TMI Blog2018 (8) TMI 1917X X X X Extracts X X X X X X X X Extracts X X X X ..... view of our aforesaid discussion, we uphold the stand of the assessee that it is the 'beneficial owner' of the interest income quo the provisions of Article 11(3)(c) of the India-Mauritius Tax Treaty and thus, such income is not taxable in India. Interest u/s. 234B - HELD THAT:- In view of the decision of CIT v. Sedco Forex International Drilling Co. Ltd. [ 2003 (10) TMI 40 - UTTARANCHAL HIGH COURT] it was to be held that when a duty is cast on the payer to deduct and pay the tax at source, on payer's failure to do so, no interest under section 234B can be imposed on the payee assessee. Be as it may, we have already decided the issue of exigibility to taxation in favour of the assessee. Hence, this issue is consequential. - I.T.A. Nos. 1086 & 1087/Mum/2018, C.O. Nos. 92 & 93/Mum/2018 (Arising out of ITA Nos. 1086 & 1087/Mum/2018) - - - Dated:- 30-8-2018 - Shri Shamim Yahya, AM And Shri Sandeep Gosain, JM Assessee by: Shri P. J. Pardiwala/ Shri Niraj Sheth Revenue by: Shri Samuel Darse ORDER Per Bench: These are appeals by the assessee and cross objections by the Revenue arise out of the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By relying on the definition of 'beneficial ownership' as defined by The Financial Action Task Force ('FATF') guidelines and Investopedia by neither discussing the matter during the course of hearing nor providing an opportunity to the Appellant to be heard. Even as per definitions relied by Hon'ble CIT(A), the Appellant-is considered as the 'beneficial owner' of the interest income. The Appellant prays that based on the aforesaid Circular, judicial precedents and information / details furnished, the Appellant be considered as the 'beneficial owner' of the interest income on foreign currency loans. Ground 3 - Lew of interest under section 234B of the Act of ₹ 51,94,22,000 (₹ 24,17,30,611/- for A.Y. 2010-11) On the facts and circumstances of the case, the CIT(A) erred in holding that interest under section 234B of the Act can be levied on a non-resident at the instance of the assessee or has a mutual agreement with the payer that the later should not deduct taxes at source. While doing so, the CIT(A) erred in law to appreciate that the Appellant being a non-resident, is not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;India-Mauritius Tax Treaty'). The said exemption was denied by the Assessing Officer in the assessment order passed u/s 143(3) r.w.s. 144C(13) of the Act dated 28.01.2016, which was in conformity with the directions of the Dispute Resolution Panel (DRP). Pertinently, the exemption was denied on the ground that the requisite conditions prescribed in Article ll(3)(c) of the India-Mauritius Tax Treaty were not fulfilled by the appellant-assessee inasmuch as - (i) the interest was not derived by the assessee; (ii) that interest was not beneficially owned by the assessee; and, (iii) that the assessee ought to be carrying on bona fide banking business, which it did not. All the aforesaid issues were taken up by the assessee in appeal before the Tribunal, which vide order dated 16.12.2016 (supra) accepted the pleas of the assessee so far as the first two aforestated conditions were concerned. In other words, the Tribunal held that the interest income in question was derived by the assessee and that it was carrying on bona fide banking business. So however, with regard to the third condition of 'beneficial ownership', the Tribunal remanded the issue to the file of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial ownership in order to apply the provisions of India-Mauritius Tax Treaty. Further, in support of such a plea, assessee also relied on the judgment of the Hon'ble Bombay High Court in the case of DIT vs Universal International Music B.V, [2013] 31 taxman.com 223 which held that a company incorporated under the laws of Netherlands and holding valid Tax Residency Certificate issued by the Netherland authorities was to be construed as the beneficial owner of the Royalty income received from the Indian company and was accordingly held entitled to the benefits of Article 12 of the Double Taxation Avoidance Agreement between India and Netherlands. It was pointed out that assessee had obtained Tax Residency Certificate from the Mauritian Revenue authorities, a copy of which was also filed before the DRP. On the aforesaid basis, assessee sought to explain the fulfilment of the condition of 'beneficial ownership'. The DRP, however, rejected the plea of the assessee as according to it, no documents were placed by the assessee to suggest that the interest income in question was beneficially owned by the assessee. As per the DRP, assessee had failed to show the immediate source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent case. We are, therefore, of the considered view that the income embedded in these interest payments are not taxable in India. Accordingly, the assessee did not have any tax withholding obligations, u/s 195, in respect of these payments, and, as a corollary thereto, disallowance u/s 40(a)(i) was not justified.'' 6. On the aforesaid basis, it is pointed out that following the decision of Chennai Bench of the Tribunal in the case of Hyundai Motor India Ltd. it is, therefore, to be held that assessee was indeed the 'beneficial owner' of the interest income in question also. 7. On the other hand, the Id. DR appearing for the Revenue, has merely reiterated the discussion made by the DRP in its order, which we have already noted in the earlier paras and is not being repeated for the sake of brevity. 8. Article 11(3)(c) of the India-Mauritius Tax Treaty, inter-alia, prescribes that interest income arising in a contracting state shall be exempt from tax in that state provided it is derived and beneficially owned by any bank carrying on a bona fide banking business which is resident of the other contracting state. The limited point before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the application of the provisions of the India-Mauritius Tax Treaty is sought to be applied for considering the taxability of interest income as per Article 11(3)(c) of the India-Mauritius Tax Treaty. We say so by drawing strength from the judgment of the Hon'ble Bombay High Court in the case of Universal International Music B. V (supra). The issue before the Hon'ble High Court was relating to the taxability of Royalty income in the context of India - Netherlands Double Taxation Avoidance Agreement. In the said decision also, CBDT Circular no. 789 dated 13.04.2000 (supra) was held applicable in the context of Royalty income. Thus, in our considered opinion, even in the context of the impugned interest income, Circular no. 789 dated 13.04.2000 (supra) of the CBDT is applicable while applying the provisions of Article II(3)(c) of the India-Mauritius Tax Treaty. On this aspect itself we uphold the plea of the assessee that assessee is the 'beneficial owner' of the impugned interest income on the strength of the Tax Residency Certificate issued by the Mauritian authorities. 10. Moreover, in the context of element of interest income earned by the assessee fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on part of prayer to deduct tax on source when the Ld. CIT(A) had himself held in para 27 that ordinarily interest u/s. 234B is consequential warranting no separate discussion? 2. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in setting aside the issue of interest u/s. 234B to the Assessing Officer instead of deciding it by himself. 3. The appellant prays that the order of the Ld.CIT(A) on the above grounds be set aside and that of the Assessing Officer restored. 10. In this regard, the ld. Counsel of the assessee submitted that the issue is covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Director of Income-tax (International Taxation) v. Ngc Network Asia LLC [2009] 313 ITR 187 (Bom). 11. The ld. DR did not dispute this proposition. 12. Upon careful consideration, we note that the Hon'ble jurisdictional High Court in the above said decision has held as under: In view of the decision of CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320 (Uttaranchal), it was to be held that when a duty is cast on the payer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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