Withholding tax on foreign arbitral award receipts rejected where treaty language did not cover contractual compensation, costs, or interest.

Amounts payable under a foreign award for breach of contract, arbitration costs, legal costs, and interest were held not liable to withholding tax in India under the India-Switzerland tax treaty or the Income-tax Act. The treaty clause for "other income" was confined to lottery-type receipts and did not extend to contractual compensation. Arbitration and legal costs could not be recharacterised as fee for technical services merely because they formed part of the award, and the same treaty reasoning applied to interest. Any assessment issues were left to be pursued, if at all, against the judgment debtor in accordance with law, not by deduction at the execution stage.

---

---

Issues: Whether the amounts payable under the foreign award, including compensation for breach of contract, arbitration costs, legal costs, and interest, were liable to withholding tax in India under the India-Switzerland tax treaty and the Income-tax Act.

Analysis: The treaty provision invoked for "other income" covered only income from lotteries, crossword puzzles, races, card games, gambling, or betting, and did not extend to compensation for breach of contract. The amounts awarded towards arbitration costs and legal costs could not be characterised as the recipient's income by treating them as fee for technical services merely because those sums were paid out of the award. The same reasoning applied to interest, as the treaty language did not support taxation of such receipt under the cited clause. The Court also noted that assessment questions, if any, would arise against the judgment debtor in accordance with law, but that did not justify withholding deduction at the execution stage.

Conclusion: The income tax department's stand was rejected, and the Registry was directed to release the balance decretal amount with accrued interest without deduction of withholding tax.

---