TaxTMI 
TaxTMI 
2016 (5) TMI 945
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....he alternate ground of the appellant that the interest under Section 244A is liable to taxation at a restricted rate of 15% as provided in Article 12(2) of the Double Taxation Avoidance Agreement between India and Italy ?" 2. Heard Mr.N.V.Balaji, learned counsel for the appellant and Mr.T.Ravikumar, learned Standing Counsel for the Department. 3. The assessee/appellant is a company incorporated under the laws of Italy. The appellant is a non-resident for the purpose of the Income Tax Act, 1961 and it is a resident of Italy with whom the Government of India has entered into a Double Taxation Avoidance Agreement on 23.11.1995, but with effective date from 01.01.1996. 4. By orders dated 25.7.2012, the Assessing Officer gave effect to the orders of the Income Tax Appellate Tribunal and Commissioner of Income Tax (Appeals) in relation to the assessment years 2000-01, 2001-02, 2002- 03 and determined the income and tax liability. This giving effect order gave rise to refunds to be granted to the appellant. This refund also carried interest under Section 244-A of the Act. While making payment of the interest along with refund, the Assessing Officer deducted tax at source at 42.024%. 5....
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....mscribes the prescription contained in paragraph 1, by stipulating that the tax chargeable in a contracting State on interest arising in that State and paid to a resident of the other contracting State in respect of loans or debts shall not exceed 15% of the gross amount of such interest. 11. Paragraph 3 of Article 12 carves out an exception to the stipulation contained in paragraphs 1 and 2. As per paragraph 3, the interest arising in a contracting State will be exempt from tax in that State, if any of the conditions stipulated in Clauses (a) or (b) of paragraph 3 are satisfied. Under Clause (a), if the payer of the interest is the Government of that contracting State or a local authority, then the interest arising in a contracting State shall be exempt from tax. 12. But, paragraph 4 of Article 12 defines the term "interest". The term "interest" in paragraph 3 contains four items. They are (i) income from Government securities, bonds or debentures, (ii) debt claims of every kind, and (iii) all other income assimilated to income from money lent by the taxation law of that State in which the income arises. 13. The contention of Mr.N.V.Balaji, learned counsel for the appellant is ....
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.... Article 12 of Double Taxation Avoidance Agreement will not apply to a case where the assessee has a permanent establishment in India. According to the learned Standing Counsel, if an assessee has a permanent establishment, within the meaning of Article 5 of Double Taxation Avoidance Agreement, the interest that was payable even under Section 244-A would be treated as part of the business profits under Article 7 and made taxable even as per the provisions of the Double Taxation Avoidance Agreement. 16. In support of the above contention, the learned Standing Counsel for the Department drew our attention to the order of the Income Tax Appellate Tribunal dated 11.5.2007 in relation to the assessment year 2000- 01, in respect of the very same assessee, wherein the Tribunal recorded a finding that the assessee has a permanent establishment in India. This finding recorded from paragraphs 52 to 58 of the decision of the Income Tax Appellate Tribunal in ITA No.411/Mds/2006 dated 11.5.2007 was also confirmed by this Court in TCA No.1303 of 2007. However, the assessee has taken this matter on appeal to the Supreme Court and the matter is now pending. 17. Therefore, it is contended by Mr.T....
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....ervices Company Middle East Ltd. v. Assistant Commissioner of Income Tax [(2009) 29 SOT 312], chose not to deal with either Article 12.6 or with BJ Services Company. 22. To put it differently, the departmental representative appears to have invited the attention of the Tribunal to Article 12.6 and the decision of the Tribunal at Delhi Bench in BJ Services Company, as seen from paragraph 5 of the order of the Tribunal, which is under appeal. But, since paragraph 12.6 has no application at all to the case, the Tribunal rightly chose not to deal with it, but to focus only upon paragraphs 4 and 3(a) of Article 12. 23. In fact, the contention of the learned Standing Counsel for the Department revolving around paragraph 6 of Article 12, overlooks the fact that the Tribunal did not rest its conclusion on Article 12.6. This is why a contention is raised by the learned counsel for the appellant that what was not recorded as a finding by the Tribunal, cannot now be raised by the Revenue on an appeal filed by the assessee. Though he is correct in his legal submission, we thought we would still have a look at Article 12.6 and expose the fact that the second part of Article 12.6 does not deal....