Approval granted under Section 194LC of Act suffices for applying DTAA rates without needing additional certification under Section 195.

JUDGMENT :

Anand Sharma, J.

1. This writ petition under Article 226 of Constitution of India has been filed by petitioner in order to assail the certificate of determination under Section 197 (1)/195 of Income Tax Act, 1961 (for short 'Act of 1961') dated 13^th August 2018 (wrongly referred as an ‘order’ by petitioner) relating to Tax deducted at Source (for short, 'TDS'), authorising petitioner to pay or credit other sums upto Rs.30,76,12,500/- after deducting income tax at the rate of 5% to the account of HSBC Bank (Mauritius) Limited, (HSBC Mauritius), a foreign lender. This pertains to period between 27^th April 2018 to 31^st March 2019. Petitioner has further prayed for a direction against respondents to refund amount of Rs. 57,71,736/- being the tax amount deposited by petitioner under protest pursuant to impugned determination dated 13^th August 2018 along with interest thereon.

2. Brief facts of writ petition are that petitioner, a company incorporated under Companies Act, 2013, is engaged in infrastructure projects and renewable energy facilities. For availing funds for its new long-term project, petitioner entered into an External Commercial Borrowing (for short, 'ECB') agreement dated 20^th March 2018 with a non-resident financial institution namely HSBC Mauritius, which is a tax resident of Mauritius.

3. Section 7(3) of ECB deals with taxes and lays down as under:-

"7.3:Taxes (a) All payments to be made by the Borrower to the Bank under the Facility Documents shall be made free and clear of all present and future taxes and deductions of whatever nature for or on account of tax unless the Borrower is required to make such a payment subject to the deduction or withholding of tax, in which case the sum payable by the Borrower in respect of which such deduction or withholding is required to be made by the Government of India or any other agency under the Indian Government or otherwise, shall be increased to the extent necessary to ensure that, after the making of the required deduction or withholding, the Bank receives (free from any liability in respect of any such deduction or withholding) a net sum, equal to the sum which it would have received had no such deduction or withholding been made or required to be made."

4. It has been contended that India has entered into a Double Taxation Avoidance Agreement (for short, 'DTAA') dated 6^th December 1983 with Mauritius. Petitioner further contends that Article 11 of DTAA deals with “Interest” and its sub-clause (4) lays down that interest arising in a contracting State shall be exempted from tax in that contracting State to the extent approved by Government of that State, provided that transaction giving rise to debt-claim has been approved in this regard by Government of first mentioned contracting State.

5. Following clauses of DTAA are relevant for purpose of dispute involved in instant writ petition:

“ARTICLE 2

TAXES COVERED

1. The existing taxes to which this Convention shall apply are:

(a) in the case of India,-

(i) the income-tax including any surcharge thereon imposed under the Income-tax Act, 1961 (43 of 1961);

(ii) the surtax imposed under the Companies (Profits) Surtax Act, 1964 (7 of 1964);

DEFINITION

ARTICLE 3

GENERAL DEFINITION

(c) the terms "a Contracting State" and "the other Contracting State" mean India or Mauritius as the context requires;

ARTICLE -11

INTEREST

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2........

3........

3A......

4. Interest arising in a Contracting State shall be exempt from tax in that Contracting State to the ex approved by the Government of that State if it is derived and beneficially own