18 Section 9(1)(v) of the Act – a non-resident, earned interest income on FCCBs issued by an Indian company abroad, entire proceeds of FCCBs had been utilised by Indian company in said country for repayment of an acquisition facility, interest income in question was not liable to tax in India as per exception carved out in section 9(1)(v)(b).

[2018] 94 taxmann.com 118 (Mumbai – Trib.)

Clearwater Capital Partners (Cyprus) Ltd.
vs. DCIT

A.Y.: 2011-12

IT Appeal Nos. : 843 and 1025 (Mum.) of 2016

Date of Order: 2^nd May, 2018

Facts

The Taxpayer was a
tax resident of Cyprus. It had invested in FCCB issued by an Indian (“ICo”)
company engaged in the business of wind power generation, carrying on business
both in India and outside India. ICO had utilised the entire proceeds of FCCB
for repayment of funds borrowed for financing acquisition of a foreign company
(“FCo”). During the relevant year, the Taxpayer had received interest and
incentive fee from ICo.

The Taxpayer
claimed that since FCCB proceeds were raised and utilised outside India, in
terms of exception carved out in section 9(1)(v)(b)⁴, interest on
FCCB did not accrue or arise in India.

______________________________________________________________________________

4  
Section 9(1)(v), inter alia, provides that interest payable by a resident to a
non-resident in respect of debt incurred or moneys borrowed and used by
resident for a business carried on outside India by him or for earning any
income from any source outside India by him, is not deemed to accrue or arise
in India.

The AO rejected the
claim of the Taxpayer.

The DRP, directed
the AO to exclude the interest income received by the Taxpayer from the FCCB
after verifications.

Held

–    The entire FCCB proceeds
were utilized by ICo for repayment of funds borrowed for financing acquisition of a FCo.

–    If interest is payable by a
resident to a non-resident in respect of any debt incurred or moneys borrowed
and used for the purpose of business or a profession carried on by such person
outside India or for the purpose of making or earning any income from any source
outside India, such interest shall not be deemed to have accrued or arisen in
India.

–    Lower authorities had not
rebutted the contention of the Taxpayer that the money borrowed by ICo was used
for business carried on outside India or earning income from source outside
India.

–  Accordingly, the view taken by DRP was
correct.

–  DRP had
observed that FCCB were issued outside India and the moneys borrowed were
utilized by ICo outside India. Therefore, in view of the exception carved in
section 9(1)(v)(b) of the Act, the interest received on such FCCB by the
Taxpayer from ICo was not chargeable to tax in India.