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2022 (6) TMI 1109 - ITAT MUMBAIIncome accrued in India - interest income on loans in the form of suppliers credit given to Indian parties - interest is paid is effectively connected with the Permanent Establishment of the assessee in India and the interest income thereon was taxable as per Article 11(6) read with Article 7 of the DTAA - whether taxable at special rates as per Article 11(2) of the India-Japan? - CIT(A) held that the interest income on loans in the form of suppliers credit given to Indian parties is taxable at special rates as per Article 11(2) of the India-Japan DTAA specially because the assessee had a permanent Establishment in India during the said time - HELD THAT:- As decided in MARUBENI CORPORATION, JAPAN CARE OF MARUBENI INDIA PVT LTD [2022 (6) TMI 953 - ITAT MUMBAI] no part of interest income, by any stretch of logic, can be said to be directly or indirectly attributable to the Indian permanent establishment of the assessee company. As alleged that the Indian parties from whom the assessee has received interest income are also the clients of the assessee in India with whom contracts were executed through the Permanent Establishment in India and the assessee has received fees for technical services in a previous year from them, but then the performance of contracts through the PE or receipt of fees for technical services from such clients is irrelevant as long as the interest income is not demonstrated to be attributable to the permanent establishment. Such an attribution cannot be inferred or assumed; there has to be cogent material to establish the fact that the income in question, i.e. interest income in this case, is attributable to the permanent establishment. There is not even a whisper of a suggestion to that effect. For interplay of Article 11(6) and Article 7(1), in our considered view, the expression “effectively connected with such permanent establishment” must mean a situation in which the interest income in question can be said to be “directly or indirectly attributable to the permanent establishment” and can be brought to tax under article 7(1) as such. That is not even the case of the Assessing Officer before us. - Decided in favour of assessee. Levying surcharge and health and education cess on FTS income - HELD THAT:- We find that in the last paragraph of the assessment order, the Assessing Officer has specifically mentioned that the FTS “income of Rs. 30,92,20,199 is to be taxed @10% as per the DTAA” whereas the income said to be attributable to the PE “is to be taxed at the rates applicable to foreign companies, i.e. 40% plus surcharge and cess as per the Income Tax Act.” Yet, in the computation of tax liability, the surcharge as also health and education is also levied. That is certainly incorrect. In any event, this issue is covered, in favour of the assessee, by co-ordinate bench decisions, including in the case of DIC Asia Pacific Pte Ltd [2012 (6) TMI 686 - ITAT, KOLKATA] as held expression ‘tax’ is defined in Article 2(1) to include ‘income tax’ and is stated to include ‘surcharge’ thereon, so far as India is concerned. Article 2(2) further extends the scope of the ‘tax’ by laying down that it shall also cover “any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1”. "Education cess, introduced by the Finance Act, 2004, described in Section 2(11) of the Finance Act 2004, is nothing but in the nature of an additional surcharge. Accordingly, the “education cess” being in the nature of an “additional surcharge” is covered by Article 2. Accordingly, education cess cannot indeed be levied in respect of tax liability of the appellant company - Decided in favour of assessee.
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