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TMI Blog2020 (7) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of assessment proceedings and has failed to prove the beneficial ownership of funds which is one of the prerequisite to claim exemption under Article 11(3)(c) of India- Mauritius DTAA". 2."Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in directing the Assessing Officer to follow the decision of Hon'ble ITAT on Interest income from foreign currency loan and Securities, ignoring the fact that, in India, the assessee is involved in only FII activity and no banking license has been granted by the RBI to the assessee for banking activities in India thus, assessee is not involved in any bona fide banking activities which is one of the prerequisite to claim exemption under Article 11(3)(c) of India-Mauritius DTAA" 3. "Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in directing the Assessing Officer to follow the decision of Hon'ble ITAT on Interest income from foreign currency loan and Securities, ignoring the fact that, the assessee has not furnished any document demonstrating immediate source of funds and also the immediate application of the income to demonstrate that the interest income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment proceedings the assessee placed on record the Tax Residency Certificate (for short "TRC") issued by the Mauritius Revenue Authority evidencing the assessee‟s tax residence in Mauritius. On a perusal of the computation of income, it was observed by the A.O that the assessee had during the year received the following interest income : S.No. Particulars Amount (Rs. ) 1. Interest income on securities (including interest on T Bills and rupee denominated bonds of Indian companies) Rs. 12,25,28,81,554/- 2. Interest income on External Commercial Borrowings (ECB). Rs. 2,73,06,45,033/- Total Rs. 14,98,35,26,590/- As the assessee had not offered the aforesaid interest income for tax in India, therefore, the A.O called upon it to put forth an explanation as to on what basis the said amount was claimed to be not exigible to tax in India. In reply, it was submitted by the assessee that it was a limited liability company which was a tax resident of Mauritius, carrying on bona fide banking business as a licensed bank in Mauritius. A copy of the banking license issued by the Bank of Mauritius i.e the Central Bank of Republic of Mauritius (equivalent to Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alidity of the aforesaid Circular was upheld by the Hon‟ble Supreme Court in the case of Azadi Bachao Andolan Vs. DCIT (2003) 263 ITR 706 (SC). Apart from that, the assessee also took support of the fact that the Ministry of Finance vide its press clarification dated 01.03.2013 had unconditionally reiterated the Circular No. 789, dated 13.04.2000, and had stated that a certificate of residence issued by the Mauritian Authority would constitute sufficient evidence for accepting the State of residence as well as beneficial ownership of the interest income. Further, support was also drawn by the assessee on the judgment of the Hon‟ble High Court of Bombay in the case of DIT Vs. Universal International Music B.V (2013) 31 taxmann.com 223 (Bom), wherein relying on the CBDT Circular No. 789, dated 13.04.2000, the benefits of the India-Netherlands tax treaty were extended to an assessee incorporated in Netherlands on the basis of a tax residency certificate issued by the Dutch authorities. Further, the assessee in order to dispel any doubts as regards the source of the foreign currency loans which were granted to the Indian Corporates, submitted, that the same were primarily f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. Further, the A.O in the backdrop of his observations recorded in the assessment order, therein observed that in the totality of the facts it could safely be concluded that the assessee bank was established for "Treaty shopping" purpose. Lastly, it was observed by the A.O that as the assessee was registered as a FII in India, therefore, the interest income earned by such assessee from India being FII would not be eligible for exemption under Article 11(3)(c) of the India-Mauritius tax treaty. On the basis of his aforesaid observations the A.O passed a draft assessment order u/s 144C(1) r.w.s 143(3), dated 29.12.2017. As the assessee vide its letter dated 31.01.2018 requested that the final assessment order be passed, the A.O framed the assessment vide his order passed u/s 144C(3) r.w.s 143(3), dated 05.02.2018, wherein he assessed the interest income of the assessee aggregating to Rs. 14,98,35,26,590/- to tax @5% u/ss. 115AD r.w.s 194LD and Sec. 115A(1)(a)(ii) of the Act. 5. Aggrieved, the assessee assailed the final assessment order in appeal before the CIT(A). As regards the assessing of Interest income on External Commercial Borrowings (ECB) of Rs. 273,06,45,033/- to tax u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 11(3)(c) of the India-Mauritius tax treaty could not have been applied. The ld. D.R submitted that in the backdrop of the aforesaid factual position the Ground of appeal No. 3 in the present appeal cannot be said to be covered by the aforesaid order of the Tribunal. On a query by the bench that in case the said specific ground of appeal was not dealt with by the Tribunal while disposing off the revenue‟s appeal for A.Y 2014-15 in ITA No. 1319/Mum/2019, then was the said facts raised by the revenue before the Tribunal by way of a miscellaneous application, the ld. D.R expressed his unawareness about the said aspect. 8. Rebutting the aforesaid contentions of the counsel for the revenue, it was submitted by the ld. A.R that the issue as to whether the assessee was the beneficial owner of the interest income or a conduit company as alleged by the revenue was considered by the Tribunal while disposing off the aforesaid appeal i.e ITA No. 1319/Mum/2019 for A.Y 2014-15. Apart from that, it was reiterated by the ld. A.R that the issue as regards the applicability of Article 11(3)(c) of the India-Mauritius tax treaty had been looked into by the Tribunal in the assessee‟s own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax vs. Universal International Music BV, 31 taxmann.com 223 held as under:- "3. The appellant before us is a limited liability company which is incorporated, registered and tax resident of Mauritius. During the previous year relevant to the assessment year under consideration, assessee had, inter-alia, earned interest income of Rs. 94,57,45,856/- from investments in debt securities made in accordance with the SEBI Regulations. In its return of income, the aforesaid interest income was claimed not taxable in India on the strength of Article 11(3)(c) of the India-Mauritius Double Tax Avoidance Convention (hereinafter referred to as '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 11(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 "beneficial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st income in question was not taxable in India. The DRP has reproduced the submissions put forth by the assessee wherein assessee asserted that the interest income of Rs. 94,57,45,856/- earned from investment in debt securities was beneficially owned by it. Assessee specifically drew attention of the DRP to CBDT Circular no. 789 dated 13.04.2000 which, inter-alia, prescribed that wherever a Certificate of Residence is issued by Mauritian authorities, such Certificate will constitute sufficient evidence for not only accepting the status of residence, but also the beneficial 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 Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i.e. India) provided it is derived and beneficially owned by, inter alia, by any bank carrying on a bona fide banking business which is a resident of the other Contracting State (i.e. Mauritius). There is no dispute that Mauritian entities in question were carrying out banking business in Mauritius, and there is nothing on record to show, or even indicate, that the beneficial owner of interest income were not these Mauritian entities. The protection of article 11(1) cannot, therefore, be declined on the facts of the present 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 ld. DR appearing for the Revenue, has merely reiterated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority there is sufficient evidence to accept the position that the 'beneficial ownership' of the impugned interest income is with the assessee. 9. At this point, we may note that the CBDT Circular no. 789 dated 13.04.2000 (supra) is specifically in the context of incomes by way of dividend and capital gain on sale of shares. So, however, in our considered opinion, it would equally apply even in the situation before us where 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entical facts for the said respective years the Tribunal had consistently concluded that pursuant to Article 11(3)(c) of the India-Mauritius tax treaty the interest receipt would not be exigible to tax in India. In so far the claim of the Ld. D.R that the Tribunal in its earlier year order for A.Y 2014-15 in ITA No. ITA No. 1319/Mum/2019, dated 20.03.2020 for A.Y 2014-15, had failed to look into and therein adjudicate the claim of the revenue that the assessee had not brought any material which would substantiate that it was the beneficial owner of the interest income and not a conduit company, we are afraid that the same is absolutely misplaced and misconceived. In fact, a perusal of the aforesaid order passed by the Tribunal in ITA No. 1319/Mum/2019, dated 20.03.2020, reveals that the ld. D.R had therein specifically raised a claim that the Tribunal while adjudicating the issue in the preceding years has failed to take into consideration the fact that the assessee has not been able to show that it was the beneficial owner of the interest income. The ld. D.R in the appeal for the said preceding year, in order to buttress his said contention had even filed written submissions befor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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