Case Number: ITA 5052/DEL/2019
Appellant: Alexandria Real Estate Cyprus No. 1 Limited, Nicosia, Cyprus
Respondent: DCIT, Circle-1(1)(1), New Delhi
Assessment Year: 2014-15
Result: Final Tribunal Order
Case Filed On: 2019-05-31
Date of Order: 2023-06-20
Pronounced On: 2023-06-20
This appeal was filed by Alexandria Real Estate Cyprus No. 1 Limited against the order dated 29.03.2019 passed by the learned Commissioner of Income Tax (International Taxation)-I, New Delhi, under Section 263 of the Income Tax Act, 1961, for the assessment year 2014-15. The appellant contested the revision order, which questioned the applicability of treaty benefits under the India-Cyprus Double Taxation Avoidance Agreement (DTAA).
The appeal was based on the following grounds:
During the hearing on 08.06.2023, no one appeared on behalf of the appellant. However, the appellant had submitted written arguments contesting the CIT’s findings and maintaining that they were the beneficial owner of the interest income entitled to the treaty benefits under the India-Cyprus DTAA.
The learned CIT (DR), Shri Vizay B. Vasanta, argued that the Assessing Officer had identified a deficiency in the income disclosed by the appellant and that the AO had granted treaty benefits without properly examining the facts. The CIT’s revision order was thus justified as the assessment order was erroneous and prejudicial to the interests of the revenue.
The tribunal noted that the CIT(International Taxation) had issued a show cause notice via email, but no response was received from the appellant. The CIT proceeded to pass the revision order based on the material available on record, concluding that the appellant was not the beneficial owner of the interest income and thus not entitled to treaty benefits under the India-Cyprus DTAA.
The tribunal observed that the appellant’s company in Cyprus appeared to be a conduit with no substantial business activity and was used primarily to avail the benefits of the India-Cyprus DTAA. The interest income was funneled from the Indian company to the holding company in the USA, with the Cyprus entity merely acting as a pass-through entity.
The tribunal upheld the CIT’s findings, noting that the appellant failed to provide contrary material evidence to rebut the CIT’s conclusions. The tribunal affirmed that the AO’s assessment order was indeed erroneous and prejudicial to the interests of the revenue.
The tribunal dismissed the appeal filed by Alexandria Real Estate Cyprus No. 1 Limited, upholding the CIT’s order that the appellant was not the beneficial owner of the interest income and therefore not entitled to the benefits of the India-Cyprus DTAA.
This case underscores the importance of establishing substantial business activities and beneficial ownership when claiming treaty benefits under DTAA. Mere incorporation in a treaty-beneficial jurisdiction without substantial business activities may not be sufficient to claim reduced tax rates on passive incomes such as interest, dividends, and royalties.
Taxpayers engaging in international transactions should be mindful of the substance-over-form principle and ensure that their operations in treaty-beneficial jurisdictions are substantial and genuine. The revenue authorities are likely to continue scrutinizing claims for treaty benefits to prevent abuse and ensure compliance with tax laws.
In summary, the tribunal’s decision in the case of Alexandria Real Estate Cyprus No. 1 Limited vs. DCIT, Circle-1(1)(1), New Delhi, emphasizes the critical importance of establishing genuine business activities and beneficial ownership to avail of treaty benefits. Taxpayers should carefully structure their international transactions to ensure compliance with both the letter and spirit of DTAA provisions.
The case is part of a broader effort by tax authorities to combat treaty shopping and ensure that treaty benefits are granted only to entities that genuinely qualify for them. This decision aligns with global trends where tax authorities are increasingly focusing on the economic substance of transactions and the actual business activities of entities claiming treaty benefits.
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