Case Law Details
MUFG Bank Ltd. Vs ACIT (ITAT Delhi)
ITAT Delhi held that interest income on income tax refund is chargeable at the rate of 10% as per Article 11 of India – Japan tax treaty.
Facts- The assessee, 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 amounting to Rs.6,83,72,179/- at the rate of 10% under Article 11(2) of India Japan Double Taxation Avoidance Agreement (DTAA).
While framing the final assessment order in pursuance to the directions of learned DRP, AO 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. Agreeing with the submissions of the assessee, the Tribunal restored the issue to AO to decide the rate of tax on interest Income Tax refund by applying the above referred decisions and accordingly, allowed the ground. However, AO again taxed the interest income by applying the rate of 43.26 %. While deciding the objections of the assessee, learned DRP directed AO to follow the decision of ITAT, unless, the department has filed the appeal on the same issue in higher court and the matter has not attained finality. In pursuance to the aforesaid direction of learned DRP, AO passed the final assessment order.
Conclusion- AO 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, AO 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, AO has held that the interest income on Income Tax refund is to be taxed at 10%.
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