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2019 (8) TMI 311 - HC - Income TaxArbitral Foreign Award - Section 48 of the Arbitration and Conciliation Act, 1996 - Right of appeal to Supreme Court - the stand of the income tax department is that compensation received by the decree holder towards breach of contract is liable for taxation in India as it is a “windfall gain” and hence is covered under Article 22(3) of the Double Taxation Avoidance Agreement (DTAA) subsisting between India and Switzerland. HELD THAT:- Even a plain reading of Article 22(3) of the DTAA shows that the amounts received by the decree holder as compensation, towards breach of contract cannot fall within its ambit. The language of Article 22(3) is unambiguous. What falls within its ambit is only income received from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any nature. It is only such income which can be taxed, if at all, in India. Monies received towards arbitration costs and legal costs - HELD THAT:- The income tax department proceeded on completely erroneous view of the matter - The income tax department has treated monies received under the award towards arbitration costs and legal costs as income of the decree holder and thereby proceeded to take the stand that the same will be taxable as “fee for technical services”, both under the provisions of Income Tax Act, 1962 and the DTAA - the stand taken by the income tax department on this score would also have to be rejected. The Registry is directed to release the balance amount available with it along with accrued interest to the decree holder without deducting any sum towards withholding tax - petition disposed off.
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