TMI Blog2015 (5) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... ecided in favour of assessee. Recovery of interest u/s 201 (1A) - Held that:- When recovery of tax u/s 201 (1) is time barred, recovery of interest u/s 201 (1A) is also time barred. We find no infirmity in the order of learned CIT (A) on this aspect also because in our considered opinion, interest u/s 201 (1A) is consequential to default u/s 201 (1) and therefore, when action u/s 201 (1) is time barred, action u/s 201 (1A) is also time barred as a consequence and for that , specific mention of section 201 (1A) in section 201 (3) is not essential. - Decided in favour of assessee. Taxability of interest on NCDs - as per CIT(A) no tax was deductible in respect of any NCD in the case of the assessee in these years i.e. financial years 2009-10 to 2012-13 - Held that:- Decision of CIT(A) is on the basis that the exemption from TDS from listed and dematerialized securities came into force from 01/06/2008. He has given a clear finding that the assessee had earlier deducted TDS from interest in respect of NCDs prior to this date and in fact up to 30/09/2009. He has also noted that the details of interest in respect of TDS deducted during financial year 2007-08 to 2009-10 and challan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in view of the above discussion, we are of the considered opinion that the Assessing Officer was not justified in fastening the liability of TDS on the assessee in respect of notional gain worked out by the Assessing Officer on conversion of FCCBs and therefore, on this issue also, no reason to interfere in the order of CIT(A) - Decided in favour of the assessee. Taxability of interest on FDRs - AO treated the entire non tax deducted interest as tax deductible interest on the ground that the assessee only gave the names of deposit holders and the amount of interest earned but their address, PAN, amount of deposit, rate of interest and period were not give - Held that:- CIT(A) noted that the assessee vide his letter dated 13/03/2004 explained that the difference between the total interest and tax deductible interest was due to below ₹ 5,000/- interest cases as well as Form 15G/15H cases and in both of these cases, tax was not deductible. He has reproduced the details of total interest, tax deductible interest and non deductible tax interest in respect of financial years 2007-08, 2008-09 and 2012-13. Thereafter, a clear finding is given by CIT(A) that in spite of all these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate order is liable to be quashed solely on this ground itself. 2. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case by holding that the entire impugned demand inter - alia of relevant F.Y. 2005-06 is barred by limitation as per the provisions of section 201(3) of the I.T. Act. 3. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in allowing relief to the appellant in respect of interest of ₹ 24,27,27,009/- (after AO's order u/s 154 of the IT Act dated 26.05.2014) charged u/s 201 (1A) of the IT Act, inter - alia for the relevant F.Y. which does not get time barred under section 201 (3) of the I.T. Act. 4. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in holding that limitation u/s 201 (3) of the Act is applicable to both the situation i.e. in a case where whole of tax has been deducted or any part of tax has been deducted. 5. That the Ld. CIT (A) has erred in law and on the facts and in the circumstances of the case in accepting assessee's proposition that if the recovery of tax is time barred u/s 201 (1) then interest will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 850/LKW/2014 5,33,65,363 2012 - 13 851/LKW/2014 37,65,88,000 2013 - 14 852/lkw/2014 21,41,44,000 4. Learned DR of the revenue supported the assessment order and Statement of Facts filed with the appeals. Learned AR of the assessee supported the order of Learned CIT (A). 5. We have considered the rival submissions. We find that the learned CIT (A) on page no. 77 of his order has stated that the assessee has raised 5 issues i.e. (1) General, (2) Limitation, (3) Taxability of Interest on NCDs, (4) Taxability of Interest on FCCBs and (5) Taxability of Interest on FDRs. He decided all these appeals on issue basis and both sides agreed that we can also decide these appeals on issue basis. We proceed accordingly. 6. First we reproduce the findings of learned CIT (A) from pages 77 to 90 of his order. The same are as under:- In all these appeals for different year the appellant has raised various common issues in the different grounds of appeal, these issues can be divided : (1) General (2) Limitation (3) Taxability of interest on NCDs (4) Taxability of interest on FCCBs (5) Taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under section 201(3). No order under section. 201(1) could be made after 31.3.2013 in respect of financial years 2005-06, 2006-07, 2007-08. 2008-09 2009-10. In respect of financial year 7010-11, an order under s. 201(1) could be made only in respect of the last quarter for which statement was filed m financial year 2011-12. Thus, the entire impugned demand in respect of financial years 2005-06, 2006-07, 2007-08, 2008- 09 2009-10 and substantial pan of the demand in respect of financial year 2010-11 is barred by limitation as well. Regarding F.Yr. 2011-12 and F.Yr. 2012-13 the demand has been deleted by me on the merits of the case issue wise and is also allowed on facts. Finding for Ground Nos. 11 to 17 together (NCD) I have perused the facts in the order u/s 201(1) and 201(1A) as well as facts stated in statement of facts and assessee's submission as well as the Remand report of Assessing Officer dated 20/06/2014 and 25/07/2014 and the assessee's rejoinder/submission dated 30/06/2014 and 30/07/2014 and 08/08/2014, which are in the body of this Appellate Order (verbatim). The issue regarding the regular interest paid in respect of NCDs was never raised during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c stock exchanges unless it is in a dematerialized form. As per the circulars of the SEBI issued vide No.SEBI / MRD/ SE/ AT/ 36/ 2003/ 30/09 dated 30.9.2013 No. SEBI/MRD/SE/AT/46/2003 dated 22/12/2003, the NCDs to be listed are required to be in the DMAT form (refer pp. 104-110 of the Paper Book). Thus if any NCDs have been listed on the NSE or the BSE, they have to be necessarily in the demateriaiized form. Therefore, once the Assessing Officer was satisfied that the NCDs in question were listed NCDs, she should have under law concluded that they were also demateriaiized. The documentary evidence of dematerialization could not be filed by the assessee because she indicated this requirement for the first time in her letter dated 25.3.2014 (as evident from the letter mentioned in the paper book ) and also seen from the Index which is a pan of paper book and made the impugned order after six days on 31.3.2014. The said information was to be filed by 28.3.2014, latest by 12:00 pm. Thus, the assessee did not have sufficient opportunity to file the requisite evidence. Later on the evidence was filed in the statement of facts and also with written submission dated 30/07/2014 which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D. She simply relied on her order as mentioned in Para 3 and 3,3 of her Remand Report dated 25- 07-2014 that 3. With regard to demand in respect of NCDs, FCCBs and FDs, your kind attention is invited to the discussion made wider respective heads in the order dated 31.03.2014 and in the comments dt. 20.06.2014 on grounds of appeal and statement of facts under respective heads of NCDs, FCCBs and FDs for respective years. Some additional comments on these issues are as follows :- I. With regard to the arguments raised on the issue of NCDs. the reliance is placed on the discussion made from Para 5 to 5.6 of the Order dt. 30.03,2014 r.w. relevant portion of discussion on the same issue in comments dt. 20.06.2014. The amount of NCDs ore taken from the Annual Reports of the company only which are found on record. The year wise interest calculation on NCDs is given in Para 5.4 of the order and the undersigned relies on the same... With regard to Remand Report dated 20/06/2014 the Assessing Officer stated that SEBI Circulars are in the nature of additional evidence, in this regard, I am of the view that these are available in the Public domain and this was informed to the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s explained the purpose of this clarificatory provision as follows - Clarification regarding transfer by way of conversion of debentures etc. 24. For the purposes of capital gains taxation, transfer in relation to a capital asset, includes, infer alia, the sale, exchange, or relinquishment of the asset. Doubts have been expressed in the recent past as to whether capital gain arises at the time of conversion of convertible debentures into shares. With a view to reiterating the legislative intention, a new clause (x) has been inserted in section 47 of the Income-tax Act to provide that any transfer by way of conversion of debentures, debenture-stock, or deposits certificate in any form, of a company into shares or debentures of that company will not be regarded as a transfer giving rise to any taxable gain. Further, a new sub-section (2A) has been inserted in section 49 of the Income-tax Act to provide that on sale of shares or debentures received on such conversion, the capital gain shall be computed by faking the cost of acquisition as that part of the cost of debentures, debentures-stock or deposits certificate which has been appropriated towards the shares or debentures ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically providing, through section 49(2A), that such conversion gain shall be included in the capital gain arising from subsequent transfer of the converted asset. Further, every provision of the Act must be interpreted and understood in the context in which it is introduced. Sections 115AC (read with s. 196C) was introduced specifically to provide for a special scheme of taxation for FCCBs. A section which is intended to offer clarity (if not also an incentive) to nonresident bond-holders in the matter of taxation, would not leave the taxation of such a key event as conversion to interpretation. If the legislature wanted to recognize conversion gain for the purposes of taxation, it would have done so expressly for of the nonresident investors, it incorporated express provisions delimiting the taxation of FCCBs and used the mandatory expression 'shall' in every sub-section of section 8 thereof. The Scheme provides for deduction of tax at source from interest payments on bonds until the conversion option is exercised. It also deals with the tax exemption on the conversion of bonds into shares. It provides for deduction of tax at source from dividend on the conven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the undersigned dt. 20.06.2014. The relevant portion of which is reproduced as follows- 6.3 With regard to the issue raised in Para 6.3 of the Statement of Facts r.w. Annexure V, this is submitted that the details of conversion of FCCBs and dotes of issue of shares were taken from the Information Memorandum of the Assessee Company as available on the website of the Bombay Stock Exchange. The said Memorandum is placed on record. In this Information Memorandum, it is clearly mentioned that on 10.10.2008, 10,000,000 shares were issued against conversion of a tranche of FCCB-11. Further, assessee's claim that the issue of these shares on 10.10.2008 is not on account of conversion of FCCBs but these are preferential allotment to promoters: is not supported by any evidence. Such unsubstantiated claim is liable to be outrightly rejected. 6.4 With regard to the issue raised by the assessee regarding allotment of shares on amalgamation on 25.08,2006 and 14.06.2009, this is submitted that as evident from the Information Memorandum, the process of conversion of FCCBs and allotment of shares on amalgamation is going on simultaneously: and also the consideration for issue of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said financial years. Hence after perusal of the facts stated above, I am of the view that the assessee has strong case on the facts as the notional gain on the FCCB is not liable for TDS at all as well on the law hence he wins on both the grounds. As such these grounds of appeal! are allowed. Finding for Ground Nos. 22 to 26 together (FDR) I have perused the facts stated in the order u/s 201(1)/201(1A) as well as facts stated in the assessee's submission as well as the Remand report of Assessing Officer dated 20-06-2014 and 25-07-2014 and the assessee's rejoinder/submission dated 30.06-2014 and 30-07-2014 and 08-08-2014. The Assessing Officer in her remand report dated 25-07-2014 has stated that the digitized details of the Fixed Deposits are in nature of additional evidence which may be admitted only when they fulfilled one of the four conditions given in the Rule 46A of IT Rules. Regarding this it is slated that this is not an additional evidence as all the details regarding Fixed Deposit were emailed to the Assessing Officer on 21/3/2014 and then again on 29-03-2014 in excel file as evident from the Index of the paper book. This paper book along with the inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he paper book) (iv) That the assessee vide its letter 13.03.2014 furnished the details of difference between interest accrued and tax deductible interest by dearly demonstrating that the interest accrued was inclusive of interest for which forms 15G/15H were submitted before the CIT, Kanpur as well as the Interest below ₹ 5000/- on which no tax was to be deducted at source for the A.Y. 2007-2008, 2008-2009 and 2012-2013. (Pl. refer page 12-19 of the paper book) (v) That the Ld. A.O. vide her letter dated 20.03.2014 asked the assessee lo substantial the interest below ₹ 5,000/- as well as the interest against Forms 15G/15H with documentary evidence. (Pl. refer page 20 of the paper book) (vi) That the assessee vide its letter dated 21.03.2014 made a detailed submissions on forms 15G/15H and emailed the details of interest below ₹ 5.000/- for the A.Y. 2009- 2010, 2010-2011 and 2011-2012 to the DCIT, TDS on 21/3/2014 itself (Pl. refer page 22-24 of the paper book) (vii) That the Ld. A.O. vide her letter dated 25.03.2014 alleged that no documentary evidence were filed in respect of interest below ₹ 5,000/- as well as the interest accrued in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee and not sustainable in the eyes of law and hence may kindly be ordered to be deleted. RECTIFICTAION APPLICATION OF THE ASSESSEE U/S 154 OF THE ACT Assessee had also moved a rectification application before the Ld. A.O. for the A.O. for the F.Y. 2005-2006 to 2012- 2013, which was disposed of by the Ld. A.O. vide her order dated 26.05,2014. All the documents/ papers found placed in the paper book were also part of the submissions for rectification petition made u/s 154 of the Act. But the Ld. A.O. did not appreciate the facts of the present case. Rectification petition as well as the order of the Ld. A.O. are placed at pages 172 to 191 of the paper book. The assessee vide its letter dated 13.3.2014 explained that the difference between the total interest and the taxdeductible interest was due to below ₹ 5000 (interest) cases as well as Form 15G/15H cases in both of which tax was not deductible. The details of total interest, tax-deductible interest and non-tax-deductible interest in respect of financial years 2007-08, 2008-09 2012-13 were also furnished. These were as under: FY Total accrued interest Tax deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of interest. The assessing officer has also rejected the Forms 15G/15H cases on the ground that names and amounts of interest involved in 15G/15H forms could not be ascertained from the copies of receipts for the delivery of these forms in the office of the CIT. Further the Assessing Officer did not issue any notice for these years F.Yrs. 2005-06 and 2006-07. The Assessing Officer gave no show-cause notice, and made no proposition, for holding the assessee in default in respect of tax-deducted cases. The assessee has been held in default in respect of tax deducted cases unilaterally and without any notice, or opportunity. Now that sufficient opportunity has been given to the assessee as well as Assessing Officer during the Appellate proceedings it is seen from facts stated above that there was no liability of the assessee for the TDS on FD interest. In view of the facts stated above, the entire impugned demand raised by the Assessing Officer in respect of the fixed deposit is against the facts and is therefore deleted on merits of the case. Furthermore the entire demand in respect of financial years 2007-08, 2008-09 2009-10 and substantial part of the demand in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order u/s 201 (1) is held to be time barred in view of provisions of section 201 (3), the orders u/s 201 (1A) are not time barred because there is no reference to section 201 (1A) in section 201 (3). Before us also, this contention is raised in Statement of Facts (SOF) and reliance was placed by learned DR on SOF. The decision of learned CIT (A) on this aspect is this that when recovery of tax u/s 201 (1) is time barred, recovery of interest u/s 201 (1A) is also time barred. We find no infirmity in the order of learned CIT (A) on this aspect also because in our considered opinion, interest u/s 201 (1A) is consequential to default u/s 201 (1) and therefore, when action u/s 201 (1) is time barred, action u/s 201 (1A) is also time barred as a consequence and for that , specific mention of section 201 (1A) in section 201 (3) is not essential. 10. As per above discussion, we do not find any infirmity in the order of learned CIT (A) on second issue and hence, we decline to interfere in his order on this issue. 11. In respect of the third issue i.e. regarding taxability of interest on NCDs, the decision of CIT(A) is on the basis that the exemption from TDS from listed and demater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of capital gain arising from the transfer of bonds outside India among non residents. He has further noted that the scheme expressly forbids the taxation of any capital gain arising from the conversion of bonds into shares. Considering all these facts and in view of the above discussion, we are of the considered opinion that the Assessing Officer was not justified in fastening the liability of TDS on the assessee in respect of notional gain worked out by the Assessing Officer on conversion of FCCBs and therefore, on this issue also, we do not find any reason to interfere in the order of CIT(A). This issue is also decided in favour of the assessee. 14. The 5th and last issue is taxability of interest on FDRs. On this issue we find that it is noted by CIT(A) on page No. 88 of his order that the assessee vide his letter dated 13/03/2004 explained that the difference between the total interest and tax deductible interest was due to below ₹ 5,000/- interest cases as well as Form 15G/15H cases and in both of these cases, tax was not deductible. He has reproduced the details of total interest, tax deductible interest and non deductible tax interest in respect of financial years 2 ..... 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