BALLARPUR INDUSTRIES LTD.,GURGAON vs. ITO, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘A’ NEW DELHI

BEFORE SH.S.V.MEHROTRA, ACCOUNTANT MEMBER AND SMT DIVA SINGH, JUDICIAL MEMBER

I.T.A .No.-447 to 449/Del/2011 (ASSESSMENT YEAR-2006-07 to 2008-09) Ballarpur Industries Ltd. Vs ITO, First India Place, Tower C, TDS Ward-1(1), Block-A, Mehrauli, Gurgaon. International Taxation, PAN-AAACB6343E New Delhi. (APPELLANT) (RESPONDENT)

Assessee by S.D.Kapila, Adv. R.R. Maurya, Adv., Pravesh Sharma, Adv., Sanjay Kumar, Adv. & Pankaj Rohra, CA Revenue by Sh.S.K.Jain, DR Date of Hearing 13.02.2017 Date of Pronouncement 10.03.2017

ORDER PER DIVA SINGH, JM These three appeals have been filed by the assessee assailing the correctness of the

consolidated order dated 03.11.2010 of CIT(A)-11, New Delhi pertaining to FYs 2005-06, 2006-

07 and 2007-08. All these appeals are being decided by a common order as it was a common

stand of the parties before the Bench that facts, circumstances and arguments in regard to the

issues continue to remain the same.

which are identical, however, the parties were heard only in regard to the additional ground

sought to be raised by the assessee in each of these appeals vide application dated 30/11/2011

under Rule 11 of the ITAT Rules. The same is reproduced from ITA No.448/Del/2011

hereunder:-

“The Learned CIT(A) while disposing the appeal of this appellant had not disposed specific grounds raised by this appellant. Hence, the additional ground, which reads as follows:- "That on the facts and the circumstances of the case, the Ld. CIT Appeals had erred in not disposing the ground on Limitation and Jurisdiction specifically taken in the Ground of appeal filed before him ". The additional ground can be disposed of on the basis of material existing on record and no fresh material is required for its disposal. In this view of the matter, it is humbly prayed that the hon'ble bench may admit this additional ground keeping in view the judgment of the Apex Court in the case of NTPC (229 ITR 383).”

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Page 2 of 6 2.1. A prayer for admission of the said ground was raised, relying upon the decision of the

Apex Court in the case of NTPC 229 1TR 383 (SC). Inviting attention to the copy of the grounds

raised before the CIT(A) in each of these appeals, it was submitted that the assessee

specifically vide Ground Nos. 2 and 3 had assailed the jurisdiction of the Assessing Officer in

passing the order and had also assailed the order passed under section 201(1)/201(1A) on the

grounds of limitation. These grounds are reproduced hereunder:-

2.2. Inviting attention to the consolidated order, it was submitted that while dismissing the

appeal of the assessee on merits, making inaccurate factual observations which are contrary to

the view taken by the Assessing Officer itself, the CIT(A) has not cared to give any finding

either on jurisdiction or on the limitation issue. Accordingly, it was his prayer that the order is

perverse and may be set-aside in order to address the issue in the light of the factual position

accepted by the Assessing Officer himself. Attention was invited to the consolidated order

passed by the Assessing Officer dated 05/03/2009 wherein cognizance has been taken of the

letter head of Standard Chartered Bank (Mauritius) at page 5 and 6 of the order of the

Assessing Officer:-

“This letter is being accepted based on the letter from Standard Chartered Bank, New Delhi dt. 21st Dec.05, confirming that ECB of USD 10 mn from SCB Singapore is being transferred to SCB Mauritius at an raised interest rate of LIBOR + 140 bps w.e.f. 23rd December 2005. All other terms and conditions of the facility agreement dated 8th July 2004 and subsequent amendments dated 30th July 2004 and 13th June 2005 remain unchanged.”

2.3. Referring to page 7 it was submitted that he has taken note of the fact that the

arrangement fee was LIBOR plus margin of 1.80% per annum which when compared with the

I.T.A .No.-447 to 449/Del/2011 Ballarpur Industries Ltd. vs ITO

Page 3 of 6 pricing at page 5 would show was at LIBOR plus 1.40 bps per annum. The CIT(A) however

ignoring the facts as set out at page 11 and 12 in Paras 11 and 12 of his own order misdirected

himself by ignoring that though the payments are made to Standard Chartered Bank, New York

however the beneficiary account name was changed from Standard Chartered Bank, Singapore

to Standard Chartered Bank (Mauritius) Ltd. Thus, the findings of the Ld. CIT(A) were assailed

to be contrary to the factual notings made by the Assessing Officer. Apart from these facts, it

was also submitted that the Assessing Officer has passed a consolidated order for the three

financial years and the said action is contrary to the Statutory requirements wherein the

Assessing Officer is required to pass a separate order for each financial year and raise a

separate notice of demand in each of the years. It was also his submission that even on merits,

the factual inaccuracies have not been addressed by the CIT(A) and even otherwise the basic

settled principles of the law of contracts and the consequences of amalgamation by the order

of the Hon'ble High Court dated 01/04/2006 have not been appreciated or considered by the

said authroity. It was also his submission that the Assessing Officer though concludes that there

is no contract and ignore the fact that the application of LIBOR + 140 bps by him which figure

has been offered and accepted in the re-negotiated contract by the assessee with the Standard

Chartered Bank (Mauritius). Accordingly, it was his prayer that all necessary facts and

evidences though for deciding the jurisdictional and the limitation issue are available on record,

however, even since on facts also the impugned order does not address the shortcomings in

the order of the Assessing Officer, the impugned order may be set aside back to the file of the

Assessing Officer.

issue is restored.

seen that APR packaging Ltd (AP RPL) a company incorporated in India was engaged in the

business of Manufacturer of different varieties of paper. As per loan Agreement dated

I.T.A .No.-447 to 449/Del/2011 Ballarpur Industries Ltd. vs ITO

Page 4 of 6 08/07/2004 AP RPL had executed a Loan Agreement with Standard Chartered Bank (ECB)

Singapore Branch of ACB, UK on the following terms as per the statement of facts filed before

the CIT(A):- • “A facility of USD 10 million by way of External Commercial Borrowings ("ECW) was sanctioned by SCB Singapore (Lender) to APRPL (Borrower). • The SCB, India branch was the arranger and security agent in this transaction. • The purpose of the ECB is to finance the ongoing capital expenditure of APRPL. • The tenure of the loan was for a period of 5 years with an average maturity period of minimum 3 years. • The interest cost of loan was 6 months London Interbank offered Rate (“LIBOR”) + 180 bps. • As per the terms of the loan agreement, APRPL was liable to bear the withholding tax on interest payments to SCB Singapore. • The assignment clause in the loan agreement mentions that the lender and the security agent has the right to transfer/assign their rights and obligations under the loan agreement.”

4.1. The principal sum and interest was deposited in the bank account of ACB, Singapore

maintained in ACB, New York Branch of ACB, UK. The relevant regulatory certificate from the

Chartered Accountant while remitting the payments to ACB, Singapore in view of Circular

No.759 dated 18/11/1997 was claimed to have been relied upon. It has been stated that in

accordance with the provisions of Article 11(2) of the India Singapore Double Taxation

Avoidance Agreement ("tax treaty"), APRPL was deducting and depositing tax deducted at

source ("TDS") at an effective tax rate of 11.68% (after tax gross up under section 195A of the

Act) while remitting the interest payments to SCB Singapore in financial year 2005-06. The TDS

on interest payments to SCB Singapore was deposited in Nagpur and the corresponding TDS

returns were also been filed in Nagpur. Thereafter it has been submitted that APRPL was

amalgamated with the assessee and post the amalgamation, the assessee sought to

renegotiate the ECB with SCB Singapore. With effect from 23 December 2005, the ECB was

assigned from SCB Singapore to SCB (Mauritius) Limited, a company incorporated under the

laws of Mauritius and carrying on bonafide banking business. The terms and conditions of the

I.T.A .No.-447 to 449/Del/2011 Ballarpur Industries Ltd. vs ITO

Page 5 of 6 loan agreement with SCB (Mauritius) Limited in view of the letter issued by SCB (Mauritius)

Limited were stated to be as under:-

• A facility of USD 10 million by way of ECB was sanctioned. • The purpose of the ECB is to finance the ongoing capital expenditure of the company. • The tenure of the loan was for a period of 5 years with an average maturity period of minimum 3 years • The interest cost of loan was 6 months LIBOR + 140bps. • As per the terms of the loan agreement, APRPL would be liable to bear the withholding tax (if any) on interest payments to SCB (Mauritius) Limited. • Other terms and conditions remained the same Further, at the time of filing the ECB - 2 return with the Reserve Bank of India ("RBI"), an intimation was duly filed with the RBI, vide letter dated 3 January 2006, that the ECB has been transferred from SCB (Singapore) to SCB (Mauritius) Limited.” 4.2. It has been stated that while remitting the interest payments to SCB (Mauritius) Limited

in the financial years 2005-06, 2006-07 and 2007-08, the assessee did not withhold tax by

relying on the provisions of Article 11(3) of the India Mauritius tax treaty which provide that

where the interest income is derived and beneficially owned by a bank (which is a resident of

Mauritius) carrying on a bonafide banking business, such interest income is exempt from tax in

India. Ballarpur Industries Ltd (B-lLT) also a company incorporated in India, engaged in

manufacturing and export of paper for the payment of interests and principal amount to

Standard Chartered Bank, Mauritius, the assessee did not deducted at source relying upon the

Certificate of their Chartered Accountant Certificate. The stated reason in support of the

Certificate was stated to be Article 11 of DTAA between India and Mauritius. The AO apart from

other reasons was of the view that there was no transaction of the assessee with Standard

Chartered Bank, Mauritius as the said bank according to the AO was neither recipient of the

beneficial owner of the interest. It was held that the interest is taxable as per the provisions of

section 115A(1)(a)(ii) of the Act in the case of the payee. The assessee was deemed to have

been assessee in default as per the provisions of section 201(1) of the Act with regard, tax was

not deducted. Interest under section 201(1A) was also charged raising a total demand of

Rs.7,57,32,656. The assessee challenged the order before the CIT(A) both on merits as well as

on jurisdiction and the limitation grounds. However, the Ld. CIT(A) while deciding the appeal on

I.T.A .No.-447 to 449/Del/2011 Ballarpur Industries Ltd. vs ITO

Page 6 of 6 merits and failed to address the jurisdictional issue and on the limitation issue, he failed to give any finding. On a consideration of the arguments of the parties before the Bench and on a consideration of the orders of the tax authorities, we find that the impugned order cannot be upheld. As per settled legal precedents the Ld. CIT(A) ought to have first decided the jurisdictional issue and only thereafter should have proceeded to decide the issue on merits if

so warranted in law. It is only when the jurisdiction of the AO is held to be established that the CIT(A) was required to decide the issue on merits. Without having addressed the jurisdictional issue the decision on merits has to be set aside back to the CIT(A) with a direction to decide the issues denovo after giving the assessee a reasonable opportunity of being heard. 5. In the result, the appeals of the assessee are allowed. The order is pronounced in the open court on 10th of March 2017. Sd/- Sd/- (S.V.MEHROTRA) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER *Amit Kumar* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI

I.T.A .No.-447 to 449/Del/2011 Ballarpur Industries Ltd. vs ITO