DDIT (IT) 1(2), MUMBAI V. DEUTSCHE BANK A G, MUMBAI

ITA 7591/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9308 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 06-12-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 03-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Non-deduction of tax

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI L BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI B RAMAKOTAIAH, AM & SHRI VIJAY PAL RA O, JM ITA NO. 7591/MUM/2010 (ASST YEAR 2005-06) & CROSS OBJECTION NO.120/MUM/2012 THE DY DIRECTOR OF INCOME TAX(IT) 1(2), MUMBAI VS DEUTSCHE BANK AG FLOOR 3 NIRLON KNOWLEDGE PARK BLOCK 1 WESTERN EXPRESS HIGHWAY GOREGAON EAST MUMBAI 63 (APPELLANT/RESPONDENT ) (RESPONDENT/CROSS OBJECTOR ) PAN NO. AAACD1390F ASSESSEE BY SH NISHANT THAKKER REVENUE BY SH NARENDER KUMAR DT.OF HEARING 6 TH DEC 2012 DT OF PRONOUNCEMENT 12 DEC 2012 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 11.8.2010 OF THE C OMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEAR 2005-06. ITA NO. 7591/MUM/2010 ( BY THE REVENUE) 2 THE REVENUE HAS RAISED THE FOLLOWING GROUND IN TH IS APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT(A) ERRED IN DIRECTING TO DELETE THE INTEREST CHARGE U/S 2 01(1A) OF THE ACT OF ` 7,15,78,426/- FOR FAILURE TO DEDUCT TAXES OF ` 11,49,01,286/- ON FOREIGN EXCHANGE GAIN OF RS. 27,47,52,000/- WHICH ARE CHARGE ABLE TO TAX IN INDIA. 2.1 THE ASSESSEE HAS REMITTED A SUM OF ` 27,47,52,000/- TO D B INTERNATIONAL (ASIA) LTD (DBIAL) ON ACCOUNT OF GAIN ON ROLLOVER/CANCELLA TION OF FORWARD COVER CONTRACTS(FCC). THE DBIAL IS A TAX RESIDENT OF SIN GAPORE AND IS REGISTERED AS A FOREIGN INSTITUTIONAL INVESTOR (FII) WITH THE SECUR ITIES AND EXCHANGE BOARD OF INDIA . SINCE THE ASSESSEE HAD NOT DEDUCTED THE TAX AT SOR UCE WHILE REMITTING THE SAID ITA NO 7591/M/2010 DEUTSCHE BANK AG . 2 AMOUNT TO DBIAL, THE ASSESSING OFFICER (THE DY DIR ECTOR OF INCOME TAX (INTERNATIONAL TAXATION) HAS PASSED AN ORDER U/S 201 AND 201(1A) OF THE I T ACT THEREBY LEVYING INTEREST U/S 201(1A) OF ` 7,15,78,426/-. 2.2 THE ASSESSEE CHALLENGED THE ACTION OF THE ASSE SSING OFFICER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSI ONER OF INCOME TAX(APPEALS) HAS HELD THAT SINCE THE GAIN ON ROLLOVER OF FCCS I S NOT TAXABLE IN INDIA, NO TAX WAS REQUIRED TO BE DEDUCTED AS PER THE PROVISIONS OF S EC 195 ON THE AMOUNT REMITTED TO DBIAL. ACCORDINGLY, THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTED THE ASSESSING OFFICER TO DELETE THE INTEREST CHARGED U/ S 201(1A) OF THE I T ACT. 3 WE HAVE HEARD THE LD DR AS WELL AS THE LD AR OF T HE ASSESSEE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT IN THE CASE OF THE RECIPIENT M/S D B INTERNATIONAL (ASIA) LTD, THE TRIBUNAL IN ITA NOS 2954/MUM/20010 AND 4583/MUM/2009 VIDE ORDER DATED 3 .10.2012 HAS HELD THAT THE INCOME FROM THE TRANSACTION IS TO BE CONSIDERED AS CAPITAL GAIN OR CAPITAL LOSS IN THE HANDS OF FII AND THEREFORE, THE SAME IS NOT SUBJECT ED TO TAX IN VIEW OF THE PROVISIONS OF DTAA. THUS, THE LD AR HAS SUBMITTED THAT WHEN T HE INCOME IN THE CASE OF THE RECIPIENT IS NOT TAXABLE IN INDIA, THEN THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE TO WITHHOLD THE TAX ON THE SAME. 4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL A S THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT IN THE CASE OF THE RECIPIENT M /S DBIAL, THIS TRIBUNAL HAS HELD IN THE ORDER (SUPRA) IN PARA 6 AS UNDER: 6. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD IT IS OBSERVED THAT THE ASSESSEE IS A FII. TH E PURPOSE OF ENTRY INTO FORWARD EXCHANGE CONTRACT IS TO PROVIDE A HEDGING MEC HANISM AGAINST ADVERSE FOREIGN EXCHANGE MOVEMENT. THE TRIBUNAL IN T HE AFORE NOTED CASES ITA NO 7591/M/2010 DEUTSCHE BANK AG . 3 HAS CONSISTENTLY TAKEN A VIEW THAT IN SUCH A SITUAT ION INCOME OR LOSS FROM SUCH TRANSACTIONS IS TO BE CONSIDERED AS CAPITAL GAIN OR CAPITAL LOSS. NO CONTRARY PRECEDENT HAS BEEN BROUGHT TO OUR NOTICE BY THE LEARNED D.R. RESPECTFULLY FOLLOWING THE ABOVE ORDERS, WE UPHOLD THE IMPUGNED ORDER BY HOLDING THAT INCOME ARISING FROM FORWARD EXCHANGE CONT RACT IS ASSESSABLE AS CAPITAL GAIN AND RESULTANTLY THERE CAN BE NO CHARGE T O TAX UNDER THE DTAA. 4.1 WHEN THE PAYMENT IS NOT CHARGEABLE TO TAX IN TH E HANDS OF THE RECIPIENT, THEN THERE IS NO OBLIGATION ON THE PART OF THE PAYE R, WHICH IS THE ASSESSEE BEFORE US TO DEDUCT TAX AT SOURCE. ACCORDINGLY, WE DO NOT FI ND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS) IN DIRECTING THE ASSESSING OFFICER TO DELETE THE INTEREST CHARGED U/S 201(1A) OF THE A CT. CROSS OBJECTION NO.120/MUM/2012 ( BY THE ASSESSEE) 5 IN THE CROSS OBJECTION, THE ASSESSEE HAS NOT RAIS ED ANY NEW GROUND; BUT SUPPORTED THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS). HENCE, IN VIEW OF OUR FINDING IN THE REVENUES APPEAL, THE CROSS O BJECTION FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND ACCORDINGLY DISMISSED. 6 IN THE RESULT, THE APPEAL FILED BY THE REVENUE AN D THE CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH , DAY OF DEC 2012 SD/- SD/- ( B RAMAKOTAIAH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 12 DEC 2012 RAJ* ITA NO 7591/M/2010 DEUTSCHE BANK AG . 4 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI