In a recent ruling, the ITAT Hyderabad held that the interest income of a Non-resident is taxable at a lower rate in view of the Double Taxation Avoidance Agreement (DTAA) between India and UK.
In the instant case, the assesse, a non-resident individual, derived interest income from deposits in various Banks in India. Assessing Officer rejected the assessees’ claim for lower ceiling of Rs.1,90,000 finding that the same is applicable to the resident women assessees only. Accordingly, he recalculated the taxable income of the assessee and computed the tax payable.
Later, the assesse filed a rectification application stating that the assessee has offered the interest income to tax @ 30% which is applicable to residents, whereas as per the Indo-UK DTAA, the tax rate applicable is only 15% and sought the rectification of the assessment order. However, this claim was also rejected by the officer on ground that the assessee has not claimed the said tax rate in the return of income filed for the said A.Y.
Allowing the second appeal preferred by the assesse, the bench found that the assessee has filed her return of income by declaring herself to be a non-resident. It further noted that the assessing Officer, being known to her non-resident status was under an obligation to examine the rate of tax applicable to the interest income offered to tax by the assessee.
“As per sub-section 2 of section 90, the provisions of Income Tax shall apply to a non-resident to the extent they are more beneficial to the assessee. Therefore, if the rate of tax applicable under the DTAA is more beneficial to the assessee as compared to the rate of tax under the provisions of the Income Tax Act, then the provisions of the DTAA are to be applied. It is the duty of the AO to examine whether the provisions of the DTAA are more beneficial to the assessee before computing the taxable income of the assessee. The assessee’s application u/s 154 of the Act for refund of the excess tax collected, was therefore, maintainable.”
In view of the above findings, the Tribunal directed the AO to examine the rate of tax as per the DTAA between India and UK and also the rate of tax as per the Income Tax Act and apply the provision which is more beneficial to the assessee.
Read the full text of the Order below.
