Interest paid to NR on FCCB won’t accrue or arise in India if borrowed sum is utilized for overseas business

By | December 21, 2015

Suzlon Energy Limited v. ACIT [Ahmedabad ITAT]

ITA No. 3773 of 2008, 113, 2052 of 2009, 3475 & 3476 of 2010

Date of Decision: September 03, 2015

Facts of the Case

The assessee, an Indian company is engaged in the business of manufacturing Wind Turbine Generators (WTGs) at various units, Daman and Pondicherry Dhule. The assessee Foreign Currency Convertible Bonds (FCCB) to non-resident under permission of the RBI under External Commercial Borrowing (‘ECB’) for acquisition of shares in overseas subsidiary, which was carrying on business outside India resulting in source of income outside India. The assessee-company had made payment to non-resident bond holders on account of consent incentive for change in financial covenants of FCCB and had also remitted interest on the said FCCBs but it had not deducted TDS on said remittance.

Decision of the Tribunal

The Appellate Tribunal held that while following the decision of the co-ordinate bench of the Tribunal in ADIT v. Adani Enterprises Ltd., which is identical in terms of facts and law held that since income in question is squarely falling under the exclusion clause of income deemed to accrue or arise in India u/s 9(l)(v)(b) of the Act, it cannot fall within the ambit of income accrued and arisen in India, and hence, the same cannot be said to be covered u/s 5(2) of the Income Tax Act, 1961. Since the recipient non-resident is not taxable on this income in India, there was no obligation to deduct tax at source on such remittance. Hence, assessee cannot be held liable u/s. 201(1)/(1A) of the Act.

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