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TMI Blog2022 (2) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the effective connection with the PE because that would render provision contained in paragraph 4 of Article XI redundant Thus, there may be cases where interest may be taxable under the Act under the residuary head and yet be effectively connected with the PE. The bank interest in this case is an example of effective connection between the PE and the income as the indebtedness is closely connected with the funds of the PE. As referring to relevant Article 11 of Indo-US DTAA with regard to interest it can be concluded that interest on income tax refund is not effectively connected with the PE either on the basis of asset- test or activity- test. Hence, it is taxable as per the provisions in the Para No. 2 of Article XI of Indo- US DTAA. - ITA No. 5895/Del/2017 And ITA No. 5896/Del/2017 - - - Dated:- 28-1-2022 - Sh. A. D. Jain, Vice-President And Dr. B. R. R. Kumar, Accountant Member For the Assessee : Sh. Amit Arora, Adv. For the Revenue : Sh. Radhey Shyam, CIT DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeals have been filed by the assessee against the orders of ld. CIT(A)- 2 , Noida dated 27.07.2017. Reimbursement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Vs. Dunlop Rubber Company Ltd. 142 ITR 493 (Cal.) Rolls Royce India Ltd. Vs. ITO 25 ITD 136 (Del. Trib.) 7. Further, merely because the income is determined on a presumptive basis, it was not sufficient to include any sort of receipt in the taxable income of the appellant. This is because provisions of presumptive taxation aim at merely estimating the taxable income of the appellant and any receipt not being in nature of income , cannot be included in the taxable income of the appellant. 8. In this connection, the assessee relied on the decision of the Tribunal in the case of Sedco Forex International Drilling Inc. 72 ITD 415 , wherein the Tribunal held that reimbursement of expense will not be taxable if the recipient incurred the expenses on behalf of the payer. 9. It was further submitted that the Hon ble Jurisdictional Uttaranchal High Court has dismissed the appeal filed by the Revenue (ITA No. 06 of 2003) against the order of the Delhi Tribunal in the aforesaid case and confirmed that the reimbursement of expenses will not be taxable as income in the hands of the recipient. 10. The assessee was further stated that there is a decision of the Hon ble jurisdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the PE. Since the domestic law was equally applicable to the assessee, therefore, it cannot be said, that the indebtedness was connected with the PE of the assessee. It was argued that the assessee was entitled to the beneficial provision of or interpretation under the domestic law in view of the provision contained in section 90(2) of the Act. Therefore, the PE was not the creditor of the income- tax department. Accordingly, the indebtedness was not effectively connected with the PE. It was further mentioned that a debt-claim in respect of which interest was paid will be effectively connected with the PE and will form part of its business assets, if the economic ownership of the debt-claim, was allocated. 17. The ld. DR argued that the assessee was carrying on business through its Permanent Establishment in India and since interest income was not covered by the provision contained in section 44 BB of the Act, he held that the AO was right in taxing the interest income as business income. It was argued that the interest had not arisen out of the business transactions, and it was received in the course of the business of the PE and, therefore, there was a direct nexus of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is entitled to the benefit under the treaty. 20. Article VII deals with taxation of business profits and also provides for mechanism to compute the profits of the business. Paragraph no. 4 relieves the source State from the rigors of paragraphs nos. (1) and (2) in case the interest is found to be effectively connected with the PE, even if it is not in the nature of business income of the assessee but is effectively connected with the PE. If interest is the business income as a matter of fact, such income falls automatically within the ambit of Article VII without even taking recourse of paragraph no. 4. Therefore, this paragraph contemplates a different condition upon whose satisfaction interest becomes taxable under Article VII. It is an accepted canon of interpretation that no part of the statute should be rendered null and void by interpretation. Therefore, some meaning has to be placed on the contents of this paragraph. 21. Interest income need not be necessarily business income in nature for establishing the effective connection with the PE because that would render provision contained in paragraph 4 of Article XI redundant Thus, there may be cases where inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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