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Appellant by : Shri V. Sreekar (CIT-DR) Respondent by : Shri V.K. Duggal (C.A) Date of Hearing : 06.05.2019 Date of Pronouncement :22.05.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by revenue is directed against the order of ld. Commissioner (Appeals)-57, Mumbai dated 10th November 2017, which in turn arises from assessment order dated 30th March 2015 passed under section 143(3) of Income Tax Act (the Act). The revenue has raised following grounds of appeal: (1) Whether on the facts and in the circumstances of the case and in law, the learned Commissioner (Appeals) erred in not appreciating the fact that Assessing Officer has rightly held that the entire trade finance interest is related to permanent establishment of assessee. (2) Whether on the facts and in the circumstances of the case and in law, the learned Commissioner appeal erred in not appreciating the fact that the Assessing Officer has rightly held that the amount received as interest from parties in India be taxed at normal rate as per article 11(6) of India Japan DT double-A. (3) The appellant prays that the order of learned Commissioner (Appeals) on the above grounds be set aside and that of Assessing Officer be restored.The appellant prays that appeal is maintainable in this case in view of the circular number 21/2015 dated 10th of December 2015 of the CBDT. 2. Brief facts of the case are that assessee is a company incorporated under the laws of Japan and tax resident of Japan. The assessee filed its return of income for Assessment Year 2012-13, declaring total income of Rs. 4,29,16,530/-. The return of income was selected for scrutiny. During the assessment, the Assessing Officer noted that assessee has earned interest on interest from banks and others, which has been offered to tax at the rate of 10% in accordance with Article 11(2) of Double Taxation Avoidance Agreement (DTAA) between India and Japan. The Assessing Officer further took his view that interest relates to the project office in India which is a permanent establishment in India and the same is taxable under the head ‘Income from Other Sources’ at the rate applicable to Foreign Companies plus surcharge and Education cess instead of special rates adopted by assessee. The Assessing Officer treated the interest receipt as ‘Income from Other Sources’ and taxed at 42.0 24%.
Aggrieved by the action of Assessing Officer, the assessee filed appeal before First Appellate Authority (FAA). Before FAA, the assessee submits that the Assessing Officer assessed the interest income on loans and trade without assigning any reason. The finance was provided by the heard office to Indian company in foreign currency. The assessee provided the break-up of all the parties and the copies of the agreement with those parties. It was canvassed that on finance by the head office to Indian company in foreign currency, there is no relation with permanent establishment. It was also submitted that in past Assessment Years that is 2009-10 and in 2011-12, the interest income was assessed at the rate of 10% in accordance with the provisions of India Japan DTAA. There was no change in position; the Assessing Officer has not given any reason for change in opinion. The project office duly funded by head office and project office does not have any risk or cost for the funds temporarily deposited in India. Exchange fluctuation risk was to the account of head office and not to the project office. The assessee also submitted that, although the assessee offered this income for tax, is strictly speaking the assessee could have claimed this income as exempt income on the basis of decision of Delhi Tribunal in ACIT Vs Cargil Global Trading (I) Ltd 34 SOT 424 (Delhi) and Mumbai Tribunal in DCIT Vs Abu Dhabi Commercial Bank Ltd 4SOT 362 (Mumbai).
In the statement of facts furnished by assessee, it was also brought to the notice of learned Commissioner (Appeals) that in assessee’s own case for Assessment Year 2004-05, 2007-08 and 2009-10 it was held that interest on Income Tax refund is taxable at DTAA rate and not at normal rate of tax applicable as Business Income. The ld. Commissioner (Appeals) after considering the assessment order for Assessment Year 2009-10, 2010-11 and 2011-12 in which similar interest was taxed at DTAA rate and after 3 perusing the material of on record concluded that interest on loan in foreign currency is chargeable to tax at a DTAA rate and is not linked with permanent establishment of assessee in India and thereby directed the Assessing Officer to tax the interest at DTAA rate. Thus aggrieved by the order of Commissioner (Appeals), the Assessing Officer /revenue has filed this appeal before the Tribunal.
We have heard the submission of learned departmental representative (DR) for the revenue and learned authorised representative (AR) of the assessee and perused the material available on record. We have also deliberated on case laws relied by learned Commissioner (Appeals). The learned DR for the revenue submits that the learned Commissioner (Appeals) passed a very short order without giving details reasoning and without refereeing the facts on the basis of which the learned Commissioner (Appeals) arrived at such conclusion. The learned DR submits that the order passed by learned Commissioner (Appeals) may be set aside for fresh finding.
On the other hand, the learned AR of the assessee supported the order of Commissioner (Appeals). The learned AR submits that no detail reasoning was required as the controversy in issue was very limited whether the charge interest was liable to be taxed at special rate or in accordance with the provision of DTAA.
We have considered the submission of both the parties and have gone through the orders of authorities below. During assessment the Assessing Officer noted that assessee has earned interest on interest from banks and others, which has been offered to tax at the rate of 10% in accordance with Article 11(2) of Double Taxation Avoidance Agreement (DTAA) between India and Japan. The Assessing Officer treated the interest receipt as ‘Income from Other Sources’ and taxed at 42.024% without specifying any reason. The Assessing Officer also concluded that interest relates to the project office in India which is a permanent establishment and the same is taxable under the head ‘Income from Other Sources’ at the rate applicable to Foreign Companies plus surcharge and Education cess instead of special rates adopted by assessee. No show cause notice was given by Assessing Officer before treating the said interest receipt at taxable at special rate of tax. The Assessing Officer has not given any finding that the project office have any risk of cost for the fund temporarily deposited in India.
The assessee has placed on record the copy of assessment order for Assessment Year 2009-10 dated 09.02.2012 passed under section 143(3) r.w.s. 144C(3), assessment order for Assessment Year 2010-11 dated 17.05.2013 passed under section 143(3) r.w.s. 144C(3) and for Assessment Year 2011-12 dated 29.04.2014 passed under section 143(3) r.w.s. 144C(3). Perusal of above referred assessment order reveals that 5 similar interest was taxed as per the rate prescribed under DTAA i.e. @ 10%. The ld. Commissioner (Appeals) after considering the material placed before her directed the Assessing Officer to treat the interest on loan in foreign currency as chargeable to tax in accordance with DTAA rate being not linked with PE of assessee in India. In view of the discussion, we do not find any justification in the order passed by Assessing Officer in treating the interest income @ 42.024%. No contrary facts or law is brought to our notice to take different view. Therefore, we affirm the order of ld. Commissioner (Appeals).
In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 22/05/2019.