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India-Mauritius DTAA or Interest Income from Foreign Currency Loan & Securities would not be exigible to Tax in India: ITAT [Read Order]

By Mariya Paliwala -

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that India-Mauritius Double Taxation Avoidance Agreement (DTAA) or Interest Income from Foreign Currency loan and Securities would not be eligible to tax in India.

The assessee, HSBC Bank which is a limited liability company incorporated, registered and a tax resident in Mauritius are a Foreign Institutional Investor (FII) duly registered as such by the Securities and Exchange Board of India (SEBI). The assessee had e-filed its return of income for Assessment Year, declaring its total income at Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment under Section 143(2) of the Act.

As the assessee had not offered the interest income for tax in India, therefore, the AO called upon it to put forth an explanation as to on what basis the said amount was claimed to be not eligible to tax in India.

The issue raised in this case was whether the beneficial provisions envisaged in Article 11(3)(c) of the India-Mauritius tax treaty would be applicable to the interest income received by the assessee during the year, therein rendering the said receipts as not exigible to tax in India.

It was the claim of the assessee that as per Article 11(3)(c) of the India-Mauritius Tax treaty, the conditions required to be fulfilled in order to claim interest income as exempt from tax in India in relation to the interest should be derived and beneficially owned by the assessee; and the entity should be a bank carrying on bona fide banking business in Mauritius, were cumulatively satisfied on its part.

It was the claim of the assessee that as it was a licensed bank carrying on bona fide banking business in Mauritius, it had thus derived the interest income as contemplated in Article 11(3)(c) of the India-Mauritius tax treaty.

The AO held a conviction that the reliance placed by the assessee on the same was misplaced, for the reason, that the same was regarding taxation of income from dividends and capital gains under the India-Mauritius tax treaty.

The assessee assailed the final assessment order in appeal before the CIT(A). The CIT(A) vacated the addition of the interest income made by the AO and allowed the appeal.

The tribunal consists of the Accountant Member, N.K. Pradhan and Judicial Member, Ravish Sood held that India-Mauritius Double Taxation Avoidance Agreement (DTAA) or Interest Income from Foreign Currency loan and Securities would not be eligible to tax in India.

To Read the full text of the Order CLICK HERE