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TMI Blog2023 (1) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has taken a liability of issuing FCCBs from India after taking approval of RBI (Indian authority), as per rules and guidelines of RBI and has remitted interest from India as its liability duly recognized in its 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) has erred in law to appreciate that the provisions of section 115AC of the Act, is a code in itself and then travelling to another charging section 5(2) of the Act for deciding the taxability of interest income. 6. On the facts and in circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from any source outside India is not liable to tax in India as there is no income that had accrued or arisen in India to recipient within the meaning of section 9(1)(v) of the Act. Therefore, the question of deduction of tax at source does not arise. Reliance in this regard also placed on the decision of the Coordinate Bench of the Tribunal in the case of Adani Enterprises Ltd. (ITA No.3072/Ahd/2009 & Co.No.291/Ahd/2009). 7. However, the TDS Officer had rejected the above contention of the respondent-assessee by holding that the issue of FCCBs is governed by "issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993" notified by Department of Economic Affairs No.GSR 700(E), dated 12.11.1993 and Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme is the notified scheme for purposes of section 115CA(1)(a), in respect of assessment year 2002-03 and subsequent assessment years vide CBDT Notification No.SO987(E), dated 10.09.2002 and no exclusion is provided in the scheme of taxation of FCCBs in respect of ends use of proceeds from the FCCBs. Accordingly, the TDS Officer held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents or loans to overseas subsidiaries in the hands of the recipient of such premium. It is not the case of the respondent-assessee that the redemption premium does not partake the character of interest. The provisions of section 2(45) defines the total income as total amount referred to in section 5 computed in the manner laid down in that section of the Act. The provisions of section 4 provide that the total income of the previous year subject to the charge of income tax. The provisions of section 5 define the scope of total income referred to the provisions of section 4 of the Act. The provisions of section 5 classify the assessee probably in three categories, namely, resident, ordinarily resident or non-resident. The criteria for determination of Residential status of the assessee is laid down u/s 6 with which we are not concerned in the present appeal. The scope of the provisions of section 5 defines as to what type of income would constitute total income in the case, when the assessee belonging to each of the three categories. The provisions of section 5(2) defines total income of any previous year of a person who is non-resident to include income which is received or deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the departmental circular no.202, 5-7-1976:- Source rule for "interest" - Section 9(1)(i) and (v).- 14.1 A non-resident taxpayer is chargeable to tax in India in respect of income from whatever source derived which is received or is deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India. Under section 9(1)(i) of the Income-tax Act, as it stood prior to its amendment by the Finance Act, 1976 (66 of 1976), any income accruing or arising "through or from any money lent at interest and brought into India in cash or in kind" was deemed to accrue or arise in India. It was judicially held that to satisfy the test of taxability, the lending of money abroad and the bringing of the same into India should be an integral part of a composite transaction and the bringing of money into India should be with the knowledge of the lender. Thus, interest on moneys borrowed abroad and brought without the knowledge of the lender was not chargeable to tax in India. 14.2 Section 9(1) has now been amended to replace the aforesaid provision by a simple and comprehensive source rule. Under the amended provision, interest income of the following types will be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money borrowed utilized for the purpose of making or earning any income from outside India is not taxable in India. In the present case, it is not disputed that FCCBs to the extent of Rs. 12.5 millions USD were utilized for the purpose of making investments in share of overseas subsidiaries or on the loans given to overseas subsidiaries. No doubt, the redemption premium partakes interest as defined u/s 2(28A) of the Act, however, by virtue of exclusive clause of the provisions of section 9(1)(v), the interest income in the hands of recipient cannot be said to have accrued or arisen in India. When the income has not arisen in India in the hands of recipient/non-resident, there is no obligation on the part of the respondent-assessee to deduct tax at source on payment of interest as held by the Hon'ble Supreme Court in the case of GE India Technology Cen. (P.) Ltd. vs. CIT, 327 ITR 456 (SC) followed by the Hon'ble Karnataka High Court in the case of Karnataka Power Transmission Corporation Ltd. vs. DCIT, 383 ITR 59 (Karnataka). We find that the order of the ld. CIT(A) is in consonance with the legal position discussed above. Therefore, the order of the ld. CIT(A) is just, proper and r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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