2019 (1) TMI 2040 - HC - Income Tax

Taxability of interest on income tax refund received - PE in India - whether should be taxed as per Article 11 of the India Switzerland DTAA @ 10% or payment of interest is inextricably connected with the company s permanent establishment in India and is therefore assessable as per Article 7 of the DTAA? - HELD THAT - Revenue very fairly states that this issue stands concluded against the Revenue and in favour of the Respondent Assessee by the decision of this Court in Director of Income Tax (International Taxation) v/s. Credit Agricole Indosuez 2015 (6) TMI 974 - BOMBAY HIGH COURT and CIT v/s. Tech. Mahindra Ltd. 2016 (3) TMI 248 - BOMBAY HIGH COURT Thus the question as framed does not give rise to any substantial question of law. Thus not entertained. Appeal admitted on the substantial question of law at (a) - Whether on the facts and circumstances of the case and in law the Tribunal is correct in upholding the decision of CIT (A) that international shipping profits are covered by Article 22 of the India Switzerland Treaty?

Summary

Issues involved:
1. Interpretation of international shipping profits under India-Switzerland Treaty.
2. Taxation of interest income received from the Income Tax Department under DTAA.

Analysis:

Issue 1: Interpretation of international shipping profits under India-Switzerland Treaty
The Appeals challenge the order of the Tribunal regarding the tax treatment of international shipping profits under Article 22 of the India-Switzerland Treaty. The Revenue questions the correctness of the Tribunal's decision in upholding the CIT (A)'s view on this matter. The Tribunal's decision appears to have been influenced by the interpretation of relevant provisions and precedents.

Issue 2: Taxation of interest income received from the Income Tax Department under DTAA
Regarding the taxation of interest income received from the Income Tax Department, the Tribunal had applied a tax rate of 10% under Article 11 of the India-Switzerland DTAA. The Revenue contends that this interest income should be taxed under Article 7 of the DTAA, considering its connection with the company's permanent establishment in India. However, the Tribunal's decision seems to have been based on the precedent set by the Special Bench in ACT v/s. Clough Engineering Ltd., 130 ITD 137.

The Counsel for the Revenue acknowledges that the issue in question has been settled against the Revenue and in favor of the Assessee by previous court decisions, such as Director of Income Tax v/s. Credit Agricole Indosuez and CIT v/s. Tech. Mahindra Ltd. Consequently, the Court finds that the framed question does not present a substantial question of law and thus declines to entertain it. The Appeal is, however, admitted on the substantial question of law raised in relation to the interpretation of international shipping profits under the India-Switzerland Treaty.

In conclusion, the Court directs the Registry to provide a copy of the order to the Tribunal for further proceedings and scheduling the Appeal for hearing alongside another Income Tax Appeal.