M/s. Bharti Airtel Ltd., Gurgaon V. ITO (TDS), New Delhi

ITA 2245/DEL/2012

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8889 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 06-07-2017
• Assessment Year: misc
• Appeal Filed On: 10-05-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Keywords: Double taxation relief
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE SHRI G.D.AGRAWAL, HONBLE VICE PRESIDENT AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO.2241/DEL/2012 TO 2246/DEL/2012 ( A.Y.: 2004-05, 2005-06, 2006-07, 2007-08, 2008-09,2 009-10) M/S. BHARTI AIRTEL LTD. AIRTEL CENTRE, PLOT NO. 16, UDYOG VIHAR, PHASE-IV GURGAON PAN : AAACB2894G VS ITO (TDS) WARD-I(I), INTERNATIONAL TAXATION NEW DELHI ASSESSEE BY SH. AJAY VOHRA, SR. ADV., SH. ANSHUL SACHAR, ADV., SH. KARAN JAIN, CA REVENUE BY SMT. APARNA KARAN, CIT(DR) ORDER PER BENCH: ALL THE SIX APPEALS ARE ASSESSEES APPEALS AND PER TAIN TO DIFFERENT ASSESSMENT YEARS AS MENTIONED IN THE CAPT ION. THE APPEALS ARE PREFERRED AGAINST THE COMMON ORDER DATE D 02.02.2012 PASSED BY THE LD. CIT (APPEALS)-XI, NEW DELHI WHEREIN VIDE THE IMPUGNED ORDER, THE LD. CIT (APPEA LS) HAS UPHELD THE ORDERS OF THE ASSESSING OFFICER PASSED U /S 201 OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED 'THE ACT') TREATING THE ASSESSEE TO BE ASSESSEE IN DEFAULT FOR WITHHOLDIN G OF TAXES FROM THE PAYMENTS MADE TO ABN AMRO BANK, STOCKHOLM BRANC H. DATE OF HEARING 09.10.2018 DATE OF PRONOUNCEMENT 27 .12.2018 2 ITA N O. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) SINCE THE ISSUE IS COMMON ALL THE SIX APPEALS, THE SAME WERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE THEY ARE BEING DISPOSED OF TOGETHER THROUGH THIS COMMON ORDER. 2.0 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE DESIRED TO PURCHASE TELECOM EQUIPMENTS FROM A SWEDISH SUPPLIER M/S ERICSSON WHICH REQUIRED SUBSTANTIAL FUNDING IN FORE IGN CURRENCY. THE ASSESSEE SOUGHT FOREIGN EXCHANGE CREDIT FACILIT Y TO BUY THE TELECOM EQUIPMENTS FROM SWEDEN. ABN AMRO BANK STOC KHOLM BRANCH WAS WILLING TO ADVANCE TERM LOAN IN FOREIGN CURRENCY TO THE ASSESSEE BUT THE TERM LOAN WAS REQUIRED TO BE G UARANTEED BY THE SWEDISH EXPORT CREDIT GUARANTEE BOARD WHICH HAD BEEN SET UP BY THE SWEDISH GOVERNMENT IN ORDER TO PROVIDE GU ARANTEE TO THE LENDERS IN RESPECT OF THE MONIES BORROWED BY BU YER OF EQUIPMENTS MANUFACTURED SWEDISH COMPANIES. SUBSEQU ENTLY, THE ASSESSEE ENTERED INTO FOUR FACILITY AGREEMENTS WITH ABN AMRO BANK STOCKHOLM WHICH WERE GUARANTEED BY THE SW EDISH EXPORT CREDIT GUARANTEE BOARD. SUBSEQUENTLY, THE A MN AMRO BANK NOVATED A PORTION OF THE LOANS INCLUDING ALL T HE RIGHTS AND LIABILITIES THEREIN TO FIVE OTHER PARTIES. THE ASSE SSEE MADE PAYMENTS TO ABMN AMRO BANK AS PER THE FOLLOWING CHA RT:- 3 ITA N O. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) PARTICULARS 2003-04 2004-05 2005-06 2006-07 2007-08 2008- 09 INTEREST PAYABLE TO NOVATED LENDERS 73,75,996 3,35,37,700 12,69,33,829 18,36,09,195 84,35,58,169 5,99,87,588 ARRANGEMENT/AGENCY FEE PAYABLE TO ABN AMRO BANK, NETHERLANDS - - 2,75,46,675 10,301,796 1,75,60,820 - PREMIUM PAYABLE TO EKN TOWARDS GUARANTEEING THE FACILITY AGREEMENTS - - 21,05,44,166 6,22,00,389 8,95,68,494 - INTEREST PAYABLE TO ABN AMRO 8,12,49,59 8 _ _ 11,38,28,052 14,11,24,052 2,94,98,584 20,27,38,979 - TOTAL 8,86,25,594 14,73,65,752 50,61,48,722 28,56,09,964 1,15,34,26,462 5,99,87,588 2.1 THE ASSESSEE DID NOT WITHHOLD TAX AT SOURCE ON THE PAYMENTS MADE TO THE ABN AMRO BANK UNDER A BELIEF T HAT THE SAME WAS NOT LIABLE TO TAX IN INDIA HAVING REGARD T O THE PROVISIONS OF ARTICLE 11(3) OF THE INDIA SWEDEN DOU BLE TAXATION AVOIDANCE AGREEMENT. HOWEVER, THE ASSESSING OFFICE R INITIATED PROCEEDINGS U/S 201(1) OF THE ACT FOR NON-WITHHOLDI NG OF TAX FROM THE PAYMENTS MADE TO ABN AMRO BANK. ALTHOUGH, THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE SWE DISH TAX AUTHORITIES HAD ISSUED TAX RESIDENCY CERTIFICATE CE RTIFYING THAT ABN AMRO BANK WAS A TAX RESIDENT OF SWEDEN IN TERMS OF DOUBLE TAXATION AVOIDANE AGREEMENT BETWEEN INDIA AND SWEDE N AND, THEREFORE, THE PAYMENTS MADE TO ABN AMRO BANK WERE NOT TAXABLE IN INDIA, SUCH SUBMISSION DID NOT FIND FAVO UR WITH THE 4 ITA N O. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) ASSESSING OFFICER. ALTERNATIVELY, THE ASSESSEE ALS O CONTENDED BEFORE THE ASSESSING OFFICER THAT THE INTEREST RECE IVED BY ABN AMRO BANK ON BEHALF OF OTHER PARTIES IN WHOSE FAVOU R THE LOANS WERE NOVATED WERE TAX RESIDENTS OF SWEDEN/MAURITIUS AND HENCE ENTITLED TO THE BENEFIT OF PROVISIONS OF DOUBLE TAX ATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND SWEDEN/INDIA AND MAURITIUS AS APPLICABLE AND AS SUCH THE INTEREST TO THE EXTENT PAYABLE TO SUCH NOVATED LOANS WERE NOT LIABLE TO TA X IN INDIA. HOWEVER, THE ASSESSING OFFICER PROCEEDED TO HOLD TH E ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT FOR THE REASON THAT A BN AMRO BANK WAS ALLEGEDLY NOT A TAX RESIDENT OF SWEDEN ON THE G ROUND THAT THE SWEDISH TAX AGENCY, IN TERMS OF ARTICLE 27 (EXCHANG E OF INFORMATION BETWEEN INDIA AND SWEDEN) OF THE INDIA SWEDEN DTAA, HAD STATED THAT ABN AMRO BANK WAS NOT A TAX R ESIDENT OF SWEDEN. THE ASSESSEE, THEREAFTER, APPROACHED THE L D. COMMISSIONER OF INCOME TAX (APPEALS) CHALLENGING TH E ACTION OF THE ASSESSING OFFICER IN HOLDING THE ASSESSEE AS AS SESSEE IN DEFAULT BUT THE ASSESSEES APPEALS WERE DISMISSED B Y THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND NOW THE AS SESSEE IS BEFORE THE ITAT CHALLENGING THE ORDER OF THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) FOR ALL THE SIX YEARS UNDER CO NSIDERATION. 5 ITA N O. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) 3.0 AT THE OUTSET, THE LD. SENIOR ADVOCATE SHRI AJ AY VOHRA APPEARING ON BEHALF OF THE ASSESSEE DREW OUR ATTENT ION TO ORDER OF ITAT DELHI BENCH IN ASSESSEES OWN CASE FOR ASSESSM ENT YEAR 2007-08 IN ITA 5636/DEL/2016 AND AS REPORTED IN 161 TTJ 2383 (DELHI TRIBUNAL) AND SUBMITTED THAT THE QUANTUM APP EAL OF THE ASSESSEE HAD BEEN RESTORED TO THE FILE OF THE ASSES SING OFFICER IN ASSESSMENT YEAR 2007-08 WHEREIN THE ASSESSEE WAS CH ALLENGING THE DISALLOWANCE OF INTEREST PAID TO ABN AMRO BANK WHICH HAD BEEN DISALLOWED U/S 40(A)(I). 3.1 ON A SPECIFIC QUERY FROM THE BENCH, BOTH THE P ARTIES BEFORE US AGREED THAT THE IMPUGNED INTEREST IN THE QUANTUM INTEREST PERTAINED TO THE SAME PARTIES AND THE SAME LOAN FOR WHICH THE ASSESSEE HAS BEEN HELD TO BE IN DEFAULT U /S 201 OF THE ACT AND AGAINST WHICH THE ASSESSEE WAS NOW IN APPEA L BEFORE US. BOTH THE PARTIES FAIRLY AGREED THAT INTEREST OF JUS TICE WOULD BE SERVED IF THESE APPEALS WERE ALSO RESTORED TO THE F ILE OF THE ASSESSING OFFICER IN TERMS OF THE DIRECTIONS OF THE ITAT IN ASSESSEES OWN APPEAL FOR ASSESSMENT YEAR 2007-08 (SUPRA). 4.0 HAVING HEARD BOTH THE PARTIES AND AFTER DULY T AKING INTO CONSIDERATION THE CONSENSUS OF BOTH THE PARTIE S BEFORE US 6 ITA N O. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) THAT THE APPEALS MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER, WE FEEL THAT IT WILL BE IN THE FITNESS OF THINGS IF THESE SIX APPEALS ARE ALSO RESTORED TO THE FILE OF THE ASSESS ING OFFICER. 4.1 IT IS SEEN THAT IN THE ASSESSEES APPEAL FOR A SSESSMENT YEAR 2007-08 (SUPRA) THE ITAT HAD RESTORED THE QUAN TUM APPEAL TO THE FILE OF THE ASSESSING OFFICER WITH THE FOLLO WING OBSERVATIONS:- 25. IN VIEW OF THE ABOVE DISCUSSIONS AND BEARING I N MIND THE FACT THAT ABN-S DID NOT HAVE ANY LOCALITY RELATED A TTACHMENT IN SWEDEN WHICH COULD LEAD TO RESIDENCE TYPE TAXATION ON GLOBAL BASIS, IN OUR CONSIDERED VIEW, ABN-S CANNOT BE TREA TED AS TAX RESIDENT OF INDO SWEDISH TAX TREATY. ACCORDINGLY, T HE BENEFIT OF ARTICLE 11 (3) OF INDO SWEDISH TAX TREATY CANNOT BE APPLICABLE ON THE GROUND THAT THE INTEREST REMITTANCES ARE MADE T O ABN-S. HOWEVER, FOR THE REASONS WE WILL NOW SET OUT, THE M ERE FACT THAT THE INTEREST HAS BEEN REMITTED TO ABN-S AND THAT TH E BENEFIT OF ARTICLE 11(3) OF INDO SWEDISH TAX TREATY OR BENEFIT OF ARTICLE 11(3) OF THE INDO DUTCH TAX TREATY ARE NOT AVAILABLE IN RESP ECT OF THESE REMITTANCES, DOES NOT IMPLY THAT THE AMOUNTS SO PAI D ARE TAXABLE IN INDIA. 26. WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT THE ABN-S, WAS ARRANGER OF THE LOAN AND THERE WERE ALSO OTHER FINANCIAL INSTITUTIONS TERMED AS 'ORIGINAL LENDERS' WHO HAD ACTUALLY FINANCED THIS TRANSACTION. THE ROLE OF THE ABN-S, E XCEPT TO THE 7 ITA N O. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) EXTENT OF FINANCING OF ITS OWN FUNDS IN THIS ARRANG EMENT, WAS CONFINED TO THAT OF A FACILITATOR. WE HAVE ALSO, NO TED THAT IT IS AN UNDISPUTED POSITION THAT .SUBSEQUENTLY THESE LOAN A GREEMENTS WERE NOVATED AND THE ORIGINAL LENDERS CAME INTO DIR ECT AGREEMENTS WITH THE ASSESSEE. UNDER THESE, CIRCUMSTANCES, IN O UR CONSIDERED VIEW, THE INTEREST RECEIVED BY THE-ABN-S, EXCEPT TO THE EXTENT RECEIVED FOR THE FINANCING DONE BY ITSELF, WAS NOT ENTIRELY IN HIS OWN RIGHT BUT MERELY AS A CONDUIT FOR MAKING ONWARD S PAYMENTS TO IDENTIFIED ORIGINAL LENDERS IN A TRANSPARENT MAN NER. AS WE TAKE NOTE OF THESE FACTS, IT IS ALSO IMPORTANT TO BEAR I N MIND THE FACT THAT THE LIABILITY UNDER SECTION 201(11 R.W.S. 195, WHIC H HAS BEEN INVOKED IN THIS CASE FOR NON DEDUCTION OF TAX AT SO URCE FROM PAYMENTS TO ABN-S WHICH IS THE BEDROCK OF DISALLOWA NCE IMPUGNED IN THIS APPEAL, IS BASED ON TAXABILITY OF ABN AMRO BANK @ 10% (BEFORE GROSSING UP) UNDER ARTICLE 11(2) OF T HE INDO-DUTCH TAX TREATY AND BY THUS TREATING ABN AMRO BANK AS BE NEFICIAL OWNER OF THE INTEREST. IT MAY BE NOTED THAT UNDER A RTICLE 11 OF THE INDO DUTCH TAX TREATY, INTEREST ARISING IN ONE OF T HE STATES AND PAID TO A RESIDENT OF THE OTHER STATE MAY BE TAXED IN TH AT OTHER STATE. ARTICLE 11(2), HOWEVER, PROVIDES THAT SUCH INTEREST MAY ALSO BE TAXED IN THE STATE IN WHICH IT ARISES AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE INTEREST, THE TAX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT, AMONGST OTHER, IN THE CASES OF THE INTEREST ON LOANS MADE OR GUARANTEED BY A BANK OR OTHER FINANCIAL INSTITUT ION CARRYING ON BONA FIDE BANKING OR FINANCING BUSINESS. IT IS THUS BEYOND DOUBT THAT THE TAXATION OF INTEREST, EVEN ACCORDING TO TH E REVENUE AUTHORITIES, IS BEING DONE IN THE HANDS OF THE BENE FICIAL OWNER. IN 8 ITA N O. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) THESE CIRCUMSTANCES, THE AUTHORITIES BELOW WERE CLE ARLY IN ERROR IN TREATING ABN AMRO BANK AS RECIPIENT AND AS BENEFICI AL OWNER OF THE ENTIRE INTEREST PAID BY THE ASSESSEE REMITTED T O ABN-S. IN OUR CONSIDERED VIEW, EVEN THOUGH SUCH INTEREST IS REMIT TED TO ABN-S. SINCE ABN-S HAS MAINLY ACTED AS A CONDUIT, IT IS TO BE TREATED AS HAVING BEEN PAID TO THE BENEFICIAL OWNERS OF SUCH I NTEREST I.E. ORIGINAL LENDERS UNDER THE FINANCING' ARRANGEMENT - THOUGH THROUGH THE ABN-S., THE TAXABILITY OF INTEREST IS TO BE EXA MINED IN THE LIGHT OF FACTUAL FINDINGS TO BE SO ARRIVED AT, AND IN THE LIGHT OF THE APPLICABLE LEGAL POSITION AS PER THE RELEVANT PROVI SIONS OF THE TAX TREATIES THAT INDIA HAS WITH THE JURISDICTIONS IN W HICH ORIGINAL LENDERS ARE RESIDENT IN. ONCE AGAIN, WE HAVE TO ACK NOWLEDGE THE FACT THAT LEARNED COUNSEL FOR THE ASSESSEE HAS FILE D ELABORATE DOCUMENTATION IN SUPPORT OF THEIR STAND ABOUT TAX R ESIDENCY STATUS OF BENEFICIAL OWNERS OF THE INTEREST PAID BY THE AS SESSEE AND HAS ALSO ADDRESSED THE ARGUMENTS ON MERITS, BUT, IN THE ABSENCE OF THIS ASPECT OF THE MATTER HAVING BEEN EXAMINED BY T HE AUTHORITIES BELOW, WE ARE NOT INCLINED TO DEAL WITH THE MATTER ON MERITS. IN OUR CONSIDERED VIEW, THE RIGHT COURSE OF ACTION IS TO I DENTIFY THE FACTUAL ASPECTS TO BE LOOKED INTO, SET OUT THE LEGAL PRINCI PLES, AND REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR ADJ UDICATION DE NOVO BY WAY OF A SPEAKING ORDER, IN ACCORDANCE WITH THE LAW AND AFTER GIVING YET ANOTHER FAIR AND REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WHILE DOING SO, THE ASSESSING OFFICER SH ALL SPECIFICALLY DEAL WITH ALL THE CONTENTIONS OF THE ASSESSEE AS TH E ASSESSEE MAY RAISE BEFORE HIM. WE ORDER SO. 9 ITA N O. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) 4.2 IT IS SEEN THAT THE ISSUE WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO IDENTIFY THE FACTUAL ASPECT OF THE ISSUE AND DETERMINE AS TO WHETHER THE IMPUGNED INCOME WAS TAXABLE IN INDIA OR NOT SO AS TO BRING THE ASSESSEE WITHIN THE MISCHIEF OF SECTION 40(A)(I) OF THE ACT. THE DETERM INATION OF THIS ISSUE WILL ESSENTIALLY DETERMINE THE ISSUE WHETHER THE PROVISIONS OF SECTION 201 ARE ATTRACTED IN THIS CASE. ACCORDIN GLY, WE RESTORE ALL THESE SIX APPEALS TO THE FILE OF THE ASSESSING OFFICER TO ADJUDICATE THE ISSUE DE NOVO AFTER DULY CONSIDERING THE ORDER OF THE TRIBUNAL IN ASSESSMENT YEAR 2007-08 (SUPRA) AND ALSO AFTER PROVIDING SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 5.0 IN THE FINAL RESULT, ALL THE SIX APPEALS STAN D ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.12.2018 SD/- SD/- (G.D.AGRAWAL) (SUDHANSHU SRIVASTAV A) VICE PRESIDENT JUDICIAL MEMBER DATED: 27.12.2018 GS 10 ITA NO. 2241-46/DEL/2012 (M/S. BHARTI AIRTEL LIMITED) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI