Interest on Income Tax Refund u/s244Acovers under ‘Debt claim of every kind ’as per India Italy DTAA, No TDS: ITAT [Read Order]

No TDS on Interest on Income Tax Refund under section 244A of the Income Tax Act,1961 is a ‘debt claim’ payable by revenue as per Article 12(3)(a) of India Italy DTAA the Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has held as above.

M/s. Koninklijke Philips N.V, the assessee is a non-resident company incorporated under the laws of the Netherlands.  It is the parent company of Philips Group which operates in the areas of consumer electronics domestic appliances, components and medical system sbased out of the Netherlands and does not have a permanent establishment (PE) in India. 

The assessment was completed u/s. 143(3) r.w.s. 144C(13) on 18.10.2012 assessing total income at Rs.162,74,89,392/- wherein additions were made in respect of the Management Support Service Agreement (MSSA) and Research and Development Co-operation Agreement (RDCA). On appeal before the Coordinate bench of ITAT, these additions were allowed vide order dated 25.10.2018 by holding the receipts in MSSA and RDCA as not taxable in India.  

The assessee raised the issue before CIT(A) in not granting interest u/s. 244A(1A) of the Act and deduction of tax at source on interest payment u/s. 244A(1) of the Act of Rs.11,50,45,854/-.CIT(A) disposed of the matter by giving a direction to the AO for verification of records, based on which additional interest be granted as envisaged in section 244A(1A) of the Act.

Shri Ketan Ved, CA appeared for the appellantand argued that the provisions of section 244A(1A) of the Act which provides for additional interest @3% p.a. on the amount of refund determined vide order giving effect to the order of Hon’ble ITAT for the period beginning from the date following the date of expiry of the time allowed u/s. 153(5) of the Act up to the date on which the refund is granted. 

A Coram of Shri SonjoySarma, Judicial Member and Shri Girish Agrawal, Accountant Member observed that under the India-Italy Treaty, the definition of interest under Article 12(4) includes “debt claim of every kind” which is akin to the India-Netherlands DTAA and interest on the income tax refund u/s. 244A is covered within the definition of interest under the India-Italy DTAA. 

In light of precedents, “interest on an income tax refund is a ‘debt claim’ payable by revenue and in terms of Article 12(3)(a) of the India Italy DTAA such interest is not taxable and no TDS ought to be done by the AO”, observed the Tribunal while partly allowing the appeals.

Shri G. H. Sema appeared for the respondent.

To Read the full text of the Order CLICK HERE

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