AZURE POWER ENERGY LIMITED,MAURITIUS vs. ASSISTANT COMMISSIONER OF INCOME TAX, DELHI

ITITA 37/DEL/2026Status: DisposedITAT Delhi09 September 2026AY 2023-2435 pages
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What were the facts?

The appeals before the Income Tax Appellate Tribunal (ITAT) were filed by Azure Power Energy Limited and Azure Power Solar Private Limited for Assessment Year 2023-24. The appeals arose from assessment orders passed by the Assistant Commissioner of Income Tax (International Taxation) following directions from the Dispute Resolution Panel (DRP). The core dispute involved the assessee's claim for the benefit of Article 11 of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) on interest income of Rs. 1,53,16,25,333/- derived from External Commercial Borrowings (ECBs). The Assessing Officer (AO) rejected this claim, stating the assessee did not meet the 'beneficial owner' test. Additionally, the assessee sought the benefit of Section 194LD of the Income Tax Act, 1961, for a liberalized TDS deduction at 5.6% on interest income of Rs. 75,07,89,141/- from Non-Convertible Debentures (NCDs), which was also declined by the lower authorities.

What did the Tribunal hold?

On the first issue, the Tribunal held that the assessee's arguments and supporting documents, including its Global Business License, FPI registration, Mauritius Tax Residency Certificate, and Green Bond Scheme, satisfied the "beneficial owner" test under Article 11 of the India-Mauritius DTAA. The Tribunal found no material to suggest the assessee was a mere conduit and concluded that the lower authorities erred in rejecting the assessee's status as the beneficial owner. The Tribunal rejected the Revenue's technical objection regarding the applicability of case law from the India-Cyprus DTAA, stating the core issue of "beneficial ownership" is the same. Necessary computation was directed to follow as per law, and the assessee's ground succeeded. On the second issue concerning Section 194LD, the Tribunal, by strictly interpreting the language of the statute, held that "rupee denominated bond" does not include Non-Convertible Debentures (NCDs). The Tribunal rejected the assessee's arguments based on definitions in the Companies Act and the PCCIT's instructions, citing the principle of "Expressio unius est exclusio alterius" and the lack of statutory force of the PCCIT's letter. The Tribunal distinguished the case law relied upon by the assessee. The Tribunal also clarified that Section 194LD applies to the payer/deductor for TDS, not the deductee claiming assessment at a specific rate. The Tribunal directed the AO to examine the alternative argument of assessing interest income as per the relevant Article in the India-Mauritius DTAA afresh. The assessee's second substantive ground was partly accepted for statistical purposes to the limited extent of the AO examining the DTAA aspect.

What were the issues?

1. Whether the assessee is eligible to claim the benefit of Article 11 of the India-Mauritius DTAA in respect of its interest income derived from External Commercial Borrowings, as the lower authorities rejected the claim on the grounds that the assessee failed to satisfy the 'beneficial owner' test by lacking possession, use, risk, and control over the funds and interest income? (Question of law and fact, concerning Article 11 of India-Mauritius DTAA). - Assessee's contention: The assessee argued that it satisfied the 'beneficial owner' test, citing "dominion and control" over the funds and interest income, and referred to "Commentary on Double Taxation Convention" by Klaus Vogel and the Delhi High Court ruling in CIT vs. Fujitsu America INC. The assessee also presented its Global Business License, FPI registration, Mauritius Tax Residency Certificate, and Green Bond Scheme documents to demonstrate possession, use, risk, and control. - Revenue's contention: The Revenue relied on the AO's and DRP's findings that the assessee failed to satisfy the "beneficial owner" test due to lack of possession, use, risk, and control over the funds and interest income. 2. Whether the assessee's Non-Convertible Debentures (NCDs) are covered under Section 194LD(2)(a)(i) of the Income Tax Act, 1961, for a liberalized TDS deduction at 5.6% on its interest income, as the lower authorities held that NCDs are not "rupee denominated bonds" as stipulated in the section? (Question of law, concerning Section 194LD of the Income Tax Act, 1961). - Assessee's contention: The assessee argued that NCDs should be considered interchangeable with bonds and referred to definitions in the Companies Act, 1956 and 2013. The assessee also pointed to instructions from the Principal Chief Commissioner of Income Tax (PCCIT) suggesting "bond" could include NCDs. The assessee also argued for referring the matter to a larger bench if the Tribunal intended to take a different stand than earlier decisions. - Revenue's contention: The Revenue supported the lower authorities' action, arguing that NCDs do not fall under the definition of "rupee denominated bond" as per the strict language of Section 194LD(2)(a)(i). The Revenue also contended that the PCCIT's instructions lacked statutory force.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 194LD,Section 119,Section 255(4)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI

Before: SHRI SATBEER SINGH GODARA

For Respondent: Dr. Shalini Verma, CIT(DR)
Hearing: 28.07.2026Pronounced: 09.09.2026

These twin assessees’ M/s Azure Power Energy Limited and Azure Power Solar Private Limited have filed their instant as many appeals IT(IT)A Nos. 37 & 38/Del/2026; for A.Y. 2023-24, arising against the Assistant Commissioner of Income Tax Circle (International Taxation)

The order continues below.

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