Betoking Ltd, Cyprus V. ACIT, Circle-1(1)(2) (International Taxation), New Delhi

ITA 7717/DEL/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2903 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 20-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; TDS; Set aside
• Section: 143(3); 201; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: D NEW DELHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI K.N. CHARY, JUDICIAL MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.7717/DEL./2019 ASSESSMENT YEAR: 2016-17 BETOKING LTD., 4 TH FLOOR, 12-ESPERIDON STREET FLOOR, 1087, NICOSIA, CYPRUS VS. ACIT, CIRCLE-1(1)(2) (INTERNATIONAL TAXATION), NEW DELHI PAN :AAECB5964D (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 05/07/2019 PASSED BY THE LEARNED CIT(APPEALS)-42, N EW DELHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 201 6-17 RAISING FOLLOWING GROUNDS: 1 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY THE ID. CIT(A) DISMISSING THE A PPEAL FILED UNDER SECTION 246A(L)(A) OF THE ACT IS WRONG AND BA D IN LAW AND SHOULD BE QUASHED. APPELLANT BY SHRI AJIT JAIN, CA & SHRI SIDDHESH CHAUGULE, ADV. RESPONDENT BY SHRI UMESH TAKYAR, SR.DR DATE OF HEARING 10.02.2021 DATE OF PRONOUNCEMENT 02.03.2021 2 ITA NO.7717/DEL./2019 2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE APPELL ANT IS NOT THE BENEFICIAL OWNER OF INTEREST INCOME AND THUS DENY ING IT THE BENEFIT OF LOWER TAX RATE OF 10% PROVIDED IN INDIA- CYPRUS DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA). 3 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE IN TEREST INCOME IS CHARGEABLE TO TAX IN INDIA ON ACCRUAL BASIS IRRESPE CTIVE OF ITS RECEIPT BY THE APPELLANT AND THUS DENYING BENEFIT O F ARTICLE 11 OF THE DTAA, WHICH PROVIDES TAXATION OF INTEREST INCOM E UPON ITS RECEIPT BY THE NON-RESIDENT. 4 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE LE GAL PRECEDENTS WHEREIN TREATY BENEFITS HAVE BEEN GRANTED BASIS TAX RESIDENCY CERTIFICATE (TRC) ARE NOT APPLICABLE TO THE APPEL LANTS CASE. 5 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN NOT FOLLOWING THE R ULE OF CONSISTENCY AS LAID DOWN BY THE HONBLE SUPREME COU RT IN THE CASE OF RADHASOAMI SATSANG VS. CIT (1992) 193 ITR 3 21. 6 THE ABOVE GROUNDS OF APPEAL ARE INDEPENDENT AND W ITHOUT PREJUDICE TO ONE ANOTHER. 7. THE APPELLANT PRAYS FOR LEAVE TO ADD, ALTER, AME ND AND/OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARI NG OF THE APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT, THE ASS ESSEE, IS A COMPANY REGISTERED UNDER THE LAWS OF THE CYPRUS AND TAX RESIDENT OF THE CYPRUS. FOR THE YEAR UNDER CONSIDERATION, TH E ASSESSEE FILED ITS RETURN OF INCOME ON 26/07/2016, DECLARING TOTAL INCOME OF 3,27,36,055/-, ON WHICH TAX AT THE RATE OF 10% WAS PAID IN TERMS OF DOUBLE TAX AVOIDANCE AGREEMENT (DTAA) BE TWEEN THE INDIA AND THE CYPRUS. IN THE SCRUTINY ASSESSMENT C OMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (I N SHORT THE ACT), ON 27/12/2018, THE LEARNED ASSESSING OFFICER TAXED THE INCOME @ 40%. THE LD. CIT(A) ALSO UPHELD THE FINDIN G OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS BEFOR E THE INCOME- TAX APPELLATE TRIBUNAL (IN SHORT THE TRIBUNAL) RA ISING THE GROUNDS AS REPRODUCED ABOVE. 3 ITA NO.7717/DEL./2019 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEO CONFE RENCING FACILITY AND FILED PAPER-BOOK AND OTHER ELECTRONICA LLY. 4. WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON TH E ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON THE RECORD, INCLUDING PAPER-BOOK FILED BY THE ASSESSEE. THE ASS ESSEE IS A COMPANY REGISTERED UNDER THE LAWS OF CYPRUS AND IS TAX RESIDENT OF CYPRUS. THE MAIN ACTIVITY OF THE ASSESSEE HAS BE EN CLAIMED AS PROVIDING FINANCIAL SERVICES. THE ASSESSEE SUBSCRIB ED TO 11% COMPULSORILY CONVERTIBLE DEBENTURES (CCDS) ISSUED B Y AN INDIAN COMPANY, NAMELY, M/S EDEN PRIVATE LIMITED DURING TH E PERIOD FROM 2007 TO 2009. DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE EARNED INTEREST OF 3,27,36,055/- ON THOSE CCDS AND IN THE RETURN OF INCOME FILED ON 26/07/2016, THE ASSES SEE OFFERED THE SAME AT THE TAX RATE OF 10% UNDER ARTICLE 11 OF INDIA CYPRUS DOUBLE TAX AVOIDANCE AGREEMENT (DTAA). THIS BENEFIT OF LOWER RATE OF TAX OF 10% IS AVAILABLE IF AN ASSESSEE IS B ENEFICIAL OWNER OF THE INTEREST. DURING ASSESSMENT PROCEEDING, THE ASS ESSING OFFICER ASKED THE ASSESSEE TO DEMONSTRATE THE BENEFICIAL OW NER-SHIP OF THE INTEREST AND DOCUMENTARY EVIDENCE IN SUPPORT OF POSSESSION, USE, RISK AND CONTROL OF INTEREST DEMONSTRATING BEN EFICIAL OWNERSHIP OF INTEREST. AFTER CONSIDERING THE DOCUMENTS/INFORMATION FILED BY THE ASSESSEE, THE AS SESSING OFFICER HELD THAT THE BENEFICIAL OWNERSHIP OF THE I NTEREST LIES WITH THE HOLDING COMPANY OF THE ASSESSEE, I.E., MYDDLETO N HOLDINGS LTD, GIBRALTOR AND THE ASSESSEE IS MERELY A CONDUIT COMPANY AND, THEREFORE HE DENIED THE LOWER RATE OF THE TAX PROVI DED UNDER SECTION 11(2) OF THE DTAA AND TAXED SUCH INTEREST I NCOME AT THE 4 ITA NO.7717/DEL./2019 RATE OF 40 % ALONG WITH SURCHARGE AND CESS. THE LD. CIT(A) HAS SUMMARIZED THE BASIS OF FINDING OF THE ASSESSING OF FICER AS UNDER: 6.9 FIND THAT THE AO HAS NOT CONSIDERED THE APPEL LANT COMPANY AS BENEFICIAL OWNER OF THE INTEREST SO ACCRUED BASED O N FOLLOWING OBSERVATIONS: A) AS PER THE SHAREHOLDERS INFORMATION, ASSESSEE HA S MENTIONED THAT 100% BENEFICIAL OWNERSHIP OF THE SHARES IS WIT H MYDDLETON HOLDINGS LIMITED WHICH IS A GIBRALTAR BASED COMPANY . B) THE BALANCE SHEET OF THE ASSESSEE IS NIL. THERE IS NEITHER ANY ASSET NOR LIABILITY. EVEN THE INVESTMENT IN CCDS OF EDEN ESTATES PRIVATE LIMITED HAS NOT BEEN MENTIONED. C) THE MAIN DIRECTOR OF THE ASSESSEE COMPANY WHO FI LES RETURNS, REPLIES AND ANY OTHER STATUTORY FILINGS MR. MAURICE MOSES BENADY IS BASED IN GIBRALTAR. D) ALL THE FILINGS IN RESPECT OF THE COMPANY ARE DO NE BY HIM FROM THE IP ADDRESSES AT GIBRALTAR. E) MOREOVER, THE ASSESSEE HAS NO FUNDS OR ASSETS OF ITS OWN. F) THE BANK ACCOUNT OF THE COMPANY IS BASED IN GIBR ALTAR INTERNATIONAL BANK WHICH IS THE ONLY ACCOUNT AS PER THE RETURN OF INCOME. 4.1 THE LD. CIT(A) CONCURRED WITH THE FINDING OF THE L EARNED ASSESSING OFFICER OBSERVING AS UNDER: 6.10 IT IS NOTED THAT THE APPELLANT HAS FAILED TO SHOWCASE THAT HOW A COMPANY WITH NIL ASSETS AND LIABILITIES IN THE BA LANCE SHEET TOOK DECISION TO INVEST IN CCDS. FURTHER, IT IS A FACT T HAT NO INTEREST WAS RECEIVED IN THIS CASE BY THE APPELLANT COMPANY AS P ER ITS CLAIM. ACCORDINGLY, THE APPELLANT COMPANY FILED AN APPLICA TION WITH NATIONAL COMPANY LAW TRIBUNAL {'NCLT'), TO INITIATE CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER INSOLVENCY AND BANKRUPTCY CODE 2016. IT IS INTERESTING TO NOTE THAT IF THE AP PELLANT COMPANY HAS TAKEN RECOURSE TO THE LEGAL ACTION AGAINST THE BORR OWER THEN, WHY IN TURN, THE FINANCIER OF THE APPELLANT COMPANY HAS NO T TAKEN ANY LEGAL ACTION AGAINST THE APPELLANT COMPANY. ANY INDEPENDE NT PARTY WOULD SURELY TAKE ACTION FOR RECOVERY OF ITS MONEY. THIS CLEARLY HIGHLIGHTS THAT THE APPELLANT COMPANY WAS ACTING AS AN AGENT O F ITS MAIN FINANCIER IN THIS CASE. FURTHERMORE, THE FINDINGS O F THE AO AS 5 ITA NO.7717/DEL./2019 DISCUSSED ABOVE, CLEARLY POINT OUT THAT THE APPELLA NT COMPANY WAS A CONDUIT COMPANY. IT IS NOTEWORTHY THAT THE FACT OF MAINTAINING BACK OFFICE IN GIBRALTAR AND FILING OF COMPANY FROM IP A DDRESS AT GIBRALTAR ARE QUITE CRITICAL FINDINGS TO HOLD THE APPELLANT A S CONDUCT COMPANY. 4.2 THE ISSUE IN DISPUTE INVOLVED IN THE INSTANT CASE IS WHETHER THE ASSESSEE IS ENTITLED TO THE BENEFICIAL PROVISIO NS OF ARTICLE 11(2) OF THE INDIA CYPRUS DOUBLE TAX AVOIDANCE AGREEMENT (DTAA), WHICH PROVIDES, LOWER TAX RATE OF 10% ON INTEREST I NCOME ARISING IN INDIA. FOR READY REFERENCE, SAID ARTICLE IS REPR ODUCED AS UNDER: CYPRUS DOUBLE TAXATION AVOIDANCE AGREEMENT ARTICLE 11 INTEREST 1. INTEREST ARISING IN A CONTRACTING STATE AND PAID 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 REC IPIENT IS THE BENEFICIAL OWNER OF THE INTEREST THE TAX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT OF THE INTEREST. 3. NOTWITHSTANDING THE PROVISIONS OF PARAGRAPH 2: A. INTEREST ARISING IN A CONTRACTING STATE SHA LL BE EXEMPT FROM TAX IN THAT STATE PROVIDED IT IS DERIVED AND BENEFICIALLY OWNED BY: I. THE GOVERNMENT, A POLITICAL SUB-DIVISION OR A LO CAL AUTHORITY OF THE OTHER CONTRACTING STATE; OR II. THE CENTRAL BANK OF THE OTHER CONTRACTING STATE OR ANY AGENCY OR INSTRUMENTALITY (INCLUDING A FINANCIAL INSTITUTI ON) WHOLLY OWNED BY THE OTHER CONTRACTING STATE OR POLITICAL SUB-DIVISION OR LOCAL AUTHORITY THEREO F; A. B. INTEREST ARISING IN A CONTRACTING STATE SH ALL BE EXEMPT FROM TAX IN THAT CONTRACTING STATE TO THE EXTENT APPROVED BY THE GOVERNMENT OF THAT STATE IF IT IS DERIVED AND BENEFICIALLY OWNED BY ANY PERSON OTHER THAN A PERSON REFERRED TO IN SUB-P ARAGRAPH (A), WHO IS A RESIDENT OF THE OTHER CONTRACTING STATE PROVIDED THAT THE TRANSACTION GIV ING RISE TO THE DEBT CLAIM HAS BEEN APPROVED IN THIS REGARD BY THE GOVERNMENT OF THE FIRST MENTIONE D CONTRACTING STATE. 6 ITA NO.7717/DEL./2019 4. THE TERM 'INTEREST' AS USED IN THIS ARTICLE MEANS INCOME FROM DEBT-CLAIMS OF EVERY KIND, WHETHER OR NOT SECURED BY MORTGAGE AND WHETHER OR N OT CARRYING A RIGHT TO PARTICIPATE IN THE DEBTOR'S PROFITS, AND IN PARTICULAR, INCOME FROM GO VERNMENT SECURITIES AND INCOME FROM BONDS OR DEBENTURES, INCLUDING PREMIUMS AND PRIZES ATTACHING TO SUCH SECURITIES, BONDS OR DEBENTURES. PENALTY CHARGES FOR LATE PAYMENT SHALL NOT BE REGAR DED AS INTEREST FOR THE PURPOSE OF THIS ARTICLE. 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT APPLY 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, THROUGH A PERMANENT ESTA BLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE DEBT- CLAIM IN RESPECT OF WHICH THE INTEREST IS PAID IS E FFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROV ISIONS OF ARTICLE 7 OR ARTICLE 15, AS THE CASE MAY BE, SHALL APPLY. 6. INTEREST SHALL BE DEEMED TO ARISE IN A CONT RACTING STATE WHEN THE PAYER IS THAT CONTRACTING STATE ITSELF, A POLITICAL SUB-DIVISION, A LOCAL AUT HORITY OR A RESIDENT OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THE INTEREST, WHETHER HE IS A RES IDENT OF CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STATE A PERMANENT ESTABLISHMENT OR A FI XED BASE IN CONNECTION WITH WHICH THE INDEBTNESS ON WHICH THE INTEREST IS PAID WAS INCURR ED, AND SUCH INTEREST IS BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE, THEN SUCH IN TEREST SHALL BE DEEMED TO ARISE IN THE CONTRACTING STATE IN WHICH THE PERMANENT ESTABLISHM ENT OR FIXED BASE IS SITUATED. 7. WHERE, BY REASON OF A SPECIAL RELATIONSHIP BETWEEN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF THEM AND SOME OTHER PERSON, THE AMO UNT OF THE INTEREST, HAVING REGARD TO THE DEBT-CLAIM FOR WHICH IT IS PAID, EXCEEDS THE AMOUNT WHICH WOULD HAVE BEEN AGREED UPON BY THE PAYER AND THE BENEFICIAL OWNER IN THE ABSENCE OF SU CH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE SHALL APPLY TO THE LAST MENTIONED AMOUNT. IN SUCH C ASE, THE EXCESS PART OF THE PAYMENTS SHALL REMAIN TAXABLE ACCORDING TO THE LAWS OF EACH CONTRA CTING STATE, DUE REGARD BEING HAD TO THE OTHER PROVISIONS OF THIS AGREEMENT. 4.3 THUS, FOR REQUIREMENT OF ELIGIBILITY OF LOWER TAX RATE OF 10%, THE RECIPIENT SHOULD BE BENEFICIAL OWNER OF THE INT EREST. THE TRIBUNAL IN THE CASE OF GOLDEN BELLA HOLDINGS LTD VS. DCIT (INTERNATIONAL TAXATION) IN ITA NO. 6958/MUM/2017 FOR ASSESSMENT YEAR 2013-14 IN IDENTICAL CIRCUMSTANCES HAS ALLOWED THE BENEFIT OF LOWER RATE OF TAX OF 10%. THE RELEVA NT PART OF THE ORDER OF THE TRIBUNAL (SUPRA) IS REPRODUCED AS UNDE R: WE FIND THAT THE APPELLANT INVESTED IN CCDS AND RE CEIVED INTEREST INCOME THEREON FOR ITS OWN EXCLUSIVE BENEFIT, AND N OT FOR OR ON BEHALF OF ANY OTHER ENTITY. THE MERE FACT THAT THE INVESTM ENT WAS FUNDED USING A PORTION OF AN INTEREST-FREE SHAREHOLDER LOA N AND SHARE CAPITAL DOES NOT AFFECT THE APPELLANT'S STATUS AS T HE 'BENEFICIAL OWNER' OF INTEREST INCOME, AS THE ENTIRE INTEREST I NCOME WAS THE SOLE PROPERTY OF THE APPELLANT. IN THIS CONTEXT, WE MAY REFER TO PARA 10.2 OF THE OECD COMMENTARY (2017] ON ARTICLE 11 (INTERE ST) OF THE 'MODEL 7 ITA NO.7717/DEL./2019 TAX CONVENTION' TO APPRECIATE THE MEANING OF 'BENEF ICIAL OWNER' AND THE SAME READS AS UNDER : WHERE THE RECIPIENT OF INTEREST DOES HAVE THE RIGH T TO USE AND ENJOY THE INTEREST UNCONSTRAINED BY A CONTRACTUAL O R LEGAL OBLIGATION TO PASS ON THE PAYMENT RECEIVED TO ANOTH ER PERSON, THE RECIPIENT IS THE 'BENEFICIAL OWNER' OF THAT INT EREST' THE ISSUE IS SIMPLE BECAUSE THE MERE FACT THAT THE CCDS WERE FUNDED USING MONIES RECEIVED BY THE APPELLANT FROM ITS IMMEDIATE SHAREHOLDER DOES NOT MAKE THE ARRANGEMENT A BACK-TO -BACK TRANSACTION. THE APPELLANT HAD THE ABSOLUTE CONTROL OVER THE FUNDS RECEIVED FROM ITS IMMEDIATE SHAREHOLDER. FURTHER, I N THE INSTANT CASE THE APPELLANT WHOLLY ASSUMED AND MAINTAINED THE FOR EIGN EXCHANGE RISK ON THE CCDS (AS THEY WERE INR DENOMINATED), AN D THE COUNTER PARTY RISK ON INTEREST PAYMENTS ARISING ON THE CCDS . IN THE INSTANT CASE, THE AO/DRP HAVE FAILED TO PROV E THAT (I) THE APPELLANT DID NOT HAVE EXCLUSIVE POSSESSION AND CONTROL OVER THE INTEREST INCOME RECEIVED, (II) THE APPELLANT WAS RE QUIRED TO SEEK APPROVAL OR OBTAIN CONSENT FROM ANY ENTITY TO INVES T IN ABPL, OR TO UTILIZE THE INTEREST INCOME RECEIVED AT ITS OWN DIS CRETION AND (III) THE APPELLANT WAS NOT FREE TO UTILIZE THE INTEREST INCO ME RECEIVED AT ITS SOLE AND ABSOLUTE DISCRETION, UNCONSTRAINED BY ANY CONTRACTUAL, LEGAL, OR ECONOMIC ARRANGEMENTS WITH ANY OTHER THIR D PARTY. IN VIEW OF THE ABOVE FACTUAL SCENARIO, THE TRANSACT ION BETWEEN THE APPELLANT AND ABPL CANNOT BE A MERE BACK-TO-BAC K TRANSACTION LACKING ECONOMIC SUBSTANCE. THEREFORE, WE DIRECT THE AO TO ACCEPT THE RETURN OF INCOME FILED BY THE APPELLANT FOR THE IMPUGNED ASSESSMENT YEAR D ISCLOSING A TOTAL INCOME OF RS.15,16,43,840/- FROM INTEREST ON CCDS IN ABPL, WHEREIN IT HAS OFFERED SUCH INTEREST TO TAX @ 10%. 4.4 THUS, FOR HOLDING THAT THE ASSESSEE IS NOT THE BEN EFICIAL OWNERSHIP OF THE INTEREST, THE LEARNED ASSESSING OF FICER WAS REQUIRED TO ESTABLISH THAT THE ASSESSEE HAS FAILED IN THE TESTS AS LAID DOWN IN THE DECISION OF THE TRIBUNAL ABOVE. 4.5 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REF ERRED TO THE FINANCIAL STATEMENTS INCLUDING BALANCE-SHEET AN D PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AVAIL ABLE ON PAGE 8 ITA NO.7717/DEL./2019 55 ONWARDS OF THE PAPER-BOOK. ON PAGE 61 OF THE PAP ER-BOOK, DETAILS OF ASSETS AND LIABILITIES AT THE YEAR AND H AVE BEEN MENTIONED. THE ASSESSEE HAS SHOWN INVESTMENT IN SUB SIDIARIES OF US DOLLAR 22,133,635 ON 31/03/2016. DETAILS OF THE INVESTMENT IN SUBSIDIARIES HAVE BEEN MENTIONED IN NOTE-8 TO TH E BALANCE- SHEET, WHICH IS REPRODUCED AS UNDER: INVESTMENTS IN SUBSIDIARIES 2016 US$ 2015 US$ BALANCE AT 1 APRIL 22,133,635 22,133,635 BALANCE AT 31 MARCH 22,133,635 22,133,635 THE DETAILS OF THE SUBSIDIARIES ARE AS FOLLOWS: COUNTRY OF INCORPORATION PRINCIPAL ACTIVITIES 31/03/2016 HOLDING % 31/03/2016 HOLDING % 31/03/2016 US$ 31/03/2015 US$ SKYNGELOR LIMITED AIRWAT DEVELOPERS PRIVATE LTD CYPRUS INDIA HOLDING OF INVESTMENTS CONSTRUCTION 100 75 100 75 1,466 19,460,000 1,466 19,460,000 19,461,466 19,461,466 AS AT 31 MARCH 2016, THE COMPANY HOLDS 2.976.005 11 % FULLY COMPULSORY CONVERTIBLE DEBENTURES (FCCDS) OF RS.100 WITH A MATURITY OF 10 YEARS (I.E. 3 APRIL 2017 AND 23 APRIL 2019) IN EDEN REAL ESTATE PRIVATE LIMITED THE DETAI LS OF WHICH ARE AS FOLLOWS: NAME OF ISSUER COUNTRY OF INCORPORATION INTEREST RATE 31/03/2016 NUMBER OF DEBENTURES 31/03/2015 NUMBER OF DEBENTURES 31/03/2016 US$ 31/03/2015 US$ EDEN REAL ESTATES PRIVATE LIMITED INDIA 11% 2,976,005 2,976,005 2,672,169 2,672,169 2,672,169 2,672,169 EDEN REAL ESTATES PRIVATE LIMITED CARRYS ON A BUSIN ESS OF PROPERTY DEVELOPMENT IN INDIA. THE FULLY COMPULSORY CONVERTIBLE DEBENTURES CAN BE CONVERTED INTO REDEEMABLE PREFERENCE SHARES OR INTO EQUITY SHARES AT THE MATURITY DATE. POST CONVERSION, SUCH SHARES MAY EITHER BE REDEEMED AT PAR VALUE OR CONVERTED INTO A DIFFERENT CLASS OF EQUITY SHARES. 9 ITA NO.7717/DEL./2019 4.6 IN THE BALANCE-SHEET FOR THE YEAR ENDED ON 31/03/20 16, THE ASSESSEE HAS SHOWN SHARE CAPITAL OF USD 2230 AND RE SERVE AND SURPLUS USD 3,516,512. THE ASSESSEE HAS SHOWN BORRO WINGS OF USD 16,052,011/-, DETAILS OF WHICH AVAILABLE ON PAG E 72 OF THE PAPER-BOOK ARE REPRODUCED AS UNDER: 12. LOANS AND BORROWINGS 2016 US$ 2016 US$ BALANCE AT 1 ST APRIL 15,793,053 15,575,152 INTEREST CHARGED 258,958 217,901 BALANCE ON 31 ST MARCH 16,052,011 15,793,053 31/03/2016 US$ 31/03/2015 US$ NON-CURRENT LIABILITIES LOAN FROM PARENT COMPANY {NOTE 15(V)} - 9,840,000 - 9,840,000 CURRENT LIABILTIES OTHER LOANS 16,052,011 5,953,053 16,052,011 5,953,053 TOTAL 16,052,011 15,763,053 IN 2008 THE PARENT COMPANY ADVANCED A SHORT TERM UN SECURED LOAN TO THE COMPANY FOR THE AMOUNT OF US$5,009,214 WHICH IS REPAYABLE O N DEMAND. AS OF 30 NOVEMBER 2011 THE LOAN BEARS INTEREST AT THE RATE OF 4.35% P ER ANNUM. ACCORDING TO A DEED OF ASSIGNMENT DATED 25 JANUARY 2017, THE PREVIOUS LENDER MYDDLETON HOLDINGS LIMITED TRANSFERRED THE RIGHTS A ND OBLIGATIONS OF THE LOAN AMOUNTING TO US$5,953,053 AND THE LOAN AMOUNTING TO US$9,840,000 TO TAPIR HOLDINGS PARTNERS LP, EFFECTIVE FROM 31 MARCH 2015. THE EXPOSURE OF THE COMPANY TO INTEREST RATE RISK I N RELATION TO FINANCIAL INSTRUMENTS IS REPORTED IN NOTE 16 TO THE FINANCIAL STATEMENTS. 4.7 THUS, ACCORDING TO THE ASSESSEE INVESTMENT IN CCD HAS BEEN MADE OUT OF FUNDS PROVIDED BY THE HOLDING COMP ANY. 10 ITA NO.7717/DEL./2019 WHEREAS THE ASSESSING OFFICER AND THE LD. CIT(A), H AS RELIED ON THE DETAILS OF ASSETS AND LIABILITIES SHOWN IN THE RELEVANT COLUMN OF THE RETURN OF INCOME. THE LEARNED COUNSEL HAS FU RNISHED A COPY OF THE RETURN OF INCOME FILED FOR THE RELEVANT YEAR BEFORE US ALONG WITH THE REVISED SYNOPSIS. IN THE RETURN OF INCOME THE AMOUNT OF ASSETS AND LIABILITIES IN PART A-BS, HAVE BEEN SHOWN AS NIL. IN VIEW OF THESE DETAILS OF ASSETS AND LIABILI TY, BOTH THE LEARNED ASSESSING OFFICER AND THE LD. CIT(A) CONCLUDED THAT , HOW A COMPANY WITH NIL ASSETS AND LIABILITY DECIDED TO IN VEST IN CCDS. 4.8 IT IS EVIDENT FROM THE ORDER OF LOWER AUTHORITIES T HAT THEY HAVE DECIDED THE ISSUE OF BENEFICIAL OWNERSHIP OF I NTEREST ONLY ON THE BASIS OF INFORMATION OF ASSETS AND LIABILITIES PROVIDED IN THE RETURN OF INCOME, WHICH MISTAKENLY REPORTED BY THE ASSESSEE AS NIL AND THE FINANCIAL STATEMENTS INCLUDING, BALANCE -SHEET AND PROFIT AND LOSS ACCOUNTS HAVE NOT BEEN CONSIDERED. IN SUCH CIRCUMSTANCE, WE FEEL IT APPROPRIATE TO SET ASIDE T HE ORDER OF LD. CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF T HE ASSESSING OFFICER TO DECIDE THE ISSUE OF BENEFICIAL OWNERSHIP OF INTEREST AFRESH IN THE LIGHT OF FINANCIAL STATEMENT OF THE A SSESSEE AND DOCUMENTS. THE ASSESSING OFFICER MAY EXAMINE ALL TH E TESTS LAID DOWN IN THE DECISION IN CASE OF GOLDEN BELLA HOLDINGS LTD. (SUPRA). THE GROUND NO. 2 OF THE APPEAL OF THE ASSE SSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 5. THE REMAINING GROUNDS WERE NOT PRESSED BY THE ASSE SSEE. MOREOVER, WHEN THE ASSESSEE ITSELF HAS DECLARED THE INCOME ON ACCRUAL BASIS, THE ASSESSEE NOW CANNOT TAKE THE ARG UMENT THAT SAID INCOME SHOULD BE TAXED ONLY ON RECEIPT BASIS. THUS, THE REMAINING GROUNDS ARE DISMISSED AS INFRUCTUOUS. 11 ITA NO.7717/DEL./2019 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND MARCH, 2021 SD/- SD/- (K.N. CHARY) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 ND MARCH, 2021. RK/- (DTDS) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI