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of <h1>UK Resident's Interest Income Taxed as Business Profits under India-UK DTAA</h1> The Tribunal dismissed the appeal, ruling that interest income earned through a permanent establishment in India by a UK resident should be taxed as ... Double Taxation Relief Issues:The judgment involves the issue of taxing interest income at a higher rate applicable to non-residents under para 6 of art. 12 of the DTAA between India and the United Kingdom, as opposed to the lower rate under para 2 of art. 12.Details of the Judgment:Issue 1: Taxing Interest IncomeThe appellant, a non-resident company tax resident in the UK, offered interest income for taxation at 15% under para 2 of art. 12 of the DTAA. However, the AO applied para 6 of art. 12, taxing the interest income as business profits due to earning it in India through a permanent establishment (PE). The CIT(A) upheld this decision, stating that since the appellant earned interest through a PE in India while carrying on business, it should be taxed as business income at the applicable rate. The appellant contended that para 2 of art. 12 should apply, not para 6. The Tribunal held that as per para 6 of art. 12, the interest income, connected with the PE in India, should be taxed as business profits under art. 7, not at the lower rate under para 2 of art. 12.Issue 2: Applicability of DTAA ProvisionsThe Tribunal considered the provisions of para 6 of art. 12 of the DTAA between India and the UK, which state that if the beneficial owner of interest carries on business in the state where the interest arises through a PE, the interest is to be taxed as business profits. Since the appellant, a UK resident, conducted business in India through a PE and the interest was connected with the PE, para 6 of art. 12 applied, overriding the provisions of paras 1, 2, and 3(a) of art. 12. The Tribunal distinguished the case from a previous ruling of the Authority for Advance Rulings, emphasizing that the appellant had a PE in India, making para 6 applicable.Conclusion:The Tribunal dismissed the appeal, ruling that the interest income earned through a PE in India by the UK resident appellant should be taxed as business profits under art. 7, as per para 6 of art. 12 of the DTAA between India and the UK, and not at the lower rate under para 2 of art. 12.
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