Case Law Details
DCIT Vs Cooperative Rabobank UA (ITAT Mumbai)
ITAT Mumbai held that interest income on External Commercial Borrowings (ECB) is taxable at tax rate provided under Article 11 of Indo Netherlands Tax Treaty and not taxable in terms of Article 7 of the Tax Treaty.
Facts- AO in the course of assessment proceedings observed from the ITS (Individual Transaction System from ITD) details of the assessee that assessee had an undisclosed TDS credit amounting to Rs.6,96,33,878/-.
Assessee explained the difference, however, on without prejudice basis submitted, that the difference in income could be brought to tax representing interest on external commercial borrowing amounts in the hands of the assessee at the tax rates prescribed under the Indo Netherlands Tax Treaty by specifically applying Article 11 thereon and correspondingly grant TDS credit on the same. The Ld. AO, however, brought to tax the difference of undisclosed gross receipts as per Form 26AS and the return of income in the sum of Rs.63,27,60,316/- as an addition while framing the assessment. This addition represents interest income on external commercial borrowings. The Ld. AO, however, sought to tax the said interest income as normal business receipts taxable @40% as applicable to a foreign company instead of applying the tax rate provided in Article 11 of Indo Netherlands Tax Treaty.
Conclusion- We find from the perusal of Indo Netherlands Tax Treaty that there is a separate Article provided for taxability of Interest vide Article 11 thereon. There is no dispute that the nature of income that is sought to be taxed is interest income in the instant case. Hence, it would be just and fair to apply the Article 11(2) for the purpose of determining the taxability of the said interest income.
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