The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) has upheld a lower tax rate on interest income under Article 11(2) of the Indo-Japanese tax treaty since no connection between interest income and permanent establishment (PE).
The assessee, Marubeni Corporation, Japan is a company incorporated in, and fiscally domiciled in, the Republic of Japan. The assessee has offered the interest income to tax at the rate of 10% in terms of the provisions of Article 11(2) of the India Japan Double Taxation Avoidance Agreement.
During scrutiny assessment proceedings, the Assessing Officer noted that the assessee admittedly has a permanent establishment in India and that, in terms of the provisions of Article 11(6) of the Indo-Japanese tax treaty, the provisions of Article 11(2), which provide for a lower rate of 10%, will not apply and impose 40% as per the India Japan DTAA taking into account the presence of the permanent establishment in the year under consideration.
On appeal, CIT (A) upheld the plea of the assessee and concluded that the interest income in question is required to be taxed at 10% in terms of the provisions of Article 11(2) as there is no connection between the interest income and the permanent establishment. The Assessing Officer is aggrieved and filed an appeal before ITAT.
The counsel for the assessee submitted that the assessee earned the interest income on suppliers credit for funding the purchase of Excavator CKD and CBU manufactured by Hitachi Sumitomo Heavy Industries Construction Crane Co Ltd Japan and sold by the assessee company or one of its controlled entities and that this transaction had nothing to do with the permanent establishment in India.
The Coram of Mr.Pramod Kumar (Vice President), and Mr. Sandeep S Karhail (Judicial Member) have observed that there has to be cogent material to establish the fact that the interest income in question, is attributable to the permanent establishment and no whisper of a suggestion to that effect.
The Tribunal relied on its own decision in DCIT vs Marubeni Corporation, Japan. It was held that “we see no reasons to take any other view of the matter than the view so taken by the co-ordinate bench. Respectfully following the same, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter”.
Mr.Milind Chavan appeared for the appellant and Mr. Ravi Sharma appeared for the respondent.
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