Interest income tax rate under treaty may apply at the lower rate, subject to verification of supporting evidence

Interest income taxation must be computed at the lower rate available under the applicable treaty and domestic provisions where the record supports that rate. An erroneous higher rate applied by the assessee does not entitle the revenue to retain that excess burden if the correct legal rate is otherwise available. The matter was restored for the assessee to produce supporting evidence and for the Assessing Officer to verify the applicable rate in accordance with law; if the claim is substantiated, the lower-rate computation is to be allowed.

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Issues: Whether the assessee was entitled to compute tax on interest income at the lower rate claimed under the applicable treaty and domestic provisions, and whether the matter required verification by the Assessing Officer.

Analysis: The assessee had originally computed tax at a higher rate, but the record indicated that the applicable rate under the treaty and the relevant domestic provisions could be lower. The revenue could not derive benefit from an erroneous application of a higher tax rate. The proper course was to restore the matter so that the assessee could furnish supporting evidence and the Assessing Officer could verify the claim in accordance with law.

Conclusion: The issue was decided in favour of the assessee to the extent that the matter was restored for verification of the correct applicable tax rate and, if found correct, the claim was to be allowed.

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