Compensation including interest on cancellation of contract not taxable in absence of PE

Recently, the Mumbai bench of the Income Tax Appellate Tribunal (the Tribunal) in the case of Gold crest Exports Vs. ITO (ITA No. 442/Mum/2009) held that the compensation payable due to the cancellation of contract was arising out of the trading contract and therefore, such income in the hands of payee (UK entity) was in the nature of business profit under Article 7 of the India-UK tax treaty (the tax treaty). However, in the absence of Permanent Establishment (PE) of UK entity in India the compensation awarded was not taxable in India. Further, it was held that

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