DDIT (IT) 4(2), MUMBAI V. OPPENHEIMER DEVELOPING MARKETS FUND, MUMBAI

ITA 3679/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84377 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 09-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N PADMANABAN
• Keywords: Depreciation; Double taxation relief; Permanent establishment; Unabsorbed depreciation
• Section: 143(3); 244A; 154

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L MUMBAI . . , , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.3679/MUM/2013 (A.Y.2007-08) DY.DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION)-4(2), R.NO.11, GROUND FLOOR, SCINDIA HOUSE, BALLARD PIER, MUMBAI 400 038. (APPELLANT ) VS. M/S. OPPENHEIMER DEVELOPING MARKET FUND, C/O. BSR & CO. LODHA EXCELUS, 1 ST FLOOR, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAKSHMI, MUMBAI 400 011. (RESPONDENT) APPELLANT BY : SHRI N.PADMANABAN RESPONDENT BY : SHRI N IRAJ SHETH DATE OF HEARING : 09/12/2014 DATE OF PRONOUNCEMENT : 09 /12/2014 ORDER PER I.P.BANSAL, J.M: THIS IS AN APPEAL FILED BY THE REVENUE AND IT IS D IRECTED AGAINST ORDER PASSED BY LD. CIT(A)-11, MUMBAI DATED 26/02/2013 FOR ASSES SMENT YEAR 2007-08. GROUNDS OF APPEAL READ AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE CIT(A) IS CORRECT IN DIRECTING TO TAX THE INTEREST INCOME UNDER ARTICLE 11 OF THE TREATY WITHOUT APPRECIATING THE FACT THAT INTEREST ISSUED U/S. 244A BEING APPARENTLY NOT IN THE NATURE OF INTEREST ON DEBT IS CLEARLY TA XABLE UNDER ARTICLE 23 OF THE INDIA-USA DTAA. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RES TORED. 2. EARLIER VIDE ASSESSMENT ORDER DATED 11/09/2009 P ASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) INTEREST ON INCOME TAX REFUND WAS CONSIDERED ITA NO.3679/MUM/2013 (A.Y.2007-08) 2 TO BE TAXABLE IN PURSUANCE TO ARTICLE-11 OF DTAA BE TWEEN INDIA AND USA. HOWEVER, SUBSEQUENTLY VIDE ORDER DATED 02/11/2012 PASSED UN DER SECTION 154 OF THE ACT IT WAS HELD BY AO THAT THE SAID INTEREST IS ASSESSABLE AS INCOME FROM OTHER SOURCES AS PER ARTICLE -23 OF DTAA AND HENCE WAS TAXABLE AT H IGHER RATE OF TAX I.E. 41.82%. THE SAID ORDER WAS CHALLENGED IN AN APPEAL FILED BEFOR E LD. CIT(A). LD. CIT(A) FOLLOWING THE SPECIAL BENCH DECISION IN THE CASE OF CLOUGH EN GINEERING LTD. VS. ACIT, 130 ITD 137 (DEL)(SB) HAS HELD THAT INTEREST ON INCOME TAX REFUND IS TAXABLE UNDER ARTICLE-11 OF THE DTAA. THE REVENUE IS AGGRIEVED, HENCE, HAS RAISED AFOREMENTIONED GROUNDS. 3. AT THE OUTSET IT WAS SUBMITTED THAT THE ISSUE IS COVERED BY VARIOUS DECISIONS OF THE TRIBUNAL AND REFERENCE WAS MADE TO THE FOLLOWIN G DECISIONS: 1. BECHTEL INTERNATIONAL INC. V. ASSISTANT DIRECTO R OF INCOME-TAX ( INTERNATIONAL TAXATION) MUMBAI, 19 TAXMANN.CO , 179 (MUM). 2. HAPAG LLOYD CONTAINER LINIE GMBH VS. ASSISTANT D IRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), MUMBAI. 9 TAXMANN. COM 126 (MUM) 3. CLOUGH ENGINEERING LTD. VS. ACIT, 11 TAXMANN.COM 70 (DELHI) 4. THE DIRECTOR OF INCOME TAX VS. M/S. DHL OPERATIO NS BV, ITA NO.181/MUM/2010. 5. MARUBENI CORPORATION VS. DCIT (INTERNATIONAL TAX ATION)-4(1), 44 TAXMANN.COM 22 (MUM TRIB.) 3.1 PARTICULAR REFERENCE WAS MADE TO THE DECISION I N THE CASE OF MARUBENI CORPORATION VS. DCIT (SUPRA) TO CONTEND THAT THE S AME BENCH HAS HELD THIS ISSUE IN FAVOUR OF THE ASSESSEE FOLLOWING AFOREMENTIONED D ECISION OF THE SPECIAL BENCH AS PER PARA -9 OF THE SAID ORDER. (II) INTEREST ON INCOME TAX REFUND. THIS IS COVERED IN FAVOUR OF THE ASSESSEE VIDE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE D T. 8 TH AUGUST, 2013 IN ITA NO. 939/M/2012 FOR ASSESSMENT YEAR 2007-08. THE RELEVA NT PORTION OF THE ORDER OF THE TRIBUNAL READ AS UNDER: 2. THE ONLY GROUND RAISED BY THE REVENUE IS AS UND ER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO TAX THE INTEREST ON IN COME TAX REFUND AT A ITA NO.3679/MUM/2013 (A.Y.2007-08) 3 LOWER RATE 10% AS PROVIDED IN THE DTAA BETWEEN INDI A AND JAPAN WITHOUT CONSIDERING THE FACT THAT INTEREST RECEIPT HAS NEXU S WITH ASSESSEES PE. 3. THE ASSESSEE IS A COMPANY INCORPORATED IN JAPAN AND IT IS HAVING A PERMANENT ESTABLISHMENT (PE) IN INDIA. THE ASSESSEE FILED RETURN OF INCOME SHOWING NIL INCOME AFTER ADJUSTING THE BROUGHT FORW ARD BUSINESS LOSS AND UNABSORBED DEPRECIATION. THE ASSESSMENT WAS COMPLET ED ON INCOME OF ` 17,00,22,100/- BY TAXING VARIOUS INCOME INCLUDING I NTEREST ON INCOME TAX REFUND OF ` 22,15,213/-. THE AO TAXED THE SAID INTEREST IN COME AS PER THE PROVISIONS OF THE ACT WHICH HAS BEEN CHALLENGED BY THE ASSESSEE B EFORE THE CIT(A) AND CLAIMED THAT THE INTEREST ON INCOME TAX REFUND ATTRACT THE TAX RATE AS PROVIDED IN INDO- JAPAN DTAA. THE CIT(A) ALLOWED THE CLAIM OF THE ASS ESSEE BY FOLLOWING THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN CASE OF CLOUGH ENGINEERING LTD. VS ACIT 130 ITD 137 AND DIRECTED THE AO TO TAX THE INT EREST ON INCOME TAX REFUND AT LOWER RATE AS PROVIDED IN THE DTAA. 4. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THE ISSUE IS COVERED BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN CASE OF ACIT V S CLOUGH ENGINEERING LTD. (SUPRA). WE FURTHER NOTE THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF BECHTEL INTERNATIONAL INC. VS ADIT IN ITA NO. 5198/ M/2010 AND 6998/M/2011 VIDE ORDER DATED 8.2.2012 HAS ALSO CONSIDERED AND D ECIDED THE IDENTICAL ISSUE BY FOLLOWING THE DECISION OF SPECIAL BENCH IN CASE OF CLOUGH ENGINEERING LTD. (SUPRA) IN PARA 10 AS UNDER: 10. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE R IVAL SUBMISSIONS. WE ARE OF THE VIEW THAT IN THE LIGHT OF THE COMMENT ARY OF KLAUS VOGEL ON THE REASON FOR USE OF THE WORD ATTRIBUTAB LE IN THE US CONVENTIONS, THEY ARE IN NO WAY DIFFERENT FROM THE EXPRESSION EFFECTIVELY CONNECTED. US MODEL CONVENTION DEVIAT ES FROM OECD AND UN MODEL CONVENTIONS (MCS) BECAUSE THE TERM EF FECTIVELY CONNECTED IS A TECHNICAL TERM OF US DOMESTIC TAX L AW AND THAT IT IS DEFINED IN DETAIL IN I.R.C. SEC.864(C) WHEREAS ATT RIBUTABLE, THOUGH USED IN US DOMESTIC TAX LAW AS WELL, IS NOT DEFINED . IF US MC WERE TO REFER TO EFFECTIVELY CONNECTED, THE QUESTION W OULD ARISE WHETHER THAT TERM WOULD BE REQUIRED BY ARTICLE 3(2) MC TO B E INTERPRETED ON THE US SIDE IN ACCORDANCE WITH ITS DEFINITION UNDER US TAX LAW, USE OF THE TERM ATTRIBUTABLE AVOIDS THAT PROBLEM AND THAT IS THE REASON THE EXPRESSION ATTRIBUTABLE IS USED IN US MODEL C ONVENTIONS. THEREFORE THE TERM APPEARING IN US MODEL CONVENTION S HAVE THE SAME MEANING AS THE EXPRESSION EFFECTIVELY CONNECT ED. THE EXPRESSION ATTRIBUTABLE AS USED IN ARTICLE 11(5) OF THE INDIA-USA DTAA HAS THEREFORE TO BE CONSTRUED AS EQUIVALENT TO EFFECTIVELY CONNECTED. THE TECHNICAL EXPLANATION REFERRED TO B Y THE LEARNED COUNSEL FOR THE ASSESSEE WHEREBY IT HAS BEEN OBSERV ED THAT THE TERM ATTRIBUTABLE IS TO BE GIVEN A NARROWER MEANI NG THAN THE EXPRESSION EFFECTIVELY CONNECTED, WE FIND THAT TH E SAID TECHNICAL EXPLANATION IS IN THE CONTEXT OF ATTRIBUTION OF PRO FITS OF THE PE AND IS RELEVANT TO TAXATION OF AN INDIAN ENTERPRISE HAVING PE IN USA. ITA NO.3679/MUM/2013 (A.Y.2007-08) 4 NEVERTHELESS, THE EXPRESSION ATTRIBUTABLE EVEN IF HELD TO BE EQUIVALENT TO THE EXPRESSION EFFECTIVELY CONNECTED IN THE LIGHT OF THE COMMENTARY BY KLAUS VOGEL, REFERRED TO ABOVE, T HEN THE CASE OF THE ASSESSEE WOULD STAND SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH IN TH E CASE OF CLOUGH ENGINEERING LTD. (SUPRA). FOLLOWING THE SAME, WE HO LD THAT THE INTEREST INCOME ON INCOME TAX REFUND IS TO BE CHARG ED TO TAX ONLY UNDER ARTICLE 11(2) OF THE INDO-USA DTAA AND NOT UN DER ARTICLE 11(5) THEREOF. 5. FOLLOWING THE DECISION OF THIS SPECIAL BENCH IN CASE OF CLOUGH ENGINEERING LTD. AS WELL AS THE CO-ORDINATE BENCH OF THIS TRIBU NAL IN CASE OF BECHTEL INTERNATIONAL INC. WE DECIDE THIS ISSUE IN FAVOUR O F THE ASSESSEE. ACCORDINGLY THE ORDER OF THE CIT(A) QUA THIS ISSUE IS UPHELD. 3. LD. DR DID NOT OBJECT TO THE SUBMISSION OF THE A SSESSEE THAT THE ISSUE IS COVERED BY THE AFOREMENTIONED DECISION OF THE TRIB UNAL. 4. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES, FOLLOWING THE AFOREMENTIONED DECISIONS, WE HOLD THAT LD. CIT(A) D ID NOT COMMIT ANY ERROR IN GRANTING RELIEF TO THE ASSESSEE. WE DECLINE TO IN TERFERE AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/12/2014 ! ' #$ % &'( 09/12/2014 ' ) SD/- SD/- ( /SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; &' DATED 09/12/2014 ITA NO.3679/MUM/2013 (A.Y.2007-08) 5 ! ! ! ! ' '' ' *+, *+, *+, *+, -,$+ -,$+ -,$+ -,$+ / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. *0./ / THE RESPONDENT. 3. 1 ( ) / THE CIT(A)- 4. 1 / CIT 5. ,2) *+' , , / DR, ITAT, MUMBAI 6. )3 4 / GUARD FILE. !' !' !' !' / BY ORDER, 0,+ *+ //TRUE COPY// 5 55 5 / 6 6 6 6 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS