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Facts
The assessee, a Singapore-based company, is engaged in supply chain management, freight forwarding, and logistics. The Assessing Officer (AO) determined a business connection and Permanent Establishment (PE) in India, attributing profit based on revenue and also taxed interest on an income-tax refund at normal rates instead of the treaty rate. The Dispute Resolution Panel (DRP) upheld the AO's findings.
Held
The Tribunal held that the Indian entity was a dependable agent permanent establishment (DAPE) remunerated at arm's length, and therefore, no further attribution of profit was required. Regarding the interest on income-tax refund, the Tribunal, following precedents, held that it was not effectively connected with the PE and should be taxed as per Article 11(2) of the India-Singapore DTAA, not the normal provisions of the Act.
Key Issues
1. Whether the Indian entity constituted a business connection or a Permanent Establishment (PE) in India. 2. Whether profits were erroneously attributed to the alleged business connection/PE. 3. Whether interest on income-tax refund was taxable under the Act or the Tax Treaty.
Sections Cited
Section 9(1)(i) of the Income-tax Act, 1961, Article 5 of the India-Singapore Tax Treaty, Article 11(2)(b) of the India-Singapore Tax Treaty
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Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
This appeal by the assessee has been preferred against final assessment order dated 31.10.2023 passed by the Ld. Assistant Commissioner of Income-tax (International Taxation)-4(3)(1), Mumbai [in short ‘the Ld. Assessing Officer’] for assessment year 2021-22, pursuant to the direction of the Ld. Dispute Resolution Panel (DRP) dated 22.09.2023. The grounds raised by the assessee Panel (DRP) dated 22.09.2023. The grounds raised by the assessee Panel (DRP) dated 22.09.2023. The grounds raised by the assessee in its appeal are reproduced as under: in its appeal are reproduced as under:
Ground No. 1 Ground No. 1 - Erroneous conclusion of the Appellant Erroneous conclusion of the Appellant constituting a 'Business Connection' under Section 9(1)(i) of constituting a 'Business Connection' under Section 9(1)(i) of constituting a 'Business Connection' under Section 9(1)(i) of the Income-tax tax Act, Act, 1961 1961 (the (the 'Act') 'Act') and and Permanent Permanent Establishment (PE') under Article 5 of the India Establishment (PE') under Article 5 of the India-Singapore Singapore Tax Treaty (Tax Treaty') in India Tax Treaty (Tax Treaty') in India 1.1 On the facts and circumstances of the case and in law, the 1.1 On the facts and circumstances of the case and in law, the 1.1 On the facts and circumstances of the case and in law, the Assessing Officer ('AO') erred in concluding and the Dispute Assessing Officer ('AO') erred in concluding and the Dispute Assessing Officer ('AO') erred in concluding and the Dispute Resolution Panel ('DRP') erred in confirming that the Appellant has a nel ('DRP') erred in confirming that the Appellant has a nel ('DRP') erred in confirming that the Appellant has a Business Connection under Section 9(1)i) of the Act and PE under Business Connection under Section 9(1)i) of the Act and PE under Business Connection under Section 9(1)i) of the Act and PE under Article 5 of the Tax Treaty in India due to the activities of UPS SCS Article 5 of the Tax Treaty in India due to the activities of UPS SCS Article 5 of the Tax Treaty in India due to the activities of UPS SCS (India) Private Limited (*USIPL') without appreciating that the (India) Private Limited (*USIPL') without appreciating that the (India) Private Limited (*USIPL') without appreciating that the Appellant operates entirely outside India and does not have any Appellant operates entirely outside India and does not have any Appellant operates entirely outside India and does not have any presence in India / carry out any operations in India. presence in India / carry out any operations in India. 1.2 The Appellant prays that the conclusion of Appellant having a 1.2 The Appellant prays that the conclusion of Appellant having a 1.2 The Appellant prays that the conclusion of Appellant having a Business Connection under Section 9(1)(i) of the Act and PE under Business Connection under Section 9(1)(i) of the Act and PE under Business Connection under Section 9(1)(i) of the Act and PE under Article 5 of the Tax Treaty is erroneous, unwarranted and should le 5 of the Tax Treaty is erroneous, unwarranted and should le 5 of the Tax Treaty is erroneous, unwarranted and should be deleted. Ground No. 2 Ground No. 2 - Erroneous attribution of taxable income of Erroneous attribution of taxable income of Rs.1,46,69,018 to the alleged Business Connection under Rs.1,46,69,018 to the alleged Business Connection under Rs.1,46,69,018 to the alleged Business Connection under Section 9(1)i) of the Act / PE under Article 5 of the Tax Section 9(1)i) of the Act / PE under Article 5 of the Tax Section 9(1)i) of the Act / PE under Article 5 of the Tax Treaty in India (this Ground is without prejudice to Ground dia (this Ground is without prejudice to Ground dia (this Ground is without prejudice to Ground No. 1) 2.1 On the facts and circumstances of the case and in law, the AO 2.1 On the facts and circumstances of the case and in law, the AO 2.1 On the facts and circumstances of the case and in law, the AO erred in concluding and the DRP erred in confirming the attribution erred in concluding and the DRP erred in confirming the attribution erred in concluding and the DRP erred in confirming the attribution of revenues / profits (55% of revenue in case of outbound of revenues / profits (55% of revenue in case of outbound of revenues / profits (55% of revenue in case of outbound consignments and 22.5% in case of inbound consignments as gross nts and 22.5% in case of inbound consignments as gross nts and 22.5% in case of inbound consignments as gross India taxable revenue) to the alleged Business Connection / PE India taxable revenue) to the alleged Business Connection / PE India taxable revenue) to the alleged Business Connection / PE without appreciating that the transactions between the Appellant without appreciating that the transactions between the Appellant without appreciating that the transactions between the Appellant and USIPL (the alleged Business Connection / PE) is at an arm's and USIPL (the alleged Business Connection / PE) is at an arm's and USIPL (the alleged Business Connection / PE) is at an arm's length price. 2.2 The Appellant prays that the attribution of further revenue / 2.2 The Appellant prays that the attribution of further revenue / 2.2 The Appellant prays that the attribution of further revenue / profits to the alleged Business Connection / PE of the Appellant in profits to the alleged Business Connection / PE of the Appellant in profits to the alleged Business Connection / PE of the Appellant in India is erroneous, unwarranted and should be deleted India is erroneous, unwarranted and should be deleted Ground No. 3 Ground No. 3 - Erroneous taxation of interest on Income Erroneous taxation of interest on Income-tax refund of Rs.51,46,211 as per the provisions of the Act und of Rs.51,46,211 as per the provisions of the Act und of Rs.51,46,211 as per the provisions of the Act 3.1 On the facts and circumstances of the case and in law, the AO 3.1 On the facts and circumstances of the case and in law, the AO 3.1 On the facts and circumstances of the case and in law, the AO erred in concluding and the DRP erred in confirming that the erred in concluding and the DRP erred in confirming that the erred in concluding and the DRP erred in confirming that the interest on Income interest on Income-tax refund is taxable as per the normal tax refund is taxable as per the normal provisions of the provisions of the Act instead of Article 11(2)(b) of the Tax Treaty Act instead of Article 11(2)(b) of the Tax Treaty without appreciating that the interest on Income without appreciating that the interest on Income-tax refund is tax refund is attributable to the Appellant and not to the alleged PE in India. attributable to the Appellant and not to the alleged PE in India. attributable to the Appellant and not to the alleged PE in India. 3.2 The Appellant prays that the conclusion of taxation of interest 3.2 The Appellant prays that the conclusion of taxation of interest 3.2 The Appellant prays that the conclusion of taxation of interest on Income-tax refund as per provisions of the Act is erroneous, tax refund as per provisions of the Act is erroneous, tax refund as per provisions of the Act is erroneous, unwarranted and should be deleted unwarranted and should be deleted 2. Briefly stated facts of the case are that the assessee is a Briefly stated facts of the case are that the assessee is a Briefly stated facts of the case are that the assessee is a company incorporated under the laws of Singapore and is engaged company incorporated under the laws of Singapore and is engaged company incorporated under the laws of Singapore and is engaged in the business of provision of supply in the business of provision of supply chain management, including chain management, including the provision of freight forwarding and logistics services. For the the provision of freight forwarding and logistics services. For the the provision of freight forwarding and logistics services. For the year under consideration, the assessee filed return of income on year under consideration, the assessee filed return of income on year under consideration, the assessee filed return of income on 15.03.2022 declaring total income at Rs.52,93,600/-. The return of 15.03.2022 declaring total income at Rs.52,93,600/ 15.03.2022 declaring total income at Rs.52,93,600/ income filed by the assesse income filed by the assessee was selected for scrutiny assessment e was selected for scrutiny assessment and statutory notices under the Act were issued and complied with. and statutory notices under the Act were issued and complied with. and statutory notices under the Act were issued and complied with. The assessee had entered into The assessee had entered into an original transport service original transport service agreement w.e.f. 01.01.2012 with Indian A w.e.f. 01.01.2012 with Indian Associated E ociated Enterprises (AE) namely UPS, SCS (Indi namely UPS, SCS (India) Pvt. Ltd. for the provision of freight a) Pvt. Ltd. for the provision of freight and logistics services under the transportation agreement. services under the transportation agreement. services under the transportation agreement. Under the transport agreement, t the transport agreement, the assessee arranged arranged to perform international freight ght ght transportation transportation transportation through through through the the the Ocean Ocean Ocean Liner/Airlines and provide overseas provide overseas support services support services, while the Indian AE performed ed freight and logistics service in India to its service in India to its Indian customers and to the assessee. The service agreement was Indian customers and to the assessee. The service agreement was Indian customers and to the assessee. The service agreement was slightly slightly slightly modified modified modified in in in relation relation relation to to to assessment assessment assessment year year year under under under consideration.
2.1 During the course of the assessment proceedings, the assessee During the course of the assessment proceedings, the assessee During the course of the assessment proceedings, the assessee was asked to explain as why the Indian AE should not treated as was asked to explain as why the Indian AE should not treated as was asked to explain as why the Indian AE should not treated as business connection of the assessee in India u/s 9(1)(i) of the Act business connection of the assessee in India u/s 9(1)(i) of the Act business connection of the assessee in India u/s 9(1)(i) of the Act and profit be attributed thereto in and profit be attributed thereto in the relevant assessment ye the relevant assessment year. In the draft assessment order dated 20.12.2022, the Assessing Officer the draft assessment order dated 20.12.2022, the Assessing Officer the draft assessment order dated 20.12.2022, the Assessing Officer held that assessee had a business connection in India u/s 9(1)(i) of held that assessee had a business connection in India u/s 9(1)(i) of held that assessee had a business connection in India u/s 9(1)(i) of the Act in the form of its Indian AE the Act in the form of its Indian AE, thus, its business income its business income, attributable to the operation in India is taxabl attributable to the operation in India is taxable in India. The e in India. The Assessing Officer further held that the Indian Assessing Officer further held that the Indian AE of the assessee AE of the assessee constitute Permanent ermanent Establishment (PE) in India within the India within the meaning of Article 5(1), 5(2), 5(8) of the India meaning of Article 5(1), 5(2), 5(8) of the India-Singapore DTAA. The Singapore DTAA. The Assessing Officer, accordingly accordingly, following earlier years lier years assessments orders, attributed 55 attributed 55% of the revenue in respect outbound % of the revenue in respect outbound transaction amounting to Rs.4,28,63,752/ unting to Rs.4,28,63,752/- and 25% of the revenue 25% of the revenue from the inbound transaction amounting to Rs.28,75,19,543/- from the inbound transaction amounting to Rs.28,75,19,543/ from the inbound transaction amounting to Rs.28,75,19,543/ totaling to Rs.33,03,83,295/ totaling to Rs.33,03,83,295/- as attributable to the assessee and he assessee and applying global profitability rate of 4.4% applying global profitability rate of 4.4% computed computed profit of Rs.1,46,69,018/- and and was added in the hands of the assessee. The was added in the hands of the assessee. The Assessing Officer also held that interest received on the Income-tax Assessing Officer also held that interest received on the Income Assessing Officer also held that interest received on the Income refund was taxable at the normal rats i.e. t refund was taxable at the normal rats i.e. taxable @ 40% along with axable @ 40% along with applicable surcharge and cess instead of claim of the assessee of applicable surcharge and cess instead of claim of the assessee applicable surcharge and cess instead of claim of the assessee taxability @ 15% as % as per article 11(2) of the India Singapore DTAA. 11(2) of the India Singapore DTAA. The assessee filed objection The assessee filed objections against the draft assessment order against the draft assessment order before the Ld. DRP, , however could not succeed. Aggrieved not succeed. Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds assessee is in appeal before the Tribunal by way of raising grounds assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. as reproduced above.
Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the Before us, the Ld. counsel for the assessee submitted that the ground No. 2 of the appeal in relation to attribution of the profit to ground No. 2 of the appeal in relation to attribution of the profit to ground No. 2 of the appeal in relation to attribution of the profit to the assessee has been held in favour of the assessee by the he assessee has been held in favour of the assessee by the he assessee has been held in favour of the assessee by the Tribunal in earlier years and therefore Tribunal in earlier years and therefore the issue of whether there is whether there is permanent establishment of the assessee in India, is merely permanent establishment of the assessee in India permanent establishment of the assessee in India academic.
heard rival submission of the parties and perused the 4. We have heard rival submission of the parties and peru heard rival submission of the parties and peru relevant materials on record. relevant materials on record. The ld DR has referred to slight The ld DR has referred to slight change in the service agreement in the year under consideration change in the service agreement in the year under consideration change in the service agreement in the year under consideration but, in our opinion that might be relevant for determination of but, in our opinion that might be relevant for determination of but, in our opinion that might be relevant for determination of existence of PE, but as far as issue of attribution of th of attribution of the profit in assessee is concerned same is not relevant, because the AO case of assessee is concerned same is not relevant, because the AO assessee is concerned same is not relevant, because the AO has treated the Indian AE as an has treated the Indian AE as an dependable agent permanent dependable agent permanent establishment (DAPE) establishment (DAPE), and said agent has been remunerated agent has been remunerated on arm’s length value and no adjustment had been made by the and no adjustment had been made by the TPO in and no adjustment had been made by the the case of DAPE, then no further attribution of the profit is then no further attribution of the profit is required in the case of the assessee. This principle has been required in the case of the assessee. This principle has been required in the case of the assessee. This principle has been followed in the case of the assessee by the Tribunal in in the case of the assessee by the Tribunal in in the case of the assessee by the Tribunal in ITA No. 7171/Mum/2017, 7319/Mum/2018 and 6631/Mum/2019 for 7171/Mum/2017, 7319/Mum/2018 and 6631/Mum/2019 for 7171/Mum/2017, 7319/Mum/2018 and 6631/Mum/2019 for assessment years 2013 nt years 2013-14 to 2015-16. Thereafter in ITA No. hereafter in ITA No. 1220/Mum/2021 for assessment year 2017 1220/Mum/2021 for assessment year 2017-18 and in ITA No. 2243 18 and in ITA No. 2243 & 2244/Mum/2022 for assessment years 2018 & 2244/Mum/2022 for assessment years 2018-19 and 2019 19 and 2019-2020 also this ratio has been followed and it is held that since, the Indian ratio has been followed and it is held that since, the Indian ratio has been followed and it is held that since, the Indian AE which has been held to be dependable agent permanent been held to be dependable agent permanent been held to be dependable agent permanent establishment, has been remunerated at arm’s length price has been remunerated at arm’s length price, hence has been remunerated at arm’s length price no further attribution of profit no further attribution of profit is required in the case of the required in the case of the assessee. We are of the opinio assessee. We are of the opinion that unless any activities n that unless any activities or the transaction of the assessee with Indian AE i.e. DAPE, e assessee with Indian AE i.e. DAPE, e assessee with Indian AE i.e. DAPE, other than the transactions which are covered by the transfer pricing study are the transactions which are covered by the transfer pricing study the transactions which are covered by the transfer pricing study observed by the AO and no adjustment had been made by the TPO and no adjustment had been made by the TPO, and no adjustment had been made by the TPO then no further profit can be attributed to the Indian entity which then no further profit can be attributed to the Indian entity which then no further profit can be attributed to the Indian entity which has been held to be DAPE by the AO. held to be DAPE by the AO. The addition for profit The addition for profit attribution by the AO is accordingly deleted. T attribution by the AO is accordingly deleted. The issue whether the he issue whether the Indian entity is permanent establishment of the assessee is Indian entity is permanent establishment of the assessee is Indian entity is permanent establishment of the assessee is therefore, merely rendered rendered academic. The ground No. 2 of the academic. The ground No. 2 of the appeal of the assessee is accordingly allowed in favour of the ssessee is accordingly allowed in favour of the ssessee is accordingly allowed in favour of the assessee and ground No. 1of the appeal of the assessee is rendered assessee and ground No. 1of the appeal of the assessee is rendered assessee and ground No. 1of the appeal of the assessee is rendered academic and therefore we are not adjudicating upon. academic and therefore we are not adjudicating upon. academic and therefore we are not adjudicating upon.
The ground No. 3 of the appeal relates to the taxation of The ground No. 3 of the appeal relates to the taxation of The ground No. 3 of the appeal relates to the taxation of interest on income-tax ref tax refund of Rs,51,46,211/-. The brief facts qua . The brief facts qua the issue in dispute are that assessee received interest on income- the issue in dispute are that assessee received interest on income the issue in dispute are that assessee received interest on income tax refund amounting to Rs.51,46,211/ tax refund amounting to Rs.51,46,211/- which was offered to tax @ which was offered to tax @ 15% of India-Singapore Tax Treaty. But according to the Assessing Singapore Tax Treaty. But according to the Assessing Singapore Tax Treaty. But according to the Assessing Officer, the assessee was not qualified for the benefit of the 15% tax ssessee was not qualified for the benefit of the 15% tax ssessee was not qualified for the benefit of the 15% tax rate on the interest of the income rate on the interest of the income-tax refund and should have been tax refund and should have been taxed as per the normal provisions of the income taxed as per the normal provisions of the income-tax Act. The Ld. tax Act. The Ld. AO held that as per the para 4 of the Article of DTAA between India AO held that as per the para 4 of the Article of DTAA between Indi AO held that as per the para 4 of the Article of DTAA between Indi and Singapore, 15% tax of the interest income cannot be given if 15% tax of the interest income cannot be given if 15% tax of the interest income cannot be given if the interest arises through PE in the contracting state. According to the interest arises through PE in the contracting state. According to the interest arises through PE in the contracting state. According to the Assessing Officer, the assessee had DAPE in India and only the Assessing Officer, the assessee had DAPE in India and only the Assessing Officer, the assessee had DAPE in India and only source of income as trademark/technical assistance fees from source of income as trademark/technical assistance fees source of income as trademark/technical assistance fees USPIL. Therefore, interest income received from the Income-tax USPIL. Therefore, interest income received from the Income USPIL. Therefore, interest income received from the Income Department arises through DAPE in India and thus taxable as per Department arises through DAPE in India and thus taxable as per Department arises through DAPE in India and thus taxable as per the normal provisions of the Act. The Ld. the normal provisions of the Act. The Ld. DRP also upheld the also upheld the finding of the Assessing Officer. finding of the Assessing Officer.
5.1 Before us, the Ld. coun Before us, the Ld. counsel for the assessee relied on the sel for the assessee relied on the decision of the Co-ordinate Bench of the Tribunal in the case of ordinate Bench of the Tribunal in the case of ordinate Bench of the Tribunal in the case of ACIT v. Clough Engineering Ltd. [2011] 11 taxmann.com 70 (Delhi) ACIT v. Clough Engineering Ltd. [2011] 11 taxmann.com 70 (Delhi) ACIT v. Clough Engineering Ltd. [2011] 11 taxmann.com 70 (Delhi) (SB) and Co-ordinate Bench Tribunal in the case of Dy. CIT v. ordinate Bench Tribunal in the case of Dy. CIT v. ordinate Bench Tribunal in the case of Dy. CIT v. 39 taxmann.com 367 (Mumbai- Marubeni Corporation [2022] 1 Marubeni Corporation [2022] 139 taxmann.com 367 (Mumbai Trib.).
5.2 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The issue of interest arising from the relevant material on record. The issue of interest arising from the relevant material on record. The issue of interest arising from the Income-tax refund has been dealt by the Co tax refund has been dealt by the Co-ordinate Bench of the ordinate Bench of the Tribunal in the case o Tribunal in the case of the Clough Engineering Ltd. (supra) and f the Clough Engineering Ltd. (supra) and held that such interest was not effectively connected with the PE held that such interest was not effectively connected with the PE held that such interest was not effectively connected with the PE either on the basis of asset test or either on the basis of asset test or activities test and therefore, it test and therefore, it was taxable under paragraph 2 of the Article 11 of the DTAA. The was taxable under paragraph 2 of the Article 11 of the DTAA. was taxable under paragraph 2 of the Article 11 of the DTAA. relevant finding of the Tribunal is reproduced as under: ding of the Tribunal is reproduced as under: ding of the Tribunal is reproduced as under:
“11.4 Thus, we are again left with the fundamental question as to 11.4 Thus, we are again left with the fundamental question as to 11.4 Thus, we are again left with the fundamental question as to whether the debt whether the debt-claim in this case can be said to be effectively claim in this case can be said to be effectively connected with the PE. We have already held that the claim is connected with the PE. We have already held that the claim is connected with the PE. We have already held that the claim is connected with th connected with the PE in the sense that it has arisen on account of tax e PE in the sense that it has arisen on account of tax deduction at source from the receipts of the PE. However, it is also a deduction at source from the receipts of the PE. However, it is also a deduction at source from the receipts of the PE. However, it is also a fact that payment of tax is the responsibility of the foreign company. fact that payment of tax is the responsibility of the foreign company. fact that payment of tax is the responsibility of the foreign company. The same is determined after computation of its income and The same is determined after computation of its income and The same is determined after computation of its income and the tax forms not an expenditure for earning the income but an item of forms not an expenditure for earning the income but an item of forms not an expenditure for earning the income but an item of appropriation of profit. Therefore, even if the debt is connected with appropriation of profit. Therefore, even if the debt is connected with appropriation of profit. Therefore, even if the debt is connected with the receipts of the PE, it cannot be said to be effectively connected with the receipts of the PE, it cannot be said to be effectively connected with the receipts of the PE, it cannot be said to be effectively connected with such receipts because the responsibilit such receipts because the responsibility to pay the tax lies on the y to pay the tax lies on the shoulders of the assessee shoulders of the assessee-company from the final profit ascertained company from the final profit ascertained as on the last date of the previous year and on closing the books of as on the last date of the previous year and on closing the books of as on the last date of the previous year and on closing the books of account. It is for the company to pay the tax from any source available account. It is for the company to pay the tax from any source available account. It is for the company to pay the tax from any source available with it. It so hap with it. It so happened in this case that the tax got automatically pened in this case that the tax got automatically deducted from the receipts of the PE by operation of law. Such deducted from the receipts of the PE by operation of law. Such deducted from the receipts of the PE by operation of law. Such collection of tax by force of law would not establish effective collection of tax by force of law would not establish effective collection of tax by force of law would not establish effective connection of the indebtedness with the PE as ultimately it is only the connection of the indebtedness with the PE as ultimately it is only the connection of the indebtedness with the PE as ultimately it is only the appropriation of profit of the assessee company. However, we may iation of profit of the assessee company. However, we may iation of profit of the assessee company. However, we may add that we do not venture to say that the interest income has to be add that we do not venture to say that the interest income has to be add that we do not venture to say that the interest income has to be necessarily business income in nature for establishing the effective necessarily business income in nature for establishing the effective necessarily business income in nature for establishing the effective connection with the PE because that would render provision c connection with the PE because that would render provision c connection with the PE because that would render provision contained in paragraph 4 of Article XI redundant. Thus, there may be cases in paragraph 4 of Article XI redundant. Thus, there may be cases in paragraph 4 of Article XI redundant. Thus, there may be cases where interest may be taxable under the Act under the residuary head where interest may be taxable under the Act under the residuary head where interest may be taxable under the Act under the residuary head and yet be effectively connected with the PE. The bank interest in this and yet be effectively connected with the PE. The bank interest in this and yet be effectively connected with the PE. The bank interest in this case is an example of effective connectio case is an example of effective connection between the PE and the n between the PE and the income as the indebtedness is closely connected with the funds of the income as the indebtedness is closely connected with the funds of the income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income PE. However, the same cannot be said in respect of interest on income PE. However, the same cannot be said in respect of interest on income- tax refund. Such interest is not effectively connected with PE either on tax refund. Such interest is not effectively connected with PE either on tax refund. Such interest is not effectively connected with PE either on the basis of asset the basis of asset-test or activity-test. Accordingly, it is held that this test. Accordingly, it is held that this part of interest is taxable under paragraph No. 2 of Article XI. Thus, part of interest is taxable under paragraph No. 2 of Article XI. Thus, part of interest is taxable under paragraph No. 2 of Article XI. Thus, the ground referred to the Special Bench is partly allowed. The the ground referred to the Special Bench is partly allowed. The the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with Division Bench shall dispose off the appeal in conformity with Division Bench shall dispose off the appeal in conformity with this order.” 5.3 Further in the case of Marubeni Corporation (supra), the Further in the case of Marubeni Corporation (supra), the Further in the case of Marubeni Corporation (supra), the Tribunal held that unless the interest is connected with the Tribunal held that unless the interest is connected with the Tribunal held that unless the interest is connected with the permanent establishment it has to be taxed under Article 11(2) of permanent establishment it has to be taxed under permanent establishment it has to be taxed under DTAA. The Article 7 of DTAA of DTAA comes into play only when t comes into play only when the interest income is directly or indirectly attributable to its PE. Respectfully directly or indirectly attributable to its PE. Respectfully directly or indirectly attributable to its PE. Respectfully following the finding of the Special Bench of the Tribunal in the following the finding of the Special Bench of the Tribunal in the following the finding of the Special Bench of the Tribunal in the case of Clough Engineering Ltd. (supra) case of Clough Engineering Ltd. (supra), the interest received on the interest received on income-tax refund is hel tax refund is held to be not connected with the P connected with the PE. Accordingly, we set aside the finding of the Assessing Officer and Accordingly, we set aside the finding of the Assessing Officer Accordingly, we set aside the finding of the Assessing Officer hold that interest received on the income ld that interest received on the income-tax refund is not tax refund is not effectively connected with the PE and to be taxed as per Article effectively connected with the PE and to be taxed as per Article effectively connected with the PE and to be taxed as per Article 11(2) of the DTAA between India and Singa 11(2) of the DTAA between India and Singapore. The ground No. 3 pore. The ground No. 3 of the appeal is accordingly allowed. of the appeal is accordingly allowed.
In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on nounced in the open Court on 28/10/2024. /10/2024.