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2013 (12) TMI 606 - HC - Income TaxInterpretation of articles of DTAA - Held that - A plain reading of provisions of DTAA between India and France makes it absolutely clear that Sub-Articles (1) & (2) will apply inter alia when the recipient of interest does not have a permanent establishment in the country, where he has received interest - The respondent assessee had a permanent place of business in India and, accordingly, submitted to the taxing jurisdiction of India and paid tax on its income except income from interest under Section 44BB of the Income Tax Act - The interest earned in India on the refund of income tax is not covered by Sub-Articles (1) & (2) of Article 12 of the said Treaty - Decided in favour of Revenue.
Issues: Interpretation of Article 12 Sub-Articles (1), (2) & (5) of the Double Taxation Avoidance Treaty between India and France.
Analysis: 1. The judgment revolves around the interpretation of Article 12 Sub-Articles (1), (2) & (5) of the Double Taxation Avoidance Treaty between India and France. Sub-Articles (1) & (2) deal with the taxation of interest paid to a resident of the other Contracting State. It specifies that such interest may be taxed in the Contracting State where it arises, but if the recipient is the beneficial owner, the tax shall not exceed 10% of the gross amount of the interest. 2. The court highlighted that Sub-Articles (1) & (2) are applicable when the recipient of interest does not have a permanent establishment in the country where the interest is received. In this case, the respondent assessee had a permanent place of business in India and submitted to the taxing jurisdiction of India, paying tax on its income except for income from interest under Section 44BB of the Income Tax Act. 3. The judgment clarifies that the interest earned in India on the refund of income tax is not covered by Sub-Articles (1) & (2) of Article 12 of the Treaty due to the presence of a permanent establishment in India. As a result, the Tribunal's decision is set aside, and the appeal is allowed in favor of the appellants. 4. The court's interpretation emphasizes the importance of analyzing the specific provisions of tax treaties to determine the applicability of tax laws and obligations based on the taxpayer's circumstances, such as the existence of permanent establishments in different jurisdictions. The judgment provides a clear understanding of how tax treaties govern the taxation of income, particularly in cases involving cross-border transactions and interests.
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