No TDS on interest paid to Non resident on FCCB

No tds (u/s 196c r.w.s. 115ac) on interest paid to nr on FCCB when the borrowed sum was utilized by payer for its overseas business

NO DEDUCT TAX AT SOURCE (U/S 196C R.W.S. 115AC) ON INTEREST PAID TO NR ON FOREIGN CURRENCY CONVERTIBLE BONDS WHEN BORROWED SUM WAS UTILIZED BY PAYER FOR ITS OVERSEAS BUSINESS

ADIT v. Adani Enterprise Ltd. [Ahmedabad ITAT] ITA No. 2329 of 2011 Date of Decision: September 02, 2015

FACTS OF THE CASE

The assessee-company remitted a certain sum to non-resident investors towards interest payable on foreign currency convertible bonds (FCCBs) issued by the assessee.

But the assessee-company did not deduct TDS on grounds that interest income was not received by a non-resident in India.

The monies of the debts raised in foreign currencies by the assessee are primarily invested in the foreign subsidiary, which in turn is involved in financing further business abroad.

Part of those funds which have not been invested in the subsidiary has been placed in banks abroad and the interest income received from the Time Deposits placed outside India was offered for taxation.

DECISION OF THE TRIBUNAL

The Appellate Tribunal held that the interest paid by the appellant on its FCCBs is covered by exceptions to section 9(1)(v)(b) of the Income Tax Act, and consequently, it shall fall outside the ambit of deemed income arising or accruing in India under section 5 of the Act also.

Section 9(1)(v)(c) states that carves out an exception in respect of interest payable by a person who is resident that in a case where the interest is payable in respect of any debt incurred or money borrowed and used for the purposes of a business or investment outside India, then such interest income cannot be said as even deemed to accrue or arise in India.

Therefore, it is held that the appellant- company was not liable to TDS U/S 196C r.w.s. 115AC of the Act. Since there is no liability to deduct tax at source, as a consequence, appellant-company cannot be treated as the assessee in default u/s 201(1).

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