TMI Blog2023 (11) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... ource on the payment of interest (redemption premium) as held by the Hon ble Supreme Court in the case of GE India Technology Cen. (P.) Ltd. [ 2010 (9) TMI 7 - SUPREME COURT] In the light of the aforesaid action of the Tribunal in the case of payer/M/s. Bharat Forge Ltd., the information given by the AO (TDS) of M/s. Bharat Forge Ltd. which was the foundation on which was the AO of assessee has re-opened the assessment of assessee is no longer existing being legally incorrect. Therefore, the material/information on which AO have re-opened the assessment having been removed, the action of AO to have issued notice of re-opening of assessment u/s 148 of the Act itself fails. We may rely on the legal Maxim Sublato Fundamento credit opus meaning in case foundation is removed, the super--structure falls. In the case of Badarinath Vs. Tamilnadu [ 2000 (9) TMI 1044 - SUPREME COURT] has held that once the basis of proceeding is gone, all consequential order and acts would fall on the ground automatically which is applicable to judicial and quasi--judicial proceedings. Decided in favour of assessee. - Shri Aby T. Varkey, JM And Shri S. Rifaur Rahman, AM For the Assessee : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15. Accordingly, the case is fit for reopening u/s 147 of the Act. 4. As noted, on the aforesaid reason, the AO has resorted to re-open the assessment of the assessee which is a non-resident company which action of AO has been challenged for non-fulfillment of the condition- precedent to usurp the re-opening jurisdiction. Brief facts regarding this issue are that the assessee (Citicorp Trustee) is a company incorporated in United Kingdom (UK) and is a non-resident as per section 6 of the Act. And according to assessee, since it has not earned any taxable income in India, it did not file any return of income for AY. 2014-15. The assessee company acted as a trustee for bond issuance in the capital markets M/s. Bharat Forge Ltd which had issued earlier US 39.9 millions Zero Coupon, Tranche B Convertible bonds; and redeemed the bonds on 26.04.2013 and the total redemption payable was US $ 22.535 million. Though, M/s. Bharat Forge Ltd deducted tax on redemption premium of US$ 15.48 million no tax was deducted for redemption of US$ 7.06 million. Accordingly, the AO of M/s. Bharat Forge Ltd. held it to be assessee in default u/s 201(1) r.w.s 195 of the Act and taxed the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orandum is published and circulated to potential investors (i.e. potential noteholders) which contains the principal trust deed clauses (so that the potential investor has an insight into the nature of the relationship between the parties involved), some background information about the issuer and its business, and the terms pursuant to which the notes are issued. The potential investors subscribe to the notes for a particular value. Potential investors who subscribe to the notes will be allocated either the full amount requested, or a part thereof (where the issuance has been over-subscribed by the investors). An agreement is established, because an offer (by way of the offering circular) has been made and an acceptance (by way of subscription to the notes) has occurred. Thus, it was contended by the assessee non-resident that the income received on redemption of bonds issued by M/s. Bharat Forge Ltd even if chargeable to tax would be in the hands of the ultimate beneficiaries and not the Trustee/nominee of the bonds. And therefore according to assessee, question of income escaping assessment doesn t arise in this case and pleaded to AO to drop the proposed re-opening of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the case the Ld. CIT(A), ought to have upheld the order of the Assessing Officer. 7. Appellant craves leave to add, amend and alter any other grounds of appeal. 5. Briefly, the facts of the case are as under :- The respondent-assessee is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of manufacturing and selling of automotive components. During the course of scrutiny of e-TDS returns filed by the respondent-assessee for the financial year 2013-14, the Dy. Commissioner of the Income Tax (International Taxation)-I, Pune (hereinafter called as TDS Officer ) observed that the respondent-assessee had remitted USD 70,60,125 as Foreign Currency Convertible Bonds ( FCCBs ) redemption premium without deduction of tax at source. Accordingly, the TDS Officer had called upon the respondent-assessee to show cause as to why it should not be treated as an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CA(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 that the respondent-assessee is an assessee in default for non-deduction of tax at source on redemption premium of USD 70,60,125. Accordingly, the TDS Officer called upon the respondent-assessee to deduct tax at source of Rs. 4,50,12,763/- along with interest u/s 201(1A) of Rs. 99,02,807/-. 8. Being aggrieved by the above assessment order, an appeal was filed before the ld. CIT(A) who originally vide order dated 29.09.2017 had dismissed the appeal in limine without condoning of delay of 921 days. However, on appeal before the Income Tax Appellate Tribunal (ITAT), the matter was remanded to CIT(A) vide order dated 17.05.2019 to decide the issue in appeal on merits by condoning the delay. Pursuant to the order of remand by the Tribunal, the ld. CIT(A) vide order dated 30.03.2021 had allowed the appeal of the respondent-assessee by holding that no interest income had accrued to the non-recipient in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 to have received in India during such year or accrued or deemed to have accrued to him during the previous year. The provisions of section 9 indicate as to what type of income to have accrued, arisen in India. The provisions of section 9 spells out the instance of the income as non-resident would be liable to tax in India. The provisions of section 9(1)(v) spells out when the interest income is deemed to have accrued arisen in India, received or interest income received or deemed to have received in India which reads as under :- 9(1) ......... (v) income by way of interest payable by (a) the Government; or (b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deemed to accrue or arise in India : (a) Interest payable by the Central Government or any State Government. (b) Interest payable by a resident except in the following cases:- (i) interest payable by a resident in respect of any debt incurred, or any moneys borrowed and used, for the purposes of a business or profession carried on by him outside India ; and (ii) interest payable by a resident in respect of any debt incurred, or any moneys borrowed and used, for the purposes of making or earning any income from any source outside India. It may be noted that where moneys borrowed by a resident for the purposes of a business or profession carried on by him outside India are actually used for any other purpose, interest payable thereon will be deemed to accrue or arise in India. Similarly, interest payable on moneys borrowed by a resident for the purposes of making or e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, 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 reasoned order. Thus, we do not find any reason to interfere with order of the ld. CIT(A). 15. In the result, the appeal filed by the Revenue in ITA No.341/PUN/2021 for A.Y. 2014-15 stands dismissed. 7. It is noted that the Tribunal (Pune) has held that the interest paid by the resident (M/s. Bharat Forge Ltd.) in respect of loan that was incurred for money borrowed/utilized for the purpose of making or earning any income from outside India is not taxable in India. The Tribunal held that the 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. The Tribunal observed that even though, the redemption premium partakes character of interest as defined u/s 2(28A) of the Act, but, by virtue of exclusion clause of the provisions of section 9(1)(v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the decision of the Ld. DRP on the legal issue against the reopening of the assessment and does not want us to interfere with the action of the AO to have reopened the assessment. 9. In his rejoinder, the Ld. AR fairly conceded the fact that when the Ld. DRP adjudicated the legal issue of reopening by order dated 31.12.2022, the order of the Tribunal (Pune) in the case of payer/M/s. Bharat Forge Ltd dated 03.01.2023 was not on record. And therefore, the aforesaid submission could not have been made before the Ld. DRP. However, according to the Ld. AR since this is a legal issue and the Pune Tribunal order in the case of M/s. Bharat Forge Ltd needs to be taken judicial notice for adjudicating the legal issue raised by the assessee in the instant case. 10. We have heard both the parties and perused the records. On the legal issue, we note that the essential condition prescribed under the Act for reopening the assessment u/s 147 of the Act AO is that he has to firstly record his reasons to believe, escapement of income . It is well settled that the reason to believe postulates a foundation based an information and belief based on reason. In this case, the AO of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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