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TMI Blog2015 (4) TMI 1284X X X X Extracts X X X X X X X X Extracts X X X X ..... e." 3. On the fact and in the circumstance of the case and in law, the Ld CIT(A) was correct in holding that when duty is cast on the payer to pay tax at source, no interest u/s 234B and 234C can be imposed on the payee assessee ignoring the fact that it is the liability of the payee to pay advance tax even on the amount on which no tax at source had been deducted under section 195 of the Income tax Act, 1961." 4. The Appellant prays that the order of the Id. CIT (Appeals) on the above grounds be set aside and that of the Assessing Officer restored. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a Swiss Company. Through its HongKong branch, during financial year 2007-08, the assessee had entered into an underwriting agreement with HDFC Bank. Ltd in connection with an issue of American Depository Shares (' ADS'). The ADS were listed on New York Stock Exchange and the assessee was appointed as one of the Underwriters to the ADS issue. In this connection, the assessee earned an underwriting fee of USD 4,000,000 (equivalent to Rs. 158,080,000) from HDFC Bank Limited. The AO has held the sum to be taxable on the ground tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India since 24.11.1994 and representative office was upgraded to branch office on 28.02.2007 and assessee company did not file any supporting documents regarding activities of representative office. Therefore, the AO has held that the assessee company has a fixed place PE also in India and, hence, the gross receipt on underwriting the ADS issue is taxable as business income in India as well. 5. By the impugned order the CIT(A) allowed the ground No.1 after having following observations :- 3.26 From the examination of the judgement of ITAT, Mumbai in case of Raymond Limited (supra), it is evident that underwriting services are managerial or consultancy services as defined in the Treaty as well as in the Act. Further, from the language of sub-clause (1) of Article 5 of the Treaty, it is evident that the said clause is applicable only if the services rendered are not covered under Article 12 of the Treaty. Meaning thereby the issue of determination of service PE is not relevant in case the service charges received is taxable under Article 12 of the Treaty. 3.27 Therefore, it is already held that the appellant does not have a fixed based PE in India in A.Y.2008-09. It is alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s accepted by the department in all the earlier years. It is submitted that for Assessment Year 2001-02 and Assessment Year 2002-03, the Assessing Officer had sought to tax the gain on debt securities as 'Interest Income' under Article 11 of the DT AA. However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, Mumbai both decided the matter in favour of the Appellant and held that the gains from transfer of debt securities ought to be taxed under Article 13 of the DTAA dealing with Capital Gains. Further, the tax department has not appealed before the High Court against the order of the Hon'ble ITAT and accordingly, the assessments have attained finality. Copies of CIT(A) and IT AT orders have been filed. 4.3 Further, the Appellant also submitted that there is no change in the facts of the. Appellant in the year under consideration and thus, the gains from transfer of debt securities ought to be characterized as Capital Gains. It is highlighted that even the Assessing Officer had not highlighted any change in facts .of the Appellant in the impugned assessment order and merely held that the gains from transfer of debt securities should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and claimed the same as exempt under Article 13(6) of the DTAA." 4.9 In support, the AR has also filed order of CIT(A) in its own case for A.Y.2001-02 wherein the issue involved is taxing the gains arising on sale of Government securities amounting to Rs. 47,343,249/- and the CIT(A), vide order No. CIT(A) XXXI/ADIT(IT) 2(2)/IT-341/03-04/ 04-05 dated 04.11.2004 has held as under: "4.8 I have carefully considered the facts of the case and the contentions of both the assessing officer and the appellant. I see substantial merit in the appellant's argument that capital gains derived by the appellant from transfer of government securities should not be taxed as "Interest" under Article 11 of the Treaty but should be exempted from tax under Article 13(6) of the Treaty. Under the general principles of taxation, capital gains on allenation of a capital asset should be taxed only under the Article relating to "Capital Gains" and not under the Article relating to "Interest". The expression "Income from government securities" in the definition of the term "interest" cannot be interpreted to include capital gains, by applying Article 3(2), since this would result into absurdity. Such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as the order of the Tribunal in the case of LG Asian Plus Ltd., 140 TTJ 668. We have also gone through the order of the Mumbai Bench of the Tribunal placed by the ld. AR on record, wherein the Tribunal relying on the decision in the case of LG Asian Plus Ltd. (supra) has decided the very same issue while deciding the case of Platinum Investment Management Ltd., ITA No.3598/Mum/2010, dated 5-12-2012 and held as under :- "8. We have considered the rival submissions of the parties as well as relevant material on record. As regards the observation of the Assessing Officer that the derivative were sold on same day, we find that there is a factual error on this point because the derivative were settled/closed on various dates, either by subsequent purchases or on the expiry of period within the month. This fact is clear from the details of page Nos.49 and 65-69 of paper book. On the issue of capital gain or business income, we note that an identical issue has been considered by the coordinate Bench of this Tribunal in the case of LG Asian Plus Ltd. (supra), one of us the Judicial Member is party to the decision. Though the Ruling of the Authority for Advance Ruling has a persuasive v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of a FII consists only of income in respect of security referred to in clause (a) of sub-sec. (1) (i.e. income received in respect of securities, otherwise than from their transfer ), then no deduction shall be allowed to it under sections 28 to 44C or section 57 or Chapter VI-A of the Act. It is but natural that when a lower rate of tax has been provided in respect of income earned by a FII from securities, then that rate of tax is final and the assessee cannot claim double benefit, firstly by being taxed at lower rate and secondly by claiming normal deductions etc. against this income. As sec. 115AD(2)(a) refers to income received in respect of securities and not from their transfer, the same would have no application to the instant case. According to clause (b) of sub-sec. (2) of sec. 115AD, where the gross total income includes any income referred to in clause (a) or clause (b) of sub-sec. (1) (i.e. income received in respect of securities by either retaining them or from their transfer), then the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income so reduced is the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emplated by the Central Government as is evident from SEBI(FII) Regulations and the definition of FII in Explanation (a) to sec. 115AD, then this provision will become otiose. In our considered opinion if a FII receives any income in respect of securities or from the transfer of such securities, the same can be considered under sub-sec. (1) alone and sub-sec. (2)(b) cannot be invoked to construe it as `Business income‟. 8.14. The position has been clarified by way of a Press Note : F No. 5(13)SE/91-FIV dated 24.03.1994 issued by the Ministry of Finance, Department of Economic Affairs (Investment Division) , New Delhi, the relevant part of which is as under : "The taxation of income of Foreign Institutional Investors from securities or capital gains arising from their transfer, for the present, shall be as under:- (i) The income received in respect of securities (other than units of off-shore funds covered by section 115AB of the Income-tax Act) is to be taxed at the rate of 20%; (ii) Income by way long-term capital gains arising from the transfer of the said securities is to be taxed at the rate of 10%; (iii) Income by way of short-term capital gains arising from the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of non-FIIs, but such distinction is obliterated in the context of FIIs due to the inclusion of both shares and debentures etc. on one hand and derivatives on the other, in the definition of "securities" for the purpose of sec. 115AD and subsection (1) providing for the income from their transfer to be considered as long term or short term capital gain. 8.17. It is noticed that sec. 115AD falls in Chapter XII which deals with the determination of tax in certain special cases. This Chapter consists of sections 110 to 115BBC. Each section contains special provisions dealing with specific types of incomes for which a specified rate of tax is provided. If a particular item of income is covered in any of these sections, it shall be strictly governed by the prescription of that relevant section alone. We are reminded of the legal maxim `Generalia specialibus non derogant‟, which means that special provisions override the general provisions. It is a well settled legal position that specific provisions override the general provisions. In other words, if there are two conflicting provisions in an enactment, the special provisions will prevail and the subject matter covered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is eligible for adjustment against shortterm capital gains arising from the sale of shares." 9. Respectfully following the decision of the coordinate Bench of this Tribunal, we decide this issue in favour of the assessee and against the revenue. Accordingly, we hold that the income arising from the transaction in derivatives by the assessee, being FII, cannot be treated as business profit or loss but the same has to be capital gain or loss." Respectfully following the order of the Tribunal, we do not find any infirmity in the findings recorded by the CIT(A) in holding that the gain arising from transactions in debt securities amounting to Rs. 18,86,80,339/- is assessable as capital gains and not as business income. 7. In regard to ground of charging of interest u/s.234B & 234C, we found that since the alleged income was liable to tax deduction at source u/s.195, therefore, there was no liability to pay advance tax u/s.208 of the Act and in the absence of any liability to pay advance tax, the provisions of Section 234B&234C could not be invoked. The CIT(A) has rightly directed to delete the interest levied u/s.234B&234C, in which our interference is uncalled for. Accordi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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