DCIT (IT) 2(2)(2), MUMBAI V. HSBC BANK (MAURITIUS) LTD, MUMBAI

ITA 1319/MUM/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0633 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 07-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH
• Keywords: Double taxation relief; Source of fund; Set aside; Capital Gains
• Section: 143(3); 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I , MUMBAI , ! ,'# '$ BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI N.K.PRADHAN, ACCOUNTANT MEMBER . 1319 / /201 9 (. . 2014-15 ) ITA NO.1319/MUM/2019(A.Y.2014-15) DY.COMMISSIONER OF INCOME TAX(IT)-2(2)(2), ROOM NO.1606, 16 TH FLOOR, AIR INDIA BLDG., NARIMAN POINT, MUMBAI 400021 ...... , / APPELLANT VS. M/S. HSBC BANK (MAURITIUS) LIMITED, C/O. BSR & CO., LLP, 1 ST FLOOR, APOLLO MILLS COMPUND, N.M.JOSHI MARG, MAHALAKSHMI, MUMBAI 400 011. PAN: AABCH9075N ..... !-/ RESPONDENT ,./ APPELLANT BY : SHRI SANJAY SINGH !-./ RESPONDENT BY : SHRI NIRAJ SHETH /- / DATE OF HEARING : 16/03/2020 012 /- / DATE OF PRONOUNCEMENT : 20/03/2020 '/ ORDER PER VIKAS AWASTHY, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-56, MUMBAI (IN SHORT THE CIT(A)) DATED 10/12/2018 FOR THE ASSESSMENT YEAR 2014-15. THE REVENUE IN APPEAL HAS ASSAILED THE ORDER OF CIT(A) BY RAISING FOLLOWI NG GROUNDS:- 2 ITA NO.1319/MUM/2019(A.Y.2014-15) 1. ' WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO FOL LOW THE DECISION OF HON'BLE ITAT ON INTEREST INCOME FROM FOREIGN CURRENCY LOAN AND SECU RITIES, 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 EXE MPTION 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 FOL LOW THE DECISION OF HON'BLE ITAT ON INTEREST INCOME FROM FOREIGN CURRENCY LOAN AND SECU RITIES, IGNORING THE FACT THAT, IN INDIA, THE ASSESSEE IS INVOLVED IN ONLY FII ACTIVIT Y AND NO BANKING LICENSE HAS BEEN GRANTED BY THE RBI TO THE ASSESSEE FOR BANKING ACTI VITIES 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 O F THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO FOL LOW THE DECISION OF HON'BLE ITAT ON INTEREST INCOME FROM FOREIGN CURRENCY LOAN AND SECU RITIES, IGNORING THE FACT THAT, THE ASSESSEE HAS NOT FURNISHED ANY DOCUMENT DEMONSTRATI NG 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 C LAIM EXEMPTION UNDER ARTICLE 11(3)(C) OF INDIA-MAURITIUS DTAA?' 4. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO FOL LOW THE DECISION OF HON'BLE ITAT FOR AY 2009-10, AY 2010-11 AND AY 2011-12 IGNORING THE FAC T THAT THE HON'BLE ITAT RELIED ON THE CBDT CIRCULAR NO.789 DATED 13.04.2000 WITHOU T APPRECIATING THE FACT THAT THE SAID CIRCULAR IS APPLICABLE TO THE INCOMES EARNED B Y WAY OF DIVIDEND AND CAPITAL GAINS ON SALE OF SHARES AND ON THE OTHER HAND IN THE ASSE SSEE'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 FOL LOW THE DECISION OF HON'BLE ITAT FOR AY 2009-10, AY 2010-11 AND AY 2011-12 IGNORING THE FAC T THAT THE HON'BLE ITAT RELIED ON THE JUDGEMENT OF BOMBAY HIGH COURT IN THE CASE O F 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 A UTHORITY 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 RE LIED 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 RESTORE D. 2. SHRI NIRAJ SHETH, APPEARING ON BEHALF OF THE ASS ESSEE SUBMITTED AT THE OUTSET THAT THE ISSUES RAISED IN PRESENT APPEAL BY THE REVENUE HAVE ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN C ASE IN ASSESSMENT YEAR 2011-12 IN ITA NO.1708/MUM/2016 DECIDED ON 02/07/20 18. THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ADDITION FOR SIMILAR REASONS WERE MADE BY THE ASSESSING OFF ICER IN ASSESSMENT YEAR 2009-10, 2010-11, 2012-13 AND 2013-14. IN ALL THE AFORESAID ASSESSMENT YEARS THE MATTER TRAVELLED TO THE TRIBUNAL. IN ALL THE S AID ASSESSMENT YEARS THE TRIBUNAL DECIDED THE ISSUES IN FAVOUR OF THE ASSESS EE BY FOLLOWING THE ORDER RENDERED IN ITA NO.1708/MUM/2016(SUPRA). THE LD. A UTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURNISHED COPY OF T RIBUNAL ORDER IN ITA NO.1086/MUM/2018& 1087/MUM/2018 FOR ASSESSMENT YEAR S 2009-10 & 2010- 11 DECIDED BY COMPOSITE ORDER ON 30/03/2018, COPY O F ORDER IN ITA NO.5411/MUM/2018 FOR ASSESSMENT YEAR 2012-13 DECID ED ON 20/08/2019 AND COPY OF TRIBUNAL ORDER IN ITA NO.2213/MUM/2018 FOR ASSESSMENT YEAR 2013- 14 DECIDED ON 02/01/2019. IN THE IMPUGNED ASSESSME NT YEAR, THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE ORD ER OF TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS. 3. SHRI SANJAY SINGH, REPRESENTING THE DEPARTMENT F AIRLY ADMITTED THAT THE ISSUE RAISED IN THE APPEAL BY THE REVENUE WAS SUBJ ECT MATTER OF APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL IN THE PRECEDING AS SESSMENT YEARS. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITTED THAT THE TRIBUNAL WHILE 4 ITA NO.1319/MUM/2019(A.Y.2014-15) ADJUDICATING THE ISSUE HAS FAILED TO TAKE INTO CONS IDERATION THE FACT THAT THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT IT IS A BEN EFICIAL OWNER OF THE INTEREST INCOME. THE LD. DEPARTMENTAL REPRESENTATIVE FILED WRITTEN SUBMISSIONS TO SUBSTANTIATE HIS POINT. THE RELEVANT EXTRACT OF TH E SAME IS REPRODUCED HEREIN BELOW:- 4. IT IS SUBMITTED THAT BENEFIT OF ARTICLE 11(3) O F THE TREATY WOULD BE AVAILABLE ONLY IF SUCH INTEREST INCOME IS DERIVED AND BENEFICIALLY OWNED BY ANY BANK CARRYING ON A BONA FIDE BANKING BUSINESS. 5. THE HON'BLE ITAT IN A.Y. 2011-12, AFTER RECALLIN G THE EARLIER ORDER, HELD THAT THOUGH CBDT CIRCULAR NO.789 DATED 13.04.2000 WAS IN THE CO NTEXT OF INCOME BY WAY OF DIVIDEND AND CAPITAL GAIN ON SHARES, IT WOULD ALSO APPLY TO TAXABILITY OF INTEREST AS PER ARTICLE 11(3)(C) OF INDIA MAURITIUS TREATY DRAWING STRENGTH FROM THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF UNIVERSAL INTERNATIONAL MUSIC BV (2013) 31 TAXMANN.COM 223. 6. IT IS HUMBLY SUBMITTED THAT IN THE CASE OF UNIVE RSAL INTERNATIONAL MUSIC THE ISSUE WAS ROYALTY AND THERE WAS A SPECIFIC CERTIFICATE FR OM THE REVENUE AUTHORITIES OF NETHERLAND CERTIFYING THAT ASSESSEE WAS THE BENEFIC IAL OWNER OF ROYALTY. THERE IS NO SUCH CERTIFICATE ABOUT BENEFICIAL OWNERSHIP IN THE PRESENT CASE BEFORE THE ITAT. UNDER THE TAX TREATY LAWS, THE INTERPRETATION OF BENEFICI AL OWNERSHIP IS MEANT IN THE CONTEXT OF RESTRICTING THE TREATY BENEFIT TO INTENDED PERSO NS. 7. FURTHER FACTS TO BE NOTED ARE THAT HSBC BANK LTD . THE PARENT COMPANY, ALREADY HAS SEVERAL BRANCHES IN INDIA. IT INCORPORATED A NEW EN TITY HSBC BANK (MAURITIUS) LTD. THE AO CALLED FOR DETAILS OF-BORROWINGS AND LENDING BY ASSESSEE WHICH WAS NOT PROVIDED. EVEN AGREEMENTS WITH BORROWERS IN INDIA WHICH WOULD INDICATE THE ENTITY NEGOTIATING AND PROVIDING THE LOAN IS NOT AVAILABLE. FOR INSTAN CE IF INDIAN BORROWER/ENTITY NEGOTIATED WITH HSBC SWITZERLAND OR UK AND TRANSACT ION WAS MERELY ASSIGNED OR ROUTED THROUGH MAURITIUS, TREATY BENEFIT WILL NOT B E AVAILABLE. WHILE COMPLETE DETAILS OF DEPOSITORS / BORROWINGS AND LENDING WERE NOT PRO VIDED, THE SUMMARY FINANCIALS PROVIDED BY THE ASSESSEE IS TABULATED AND ANALYSED IN PARA 14.3 OF THE ASSESSMENT ORDER. THE BANKING ACTIVITY IN MAURITIUS IS MINISCU LE AND FUNDS USED AND INCOME EARNED ARE FROM OTHER THAN MAURITIUS AND IS A CLEAR CASE OF 'TREATY SHOPPING' (PARA 14.5 OF THE ASSESSMENT ORDER). 8. THE CLAIM OF THE ASSESSEE FOR EXEMPTION IS INCOR RECTLY ALLOWED BY THE LD. CIT(A) SINCE (I)ASSESSEE IS A FII AND DOES NOT CARRY OUT BANKING BUSINESS IN INDIA. 5 ITA NO.1319/MUM/2019(A.Y.2014-15) (II) IT DOES NOT SATISFY THE CONDITION OF BENEFICI AL OWNERSHIP. (III) TRC DOES NOT CERTIFY BENEFICIAL OWNERSHIP UN LIKE THE CASE OF UNIVERSAL INTERNATIONAL MUSIC BV. (IV) CBDT CIRCULAR 789 IS NOT IN RESPECT OF INTEREST INCOME. (V) IT IS A CASE OF MISUSE OF TREATY BENEFIT S. 4. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE EXAMINED THE ORDERS OF AUTHORITIES BELOW. WE HAVE CONSIDERE D THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE PRECEDING AS SESSMENT YEARS. WE OBSERVE THAT IN THE CASE OF PRESENT ASSESSEE TAXABI LITY OF INTEREST INCOME OF FOREIGN CURRENCY LOANS AND SECURITIES IS A PERENNIA L ISSUE. THIS ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL FOR THE FIRST TIME IN ASSESSEES CASE IN ASSESSMENT YEAR 2011-12. THE TRIBUNAL AFTER CO NSIDERING THE FACTS OF THE CASE, CBDT CIRCULAR NO.789 DATED 13/04/2000 , INDO- MAURITIUS TAX TREATY AND DECISION RENDERED BY HON'BLE BOMBAY HIGH COURT IN T HE CASE OF DIRECTOR OF 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 TH E 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 DEB T 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 ART ICLE 11(3)(C) OF THE INDIA-MAURITIUS DOUBLE TAX AVOIDANCE CONVENTION (HEREINAFTER REFERR ED TO AS INDIA-MAURITIUS TAX TREATY). THE SAID EXEMPTION WAS DENIED BY THE ASSE SSING 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 RESOL UTION PANEL (DRP). PERTINENTLY, THE EXEMPTION WAS DENIED ON THE GROUND THAT THE REQUISI TE 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 DE RIVED BY THE ASSESSEE; (II) THAT INTEREST WAS NOT BENEFICIALLY OWNED BY THE ASSESS EE; AND, (III) THAT THE ASSESSEE OUGHT TO BE CARRYING ON BONA FIDE BANKING BUSINESS, WHICH IT DID NOT. ALL THE AFORESAID ISSUES WERE TAKEN UP BY THE ASSESSEE IN APPEAL BEFO RE THE TRIBUNAL, WHICH VIDE ORDER DATED 16.12.2016 (SUPRA) ACCEPTED THE PLEAS OF THE ASSESSEE SO FAR AS THE FIRST TWO 6 ITA NO.1319/MUM/2019(A.Y.2014-15) AFORESTATED CONDITIONS WERE CONCERNED. IN OTHER WOR DS, THE TRIBUNAL HELD THAT THE INTEREST INCOME IN QUESTION WAS DERIVED BY THE ASSE SSEE AND THAT IT WAS CARRYING ON BONA FIDE BANKING BUSINESS. SO HOWEVER, WITH REGARD TO THE THIRD CONDITION OF BENEFICIAL OWNERSHIP, THE TRIBUNAL REMANDED THE I SSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THIS ASPECT WAS AG ITATED BY THE ASSESSEE BY WAY OF A MISCELLANEOUS APPLICATION U/S 254(2) OF THE ACT AND VIDE ITS ORDER DATED 10.01.2018 (SUPRA), THE TRIBUNAL RECALLED ITS DECISION SO FAR AS IT PERTAINED TO THE ISSUE OF BENEFICIAL OWNERSHIP. IN THIS BACKGROUND, THE LEA RNED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE CAPTIONED PROCEEDING IS TO ADJUDICATE THE ISSUE OF BENEFICIAL OWNERSHIP WHILE EVALUATING ASSESSEES CLAIM OF NON-TAXABILITY OF THE AFORESTATED INTEREST INCOME IN TERMS OF ARTICLE 11( 3)(C) OF THE INDIA-MAURITIUS TAX TREATY. INSOFAR AS THE SCOPE OF THE PRESENT PROCEED ING IS CONCERNED, THE LD. DR APPEARING FOR THE REVENUE DID NOT DISPUTE THE ASSER TIONS OF THE ASSESSEE AND, IN FACT, OUR ATTENTION WAS ALSO INVITED TO TWO AFFIDAVITS FI LED BY THE ASSESSING OFFICER DATED 21.03.2018 AND 15.03.2018 BEFORE THE HON'BLE BOMBAY HIGH COURT WHEREIN THE REVENUE TOOK THE STAND THAT THE ORDER PASSED BY THE TRIBUNAL DATED 16.12.2016 (SUPRA) WAS RECALLED U/S 254(2) OF THE ACT VIDE ORD ER DATED 10.01.2018 (SUPRA) ONLY TO THE EXTENT OF THE ISSUE OF BENEFICIAL OWNERSHIP. 4. IN THIS BACKGROUND, WE HAVE HEARD BOTH THE PARTI ES ON THE ISSUE OF BENEFICIAL OWNERSHIP UNDER ARTICLE 11(3)(C) OF THE INDIA-MAUR ITIUS TAX TREATY QUA THE INTEREST INCOME OF RS.94,57,45,856/- EARNED BY THE ASSESSEE. ON THIS ASPECT, WE FIND THAT THE DRP REQUIRED THE ASSESSEE TO EXPLAIN AS TO HOW IT F ULFILS ONE OF THE REQUIREMENTS OF ARTICLE 11(3)(C) OF THE INDIA MAURITIUS TAX TREATY WHICH PRESCRIBES THAT SUCH INTEREST MUST BE BENEFICIALLY OWNED BY THE ASSESSEE. AS PE R THE DRP, THE AFORESAID WAS ONE OF THE PRE-REQUISITES BEFORE ARTICLE 11(3)(C) OF TH E INDIA-MAURITIUS TAX TREATY COULD BE APPLIED TO SAY THAT THE INTEREST INCOME IN QUESTION WAS NOT TAXABLE IN INDIA. THE DRP HAS REPRODUCED THE SUBMISSIONS PUT FORTH BY THE ASS ESSEE WHEREIN ASSESSEE ASSERTED THAT THE INTEREST INCOME OF RS.94,57,45,856/- EARNE D FROM INVESTMENT IN DEBT SECURITIES WAS BENEFICIALLY OWNED BY IT. ASSESSEE S PECIFICALLY 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 MA URITIAN AUTHORITIES, SUCH CERTIFICATE WILL CONSTITUTE SUFFICIENT EVIDENCE FOR NOT ONLY ACCEPTING THE STATUS OF RESIDENCE, BUT ALSO THE BENEFICIAL OWNERSHIP IN ORD ER 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 CA SE OF DIT VS UNIVERSAL INTERNATIONAL MUSIC B.V, [2013] 31 TAXMAN.COM 223 W HICH HELD THAT A COMPANY INCORPORATED UNDER THE LAWS OF NETHERLANDS AND HOLD ING VALID TAX RESIDENCY CERTIFICATE ISSUED BY THE NETHERLAND AUTHORITIES WA S TO BE CONSTRUED AS THE BENEFICIAL OWNER OF THE ROYALTY INCOME RECEIVED FROM THE INDIA N COMPANY AND WAS ACCORDINGLY HELD ENTITLED TO THE BENEFITS OF ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND NETHERLANDS. IT WAS POI NTED OUT THAT ASSESSEE HAD OBTAINED TAX RESIDENCY CERTIFICATE FROM THE MAURITI AN REVENUE AUTHORITIES, A COPY OF WHICH WAS ALSO FILED BEFORE THE DRP. ON THE AFORESA ID BASIS, ASSESSEE SOUGHT TO 7 ITA NO.1319/MUM/2019(A.Y.2014-15) EXPLAIN THE FULFILMENT OF THE CONDITION OF BENEFIC IAL OWNERSHIP. THE DRP, HOWEVER, REJECTED THE PLEA OF THE ASSESSEE AS ACCORDING TO I T, NO DOCUMENTS WERE PLACED BY THE ASSESSEE TO SUGGEST THAT THE INTEREST INCOME IN QUE STION WAS BENEFICIALLY OWNED BY THE ASSESSEE. AS PER THE DRP, ASSESSEE HAD FAILED T O SHOW THE IMMEDIATE SOURCE OF FUNDS FOR MAKING THE IMPUGNED INVESTMENT AND ALSO T HE IMMEDIATE APPLICATION OF THE IMPUGNED INTEREST INCOME EARNED BY IT. AGAINST SUCH OBSERVATIONS OF THE DRP, ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE A SSESSEE REITERATED THE RELIANCE ON THE CBDT CIRCULAR NO. 789 DATED 13.04.2000 (SUPRA) WHOSE VALIDITY, ACCORDING TO THE LEARNED REPRESENTATIVE, HAS ALSO BEEN UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF UOI VS AZADI BACHAO ANDOLAN, [2003] 263 ITR 706 (SC). FURTHERMORE, IT IS POINTED OUT THAT THE MINISTRY OF FINANCE VIDE PRESS CLARIFICATION DATED 01.03.2013 CLARIFIED THAT THE CBDT CIRCULAR NO. 789 DATED 13.0 4.2000 (SUPRA) CONTINUES TO BE IN FORCE. ANOTHER ASPECT WHICH IS BROUGHT OUT BY THE L EARNED REPRESENTATIVE IS BASED ON THE DECISION OF CHENNAI BENCH OF THE TRIBUNAL IN TH E CASE OF HYUNDAI MOTOR INDIA LTD. VS DCIT, [2017] 81 TAXMANN.COM 5. IN THIS CASE, THE INTEREST PAID BY HYUNDAI MOTOR INDIA LTD. TO THE ASSESSEE WAS DISALLOWED U/S 40(A) (I) OF THE ACT ON THE GROUND THAT THE PAYER THEREIN, I.E. HYUNDAI MOTOR INDIA LTD. HA D NOT DEDUCTED THE REQUISITE TAX AT SOURCE. THE TRIBUNAL IN THE AFORESAID DECISION, INT ER-ALIA, EXAMINED THE PROVISIONS OF ARTICLE 11 OF THE INDIAMAURITIUS TAX TREATY AND CON CLUDED THAT THE ASSESSEE WAS INDEED THE BENEFICIAL OWNER OF SUCH INTEREST INCO ME. THE RELEVANT EXTRACT OF THE DECISION REFERRED TO READS AS UNDER :- THE DOUBTS EXPRESSED BY THE DRP WITH REGARD TO BEN EFICIAL OWNER OF THE INTEREST INCOME ARE DEVOID OF ANY LEGALLY SUSTAINAB LE BASIS. NO CASE HAS BEEN MADE OUT BY THE REVENUE FOR THE BENEFICIAL OWNER OF THE INTEREST INCOME BEING ENTITIES OTHER THAN MAURITIAN ENTITIES IN QUESTION. IN TERMS OF ARTICLE 11(3), INTEREST ARISING IN A CONTRACTING STATE (I.E. INDIA , IN THIS CASE) SHALL BE EXEMPT FROM TAX IN THAT STATE (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. MAURI TIUS). THERE IS NO DISPUTE THAT MAURITIAN ENTITIES IN QUESTION WERE CARRYING O UT 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 D ECLINED 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 OBLIG ATIONS, U/S 195, IN RESPECT OF THESE PAYMENTS, AND, AS A COROLLARY THERETO, DIS ALLOWANCE 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 8 ITA NO.1319/MUM/2019(A.Y.2014-15) 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 DISCUSSION MADE BY THE DRP IN ITS ORDER, WHICH WE H AVE ALREADY NOTED IN THE EARLIER PARAS AND IS NOT BEING REPEATED FOR THE SAKE OF BRE VITY. 8. ARTICLE 11(3)(C) OF THE INDIA-MAURITIUS TAX TREA TY, INTER-ALIA, PRESCRIBES THAT INTEREST INCOME ARISING IN A CONTRACTING STATE SHALL BE EXEM PT FROM TAX IN THAT STATE PROVIDED IT IS DERIVED AND BENEFICIALLY OWNED BY ANY BANK CA RRYING ON A BONA FIDE BANKING BUSINESS WHICH IS RESIDENT OF THE OTHER CONTRACTING STATE. THE LIMITED POINT BEFORE US IS AS TO WHETHER ASSESSEE, WHO IS A TAX RESIDENT OF MAURITIUS, BENEFICIALLY OWNS THE INTEREST INCOME OF RS.94,57,45,856/- IN QUESTION. T HE OTHER PRE-REQUISITES OF ARTICLE 11(3)(C) OF THE INDIA-MAURITIUS TAX TREATY ARE NOT FOR CONSIDERATION BEFORE US AS THEY HAVE ALREADY BEEN DEALT WITH BY OUR PREDECESSOR BEN CH IN ITS ORDER DATED 16.12.2016 (SUPRA). BE THAT AS IT MAY, IN SUPPORT OF THE PROPO SITION THAT THE IMPUGNED INTEREST INCOME IS BENEFICIALLY OWNED BY THE IT, THE APPELLA NT HAS PRIMARILY RELIED ON THE TAX RESIDENCY CERTIFICATE ISSUED BY THE MAURITIAN REVEN UE AUTHORITIES CERTIFYING THE FACT THAT ASSESSEE IS A TAX RESIDENT OF MAURITIUS. COPIE S OF SUCH CERTIFICATES HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 268 TO 270. FACTU ALLY SPEAKING, THERE IS NO DISPUTE ON THIS ASPECT. THE ONLY CONTROVERSY IS WHETHER SUC H TAX RESIDENCY CERTIFICATE ENABLES AN INFERENCE THAT THE INTEREST INCOME IN QUESTION I S BENEFICIALLY OWNED BY THE ASSESSEE. IN THIS CONTEXT, THE CBDT CIRCULAR NO. 78 9 DATED 13.04.2000 (SUPRA) OF THE CBDT IS QUITE ELOQUENT, WHOSE RELEVANT CONTENT READ S AS UNDER :- 2. ..................IT IS HEREBY CLARIFIED THAT W HEREVER A CERTIFICATE OF RESIDENCE IS ISSUED BY THE MAURITIAN AUTHORITIES, S UCH CERTIFICATE WILL CONSTITUTE SUFFICIENT EVIDENCE FOR ACCEPTING THE ST ATUS OF RESIDENCE AS WELL AS BENEFICIAL OWNERSHIP FOR APPLYING THE DTAC ACCORDINGLY . [UNDERLINED FOR EMPHASIS BY US] OSTENSIBLY, AS PER THE CLARIFICATION ISSUED BY THE CBDT, WHEREVER A CERTIFICATE OF RESIDENCY IS ISSUED BY THE MAURITIAN AUTHORITY, SUC H CERTIFICATE WILL CONSTITUTE SUFFICIENT EVIDENCE FOR ACCEPTING THE STATUS OF RES IDENCE AS WELL AS THE BENEFICIAL OWNERSHIP FOR APPLYING THE PROVISIONS OF THE INDIA- MAURITIUS TAX TREATY. THUS, IN OUR CONSIDERED OPINION, THE AFORESAID CLARIFICATION BY THE CBDT SUPPORTS THE ASSERTION OF THE ASSESSEE THAT BASED ON THE CERTIFICATE OF TAX R ESIDENCY ISSUED BY THE MAURITIAN AUTHORITY THERE IS SUFFICIENT EVIDENCE TO ACCEPT TH E POSITION THAT THE BENEFICIAL OWNERSHIP OF THE IMPUGNED INTEREST INCOME IS WITH THE ASSESSEE. 9. AT THIS POINT, WE MAY NOTE THAT THE CBDT CIRCUL AR NO. 789 DATED 13.04.2000 (SUPRA) IS SPECIFICALLY IN THE CONTEXT OF INCOMES B Y WAY OF DIVIDEND AND CAPITAL GAIN ON SALE OF SHARES. SO, HOWEVER, IN OUR CONSIDERED OPIN ION, IT WOULD EQUALLY APPLY EVEN IN THE SITUATION BEFORE US WHERE THE APPLICATION OF TH E PROVISIONS OF THE INDIA-MAURITIUS TAX TREATY IS SOUGHT TO BE APPLIED FOR CONSIDERING THE TAXABILITY OF INTEREST INCOME AS 9 ITA NO.1319/MUM/2019(A.Y.2014-15) PER ARTICLE 11(3)(C) OF THE INDIA-MAURITIUS TAX TRE ATY. 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 T HE HON'BLE HIGH COURT WAS RELATING TO THE TAXABILITY OF ROYALTY INCOME IN THE CONTEXT OF INDIANETHERLANDS DOUBLE TAXATION AVOIDANCE AGREEMENT. IN THE SAID DECISION ALSO, CBDT CIRCULAR NO. 789 DATED 13.04.2000 (SUPRA) WAS HELD APPLICABLE IN THE CONTE XT OF ROYALTY INCOME. THUS, IN OUR CONSIDERED OPINION, EVEN IN THE CONTEXT OF THE IMPU GNED INTEREST INCOME, CIRCULAR NO. 789 DATED 13.04.2000 (SUPRA) OF THE CBDT IS APPLICA BLE WHILE APPLYING THE PROVISIONS OF ARTICLE 11(3)(C) OF THE INDIA-MAURITIUS TAX TREA TY. ON THIS ASPECT ITSELF WE UPHOLD THE PLEA OF THE ASSESSEE THAT ASSESSEE IS THE BENE FICIAL OWNER OF THE IMPUGNED INTEREST INCOME ON THE STRENGTH OF THE TAX RESIDENC Y CERTIFICATE ISSUED BY THE MAURITIAN AUTHORITIES. 10. MOREOVER, IN THE CONTEXT OF ELEMENT OF INTERE ST INCOME EARNED BY THE ASSESSEE FROM HYUNDAI MOTOR INDIA LTD., THE CHENNAI BENCH OF THE TRIBUNAL IN ITS DECISION IN THE CASE OF HYUNDAI MOTOR INDIA LTD. (S UPRA) HAS ALREADY OBSERVED THAT THE RECIPIENT THEREIN (I.E. THE ASSESSEE BEFORE US) , WAS THE BENEFICIAL OWNER OF THE INTEREST INCOME QUA THE PROVISIONS OF ARTICLE 11 OF THE INDIA-MAURITIUS TAX TREATY. BE THAT AS IT MAY, IN VIEW OF OUR AFORESAID DISCUSSIO N, WE UPHOLD THE STAND OF THE ASSESSEE THAT IT IS THE BENEFICIAL OWNER OF THE I NTEREST INCOME OF RS.94,57,45,856/- QUA THE PROVISIONS OF ARTICLE 11(3)(C) OF THE INDIA -MAURITIUS TAX TREATY AND THUS, SUCH INCOME IS NOT TAXABLE IN INDIA. 5. FROM THE PERUSAL OF THE ABOVE ORDER OF THE TRIBU NAL, IT IS EVIDENT THAT THE TRIBUNAL HAS CONSIDERED THE ISSUE OF ASSESSEE BEI NG BENEFICIAL OWNERSHIP OF THE INTEREST INCOME. THE CO-ORDINATE BENCH IN AN UN EQUIVOCAL MANNER HAS HELD THAT THE ASSESSEE IS A BENEFICIAL OWNER OF THE I NTEREST INCOME. UNDISPUTEDLY, THE NATURE OF INTEREST INCOME IN ASSESSMENT YEAR UN DER APPEAL IS NO DIFFERENT PRECEDING ASSESSMENT YEARS. ERGO, WE DO NOT CONCUR WITH THE ARGUMENT OF LD. DEPARTMENTAL REPRESENTATIVE THAT THE TRIBUNAL HAS N OT CONSIDERED THE FACT IN THE PAST THAT THE INTEREST IS NOT BENEFICIALLY OWN ED BY THE ASSESSEE. IN THE LIGHT OF DECISION OF THE CO-ORDINATE BENCH ON THE ISSUE RAISED IN THE APPEAL BY REVENUE , WE FIND NO INFIRMITY IN THE IMPUGNED ORDER. THE CIT(A) HAS GRANTED RELIEF TO THE ASSESSEE BY FOLLOWING THE ORD ER OF TRIBUNAL IN ITA 10 ITA NO.1319/MUM/2019(A.Y.2014-15) NO.1708/MUM/2016 (SUPRA). THE IMPUGNED ORDER IS UP HELD AND THE APPEAL BY THE REVENUE IS DISMISSED SANS MERIT. 6. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY TH E 20TH DAY OF MARCH, 2020. SD/- SD/- (N.K.PRADHAN) (VIKAS AWASTHY) '# / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI, 4 / DATED 20/03/2020 VM , SR. PS(O/S) COPY OF THE ORDER FORWARDED TO : 1. , / THE APPELLANT , 2. !- / THE RESPONDENT. 3. 5- ( )/ THE CIT(A)- 4. 5- CIT 5. 67!- , . . . , / DR, ITAT, MUMBAI 6. 789:; / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI