Tax Appeal Outcome: Expenditure reimbursement taxed, customs duty excluded, interest at 15% rate.

The ITAT partly allowed the revenue's appeal and the cross objection of the assessee. The reimbursement of expenditure against the supply of material was held taxable, while customs duty was excluded from taxation under section 44BB. The interest received on income-tax refunds was directed to be taxed at 15% under the DTAA between India and USA.

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Issues involved:
The issues involved in this judgment are the taxability of reimbursement of expenditure against supply of material, customs duty, and interest received on income-tax refunds under section 44BB of the Income Tax Act, and the applicability of Double Taxation Avoidance Agreement (DTAA) between India and USA.

Taxability of Reimbursement of Expenditure:
The appeal and cross objection arose from the order of the CIT(A) regarding the taxability of reimbursement of expenditure against supply of material, customs duty, etc. The assessee, a US company engaged in providing services related to mineral oils, claimed exemption for certain expenditures under section 44BB of the Act. The AO included these amounts for taxation. The ITAT held that the reimbursement of expenditure against the supply of material is taxable based on the decision of the jurisdictional High Court. However, regarding customs duty, the ITAT accepted the assessee's plea as it did not fall within the receipts contemplated in section 44BB of the Act.

Interest Received on Income-Tax Refunds:
The assessee received interest under section 244A of the Act from the department, which the AO assessed as income from other sources and taxed at 41%. The assessee contended that the interest should be taxed at 15% under the DTAA between India and USA or at 20% under section 115A of the Act. The ITAT, following a similar ruling in a UK-India DTAA case, directed the AO to tax the interest at 15% under the DTAA between India and USA.

Conclusion:
The ITAT partly allowed the revenue's appeal and allowed the cross objection of the assessee. The reimbursement of expenditure against the supply of material was held taxable, while customs duty was excluded from taxation under section 44BB. The interest received on income-tax refunds was directed to be taxed at 15% under the DTAA between India and USA. The order was pronounced on 24.10.2008.

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