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TMI Blog2008 (9) TMI 410X X X X Extracts X X X X X X X X Extracts X X X X ..... e, a non-resident company, is a tax resident ofUK. The assessee offered interest income being interest received on the refund of income-tax of Rs. 18,94,274. The same was offered for taxation to be taxed @ 15 per cent under para 2 of art. 12 of Indo-UK DTAA. The AO held that in view of para 6 of art. 12, para 2 of art. 12 cannot be applied as the assessee who is a non-resident has earned the interest income inIndiathrough a permanent establishment (PE) situated inIndia. Therefore, in terms of para 6 of art. 12, the same is to be assessed under art. 7 (business profits). Accordingly the tax rate as applicable to other business income was applied. 4. Before the learned CIT(A), it was contended that para 2 of art. 12 shall apply and not para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of this debt, interest would have to be paid by virtue of the provisions of ss. 243 and 244 of the Act. The debt claim was not connected in any way with any activity of a PE or base inIndia. The right to get interest arose because of the delay in making refund of excessive collection of the tax. This was clearly a case falling under para 2 of art. 12 of the DTAA." 6. The learned Departmental Representative, Shri Devender Shankar, on the other hand, relied upon the appellate order. He invited our attention to art. 12 of Indo-UK DTAA [sic-(1994) 206 ITR 235] extracted hereunder: "1. Interest arising in aContractingStateand paid to a resident of the otherContractingStatemay be taxed in that other State. 2. However, such interest ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that as per para 6 of art. 12 provisions of paras 1, 2 and 3(a) shall not apply if the beneficial owner of the interest carries on business in the other Contracting State in which the interest arises through a PE situated therein. Since as per admitted facts the interest is arising through a PE situated inIndia, para 2 of art. 12 cannot be made applicable. The decision ofAARis not applicable as in the said case there is specific finding that the non-resident did not have any PE inIndia. In reply, the learned counsel for the assessee submitted that the interest is not arising because of any debt-claim but because of refund of income-tax which was to be granted to the assessee. Since the refund of income-tax is granted along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay tax on such interest @ 15 per cent. Rather, in terms of para 6 of art. 12 the same is chargeable under art. 7 as business profit. As rightly contended by the learned Departmental Representative, Shri Devender Shankar, the decision ofAARis distinguishable on facts. The said case is related to an assessee not having a PE inIndia. In the very said case it has also been held that para 6 of art. 12 of DTAA betweenIndiaandUKwill only apply when it can be shown that the assessee carries on business inIndiaand interest arose through a PE inIndia. Accordingly, the assessee is not entitled to be taxed under para 2 of art. 12 but was rightly taxed under para 6 of art. 12.
8. In the result, the appeal is dismissed. X X X X Extracts X X X X X X X X Extracts X X X X
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