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Judgment
PER VIKAS AWASTHY, JUDICIAL MEMBER:
These two appeals by the assessee for assessment years 2018-19 and 2019-20 were decided by the Tribunal vide common order dated 28.02.2023.
Thereafter, in Miscellaneous Application No. 345 & 346/Del/2023 filed by the assessee, the Tribunal vide order dated 21.08.2026 recalled its order dated 28.02.2023 for the limited purpose of adjudicating ground nos. 3.1 and 4 of appeal in the aforesaid appeals, as while disposing of the appeals vide order dated 28.02.2023, the said two grounds remain to be adjudicated. For the sake of completeness, the relevant excerpts from the order of the Bench in the Miscellaneous Applications filed by the assessee are as under:-
“2.Having regard to the fact that Ground no. 3.1 and 4 raised by the assessee not been adjudicated by the Bench while disposing of the Appeals on 28th February 2023, which is an error apparent on the face of it, the common order dated 28th Feb 2023 is recalled only to the limited issue of grounds of appeal raised as above. The Miscellaneous applications filed by the assessee in both the appeals are, therefore, allowed. The registry is directed to keep the matters on board for hearing on 02.09.2026.”
In the backdrop of above facts, these appeals are listed before the Bench only for adjudication of ground nos. 3.1 and 4 in the grounds of appeal for the respective assessment years. The ground no. 3.1 and 4 in appeal of assessee for AY 2018-19 reads as under:-
“3.1.On the facts and circumstances of the case & in law, the Ld. AO grossly erred in levying tax on interest on the income-tax refund received by the Appellant during the year under consideration @40% (plus applicable surcharge and cess), as per the provisions of the Act, as opposed to applying the beneficial tax rate of 10% provided under Article 11 of the India-Ireland Double Taxation Avoidance Agreement ("DTAA" or "Tax treaty").
4.That on the facts and in circumstances in law, the Ld. AO erred in not allowing credit of taxes deducted at source ("TDS") amounting to INR 18,73,999/- whilst computing the tax payable by the Appellant.”
Ms. Shruti Khimta, appearing on behalf of the assessee submits that the Coordinate Bench, vide order dated 28.02.2023, has decided the issue of the assessee having Permanent Establishment (PE) in favour of the assessee, holding that the assessee does not have a PE in India. The ld. Authorized Representative (AR) submits that the Tribunal in ITA No.913/Del/2023 for AY 2020-21, vide order dated 12.10.2023, has decided an identical issue, i.e. the assessee’s eligibility to claim treaty benefit. The Tribunal, after examining the documents on record and facts of the case, held that the assessee is eligible for treaty benefit and hence, interest on Income Tax refund received by the assessee shall be liable to tax @10% as per provisions of the India-Ireland Double Taxation Avoidance Agreement (DTAA).
The ld. AR submits that if ground no. 3.1. is decided in favour of the assessee, the relief claimed in ground no. 4 of appeal is consequential.
Dr. Shalini Verma, representing the Department, fairly stated that the Tribunal in appeal of the assessee for AY 2020-21 has considered the issue of treaty benefit to the assessee.
Both sides heard. The limited issue for consideration in the instant appeal is whether the assessee is eligible for the beneficial rate of tax @10% under Article 11 of the India-Ireland DTAA on interest on Income Tax refund received during the period relevant to the assessment year under appeal. We find that similar ground was raised by the assessee in ITA No.913/Del/2023 for AY 2020-21 (supra). The Coordinate Bench, while adjudicating the issue of the assessee’s eligibility to claim India-Ireland treaty benefit, held as under:-
“15.It is an undisputed fact that the assessee is a tax resident of Ireland and hence can opt to be governed by the provisions of the India-Ireland DTAA, if more beneficial to it. The taxability of interest income earned by a tax resident of Ireland is dealt with by Article 11 of the India-Ireland DTAA which inter-alia, provides that interest arising in India and paid to a resident in Ireland maybe taxed in India, but the tax so charged shall not exceed 10% of the gross amount of the interest.
16.It is a well settled position of the law that the provision of the tax treaty shall take precedence over the Act to the extent they are more beneficial to the tax payer. By virtue of the provisions of section 90(2) of the Act, the provisions of the Act are sub-servient to the provisions of the tax treaty entered into by India with various countries. In the present case, the assesee is a tax resident of Ireland which fact has neither been disputed by the Ld. AO nor DRP. Nothing has been brought on record by the Revenue to disregard the claim of the assesee and hence in our view the assessee is rightly entitled to the beneficial rate of tax of 10% on interest as per the provisions of Article 11 of the India-Ireland DTAA. We have also perused the order of the Ld. CIT(A), Delhi – 42 for the present AY passed on 03.02.2023 in the appeal filed by the assessee before him against the intimation order of the Ld. AO passed under section 143(1) of the Act. The Ld. CIT(A) has concluded that the interest on income tax refund should be charged to tax at the beneficial rate of 10% provided under the India-Ireland DTAA subject to verification by the Ld. AO as to the entitlement of the assesee to claim DTAA benefits based on TRC etc. The relevant observations and findings of the Ld. CIT(A) are reproduced below:
“10.5Regarding taxability of interest on income-tax refunds under the India-Ireland tax treaty, it is submitted that taxability of interest income earned by a tax resident of Ireland is dealt with by Article 11 of the India-Ireland tax treaty which inter alia provides that interest arising in India and paid to a resident of Ireland may be taxed in India, but the tax so charged shall not exceed 10% of the gross amount of the interest.
10.6The interest on income tax refund is covered under Article 11 as the term "interest" used in the said article has been defined in paragraph 4 as "income from debt claims of every kind. Hon'ble Supreme Court in the case of Union of India v. Tata Chemicals [2014] 363 ITR 658 (SC) has held that income-tax refund payable to the assessee is a 'debt owed and payable by the Government. Thus, prima-facie, the interest on income tax refund should be chargeable to tax at 10% under Article 11 of the India-Ireland tax treaty.
10.7Moreover, it is observed that u/s 143(1) only an exhaustive list of adjustments has been prescribed in the Act. The said list only contains prima facie adjustments which can be made in respect of something obvious or deductible from the return of income for which there can be no doubt or debate. In the present case, it is observed that applying a different rate of taxation than what claimed by an assessee and denying the treaty benefit is not the adjustment which pertain to any arithmetical error, any incorrect claim, any disallowance of loss/ expenditure/ deduction. Accordingly, the adjustment i.e. subjecting the interest income at normal rate as against the treaty rate is not within the scope or purview of section 143(1) of the Act.
10.8The AO is therefore, directed to verify the claim of treaty benefit made by the appellant and if the appellant is found to be eligible for treaty benefit, based on tax residency certificate etc., charge the returned FTS and interest income at the treaty rate as against the normal rate. This ground of appeal is partly allowed.”
17.We are in agreement with the findings of the Ld. CIT(A). However, in our humble opinion, claim of the treaty benefit made by the assessee is not in dispute at all at this stage and hence no verification is required by the Ld. AO with respect to the same. In the light of the above legal position and factual matrix of the case, we set aside the order of the Ld. AO on the impugned issue and direct him to apply the tax rate of 10% on interest on income tax refund as per the provisions of Article 11 of the India-Ireland DTAA. Accordingly, ground No. 3 is decided in favour of the assessee.”
In light of the admitted position that the facts in the impugned assessment year are identical to AY 2020-21, the findings given by the Coordinate Bench on this issue would mutatis mutandis apply to the impugned assessment year. Hence, the assessee succeeds on ground no. 3.1 of appeal.
In ground no. 4 of appeal, the assessee has assailed the action of AO in not allowing credit of tax deducted at source amounting to Rs.18,73,999/-. We deem it appropriate to restore this issue to the AO to re-examine and allow the credit of TDS, if not already allowed in accordance with law. Hence, the above two grounds of appeal are allowed in the terms aforesaid.
In the appeal of the assessee in ITA No.1930/Del/2022 for AY 2019-20, identical grounds no. 3.1 and 4 of appeal have been raised, except for the amount of TDS. The findings given by us while adjudicating these two grounds in ITA No.1929/Del/2022 would mutatis mutandis apply to AY 2019-20 as well. For parity of reasons, both the grounds of appeal stated above are allowed in similar terms.