Compensation including interest not taxable in absence of PE

Court; Mumbai Income Tax Appellate Tribunal

Citation: M/s. Gold crest Exports Vs. ITO [2010-TII-124-1TAT-MUM-INTL]

Brief :Mumbai Income-tax Appellate Tribunal (the Tribunal) in the case of M/s. Gold crest Exports Vs. ITO [2010-TII-124-1TAT-MUM-INTL] held that compensation payable for breach of contract to a foreign company would not be taxable in the hands of the foreign company in the absence of a permanent establishment (“PE”) of the foreign company in India. The Tribunal further held that interest included in compensation merges with and partakes the character of compensation itself, and hence, would not be taxable under the tax treaty between India and UK (tax treaty). Therefore, deduction claimed by the assessee for compensation including interest cannot be disallowed on account of non-withholding of taxes therefrom.

Facts

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