TMI Blog2011 (9) TMI 1006X X X X Extracts X X X X X X X X Extracts X X X X ..... d:- 21-9-2011 - SHRI D.K. AGARWAL, J.M. AND SHRI R.K. PANDA, A.M. Appellant by Shri Madhur Agarwal Respondent by Smt. Malathi Sridharan ORDER PER R.K. PANDA A.M. This appeal filed by the assessee is directed against the order dt. 13.11.2009 of the CIT(A)- 10, Mumbai relating to A.Y. 2003-04. 3. The grounds raised by the assessee are as under:- 1. No mistake apparent from records under section 154 of Income Tax Act, 1961 ( the Act ). On the facts and in the circumstances of the case and in law, the order passed by the Learned Deputy Director of Income Tax ( the learned Assessing Officer ) under Section 154 of the Act is bad in law in so far as the change in taxability of interest of income tax refund is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable to the assessee and hence the assessee was deemed to have a PE in India. Though business income of the assessee was taxed @41% but the interest income of ` 1,13,13,177/-, being interest on income tax refund received by the assessee during the year under consideration was taxed @10% instead of correct applicable rate of 41% since the assessee had PE in India. In view of the above, the A.O. issued notice u/s 154 of the Act requiring the assessee to explain its case. Rejecting the various explanations given by the assessee, the A.O. held that since the assessee was having PE in India and the interest income which arose was on account of excess payment of taxes relating to business income, therefore, the same was effectively connected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee by the Delhi Special Bench of the Tribunal. 5. We have heard the rival arguments made by both the sides, perused the material available on record. We have also considered the decision of the Special Bench of the Tribunal cited before us. We find the question before the Special Bench of the Tribunal is was under:- Whether, on the facts and in the circumstances of the case, interest on income-tax refund and fixed deposits with the bank is liable to tax with reference to article 7 read with paragraph (4) of article 11 or paragraph (2) of article 11 of the Indo-Australia Double Taxation Avoidance Agreement. 5.1 We find the Tribunal while deciding the issue in favour of the assessee has held as under:- (short notes) Hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) That article 11(1) of the Double Taxation Avoidance Agreement provides that the interest arising in India to which the assessee is beneficially entitled may be taxed in Australia. Paragraph (2) provides that such interest may also be taxed in India, according to the laws of India, but the tax so charged shall not exceed 15 per cent of the gross amount of the interest. Paragraph (3) defines the term interest to include within its ambit interest from the Government securities or from bonds or debentures and interest from any other form of indebtedness as well as all other income assimilated to income from money lent by the law, relating to tax in India. Paragraph (4) provides exceptions to the contents of paragraphs (1) and (2). It is p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion between the permanent establishment and the income as the indebtedness is closely connected with the funds of the permanent establishment. However, the same cannot be said in respect of interest on incometax refund. Such interest is not effectively connected with permanent establishment either on the basis of asset-test or activity-test. Accordingly, this part of interest was taxable under of article 11(2). 5.2 Respectfully following the decision of the Special Bench of the Tribunal cited supra and in absence of any contrary material brought to our notice, we hold that the interest on income-tax refund is not effectively connected with permanent establishment either on the basis of asset-test or activity-test. Accordingly it is h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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