No ITR Required for Interest Income Under Section 115A(5) Without POEM in India: ITAT

The case is about a foreign company incorporated in Singapore, Argos Holdings Pte. Ltd, that does not have any permanent establishment (PE) in India for AY 2015-16. The assessee company was a SEBI-registered Foreign Portfolio Investor. The company invested Rs 448 crores in Non-Convertible Debentures (NCDs) of Sugam Vanijya Holdings Pvt. Ltd, an Indian company. The company used the provisions under section 115A(5) and did not file the ITR.

The assessing officer, based on the information flagged on the Non-filers Management System of the Income Tax Department, observed that the assessee had not filed the Income Tax Return (ITR) for AY 2015-16. The AO claimed that the income had escaped and therefore, the assessee’s case was reopened and notices under section 148 of the Income Tax Act, 1961, were issued to the assessee company on 31.03.2021. The AO accordingly made additions to the income of the assessee company. The company challenged this decision before the Income Tax Appellate Tribunal (ITAT), Delhi.

Agros submitted that the company had wound up on June 05, 2021, as per the applicable law in Singapore. The company also argued that it had no income subject to tax except for the interest income on which the TDS (Tax Deducted at Source) has already been withheld under Section 194LD, so the company was not required to file a detailed income tax return under Section 115A(5) of the Income Tax Act.

Section 115A(5) exempts foreign companies from the requirement of filing an income tax return in India if their total income in India includes the specified income, such as dividends, certain interest payments, royalties, fees for technical services from the government, etc.

The tribunal observed that the AO has made this belief that income has escaped based on the information from the Non-filers Management System and reopened the case. However, the court noted that the AO did not submit enough reasons to prove that the income had escaped. The court clarified that tax authorities must have considered the fact that the assessee is a foreign company and different provisions are applicable for such cases. The tribunal further added that the AO should have done his investigation before forming a belief.

Citing Section 115A(5), the ITAT highlighted that the assessee company, with only interest income, was not required to file a separate income tax return unless it had a permanent establishment or POEM (Place of Effective Management) in India, which was not proved by the authorities. The Tribunal also referred to Section 90(2), which mandates that a DTAA “shall prevail” over domestic law unless POEM or Section 6 of the Act overrides treaty concessions and in the present case, the AO had not submitted any such findings to initiate the reassessment proceedings.

The ITAT concluded that the taxes have already been deducted, so section 139 does not apply in this case, and the initiation of proceedings is invalid and void. Accordingly, the assessee’s appeal was partly allowed, and the other grounds of appeal were kept open.