The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has directed re-adjudication upholding the demand against MUFG Bank on taxability of interest on income tax refund under Indo-Japan DTAA.
The assessee MUFG Bank Ltd, a banking company, is a tax resident of Japan. In the return of income so filed, the assessee offered to tax interest on Income Tax refund at the rate of 10% under Article 11(2) of India Japan Double Taxation Avoidance Agreement (DTAA). In pursuance to the directions of learned DRP the Assessing Officer taxed the interest on Income Tax refund by applying the rate of 43.26%, treating it as business income.
The assessee contested the aforesaid decision of the Assessing Officer by filing appeal before the Tribunal referring to the decision of Special Bench of the Tribunal in case of Clough Engineering Ltd. Vs. ACIT, and Hon’ble Bombay High Court in case of DIT Vs. Credit ITA that as per Article 11(2) of the tax treaty, the interest received on Income Tax refund would be taxable at the rate of 10%.
The tribunal allowed this ground. But the Assessing Officer again taxed in the same manner. AO passed a final assessment order following direction of DRP that to follow the decision of ITAT, unless the department had filed the appeal on the same issue in higher court and the matter had not attained finality.
Hiten Chande, on behalf of the assessee submitted that, while computing the tax on interest income on Income Tax refund, the Assessing Officer had again applied the rate of 40% disregarding the directions of the Tribunal and the DRP.
Rashmita Jha, on behalf of the revenue submitted that, the Assessing Officer has implemented the direction of the DRP in letter and spirit and, in case of any computational error, the Assessee could approach the Assessing Officer.
The Division Bench of G.S. Pannu (President) and Saktijit Dey, (Judicial Member) directed for adjudicating the matter by directing the AO to consider the rectification application by the assessee.
“Assessing Officer, in fact, he has followed the directions of the Tribunal as well as learned DRP and has charged tax on the interest income on Income Tax refund at 10% by applying the provisions of Article 11 of India – Japan tax treaty. In case, the Assessing Officer has made any computational error while computing the tax rate, that can be a subject matter of rectification and not an issue to be decided by us in the present appeal. Since, the Assessing Officer has held that the interest income on Income Tax refund is to be taxed at 10%.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
