MORGAN STANLEY MAURITIUS COMPANY LTD., MUMBAI V. DY CIT (IT) RANGE 3 (2)(2), MUMBAI

ITA 7388/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4233 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2015-2016
• Appeal Filed On: 03-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Residential status; Double taxation relief; Deemed to accrue or arise in india; Permanent establishment; Liquidation
• Section: 143(3); 5(2); 13; 22

Judgement Text

ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 1 OF 19 INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH, MUMBAI [CORAM: PRAMOD KUMAR, VICE PRESIDENT , AND, VIKAS AW ASTHY JUDICIAL MEMBER] ITA NO . : 7388/MUM/19 ASSESSMENT YEAR: 2015 - 16 MORGAN STANLEY MAURITIUS CO LTD .. APPELLANT 14 TH FLOOR, THE RUB Y, 29 SENAPATI BAPAT MARG DADAR (WEST), MUMBAI 400 028 [PN: AADCM5927G] VS. DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION C IRCLE 3(2)(2) , MUMBAI .RESPONDENT APPEARANCES: DR SUNIL M LALA ALONG - WITH HARSH BAFNA AND VISHESH SRIVASTA VA , FO R THE A PPELLANT SANJAY SINGH , FOR THE RE SPON DEN T DATE S OF HEARING THE APPEAL : 9 TH FEBRUA RY AND 2 8 TH MAY , 2021 DATE OF PRONOUNCING THE ORDER : 28 TH DAY OF MAY 2021. O R D E R PER PRAMOD KUMAR, VP : 1. BY WAY OF TH IS APPEAL, THE ASSESSEE AP P E LL ANT HAS CHALLEN GED THE CORRECTNESS OF THE ORDER DATED 7 TH OCT OBE R 2019, PASSED BY THE ASSESSING OFFICER IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) R.W.S. 1 44C (13) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2015 - 16. 2. THE SHORT ISSUE T H AT WE ARE REQUIRED TO ADJUDICATE IN T HIS APPEAL IS WHETHER OR NOT T HE ASSESSING OFFICER WAS JUSTIFIED IN HOLDING THAT THE RECEIPTS OF RS 9 ,74, 66,600 , FRO M IND IA BASED DEPOSITOR Y , I.E., STANDARD CHARTE RED BANK - INDIA, IN RES PECT OF SHARES OF STAN DARD CHART E R ED BA NK PLC - UK REPRESENTED BY THE I NDIA DEPOSITO RY RECEIPTS (I DR S ) , WERE CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE ASSESSEE. THE WAY THE ASSESSEE PUTS IT, BY WAY O F A GROUND OF APPEAL IS THAT ON THE FACTS AND CIRCUMSTAN CES OF THE CASE, THE LEARN E D A O, ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 2 OF 19 BASED ON THE DIRECTIONS OF HON BLE DRP ERRED IN MAKING AN ADD ITION OF RS 9 ,74, 66 ,600, BEING THE DIVIDEND INCOME RECEIVED BY THE APPELLANT IN RESPECT OF SHARES REPRESENTED BY IDRS OF SC PLC, AS CHARGEABLE TO TAX IN INDIA. IN THIS REGARD, THE LEARNED AO, BASED ON THE DIRECTIONS OF HON'BL E DRP, ERRED ON THE FOLLOWING GR OUNDS . THE ASSES SEE HAS RAISED SE VERAL SUB G ROUNDS OF APPEAL, BUT, IN SUBSTANCE, THESE SUB GROU NDS OF APPEAL ARE ARGUMENTS IN SUPPORT OF THE AFORESAID GROUND OF APP EAL. 3. THE ISSUE I N AP PEAL LIE S IN A NARROW COMPASS OF M ATERIAL FACTS . THE ASSESSEE BEF OR E US I S A COMPANY INC ORPO RATED IN, AND FISCALLY DOMICILED IN, M AURITI US . T HE ASSESSEE IS THUS A TAX RESIDENT OF MAUR ITIUS AND HOLDS A VALID TAX R E SIDENCY CER TIFICATE ISSUE D BY THE MAU R ITIU S REVENUE AUTHORITIES. THE ASSESS EE I S AN INVES TOR IN THE INDIAN DEPOSITORY RECE IPTS ( ID R , IN SHORT) BY S TANDARD C HARTERED BANK - INDIA BRANCH ( SCB - IND IA , IN SHORT ) , WITH T HE UNDERLYING ASSET IN THE FORM OF SHARES IN A UK BASED COMPANY BY THE NAME OF STAN DARD CHARTERED BANK PLC ( SCB - UK , IN SHORT) HELD BY THE DEPOSITOR Y S C USTODIAN , I.E., BANK OF NEW YORK MELLON, USA ( BNY - US , IN SHO RT) . S CB - UK IS A COM PANY LISTED IN LONDON STOCK EX CH ANGE , AND THE IDRS SO ISSUED , I.E. , IN RESPECT OF THE S H ARES OF SCB - U K , AR E LIST ED IN INDI A. THERE IS NO DI SPUTE THAT THE INDIAN DEP OSITOR Y RE CEI PTS ARE ISSUED IN TERMS OF COMPANIES (ISSUE OF INDIAN DEPOSITORY RECE IPTS) RULE , 2004, AND THAT LISTI NG OF IDR S ARE LISTED IN INDIA IN TERMS OF SEBI (ISSUE OF CAPITAL AND DISCLOSUR E R EQ UIREMENTS) REGULATIONS 2009. DUR ING THE RELEVA NT FINANCIAL PERI OD, THE ASSESSEE HAD RECEIVED RS 9,74,66,595 , FROM SCB - INDIA, IN RESPECT OF DIVIDENDS FOR THE UNDERLYING SHARES RELATABLE TO TH E I DRS IN WHICH THE ASSE SSEE HAD INVEST ED. WHEN THE ASSESSE E WAS P UT TO NOT I CE, AS TO W HY THE REC EIPT IN QUESTI ON NOT BE TAXED A S A DI VIDE ND INCOME IN THE HANDS OF THE ASSESSEE , ELABORATE SUBMISSIONS WERE MADE IN SUPPORT OF THE CONTENTION THAT THIS RECEIPT IS NOT TAX ABLE IN INDIA INASMUCH AS THE DIVIDENDS ARE IN R E SPEC T OF A FOREIGN COMPANY, NAMELY SC B - U K, THE DIVI DENDS ARE RE CEI VE D ABROAD BY BNY - US, AND , AS SUCH, THESE DIVIDENDS NEIT HER ACCRUE OR ARISE IN INDIA NO R ARE RECE IVED OR DEEMED TO BE RECEIVED IN INDIA. IT WAS SUBMITTED THAT SCB - INDIA WAS A BARE TRUSTEE ( I.E. , AKIN TO A NOMINEE ) UNDER THE EN GLISH LAW FOR THE IDR HOLDERS . IT WAS THEN POINTED OUT THAT THE DIVIDEND WAS FIRST RECEIVED OUTSIDE INDIA , AND, ACCORDINGLY, SUCH DIVIDEND CANNOT BE REGARDED AS RECEIVED/ DEEM ED TO BE REC EI VED IN I NDIA . IT WAS CONT E NDED THAT SUBSEQUENT REMITTANCE OF T HE DIVIDEND TO THE IDR HOLDERS IN AND INDIAN BANK ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 3 OF 19 AC COUNT WILL NOT TRIGGER RECEIPT BASED TAXATION AS PER THE PROVISIONS OF THE ACT . WITHOUT PREJUDICE TO THIS CONTENTION ABOUT NON - TAXA BILITY OF T HIS RECEIPT UNDER THE I N CO ME TAX A C T, 1961, IT WAS FURTHER CO NTENDED THAT , IN TERM S OF THE I NDI A MAURITIUS DOUBLE TAXATION AVOIDANCE A GREEMENT [( 19 84 ) 146 ITR (ST) 214 ; INDO - MAURITIUS TAX TREATY , IN S HORT) , AS THESE PAYMENTS DID NOT MEET THE REQUIREMENTS OF THE DEFINITION OF DI V IDEN DS UNDER ARTICLE 10, SUCH REC EIPTS CA N ONLY BE SUBJECTED TO TAX UNDE R ARTICLE 22 WHICH IS IN THE DOMAI N OF EXCLUSIVE TAX ATION IN TH E RESIDENCE JURISDICTION, I.E ., MAURITIUS . N ONE OF THESE SUBM ISSIONS , HOWEV ER, IMPRESSED THE ASSESSING OFFICER. WITH A V E RY D ETAILED ANALYSIS OF THE FACTUAL POSIT ION WITH R ESPECT TO THE INDIAN DEPOSITORY REC EIPTS AND LEGAL FRAMEWORK THEREOF, AND WITH A VERY D ETAILED ANAL YS IS OF THE LEGAL FRAMEWORK REGARDING TAXABILITY THEREOF, T HE ASSES S ING OFFICER CON CLUDED THAT SO FAR AS T HE I DR HOLDERS ARE CONCERNED, THE FIRST P OI NT OF RE CEIPT OF DIVIDEND IS WHEN IT IS DEPOSITED IN THE BANK ACCOUNTS OF THE IDR H OLDERS IN INDIA, AND, THERE FORE, IT CANNOT BE SAID THAT THE INCOME I N QUESTION IS RECEIVED OUTSIDE INDIA. H E NOTED THE CLAIM OF T HE A SSESSEE THAT THE MONEY DIVIDEND WAS R ECEIVED O U TSIDE INDIA AS IT WAS DEPOSITED IN THE BANK ACCOUNT OF SCB - INDIA IN SCB - UK , AS MAINTAINED AB ROAD, AND THEN DISTRIBUTE D BY THE SCB - INDIA UPON CONVERSION, BUT REJE CTED THE SAME ON THE GROUND , INTER AL IA, TH A T TH E MONEY CONTINUED TO BE IN THE POSSES SION OF TH E PE RSON WH O W AS TO P AY THE SAME, I.E. SCB - UK , AND THAT , IN REALITY AS ALSO IN SUBSTANCE , THE PAYMENT WAS MADE IN INDIA IN THE INDIAN BANK ACCOUNTS OF THE IDR H OLDERS, INCLUDIN G, OF COURSE, THE ASSESSEE. R EFE RENCES WERE ALSO MADE TO THE CONTENTS OF R ED H E RRING P ROSPECTUS (RHP ) OF TH E IDR ISSU E TO HIGHLIGHT THE FACT THAT EVEN ACCORDING TO THE RHP, DIVIDENDS PAID TO THE NON - RESIDENT IDR HOLDERS SHALL BE TAXABLE IN INDIA, IF IT IS RE CEIVED IN INDIA OR IS DE E MED TO BE RECEIVED IN INDIA, THAT THE EXE MPTION FRO M DIVIDEND TAXATION I N INDIA IS NOT AVAIL ABLE UNDER SECTION 10(34) AS NO DIVIDEND DISTRIBUTI ON TAX IS PAID IN INDIA AND AS IDRS ARE NOT SUBJECTED TO SECURITIES TRANSACT ION TAX, CORRESPONDING EXEM PTION FRO M LON G TERM CAPI TAL G AINS UNDER S ECT ION 10 (3 8) , AS A LSO CONCESSIONAL TAX RATE UNDER SECTION 111A, IS NOT AVAILABLE. THE ASSESSING OFF ICER THUS PR OCEEDED TO PR OPOSE TAX THESE DIVIDENDS UND ER SECTION 115(1 )( A) @ 20% PLUS APPLICA BLE SUR CHARGE AND CESS . AGGRI E VED, THE ASSESSEE RAISED OBJECTIO NS BEF ORE TH E DISP UTE RES OLUTION PANEL BUT WITHOUT ANY SUCCESS. WHILE LEARNED DRP C ONFIRMED THE ACTION OF THE ASSESSING OFFICER, SO F AR AS THE TREATY PRO TECTION CLAIMED BY THE ASSESSEE WAS CO NC ERNED, IT DECLINED TO GRANT T H E SA ME ON THE G ROUND THAT IT IS NOTED THAT T HE COM PANY MAKING THE DISTRIBUT ION OF DIVIDEND INCOME IS A R ESIDENT OF INDIA, FOR THE P UR POSE OF THE DEFINITION OF DIVIDEND UNDER AR TICLE 10 OF INDIA ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 4 OF 19 MAURITIUS DTAA . IN THE LIGHT OF THE ABOVE FACTS , THE RECE IPT OF T HE DIVIDE ND FROM IDR IS LIABLE TO BE TAXED U NDE R THE I N COME TAX A C T AS ALSO UNDE R THE DTAA. THE OBJECTION IN THIS REGARD IS TH US REJECTED . THE ASSESSING OF FICER T HUS PROCEEDED WITH THE PROPOSED DRAFT ASSESSMENT ORDER , AND BROUGHT THE IDR DIVIDENDS TO TAX IN THE HANDS OF THE ASSESSEE . THE ASSESSEE IS A GG RIEVED AND IS IN APPEA L BEFORE US 4. WE HAVE HEARD DR . SUNIL LALA, LEARNED COUNSEL FOR THE ASSESSEE, AND SHRI SANJA Y SINGH, LEARNED COMMISSIONER (DR), AT LENGTH, WE HA VE PERUSED THE MATERIAL ON RECORD , AND WE HAVE DULY CONSIDERED FACTS OF THE CASE IN TH E L IGHT OF THE APPLICA BLE LE GAL POSITIO N . 5. IT WOULD PERHAPS BE APPROPRIAT E THAT WE HAVE A BASIC UNDERSTANDING, SO F AR AS RELEVANT TO , AND NECESSARY FO R, US, AS TO WHAT INDIAN DEPOSITORY R E CE IPTS AC T UALLY MEAN AND STAND FOR. IT IS A DERIVAT IVE FINANCIA L I NSTRUMENT, I.E. , A FINANCIAL INSTRUMEN T THAT D RAWS IT S VALUE F ROM THE UNDERLYING ASSET AND IS TRADAB LE ON ONE OR MORE APP ROVED STOCK EXCHANGES IN INDIA. WHILE TH IS FINANCIAL INSTRUMENT , TRADABLE IN O NE OR MORE OF T H E INDIAN STOCK EXCHANG E S , IS ISSUED B Y AN INDIAN DEPOSITORY, IT DERIVES ITS VALUE FROM THE UNDERLY ING ASSET IN THE FORM OF EQUITY SHARES OF A FOREIGN COMPANY. THE BE NEFITS ACC R UING F ROM THE S HARES IN QUESTION ARE, SUBJECT T O TERMS ON WH ICH DEPOSI TORY ISSUES THE IDRS, ARE PASSED ON TO THE IDR H OLDERS, AND, IN THAT SENSE, THE IDR H O LDERS ARE BEN EFICIARIES OF THE UNDERLYING S HARES IN T HE F OREIGN COMPANY. WHILE IDRS MAY BE CONVERTIB LE, SUBJECT TO CERTAIN CONDITIONS AN D REQUIREMENTS ABOUT THE HO L DING P ERIOD OF IDRS, INTO UNDERLYING EQUITY SHARES OF THE FOREIGN COMPANY, THE IDRS ARE NOT NEC ESSARILY CONVERT IBLE IN THE EQUITY SHARES IN Q UESTION. IN EFFECT, THUS, THE IDRS PROVIDE A MECHANIS M IN WHICH AN INVESTOR IN THE INDIAN MARKET CAN HAVE THE BEN E FITS F L OWI N G FROM THE SHAREHOLDING IN PARTICIPATING F OREIGN CO MPANIES. COMING TO MORE SPECIFICS ABO UT THE IDRS, WE MAY ADD THAT INDIAN DEPOSITORY RECEIPT IS DEFINED , UNDER RULE 3(I)(D) OF THE COM PA NIES (ISSUANCE OF IND IAN DEPOSIT ORY RECE IPT S ) RULE 2004, AS ME ANS ANY INSTRUMENT IN THE FORM OF A DEPOSITORY RECEIPT CREATED BY DOMESTIC DEPOSITORY IN IND IA AGAINST THE UNDERLYING EQUITY SHARES OF ISSUING COMPANY . RULE 3(I) (E) RESTRICTS THE NATUR AL MEANING OF THE EXPRESSION ISS UING COMPANY BUT DEFINI NG IT A S MEAN S A COMPANY INCORPORATED OUTSIDE INDIA, MAKING AN ISSUE OF IDRS THROUGH A DOMESTIC DEPOSITOR Y . AS FOR THE CONNOTATIONS OF ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 5 OF 19 EXPRESSION D OMEST IC DEPOSITORY , RU LE 3(I)(C) EXPLAINS IT AS MEANS CUSTODIAN OF SECURITIES REGISTERED WITH THE SECURITIES AN D EXCHA NGE BOARD OF INDIA, HEREINAFTER REFERRED TO AS SEBI AND AUTHORISED BY THE ISSUING COMPANY TO ISSUE INDI AN DEPOSITORY RECEIPT . UNDER RU L E 5, NO F OREIGN COMPANY CAN RAISE THE FUNDS THROUGH THE ID RS EX CE PT WITH THE PRIO R APPROVAL OF THE SEB I . RULE 6 I NTER A LIA PROVIDES THAT THE REPATRIATION OF THE FUNDS SO RAIS ED BY THE FOREIGN COMPANY , TH ROUGH TH E ISSUANCE OF IDRS, WILL BE SUBJECT TO APPLICA BLE FOREIGN EXCHANGE LAWS IN I N DIA, THAT IDRS WILL BE D ENOMINATED ONLY IN INDIAN RUPEES , AND THAT THE IDR S CAN B E CONV ERTED, IF AT ALL, ONLY AFTER A CERTAIN LIMIT. R ULE 9 PROVID ES THAT T HE SE IDRS SHALL BE LISTED ON THE RECOGNIZED STOCK EXCHANGE(S) IN INDIA AS SPECIFIED IN CLAUSE (III) OF RULE 5 AND SUCH IDRS MAY BE PURCHASED, POSSESSED AND FREELY TRANSFERRED BY A P E RSON R ESIDENT IN INDIA AS DEFINED IN SECTION 2(V) OF FOREIGN EX CHANGE MANAGEMENT ACT, 1999, SUBJECT TO THE PROVISIONS OF THE SAID ACT. WHAT ESSENTIALLY FOLLOWS IS THAT AN INDIAN DEPOSITORY R ECEIPT (ID R) IS AN INSTRUMENT ISS UED BY A CUSTODIAN OF UN DERLYING SHARES OF A FOREIGN COMPANY , REGISTERED WITH THE SEBI , AND AUTH ORI S ED BY THE FOREIGN COMPANY IN THI S RESPECT. THIS INSTRUMENT IS REQUIRED TO BE D ENOMINATED IN INRS, LISTED ON ONE OR MORE RECOGNIZED STOCK EXCH ANGE S, THE FUNDS SO RAI SED THROUGH THE I DRS CAN BE REM ITTED TO THE FOREIGN COMPANY, AS MAY BE PERMISS IBLE UNDE R THE FOREIGN EXCHANGE LAW FROM TIME TO TIME , AND THAT SUCH IDRS ARE FREELY TRANSFERABLE BY RESIDENTS AS WELL. IN EFFECT THUS, THE IDRS ARE MEANS OF TAPPING THE INDIAN INVESTOR MARKET BY THE FO R EIGN C OMPAN IES. HOWEVER, IT IS NOT THE SAME THING AS SUBSCRIBI NG TO THE SHARE CAP ITAL OF A FOREIG N COMPANY, AND THE IDR HOLDERS ARE NOT SHAREHOLDERS IN THE FOREIGN COMPANY. WH ILE TECHNICALLY THE FOREIGN CO MPANY ISSUES THE EQUITY SHARES TO THE D OMESTIC DEP O SITORY ON THE STRENGTH OF WHI CH THE D OMESTIC DEPOSITO RY ISSUES THE IDRS, THESE SHARES NEVER COME TO THE POSSESSION OF THE DOMESTIC DEPOSITORY. THERE I S A CUSTODIAN INVOLVED, BANK OF NEW YORK M E LLON I N THIS CASE, WHICH ACTU ALLY HOLDS CUSTODY OF T HESE SHARE S - THOU GH TECHNICALLY ON BEHALF OF THE DOMESTIC DEPOSI TORY , WH IC H ITSELF IS A TRUSTEE OF THE ISSUI NG COMPANY. THE PHY SICAL MO VEMENT OF SHARES IS THUS BETWEEN THE ISSUING COMPANY, I.E. , STANDARD CHARTERED B ANK PLC , THE CU STODIAN, B ANK OF N E W YORK MELLON, WH I LE THE CONSTRUCTIVE MOVEMENT IS FROM THE STANDARD CHA RTERED BANK PLC (I.E. , ISSUING COMPANY) TO THE ST A NDARD CHARTERED B ANK - INDIA (DOM ES TIC DEPOSITO RY) T O T HE BANK OF NEW Y ORK MELLON (THE CUSTODIAN). IN TERMS OF A DIAGRAM, THIS MO VE MENT COULD BE EXPLAIN E D AS F OLLOWS: ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 6 OF 19 MOVEME NT OF SHARES OF THE STANDARD CHARTERED BANK PLC THE P HYSICAL MOVEMENT OF SHARES THE C ONSTRUCTIVE MOVEMENT OF SH A RES B ANK OF NEW YORK MELLON (C USTODIAN) STANDARD CHARTE RED BANK PLC, UK (I SSUING COMP ANY) STAN D ARD CHARTE RED B ANK - INDIA (DOME STIC DE P OSITORY) 6. ON THE STRENGTH OF THE EQUITY SHARES OF SCB - UK SO HELD THROUGH THE CUSTODIAN , WITH THE AUTHORIZATION OF THE SCB - UK AND WITH THE APPROVAL OF THE SEBI, AFTER L ISTING OF THE IDRS ON THE INDIAN STO C K EXCHANGES, THE SCB - INDIA ISSUES THE IDRS IN Q UESTION AND RAISES THE FUNDS I N THE I NDIAN CAP ITAL M A RKETS. T H E FUNDS SO RAISED PRESUMABLY GE T REPATRIATED TO THE SCB - UK AS WELL , BUT THATS NOT MATERIAL ANYWAY. WHAT IS MATER I AL IS THE DIVIDEND DISTRIBUTION B Y THE DOMESTIC DEPOSITORY T O THE IDR HOLDERS, A ND THAT IS WHAT HAS LED TO THI S LITIGATION BEFORE US. THE SCB - INDIA RECEIVE S DI VIDENDS FROM SCB - U K IN RESPECT OF THE S HARES HELD BY SCB - INDIA, AND UNDER THE APPLICABLE ARRANGEMENTS IF THE DOME STIC DEPOSITO R Y RECEIVES ANY CASH DIVIDENDS OR AN Y OTHER CASH DISTRIBUTION IN RESPECT OF THE DEPOSITED SHARES (INCLUDING ANY AMOUNTS RECEIVED IN THE LIQUIDATION OF THE FOREIGN C OMPANY ) OR OTHERWISE IN CONNECTION WITH THE DEPOSITED PROPERTY , THE AMOUNTS ARE TO BE CO NVER T ED INTO INDIAN RUP EES AND PAID IN INDIAN RUPEES BY CHEQUE, PAY ORDERS AND DEM AND DRAFTS AND PAYABLE AT PAR AT THE P LACE WHERE THE I D R HOLDERS RESIDE . WHILE MAKING THESE PAYMENTS, THE D OMESTIC DEPOSITORY MAY DEDUCT AND RETAIN FROM ALL MONIES DUES ONCE AG A IN , LET US LOO K AT THE TRANSACTION OF INVESTIN G IN ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 7 OF 19 IDRS AND RECEIVING MONIES, ON ACCOU NT OF DIVIDENDS BY THE SCB - UK, BY WAY OF A DIAGRAM AS BELOW: B ANK OF NEW YORK MELLON (CUSTODIAN) STANDARD CHARTERED BANK PLC, UK (I SSUING COMPANY) L ISTING OF I D RS O N THE INDIAN S TOC K E XCHANGE (S) STANDARD CHARTE RED B ANK - INDIA (DOME STIC DE POSITORY) I N VESTORS IN THE IDRS (INCLUDING FIIS IN I N DIA) [L IGHT GREE N BROKEN LINE - THE CONSTRUCTIVE MOVEMENT OF DIVIDENDS, L IGHT GREE N AND BLUE LINES - CASH FLOW ON DIV IDEND DISTRIB UTIO N ; ORANGE LINES - CASH FLOW ON THE IDR INVESTMENT 7. AS HIGHLIGHTED IN THE A B OVE CHART, THE DIVIDE ND PHYSICALLY FLOWS FROM S CB - UK TO BNY MELLON BUT THEN IT B NY MELLON IS ON LY A CUSTODIAN AND THE ACTUAL RECIPIENT IS SCB - INDIA BE CAUSE THE SHARES ARE HELD BY SCB - INDIA THOUGH THROUGH A CUSTOD IAN, I.E. BNY. TH E SHARES ARE HELD BY THE S CB - INDIA , AND AS THE SCB - INDI A HAS ISSUED IDRS ON THE BASIS OF THIS UNDERLYING A SSET, THE BENEFIT S OF THIS ASSET , IN THE MANNER IN WHICH THE R ELATIONSHIP B ETWEEN THE SCB - INDIA AND THE IDR HOLDERS IS GOVERNED, GO TO THE IDR HOLDERS. SO FA R AS THE INTER SE ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 8 OF 19 R ELATION SHIP BETWEEN THE SSCB - INDIA AND THE IDR HOLDERS IS CONCERNED, WE FIND THA T UN DER RU LE 12 OF CO MPANIES (ISSUANCE OF I NDIAN DEPOSITORY RECE IPTS) RULES, 2004, ON REC EIPT OF DIVIDEND OR OTHER CORPORATE ACTIONS ON THE I DRS AS SPECIFIED IN THE AGREEMEN T BETWEEN THE ISS UING COMPANY AND THE DOMESTI C DE POSITORY, THE DOMESTIC COMPANY SH ALL DISTRIBUTE THEM TO THE IDRS IN PROPORT IO N TO THEIR HOLDING OF THE IDRS . IT IS , H OWEVER, IMPORTANT TO BEAR IN MIND THE FACT THAT THE IDR H OLDERS ARE NOT THE S HARE HOLDERS A N D THEY DONOT THUS GET THESE DI VIDENDS IN THEIR RIGHT AS A SHAREHOLDER AS SUC H. T HE IDR HOLDERS ARE ENTITLED TO THE BENEFITS OF THE SHARE HOLDING RELATE D TO THE IDR, AND, TO THAT EXT ENT, THEY ARE ENTIT LED TO GET THE PROPORTI ONATE AMOUNT OF CASH DIVIDENDS , A S MUCH AS OF ANY OTHER RE CEIPTS BY T HE DEPOSITOR Y IN RESPECT OF THE EQUITY SHARES OF THE F OREIGN COM PANY , RECEIVED BY THE SCB - INDIA NET OF ANY FEES, TAX ES, DUTIES, CHA RG ES, COSTS AND EXPENSES . 8. THE QUESTION THAT A RISES FO R OU R CONSIDERATION IN THIS C O NTEXT IS AS TO WHEN IS THE AMOUNT , SO DI STRIBUT ED TO THE ID R HOLDERS ON ACCO UNT OF D IVIDEND RECE IPTS, CAN BE S AID TO BE RE CEIVED IN THE H ANDS OF THE IDR HOLDERS - AT THE PO INT OF TIME WHEN THE AMOUNT IS RECEIVED BY BNY MELLON O UTSIDE INDIA , ON BEHALF O F T H E SCB - INDIA, OR WHEN IS IT RECEIVED BY THE I DR H OLDERS IN INDIA FROM THE SCB - INDIA . T HIS QUESTION ASSU MES SIG NIFICANCE THAT THE IDR HOLDERS INCLUDE NON - RESIDENT FIIS (FOREIGN I NSTITUTIONAL INVESTORS) AND THESE IDR HOLD ERS CAN B E TAXED IN RESPECT OF THESE R E CEIPTS ONLY WHEN THE AMOUNTS IN Q UESTION ARE RE CE IVED, OR DEEMED TO BE RECEIVED, IN INDIA. LEARNED COUNSEL S LINE OF REAS ONING, AS IMPLICIT FROM HIS COMPLEX WEB OF ARGUMENTS, IS THAT SINCE THE SCB INDIA, ACTING A S A BARE TRUS TEE, HAS FIRST REC EIVED THE D I VIDENDS , THROUGH ITS UK BASED CUS TODIAN B NY - MEL LON, THE INCOME IS RECEIVED OUTSIDE I NDIA AND IS SUBSEQUENTLY TRANSFERRED TO ITS INDIAN ACCO UNT . IT CANNOT THUS BE SAID THAT THE INCO ME IS RE C EIVED IN INDIA. EL ABORATING UPON THIS PO INT, IT IS CONTENDED THAT A N INCOME WH ICH CAN BE TAXED IN THE HANDS OF THE NON - RES IDENT ASSESSEE BEFORE US, A M AURITIUS BASED FII, CAN ONLY BE BROUGHT TO TAX UNDER SECTION 5(2) ONLY SUCH INCOME AS IS RECEIVED IN INDIA OR IS DEEMED TO BE RECEIVED IN INDI A , ACCRUE OR ARISE IN INDIA O R IS DEEMED TO ACCRUE OR ARISE IN INDIA . IT IS T HEN POINTED OUT THAT THE SCB - INDIA, UNDER THE TERMS OF DEPOSITORY RECEIPTS, WAS TO ACT AS BARE TRUSTEE UNDER THE ENGLISH LAW AND THE IDR HOLDERS WILL ACCORDINGLY BE TENANTS IN C OMMON OF SUCH DEPOSITED PROP E R TY TO THE EXTENT OF THE DEPOSITED PROPERTY IS R EPRESENTED BY THE IDRS IN RESPECT OF W HIC H THEY ARE THE IDR HOLDERS (CLAUSE 7.1 O F THE DEPOSIT ORY A GREEMENT D A TED 8 TH M AY 2010; @ PAGES 8 - 88 OF THE PAPER - BOOK). AS A BARE TRUSTEE OF THE IDR HOLDER S , THE SCB - ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 9 OF 19 I NDIA HAS FIRST REC EIVED THE DIVIDENDS THROUGH N YB - MELLON, UK , AND , FOR THIS S HORT REASON , THE DIVIDENDS ARE RECEIVED OUT SIDE INDIA , WHICH CANNOT BE TAXED IN THE HA NDS OF THE NON - RESIDENT ASSESSEE BEFORE US. IT IS THEN POINTED OUT T HAT UNDER SECTION 9 (1)( I V ) A DIVIDEN D PAID BY AN INDIAN COMPANY OUTSIDE INDIA IS DEEMED TO BE AN IN COME OR ARIS ING IN INDIA BUT SINCE THE D IVIDEND IS IN RESPECT OF A UK BASED C OMPANY, THIS DEEMING FICTION DOES NOT COME INTO PLAY. ON BUSINESS CONNECTION UNDER SECTION 9(1)(I), LE A R NED COUNSEL INVIT ES OUR ATTENTION TO THE CBDT C IRCULAR # 4/2015 [F.NO. 500/17/2015 - FT&TR - IV], DATED 26 TH MARCH 2015, WHI CH STATES THAT THE DIVIDENDS PAID BY THE FOREIGN COMPAN IES, EVEN IF SUCH COMPANIES HAVE UNDERLYING ASSETS IN INDIA, CANNOT BE BROUGHT T O TAX. 9. WHAT THIS LINE OF REA S ONING, HOWE VER, OVERLOOKS IS THAT THE S HARES AR E OWNED BY THE SCB - INDIA BUT HELD BY THE BNY - MELLON ONLY AS A CUST ODIAN. T HE OWNERSHIP OF THESE SHARES BELONGS TO THE SCB - INDIA , AND NY B - MELLON HAS REC EIVED IT AS A CUSTODIAN F O R THE ASSESSEE. THE BUSINESS CO NNECTION BETWEEN THIS INCOME AND INDIA IS THU S CLEARLY EVIDENT AND BE YOND ANY DO UBT O R CONTROVERSY. SCB - INDIA IS I NDIAN DEPOSITO RY OF THE UNDERLYING SHARES IN QUESTIONS, THE IDR S, IN RESP EC T OF W HICH THESE MONIES ARE RE CEIV E D , ARE ISSUED IN INDIA BY SCB - IN DIA ; THESE IDRS ARE LIST ED IN INDIAN STOCK EXCHANGES, THE ENTIRE MANAGEMENT AND OPERATIONS OF THE DEPOSITORY IS AD MITTEDLY IN INDIA . LET US, IN THIS BACKDROP, LOOK AT SECTION 9 (1)(I) WHICH PROVIDES THAT A LL INCOMES ACC RUIN G O R ARISING, WHETHER DI REC TLY OR INDIRECTL Y , THR OUGH OR FROM ANY BUSINESS CONNECTION IN INDIA , OR THOUGH OR FROM ANY P ROPERTY IN INDIA , OR THROUGH OR FROM ANY ASSETS OR SOURCE OF IN C OME IN INDIA W ILL BE DEEM ED T O ACCRU E OR A RISE IN INDIA . THE SHARES MAY B E HELD BY AN O VERSEAS CU STODIAN BUT THESE SHARES CONSTITUTE PROPERTY OF THE I NDIAN D EPOSITORY, I.E. SCB - INDIA. IN OTHER WORDS, THE ASSETS ARE HELD BY THE SCB - INDIA AS PROPERTY OF THE SCB - INDIA, THOUGH THROUGH A CUSTODIAN ABROAD. , I.E., BNY - MELLON . THE SOU R C E OF INCOME IS EQUITY SHARES OF THE FOREIGN COM PANY AND SHARES ARE HELD BY AN I NDIAN DEPOSITORY AND CONS TITUTE ASSETS OF THE SC B - INDIA, E VEN IF A S A TRUSTEE . I T IS NOT , THEREFORE , A DIVIDEND SIMPLIC ITOR FROM A FOREIGN COMPANY. IT HAS A CLEAR , SIGNIFICANT , AND CRUCIAL BUSINESS CONNEC TION WITH INDIA . WHE N ONE TAKES A LOOK AT THE DIAGRAMS SET OUT EARLIER IN THIS OR DER , IT WOULD BE P REPOSTEROUS TO SUGGE ST THAT THE RECEIPTS IN QUESTION HAVE NO BUS INESS CO NNECTION WITH INDIA. AS FOR LEARNED COU NSEL S RELIANCE O N THE CBDT CIRCULAR # 4/2015 (SUPRA), IT IS IMPO RTANT TO BEAR IN MIND THE FACT THAT THIS CIRCULAR WAS ISSUED IN VIEW OF THE APPREHENSIONS THAT ON ACCOUNT OF EXPLANATION 5 HAVING BEEN INSERTED IN SEC TION 9(1)( I) ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 10 OF 19 AN EXTENDED APPLICATION OF THE PROVISIONS O F THE EXPLANATION MAY RESULT IN TAXATION OF DIVI DEND INCOME DECLARED BY A FOREIGN COMPANY OUTSIDE INDIA AND THAT SUCH A S ITUATION MAY CAUSE UNINTENDED DOUBLE TAXATION AND WOULD BE CONTRARY TO THE GENERALLY ACCEPTED PRINCIPLES OF SOUR CE RULE AS WELL AS T H E OBJECT AND PURPOSE OF THE AMENDMENT MADE BY TH E FINANCE ACT, 2012 . THE QUESTION OF TAXABILITY OF THESE DIVIDENDS W AS IN THE HANDS OF THE PERSON S W HO HAD NO OTHER CONNECTION, EXCEPT THE UNDERLYING A S SET OF THE RELATED COMPANIES IN INDIA, AND SUCH A SITU A T ION IS MATERIALLY DIFFERENT IN THE SENSE THAT H ERE IS A DOMESTIC DEPOSIT ORY THAT HOLDS THE I DRS WITH UNDERLYING ASSETS ABROAD, THE IDR S ARE LISTED IN INDIA AS A DERIVATIVE FINANCIAL INSTRUMENT , AND THE CENTRAL POINT OF THE INVESTMENT - RELATED ACTIVITY I S I N INDIA. SUCH A SITUATION CANNOT BE COM PARED WIT H A D IRECT SHARE HOLDING IN A FOR EIGN COMPANY, WHO HAS NO OT HER BUSINESS CONNECTION IN IN DIA EXCEPT FOR WHAT MAY BE PERCEIVED TO BE COVERED BY EXTE NDED SCOPE OF E XPLANATION 5 TO SECTIO N 9(1)(I) AND WHICH REM A I NS CONFINED TO THE COMPANY IN QUESTION HOLDING UND ERLYING ASSETS IN INDIA. IN FACT , TH E PRESENT CASE IS DIAMETRICALLY O PPOSED TO THE FACT SITUATION THAT THE CBDT INTENDED TO COVER. HERE IS A CASE IN WHICH IDRS ARE IN INDIA WITH UNDERLYING S HARES, FROM WH I C H AN I DR DERIVE S THE VALUE, ARE SITUATED AB ROAD , AND, IN ANY EVENT, IDR HOLDER IS NOT SIMPL Y A SHARE HOLDER. HE IS ENTITLED TO THE BENEFITS OF THE S HARE HOLDING BUT THE DERIVATE SECURITIES YIELDI NG HI M THESE BENEFITS IS IN INDIA, TH OUGH THESE DERIVA TIVE SECURITIES DERIV E THEIR V ALUE AND BENEFITS FROM THE UNDERLYING AS S ETS ABROAD. WHEN WE POINT ED IT OUT, LEANED COUNSEL SUBMIT TED THAT T HESE FACTS ARE MUCH BETTER THAN THE FACT S DEALT BY THE CB DT. THAT ASPECT OF THE MATERIAL I S, EVEN IF THAT BE SO, IMMATERIAL. THE CIRCULARS I S SUED UNDER SECTION 119(2) , AS THE CIRCULAR IN Q UESTION INHERENTLY IS, BIND THE FIELD AUTHORITIES ON WHAT THESE CIRCULARS HOLD, AND NOT ON WHAT COULD BE THE UNDERLYING PRI NCIPLES WH ICH COULD BE DEDUC ED FROM THESE CIRCULARS. IF A CASE DOES NOT FIT IN THE W O R DS OF THE CIRCULAR, IT IS NOT COVERED BY THE CI RCULAR. ONE CANNOT CLAIM THAT S INCE RELAX ATION FROM THE RIGOUR OF LAW IS GRANT ED IN EVEN WORSE CASES, SUCH CASES , EVEN IF THESE CASES DONOT FIT INTO THE CASES REFERRED TO BY A CIRCULAR, MUST ALSO GET THE SAM E RELA XATION FROM THE RIGOUR OF THE LAW. COMING BACK TO THE SECTION 9(1)(I), A S SHRI SANJAY SI NGH, LEARNED COMMISSIONER (DR) , APTLY PUTS IT , TH E REQUIREMENTS OF SECTION 9(1)(I) ARE CLEARLY FULFILLED. SECTION 9(1)(IV) DOES NOT START WITH A NON - OBSTANTE CLA USE O R IN ANY MANNER RESTRICTS THE S C O PE OF SECTION 9(1)(I) IN THE SENSE THAT ONLY SU CH DIVIDENDS CAN BE TAXED IN THE HANDS OF A NON - RESIDENT WHICH FUL FI L L THE REQUIREM ENTS OF SECTION 9(1)(IV ) . THE RECEIPT IN Q UESTION IS A DIVIDEND FROM A FOREIGN CO MPANY , EVEN IF T HAT IS HOW IT IS TREATED, W H I CH HAS CLEAR BUSINESS CONNECTION WITH INDIAN DO MESTIC DEPOSITORY AND ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 11 OF 19 TH I S DER IVATI VE INSTRUMENT , I.E. A FINANCIAL INSTRUMENT DERIVING ITS V ALUE FROM THE UNDERLYING ASSET, WA S CREATED IN INDIA AND LISTED ON INDIAN STOCK EXCHANGE S. IT IS TRUE THA T DIVIDEN D S FROM AN INDIAN COMPANY ARE DEEMED TO BE INCOME AC CRUING OR ARISING IN INDIA, BUT T O SUGGEST THAT SINCE DIVIDEN D INCOME CAN BE BROUGHT TO TAX IN THE HANDS OF A NON - RESIDENT ONLY IN CASE IT IS FROM DIVIDEN D FROM AN I N DIAN COMPAN Y IS FALLACIOUS IN LOGIC . J U S T BECAUSE IT IS A DIVIDEND INCOME OTHER THAN TH AT FROM AN INDIAN COMPANY , WHICH CANNOT BE TAXED IN SECTI ON 9(1)(IV), IT CANNOT ESCAPE THE RIGOUR OF SECTION 9(1)( I). VI EWED THUS, THE RECEIPT OF D IV IDEN DS FROM THE SCB - UK BY THE A SSESSEE, IF THAT IS HOW I T C A N BE TREATED, IS A N INCOME DEEMED TO BE ACCRUIN G O R A RISING IN INDIA . LET US SEE IT FROM A D IFFERENT PERS PECTIVE AS WELL . IT WOULD , HOWEVER, APP EAR THAT WHAT IS RECEIVED BY T HE ASSESSEE IS THE NET DIVIDEND AMOUNT AS DECLARED BY THE INDIAN DEPOSITORY AND N OT THE DIVIDEND OF THE FOREIGN COMPANY. THE DIV IDEN D DECLARED BY THE IN DIAN DEPOSITORY C OULD BE , AND IS INDEED IS, ON THE BASIS OF THE DIVIDEN D DECLARED BY THE S CB - UK BUT THEN WHAT THE ASSESSEE IS ENTITLED TO ARE THE BENEFITS FL OWING FROM THE SHAREHOLDIN G S IN SCB - UK AS AN UNDERLYING ASSET OF THE IDRS . WHAT IS RIGHT FULLY DUE TO THE ASSESSEE IN INCOME CHAR ACTER IS THE NET AMOUNT RE CEI VED FROM THE INDIAN DEPOSITORY AND NOT THE DIVIDEND SIM PLICTOR AS DECLA RED BY THE SCB - UK. THE INCOM E , THEREFORE , ACCRUES TO T H E IDR HOLDER AT THE POINT OF TIME WHEN THE INDIA N DEPOSI TORY WORKS OUT T HE A MOUNT PAYABLE TO IDR HOLDERS AN D THEN PAYS I T ACCORDINGLY. VIEWED THUS, THE POINT OF TIME WHEN INCOME ACCR UES TO THE I DR HOLDER IS WHEN THE I NDIAN DEPOSITORY DECLARES THE OUT GO AN D IS RECEIVED WHEN THE INDIAN DEPOSITORY PAYS THE MONEY. IN SUCH A SITUATION, SO FAR AS THE IDR HOLDER IS CONCERNED, THE AMOUNT IN QUESTION I S RECEIVED IN INDIA IN REALITY AND IN LAW. T HERE IS ONE MORE ARGUMENT OF THE ASSESSEE THAT IS REQUIRED TO BE DEALT W ITH. LEARNED COUNSEL HAS REPEATEDLY HIGHLIGH TED THE PO SITION THAT THE INDIAN DEPOSITORY IS A BARE T RUSTEE IN THE EN GLISH LAW AND A TENANT IN COMMON IN RESPECT OF THE SHARES REPRESENTED BY THE ID R S HELD BY THE IDR HO L DER . IT IS ON THIS BA SIS THAT HE HAS C ONTENDED THAT WHATEVER THE INDIAN DEPOSITORY RE CEI V ES IS AS TRUSTEE OF THE IDR HOLDERS AND THE RECEI PT IN THE HANDS OF THE IDR HOLDERS IS THE RECEIPT WHEN , AS THEIR TR USTEE, INDIAN DEPOSITORY RECE IVES THE MONEY ABOARD , I.E. THOUGH ITS CUSTODIAN NYB - MELL O N . HOWEVER, NO ARGUMENTS ARE ADVANCED ON THE PREC ISE SC O PE OF THE EXPRE SSIONS BARE TRUSTEES AND TENANTS IN COM MON , PARTICULARLY UNDER THE EN GLIS H LAW. WHAT EVER BE THE TERMINOL OGY EMPLOYED IN THE AGREEMENTS, TH ERE CANNOT B E ANY , A ND THERE IS NO, DISPUTE T HAT OWNERSHIP OF THE EQUITY SHARES IN SCB - UK IS WITH SCB - INDIA, THE INDIAN DE POSITORY, AND THAT THE DIVIDEND INCOME IS R ECEIVED BY SCB - INDIA, THROUGH ITS CUSTODIAN BNY MELLO N. IF BNY ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 12 OF 19 MELLON , WITHOUT A BU SINESS CONNECTION IN INDIA, WAS TO BE BARE TRUSTEE S OF THE IDR HOLDERS, MAYBE ONE COULD HAVE ARGUED T HAT THE DIVIDENDS ARE RECEIVED AS INCOME OUTSIDE INDIA , AND NOT TAXABLE AS SUCH . T HAT IS , HOWEVER, NOT THE CASE BEFORE US. WHATEVER MAY BE PHYSICAL FLOW OF FUNDS I.E. VI A FOREIGN CU STO D IAN UNDE R INS TRUCTI O N S FROM THE INDIAN DEPOSIT ORY , IT IS CLEARLY EVI DENT FROM THE CHART SET OUT BELOW PARAGRAPH 6 EARLIER IN THIS ORDER, T HE CONSTRUCTIVE FLOW OF DIVIDENDS IS FROM THE UK B ASED COMPANY TO THE INDIAN DEPOSITORY . LEARNED COUNSEL HAS ALSO PLEADED THAT THE INCOME I N QUESTION CANNOT B E CONSIDERED TO BE DEEMED TO BE RECEIVED IN INDI A BECAUSE THE REQ UIREMENTS OF SECTION 7, WHICH DEFINES THE EXPRESSION INCOME DEEMED TO BE RECEIVED ARE NOT SATISFIED . THIS PLEA PROCEEDS ON THE FALLACY THAT THE EXPRESSION INCOME DEEME D TO BE RECE IVED IN INDIA I N SUCH YEAR BY OR ON B E HALF OF SUCH PERSON (I.E. NON - RES I D ENT) A PPEARING IN SECTION 5(2)(A) WILL BE GOVERNED BY THE DEFINITION ASSIGNED TO EXPRESSION INCOMES DEEMED TO BE RECEIVED IN A PREVIOUS YEAR APP EARING IN SECTION 7 WHIC H DEALS WITH THE TIMIN G , RATHER THE FA C TUM, OF AN INCOME , AN D IS RELEVANT ON LY FOR THE SALA RIES EMPLOYEES AS IT COVERS ONLY THREE ITEM S NAMELY - (I ) THE ANNUAL ACCRETION IN THE PREVIOUS YEAR TO THE BALANCE AT THE CREDIT OF AN EMPLOYE E PARTICIPATING IN A REC O G NISED PROVIDENT FUND, TO THE EXTENT PROVIDED IN RULE 6 OF PART A OF THE FOURTH SCHEDULE ; (II ) THE TRAN SFERRED BALANCE IN A RECOGNISED PROVIDENT FUND, TO THE EXTENT PROVIDED IN SUB - RULE (4) OF RULE 11 OF PART A OF THE FOURTH SCHED ULE ; AND (III) THE CONT R I BUTION MADE, BY THE CENTRAL GOVERNMENT OR ANY O THER EMPLOYER IN THE PREVIOUS YEAR, TO THE ACCOUNT OF AN EMPLOYEE UNDER A PENSION SCHEME REFERRED TO IN SECTION 80CCD. NONE OF THESE ITEMS HA VE ANYTHING T O DO WITH ANY SITUATION OTHER THAN A SITUATI ON BECOMI N G RELEVANT FOR A N EMPLOYEE , WHICH IS NOT THE C AS E. ALL THAT THIS PROVISION DEALS WITH IS AS TO WHEN T HE INCOME IS DEEMED TO BE RECEIVED , EVE N THOUGH THERE IS NO ACTUAL RECE IPT IN THE RELEVANT PREVIOUS YEAR, AND NOT WITH WHETHER AN INCOME I S DEEMED TO BE R E C EIVED BY , OR ON BEHALF OF , SUCH A PERSON - RE FER RING TO A NON - RES IDENT. IF THE INTERPRETATION CANVASSED BY THE LEARNED COU NSEL IS TO BE ACCEPT ED, SECTION 5(2 )(A ) WILL BECOM E MEANINGLESS, SO FAR AS DEEMING FICTION OF RECEIPT IS CONC ER NED, FOR PERSONS OTHER T HA N THE INDIVIDUALS HOLDING SALA RIE D EMPLOYMENT S IN IN INDIA BUT THEN, BECAUSE OF THEIR PRESENCE ON ACCOUNT OF EMPLOYMENT, SUCH PERSONS WILL BE RE SIDENTS IN INDIA UNDER SECTION 6(1 )(A) ANYWAY . THAT IS AN INCONGRUOUS POSITION . THE LAW IS BEING INTERPRETED I N A MANNE R SO AS TO MAKE IT REDUNDANT. IT IS ONLY ELEMENTARY THAT LAW IS TO BE INTERPRETED IN A MANNER SO AS TO MAKE IT WORKABLE RATHER THAN REDUNDANT ( UT RES MAGIS VALEAT QUAM PEREAT ) AND ANY INTERPRET ATION LEADING TO A BSURDITIES IS TO BE A VOIDED. FOR T HIS SHORT REASON ALON E, T H I S ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 13 OF 19 HYP ER PEDANTIC PLE A OF THE ASSESSEE CANNOT MEET ANY JUDICIAL APPRO VAL . IN ANY EVENT, THIS INT ERPRETATION IS INCO RRECT FOR THE SIMPLE REASO N, AS WE HAVE NOTED E ARLIER, THAT SECTION 7 DEFINES INCOME DEEMED TO BE RECEIVED IN A P R EVIOUS YEAR WHEREAS THE EXPRESSION REQUIRED TO BE INTERPRETED , IN THE CONTEXT OF SECTION 5(2 )( A), IS INCOME DE EMED TO RE CEI VED IN INDIA BY OR ON BEHALF OF SUCH A PERSON ( I.E. NON - RESIDENT) . THE PAYMENT TO THE FOREIGN CUSTODIAN WAS FO R, AND ON BE HALF O F, THE INDIAN DEPOSITORY . WHEN THIS PROPOSITION WAS P UT TO THE LEARNED COUNSEL , IN THE COU RSE OF H EARING, HE SUBMITTED THAT A DE E M ING FICT ION IS TO BE STRICTLY CONSTRU ED. I F A SITUATION DOES NOT MEET THE SITUATION ENVISA GED IN THE DEEMING FICTION, IT CAN N O T BE BROUGHT INTO THE SCOPE OF DEEMING FICTION BY A LIBERAL INTERPRETATION THEREOF. THIS PLEA IS SIMPLY INCORRECT . THE DEEMING FICTION ENVISAGED IN SECTION 5 , AT THE COST OF REP ETI TION, FOR THE S C O PE OF INCOME DEEMED TO BE RECE IVED IN INDIA I N SUCH YEAR B Y OR ON BE HALF OF SUCH PERSON (I.E. NON - RES I D EN T) IS IRRELEVANT SO FAR AS THE SCOPE OF INCOMES DEEMED TO BE RECEIVED IN A PREVIOUS YEAR IS CONCERNED . THE FOR MER DEAL S WITH SITUS OF AN INCOME AND THE LATTER , AS THE SCOPE OF SECTION 7 WOUL D CLEARLY DEMO N S TRATE, DEALS WITH THE TIM ING OF AN INCOME . TH E SUBMISSIONS OF THE LEARNED COUNSEL, ON THIS PO INT AS WELL, DONOT APPEAL TO US. IN VIEW OF THESE DISCU SSIONS, IT IS QUITE CLEAR THAT THE DIVIDEND INCO ME , IN THE HANDS OF THE ASSESSEE, IS RECEIVED IN INDIA, A N D IS DEEMED TO ACCRUE OR ARIS E IN INDIA . THE AU THORITIES BELOW, THERE FORE, CANNOT BE HELD TO BE IN ERROR IN HO LDING THAT T HE MONIES RECEIVED BY THE ASSESSE E FROM THE INDIAN DEPOSITORY , IN RESPECT OF THE DIVIDENDS PAID BY THE SCB - UK AS ATTRIBUTABLE TO THE I DR S HELD BY THE ASSESSEE , W E RE TAXA BLE IN INDIA . WE CONFIRM THE ACTION OF THE AUTHO R IT IES BELOW ON THIS POINT AND DECLINE TO INTERFERE IN THE MATTER. 10. L EARNE D COUNSEL S ARMO U RY , HOWEVER , IS NOT EXHAUSTED . HE SEEKS TREATY PROTECTION UND ER THE IND O - MA U R IT IUS TAX TREATY . IT IS HIS SUBMISSION THAT THE ASSESSEE IS ADMITTEDLY A RESIDENT OF MAURITIUS IN TERMS OF ARTICLE 4(1) OF THE TREATY, THAT THE TRC IS ALSO PLACED ON RECORD, AND THAT ARTICLE 10 COMES INTO PLAY ONLY WHEN A RESIDENT OF ONE OF THE CONTRACTI N G STAT ES, I.E . , RESIDENTS OF INDIA OR MAURIT IUS, PAYS A DIVIDEND TO THE RESIDENT OF THE OTH ER CONTRACTION STATE, I.E. , MAURITIUS O R INDIA , BUT THEN SINCE SCB - INDIA IS ON LY AN IND IAN BRANCH OFFICE , I.E. , PERMANENT ESTABLISHMENT , OF A UK TAX RES IDENT, TH ESE R EQUIREMENTS OF ARTICLE 10 IS NOT FU LFILLED. IT IS A PAYMENT BY A UK RESIDENT TO A MA URITI US RE S IDENT WH O IS NOT COVERED BY THE SCOPE OF AR TICLE 10. HE CONTENDS THAT SINCE THE INCOME IN QUESTION CANNOT BE TREATED AS A ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 14 OF 19 DIVIDEND AS IT DOES NOT FU LFI L L THE R E Q UIREMENTS OF ARTICLE 10 OF THE INDO - MAURIT IUS T AX TREATY , IT FALLS IN THE RES IDUARY HEAD OF OT HER I N COM E AS COVERED BY ARTICLE 22 OF SAID TREATY AND SUC H AN INCOME CAN ONLY BE TAX ED IN THE RESIDENCE JURISDICTION I.E. , MAUR ITIUS. IT IS THEN POINTED OUT T H AT THE DISPUTE RES OLUTION PANEL HAS HELD THAT T HE AMOUNT IN QUESTION IS TAX ABLE U NDER ART ICLE 10 OF THE INDO - MA URITI US TAX TREATY, AND TH I S FINDING IS INC ORRECT. WITHOUT PREJUDICE T O THIS LINE OF ARGUMENT , LEARNED COUNSEL CONTENDS THAT IN ANY EVENT , THE R A TE AT WHICH DIVIDENDS CAN BE TAX ED UNDER ARTICL E 10 IS ONLY 10% WHEREAS IN T H E PRESENT CASE, TAXABIL ITY HAS BEEN UPHE LD UNDER THE DOMESTIC LAW @20% P LUS SURCHARGE AND OTHER APPLICA BL E CES SE S . 11. THE P LEA OF THE ASSESSEE IS INDEED WELL TAKEN . AS ARTI C L E 1 OF THE IN DO MAURITIUS TAX TREATY PRO V IDES , (T) HIS CONVENTION SHALL APPLY TO PERSONS WHO ARE RESIDENT S OF ONE OR BOTH OF THE CONTRACTING STATES . ARTICLE 4(1 ) OF INDO - MAURITIUS TAX TREATY DEFINES RESIDENT OF A C ONTRACTING STATE BY PROVI DING THAT (F) O R THE PURPOSES OF THIS CONVENTION, THE TERM 'RES IDENT OF A CONTRACTING STATE' MEANS ANY PERSON WHO, UNDER THE LAWS OF THAT STATE, IS LIABLE TO TAXATION THEREIN BY REASON OF HIS DOMICILE, RESIDENCE, PLACE OF MANAGEMENT OR ANY OTHER CRITERION OF SIMILAR NAT U R E . THERE IS NO DISPUTE THAT THE ASSESSEE BEFOR E US IS A COMPANY INC ORPORATED IN, AND FISCALLY DOMICILED IN, MAURITIUS. THE TAX R E SIDENCY CERTIFICATE FILED BY THE ASSESSEE COMPANY IS PLACED ON RECORD. THE TREATY ENTITLEMENT OF THE ASSESSEE IS NOT IN DOUB T . WHAT THE TREATY PROTECT S IS, IN TERMS OF THE PRO VISIONS OF ARTICLE 2 IS , S O FAR AS INDIA IS CONCERNED, T HE EXISTING TAXES TO WHICH THIS CONVENTION SHALL APPLY ARE : (A) IN THE CASE OF INDIA, (I) THE INCOME - TAX INCLUDING ANY SURCHARGE THEREON IMPOSED UN D E R THE INCOME - TAX ACT , 1961 (43 OF 1961) ; (II) T HE SURTAX IMPOSED UNDER THE COMPANIES (PROFITS) SURTAX ACT , 1964 (7 OF 1964) . IT IS THUS THE FACT OF TH ESE TAX LEVIES IN INDIA WHICH ARE SOUGHT TO BE PROTECTED BY THE TREATY. AS TO WHO MADE THE PAYMENT OF I N C OME IN QUESTION , I.E. , A RESID ENT OF THE OTHER CONTRACTING STATE OR ANY OTHER PE RSON, IS NOT RELEV ANT SO F A R AS TREATY PROTECTION IS CONCERNED . WHAT ESSENTIALLY FOLLOWS IS THAT W HEN THE PERSON MAKING T H E PAYMENT OF INCOME IN QUESTION IS NOT A RESIDENT OF O NE OF THE C ONTR ACTING STATES AND YET SUCH AN IN COME HAS TAX IM PLICATION IN ONE OF THE C ONTRACTING STATES , THE PERSON RESIDE NT IN THE OTHER CONTRACTING STATE WILL NEVER THELESS , THEREFORE, HAVE TR EATY PROTECTION IN TH E C ONTRACTING STATE WHERE THAT INCOME I S BEING SUBJECTED TO THE TAXES PROTECTED B Y THE T REATY. WHAT IS THUS RELEVANT IS THE FACT OF TAXATION IN THE OTHER C ONTRACTING STATE . ONCE THE ELIGIBILITY FOR TREATY ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 15 OF 19 PROTECTION IS ESTABLISHED, THE NEXT THING IS WHAT IS THE TREATMENT ENVISAGED TO THAT NA T U RE OF INCOME UNDER THE TAX TREATY. LET US, I N T HIS BACKDROP, TAKE A LOOK AT THE PROVISIONS OF A RTICLE 10 (1) O F THE IN DO - MAU RIT I US TAX TREATY , WHICH PRO VIDE S THAT (D) IVIDENDS PAID BY A COMPANY WHICH IS A RESIDENT OF A CONTRACTING STATE TO A RESIDENT OF T H E OTHER CONTRACTING STATE MAY BE TAXED IN THAT O THER STATE . CLEARL Y, THEREFORE, FACT O F DIVIDEND BEING PAID B Y A COMPANY WHICH IS RESIDENT OF A C ONTRAC TING STATE TO THE RESIDENT OF THE OT HER C ONTR ACTING STATE IS A SINE QUA NON FOR APPLI CATION OF ARTICL E 10 , W HICH D EALS WITH TAXABILITY OF DIV IDENDS UN DER THE INDO - MAURI TIUS TAX TREATY. GIVEN THE FACTS OF THIS CAS E , WHICH WE HA VE DISCUSSED EARLIER IN THIS ORDER, THE DIVID ENDS CAN BE TREATE D AS HAVING BEEN PAID EITHER BY THE SCB - UK ITS ELF OR BY THE SCB - IN D I A. WHICH EVER W AY ONE LOOKS AT IT, N ONE OF THESE PA YMENTS CAN BE TREAT E D AS BY A N INDIAN RESIDENT, I.E. ONE OF T HE CONTRACTING STATES. WHE T HER WE TREAT THE PERSON MAKING THE PAY MENT TO THE ASSESSEE AS SCB - UK OR AS SCB - INDIA, THE FACT R EMAINS THAT NONE OF T H EM IS A RESIDENT IN INDIA - WHILE FORMER IS A CO MPANY INCORPORATED IN, AND FISCALLY DOM ICILED IN, THE UNITED KIN GDOM , THE LATTER IS AN INDIAN BRANCH OFFICE, AND PERMANENT ESTABLISHMENT, OF A COMPANY , INCORPORATED OR FISCALLY DOMICILED IN INDIA. NO NE OF TH E S E ENTIT IES, I.E. , THE FOREI GN COMPANY OR THE IN DIAN DEPOSITO RY, CAN THUS BE TREATED AS RESIDENTS OF A C ONTRACTING S TATE FOR THE PURPOSE OF THE INDO - MAURITIUS TAX TREATY. T HE DIVIDEND INCOME IN QUESTION , THEREFORE , CANNOT BE BR OUGH T T O TAX IN I NDIA UND E R ARTICLE 10 OF THE TREATY . THERE IS NO OTHER SP ECIFIC ARTICLE OF THE INDO - MAU RITI US TAX TREATY UNDER WHICH THIS DIV IDEND INCOME CAN BE TAXED. THAT CARRI ES IT TO THE RESIDUARY HEAD, I.E. , ARTI C LE 22, WHICH PROVIDES AS FOLLOWS: ARTICLE 22 - OTHER INCOME 1. SUBJECT TO THE PROVISIONS OF PARAGRAPH (2) O F THIS ARTICLE, ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING STATE, WHER EVER ARISING, WHICH ARE NOT EXPRESSLY DEALT WITH IN THE FOREGOING ARTICLES OF THIS CONVENTION, SHALL BE TAXABLE ONLY IN THAT CONTRACT I N G STATE. 2. THE PROVISIONS OF PARAGRAPH (1) SH ALL NOT APPLY TO INCOME, OTHER THAN INCOME FROM IMMOVABLE PROPERTY AS DEFINED IN PARAGRAPH (2) OF ARTICLE 6, IF THE RECIPIENT OF SUCH INCOME, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN T H E OTHER ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 16 OF 19 CON TRACTING STATE THROUGH A PERMANENT ES TABLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERS ONAL SERVICES FROM A FIXED BASE SITUATED THEREIN AND THE RIGHT OR PROPERTY IN RESPECT OF WHICH THE INCOME IS PAID IS EFFECTIVELY C O NNECTED WI TH SUCH PERMANENT ESTABLISHMENT OR FI XED BASE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. * (3) NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 AND 2, ITEMS OF INCOME OF A RESIDENT OF A CONTRACTING S T ATE NOT D EALT WITH IN THE FOREGOING ARTICLES OF CONVENTION AND ARISING IN THE OTHER CONTRACTING STATE MAY ALSO BE TAXED IN TH AT OTHER STATE. [* INSERTED BY THE NOTIFICATION NO. SO 2680( E) {NO.68/2016 (F.NO.500/3/2012 - FTD - II){, DATED 10 - 8 - 2016, W.E.F. 1 - 4 - 2017 ] 12. WHAT IS CLEARL Y DISCERNABLE FROM TH E A BOVE PRO VISION IS THAT TILL 1 ST APRIL 2017, THE RESIDUARY INCOME, WHICH W AS NOT SPECIFICALLY C OVERED BY ANY OF THE SPECIFIC TREATY PROVISIONS AND NO T COVERED BY THE EXCLUSION CLAUSE IN ART ICLE 22(2), COUL D ONLY B E TAXED IN THE RESIDENCE JURISDICTION TO THE EXCLUSION OF THE POWERS OF THE S OURCE JURISDI CTION TO TAX THE SAME. ONCE WE COME T O THE CONCLUSION THAT THE INCOME I N QUESTION, I.E. , DI VIDEND INCOME FROM THE I DRS, IS NO T COVERED BY ANY OF THE SPE CIFIC P R OVIS IONS OF THE INDO - MAURITI US TAX TR EATY, IS N OT COVERED BY THE E XCLUSION CLAUSE IN ARTICLE 22(2) , AND IT PERTAINS TO THE PERI OD PR IOR TO 1 ST APRIL 2017, IT IS A COROLLARY TO TH ESE FINDINGS THAT THE SAID INCOME CAN NOT BE TA XED IN THE SOURCE JURISDI CTION , I.E. INDIA, EITHER. WE, THEREF ORE, UPHOLD TH E P LEA OF THE ASSESSEE TH AT THE IRD DIVIDENDS IN QUESTION CANNOT BE TAXED IN INDIA IN THE HANDS OF TH E ASSESSEE ON THE FACTS OF TH IS CASE. 13. AS WE HOLD SO, WE MAY ALSO BR IEFLY DEAL WITH TH E REASONING ADOPT E D BY THE D ISPUTE RESOLUTION PANEL IN REJECT ING T H E AFORESAID PLEA OF THE ASSESSEE. THE RELEVANT OBSERV ATIONS OF THE DRP ARE AS FO LLOWS: IT IS NOTED THAT THE STANDARD CHARTERED BANK MUMBAI, WHICH IS ASSESSED TO TAX IN INDIA ON AC COUNT OF P L ACE OF MANAGE M E NT , IS THE DOMESTIC DEPOSITORY WHICH HAS ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 17 OF 19 MADE T HE PAYMENT OF DIVIDED TO THE ASSESSEE COMPANY . IT IS NOTED THE COMPANY MAKING THE DISTRIBUTION OF THE DIVIDEND INCOME, IS A RESIDENT OF INDIA FOR THE PURPOSE OF THE DEFINITION OF DIVIDEND UNDER ARTICLE 10 OF T HE INDIA MAURITIUS DTAA 14. THE REASONING G IVEN BY THE DRP IS EX FACIE I NCORRECT INASMUCH AS THE SCB - INDIA , BEING A PERMANENT ESTA BLISHMENT OF A COMPANY F ISCALLY DOMIC ILED IN THE UNIT E D KINGDOM, AND IS NOT A TAXABLE UNIT IN INDIA , AND THE TAXABILITY I S IN THE NAME OF ITS GENERAL ENTERPRISE - I.E U K BASED COMP ANY, THOUGH ONLY IN RESPECT OF ITS PROF ITS ATTRIBUTABLE TO THE P ERMANE NT E STABLISHMENT . THE UNIT OF TAXABILITY IS NOT SCB - INDIA, I.E. PE OF THE UK - BASED FOREIGN COMPANY , BUT THE F OR EIGN COMPANY IT S E LF , AND THE PLACE OF MANAGE MENT OF THE UK - BASED COMPANY IS OBVIOUSLY UNITED KINGDOM. AS OBSERVED BY HON BLE SU PREME COURT , IN T HE C ASE OF CIT VS HYUNDAI HEAVY IND USTRIES LTD [(2007) 291 ITR 482 (SC)] , IT IS CLEAR THAT UNDER THE ACT, A TAXABLE UNIT IS A F O REIGN COMPANY AND NOT ITS BRANCH OR PE IN INDIA . CLEA RLY, THEREFORE, THE OBS ER VAT I ONS OF THE DRP SO FAR AS THE BASIS OF TAXABILIT Y, I.E. ASSESSED TO TAX ON ACCOUNT OF PLACE OF MANAGEMENT IS IN CORRECT. 15. SHRI SINGH, LEARNED COMMISSIONER (DR) , HOW E V ER, SEE KS TO JUSTIFY THE STAN D SO TAKEN BY THE DISPUTE RESOLUTION PANEL ON THE GROUND THAT UNDER RULE 3(I)(B) A DEPOSITORY HAS TO BE A DEPOSITORY AS DEFINED UNDER SECTION 2(1) (E) OF THE DEPOSITORIES ACT 1996, WH ICH IN TURN DEFINES DEPOSITORY AS A C OMPAN Y FORMED AND REGISTERED UNDER THE COMPANIES ACT, 1956 (1 OF 1956) AND WHICH HAS BEEN GRANTED A CERTIFICATE OF REGISTRATION UNDER SUB - SECTION (1A) OF SECTION 12 OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (15 OF 1992) . IT IS THUS CONTENDED THAT S IN CE ONLY A DOMES T IC COMPANY CAN BE A DEPOSITOR Y, THE DEPOSITORY IS R EQUIRED TO BE TREATED AS A DO MESTIC COM PANY. H E THEN A LSO POINTS OUT THAT THERE ARE A NUMBER OF ENTITIES IN THE STANDARD CHARTERED BAN K GROUP , AND ONE DOES NOT KNOW WH ICH IS THE ENTITY R E PRESENTED BY THE SCB - INDIA. HE ALSO POINTS OUT THAT IT I S A CASE OF TR IPLE NON - TAXATION INASMUCH AS HERE IS A COMPANY W HI CH IS O WNED BY A US - BASED BUSINESS HOUSE, IT FOR MS A SUBSIDIARY IN MAU RITIUS, HOLDS THE S HARES IN A UK COMPANY THROUGH AN I N DIAN DE PO S I T ORY, AND IT DOES NOT PAY TAXES AT ANY OF THESE PLAC ES OF OPERATIONS . HE SUBM ITS THAT ITS A BLATANT CASE OF TREATY A BUSE THAT M UST BE DISCOURAGED. ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 18 OF 19 16. W E FIND THAT IT IS AN ADMITTED POSITION ALL ALONG THAT SCB - INDIA IS A BRANCH OFFICE OF STANDARD CHAR T E RED BANK UK, AND THER E IS NO MATERIAL BEFORE U S T O DISLODGE THIS POSITION . BECAUSE A DEPOSITORY MUST O NL Y BE AN I NDIAN COMPANY UNDER THE LAW , EVEN I F THAT BE SO, DOES NOT MEAN THAT EVEN WHE N A DOMESTIC DEPOSITORY IS A DMITTEDLY BRANCH OF A FOREIGN COMPANY , IT MUST BE TREATED AS AN INDIAN COMPA NY. T HE AP PROVAL BY THE SEBI TO SCB - I N DIA , BEING A DOME STIC DEPOSITORY FOR THE ISSUANCE OF IDRS REP RESENT ING E QUITY S HARES IN SCB - UK IS A REALITY; WE CANNOT WISH IT AWAY , AND WE MUST INTERPRET THE TAX LIABILITY IN THE L IGHT OF THIS REALITY . EVEN T ODAY, THERE IS NOTH ING MORE THAN A SUSPICION LURKING IN THE MIND OF THE LEA R NED C OMMISSIONER (DR) THAT THE SCB - INDIA COULD BE A C OMPANY INCORPORATED IN INDIA . IF THE APPROVAL GIVEN BY THE SEBI TO THE INDIAN DEPOSITORY IS GIVEN W RONGLY, THAT IS SOMETHING WHICH HAS NO BEA RING ON THE ISSUE THAT WE ARE DEAL ING W ITH , AND THAT IS TAX IMPLICATIONS FLOWING FROM DISTRIBUTION OF DIVIDEND BY THE DOMESTIC DEPOSITORY. THAT APART, LEARNED COUNSEL HAS ALSO POINTED OUT THAT THE EXPRESSION DEP O S ITORY AND DOME STIC DEPOSIT OR Y ARE EXPRESSION S WITH DISTINCT CONNOTATIONS AND THE REQUIRE MENTS OF DEPOSITORY CANNOT BE READ INTO THE REQUI REMENTS OF D OMESTIC DEPOSITORY . AS LEARNE D COUNSEL RIGHTLY POINTS OUT, THE EXPRE SSION DOME STIC DEPOSITORY I S DEF INED, UNDER RULE 3(I) (C) OF THE COMPANIES (I SSUE OF INDIAN DEP OSITORY RU LES, 2004), AS CUSTODIAN OF SECURITIES REGISTERED WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA, HEREINAFTER REFERRED TO AS SEBI AND AUTHORISED BY THE ISSUING COMPANY TO ISSUE I N DIAN DEPOSITORY RECEIPTS . TH E OBJECTION RAISED BY THE LEA RNED DEPARTMENTAL REPRESENTATIVE IS THUS DE VOID OF LEGALL Y SUST AINABLE MERITS. 17. AS REGARDS THE SUBMISSIONS ABOUT UNINTENDED BENEFIT TO THE ASSESSEE, FROM AN OVERALL GLOBAL PERSPECTI VE, WE AR E NOT REALLY CONCERNED WITH SUCH A QUESTION AT TH IS STAGE. ALL WE HAVE TO EXAMINE IS WHETHER THE IMPUGNED INCOME TAXABLE IN IN DIA IS TR EATY - PROTECTED IN THE HANDS OF TH IS ASSESSEE OR NOT, AND , SO FAR AS THIS Q UESTION IS CONCERNED, FOR THE DETAILED REASONS S E T OUT ABOVE, OUR ANSWER IS IN AFFIRMATIVE. THE INCOME IN QUESTION IS TREATY - PROTECTED INASMUCH AS IT CANNOT BE TAXED IN THE HANDS OF THE ASSESSEE, IN INDIA, BY VIRTUE OF ARTICLE 22(1) OF THE INDO MAURITI US TAX TREATY. IN VIEW OF THE ABOVE DISCUSSIONS, TH E REASONING ADOPTED BY THE DISPUTE RESOLUTION CAN NOT MEET OUR JUDICIAL APPROVAL. WE REJECT TH E STAND OF THE DRP AS DEVOID OF LEGALLY SUSTAINA BLE MERITS. ITA NO.: 7388/MUM/ 19 ASSESSMENT YEAR: 2015 - 16 PAGE 19 OF 19 18 . AS THE TAXABILITY OF THE IDR DI VIDE N DS FAILS , IN TERMS OF THE PRO VISIONS OF THE APPLICA BLE TAX TREA T Y , I.E. , INDO - MAURITIUS TAX T REATY, AND AS THE P ROVISIONS OF THE APPLICABLE TAX TREATY , BEING MORE BENEFICIAL TO THE ASS ESSEE , O VERRIDE THE P ROVISI ONS OF THE DOMESTIC LAW , THE TAXABILITY OF THE DIVIDENDS ON THE IDR S FAILS. THE ADD ITION OF RS 9 ,74, 66 ,600, B E ING IDR DIVIDEND RECEIVED FROM SCB - IN D IA , THUS STAN DS DELET ED. IT MUST , HOWEVER, BE CLA RIFIED THAT RE LEVANT TREATY PRO VISION OF ARTICLE 22 HAVING BEEN SUBJECTED TO SIGNI FI CANT CHANGE BY INSERTION OF SUB - ARTICLE (3) THERETO, THI S DECISION ON TREATY PR OTEC T I ON WILL HOLD G OOD ONLY FOR THE PRE - AMENDMENT PE RIOD I.E. , PRE - 1 ST APRIL 2017. 19 . IN THE RESUL T, THE APPEAL IS ALLOWED IN THE TER MS INDICATED ABOVE. P RONO UNCED IN THE OPEN COURT T ODAY ON THE 28 TH DAY OF MAY, 2021. SD/XX SD/XX VIKAS A W ASTHY PRAMOD KUMAR ( JUDICIAL MEMB ER ) (VICE PRES IDENT) MUMBAI, DATE D THE 28 TH DAY OF MAY , 2021 COPIES TO: (1) T HE APPELLANT (2) THE RESPONDENT (3 ) CI T (4) CIT(A) (5) DR (6) GUARD FILE B Y ORDER TRUE C OPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBA I BENCHES, MUMBA I