UAE Company Earned ₹4+ Cr Interest in India, No ITR Required Despite TDS: Here’s Why [Read Order]

A UAE-based company earned more than Rs. 4 crore in interest from an Indian entity. Although tax was already deducted at source on this income, the company did not file an Income Tax Return in India.

The Income Tax Department reopened the case on the assumption that not filing an ITR meant income had escaped assessment. The ITAT held that the company was not required to file an ITR at all and therefore the reopening was invalid.

2. Background

Kisan International Trading FZE, a UAE tax resident, received interest income of about Rs. 4.24 crore from IFFCO. TDS was deducted at 12.5 percent under the DTAA and section 195, amounting to more than Rs. 53 lakhs. As per section 115A(5) of the Income Tax Act, a non-resident is not required to file a return if its only income is interest or similar income and full TDS has been deducted at the prescribed rate.

Despite this, the Assessing Officer issued a notice under section 148 treating the assessee as a non-filer. The AO further adopted an incorrect income figure of about Rs. 8.49 crore, which was double the actual interest shown in Form 26AS.

The assessee challenged the reassessment.

3. Arguments Before the Tribunal

Assessee:

• Section 115A(5) exempted filing of ITR because the only income was interest and full TDS had been deducted.
• The AO’s adoption of ₹8.49 crore showed a lack of care.
• Reasons for reopening were not provided and objections were not disposed of, contrary to the Supreme Court’s directions in GKN Driveshafts (India) Ltd.
• High Court rulings such as Nestle SA and TSYS Card Tech Services Ltd. held that reopening cannot be sustained where section 115A(5) applies.

Revenue:

• Non-filing justified initiation of proceedings under section 147.
• CIT(A) acted correctly in remanding the matter.

4. ITAT Observations

The tribunal focused on whether the assessee was required to file an ITR and whether reopening under section 147 was legally valid. Its observations were as follows.

A. Section 115A(5) squarely applied

The tribunal noted that the assessee earned only interest income from India and that full TDS was deducted at the correct rate. It reproduced section 115A(5):

“Section 115A(5) It shall not be necessary for an assessee referred to in sub-section (1) to furnish under sub-section (1) of section 139 a return of his or its income if—

(a) his or its total income in respect of which he or it is assessable under this Act during the previous year consisted only of income referred to in clause (a) [or clause (b)] of sub-section (1); and

(b) the tax deductible at source under the provisions of Part B of Chapter XVII has been deducted from such income and the rate of such deduction is not less than the rate specified under clause (a) or, as the case may be, clause (b) of sub-section (1).”

Explanation of Section 115A(5)

The law says filing a return is NOT necessary if BOTH conditions are met:

Condition 1: The person’s entire income from India must consist only of the income mentioned in Section 115A(1) for example Interest on loans from India (like in your case), Dividends, Royalty / FTS under specific agreements. No other income should be earned from India.

Condition 2: The tax must have been:

1. Deducted at source (TDS),

2. At a rate not lower than the special tax rate prescribed in Section 115A(1).

For interest received by a non-resident under a DTAA (like UAE), this rate is usually 10% or 12.5%. If TDS at or above this rate has already been deducted, the government has already received the tax due.

B. Reopening u/s 147 unjustified

The tribunal held that reopening based solely on non-filing was invalid because the law itself exempted the assessee from filing. The AO had not considered section 115A(5) or judicial precedents such as Nestle SA and TSYS Card Tech, which make clear that non-residents covered by this provision cannot be treated as having concealed income.

C. Incorrect income figure showed lack of application of mind

The AO adopted an income figure exactly double the actual amount in Form 26AS. This, according to the Tribunal, demonstrated non-application of mind, which undermines the formation of a valid "reason to believe" under section 147 of the Income Tax Act.

D. Procedural lapses under GKN Driveshafts

The AO failed to furnish reopening reasons or pass a speaking order on objections, contrary to the Supreme Court’s mandate in GKN Driveshafts. This procedural failure further invalidated the reassessment.

E. CIT(A)’s remand was unwarranted

The tribunal observed that the CIT(A) should have decided the jurisdictional issue rather than mechanically remanding the matter under section 251(1)(a).

Result

The tribunal concluded that section 115A(5) exempted the assessee from filing an ITR; the AO misread the income, ignored statutory protection, and failed to follow procedure. The reopening under section 147 was therefore invalid.

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