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TMI Blog2013 (1) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... as remitted interest from India as its liability duly recognized in his books of account prepared for Indian regulatory authorities, resulting into income accruing and arising to the non-resident under section 5(2) of the Act for which the deeming provisions of section 9(1) are not applicable. 3. The ld. CIT(A) erred in law and on facts in holding that both sections 5(2) and 9(1)(v) of the Act, are applicable to determine the situs of interest income in case of non-resident. 4. The ld. CIT(A) erred in law and on facts in holding that the interest paid by the appellant on its FCCBs is covered by exception to Section 9(1)(v) (b) of the Act and consequently it falls outside the ambit of deemed income arising and accruing in India and as a result out of Section 5 also. 5. The ld. CIT(A) erred in law and on facts in holding that there is ambiguity in determining whether income has been received or arisen in India and thus there is a need to travel from Section 5(2) to Section 9(1) of the Act. 6. The ld. CIT(A) has erred in law and facts in not considering the view of the Assessing Officer that the assessee-company had been deducting ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion that the charging provisions of section 5(2) is controlled by another charging provision in section 9(1). The Assessing Officer has further quoted extensively from a number of decisions, namely the decision of Hon'ble Supreme Court in the case of Performing Rights Society v. CIT 106 ITR 11 and that of Hon'ble Allahabad High Court in the case of Hira Mills Ltd. Cawnpur v. ITO 14 ITR 417 as also from the commentary of Kanga, Palkhiwala & Vyas. On the strength of above, the Assessing Officer came to the conclusion that the income derived from the non-resident bondholders is chargeable u/s.5(2) as the income accrued in India and once it is covered u/s.5(2) as section 9(1)(v)(b) is not applicable. 2.1.1. The Assessing Officer, in para-4.8 to 4.11 of the assessment order, went further to establish that even if we take the provisions of section 9(1)(v)(b), the appellant's case is not covered by the exclusions stated therein. It will be worthwhile to reproduce the reasons advanced by the Assessing Officer for the exclusions being not applicable: "4.10 First exclusion covers the cases where the interest is paid by the resident and money raised in used by such person for the busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A), who has decided the issue in favour of the assessee and it was held by him that assessee company was not liable to deduct tax at source u/s 196C read with Section 115AC on the interest payable in July, 2008 and June, 2009 on FCCB issued in January, 2007 and now the Revenue is in appeal before us against this decision of ld. CIT(A). 5. It was submitted by ld. D.R. of the Revenue that interest payment on FCCB is chargeable to tax in the hands of non-resident investors u/s 5(2) itself and therefore, Section 9(1)(v)(b) has no applicability in the present case. He drawn our attention to para No.4.3 of the order passed by the A.O. u/s 201(1) and 201(1A) where it is noted by the A.O. He also submitted that funds are brought in India and interest is paid from India by an Indian company through an Indian bank and hence, the interest has accrued and arisen in India. Reliance was placed on the judgment of Hon'ble Apex Court rendered in the case of Performing Right Society Ltd. v. CIT reported in 106 ITR 11 and also on the judgment of Hon'ble Allahabad High Court rendered in the case of Hira Mills Ltd. Cawnpur v. ITO 14 ITR 417. He further drawn our attention to para No.2.3 of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention is also drawn to page No.178 of the paper book which specifies that the use of proceeds of this FCCB issued including the proceeds from the exercise of the over allotment of fund wherein it is specified that the same should be used by the issuer for making overseas direct investment in its Singapur subsidiary such as Adani Shipping PTE Ltd., Adani Global PTE Ltd. etc. Our attention was also drawn to page No.240 of the paper book which specify the terms of payments and interest etc. and it was pointed out that the interest is required to be paid by way of transfer to the registered account of the bond holder or by US dollar cheque drawn on a bank of New York mailed to the registered addresses of the bond holder and all payments in respect of the bonds are subject in all cases to any applicable fiscal or other laws and regulations in New York city. Regarding governing law and jurisdiction, it is submitted that as per page No.254 of the paper book, these terms and conditions shall be governed by and considered in accordance with English law and the Courts of England and Walls have jurisdiction to settle any dispute which may arise regarding these terms and conditions. Our a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature thought it appropriate to clarify and specifically bring such situation on record about which there should not be any dispute about the accrual. As stated in the preceding paragraph, as the international law has evolved, this kind of situation must have been envisaged by the legislature and hence the need to put a section to clarify the situation. The circular dated 01/06/1976 referred to above vindicates looking at the issue from this angle. 2.3.11. Therefore considering all aspects, in my view, both the sections 5(2) and 9(1)(v) are applicable to determine the situs of the interest income in case of non-resident. 2.3.12. As per the facts of the present case, as discussed earlier, the monies of the debts raised in foreign currencies by the assessee are primarily invested in the foreign subsidiary, which in turn is involved in financing further business abroad. Part of those funds which have not been invested in the subsidiary has been placed in banks abroad. It was further stated that the interest income received from the Time Deposits placed outside India was offered for taxation. 2.3.13. Therefore, if we were to test the deployment of foreign borrowing though the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n-necessity of filing the return is mentioned. Therefore, the appellant's arguments stand to reasoning that if a non-resident's interest income is not taxable, section 115AC shall not apply. The various provisions come into operation once it is known that the concerned interest income is taxable in India. 2.3.17. Section 196C is the corresponding section of TDS for incomes referred to in section 115AC. While section 195, the other section dealing with TDS on interest, has a subsection i.e. 195(2) wherein if the person responsible for making payment considers that whole or part of the same under reference are not chargeable to tax, he can approach the Assessing Officer, no such specific provision has been made u/s 196C. Since there cannot be such patent inequity in dealing with income of same nature, say interest, from two sources, namely conventional borrowing vis-à-vis foreign currency bonds, the argument that section 115AC and section 196C deal with only chargeable income gets further strengthened. This is further vindicated by the fact that while section 195 talks of 'such sum', section 196C talks of only 'income'. Similarly, some of the case laws cited like Transmission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions under which income can be deemed to accrue or arise in India in respect of interest payable by a person who is resident in India as per clause (b) of Section 9(1)(v). Hence, there is no contradiction in the provisions of these two sections and there is no overriding effect of anyone provisions over the other provisions. Section 9(1)(v) only defines the conditions under which interest payment by a resident of India to the non-resident is deemed to accrue or arise in India. Hence, for the purpose of examining as to whether any income is deemed to accrue or arise in India or not, we have to examine the applicability of the provisions of Section 9(1)(v)(b) and for the purpose of examining the scope of total income of a non-resident, we have to examine to applicability of the provisions of Section 5(2) which includes income received in India, income deemed to be received in India, income accruing or arising in India and incomes deemed to accrue or arise in India. Hence, it is seen that for the purpose of holding that any income is taxable in the hands of non-resident, it has to be shown that either any income is received by him in India or such income is deemed to be received in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of Hon'ble Apex Court is not applicable in the present case because the facts are different. 10. Now we consider the applicability of the judgment of Hon'ble Allahabad High Court rendered in the case of Hira Mills Ltd. Cawnpur (supra). In that case, the issue in dispute was whether profits and gains on sales were assessable to income tax on the ground that they were received in India by or on behalf of assessee within the meaning of section 4(1)(a) and also Section 4(1)(b) of 1922 Act and also on the ground that income have accrued or arose to the assessee in British India within the meaning of Section 4(1)(c) of 1922 Act. Under these facts, it was held in the facts of that case that the income was received in British India on behalf of assessee and it has also accrued or arisen to the assessee in British India and hence, taxable in British India. In the present case, this is not the allegation of the A.O. that the income was received in India by or on behalf of the assessee and hence, this part of this judgment is not applicable at all in the present case. Regarding second part i.e. regarding accruing or arising of income in India, as has been alleged by the A.O. in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the payer is an Indian resident because if that be so, then the provisions of clause (b) of Section 9(1)(v) becomes redundant. In that clause (b) of Section 9(1)(v), an exception has been carved out in respect of interest payable by a person who is resident and the exception is this that where the interest is payable in respect of his debt incurred and the money borrowed outside India and was used for the purposes of business carried on by such person outside India or for the purposes of making investment outside India. This goes to show that in a case where the interest is payable in respect of any debt incurred or money borrowed and used for the purposes of a business or investment outside India, then such interest income cannot be said as even deemed to accrue or arise in India. Hence, this is not the deciding factor regarding place of accrual or arising that who is payer of the interest. There are several judgments on this aspect as to where the income has accrued or arisen. These judgments are taken note of by the Tribunal in para No.15 of its order rendered in the case of Credit Agricole Indosuzz (supra). One judgement so noted is of Hon'ble Madras High Court rendered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are received in India or which has accrued or arisen in India. In addition to this, this is also to be included in the total income of non-resident if income is deemed to be received in India or income is deemed to accrue or arise to non-resident in India. In our considered opinion, deemed to be received in India and deemed to accrue or arise in India increases the scope of taxability in India in addition to income received in India and income accrued or arisen in India. If an income is not received in India, it can be deemed to be received in India in some specific situations and similarly, even if any income has not accrued or arisen in India, it can be deemed to arise or accrue in India under some given situations but if an income has actually been received in India or has actually accrued or arisen in India, it cannot be part of deemed to be received in India or deemed to accrue or arise in India because what has actually been received in India or what has actually accrued or arisen in India cannot be said to be within the purview of deemed to be received in India or deemed to accrue or arise in India. 15. In the present case, the allegation of the A.O. is that interest paid b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se situations where income has not actually accrued or arisen in India but still it will be deemed to accrue or arise in India. Hence, both the situations are mutually exclusive. If one case is falling within the ambit of income accrued and arisen in India, it cannot fall within the ambit of income deemed to accrue or arise in India and vice versa. In the present case, a specific exclusion is provided in clause (b) of Section 9(1)(v) to exclude interest payment to non-resident investors by an Indian resident if such interest payment is in respect of amount borrowed outside Indian and is used outside India for investment or for business carried out outside India. It could not be established or shown by the revenue that the facts of the present case are not falling within this exclusion clause of Section 9(1)(v)(b) of the Act and the only argument of the revenue is this that as per the A.O., it is falling within the ambit of income accrued and arisen in India and, therefore, it is not required to examine the provisions of Section 9(1)(v)(b). We find no merit in this contention because for the purpose of deciding as to whether any income is falling within the ambit of income accrued o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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