INCOME TAX ACT, 1961

Section 9

Income deemed to accrue or arise in India - Issue was as regards use of expression 'paid' in article 11(1) of India Cyprus tax treaty, in relation to taxability of interest - Taxability, whether arise on Cash basis - Referral of matter to larger Bench of Tribunal

Assessee was a Cyprus based company. It challenged decision of DRP charging notional interest on loan advanced by it to its Indian subsidiary company. Assessee contended that no interest was paid by its subsidiary in relevant period as said period was covered by moratorium under loan agreement and as per article 11, and interest is chargeable to tax only when it is arising and paid to non-resident. Held: There are various decisions of Tribunal holding that taxability of interest under DTAA could only be done on cash basis. However, there was no discussion about connotations of expression 'paid' and these decisions simply proceed on basis that because expression 'paid' is used in article 11(1), taxability of interest can only be on cash basis and expression 'paid' is admittedly not defined in treaty. In event of a doubt about correctness of earlier decisions of Tribunal, a reference can be made for constituting a Larger Bench for considering same. Since connotations of expression 'paid' appearing in article 11 was required to be examined in detail, and that exercise could at best be conducted by a Bench of three or more members, so that decision is unfettered by earlier decisions in that regard, therefore, it was considered proper to refer matter to a Special Bench of three or more members.

REFERRED : Standard Triumph Motor Co. Limited v. CIT (1993) 201 ITR 391 (SC) : 1993 TaxPub(DT) 1212 (SC) UOI v. Paras Laminates (P) Ltd. (1990) 186 ITR 722 @ p 726 (SC) : 1990 TaxPub(DT) 1316 (SC) Distributors (Baroda) Private Limited v. UOI & Ors. (1985) 155 ITR 120 1 (SC) : 1985 TaxPub(DT) 1293 (SC)

FAVOUR : Matter referred to larger bench

A.Y. : 2012-13

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