DCIT Vs HSBC Bank (Mauritius) Ltd. (ITAT Mumbai)
The issue under consideration is whether as per India-Mauritius DTAA, Interest Income from Foreign Currency loan and Securities would be eligible to tax in India?
In the present case, the assessee, is a limited liability company incorporated, registered and a tax resident in Mauritius are a Foreign Institutional Investor (FII) duly registered as such by the Securities and Exchange Board of India (SEBI). The assessee had e-filed its return of income for Assessment Year, declaring its total income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Section 143(2) of the Act. 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 our considered view, the issue involved in the present appeal i.e as to whether Article 11(3)(c) would be applicable in the fact pattern of the case of the assessee before us, as rightly pointed out by the ld. A.R is squarely covered by the orders passed by the Tribunal in the assessee‟s own case for the preceding years, wherein dealing with identical 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.
ITAT states that, 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. The Co-ordinate Bench in an unequivocal manner has held that the assessee is a ‘beneficial owner’ of the interest income. Undisputedly, the nature of interest income in assessment year under appeal is no different preceding assessment years. Ergo, they do not concur with the argument of ld. Departmental Representative that the Tribunal has not considered the fact in the past that the interest is not beneficially owned by the assessee. In the light of decision of the Co-ordinate Bench on the issue raised in the appeal by Revenue , ITAT find no infirmity in the impugned order. The CIT(A) has granted relief to the assessee by following the order of Tribunal in passed in previous years. The impugned order is upheld and the appeal by the Revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal filed by the revenue is directed against the order passed by the CIT(A)-56, Mumbai, dated 10.12.2018, which in turns arises from the order passed by the A.O under Sec. 144C(3) r.w.s 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 05.02.2018. The assessee has assailed the impugned order on the following grounds of appeal before us:
1. ” 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 even furnished the financials e.g. Annual reports.etc. during the course 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 is beneficially owned by it and it is not a conduit company for the benefit of third person, which is one of the prerequisite to claim exemption under Article 11(3)(c) of IndiaMauritius DTAA?”
4. “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 for AY 2009-10, AY 2010-11 and AY 2011-12 ignoring the fact that the Hon’ble ITAT relied on the CBDT Circular No.789 dated 13.04.2000 without appreciating the fact that the said circular is applicable to the incomes earned by way of dividend and capital gains on sale of shares and on the other hand in the assessee’s case the income involved is the interest income?”
5.”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 for AY 2009-10, AY 2010-11 and AY 2011-12 ignoring the fact that the Hon’ble ITAT relied on the judgement of Bombay High Court in the case of DIT(IT) Vs Universal International Music B.V. [2013] 31 taxmann.com 223 (Bombay) to adjudicate that, the assessee is beneficial owner of interest income, without appreciating the fact that in the relied upon case the concerned foreign Tax Authority issued a specific certificate certifying that the respondent assessee was a beneficial owner of the royalty received in respect of musical track given to M/s. Universal Music Pvt. Ltd., 3 ITA NO. 1319/MUM/2019(A.Y.2014-15) whereas, in the instant case the assessee solely relied upon the Tax Residency Certificate to prove its beneficially ownership?
6. 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”. or all the above grounds of appeal, or add any further grounds, before or at the time of hearing.”
2. Briefly stated, the assessee which is a limited liability company incorporated, registered and a tax resident in Mauritius is a Foreign Institutional Investor (for short “FII”) duly registered as such by the Securities and Exchange Board of India (for short “SEBI”). The assessee had e-filed its return of income for A.Y 2015-16 on 30.11.2015, declaring its total income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment u/s 143(2) of the Act.
3. In the course 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 :
