Provision of DTAA is applicable on the interest amount under the IT Act, clarifies ITAT

IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH ‘D’, NEW DELHI
Before Sh. Amit Shukla, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
(Through Video Conferencing)
ITA No. 3303/Del/2016 : Asstt. Year : 2009-10

M/s Mondon Investments Ltd.,
C/o-Khiwani & Co., CA,
23/26, 2nd Floor, East Patel Nagar,
Main Market, New Delhi-110008

vs

DCIT,
Circle-3(1),
New Delhi

Assessee by : Dr. Rakesh Gupta, Adv.
Revenue by : Sh. Umesh Takyar, Sr. DR
Date of Hearing: 05.07.2021 Date of Pronouncement: 02.09.2021
ORDER

That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making an adjustment of Rs.4,02,72,970/- as income in the hands of assessee company on account of deemed interest income and that too by recording incorrect facts and findings and without observing the principles of natural justice.

2. The assessee is a company incorporated in Cyprus. The assessee on 30th November 2007 subscribed to 15% Fully Convertible Debentures (FCDs) of face value of Rs.100/- each.

3. The debentures were converted into 0% FCDs w.e.f. 01.01.2009. Further, on 23rd December 2009, in addition to the conversion of 15% FCDs into 0% FCDs, the assessee has subscribed to 0% FCDs of face value of Rs.100/- each issued by the above AEs.

4. Where, by reason of a special relationship between the payer and the benef icial owner or between both of them and some other person, the amount of the interest, having regard to the debt claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shal l apply only to the last mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.”

5. In the result, the appeal of the assessee is al lowed.

Please find attached the enclosed file for the full judgement

Order Pronounced in the Open Court on 02/09/2021.