by the Assessing Officer to cover the interest free loans given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received as advance payment from group companies. The Assessing Officer after examining the factual matrix came to the conclusion that the assessee had advanced interest free loan of Rs.28,00,000,00/- to some of the group companies. The said group companies had not paid advance deposit for booking of flats. At the same time, the assessee had borrowed money from the banks and had paid interest of Rs.63,08,097/- and Rs.2,23,787/- (total Rs.65,31,884/-) to the banks. 9. The advances were paid by the customers including group companies, who had booked flats. The contention raised by the learned counsel for the Revenue is that these advances cannot be treated as interest free loans given by third parties or group companies to the respondent-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done." "32. It is true that the borrowed amount in question was not utilised by the assessee in its own business, but had been advanced as interest-free loan to its sister concern. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency." x x x x x x "36. We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if ..... X X X X Extracts X X X X X X X X Extracts X X X X
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