TaxTMI 
TaxTMI 
2026 (9) TMI 1170
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.... CITY OF WILMINGTON, COUNTY OF NEW CASTLE BELAWARE, BELAWARE 999999, FOREIGN, United States" instead of correct address being "103 Centre Road, City of Wilmington, County of New Castle, Delaware, USA" and as such, the said assessment order issued under Ss 143(3) r.w.s 144C(13) as ab initio illegal and void ab initio. 2. The Ld. Dispute Resolution Panel has erred in fact and in law in holding that interest on the damages awarded through the Decree of an Indian Court is subject to taxation in India, within the ambit of INDIA-USA Double Taxation Avoidance Agreement and thus directing the Ld. Assessing Officer to charge tax on the interest awarded by Hon'ble Delhi High Court on decree damages @ 15% as per India-USA DTAA. 3. The Ld. Dispute Resolution Panel has erred in fact and in law in holding that "interest does not partake the character of the principal amount i.e Arbitration amount as the interest has its own distinct character..." placing reliance on an alleged decision of Hon'ble Delhi ITAT in the case of DCIT (OSD), Range-1, Dehradun V/s M/s Mc Dermott International Inc, allegedly reported in (2019)-TIOL-366- (ITAT-Del). In fact the above citation rela....
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.... 3. Brief facts of the case is that the assessee, Universal Tractor Holding LLC (hereinafter referred to as UTH) is a limited liability Company registered in Philadelphia, USA, and is a resident of USA. It has no business dealing with any person in India, does not have any presence in India and thus has no Permanent Establishment (PE) in India. 4. In 2006, UTH had entered into an agreement with another US Company, viz. M/s Escorts Agri Machinery Mart Inc, (EAMI), for the sale of its membership Interest of 49% in another US Company, viz. M/s Beavers Creek Holding LLC for USD 1.2 million, to be paid in 4 instalments. EAMI paid the first two instalments but defaulted in the payment of the balance two instalments. A suit was filed in the Wake Country Superior Court, State of North Carolina, USA, who were pleased to pass a Consent Order directing the two parties to refer the matter for arbitration. Meanwhile EAMI was taken over by an Indian company, viz M/s Escorts Ltd., an Indian Co., and it was substituted for EAMI in the Arbitration proceedings. The Arbitration Award (copy placed in Paper book filed on 8th May 2023, pp 3-12; significant page 9) decided the matter in favor of UTH....
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.... Aggrieved the assessee is before us. 7. The ld counsel of the assessee submitted that interest awarded by the Arbitrator, and subsequently enforced by the Delhi High Court, lost its character as "interest" and merged into a "Judgment-Debt". This is a settled principle of law as per the Hon'ble Supreme Court of India in Islamic Investment Co. (2004) 265 ITR 254 wherein the Hon'ble Court held that "once interest becomes part of a decree, it must be executed strictly under the Code of Civil Procedure (CPC). There is no provision in the Income Tax Act (specifically Section 195) that permits a debtor to deduct tax from a decretal amount on the grounds that it contains an interest component." 8. The ld AR stated that the India-USA DTAA was also wrongly invoked as that Treaty provisions apply only to "Interest" whereas in Assessee's case the said receipt had lost its nomenclature and characteristic as "interest" but become part of the "Judgment-debt" which did not attract any Income Tax in India or came within the ambit of India USA DTAA. 9. It was further submitted that the interest related to a period of default occurring outside India between two foreign entities.....
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...." 12. The ld AR distinguished the decision of DCIT (OSD) Range -1 Dehradun vs. M/s Mc Dermott International Inc. (2019)-TIOL-336 (ITAT-Del) cited by Ld. DRP and Ld. Assessing Officer, submitting that in Mc Dermott International the issue was "whether the interest awarded by Hon'ble Bombay High Court from date of decree till payment was made i.e interest of Rs. 1,96,72,751/- paid by Airport Authority of India on 30.7.1996 to the assessee, as there the dispute arose in India, at least one party was an Indian entity, no foreign Arbitration award was involved and the interest awarded had not merged as Judgment-debt through a Decree of the Court under Civil Procedure Code. 13. The ld AR further prayed that a direction may be given that the refund of taxes may kindly be released payable to the Assessee's Bank account in USA in USD$. [Account No. 000683091122 in Bank of America, 2441 Crabtree Blvd., Raleigh, USA]. 14. Per contra, the ld DR relied on the orders of AO and DRP. The ld DR stated that there are two components of the interest-one which has been given as award and the other which has been earned on the said deposit lying in the bank which is taxable in India. ....