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2022 (2) TMI 1423 - AT - Income TaxComputation of profits under the presumptive provisions of section 44BB - Receipts on account of VAT & Service tax - AO held that the receipts on account of service tax and VAT are in the nature of royalty/FTS u/s 9(1)(vi)/9(1)(vii) - HELD THAT:- As examined the issue of inclusion of service tax and VAT with reference to the provisions of Section 44BB in the light of the judgment of Mitchell Drilling International Pvt. Ltd [2015 (10) TMI 259 - DELHI HIGH COURT] as held that the purposes of computing the presumptive income of the assessee for the purposes of Section 44BB the service tax collected by the asses see on the amount paid to it for rendering services was not to be included in the gross receipts in terms of Section 44BB(2) read with Section 44BB(1). The service tax is not an amount paid or payable, or received or deemed to be received by the assessee for the services rendered by it. CIT (A) has not erred in holding that receipts on account of VAT & Service tax are not includible in gross revenue of the assessee for the purpose of computation of profits under the presumptive provisions of section 44BB of the I.T. Act, 1961. Interest Income taxability - AO taxed the interest on Income Tax Return @40% whereas the assessee pleaded that it should be taxed @15% in terms of Article 11 of Indo-USA DTAA - HELD THAT:- 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 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. On going through Article 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 11 of Indo-US DTAA.
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