M/s. Mondon Investments Ltd., New Delhi V. DDIT, New Delhi

ITA 3303/DEL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8090 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 06-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR RAKESH GUPTA
• Keywords: Transfer pricing; Double taxation relief; International transaction; Permanent establishment; Question of law; Notional interest; Commercial expediency
• Section: 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 3303/DEL/2016 : ASSTT. YEAR : 2009-10 M/S MONDON INVESTMENTS LTD., C/O-KHIWANI & CO., CA, 23/26, 2 ND FLOOR, EAST PATEL NAGAR, MAIN MARKET, NEW DELHI-110008 VS DCIT, CIRCLE-3(1), NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AA FC M8386H ASSESSEE BY : DR. RAKESH GUPTA, ADV. REVENUE BY : SH. UMESH TAKYAR, SR. DR DATE OF HEAR ING: 05 . 0 7 .20 2 1 DATE OF PRONOUNCEMENT: 02 .0 9 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE LD. CIT(A)-44, NEW DELHI DA TED 06.01.2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF LD. AO IN MAKING AN ADJUSTMENT OF RS.4,02,72,970/- AS INCOME IN THE HAN DS OF ASSESSEE COMPANY ON ACCOUNT OF DEEMED INTEREST INCOME AND THAT TOO BY RECORDING INCORRECT FACTS AN D FINDINGS AND WITHOUT OBSERVING THE PRINCIPLES OF NA TURAL JUSTICE. ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 2 2. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER, ACTION OF LD. CIT(A) IN CONFIRMING THE ACTION OF LD . AO IN MAKING AN ADJUSTMENT OF RS.4,02,72,970/- AS INCOME IN THE HANDS OF ASSESSEE COMPANY ON ACCOUNT OF DEEMED INTEREST INCOME IS BAD IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF LD. AO IN REJECTING THE ANALYSIS FOLLOWED BY THE APPELLANT AND IN DETERMINI NG THE PRICE OF THE IMPUGNED TRANSACTION ON THE BASIS OF TPOS ORDER. 4. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF LD. AO IN NOT GIVING DUE COGNIZANCE TO THE FACT THAT THE APPELLANT HAD TO UNDERTAKE STEWARDSHIP ACTIVITIES BY FINANCIAL SUPPORTING THEIR GROUP COMPANIES AND REDUCING THEIR FINANCIAL BURDEN. 5. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF LD. AO IN NOT GIVING DUE COGNIZANCE TO THE FACT THAT IT WAS A CASE OF BUSINE SS EXIGENCY AND COMMERCIAL EXPEDIENCY THAT ASSOCIATED ENTERPRISES HAD TO CONVERT AND ISSUE FRESH FCD AT 0 % ESPECIALLY CONSIDERING THAT THE AES HAD NOT REMITTE D THE INTEREST ACCRUED EARLIER AS WELL. 6. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF LD. AO IN MAKING THE ADJUSTMENT IN CONTRAVENTION OF CIRCULAR 14/2001 ISS UED BY THE CBDT AND HAVE FAILED TO TAKE INTO COGNIZANCE THAT CHARGING OF INTEREST BY THE APPELLANT WOULD LE AD TO AN OVERALL REDUCTION OF TAX BASE IN INDIA. 7. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN CONFIRMING THE ACTION OF LD. AO IN COMPUTING THE AR MS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF TH E ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 3 APPELLANT BY APPLYING THE INTERNAL COMPARABLE UNCONTROLLED PRICE METHOD. 8. WITHOUT PREJUDICE TO THE ABOVE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN NOT TREATING THE INVESTMENT MADE BY THE APPELLANT IN THE DEBENTURE AS NON PERFORMING ASSETS AND HAS ACCORDINGLY ERRED IN RECOGNIZING INCOME ON SUCH NON PERFORMING ASSETS. 9. WITHOUT PREJUDICE TO THE ABOVE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN APPLICATION OF DTAA BETWEEN INDIA AND CYPRUS FOR COMPUTING INCOME CHARGEABLE TO TAX AND NOT APPRECIATING THE FACT:- THAT THE WORDS USED IN ARTICLE 11(1) WERE PAID TO A RESIDENT OF OTHER CONTRACTING STATE I.E. THE INTEREST INCOME IS TAXABLE ONLY ON RECEIPT BASIS. AS PER THE WORDS USED IN ARTICLE 11(7), THE PROVISION OF DTAA IS APPLICABLE ON THE INTEREST AMOUNT WHICH WOULD HAVE BEEN AGREED UPON BY THE PAYER AND THE BENEFICIAL OWNER IN THE ARMS LENGTH SCENARIO. 10. THAT HAVING REGARDS TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSING THE ACTION OF LD. AO IN CHARGING THE INTEREST U/S 234A, 234B, 234C AND 234D OF THE INCOME TAX ACT, 1961. 3. THE ASSESSEE IS A COMPANY INCORPORATED IN CYPRUS . THE ASSESSEE ON 30 TH NOVEMBER 2007 SUBSCRIBED TO 15% FULLY CONVERTIBLE DEBENTURES (FCDS) OF FACE VALUE OF RS.1 00/- EACH ISSUED BY THE FOLLOWING INDIAN ENTITIES: A. APOGEE REALITY VENTURES PVT. LTD. B. PERIGEE REALITY VENTURES PVT. LTD. C. SYMMETREE REALTY VENTURES PVT. LTD. D. ENERGY REALTY VENTURES PVT. LTD. ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 4 4. THE DEBENTURES WERE CONVERTED INTO 0% FCDS W.E.F . 01.01.2009. FURTHER, ON 23 RD DECEMBER 2009, IN ADDITION TO THE CONVERSION OF 15% FCDS INTO 0% FCDS, THE ASSESSEE H AS SUBSCRIBED TO 0% FCDS OF FACE VALUE OF RS.100/- EAC H ISSUED BY THE ABOVE AES. 5. THE TPO HELD THAT 15% OF THE FCDS HAVE BEEN CONV ERTED INTO 0% FCDS WITHOUT ASSIGNING ANY REASON, THEREFOR E BY APPLYING INTERNAL CUP AS MAM. THE TPO CHARGED THE I NTEREST ON FCDS AS THE SAME RATE OF 15% AS WAS BEING CHARGED P RIOR TO 01.01.2009. IT HAS FURTHER BEEN SUBMITTED THAT THE INCOME GENERATED DURING THE SUBJECT YEAR WAS ONLY INTEREST INCOME ON FCDS WHICH WAS OFFERED TO TAX AT THE TREATY RATE OF 10%. 6. THUS, THE TPO MADE ADJUSTMENTS ON THE INTEREST E ARNED FROM VARIOUS INVESTEE ENTITIES OF RS.4,02,72,970/- WHICH IS AS UNDER: NAME OF THE AE NO. OF FCD (15 % FCD) FACE VALUE OF FCD INTEREST(A) FRESH 0 % FCD FACE VALUE OF FCD INTEREST(B) TOTAL INTEREST CHARGED (A+B) ARVPL 13,34,140 13,34,14,000 49,34,490.4 9,648 9,64,800 39252.8 49,73,743.23 PRVPL 62,19,847 62,19,84,700 2,30,04,913.6 NIL NIL NIL 2,30,04,913.56 SRVPL 16,74,830 16,74,83,000 61,94,576.7 14,94,971 14,94,97,100 . 60,82,279.3 1,22,76,855.99 ERVPL NIL NIL NIL 4,291 4,29,100 17,457.9 17,457,90 TOTAL 3,41,33,980.7 61,38,990.00 4,02,72,970.68 7. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE L D. CIT (A) WHO HELD THAT THE WORD INTEREST PAID INCLUDES IN TEREST PAYABLE. ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 5 8. THE VERBATIM OF THE ORDER OF THE LD. CIT (A) IS AS UNDER: DECISION I HAVE CONSIDERED THE ARGUMENTS OF THE LD. AR AND HAD GONE THROUGH THE PROVISIONS OF ARTICLE 11(1). LD. AR IS ARGUING ONLY ON THE BASIS OF THE WORD PAID TO RESIDENT IN ARTICLE 11( 1). IF THE CONTENTS OF ARTICLE 11(1) IS EXAMINED IT APPEARS THAT THE WO RD PAID INCLUDES PAYABLE WHICH HAS BEEN CLARIFIED IN ARTICLE 11(2) W HERE IT IS WRITTEN THAT SUCH INTEREST MAY BE TAXABLE IN THE CONTRACTIN G STATE IN WHICH IT ARISES. THE VERY PURPOSE OF THE WORLD ARISES IS TO BE INCLUDE RECEIVABLE ALSO. THEREFORE, I DO NOT AGREE WITH THE ARGUMENTS OF THE LD. AR THAT AS PER ARTICLE 11(1) ACTUAL INTEREST RE CEIVED CAN ONLY BE TAXED UNDER DTAA. 9. THIS LEADS TO US TO ADJUDICATE THE MOOT ISSUE W HETHER AS PER ARTICLE 11(1) INTEREST PAID INCLUDES INTEREST P AYABLE OR NOT 10. THE ARTICLE 11 OF AGREEMENT BETWEEN THE GOVERNM ENT OF REPUBLIC OF INDIA AND THE GOVERNMENT OF REPUBLIC OF CYPRUS FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME READS AS UN DER: ARTICLE 11 INTEREST 1. INTEREST ARISING IN A CONTRACTING STATE AND PAI D TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH INTEREST MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH IT ARISES, AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE BENEFICIAL OWNER OF THE INTEREST IS A RESIDE NT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHALL NOT EXC EED 10 PERCENT OF THE GROSS AMOUNT OF THE INTEREST. ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 6 3. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 2, INTEREST ARISING IN A CONTRACTING STATE SHALL BE EXEMPT FROM TAX IN THAT STATE, PROVIDED THAT IT IS DERIVED AND BENEFICIALLY OWNED BY: (A) THE GOVERNMENT, A POLITICAL SUB-DIVISION OR A L OCAL AUTHORITY OF THE OTHER CONTRACTING STATE; OR (B) IN THE CASE OF INDIA, THE RESERVE BANK OF INDI A, THE EXPORT- IMPORT BANK OF INDIA, THE NATIONAL HOUSING BANK; AN D (C) ANY OTHER INSTITUTION AS MAY BE AGREED UPON FR OM TIME TO TIME BETWEEN THE COMPETENT AUTHORITIES OF THE CONTRACTIN G STATES THROUGH EXCHANGE OF LETTERS. 4. THE TERM 'INTEREST' AS USED IN THIS ARTICLE MEA NS INCOME FROM DEBT CLAIMS OF EVERY KIND, WHETHER OR NOT SECURED B Y MORTGAGE AND WHETHER OR NOT CARRYING A RIGHT TO PARTICIPATE IN T HE DEBTOR'S PROFITS, AND IN PARTICULAR, INCOME FROM GOVERNMENT SECURITIE S AND INCOME FROM BONDS OR DEBENTURES, INCLUDING PREMIUMS AND PR IZES ATTACHING TO SUCH SECURITIES, BONDS OR DEBENTURES. PENALTY CH ARGES FOR LATE PAYMENT SHALL NOT BE REGARDED AS INTEREST FOR THE P URPOSE OF THIS ARTICLE. 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT A PPLY IF THE BENEFICIAL OWNER OF THE INTEREST, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE INTEREST ARISES, 'TROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONA L SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE DEBT CLAIM IN RESPECT OF WHICH THE INTEREST IS PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE THE PROVI SIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. 6. INTEREST SHALL BE DEEMED TO ARISE IN A CONTRACT ING STATE WHEN THE PAYER IS A RESIDENT OF THAT STATE. WHERE, HOWEV ER, THE PERSON ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 7 PAYING THE INTEREST, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STATE A PERMANENT ESTA BLISHMENT OR A FIXED BASE IN CONNECTION WITH WHICH THE INDEBTEDNES S ON WHICH THE INTEREST IS PAID WAS INCURRED, AND SUCH INTEREST IS BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE, THEN SUCH IN TEREST SHALL BE DEEMED TO ARISE IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. 7. WHERE, BY REASON OF A SPECIAL RELATIONSHIP BETW EEN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF THEM AN D SOME OTHER PERSON, THE AMOUNT OF THE INTEREST, HAVING REGARD T O THE DEBT CLAIM FOR WHICH IT IS PAID, EXCEEDS THE AMOUNT WHICH WOUL D HAVE BEEN AGREED UPON BY THE PAYER AND THE BENEFICIAL OWNER I N THE ABSENCE OF SUCH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE S HALL APPLY ONLY TO THE LAST MENTIONED AMOUNT. IN SUCH CASE, THE EXCESS PART OF THE PAYMENTS SHALL REMAIN TAXABLE ACCORDING TO THE LAWS OF EACH CONTRACTING STATE, DUE REGARD BEING HAD TO THE OTHE R PROVISIONS OF THIS AGREEMENT. 11. THE HON'BLE BOMBAY HIGH COURT IN CIT V. PRAMERI CA ASPF II CYPRUS HOLDING LIMITED (ITA NO. 1824 OF 2016) HA D FRAMED THE FOLLOWING QUESTION OF LAW: 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT IS CORRECT IN DIRECTING THE ASSESSING OFFI CER TO ACCEPT THE INTEREST INCOME RETURNED BY THE ASSESSEE ON CAS H BASIS WHEREAS THE A. O. HAS MADE ADDITIONS ON THE GROUND THAT INTEREST INCOME WAS LIABLE TO BE ASSESSED ON ACCRUA L BASIS ?'. 12. THE HON'BLE BOMBAY HIGH COURT DISMISSED THE APP EAL FILED BY THE REVENUE DEPARTMENT AND HELD THAT FOLLOWED IT S EARLIER DECISION IN DDIT V. SIEMENS AKTIENGESELLSCHAFT (200 9) TAXMANN.COM 1019 TO HOLD THAT TAXABILITY IN A CASE WHERE THE ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 8 ARTICLE IS WORDED IN THE AFORESAID MANNER, TAXABILI TY CAN ONLY BE FASTENED ON RECEIPT OF PAYMENT. RELEVANT PARAGRAPH HAS BEEN REPRODUCED: '8. THUS, WHILE INTERPRETING SIMILAR CLAUSE OF INDO -GERMAN DTAA IN RELATION TO TAXING ROYALTY OR FEES FOR TECHNICAL SERVICES, T HIS COURT HAD CONFIRMED THE DECISION OF TRIBUNAL HOLDING THAT SUCH SERVICE CAN BE TAXED ONLY ON RECEIPT. THIS DECISION WAS LATER ON FOLLOWED IN INC OME TAX APPEAL NO. 1033/11 DATED 20/11/2012 AND THEREAFTER IN INCOME T AX APPEAL NO.2356/ 11 AND CONNECTED APPEALS VIDE THE ORDER DATED 07/03 /2013. 9. ON THE SAME PRINCIPLE, THE APPEAL IS DISMISSED.' 13. WE HAVE ALSO GONE THROUGH THE ORDER OF THE CO-O RDINATE BENCH OF ITAT IN THE CASE OF DCIT VS. TMW ASPF I CY PRUS HOLDING COMPANY LTD. IN ITA NO. 879/DEL/2016 DATED 09.08.2019. 14. IN THE APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. DRP READS AS UNDER: '(I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN HOLDING THAT AS PER ARTICLE 11(1) AND (2) OF INDO- CYPRUS DTAA, INTEREST INCOME IS CHARGEABLE TO TAX ON PAID BASIS WHEN THE USAGE OF THE WORD 'PAID' ALWAYS INCL UDES 'PAYABLE' AND VICE VERSA. (II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DRP ERRED IN OBSERVING THAT IT HAS BEEN JUDICIA LLY HELD IN VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE THAT AS PER ARTICLE 11(1) AND (2) OF INDO- CYPRUS DTAA, INTEREST INCOME IS CHARGEABLE TO TAX ON PAID BASIS WHEN THERE ARE N O SUCH FINDINGS IN ANY DECISION CITED BY THE ASSESSEE BEFO RE THE HON'BLE DRP. ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 9 15. WHILE ADJUDICATING THE CORE ISSUE, IT WAS HELD AS UNDER: INDIA CYPRUS DTAA ARTICLE 11(1) OF INDIA-CYPRUS DTAA: 'INTEREST ARISING IN A CONTRACTING STATE AND PAID T O A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXE D IN THAT OTHER STATE.' 20. THE AFORESAID PARA ENVISAGES THAT FOR TAXING TH E INTEREST INCOME IN THE HANDS OF A NON-RESIDENT, IT IS NECESSARY THAT THE INTEREST SHOULD ARISE IN A CONTR ACTING STATE, I.E., TWIN CONDITIONS OF ACCRUAL AS WELL AS THE PAYMENT ARE TO BE SATISFIED. IF THERE IS NO ACCRUAL OR ACTUAL PAYMENT RECEIVED THEN SAME IS TO BE DECIDED WITHIN THE SCOPE OF ARTICLE 11(1). WHAT THE TPO/AO HAVE SOUGHT TO TAX IS THAT, ASSESSEE WAS SUPPOSED TO RECEIVE IN TEREST OF 18%, IF THE CONTINGENT EVENT WOULD HAVE ARISEN, I.E., IF IN THE EVENT, THE OPTION WAS EXERCISED BY THE ASSES SEE TO SELL ITS CONVERTED SHARES TO THE PROMOTERS OF INVES TEE COMPANY AT AN OPTION PRICE THEN IT WOULD HAVE GIVEN THE RETURN OF 18%. THUS, ENTIRE EDIFICE OF THE TPO/AO W AS BASED ON FIXATION OF CONTINGENT EVENT WHICH ASSESSE E WAS SUPPOSED TO RECEIVE. IT IS ALSO MATTER OF RECORD NO SUCH CONVERSION WAS ACTUALISED AND ASSESSEE REMAINED INV ESTED EVEN DURING THE YEAR UNDER CONSIDERATION. THE TRANS FER PRICING ADJUSTMENT HAS BEEN MADE ON THIS HYPOTHETIC AL AMOUNT OF INTEREST RECEIVABLE. WHETHER SUCH NOTIONA L INCOME CAN BE BROUGHT TO TAX EVEN UNDER THE TRANSFE R PRICING PROVISION, HAS BEEN DEALT BY THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES (P) LTD. VS. UNION OF INDIA (SUPRA), WHEREIN THEIR LORDSHIPS HAVE HELD THAT EVEN INCOME ARISING FROM INTERNATIONAL TRANSACTION MUST SATISFY THE TEST OF INCOME UNDER T HE ACT AND MUST FIND ITS HOME IN ONE OF THE CHARGING PROVI SIONS. HERE IN THIS CASE, NOWHERE THE TPO/AO HAS BEEN ABLE TO ESTABLISH THAT NOTIONAL INTEREST SATISFY THE TEST O F INCOME ARISING OR RECEIVED UNDER THE CHARGING PROVISION OF INCOME TAX ACT . IF INCOME IS NOT TAXABLE IN TERMS OF SECTION 4 , THEN CHAPTER X CANNOT BE MADE APPLICABLE, BECAUSE SECTION 92 PROVIDES FOR COMPUTING THE INCOME ARISING FROM INTERNATIONAL TRANSACTIONS WITH REGARD TO THE ALP. ONLY THE INTEREST INCOME CHARGEABLE TO TAX CAN BE SUBJECT MA TTER OF TRANSFER PRICING IN INDIA. MAKING ANY TRANSFER PRIC ING ADJUSTMENT ON INTEREST WHICH HAS NEITHER BEEN RECEI VED NOR ACCRUED TO THE ASSESSEE CANNOT BE HELD TO BE CHARGEABLE IN TERMS OF THE INCOME TAX ACT READ WITH ARTICLE 11(1) OF DTAA. HERE IT CANNOT BE THE CASE OF ACCRUAL OF INTEREST ALSO, BECAUSE NONE OF THE INVES TEE ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 10 COMPANIES HAVE ACKNOWLEDGE THAT ANY INTEREST PAYMEN T IS DUE, ALBEIT THEY HAVE BEEN REQUESTING FOR WAIVING O F INTEREST OF EVEN COUPON RATE OF 4%, LEAVE ALONE THE RETURN OF 18% WHICH WAS DEPENDENT UPON SOME FUTURE CONTINGENCIES. ASSESSEE DESPITE ALL ITS EFFORTS HAS ACCEDED TO SUCH REQUEST. FURTHER, IN THE INDIA CYPRUS DTAA WHEREIN SIMILAR PHRASE HAS BEEN USED PERTAINING TO FTS AND ROYALTY IN INDIA CYPRUS DTAA, HON'BLE BOMBAY HI GH COURT HELD THAT ASSESSMENT OF ROYALTY OR FTS SHOULD BE MADE IN THE YEAR IN WHICH AMOUNT HAVE ACTUALLY RECE IVED AND NOT OTHERWISE. THE COORDINATE BENCH OF MUMBAI I TAT IN THE CASE OF PRAMERICA ASPF II CYPRUS HOLDING LTD . VS. DCIT (SUPRA) ON EXACTLY SIMILAR SET OF FACTS, ADDIT ION ON ACCOUNT OF NOTIONAL INTEREST WAS MADE; THE TRIBUNAL HAS HELD THAT THE INTEREST INCOME IN QUESTION CAN ONLY BE TAXED ON PAYMENT /RECEIPT BASIS. THE RELEVANT OBSERVATION HAS ALREADY BEEN INCORPORATED ABOVE. THE HON'BLE BOMBAY HIGH COURT HAS CONFIRMED THE SAID FINDING. SIMILAR VIEW HAS BEEN TAKEN BY THE ITAT CHENNAI BENCH IN THE CAS E OF DCIT VS. INZI CONTROL INDIA LIMITED (SUPRA). THUS, IN VIEW OF ARTICLE 11(1) WE HOLD THAT, ONLY THE INTEREST WHICH HAS ACTUALLY BEEN RECEIVED CAN ONLY BE SUBJECT MATT ER OF TAXATION AND NO TP ADJUSTMENT CAN BE MADE ON SOME HYPOTHETICAL RECEIVABLE AMOUNT WHICH WAS CONTINGENT UPON CERTAIN EVENT WHICH HAS ACTUALLY NOT BEEN TAKEN PLA CE DURING THE YEAR. THUS, THE ORDER OF THE DIRECTION O F THE DRP IS UPHELD AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 16. SINCE, THE MATTER STANDS ADJUDICATED BY VARIOUS ORDERS OF THE TRIBUNAL AND HONBLE COURTS THAT THE WORD PAID CANNOT BE EXTENDED TO PAYABLE IN RESPECT OF INTEREST UNDER ARTICLE 11 OF INDO-CYPRUS TREATY, WE HEREBY ALLOW THE APPEAL OF T HE ASSESSEE. 17. IN VIEW OF THE ABOVE, THE OTHER GROUNDS TAKEN U P BY THE ASSESSEE WOULD BE ACADEMIC IN NATURE AND HENCE NOT BEING ADJUDICATED. ITA NO. 3303/DEL/2016 MONDON INVESTMENTS LTD. 11 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 02/09/2021. SD/- SD/- (AMIT SHUKLA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER AC COUNTANT MEMBER DATED: 02/09/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT PUNCHED ON COMPUTER 26.08.2021 PS 2. DRAFT PLACED BEFORE AUTHOR 26.08.2021 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 11. DATE OF UPLOADING