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2011 (5) TMI 562 - AT - Income TaxDTAA between India and Australia - Interest income - Business income or other sources - Refund - Net or gross basis - The AO is of the view that the indebtedness is effectively connected with the PE as tax has been deducted at source from the business receipts - Held that:- It cannot be urged that the bare fact that the assessee deposited money in the bank is by itself sufficient to show that the deposits were made with a view to carry on the business - The tax has been deducted by operation of law and, therefore, the indebtedness cannot be said to arise in the course of carrying on the business - It has been mentioned that interest on funds which are connected with operation of ships or aircraft in international traffic is covered within the ambit of paragraph (3) for assuming the character of profit from operation of ships or aircraft in international traffic. Thus if the assessee opts to be taxed under the DTAA, the classification of income is not required to be done under the five heads. In fact, no head of income has been prescribed under the treaty - tax was deducted at source from the business receipts of the PE - sense that it has arisen on account of tax deduction at source from the receipts of 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 - Appeal is partly allowed
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