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TMI Blog2022 (11) TMI 1445X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT, DELHI] held that interest on income tax refund would be taxable under Article-11 and not as business profits connected with the PE of assessee. Also see Hon'ble Bombay High Court in the case of DIT vs. Credit Agricole Indosuez [ 2015 (6) TMI 974 - BOMBAY HIGH COURT] . We find merit in ground of appeal by the assessee. Accordingly, the Assessing Officer is directed to tax interest on income tax refund under Article 11(2) of India- Malaysia DTAA. Consequently, ground no.1 to 3 of appeal are allowed. - SHRI PRAMOD KUMAR, VICE-PRESIDENT SHRI VIKAS AWASTHY, JUDICIAL MEMBER For the Appellant : S/Shri Hemen Chandariya and Anish Thacker For the Respondent : Shri Soumendu Kumar ORDER PER VIKAS AWASTHY, JM: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income tax refund is taxable under Article -11 of the DTAA. The ld. Authorized Representative of the assessee further placed reliance on the decision of Hon'ble Bombay High Court in the case of DIT vs. Credit Agricole Indosuez 377 ITR 102 to contend that interest on income tax refund is not connected with the PE and hence, rate of tax is to determined on the basis of relevant clause of Interest in DTAA. 4. Per contra, Shri Soumendu Kumar representing the Department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. 5. Both sides heard, orders of authorities below examined. In ground No.1 to 3 of appeal, the assessee has assailed taxability of interest on income tax refund at higher rate under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case that the tax got automatically deducted from the receipts of the PE by operation of law. Such collection of tax by force of law would not establish effective connection of the indebtedness with the PE as ultimately it is only the appropriation of profit of the assessee company. However, we may add that we do not venture to say that the interest income has to 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 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clough Engg. Ltd. [2011] 130 ITD 137/11 Taxman 70 (Delhi). (b) The grievance of the Revenue is with the impugned order following the decision of the Special bench in Clough Engg. Ltd. (supra). (c) However we find that the decision in Clough Engg. Ltd. (supra) of the Special Bench had been followed by the Tribunal in DHL Operations B.V. v. Dy. DIT [IT Appeal No. 183 (Mum.) of 2010]. The issue before the Tribunal was the rate of tax on which Income tax refund is to be taxed i.e. on the basis of the Articles of DTAA or under the Act. The Tribunal on examination of the DTAA in the above case concluded that interest on income tax refund is not effectively connected with the PE (Permanent Establishment) either on asset test or activi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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