The ADIT.,(Intl.Taxn.), Ahmedabad V. Adani Enterprises Ltd., Ahmedabad

ITA 2329/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94311 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-07-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 13-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: P M MEHTA
• Keywords: Residential status; Deemed to accrue or arise in india; Capital expenditure
• Section: 5(2); 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ITA NO. 2329/AHD/2011 ASST. YEAR 2010-11 ASSTT. DIRECTOR OF INCOME-TAX (INTL.TAXN.), AHMEDABAD. APPELLANT VS. ADANI ENTERPRISE LTD., ADANI HOUSE, NEAR MITHAKHALI CROSS ROADS, OFF. ASHRAM ROAD, NAVRANGPURA, AHMEDABAD. RESPONDENT PAN :AABCA 2804L APPELLANT BY :SHRI DINESH SINGH, SR.DR RESPONDENT BY : SHRI P. M. MEHTA DATE OF HEARING : 28/7/2015 DATE OF PRONOUNCEMENT : 02/09/2015 O R D E R PER SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER. ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 2 THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 6.6.2011 PASSED BY THE CIT(A) FOR ASSESSMENT YEAR 2010-11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THI S APPEAL :- 1. THE LD. CIT(A), GANDHINAGAR HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 196C R.W.S. 115AC ON THE INTEREST PAYABL E ON FCCBS. 2. LD. CIT(A) HAS ERRED ON FACTS AND LAW IN NOT CONSID ERING THE ISSUE THAT AN INDIAN COMPANY (ASSESSEE) HAS TAKEN L IABILITY OF ISSUING FCCBS FROM INDIA AFTER TAKING APPROVAL OF R ESERVE BANK OF INDIA (INDIAN AUTHORITY), AS PER RULES AND GUIDELINES OF RBI AND HAS REMITTED INTEREST FROM INDIA AS ITS LIABILITY DULY RECOGNIZED IN HIS BOOKS OF ACCOUNT PREPARED FO R INDIAN REGULATORY AUTHORITIES, RESULTING INTO INCOME ACCRU ING AND ARISING TO THE NON-RESIDENT UNDER SECTION 5(2) OF T HE ACT FOR WHICH THE DEEMING PROVISIONS OF SECTION 9(1) ARE NO T APPLICABLE. 3. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN BRINGIN G THE DEEMING FICTION IN ACTION TO DETERMINE THE SITUS OF INTEREST INCOME IN CASE OF NON-RESIDENT WHEN THE ISSUE IS SQ UARELY COVERED UNDER SECTION 5(2) OF THE ACT. 4. THE LD. CIT(A) ALSO ERRED IN LAW AND ON FACTS IN HO LDING THAT THE INTEREST PAID BY THE APPELLANT ON ITS FCCBS IS COVERED BY EXCEPTION TO SECTION 9(1)(V)(B) OF THE ACT AND NOT HIT BY FIRST LIMB OF SECTION 5(2) OF THE ACT AND NOT DEEMED TO A CCRUE OR ARISE IN INDIA. 5. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT THERE IS AMBIGUITY IN DETERMINING WHETHER INCOME HAS BEEN ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 3 RECEIVED OR ARISING IN INDIA AND THUS THERE IS A NE ED TO TRAVEL FROM SECTION 5(2) TO SECTION 9(1) OF THE ACT. 6. THE LD. CIT(A) HAS ALSO ERRED IN LAW AND ON FACTS I N NOT CONSIDERING THE VIEW OF THE ASSESSING OFFICER THAT THE ASSESSEE HAD BEEN DEDUCTING TAX AT SOURCE ON SAME I NTEREST INCOME AS PER LAW, IN EARLIER YEARS AND STOPPED DED UCTING SUCH TAX WITHOUT ANY CHANGE IN THE FACTS AND LAW. 7. THE LD. CIT(A) HAS ERRED IN LAW BY CONTRADICTING HI S OWN OBSERVATION THAT SECTION 115AC IS A CODE ITSELF AND THEN TRAVELLING TO ANOTHER CHANGING SECTION OF THE ACT F OR DECIDING THE TAXABILITY OF INTEREST INCOME. 8. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, IT IS PRAYED THAT THE ORDER OF LD. CIT(A) GANDHINAGAR BE CANCELLED AN D THAT OF ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EXTE NT. 2. BRIEFLY STATED THE FACTS ARE THAT IN THIS CASE, THE ASSESSING OFFICER NOTICED THAT THE COMPANY HAS MADE PAYMENT O N ACCOUNT OF INTEREST ON FCCB'S TO NON-RESIDENT BOND HOLDERS AMO UNTING TO RS 30,31,00,512 ON 25.01.10 WITHOUT DEDUCTING TAX AT S OURCE. THESE REMITTANCES IN THE NATURE OF INTEREST PAYABLE ON FO REIGN CURRENCY CONVERTIBLE BONDS (FCCBS) WERE ISSUED BY ADANI ENTE RPRISE LTD. A SHOW CAUSE NOTICE U/S.201 & 201(1A) DTD. 19/03/20 10 WAS ISSUED BY THE ASSESSING OFFICER TO THE ASSESSEE TO SHOW CAUSE WHY IT SHOULD NOT BE DEEMED TO BE 'ASSESSEE IN DEFAULT AS PER THE PROVISIONS OF SECTION 201(1) OF THE ACT FOR NON-DED UCTION OF TAX AT SOURCE ON THE ABOVE REFERRED INTEREST PAYMENT AND W HY INTEREST ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 4 SHOULD ALSO NOT BE CHARGED AS PER SECTION 201(1A) O F THE ACT. IN REPLY THERETO, THE ASSESSEE SUBMITTED THAT IT HAS M ADE DETAILED SUBMISSIONS IN RESPECT OF THE SAME ISSUE FOR THE A. Y, 2009-10 AND RELIED UPON THE SAME AND FURTHER PLACED RELIANCE ON THE ORDER OF THE CIT(A) FOR AY 2009-10. FURTHER, ASSESSEE CONTENDED AS UNDER: ' THE DEFINITION OF TOTAL INCOME IN SECTION 5 IS 'SUBJEC T TO THE PROVISION OF INCOME-TAX ACT' AND THEREFORE OTHER SECTION MAY OPERATE TO SAVE THAT INCOME FROM TAXATION WHICH IS WITHIN THE PURVIEW OF SECTION 5(2). * THE INTEREST PAID BY THE APPLICANT IS RECEIVED BY T HE NONRESIDENT BOND HOLDERS DO NOT RECEIVE THE INTEREST INCOME IN INDIA DIRECTLY OR INDIR ECTLY. * INCOME OF NON RES/DENTS IS COVERED BY THE EXCL USION PROVIDED IN SECTION 9(L)(V)(B). THE PROVISION OF SECTION 115AC IS NOT APPLICABLE AS THE INTEREST INCOME IS OUTSIDE THE AMBIT OF SECTION 5 OF I. T. ACT. 2.1 THE ASSESSING OFFICER HAS CONSIDERED ASSESSEE'S SUB MISSIONS AS UNDER: THE FCCB HAVE BEEN ISSUED BY ADANI ENTERPRISES LTD TO NOFI- RESIDENT INVESTORS. IT IS NOT DISPUTED THAT THE B ONDS ARE ISSUED BY THE INDIAN COMPANY AND THE INTEREST IS PAID BY THE INDIAN COMPANY FROM INDIA. FROM THE PROSPECTUS ISSUED BY THE ASS ESSEE, IT IS CLEAR THAT THE BONDS ARE THE OBLIGATION OF ADANI ENTERPRI SE LTD AND THE OBLIGATION TO PAY THE INTEREST RESTS WITH ADANI ENT ERPRISE LTD ONLY. THE 'STATUS OF THE BOND' REPRODUCED FROM THE PROSPE CTUS, IS AT PARA.5.1 OF THE ASSESSMENT ORDER. ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 5 2.2 THE ASSESSING OFFICER HAS HELD THAT IN THE PRES ENT CASE THE INTEREST ACCRUE OR ARISE IN THE HANDS OF NON-RESIDE NT BOND HOLDERS IN INDIA AS SOON AS THE INTEREST BECOMES DUE TO THE BOND HOLDERS AND HAS RELIED ON THE FOLLOWING DECISIONS: *PERFORMING RIGHTS SOCIETY VS CIT 106 ITR 11 *HIRA MILLS LTD, CAWNPUR VS ITO 14 ITR 417 (ALL.) 2.3 ACCORDINGLY, ASSESSING OFFICER WAS OF VIEW THAT IF THE INCOME PRIMARILY FALLS U/S.5(2), THE RESORT TO SECT ION 9 IS IMPERMISSIBLE. IT IS ALSO TO BE NOTED THAT 'SUBJECT TO THE PROVISIONS OF THIS ACT' OCCURRING IN SECTION 5(2) OF THE ACT D OES NOT LEAD TO THE CONCLUSION THAT THE CHARGING PROVISION OF SECTI ON 5(2) OF THE ACT IS CONTROLLED BY ANOTHER CHARGING PROVISION IN SECTION 9(1) OF THE ACT. SECTION 5(2) & 9(1) OF THE ACT, SHOULD BE READ HARMONIOUSLY SO THAT THE CHARGE IN BOTH THE PROVISI ONS OF ACT IS EFFECTIVELY ENFORCED. THEREFORE, WHERE THE INCOME I S ACTUALLY RECEIVED OR IS ACCRUED IN INDIA, THE RESORT OF DEEM ING PROVISION IS NOT WARRANTED. IN SUCH CASE, THE PROVISION CONTAINE D IN SECTION 5(2) IS SUFFICIENT TO CREATE A CHARGE IN RESPECT OF NON- RESIDENT'S INCOME. 2.4 THE ASSESSING OFFICER HELD THAT IN ASSESSEE'S C ASE THERE IS NO DOUBT THAT THE BONDS (FCCB) ARE UNCONDITIONAL, DIRE CT AND UNSECURED OBLIGATION OF THE ASSESSEE AND THE INTERE ST IS TO BE PAID BY THE INDIAN COMPANY FROM INDIA. THE INCOME IS ACC RUED OR ARISEN ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 6 WHEN THE RIGHT TO RECEIVE THE INCOME BECOMES VESTED TO THE BOND HOLDERS. THUS, THE INTEREST INCOME ACCRUES OR ARISE S TO THE NON- RESIDENT BOND HOLDERS IN INDIA AND WHEN THE INTERES T BECOMES DUE TO BE PAID BY THE ASSESSEE WHO IS INDIAN RESIDENT. THEREFORE, WHEN THE INCOME ACTUALLY ACCRUES OR ARISES IN INDIA THER E IS NO SCOPE FOR THE ARGUMENT THAT SUCH ACCRUAL IS NULLIFIED BY CLAU SE (B) OF SECTION 9(L)(V) OF THE ACT. THE CLAUSE (B) DOES NOT HAVE TH E EFFECT OF PREVENTING THE ACCRUAL OR INCOME ALL TOGETHER. THER EFORE, IT WAS HELD THAT THE INCOME DERIVED BY THE NON-RESIDENT BO ND HOLDERS IS CHARGEABLE TO TAX U/S.5(2) OF THE ACT AS THE INCOME IS ACCRUED IN INDIA AND CLAUSE (B) OF SECTION 9(L)(V) OF THE ACT IS NOT APPLICABLE ONCE THE INCOME IS COVERED U/S.5(2) OF THE ACT. 2.5 AS REGARDING ASSESSEE'S CONTENTION THAT INCOME OF NON- RESIDENT IS COVERED BY EXCLUSION PROVIDED IN SECTIO N 9(L)(V)(B) OF THE ACT IT IS MENTIONED BY THE ASSESSING OFFICER TH AT A CLOSE READING OF THE SUB-SECTION 9(L)(V)(B) MAKES IT CLEA R THAT INTEREST PAID BY A RESIDENT IS CHARGEABLE TO INCOME TAX EXCE PT IN THE FOLLOWING TWO SITUATIONS: 1. WHEN THE INTEREST IS PAYABLE IN RESPECT OF ANY DEBT INCURRED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIE D ON BY SUCH PERSON OUTSIDE INDIA OR ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 7 2. WHEN THE INTEREST IS PAYABLE IN RESPECT OF ANY DEBT INCURRED FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FR OM ANY SOURCE OUTSIDE INDIA. 2.6 ASSESSING OFFICER HELD THAT THE INTEREST PAID B Y THE ASSESSEE ON FCCB IS NOT COVERED BY THE TWO EXCLUSIONS PROVID ED BY THE SECTION 9(L)(V)(B) AS UNDER:- FIRST EXCLUSION COVERS THE CASES WHERE THE INTEREST IS PAID BY THE RESIDENT AND MONEY RAISED IN USED BY SUCH PERSON FO R THE BUSINESS AND PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE IN DIA. IN THE PRESENT CASE, IT IS ACCEPTED POSITION THAT ASSESSEE HIMSELF DOES NOT CARRY ANY BUSINESS OR PROFESSION OUTSIDE INDIA FOR WHICH THE DEBT IN THE FORM OF FCCBS HAS BEEN RAISED. IN VIEW OF THE A BOVE, FIRST EXCEPTION IS NOT APPLICABLE IN THE PRESENT CASE. SECOND EXCLUSION COVERS THE CASES WHERE THE INTERES T IS PAID BY THE RESIDENT FOR THE PURPOSE OF MAKING OR EARNING ANY I NCOME FROM ANY SOURCE OUTSIDE INDIA. THIS CLAUSE COVERS THE SITUA TION WHERE THE INTEREST IS RELATED TO EARNING INCOME FROM SOURCE O UTSIDE INDIA AND SUCH INTEREST IS DEDUCTIBLE FROM THE EARNING OF THE INCOME FROM SOURCE OUTSIDE INDIA. SINCE IN PRESENT CASE, ASSESS EE DO NOT HAVE ANY INCOME ARISING FROM SOURCE OUTSIDE FOR WHICH TH E DEBIT HAS BEEN SPECIFICALLY RAISED. ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 8 2.7 THE A.O. MENTIONED THAT INTEREST ON FCCB IS SUB JECT TO TAX AT SPECIAL RATE PROVIDED U/S.115AC OF THE IT ACT AND T HE RELEVANT SECTION IS REPRODUCED IN PARA.6 OF THE ASSESSMENT O RDER. FURTHER, IT IS STATED BY THE ASSESSING OFFICER THAT ISSUE OF FC CBS IS GOVERNED BY 'ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS AND ORDINARY SHARES (THROUGH DEPOSITORY RECEIPT MECHANISM) SCHEM E, 1993' NOTIFIED BY DEPARTMENT OF ECONOMIC AFFAIRS NO. GSR 700(E) DATED 12 TH NOVEMBER, 1993 AND FOREIGN CURRENCY CONVERTIBLE BONDS AND ORDINARY SHARES (THROUGH DEPOSITORY RECEI PT MECHANISM) SCHEME IS THE NOTIFIED SCHEME FOR PURPOS ES OF SECTION 115AC(L)(A), IN RESPECT OF ASSESSMENT YEAR 2002-03 AND SUBSEQUENT ASSESSMENT YEARS VIDE CBDT NOTIFICATION IN S.O. 987(E) DATED 10/9/2002, WHICH IS REPRODUCED IN THE ORDER BY THE ASSESSING OFFICER AND HELD THAT NO EXCLUSION IS PRO VIDED IN THE SCHEME OF TAXATION OF FCCB IN RESPECT OF END USE OF PROCEEDS FROM FCCBS. 2.8 THE ASSESSING OFFICER HAS RELIED ON 'ISSUE OF F OREIGN CURRENCY EXCHANGEABLE BONDS (FCEB) SCHEME, 2008' NO TIFIED BY THE GOVERNMENT OF INDIA, MINISTRY OF FINANCE, DEPAR TMENT OF ECONOMIC AFFAIRS DATED 15/2/2008, STATING IT TO BE SIMILAR TO FCCBS, THE RELEVANT PART OF WHICH IS REPRODUCED IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER CONCLUDED THAT THE PRO VISIONS AS ABOVE IN THE CASE OF FCCBS THAT INTEREST PAYMENTS O N THE BONDS, ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 9 UNTIL THE EXCHANGE OPTION IS EXERCISED, SHALL BE SU BJECT TO DEDUCTION OF TAX AT SOURCE AS PER THE PROVISIONS OF SUB-SECTI ON (1) OF SECTION 115AC OF THE ACT, IRRESPECTIVE OF END USE OF THE PR OCEEDS. IT IS ALSO TO BE NOTED THAT,. FCCBS AS WELL AS FCCBS ARE NOTIF IED BY THE CBDT FOR THE PURPOSE OF SEC. >. 115AC. FURTHER, THE AO MENTIONS THAT ASSESSEE HAS PLACED RELIANCE ON THE DECISION O F THE LD. CIT(A) FOR AY 2009-10 ON SIMILAR ISSUE WHICH WAS IN FAVOUR OF THE ASSESSEE. THE DECISION OF THE QT(A) IS NOT ACCEPTAB LE AS THE MATTER IS YET TO BE DECIDED BY THE HON'BLE UAT. ACCORDINGL Y, IT WAS HELD BY THE AO THAT THE INTEREST ON FCCBS IS CHARGEABLE TO TAX UNDER SECTION 115AC AND TAX HAS TO BE DEDUCTED AT SOURCE UNDER SECTION 196C. AS THE ASSESSEE HAS ALREADY REMITTED TOTAL UN DER SECTION 196C. AS THE ASSESSEE HAS ALREADY REMITTED TOTAL PA YMENT TO NON- RESIDENT, THE TDS HAS TO BE ARRIVED BY GROSSING U/S .195A OF THE ACT AND LEVIED INTEREST AS PER SEC. 201(1A) OF THE ACT FOR THE DELAY. 3. AGGRIEVED BY THIS ORDER OF ASSESSING OFFICER, AS SESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A). THE CIT (A) GAVE RELIEF TO THE ASSESSEE. NOW THE REVENUE BEING AGGRIEVED, I S IN APPEAL BEFORE US. BEFORE US THE LD. DEPARTMENTAL REPRESENT ATIVE SUPPORTED THE ORDER OF ASSESSING OFFICER WHEREAS THE LD. AAUT HORISED REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A) AND SU BMITTED THAT ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 10 THE ISSUE IS NOW COVERED BY THE DECISION OF THE TRI BUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.3072/AHD/2009 VIDE ORDER DATED 18.01.2013. HE PL ACED A COPY OF THE TRIBUNALS ORDER ON RECORD. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GON E THROUGH THE MATERIAL ON RECORD. WE FIND THAT IDENTICAL ISSU E CAME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2009-10 AND THE TRIBUNAL VIDE ITS ORDER DATED 18.01.2013 IN ITA NO.3072/AHD/2009 HAS DECIDED THE ISSUE AGAINST THE REVENUE AND IN FAVOUR OF ASSESSEE BY OBSERVING AS UNDER :- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDER OF AUTHORITIES BE LOW AND THE JUDGMENTS CITED BY BOTH THE PARTIES. FIRST, WE REPRODUCE THE RELEVANT PARA OF CIT(A), AS PER WHICH, THE ISSUE WAS DECIDED BY HIM. THE RELEVANT PARAS OF THE ORDER OF LD. CIT(A) ARE PARA 2.3.8 TO 2.3.20 WHICH ARE REPRODUCED BELOW:- 2.3.8. IF BOTH ARE READ TOGETHER, IT WOULD BE CLE AR THAT AS PER SCHEME OF THE ACT, THERE IS NO QUESTION OF CHOOSING BETWEEN THE TWO. SECTION 9 IN FACT DOVETAILS INTO SECTION 5(2) IN AS MUCH AS IT PUTS IN VERY CLEAR TERMS THAT IN THE LISTED SITUATIONS INCOME SHALL BE DEEMED TO BE ACCRUING OR ARISING IN INDIA. THESE ARE SPECI FIC SITUATIONS AND WHEREVER THE EXCEPTION HAD TO BE PROVIDED IT HAS BEEN DONE WITHI N THE SUBSECTIONS OR CLAUSES. 2.3.9. THEREFORE, IT IS CLEAR THAT IF WE FACE A SIT UATION WHERE IT CAN NOT BE STATED UNAMBIGUOUSLY THAT INCOME HAS BEEN RECEIVED OR HAS ARISEN IN INDIA, I.E. FIRST PORTIONS OF SECTION 5(2)(B), WE NEED TO TEST THE RECEIPTS AS PE R PROVISION OF SECTION 9(1) TO SEE IF THEN CAN BE DEEMED TO HAVE ARISEN OR ACCRUED IN INDIA. DEEMI NG PROVISIONS ARE CREATION OF LAW. THEREFORE, TO COMPLETE LATER PART OF SECTION 5(2)(B ), SECTION 9(1) COMES INTO OPERATION. 2.3.10. IN LAW, THERE IS NO CONCEPT OF REDUNDANCY. IF ONE LOOKS AT THE PROVISIONS OF SECTION 9, SOME OF THE SITUATIONS INCLUDED APPEAR SO STRAIG HT FORWARD THAT ONE CAN WONDER ABOUT THE NEED OF THE ACT FOR INCLUDING IT IN THE CATEGOR Y OF DEEMED TO HAVE ARISEN OR ACCRUED, E.G., INTEREST PAID TO NON-RESIDENT BY GOVERNMENT. THE SOURCE OF THIS PAYMENTS IS CLEARLY IN INDIA AND THEREFORE AS PER STRAIGHT LOGIC, AS AP PLIED BY THE ASSESSING OFFICER ALSO, THE ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 11 INCOME SHOULD HAVE ARISEN IN INDIA ONLY AND STOOD C OVERED BY SECTION 5(2). THEREFORE, THE ACT NEED NOT HAVE STATED IT, HAVING BEEN TAKEN CARE OF BY THE FIRST PORTION OF SECTION 5(2)(B). BUT CLEARLY THE LEGISLATURE THOUGHT IT APP ROPRIATE TO CLARIFY AND SPECIFICALLY BRING SUCH SITUATION ON RECORD ABOUT WHICH THERE SHOULD N OT BE ANY DISPUTE ABOUT THE ACCRUAL. AS STATED IN THE PRECEDING PARAGRAPH, AS THE INTERN ATIONAL LAW HAS EVOLVED, THIS KIND OF SITUATION MUST HAVE BEEN ENVISAGED BY THE LEGISLATU RE AND HENCE THE NEED TO PUT A SECTION TO CLARIFY THE SITUATION. THE CIRCULAR DATED 01/06/ 1976 REFERRED TO ABOVE VINDICATES LOOKING AT THE ISSUE FROM THIS ANGLE. 2.3.11. THEREFORE CONSIDERING ALL ASPECTS, IN MY VI EW, BOTH THE SECTIONS 5(2) AND 9(1)(V) ARE APPLICABLE TO DETERMINE THE SITUS OF THE INTERE ST INCOME IN CASE OF NON-RESIDENT. 2.3.12. AS PER THE FACTS OF THE PRESENT CASE, AS DI SCUSSED EARLIER, THE MONIES OF THE DEBTS RAISED IN FOREIGN CURRENCIES BY THE ASSESSEE ARE PR IMARILY INVESTED IN THE FOREIGN SUBSIDIARY, WHICH IN TURN IS INVOLVED IN FINANCING FURTHER BUSINESS ABROAD. PART OF THOSE FUNDS WHICH HAVE NOT BEEN INVESTED IN THE SUBSIDIAR Y HAS BEEN PLACED IN BANKS ABROAD. IT WAS FURTHER STATED THAT THE INTEREST INCOME RECEIVE D FROM THE TIME DEPOSITS PLACED OUTSIDE INDIA WAS OFFERED FOR TAXATION. 2.3.13. THEREFORE, IF WE WERE TO TEST THE DEPLOYMEN T OF FOREIGN BORROWING THOUGH THE BONDS IN QUESTION, IT IS CLEAR THAT ALMOST ALL OF T HEM HAVE BEEN DEPLOYED OUTSIDE INDIA FOR ASSESSEES BUSINESS ACTIVITIES. INVESTING IN JOINT VENTURES OR WHOLLY OWNED SUBSIDIARIES IS ONE OF TWO CATEGORIES OF END-USE CONDITIONS IMPOSED BY R.B.I. FOR RAISING FOREIGN FUNDS THROUGH THESE TYPES OF BONDS. AS IS WELL ACCEPTED, BUSINESS IS WIDE ENOUGH A TERM TO INCLUDE INVESTMENT IN SUBSIDIARIES OR JOINT VENTURE S WHICH ARE FURTHER INVOLVED IN BUSINESS OR COMMERCE. THEREFORE, THE ASSESSING OFFICERS OBS ERVATION THAT THE APPELLANT IS NOT EARNING OUT OF A BUSINESS OUTSIDE INDIA IS NOT CORR ECT. THE APPELLANT HAS INVESTED THE BORROWED FUNDS IN A COMPANY WHICH IS NOT ONLY INCOR PORATED OUTSIDE BUT IS ALSO DOING BUSINESS OUTSIDE. SIMILARLY PARKING FUNDS OUTSIDE T O EARN INTEREST WOULD ALSO BE COVERED BY THE SECOND LIMB OF THE EXCEPT TO SECTION 9(1)(V) (B). THE ASSESSING OFFICERS OBJECTION OF INVESTMENT BEING CAPITAL IN NATURE IS CONTRADICT ORY AND OF NOT MUCH CONSEQUENCE, AS ONLY BY INCURRING EXPENDITURE OF CAPITAL NATURE, IT COULD HAVE RUN BUSINESS OR EARNED INCOME. 2.3.14. HENCE, THEREFORE, ON THE BASIS OF LEGAL AND FACTUAL POSITION, I THINK, IT IS FAIR TO SAY THAT THE INTEREST PAID BY THE APPELLANT ON ITS FCCB S IS COVERED BY EXCEPTIONS TO SECTION 9(1)(V)(B) AND CONSEQUENTLY IT SHALL FALL OUTSIDE T HE AMBIT OF DEEMED INCOME ARISING OR ACCRUING IN INDIA AND AS A RESULT OUT OF SECTION 5 ALSO. 2.3.15. WAS THE ASSESSEE-COMPANY STILL REQUIRED TO DEDUCT TAX AT SOURCE BEFORE REMITTING IT ABROAD, NOTWITHSTANDING WHETHER THE INTEREST INCOME ON FCCBS IS NOT DEEMED TO HAVE ARISEN OR ACCRUED IN INDIA? AS PER THE ASSESSING OF FICER, THE APPELLANT IS COVERED BY SECTION 115AC AND TAX WAS REQUIRED TO BE DEDUCTED U /S 196C. IT MUST BE NOTED THAT SECTION 115AC REFERS TO FOREIGN CURRENCY BONDS FLOA TED BY INDIAN COMPANY IN ACCORDANCE WITH A DULY NOTIFIED SCHEME OF CENTRAL G OVERNMENT. ALTHOUGH THERE IS NO REFERENCE TO SUCH A NOTIFICATION IN THE COPIES OF P APERS SUBMITTED PERTAINING TO RBI SCHEME, CORRESPONDENCE WITH SBI OR PROSPECTUS OF BO ND ISSUE, YET THE FACT THAT THE ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 12 APPELLANT HAS NOT OBJECTED TO THIS BASIC FACT, WE P ROCEED ON THE ASSUMPTION THAT THE BONDS IN QUESTION ARE COVERED BY SCHEME MENTIONED U/S 115 AC. 2.3.16. IF ONE LOOKS AT SECTION 115AC IN TOTALITY, IT WILL BE OBSERVED THAT IT IS A CHINERY SECTION AND IS ALMOST A CODE IN ITSELF WHEREIN RATE OF TAX, DEDUCTION TO BE ALLOWED A NON- NECESSITY OF FILING THE RETURN IS MENTIONED. THEREF ORE, THE APPELLANTS ARGUMENTS STAND TO REASONING THAT IF A NON-RESIDENTS INTEREST INCOME IS NOT TAXABLE, SECTION 115AC SHALL NOT APPLY. THE VARIOUS PROVISIONS COME INTO OPERATION O NCE IT IS KNOWN THAT THE CONCERNED INTEREST INCOME IS TAXABLE IN INDIA. 2.3.17. SECTION 196C IS THE CORRESPONDING SECTION O F TDS FOR INCOMES REFERRED TO IN SECTION 115AC. WHILE SECTION 195, THE OTHER SECTION DEALING WITH TDS ON INTEREST, HAS A SUBSECTION I.E. 195(2) WHEREIN IF THE PERSON RESPON SIBLE FOR MAKING PAYMENT CONSIDERS THAT WHOLE OR PART OF THE SAME UNDER REFERENCE ARE NOT CHARGEABLE TO TAX, HE CAN APPROACH THE ASSESSING OFFICER, NO SUCH SPECIFIC PROVISION H AS BEEN MADE U/S 196C. SINCE THERE CANNOT BE SUCH PATENT INEQUITY IN DEALING WITH INCO ME OF SAME NATURE, SAY INTEREST, FROM TWO SOURCES, NAMELY CONVENTIONAL BORROWING VIS--VI S FOREIGN CURRENCY BONDS, THE ARGUMENT THAT SECTION 115AC AND SECTION 196C DEAL W ITH ONLY CHARGEABLE INCOME GETS FURTHER STRENGTHENED. THIS IS FURTHER VINDICATED BY THE FACT THAT WHILE SECTION 195 TALKS OF SUCH SUM, SECTION 196C TALKS OF ONLY INCOME. SI MILARLY, SOME OF THE CASE LAWS CITED LIKE TRANSMISSION CORPORATION OF A.P. (SUPRA) OF SU PREME COURT, AND THE DECISION OF ITAT GAUHATI IN GEORGE WILLIAMSON (ASSAM) LTD. (SUP RA) AND THE CIRCULAR OF C.B.D.T. NO.786 DATED 07/02/2000 POINT TO THE FACT THAT ONCE THE INCOME IS HELD TO NON-TAXABLE IN THE HANDS OF THE NON-RESIDENTS, NO WITHHOLDING TAX OR TAX AT SOURCE HAS TO BE DEDUCTED. 2.3.18. THEREFORE, CONSIDERING ALL THE FACTS AND LE GAL POSITION, IT IS HELD THAT THE APPELLANT- COMPANY WAS NOT LIABLE TO DEDUCT TAX AT SOURCE U/S 196C R.W.S. 115AC, ON THE INTEREST PAYABLE IN JULY 2008 AND JANUARY 2009 ON FCCBS ISSU ED IN JANUARY 2007. 2.3.19. SINCE THERE IS NO LIABILITY TO DEDUCT TAX A T SOURCE, AS A CONSEQUENCE, THEREFORE, THERE WAS NO FAILURE U/S 201 AND THE APPELLANT-COMP ANY CAN NOT BE TREATED AS THE ASSESSEE IN DEFAULT U/S 201(1). 2.3.20. AS A RESULT, APPELLANTS GROUNDS OF APPEAL NO.1 & 2 ARE ALLOWED. 8. WE ALSO REPRODUCE THE PROVISIONS OF SECTION 5(2) AND SECTION 9(1)(V) OF THE INCOME TAX ACT:- SECTION 5 (2) SUBJECT TO THE PROVISIONS OF THIS ACT , THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCO ME FROM WHATEVER SOURCE DERIVED WHICH ( A ) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON ; OR ( B ) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 13 SECTION 9(1)( V ) INCOME BY WAY OF INTEREST PAYABLE BY ( A) THE GOVERNMENT ; OR ( B ) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE IN TEREST IS PAYABLE IN RESPECT OF ANY DEBT INCURRED, OR MONEYS BORROWED AND USED, FOR THE PURP OSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSE OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA, OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE INT EREST IS PAYABLE IN RESPECT OF ANY DEBIT INCURRED, OR MONEYS BORROWED AND USED, FOR THE PURP OSE OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA. 9. WHEN WE GO THROUGH THE ABOVE PROVISIONS OF SECTI ON 5(2) AND 9(1)(V), WE FIND THAT AS PER THE PROVISION OF SECTION 5(2) IN THE CASE OF NO N-RESIDENT, SCOPE OF TOTAL NCOME INCLUDES ALL INCOME FROM WHATEVER SOURCE WHICH ARE RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR WHICH ACCRUES OR ARISES OR IS DEEMED TO AC CRUE OR ARISE TO SUCH NON-RESIDENT IN INDIA AND THE PROVISIONS OF SECTION 9(1)(V) ARE REG ARDING THE CONDITIONS UNDER WHICH INCOME CAN BE DEEMED TO ACCRUE OR ARISE IN INDIA IN RESPECT OF INTEREST PAYABLE BY A PERSON WHO IS RESIDENT IN INDIA AS PER CLAUSE (B) O F SECTION 9(1)(V). HENCE, THERE IS NO CONTRADICTION IN THE PROVISIONS OF THESE TWO SECTIO NS AND THERE IS NO OVERRIDING EFFECT OF ANYONE PROVISIONS OVER THE OTHER PROVISIONS. SECTIO N 9(1)(V) ONLY DEFINES THE CONDITIONS UNDER WHICH INTEREST PAYMENT BY A RESIDENT OF INDIA TO THE NON-RESIDENT IS DEEMED TO ACCRUE OR ARISE IN INDIA. HENCE, FOR THE PURPOSE OF EXAMINING AS TO WHETHER ANY INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA OR NOT, WE HAVE TO EXAMINE THE APPLICABILITY OF THE PROVISIONS OF SECTION 9(1)(V)(B) AND FOR THE PURPOS E OF EXAMINING THE SCOPE OF TOTAL INCOME OF A NON-RESIDENT, WE HAVE TO EXAMINE TO APP LICABILITY OF THE PROVISIONS OF SECTION 5(2) WHICH INCLUDES INCOME RECEIVED IN INDI A, INCOME DEEMED TO BE RECEIVED IN INDIA, INCOME ACCRUING OR ARISING IN INDIA AND INCO MES DEEMED TO ACCRUE OR ARISE IN INDIA. HENCE, IT IS SEEN THAT FOR THE PURPOSE OF HOLDING T HAT ANY INCOME IS TAXABLE IN THE HANDS OF NON-RESIDENT, IT HAS TO BE SHOWN THAT EITHER ANY IN COME IS RECEIVED BY HIM IN INDIA OR SUCH INCOME IS DEEMED TO BE RECEIVED IN INDIA OR ANY INC OME IS ACCRUING OR ARISING TO HIM IN INDIA OR ANY INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA. NOW, WE HAVE TO SEE AS TO WHAT IS THE ALLEGATION OF THE A.O. REGARDING APPLICABILI TY OF THE PROVISIONS OF SECTION 5(2). AS PER PARA 4.7 OF THE ORDER OF THE A.O., THIS IS THE ALLEGATION OF THE A.O. THAT INTEREST INCOME IS ACCRUING OR ARISING TO NON-RESIDENT BOND HOLDER IN INDIA AS AND WHEN THE INTEREST BECOME DUE TO BE PAID BY THE ASSESSEE WHO IS INDIAN RESIDENT AND HENCE, WE FIND THAT OUT OF FOUR SITUATIONS AS PER THE PROVISIONS OF SECTION 5(2) OF THE INCOME TAX ACT WHEN AN INCOME CAN BE INCLUDED IN THE HANDS OF NON-RESIDENT , THIS IS THE ALLEGATION OF THE A.O. THAT IN THE PRESENT CASE, THE INCOME IS TO BE INCLUDED I N THE HANDS OF NON-RESIDENT INVESTORS ON THIS BASIS THAT INTEREST INCOME IS ACCRUING OR ARIS ING TO THE NON-RESIDENT BOND HOLDERS IN INDIA AND THIS IS NOT THE ALLEGATION OF THE A.O. TH AT ANY INCOME IS RECEIVED BY NON-RESIDENT IN INDIA OR THAT ANY INCOME IS DEEMED TO BE RECEIVE D IN INDIA IN THE HANDS OF THE NON- RESIDENT OR THAT ANY INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA IN THE HANDS OF THE NON- RESIDENT INVESTORS. HENCE, WE HAVE TO EXAMINE AND D ECIDE AS TO WHETHER IN THE FACTS OF THE PRESENT CASE, INTEREST INCOME IS ACCRUING OR ARISIN G TO THE NON-RESIDENT INVESTORS IN INDIA? ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 14 WHILE DECIDING THIS ASPECT THAT INCOME IS ACCRUING OR ARISING IN INDIA, IN THE PRESENT CASE, THE A.O. HAS TAKEN HELP FROM TWO JUDGMENTS, ONE OF HONBLE APEX COURT RENDERED IN THE CASE OF PERFORMING RIGHTS SOCIETY VS. CIT (SUPRA) A ND ANOTHER OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF HIRA MILLS LTD. CAWNPUR (SUPRA). NOW WE ARE CONSIDERING THE APPLICABILITY OF JUDGMENT RENDERED IN THE CASE OF PERFORMING RIGHTS SOCIETY VS. CIT (SUPRA). FROM THE FACTS OF THAT CAS E, ROYALTY WERE REALIZED BY THE INDIAN AGENT ON BEHALF OF THE SOCIETY FROM CINEMA HOUSES A ND OTHER SOURCES WHERE THE MUSIC OVER WHICH THE SOCIETY HAS COPYRIGHT IS APPLIED. IT IS ALSO NOTED BY HONBLE APEX COURT THAT THERE IS NO DISPUTE WITH REGARD TO RECEIPTS OF SUCH ROYALTY BY THE SOCIETY THROUGH THE INDIAN AGENT. HENCE, WE FIND THAT IN THAT CASE, THE INCOME WAS RECEIVED IN INDIA BY THE AGENT OF THE NON-RESIDENT SOCIETY WHEREAS IN THE PR ESENT CASE, INCOME WAS NOT RECEIVED IN INDIA BY THE NON-RESIDENT INVESTORS WHETHER DIRECTL Y OR THROUGH ANY AGENT IN INDIA AND HENCE, IN OUR CONSIDERED OPINION, THIS JUDGMENT OF HONBLE APEX COURT IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT . 10. NOW WE CONSIDER THE APPLICABILITY OF THE JUDGME NT OF HONBLE ALLAHABAD HIGH COURT RENDERED IN THE CASE OF HIRA MILLS LTD. CAWNPUR (SU PRA). IN THAT CASE, THE ISSUE IN DISPUTE WAS WHETHER PROFITS AND GAINS ON SALES WERE ASSESSA BLE TO INCOME TAX ON THE GROUND THAT THEY WERE RECEIVED IN INDIA BY OR ON BEHALF OF ASSE SSEE WITHIN THE MEANING OF SECTION 4(1)(A) AND ALSO SECTION 4(1)(B) OF 1922 ACT AND AL SO ON THE GROUND THAT INCOME HAVE ACCRUED OR AROSE TO THE ASSESSEE IN BRITISH INDIA W ITHIN THE MEANING OF SECTION 4(1)(C) OF 1922 ACT. UNDER THESE FACTS, IT WAS HELD IN THE FAC TS OF THAT CASE THAT THE INCOME WAS RECEIVED IN BRITISH INDIA ON BEHALF OF ASSESSEE AND IT HAS ALSO ACCRUED OR ARISEN TO THE ASSESSEE IN BRITISH INDIA AND HENCE, TAXABLE IN BRI TISH INDIA. IN THE PRESENT CASE, THIS IS NOT THE ALLEGATION OF THE A.O. THAT THE INCOME WAS RECE IVED IN INDIA BY OR ON BEHALF OF THE ASSESSEE AND HENCE, THIS PART OF THIS JUDGMENT IS N OT APPLICABLE AT ALL IN THE PRESENT CASE. REGARDING SECOND PART I.E. REGARDING ACCRUING OR AR ISING OF INCOME IN INDIA, AS HAS BEEN ALLEGED BY THE A.O. IN THE PRESENT CASE, WE FIND TH AT THIS JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE FACTS ARE DIFFERENT. IN TH AT CASE, THE GOODS WERE SOLD IN BRITISH INDIA AND THEREFORE, INCOME WAS CLEARLY ACCRUING OR ARISING IN BRITISH INDIA, BUT IN THE PRESENT CASE, NEITHER THE LENDING HAS TAKEN PLACE I N INDIA NOR THE PAYMENT OF INTEREST IS IN INDIA. IN THE PRESENT CASE, THE ALLEGATION IS ON TH IS BASIS THAT THE PAYER I.E. ASSESSEE COMPANY IS AN INDIAN COMPANY AND THE INTEREST IS TO BE PAID BY INDIAN COMPANY FROM INDIA. IN THE PRESENT CASE, IT IS NOT EVEN ALLEGATI ON OF THE A.O. THAT INTEREST WAS PAID IN INDIA. HENCE, THIS JUDGMENT IS ALSO NOT APPLICABLE IN THE PRESENT CASE. 11. AS PER PARA 4.7 OF THE ORDER OF THE A.O. IT IS STATED BY THE A.O. THAT THE INCOME CCRUES OR ARISES WHEN THE RIGHT TO RECEIVE THE INCOME BECO MES VESTED TO THE BOND HOLDERS. THEREAFTER, HE HAS STATED THAT THE INTEREST INCOME HAS ACCRUED TO THE NON-RESIDENT BOND HOLDER IN INDIA AS AND WHEN THE INTEREST BECOMES DU E TO BE PAID BY THE ASSESSEE WHO IS INDIAN RESIDENT. FOR THE SAKE OF READY REFERENCE WE REPRODUCE THIS PARA NO.4.7 OF THE ORDER OF A.O. WHICH IS AS UNDER:- 4.7 NOW, APPLYING THE ABOVE LEGAL POSITION TO THE FACTS OF THE PRESENT CASE, THERE IS NO DOUBT THAT THE BONDS (FCCB) ARE U NCONDITIONAL, DIRECT AND UNSECURED OBLIGATION OF THE ASSESSEE AND THE IN TEREST IS TO BE PAID ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 15 BY THE INDIAN COMPANY FROM INDIA. THE INCOME IS ACC RUED OR ARISE WHEN THE RIGHT TO RECEIVE THE INCOME BECOMES VESTED TO THE BOND HOLDERS. THUS, THE INTEREST INCOME ACCRUE OR ARISE TO THE NON-RESIDENT BOND HOLDERS IN INDIA AS AND WHEN THE INTEREST BECO MES DUE TO BE PAID BY THE ASSESSEE WHO IS INDIAN RESIDENT. THEREFORE, WHEN THE INCOME ACTUALLY ACCRUES OR ARISE IN INDIA THERE IS NO SCOP E FOR THE ARGUMENT THAT SUCH ACCRUAL IS NULLIFIED BY CLAUSE B OF SECTION 9( 1)(V). CLAUSE B DOES NOT HAVE THE AFFECT OF PREVENTING THE ACCRUAL OR IN COME AL TOGETHER. THEREFORE, IT IS HELD THAT THE INCOME DERIVED BY TH E NON-RESIDENT BOND HOLDERS IS CHARGEABLE TO TAX U/S 5(2) OF I.T. ACT A S THE INCOME IS ACCRUED IN INDIA AND CLAUSE (B) OF SECTION 9(1)(V) IS NOT A PPLICABLE ONCE THE INCOME IS COVERED U/S 5(2). 12. FROM THE ABOVE FINDING OF THE A.O., IT DOES NOT COME OUT AS TO ON WHAT BASIS, IT IS STATED BY HIM THAT THE INCOME HAS ACCRUED OR ARISEN IN INDIA. IT CANNOT BE SAID THAT INTEREST INCOME HAS ACCRUED OR ARISEN IN INDIA IN ALL CASES WHERE THE PAYER IS AN INDIAN RESIDENT BECAUSE IF THAT BE SO, THEN THE PROVISIONS OF CLAUS E (B) OF SECTION 9(1)(V) BECOMES REDUNDANT. IN THAT CLAUSE (B) OF SECTION 9(1)(V), A N EXCEPTION HAS BEEN CARVED OUT IN RESPECT OF INTEREST PAYABLE BY A PERSON WHO IS RESI DENT AND THE EXCEPTION IS THIS THAT WHERE THE INTEREST IS PAYABLE IN RESPECT OF HIS DEBT INCU RRED AND THE MONEY BORROWED OUTSIDE INDIA AND WAS USED FOR THE PURPOSES OF BUSINESS CAR RIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING INVESTMENT OUTSIDE IN DIA. THIS GOES TO SHOW THAT IN A CASE WHERE THE INTEREST IS PAYABLE IN RESPECT OF ANY DEB T INCURRED OR MONEY BORROWED AND USED FOR THE PURPOSES OF A BUSINESS OR INVESTMENT OUTSID E INDIA, THEN SUCH INTEREST INCOME CANNOT BE SAID AS EVEN DEEMED TO ACCRUE OR ARISE IN INDIA. HENCE, THIS IS NOT THE DECIDING FACTOR REGARDING PLACE OF ACCRUAL OR ARISING THAT W HO IS PAYER OF THE INTEREST. THERE ARE SEVERAL JUDGMENTS ON THIS ASPECT AS TO WHERE THE IN COME HAS ACCRUED OR ARISEN. THESE JUDGMENTS ARE TAKEN NOTE OF BY THE TRIBUNAL IN PARA NO.15 OF ITS ORDER RENDERED IN THE CASE OF CREDIT AGRICOLE INDOSUZZ (SUPRA). ONE JUDGE MENT SO NOTED IS OF HONBLE MADRAS HIGH COURT RENDERED IN THE CASE OF C.G. KRISHNASWAM I NAIDU V. CIT 62 ITR 686 AND IT WAS HELD IN THAT CASE THAT IN MONEY LENDING TRANSAC TION, THE DECISIVE FACTOR WOULD BE THE PLACE WHERE THE MONEY IS ACTUALLY LENT IRRESPECTIVE OF WHERE IT CAME FROM. IN THE PRESENT CASE, THIS IS NOT IN DISPUTE THAT THE MONEY WAS ACT UALLY LENT BY THE NON-RESIDENT INVESTORS IN THE FOREIGN COUNTRY AND IT WAS NOT LENT IN INDIA . HENCE, AS PER THIS JUDGMENT OF HONBLE MADRAS HIGH COURT, IT CANNOT BE SAID THAT THE INTER EST INCOME HAS ACCRUED OR ARISEN TO THE NON-RESIDENT INVESTORS IN INDIA. WE FIND THAT THE O NLY BASIS ADOPTED BY THE A.O. FOR HOLDING THAT THE INTEREST INCOME HAS ACCRUED OR ARI SEN IN INDIA IS THIS THAT THE PAYER IS AN INDIAN COMPANY AND HE HAS TOTALLY IGNORED THIS ASPE CT OF THE MATTER AS TO WHERE THE MONEY LENDING TRANSACTION HAS TAKEN PLACE. THIS IS ADMITTED FACTUAL POSITION THAT MONEY LENDING TRANSACTION HAS TAKEN PLACE OUTSIDE INDIA A ND HENCE, IT CANNOT BE SAID THAT THE INTEREST HAS ACCRUED OR ARISEN IN INDIA AS PER THIS JUDGMENT OF HONBLE MADRAS HIGH COURT. WE HAVE ALSO SEEN THAT NONE OF THE JUDGMENTS , CITED BY LD. D.R. OF THE REVENUE, IS RENDERING ANY HELP TO THE REVENUE WHEREAS AS PER TH E JUDGMENT OF HONBLE MADRAS HIGH COURT, IT CANNOT BE SAID THAT THE INTEREST INCOME H AS ACCRUED OR ARISEN IN INDIA AND THERE IS NO OTHER BASIS OF THE A.OS ORDER IN HOLDING THAT T HE INTEREST INCOME HAS ACCRUED OR ARISEN ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 16 IN INDIA EXCEPT THIS THAT INTEREST PAYER IS AN INDI AN COMPANY I.E. ASSESSEE BUT THERE IS NO AUTHORITY CITED BY HIM IN SUPPORT OF THIS CONTENTIO N WHEREAS AS PER THE JUDGMENT OF HONBLE MADRAS HIGH COURT, WE HAVE SEEN THAT THE PL ACE OF LENDING IS IMPORTANT. 13. WHEN WE APPLY THE PROVISIONS OF SECTION 9(1)(V) , WE FIND THAT THE CASE OF THE ASSESSEE IS FALLING UNDER CLAUSE-B OF SECTION 9(1)(V) BECAUS E IN THE PRESENT CASE, THE MONEY BORROWED WAS UTILIZED FOR THE OVERSEES BUSINESS OF THE ASSESSEE COMPANY AND THE ASSESSEE HAS NOT DEDUCTED TAX IN RESPECT OF THAT PORTION OF INTEREST PAYMENT WHICH IS RELATING TO BORROWING FOR INVESTMENT OUTSIDE INDIA AND HENCE, A S PER THIS CLAUSE ALSO, NO INCOME CAN BE SAID TO HAVE DEEMED TO ACCRUE OR ARISEN IN INDIA IN THE HANDS OF NON-RESIDENT INVESTORS AND THEREFORE NO TDS IS DEDUCTIBLE. 14. WE NOW EXAMINE THE WHOLE THINGS FROM A DIFFEREN T ANGLE WHICH WILL CONCLUDE THE MATTER. AS PER THE PROVISION OF SECTION 5(2), TOTAL INCOME WILL INCLUDE THOSE INCOMES WHICH ARE RECEIVED IN INDIA OR WHICH HAS ACCRUED OR ARISEN IN INDIA. IN ADDITION TO THIS, THIS IS ALSO TO BE INCLUDED IN THE TOTAL INCOME OF NON-RESIDENT IF INCOME IS DEEMED TO BE RECEIVED IN INDIA OR INCOME IS DEEMED TO ACCRUE OR ARISE TO NON-RESIDENT IN INDIA. IN OUR CONSIDERED OPINION, DEEMED TO BE RECEIVED IN INDIA AND DEEMED TO ACCRUE OR ARISE IN INDIA INCREASES THE SCOPE OF TAXABILITY IN INDIA IN ADDIT ION TO INCOME RECEIVED IN INDIA AND INCOME ACCRUED OR ARISEN IN INDIA. IF AN INCOME IS NOT RECEIVED IN INDIA, IT CAN BE DEEMED TO BE RECEIVED IN INDIA IN SOME SPECIFIC SITUATIONS AND SIMILARLY, EVEN IF ANY INCOME HAS NOT ACCRUED OR ARISEN IN INDIA, IT CAN BE DEEMED TO ARISE OR ACCRUE IN INDIA UNDER SOME GIVEN SITUATIONS BUT IF AN INCOME HAS ACTUALLY BEEN RECEIVED IN INDIA OR HAS ACTUALLY ACCRUED OR ARISEN IN INDIA, IT CANNOT BE PART OF DE EMED TO BE RECEIVED IN INDIA OR DEEMED TO ACCRUE OR ARISE IN INDIA BECAUSE WHAT HAS ACTUAL LY BEEN RECEIVED IN INDIA OR WHAT HAS ACTUALLY ACCRUED OR ARISEN IN INDIA CANNOT BE SAID TO BE WITHIN THE PURVIEW OF DEEMED TO BE RECEIVED IN INDIA OR DEEMED TO ACCRUE OR ARISE I N INDIA. 15. IN THE PRESENT CASE, THE ALLEGATION OF THE A.O. IS THAT INTEREST PAID BY THE SSESSEE TO NON-RESIDENT INVESTORS HAS ACTUALLY ACCRUED OR ARIS EN IN INDIA ALTHOUGH THAT IS FALLING IN EXCLUSION CLAUSE OF DEEMED TO ACCRUE OR ARISE IN IN DIA AS PER SECTION 9(1)(V)(B). WE FAIL TO UNDERSTAND AS TO HOW ANY INCOME WHICH HAS ACTUAL LY ACCRUED OR ARISE IN INDIA CAN BE EXCLUDED SPECIFICALLY FROM THE SCOPE OF INCOME DEEM ED TO ACCRUE OR AROSE IN INDIA. WE CAN UNDERSTAND THIS WITH THE HELP OF AN EXAMPLE ALS O. SUPPOSE AN INCOME IF ACTUALLY RECEIVED BY A PERSON IN CASH IN INDIA IS LIABLE TO TAX. ONLY THOSE INCOMES WILL FALL WITHIN THE AMBIT OF THIS CASE IF THE INCOME IN QUESTION WA S ACTUALLY RECEIVED BY THE ASSESSEE IN CASH IN INDIA. SUPPOSE THERE IS A DEEMING PROVISION ALSO AS PER WHICH IF THE INCOME HAS BEEN DEPOSITED IN THE BANK ACCOUNT OF THAT PERSON, THEN ALSO, IT WILL BE DEEMED TO HAVE BEEN RECEIVED BY THAT PERSON IN CASH IN INDIA. NOW, THERE IS AN EXCLUSION CLAUSE ALSO IN SUCH DEEMING PROVISION THAT IF THE BANK ACCOUNT OF THAT PERSON IS MAINTAINED IN A FOREIGN BRANCH, THEN IT CANNOT BE SAID THAT SUCH INCOME HAS DEEMED TO BE RECEIVED IN INDIA. THEN HOW IT CAN BE SAID THAT THE AMOUNT DEPOSITED IN A F OREIGN BRANCH OF A BANK IN ACCOUNT OF THAT PERSON IS ACTUALLY RECEIVED IN INDIA ALTHOUGH IT DOES NOT FALL WITHIN THE AMBIT OF DEEMED TO BE RECEIVED IN INDIA. SIMILARLY IN THE PR ESENT CASE, INTEREST PAID BY THE ASSESSEE COMPANY TO NON-RESIDENT INVESTORS IS SPECIFICALLY E XCLUDED FROM THE DEEMING PROVISION AS PER SECTION 9(1)(V)(B) WHEREIN IT IS SPECIFICALLY E XCLUDED THAT WHERE THE INTEREST IS ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 17 PAYABLE IN RESPECT OF ANY DEBT INCURRED OUTSIDE IND IA AND USED FOR THE PURPOSE OF BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE IND IA OR FOR THE PURPOSE OF MAKING ANY INVESTMENT OUTSIDE INDIA SUCH INTEREST PAYMENT CANN OT BE COVERED IN THE DEFINITION OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. IF SUCH AN INCOME CANNOT BE COVERED WITHIN THE AMBIT OF INCOME DEEMED TO ACCRUE OR ARISE IN IN DIA THEN HOW THE SAME CAN BE COVERED WITHIN THE AMBIT OF INCOME ACCRUING OR ARISING IN I NDIA, PARTICULARLY WHEN ACCRUING OR ARISING IN INDIA IS NOT DEFINED IN THE INCOME TAX A CT AND WE HAVE A JUDGMENT OF HONBLE MADRAS HIGH COURT WHICH SAYS THAT THE PLACE OF ACTU AL LENDING IS IMPORTANT TO DETERMINE THE PLACE WHERE THE INTEREST INCOME CAN BE SAID TO HAVE ACCRUED OR ARISEN. 16. AS PER ABOVE DISCUSSION, WE FIND THAT DEEMING O F INCOME ACCRUING OR ARISING IN INDIA ARE THOSE SITUATIONS WHERE INCOME HAS NOT ACTUALLY ACCRUED OR ARISEN IN INDIA BUT STILL IT WILL BE DEEMED TO ACCRUE OR ARISE IN INDIA. HENCE, BOTH THE SITUATIONS ARE MUTUALLY EXCLUSIVE. IF ONE CASE IS FALLING WITHIN THE AMBIT OF INCOME ACCRUED AND ARISEN IN INDIA, IT CANNOT FALL WITHIN THE AMBIT OF INCOME DEEMED TO AC CRUE OR ARISE IN INDIA AND VICE VERSA. IN THE PRESENT CASE, A SPECIFIC EXCLUSION IS PROVID ED IN CLAUSE (B) OF SECTION 9(1)(V) TO EXCLUDE INTEREST PAYMENT TO NON RESIDENT INVESTORS BY AN INDIAN RESIDENT IF SUCH INTEREST PAYMENT IS IN RESPECT OF AMOUNT BORROWED OUTSIDE IN DIAN AND IS USED OUTSIDE INDIA FOR INVESTMENT OR FOR BUSINESS CARRIED OUT OUTSIDE INDI A. IT COULD NOT BE ESTABLISHED OR SHOWN BY THE REVENUE THAT THE FACTS OF THE PRESENT CASE A RE NOT FALLING WITHIN THIS EXCLUSION CLAUSE OF SECTION 9(1)(V)(B) OF THE ACT AND THE ONL Y ARGUMENT OF THE REVENUE IS THIS THAT AS PER THE A.O., IT IS FALLING WITHIN THE AMBIT OF INC OME ACCRUED AND ARISEN IN INDIA AND, THEREFORE, IT IS NOT REQUIRED TO EXAMINE THE PROVIS IONS OF SECTION 9(1)(V)(B). WE FIND NO MERIT IN THIS CONTENTION BECAUSE FOR THE PURPOSE OF DECIDING AS TO WHETHER ANY INCOME IS FALLING WITHIN THE AMBIT OF INCOME ACCRUED OR ARISE IN INDIA, WE HAVE TO CONSIDER THE TOTAL FACTUAL AND LEGAL POSITION AND IT IS ADMITTEDLY AN INCOME FALLING WITHIN THE AMBIT OF DEEMED INCOME TO ACCRUE OR ARISE IN INDIA, BECAUSE THERE IS A SPECIFIC EXCLUSION ON THAT ACCOUNT. THERE CANNOT BE AN EXCLUSION CLAUSE IF IT IS NOT FALLING WITHIN THAT PROVISION BUT FOR THE EXCLUSION. HENCE, THE PRESENCE OF EXCLUSION IN SECTION 9(1)(V)(B) PROVES THAT IT IS FALLING WITHIN THE AMBIT OF DEEMING PROVISION. IT C ANNOT BE ACCEPTED THAT THE SAME INCOME CAN ALSO FALL WITHIN THE AMBIT OF INCOME ACCRUED AN D ARISEN IN INDIA. SINCE, THE INCOME IN QUESTION IN THE PRESENT CASE IS FALLING WITHIN THE AMBIT OF THIS EXCLUSION CLAUSE OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AS PER THE PROVI SIONS OF SECTION 9(1)(V)(B), IT CANNOT FALL WITHIN THE AMBIT OF INCOME ACCRUED AND ARISEN IN INDIA AND HENCE, WE FIND NO MERIT IN THE ARGUMENTS OF THE REVENUE THAT THE INCOME IN QUE STION HAS ACCRUED AND ARISEN IN INDIA AND CONSEQUENTLY, WE DO NOT FIND ANY REASON TO INTE RFERE IN THE ORDER OF LD. CIT(A). 17. IN THE LIGHT OF ABOVE DISCUSSION, WE HAVE NO HE SITATION IN HOLDING THAT IN THE PRESENT CASE, INTEREST PAYMENT BY THE ASSESSEE TO NON-RESID ENT INVESTORS CANNOT BE SAID TO HAVE ACCRUED OR ARISEN IN INDIA AND IT ALSO CANNOT BE SA ID THAT THIS INTEREST INCOME CAN BE DEEMED TO HAVE ACCRUED OR ARISEN IN INDIA. THEREFOR E, NO TDS IS TO BE DEDUCTED BY THE ASSESSEE FROM THIS PAYMENT IN QUESTION. IT HAS NEIT HER ACCRUED NOR ARISEN IN INDIA NOR IS DEEMED TO ACCRUE OR ARISES IN INDIA IN THE HANDS OF NON-RESIDENT INVESTORS AND THEREFORE, NO TDS IS DEDUCTIBLE. WE, THEREFORE, DECIDE THIS IS SUE IN FAVOUR OF THE ASSESSEE AND DECLINE TO INTERFERE WITH THE ORDER OF THE CIT(A). ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 18 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 4. NOTHING CONTRARY WAS BROUGHT TO OUR KNOWLEDGE. T HEREFORE, FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL IN ASSESS EES OWN CASE, WE ARE OF THE CONSIDERED VIEW THAT THE CIT(A) IS JU STIFIED IN GIVING RELIEF TO THE ASSESSEE AND THERE IS NO INFIRMITY IN THE ORDER OF CIT(A). WE UPHOLD THE SAME. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 2 ND DAY OF SEPTEMBER, 2015. SD/- SD/- (ANIL CHATURVEDI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED :02/09/2015 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY.REGISTRAR,ITAT, AHMEDABAD ITA NO.2329/AHD/2011 ASST. YEAR 2010-11 19 1. DATE OF DICTATION: 28/7/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 29/7/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 2/9/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: