AXALTA COATING SYSTEMS DUTCH HOLDING BBV,NETHERLANDS V. ACIT, CIRCLE INT. TAXATION 1(1) (1), NEW DELHI

ITA 3038/DEL/2022

AI Insights

The case involves Axalta Coating Systems Dutch Holding BBV, which appealed against the orders of the Commissioner of Income Tax (Appeals), Delhi, concerning the tax rate applied to their interest income for the assessment years 2018-19, 2019-20, and 2020-21. The primary contention was whether the interest income should be taxed at a lower rate of 5% under Section 115A read with Section 194LC of the Income Tax Act, instead of the standard 10% as per the India-Netherlands Tax Treaty. The Tribunal found that the lower authorities had not properly considered the merits of the case and had instead focused on procedural issues, leading to the decision to remand the case back to the Assessing Officer.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 473571 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2018-2019
• Other Referred Cases: Union of India vs. Azadi Bachao Andolan, PCIT v. Wipro Limited, Union of India v. Tata Chemicals Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RINI HANDA
• Assessee Lawyers: NIKHIL RANJAN
• Keywords: Set aside; Revised return; Principle of natural justice; Advance ruling; Double taxation relief
• Section: 154; 143(1); 139(1); 22; 139(5); 115A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA Nos.3038, 3039 & 3040/Del/2022 Assessment Years: 2018-19, 2019-20 & 2020-21 Axalta Coating Systems Dutch Holding BBV, De Geer 14, TIEL, Netherlands-4004 LT Vs. ACIT, Circle Intl. Taxation 1(1)(1), New Delhi PAN:AAOCA9490P (Appellant) (Respondent) ORDER PER SATBEER SINGH GODARA, JM These assessee’s three appeals ITA Nos.3038, 3039 & 3040/Del/2022 for assessment years 2018-19, 2019-20 and 2020- 21 are directed against the Commissioner of Income Tax (Appeals) [in short, the “CIT(A)”], Delhi’s DIN and order no. ITBA/APL/S/250/2022-23/1046539878(1), ITBA/APL/S/250/ 2022-23/1046540522(1) and ITBA/APL/S/250/2022-23/ 1046599662(1), involving proceedings under sections 154 and Assessee by Sh. Nikhil Ranjan, Adv. Department by Ms. Rini Handa, Sr. DR Date of hearing 11.03.2025 Date of pronouncement 26.03.2025 ITA Nos.3038, 3039 & 3040/Del/2022 2 | P a g e 143(1) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), respectively. 2. Heard both the parties at length. Case files perused. 3. The assessee’s “lead” appeal ITA No. 3038/Del/2022 for AY 2018-19, raises the following substantive grounds: “Axalta Coating Systems Dutch Holding BBV (the 'Appellant) is filing the present appeal against the Order No. ITBA/APL/S/250/2022- 23/1046539878(1) dated 31.10.2022 ('the Impugned Order) wherein the learned Commissioner of Income Tax (Appeals), Delhi-42 (Ld. Commissioner (Appeals)) without considering the facts of the case and the provisions of income-Tax Act, 1961 (the Act') relevant rules made thereunder and applicable case laws has inter-alia held that the Central Processing Centre (CPC) has not committed any error in rejecting Rectification Application filed under Section 154 of the Act by the Appellant vide Order date 04.01.2022. On the facts and in the circumstances of the case and in law, the Ld. Commissioner (Appeals) has grossly errored in passing the Impugned Order wherein it has been erroneously and without any basis in law and facts of the case observed that: i. The Appellant has not filed proper rectification application with CPC; ii. The Appellant has failed to show that relevant conditions for applicability of lower rate of 5% on the subject interest income in accordance with provisions of Section 115A read with Section 194LC of the Act were satisfied in the instant case; iii. It is not settled yet that Appellant is entitled to lower rate of 5% on the said interest income under Section 115A read with Section 194LC of the Acts as the application filed by the Appellant for advance ruling is still pending. iv. The Appellant has itself offered the income at the rate of 10% when the issue of taxation at the rate of 5% is yet not settled by the AAR. The Appellant being aggrieved by the above Impugned Order is filing present appeal inter-alia, on the following grounds, which are independent of each other and without prejudice to each other: ITA Nos.3038, 3039 & 3040/Del/2022 3 | P a g e A. That on the facts and circumstances of the case and in law, the Impugned Order passed by the Ld. Commissioner (Appeals) bad in law and consequently the impugned intimation issued by the Assistant Director of Income Tax, CPC is also illegal and bad in law and the Impugned Order ought to be set aside. B. That on the facts and circumstances of the case and in law, the Ld. Commissioner (Appeals) grossly erred in upholding the impugned intimation without appreciating that interest income earned by the Appellant was actually liable to tax at a lower rate of 5% in accordance with provisions of section 115A read with section 194LC of the Act instead of 10% as per Article 11 of the India-Netherlands Tax Treaty, on this ground the Impugned Order ought to be set aside. C. That the Ld. Commissioner erroneously held that the Appellant had not filed proper rectification application under Section 154 of the Act. It was erroneously observed in the Impugned Order that computation of tax was never sought by the Appellant, further the Ld. Commissioner (Appeals) failed to appreciate that rectification application is filed online through online portal provided by the Department, where the assessee has to choose inbuilt options given on online portal. D. That the Ld. Commissioner failed to appreciate that in the instant case the Appellant had given only two inbuilt options to chose for rectification (third option was for offline), the first was 'Reprocess the Return' and Second was Tax Credit Mismatch'. There was no inbuilt option such like 'Computation of Tax', even till the date there is no such option on portal provided by the department for rectification under the Section 154 of the Act. Hence, the Ld. Commissioner (Appeals) erroneously and without any basis held that the Appellant has not filed proper rectification application under Section 154 of the Act and therefore on this ground alone the Impugned Order ought to be set aside. E. That the Ld. Commissioner failed to appreciate that the Appellant is entitled to claim beneficial rate of 5% as the Appellant satisfied all the conditions for claiming beneficial rate under Section 115A read with Section 194LC of the Income Tax Act, which are tabulated as below: Sr. No. Conditions as per Section 115A Remarks- Satisfaction of the conditions by and Section 194LC of the the Appellant Remarks- Satisfaction of the Conditions by the Appellant i Interest must be payable to a non- resident Interest is paid to the Appellant Le a non-resident foreign company, hence this condition was satisfied fully. ITA Nos.3038, 3039 & 3040/Del/2022 4 | P a g e ii The money is borrowed in foreign currency from a source outside India The money was borrowed in foreign currency from a source outside India Le. Netherlands. Money was received in India in foreign currency and thereafter the foreign currency was converted into Indian rupees by the Authorised Dealer Bank for the purpose of crediting to the bank account of Axalta India. Hence this condition was satisfied fully. iii Borrowing is done under a loan agreement entered between 1 July 2012 and 1 July 2023 as approved by the Central Government The loan agreement was entered as on 17 June 2016 and 16 February 2017; hence this condition was also satisfied fully. iv Interest should not exceed rate approved by Central Government having regard to terms of loan agreement and its repayment. CBDT vide Circular 7 dated 21.09.2012 stated that fulfillment of following conditions would be deemed as the Central Government's approval under Section 194LC (a) borrowing money should be under a loan agreement; (b) the money borrowed under the loan agreement by the Indian company should comply with ECB Regulations either under the Automatic route or under the approval route; (c) the borrowing company should have obtained Loan Registration Number (LRN) issued by the Reserve Bank of India (RBI) in respect of the Loan agreement; February 2017; (b) Borrowings were covered under automatic route under the ECB Regulations. (c) Axalta India through Authorised Dealer Bank filed letters dated 22 June 2016 and 6 March 2017 along with copy of loan agreements before the RBI ITA Nos.3038, 3039 & 3040/Del/2022 5 | P a g e (d) No part of the borrowing should have taken place under the said agreement before 1 July 2012; (e) the agreement should not be restructuring of existing agreement for borrowing in foreign currency solely for taking benefit of reduced withholding tax rates; (0) The end use of the funds and other conditions as laid out by the RBI under ECB regulations should be followed during the entire term of the loan agreement under which the borrowing has been made. for obtaining LRNs. Being satisfied with contents of loan agreement and rate of interest specified therein, the RBI has granted LRN vide Letter dated 27 June 2016 and 08 March 2017. (d) No parts of the borrowing have taken place under the said agreement before 1 July 2012 (e) Money was borrowed for the purpose of expansion of Axalta India's business and not for restructuring of any previous borrowings. There was no prior funding arrangement between the parties. (f) Axalta India has been duly filing the monthly form ECB-2, pursuant to said RBI approval. Hence this condition was also satisfied fully. F. That the Impugned Order is liable to be set aside for being passed without any application of mind, even when the Appellant had specifically submitted that the Appellant fulfills all conditions for claiming the beneficial rate of 5% under Section 115A read with 194LC of the Act and in support of its submissions the Appellant had also submitted relevant documentary proofs. However, the Ld. Commissioner (Appeals) completely ignored the submissions of the Appellant and without any basis concluded that the Appellant has failed to show that relevant conditions for applicability of lower rate of 5% on the subject interest income in accordance with provisions of Section 115A read with Section 194LC of the Act were satisfied in the instant case, whereas there were sufficient proofs before the Ld. Commissioner (Appeals) that the Appellant had duly fulfilled all the conditions for claiming beneficial rate of tax. It is settled principal of law that an order should be passed after examining the contentions raised in ITA Nos.3038, 3039 & 3040/Del/2022 6 | P a g e an appeal and not otherwise. Therefore, the Impugned Order is passed without application of mind, and it is liable to be set aside on this ground itself. G. That a reading of the Impugned Order makes it evident that the Ld. Commissioner (Appeals) has failed to appreciate the facts and documents submitted and the Impugned Order was passed with a pre-meditated mindset to reject the claim of the Appellant. Where proceedings are undertaken in a pre-determined state of mind, the same will be treated as violation of the principles of natural justice. Since at the time of passing of Impugned Order, the Ld. Commissioner (Appeals) had already made a conclusion that the Appellant has not filed proper rectification application under Section 154 of the Act and also not fulfilled conditions provided under Section 115A and 194LC of the Act, the Impugned Order was passed in a pre-determined state of mind and the same is liable to be set aside on this ground alone. H That the Ld. Commissioner grossly erred in failing to appreciate that the Appellant is entitled to be assessed with respect to the impugned income as per the provisions domestic tax law as they are more beneficial vis-a-vis the provisions of the India Netherlands Treaty as per section 90(2) of the Income Tax Act. The Impugned Order is passed without appreciating that: i The impugned income is taxable at the rate of 5% as per the provisions of the Income Tax Act and not as per the India Netherland Tax Treaty which provides the rate of 10%. ii. In view of Section 90(2) of the Income Tax Act, the DTAA would prevail over domestic tax law only to the extent it is more beneficial to the Appellant, therefore where domestic tax law is beneficial, it will prevail over DTTA. Section 90(2) of the Income Tax Act provides that Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the Assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that Assessee. This position has been upheld by the Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan, (2004) 10 SCC 1. iv. In view of Section 4 of the Income Tax Act, the rates charged on any income is subject to the other provision of the Income Tax Act. In the instant case, the taxability of impugned income is subject to Section 115A read with Section 194LC and according to these sections the impugned income shall be taxable at the rate of five percent. ITA Nos.3038, 3039 & 3040/Del/2022 7 | P a g e Therefore, as the Impugned order is passed without any basis in facts and law, the Impugned Order ought to be set aside on this ground alone. That pendency of application for advance ruling cannot be a ground for denying the statutory entitlement of beneficial tax rate to the Appellant, and specifically where the application is pending more than six months. In view of Section 245R (6) of the Act, the Authority is bound to pronounce advance ruling in writing within six months of the receipt of application, therefore the Ld. Commissioner erroneously denied the statutory benefit to the Appellant on flimsy ground hence the Impugned Order ought to be set aside on this ground. J. That the Ld. Commissioner (Appeals) has failed to appreciate that offering the income to higher rate of tax was on account an inadvertent error on part of the Appellant and it cannot be basis of collection of excess tax. Further, the Ld. Commissioner (Appeals) failed to appreciate that on the basis of an inadvertent error in the return of income, the Appellant cannot be deprived of benefit of lower tax rate provided by the provisions of the Act, hence the Impugned Order ought to be set aside. K. That the Ld. Commissioner (Appeals) had failed to appreciate that the Appellant has duly disclosed the entire income eared during the year under consideration, further, the benefit of lower tax rate ought not be denied to the Appellant when the Appellant dully fulfilled all the conditions provided under Section 115A and 194LC of the Act to claim lower rate, the Impugned Order ought to be set aside. L. That the Ld. Commissioner had failed to appreciate that the purpose of the assessment proceedings is correctly assess the tax liability of an assessee in accordance with the law, therefore in view of the purpose of assessment proceeding, the Ld. Commissioner failed to appreciate that the assessee ought to be granted all the benefits it is eligible to obtain under the Act even if the assessee does not claim it otherwise whole purpose of assessment proceedings will be defeated, the Impugned Order ought to be set aside. M. That the Ld. Commissioner (Appeals) failed to appreciate that Section 194LC of the Act is a substantive provision, it creates a right an define an obligation in the sense of quantum of deduction/withholding tax obligations subject to satisfaction of certain conditions. Further, a procedural law is always subservient to the substantive law. Nothing can be given by the procedural law what is not sought to be given by a substantive law and nothing can be taken away by the procedural law what is given by the substantive law, the Impugned Order ought to be set aside. ITA Nos.3038, 3039 & 3040/Del/2022 8 | P a g e N. That it is statutory right of the Appellant to be assessed at the rate of 5% instead of 10% and retention of excess tax collection is illegal, the Impugned Order ought to be set aside. 0. That the Impugned Order ought to be set aside as the Department having received the money without right and having retained and used it, is bound to make party good, just as an individual would be under like circumstances. The obligation to refund money received and retained without right implies carries with it the right to interest. Reference in this regard is placed on the decision of the Hon'ble Supreme Court in Union of India v. Tata Chemicals Ltd. (2014) 6 SCC 335. P. That reliance by the Ld. Commissioner (Appeals) on PCIT v. Wipro Limited is unfounded in law. Q. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing. 4. Both the parties next invited our attention to the CIT(A)’s lower appellate discussion reading as under: - “8. Ground no. 2 is against the intimation issued by CPC taxing the interest income @ 10% as per Article 11 of the India-Netherlands Tax Treaty. 8.1 It is contended that the interest income was taxable @5% in accordance with provisions of section 115A read with section 194LC of the Act. 8.2 It is an admitted fact that the appellant had itself offered the interest income @ 10% in the return of income filed with the CPC. It is also an admitted fact that the appellant had never filed any revised return upon discovery of any mistake or omission in the return so filed. Further, it is observed that the appellant never filed any proper rectification application with the CPC in so far that the computation of tax was never revised by it but only re-processing of the return was sought u/s 154 from the CPC. 8.3 It is also observed that the appellant has failed to show that the relevant conditions for applicability of lower rate of 5% on the subject interest income in accordance with the provisions of section 115A read with section 194LC of the Act were satisfied in the instant case. ITA Nos.3038, 3039 & 3040/Del/2022 9 | P a g e 8.4 It is also observed that it is not settled yet that the appellant is entitled to lower rate of 5% on the said interest income u/s 115A r.w.s 194LC of the Act as the appellant has itself informed that it has filed an application with the Authority for Advance Rulings (AAR) on 17.07.2017 to affirm the applicability of tax rate of 5% on the subject interest income in accordance with the provisions of section 115A read with section 194LC of the Act and the same is pending. 8.5 It is observed that when the appellant has itself offered the income at the rate 10% in the return of income filed by it and no revised return has been filed and further, when the issue of taxation at the rate 5% is yet not settled by the AAR, it cannot be said that the CPC committed any error in the impugned order u/s 154 of the Act. 8.6 In this case, the appellant has not filed any revised return. Even, if the appellant would have made such claim by filing a revised return, the same could not be accepted by the CPC or in appeal in view of recent decisions of Hon'ble Supreme Court in the case of PCIT v. Wipro Limited, Civil Appeal No. 1449 of 2022 Date of Judgement/Order: 11/07/2022, wherein the Hon'ble Court has laid down that such a claim by filing a revised return under Section 139(5) of the IT Act and taking a contrary stand and/or claiming the exemption, which was specifically not claimed earlier while filing the original return of income is not permissible. The Court held that by filing the revised return of income, the assessee cannot be permitted to substitute the original return of income filed under section 139(1) of the IT Act. 8.7 In view of the above discussion, the ground of appeal is dismissed.” 5. We have given our thoughtful consideration to the assessee’s and Revenue’s vehement rival submissions. Suffice to say, we note during the course of hearing that both the learned lower authorities have predominantly gone by assessee’s declared/returned interest rate @ 10% than that sought to be rectified @ 8%, representing interest under section 115A read with section 194LC of the Act. The Revenue could hardly dispute that the CIT(A) herein has raised all technical issues of the assessee’s return as well as its alleged ITA Nos.3038, 3039 & 3040/Del/2022 10 | P a g e application filed before the Authority for Advance Ruling (AAR) and lack of a revised return claiming reduced interest rate @ 5%; respectively to decline its claim than having adjudicated the issue on merits, as contemplated under section 250(6) of the Act. We make it clear in other words that so far as the assessee’s liability to claim a revised return before the assessing authority is concerned, the hon’ble apex court in Goetze India Ltd. Vs. CIT, (2006) 284 ITR 323 (SC) has settled the issue long-back that the same nowhere impinges upon an appellate authority’s jurisdiction to entertain a new ground for the first time. This is indeed coupled with the fact that instant claim has not been rejected on merits in any other proceedings. 6. That being the case, we deem it appropriate in the larger interest of justice to restore the assessee’s case back to the learned Assessing Officer’s for his afresh appropriate adjudication, as per law, subject to a rider that it shall plead and prove this case within three effective opportunities, at his own risk and responsibility, in consequential proceedings. Ordered accordingly. 7. The assessee’s instant “lead” appeal ITA No. 3038/Del/2022 succeeds for statistical purposes in very terms. ITA Nos.3038, 3039 & 3040/Del/2022 11 | P a g e 8. Same order to follow in the assessee’s latter twin appeals ITA Nos.3039 & 3040/Del/2022, which are stated to be raising identical set of facts and issues, as the case may be. 9. These assessee’s three appeals ITA Nos.3038, 3039 & 3040/Del/2022 are allowed for statistical purposes in above terms. A copy of this common order be placed in the respective case files. Order pronounced in the open court on 26th March, 2025 Sd/- Sd/- (S. RIFAUR RAHMAN) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 26th March, 2025. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi "