2022 (11) TMI 1445

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....n upholding the assessment order taxing the interest on income tax refund as business income under Article-7 of the India- Malaysia Double Taxation Avoidance Agreement (DTAA) @40% + surcharge @ 5% + cess @ 3%. 3. Shri Hemen Chandariya appearing on behalf of the assessee submitted that the assessee had received interest under section 244A of the Income Tax Act, 1961 [in short 'the Act'] amounting to Rs.1,77,55,030/- during the previous year. The assessee claimed that the aforesaid interest is taxable @10% under Article 11(2) of India- Malaysia DTAA The Assessing Officer following the decision rendered by Hon'ble Uttarakhand High Court in the case BJ Services Company Middle East Ltd. applied provisions of Article -7 of DTAA and taxed inter....

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....h Engineering Ltd. (supra). The Special Bench held that interest on income tax refund would be taxable under Article-11 and not as business profits connected with the PE of assessee. The relevant extract of the findings of Special Bench reads as under:- "11.4 Thus, we are again left with the fundamental question as to whether the debt-claim in this case can be said to be effectively connected with the PE. We have already held that the claim is connected with the PE in the sense that it has arisen on account of tax deduction at source from the receipts of the PE. However, it is also a fact that payment of tax is the responsibility of the foreign company. The same is determined after computation of its income and the tax forms not an....

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.... basis of asset-test or activity-test. Accordingly, it is held that this part of interest is taxable under paragraph No. 2 of Article XI. Thus, the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with this order." [Emphasized by us] 7. One of the question of law for consideration before Hon'ble Bombay High Court in the case of DIT vs. Credit Agricole Indosuez (supra) was : "(4) Whether, on the facts and in the circumstances of the case and in law, the ITAT has erred in directing the A.O. to tax the interest received u/s 244A at the rate prescribed in Article 12 of DTAA between India and France?" The Hon'ble High Court referred to the decision of Spec....