Delhi Tribunal denies concessional tax rate under India-Cyprus tax treaty as taxpayer is not beneficial owner of interest income

In the case of Silverplass Holdings Ltd. ^[1] (Taxpayer), the issue arose before the Delhi Income Tax Appellate Tribunal was whether the Taxpayer, incorporated in Cyprus, was entitled to avail concessional tax rate of 10% under India-Cyprus Double Taxation Avoidance Agreement (tax treaty) on interest on compulsorily convertible debentures (CCD) earned from Indian companies. 

The Taxpayer was incorporated as investment holding company in Cyprus. Since its incorporation in the year 2013, it had made investment only in one instrument i.e. CCD of Indian company. The Taxpayer was a wholly owned subsidiary of Mauritius LLC. The Taxpayer claimed concessional tax rate of 10% under tax treaty as against offering interest income to tax at 20% rate under Income Tax Laws (ITL). 

In the assessment proceedings, the tax authority denied the tax treaty benefit to the Taxpayer and taxed the interest income at 20% under the ITL. The tax authority argued that (i) since its incorporation, the Taxpayer has made only one investment; (ii) the Taxpayer did not submit shareholder agreement which demonstrates attributes of beneficial owner of income i.e. whether use, enjoyment, risk and control vested with the Taxpayer or its shareholders; (iii) the Taxpayer and the Mauritius LLC have parent-subsidiary relationship; (iv) the Taxpayer had admitted that the Mauritius LLC is the beneficial owner of interest income as it assumes all the attributes of ownership viz., use, enjoyments, risk and control over the interest income. 

The Delhi Tribunal merely upheld the order of the tax authority without any independent observation or reasoning^[2] . 

^[1] [TS-1308-ITAT-2025(Del)]
^[2] The taxpayer did not raise a contention regarding availing Mauritius treaty benefit before the tax authority.