2013 (8) TMI 985 - AT - Income Tax

Summary

Issues: The judgment involves the taxation of interest on Income Tax refund at a lower rate as per the Double Taxation Avoidance Agreement (DTAA) between India and Japan.

Summary:
The appeal by the Revenue challenged the order directing the Assessing Officer (AO) to tax the interest on Income Tax refund at a lower rate as per the DTAA between India and Japan. The assessee, a company incorporated in Japan with a Permanent Establishment (PE) in India, claimed that the interest on Income Tax refund should be taxed at the rate provided in the DTAA. The CIT(A) allowed the claim based on the decision of the Special Bench of the Tribunal in the case of Clough Engineering Ltd. vs. ACIT.

The Tribunal noted that the issue was covered by the decision of the Special Bench in the case of ACIT vs. Clough Engineering Ltd. The Coordinate Bench also decided a similar issue in the case of Bechtel International Inc. vs. ADIT, following the Special Bench decision. The Tribunal interpreted the term "attributable" in the DTAA as equivalent to "effectively connected," leading to the conclusion that the interest income on Income Tax refund should be taxed under Article 11(2) of the DTAA, not under Article 11(5).

Based on the decisions of the Special Bench and the Coordinate Bench, the Tribunal upheld the order of the CIT(A) in favor of the assessee, deciding the issue in favor of the assessee. Consequently, the appeal of the revenue was dismissed.

The judgment was pronounced in the open court on August 8, 2013.