Shell Information Technology’s Income Tax Refund Interest Classified as Taxable Income under India-Netherlands DTAA: ITAT [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) has granted relief to Shell Information Technology, specifying that interest on income tax refund would be categorized as taxable interest income under Article 11 of the India-Netherlands Double Taxation Avoidance Agreement ( DTAA )

The Appellant Shell Information Technology International BV has challenged the rate of 40% plus applicable surcharge and cess adopted by the Assessing Officer while computing the tax liability on interest receipt on income tax refund.

During the proceedings, Mr. Madhur Agarwal representing the appellant had relied upon the decision of the special bench of the tribunal as, in the case of Assistant Commissioner of Income Tax- Range-1, Dehradun Vs. Clough Engineering Ltd. to support the contention that the benefit of Article 11 of the DTAA should be granted to the Appellant and interest on income tax refund should be brought to tax at the rate of 10% specified therein.

The bench, examining the decision of the special bench of the tribunal in Clough Engineering Ltd case, found that the Special Bench of the Tribunal has held that interest on refund received by tax resident of Australia from Indian Tax Authorities shall be liable to tax at the rate specified in Article 11 of Double Taxation Avoidance Agreement between India and Australia.

The two member bench of the tribunal comprising S. Rifaur Rahman (Accountant member) and  Rahul Choudhary ( Judicial member) found merit in the submissions of the Appellant that the interest on income tax refund would be characterized as interest income liable to tax at the rate specified in Article 11 of the India-Netherlands DTAA. Accordingly, ITAT directed the Assessing Officer to compute the tax liability in respect of interest on income tax refund by adopting the rate as specified in Article 11 of DTAA. Accordingly, this ground raised by the Appellant was allowed.

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