Interest on I-T refund not taxable at concessional rate of 10% as per Treaty if Non Resident has Permanent Establishment in India

DIRECTOR OF INCOME-TAX V. PRIDE FORAMER SAS (2013) 40 taxmann.com 100 (Uttarakhand)

Interest earned by a non-resident on income-tax refund is not taxable in India at concessional rate of 10% as per India-France treaty if such non-resident has a Permanent Establishment in India

In the instant appeal, appellant had sought interpretation of Article 12 of India-France treaty. It contented that interest earned in India on income-tax refund was taxable at 10% as per Article 12(2) of treaty.

The High Court held as under:

• Plain reading of Article 12 of treaty would make it absolutely clear that Paras 1 and 2 of Article 12 will apply, inter alia, when the recipient of interest does not have a permanent establishment in the country, where he has received interest;
• There was no dispute that the respondent-assessee had a permanent place of business in India and it had paid tax in India on its income, except income from interest;
• The interest earned in India on the refund of income-tax was, therefore, not covered by Paras 1 and 2 of Article 12 of the said Treaty. To that extent, the judgment of the Tribunal was to be set aside and, accordingly, the appeal was to be allowed.