M/S. HAPAG LLOYD CONTAINER LINIE GMBH. ( NOW KONWN AS HAPAG- LLOYD AG.), MUMBAI V. THE ADIT (IT) 3(1), MUMBAI

ITA 6214/MUM/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3587 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2010
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 21-12-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 09-10-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KESHAVE SAXENA
• Assessee Lawyers: R MURALIDHAR
• Keywords: Residential status; Double taxation relief; Permanent establishment; Advance ruling

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI R.S.SYAL, AM AND SHRI V.DURGA RAO, JM ITA NO.6214/MUM/2007 : ASST.YEAR 2004-2005 M/S.HAPAG LLOYD CONTAINER LINIE GMBH (NOW KNOWN AS HAPAG-LLOYD AG) C/O.GERMAN EXPRESS SHIPPING AGENCY (I) P.LTD., SAPT BUILDING, J.N.HEREDIA MARG BALLARD ESTATE, MUMBAI 400 001. PA NO.AAACH0979G. VS. THE ASSTT.DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 3(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.MURALIDHAR RESPONDENT BY : SHRI KESHAVE SAXENA O R D E R PER R.S.SYAL, AM : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 12.07.2007 IN RELATION TO THE ASSESSMENT YEAR 2004-2005. 2. THE ONLY EFFECTIVE GROUND IS REPRODUCED AS UNDER :- THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXXIII [H EREINAFTER REFERRED TO AS THE CIT(A)] ERRED IN UPHOLDING THAT INTEREST OF RS.12,44,428 GRANTED ON INCOME TAX REFUND IS COVERE D BY ARTICLE 11 OF DTAA AND THEREFORE TAXABLE IN INDIA. THE APPELLANTS SUBMIT THAT CIT(A) OUGHT TO HAVE HE LD THAT SUCH INTEREST INCOME IS COVERED BY ARTICLE 8 OF DTAA BET WEEN INDIA AND GERMANY AND THEREFORE NOT TAXABLE IN INDIA. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, A NON-RESIDENT, FILED ITS RETURN DECLARING TOTAL INCOME OF RS. NIL. A NO TE WAS GIVEN BELOW THE STATEMENT SHOWING COMPUTATION OF TOTAL INCOME STATING THAT TH E ENTIRE INCOME ARISING IN INDIA FOR THE YEAR WAS REPRESENTED BY PROFITS DERIVED FRO M THE OPERATION OF SHIPS IN ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 2 INTERNATIONAL TRAFFIC AND THE SAME WAS NOT TAXABLE IN INDIA IN VIEW OF ARTICLE 8 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA FOR SHORT) IN FORCE BETWEEN INDIA AND GERMANY, BUT WAS TAXABLE ONLY IN GERMANY WHERE ITS EFFECTIVE MANAGEMENT WAS SITUATED. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE RECEIVED INCOME-TAX REFUND, WHICH INCLUDED INTEREST ON SUCH INCOME-TAX REFUND AMOUNTI NG TO RS.12,44,428. SUCH REFUND WAS PURSUANT TO THE ORDER DATED 10 TH APRIL, 2003 FOR THE ASSESSMENT YEAR 1992-93. THIS INTEREST WAS ALSO CLAIMED BY THE ASSE SSEE AS EXEMPT IN TERMS OF CLAUSE (3) OF ARTICLE 8 OF INDO-GERMAN TAX TREATY. ON BEING CALLED UPON TO EXPLAIN AS TO WHY SUCH INTEREST ON REFUND OF INCOME-TAX WAS NOT OFFERED FOR TAXATION, THE ASSESSEE SUBMITTED THAT THE SAME WAS COVERED UNDER ARTICLE 8(3) OF DTAA BETWEEN INDIA AND GERMANY. APART FROM THAT THE ASSESSEE ALS O RELIED ON JUDGEMENTS OF THE HONBLE SUPREME COURT IN THE CASE OF DONALD MIRANDA AND OTHERS VS. CIT [(1961) 42 ITR 166 (SC)] AND CIT VS. GOVINDA CHOUDHURY AND SONS [(1993) 203 ITR 881 (SC)] . THE ASSESSING OFFICER OPINED THAT INTEREST EARNED ON INCOME-TAX REFUND COULD NOT BE SAID TO BE THE INTEREST ON FUND S CONNECTED WITH THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC. APPLYING THE MANDA TE OF ARTICLE 11(4), THE ASSESSING OFFICER HELD THAT SUCH INTEREST INCOME WAS TAXABLE. IN SUPPORT OF HIS OPINION HE RELIED ON THE RULING OF AUTHORITY FOR ADVANCE RULIN GS IN P.NO.17 OF 1998 REPORTED AT (1999) 236 ITR 637 (AAR). HE, THEREFORE, HELD THAT THE INTEREST ON INCOME-TAX REFUND AMOUNTING TO RS.12,44,430 WAS CHARGEABLE TO TAX AT THE RATE OF 10%. THE ASSESSEE FAILED TO CONVINCE THE LEARNED CIT(A) ON I TS LINE OF REASONING, WHICH RESULTED INTO ECHOING OF ASSESSING OFFICERS OPINIO N. 4. AT THE OUTSET, THE LEARNED COUNSEL FO R THE ASSESSEE STATED THAT THE ISSUE INVOLVED IN THIS APPEAL WAS VIRGIN, IN AS MUCH AS NO PRECEDENT WAS AVAILABLE ON IT. EXPLAINING THE FACTS, THE LD. AR STATED THAT THE AS SESSEE WAS ENGAGED IN THE BUSINESS OF OPERATION OF SHIPS IN INTERNATIONAL TRA FFIC AND ITS ENTIRE INCOME WAS ONLY ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 3 FROM SUCH ACTIVITY. IT, BEING A NON-RESIDENT GOVER NED BY DTAA WITH GERMANY, WAS CLAIMED TO BE NOT LIABLE TO PAY ANY TAX IN INDI A IN RESPECT OF PROFITS DERIVED FROM THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFI C AS PER ARTICLE 8. AS THE ASSESSEE HAD THE ONLY SOURCE OF INCOME, BEING THE PROFITS D ERIVED FROM THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC, THE FUNDS FOR THE PAYMENT OF TAXES FOR ASSESSMENT YEAR 1992-93 WENT OUT OF SUCH PROFITS AND THE RESUL TANT REFUND CONSTITUTED THE RECOUPMENT OF SUCH FUNDS FROM THE OPERATION OF SHIP S IN INTERNATIONAL TRAFFIC. INTEREST ON SUCH REFUND WAS STATED TO BE COVERED UN DER ARTICLE 8(3), WHICH PROVIDES THAT INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE REGARDED AS PROFITS DERIVED FROM THE OPERATION OF SHIPS OR AIRCRAFT IN THE INTERNATIONAL TRAFFIC. HE RELIE D ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF DONALD MIRANDA AND OTHERS (SUPRA) TO SUPPORT HIS VIEW THAT WHEN IT DEPOSITED THE TAX WITH THE CENTRA L GOVERNMENT, A PORTION OF THE PROFITS OF THE BUSINESS OF THE ASSESSEE WAS SLICED AWAY AND ON ITS RETURN, THE SAME MUST BE RESTORED TO ITS ORIGINAL CHARACTER OF BEING A PART OF THE PROFITS OF BUSINESS. HE FURTHER RELIED ON THE JUDGEMENT OF THE HONBLE S UPREME COURT IN GOVINDA CHOUDHURY AND SONS (SUPRA) FOR CANVASSING THE VIEW THAT THE INTEREST PARTAKES OF THE SAME CHARACTER AS THE PAYMENT ON WHICH IT IS AW ARDED. SINCE THE PAYMENT OF TAXES AND ITS REFUND WAS FROM THE PROFITS DERIVED F ROM THE OPERATION OF SHIPS, IT WAS URGED THAT THE INTEREST ON SUCH REFUND SHOULD ALSO ASSUME THE SAME CHARACTER AS PROFITS FROM THE OPERATION OF SHIPS IN INTERNATIONA L TRAFFIC. IT WAS VEHEMENTLY ARGUED THAT CLAUSE (3) OF ARTICLE 8 OF DTAA WITH GERMANY W AS CLEARLY APPLICABLE AND HENCE INTEREST ON INCOME-TAX REFUND SHOULD BE HELD AS PROFITS DERIVED FROM THE OPERATION OF SHIPS IN THE INTERNATIONAL TRAFFIC. 5. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTAT IVE ARGUED THAT INTEREST ON INCOME-TAX REFUND WAS COVERED UNDER ARTICLE 11(4) O F DTAA WITH GERMANY. IN SUPPORT OF HIS CASE HE RELIED ON THE AFORE-STATED R ULING OF THE AUTHORITY FOR ADVANCE ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 4 RULINGS (SUPRA) IN WHICH IT HAS BEEN HELD THAT INC OME TAX REFUND IS ENVELOPED WITH IN THE EXPRESSION DEBT-CLAIMS OF EVERY KIND COVE RED UNDER ARTICLE 12(5) OF DTAA WITH UK, WHICH PROVISION WAS STATED TO BE ANA LOGOUS TO ARTICLE 11(4) OF DTAA WITH GERMANY. HIS FURTHER SUBMISSIONS WERE THE REITERATION OF THE REASONING RECORDED BY THE AUTHORITIES BELOW IN SUPPORT OF THE TAXABILITY OF THE AMOUNT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL PLACED BEFORE US AND PRECEDENTS RELIED ON. THERE IS NO DISPUTE THAT THE ASSESSEE, IN THE YEAR IN QUESTION, WAS ENGAGED IN THE BUSINESS OF SHIPPING IN INTERNATIONAL TRAFFIC AND INCOME FROM SUCH SHIPPING WAS NEITHER OFFERED FOR T AXATION NOR CHARGED BY THE A.O. TO TAX IN VIEW OF ARTICLE 8 OF DTAA WITH GERMA NY. ASSESSMENT FOR THE ASSESSMENT YEAR 1992-93 WAS COMPLETED IN THE PREVIO US YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND INCOME-TAX REFUND WAS GRANTED WHICH ALSO COMPRISED INTEREST ON SUCH INCOME-TAX REFUND AMOUNT ING TO RS.12.44 LAKHS. THE CASE OF THE ASSESSING OFFICER IS THAT ALBEIT INCOME FROM OPERATIONS IS EXEMPT IN VIEW OF ARTICLE 8 OF DTAA WITH GERMANY BUT INTEREST ON INCOME-TAX REFUND IS COVERED UNDER ARTICLE 11(4). ON THE OTHER HAND THE ASSESSEE IS CONTESTING THAT INCOME-TAX WAS PAID OUT OF THE FUNDS GENERATED FROM SHIPPING BUSINESS AND HENCE THE REFUND OF THE EXCESS TAX RESTORED ITS FUNDS TO THE ORIGINAL CHARACTER OF THOSE FROM SHIPPING AND CONSEQUENTLY THE INTEREST THEREON SHOU LD ALSO PARTAKE OF THE SAME CHARACTER AS THE FUNDS FROM THE OPERATION OF SHIPS. THAT BEING THE POSITION, ARTICLE 8(3) WOULD ENCOMPASS SUCH INTEREST ON INCOME-TAX RE FUND AND THE AMOUNT WOULD BE IMMUNE FROM TAX. 7. THE SHORT CONTROVERSY REQUIRING OUR ADJUD ICATION IS WHETHER INTEREST ON INCOME-TAX REFUND FALLS UNDER ARTICLE 8 OR UNDER AR TICLE 11. IF IT IS HELD TO BE FALLING UNDER ARTICLE 8(3), THEN THERE WILL NOT BE ANY LIAB ILITY TO PAY TAX ON SUCH INTEREST. IF HOWEVER, SUCH INTEREST IS CONCLUDED TO BE FALLING U NDER ARTICLE 11, THEN THE AMOUNT ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 5 WOULD BE CHARGEABLE TO TAX AT THE RATE OF 10% AS PE R ARTICLE 11(2), WHICH HAS BEEN PRECISELY DONE BY THE A.O. 8. IN ORDER TO APPRECIATE THE RIVAL CONTENTIONS IT IS NECESSARY TO NOTE DOWN THE RELEVANT PARTS OF THESE TWO ARTICLES AS UNDER:- ARTICLE 8 SHIPPING AND AIR TRANSPORT 1. PROFITS FROM THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE TAXABLE ONLY IN THE CONTRACTING STATE IN W HICH THE PLACE OF EFFECTIVE MANAGEMENT OF THE ENTERPRISE IS SITUATED. 2. 3. FOR THE PURPOSES OF THIS ARTICLE, INTEREST ON F UNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFT IN INTERNATIONAL TRAFFIC SHALL BE REGARDED AS PROFITS DERIVED FROM THE OPERATION O F SUCH SHIPS OR AIRCRAFT, AND THE PROVISIONS OF ARTICLE 11 SHALL NO T APPLY IN RELATION TO SUCH INTEREST. ARTICLE 11 INTEREST 1. INTEREST ARISING IN A CONTRACTING STATE AND PAI D TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OT HER STATE. 2. HOWEVER, SUCH INTEREST MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH IT ARISES AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE INTERE ST THE TAX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT OF THE INTEREST. 3.(A) .. (B) ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 6 4. THE TERM INTEREST AS USED IN THIS ARTICLE MEA NS INCOME FROM DEBT-CLAIMS OF EVERY KIND , WHETHER OR NOT SECURED BY MORTGAGE AND WHETHER OR NOT CARRYING A RIGHT TO PARTICIPATE IN T HE DEBTORS PROFITS, AND IN PARTICULAR, INCOME FROM GOVERNMENT SECURITIE S AND INCOME FROM BONDS OR DEBENTURES, INCLUDING PREMIUMS AND PR IZES ATTACHING TO SUCH SECURITIES, BINDS OR DEBENTURES. PENALTY CH ARGES FOR LATE PAYMENT SHALL NOT BE REGARDED AS INTEREST FOR THE P URPOSE OF THIS ARTICLE. 5. 6. 7. .. (EMPHASIS SUPPLIED BY US) 9. A CURSORY GLANCE AT THE PRESCRIPTION OF ARTICLE 8(3) REVEALS THAT THE INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR A IRCRAFTS IN INTERNATIONAL TRAFFIC SHALL BE REGARDED AS PROFITS DERIVED FROM THE OPERA TION OF SUCH SHIPS OR AIRCRAFTS AND THE MANDATE OF ARTICLE 11 SHALL NOT APPLY IN RELATI ON TO SUCH INTEREST. WHEN WE TURN TO ARTICLE 11, IT TRANSPIRES THAT INTEREST ARISING IN A CONTRACTING STATE AND PAID TO THE RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXE D IN THAT OTHER STATE. TO PUT IT IN SIMPLE WORDS, THE RESIDENT OF GERMANY WHEN EARNS I NTEREST FROM INDIA SHALL BE LIABLE TO PAY TAX ON SUCH INTEREST IN INDIA NOTWITH STANDING THE FACT THAT HIS INCOME FROM THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFI C IS NOT CHARGEABLE TO TAX IN INDIA BECAUSE OF HIS RESIDENTIAL STATUS. WHAT IS INTERE ST HAS BEEN EXPLAINED IN CLAUSE (4) OF ARTICLE 11 TO MEAN INCOME FROM DEBT-CLAIMS O F EVERY KIND AND IN PARTICULAR INCOME FROM GOVERNMENT SECURITIES ETC. ON A FAIR RE ADING OF ARTICLE 11, IT BECOMES EVIDENT THAT INTEREST INTER ALIA FROM DEBT-CLAIMS OF EVERY KIND PAYBLE TO A RESIDEN T OF GERMANY IN INDIA IS CHARGEABLE TO TAX IN INDIA. WHEN WE VIEW ARTICLE 8(3) IN JUXTAPOSITION TO ARTICLE 11, IT IS MANIFESTED THAT INTEREST AS REFERRED TO IN ARTICLE 11 IS TO BE INCLUDED IN THE TOTAL INCOME OF THE RESIDE NT OF GERMANY, IF IT IS NOT SPECIFICALLY COVERED UNDER ARTICLE 8(3). ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 7 10. ARTICLE 7 OF DTAA WITH GERMANY DEALING WITH BU SINESS PROFITS IS A GENERAL ARTICLE WHICH PROVIDES THAT THE PROFITS OF A CONTRACTING STATE SHALL BE TAXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISE CA RRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IF THE ENTERPRISE CARRIES ON BUSINESS THROUGH A PERMANENT ESTABLISHMENT SITUATED IN THE OTHER CONTRACTING STATE, THE PROFITS OF THE ENTERPR ISE MAY BE TAXED IN THE OTHER STATE TO THE EXTENT AS ARE ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT. ARTICLE 7(7) IS RELEVANT, WHICH PROVIDES THAT : WHERE PROFITS INC LUDE ITEMS OF INCOME WHICH ARE DEALT WITH SEPARATELY IN OTHER ARTICLES OF THIS AGR EEMENT, THEN THE PROVISIONS OF THOSE ARTICLES SHALL NOT BE AFFECTED BY THE PROVISI ONS OF THIS ARTICLE. A PERUSAL OF CLAUSE (7) OF ARTICLE 7 DISCLOSES THAT IF THERE ARE ITEMS OF INCOME, WHICH HAVE BEEN SEPARATELY SET OUT IN OTHER ARTICLES OF THIS DTAA, THEN THE PROVISIONS OF ARTICLE 7 WOULD NOT APPLY AND SUCH ITEMS OF INCOME WOULD BE DEALT WITH AS PER THE PRESCRIPTION OF THE RELEVANT ARTICLES. WE FIND TH AT THERE ARE DIFFERENT ARTICLES SUCH AS ARTICLE 8 WHICH DEALS WITH INCOME FROM SHIPPING AND AIR TRANSPORT BUSINESS, ARTICLE 10 WHICH DEALS WITH DIVIDENDS, ARTICLE 11 D EALING WITH ROYALTIES AND FEES FOR TECHNICAL SERVICES, ARTICLE 13 DEALING WITH CAP ITAL GAINS ETC. ETC. IT IS THUS SEEN THAT STARTING FROM ARTICLE 8 ONWARDS, ITEMS OF SPEC IFIC NATURE OF INCOME, SUCH AS INCOME FROM SHIPPING AND AIR TRANSPORTATION, DIVIDE NDS, ROYALTY AND FEES FOR TECHNICAL SERVICES ETC. ARE DEALT WITH IN DIFFERENT ARTICLES. IF AN ITEM OF INCOME FALLS UNDER ANY OF THESE SPECIFIC ARTICLES, THEN THE PRO VISIONS OF ARTICLE 7 DEALING WITH BUSINESS PROFITS GENERALLY, ARE OUSTED AS IS APPA RENT FROM A READING OF CLAUSE (7) OF ARTICLE 7 ITSELF. 11. WE ARE REMINDED OF THE MAXIM GENERALIA SPECIALIBUS NON DEROGANT, ACCORDING TO WHICH SPECIAL PROVISIONS OVERRIDE GENE RAL PROVISIONS. AS PER THIS RULE, IF THERE IS A SPECIAL PROVISION AND ALSO A GENERAL PROVISION DEALING WITH THE SAME ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 8 SUBJECT MATTER, THEN THE MANDATE OF THE SPECIAL PRO VISION WOULD PREVAIL AND THE GENERAL PROVISION SHALL LEAN IN FAVOUR OF THE SPECI AL PROVISION. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF FORBES FOR BES CAMPBELL AND CO. LTD. VS. CIT [(1994) 206 ITR 495 (BOM.)] HAS QUOTED THE ABOVE MAXIM WITH APPROVAL. IT HAS ALSO BEEN APPLIED BY THE HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. COPES VULCEN INC. [(1987) 167 ITR 8 84 (MAD.)], IN WHICH CASE IT WAS HELD THAT SECTION 9(1)(I) IS GENERAL IN NATURE AND SECTION 9(1)(VII) REFERS TO A PARTICULAR TYPE OF INCOME AND IS A SPEC IAL PROVISION DEALING WITH PROVISION FOR TECHNICAL SERVICES RENDERED BY THE FO REIGN COMPANY. AFTER CONSIDERING THE ARGUMENTS FROM BOTH SIDES IT WAS HE LD THAT SECTION 9(1)(VII) WOULD APPLY. RECENTLY THE HONBLE SUPREME COURT IN THE CASE OF BRITANIA INDUSTRIES LTD.VS. CIT [(2005) 278 ITR 546 (SC)] H AS HELD THAT THE EXPENDITURE TOWARDS RENT, REPAIRS, MAINTENANCE OF G UEST HOUSE USED IN CONNECTION WITH THE BUSINESS IS TO BE DISALLOWED U/ S. 37(4) BECAUSE THIS IS A SPECIAL PROVISION OVERRIDING THE GENERAL PROVISION. IT THEREFORE, FOLLOWS THAT IF A SPECIFIC PROVISION IS MADE THEN THAT MATTER IS EX CLUDED FROM THE GENERAL PROVISION. 12. IN VIEW OF THE ABOVE DISCUSSION, IT IS AM PLY CLEAR THAT THE MANDATE OF AN ARTICLE DEALING WITH A DISTINCT ITEM OF INCOME HAS OVERRIDING EFFECT OVER THAT OF GENERAL ARTICLE. ADVERTING TO THE FACTS OF THE INST ANT CASE IN THE BACKDROP OF DTAA WITH GERMANY, IT IS NOTED THAT THOUGH ARTICLE 7 COV ERS BUSINESS PROFITS, BUT SINCE ARTICLE 8 SPECIFICALLY DEALS WITH PROFITS FROM SHIP PING AND AIR TRANSPORT IN INTERNATIONAL TRAFFIC, IT IS ONLY ARTICLE 8 WHICH SHALL APPLY IN RELATION TO TAXABILITY OF PROFITS FROM THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC AND THE GENERAL MANDATE OF ARTICLE 7 SHALL CEASE TO APPLY. ON THE ANALYSIS OF ARTICLE 8, WE FIND THAT ITS CLAUSE (1) DEALS WITH PROFITS FROM OP ERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC WHICH SHALL BE TAXABLE ONLY I N THE CONTRACTING STATE IN WHICH THE PLACE OF EFFECTIVE MANAGEMENT OF THE ENTERPRISE IS SITUATED. GOING BY THIS ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 9 CLAUSE, THE PRESENT ASSESSEE, BEING A RESIDENT OF GERMANY, CANNOT BE SUBJECTED TO TAX IN RESPECT OF PROFITS ARISING IN INDIA FROM THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC. CLAUSE (3) OF THIS ARTICLE FURTHER ELABORATES THE SCOPE OF CLAUSE (1) BY PROVIDING THAT INTEREST ON FUNDS CON NECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC SHALL B E REGARDED AS PROFITS DERIVED FROM THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONA L TRAFFIC. THIS CLAUSE FURTHER MAKES ARTICLE 11 SUBSERVIENT TO IT INASMUCH AS IT P ROVIDES THAT THE PROVISIONS OF ARTICLE 11 SHALL NOT APPLY IN RELATION TO INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TR AFFIC. IT IS ALSO NOTED THAT ARTICLE 11 SPECIFICALLY DEALS ONLY WITH INTEREST INCOME. APPLY ING THE ABOVE MAXIM OF GENERALIA SPECIALIBUS NON DEROGANT THE INTEREST INCOME ENCOMPASSED IN THIS ARTICLE SHALL BE DEALT WITH AS PER THE PRESCRIPTION OF THIS ARTICLE AND NOT OTHER ARTICLES. WHEN WE EXAMINE ARTICLE 8(3) IN CONJUNCTION WITH AR TICLE 11, IT EMERGES THAT INTEREST INCOME OF EVERY KIND AS REFERRED TO IN ART ICLE 11 ARISING IN INDIA AND PAID TO A RESIDENT OF GERMANY SHALL BE SUBJECTED TO TAX IN INDIA AND THE MANDATE OF ARTICLE 8 EXEMPTING PROFITS FROM THE OPERATION OF S HIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC IN INDIA SHALL NOT APPLY PROVIDED IT IS NOT OF THE NATURE OF INTEREST INCOME AS SPECIFICALLY REFERRED TO IN ARTICLE 8(3). THOUGH AR TICLE 8 IS A SPECIAL PROVISION VIS- A-VIS ARTICLE 7 IN TERMS OF PROFITS DERIVED FROM TH E OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC WHICH ARE OTHERWISE BUSINESS PROFITS, ARTICLE 11 IS A SPECIAL PROVISION VIS--VIS ARTICLE 8 IN TERMS OF INTERES T INCOME. THE EFFECT OF THESE TWO ARTICLES IS THAT INTEREST INCOME OF EVERY KIND, AS REFERRED TO IN ARTICLE 11, SHALL BE DEALT WITH AS PER THIS ARTICLE ALONE WITH THE EXCEP TION OF INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC, WHICH , IN TURN, SHALL BE DEALT WITH AS PER ARTICLE 8. 13. NOW WE ESPOUSE THE CASE OF DONALD MIRANDA & ORS.(SUPRA) , WHICH HAS BEEN HEAVILY RELIED UPON BY THE LD. AR TO BUTT RESS HIS SUBMISSION THAT ON ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 10 THE REFUND OF INCOME TAX, THE CHARACTER OF FUNDS CO NNECTED WITH THE OPERATIONS OF SHIPS SHALL BE RESTORED AND THE INTEREST ON SUCH REFUND SHALL BE COVERED WITHIN CLAUSE (3) OF ARTICLE 8. THE FACTS OF THAT C ASE ARE THAT THE FIRM WAS CARRYING ON THE BUSINESS AND WAS ASSESSED TO INCOME -TAX UNDER THE PROVISIONS OF INCOME-TAX ACT, 1918. IT WAS DISSOLVED IN 1945. IN RESPECT OF THE CHARGEABLE ACCOUNTING PERIOD FROM 24 MARCH 1944 TO 24 MARCH 1945, THE FIRM WAS TAXED TO EXCESS PROFIT TAX UNDER THE EXCES S PROFITS TAX ACT, 1940. IN ACCORDANCE WITH THE PROVISIONS OF EXCESS PROFIT TAX ACT, THE FIRM BECAME ENTITLED TO REFUND OF PORTION OF EXCESS PROFIT TAX. THE SHARE OF THREE PARTNERS WAS DETERMINED. THE ASSESSEE CLAIMED THAT THE AMOUN T REFUNDED WAS BUSINESS PROFIT AND HENCE EXEMPT FROM TAX U/S.25(4) OF THE ACT. THE ITO REJECTED THE SUBMISSION. THE TRIBUNAL HELD THAT THE SUM WHICH WA S REFUNDED WAS INCOME FROM BUSINESS AND WAS THEREFORE EXEMPT FROM INCOME- TAX U/S.25(4) OF THE ACT. THE HIGH COURT HELD THAT THE AMOUNT SO REFUNDE D WAS INCOME FROM OTHER SOURCES. WHEN THE MATTER FINALLY CAME UP BEFORE THE HONBLE SUPREME COURT, IT WAS HELD THAT THE AMOUNT OF REFUND WOULD BE INC OME FROM BUSINESS ASSESSABLE U/S.10 OF THE INCOME-TAX ACT AND NOT INC OME FROM OTHER SOURCES U/S.12. IT IS RELEVANT TO CONSIDER THAT THE AMOUNT OF EXCESS PROFIT TAX PAYABLE IN RESPECT OF BUSINESS FOR CHARGEABLE ACCOUNTING PE RIOD WAS ALLOWABLE BY WAY OF RELIEF IN COMPUTING THE PROFITS AND GAINS OF THE BUSINESS AND WAS DEDUCTIBLE AS AN EXPENSE INCURRED IN THAT PERIOD. IT WAS IN TH E LIGHT OF THESE FACTS THAT THE HONBLE SUPREME COURT HELD THAT WHEN IT WAS DEPOSIT ED WITH THE CENTRAL GOVERNMENT IT WAS A PORTION OF THE PROFIT OF THE BU SINESS OF THE ASSESSEE AND WHEN IT WAS RETURNED TO THE ASSESSEE IT MUST BE RES TORED TO THE CHARACTER OF BEING PART OF THE PROFITS OF THE BUSINESS. FROM THE FACTS OF THIS CASE IT CAN BE SEEN THAT PRIMARILY THE RATIO DECIDENDI OF THIS JUDGMENT IS QUA THE TREATMENT OF REFUND OF INCOME-TAX AND NOT INTEREST ON SUCH IN COME-TAX REFUND. FURTHER ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 11 THE TAX PAYABLE BY THE ASSESSEE IN THAT CASE WAS DE DUCTIBLE FROM BUSINESS PROFITS AS PER THE RELEVANT PROVISIONS AND IT WAS O NLY WHEN THE EXCESS AMOUNT WAS REFUNDED THAT IT WAS HELD TO BE INCOME FROM BUS INESS. ON THE OTHER HAND WE ARE DEALING WITH A CASE IN WHICH NEITHER THERE I S ANY DISPUTE ON THE NATURE OF REFUND OF INCOME TAX NOR AT THE TIME OF PAYMENT OF TAX, THERE WAS ANY PROVISION GRANTING DEDUCTION FOR IT. THUS THIS JUDG MENT, BEING CLEARLY DISTINGUISHABLE, IS OF NO ASSISTANCE TO THE ASSESSE E. 14. LET US EXAMINE AS TO WHETHER THE IN TEREST ON INCOME-TAX REFUND CAN BE CHARACTERIZED AS INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC AS IS THE DIRE CTIVE OF CLAUSE (3) OF ARTICLE 8. ONLY IF INTEREST ON INCOME-TAX REFUND FALLS WITHIN THE E XPRESSION INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC IT SHALL BE CONSIDERED AS PROFITS DERIVED FROM THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC AND OCCUPY ITS PLACE IN ART ICLE 8. IF THE POSITIONS TURNS OUT TO BE OTHERWISE, THEN IT SHALL FALL IN THE DOMAIN OF A RTICLE 11. IN ORDER TO GET ANSWER TO THIS QUESTION IT IS SINE QUA NON TO CONSIDER THE NATURE OF INCOME-TAX. IN BHARAT COMMERCE INDUSTRIAL VS. CIT (1998) 230 ITR 733 (SC) , THE HONBLE SUPREME COURT HAS HELD : THE LIABILITY IN THE CASE OF PAYM ENT OF INCOME-TAX AND INTEREST FOR DELAYED PAYMENT OF INCOME-TAX OR ADVANCE TAX ARISES ON THE COMPUTATION OF PROFITS AND GAINS OF BUSINESS. THE TAX WHICH IS PAYABLE ON THE ASSESSEES INCOME IS AFTER THE INCOME IS DETERMINED. FROM THE ABOVE JUDGMENT IT IS EXPLICITLY EVIDENT THAT THE AMOUNT OF INCOME-TAX IS PAYABLE AFTER THE INCOM E IS DETERMINED. WHEN WE GO TO SECTION 40(A)(II) ALONG WITH THE ABOVE REFERRED APEX COURT JUDGMENT, IT CAN BE NOTICED THAT NOT ONLY THE PAYMENT OF INCOME-TAX IS NOT DEDUCTIBLE BUT ALSO THE INTEREST PAID BY THE ASSESSEE FOR NON/DELAYED PAYME NT OF INCOME-TAX, BE IT DIRECTLY PAYABLE TO THE INCOME-TAX DEPARTMENT OR ON LOANS TA KEN FOR PAYING INCOME TAX, CANNOT BE ALLOWED AS DEDUCTION. THUS THE PAYMENT OF INCOME-TAX IS A STEP AWAY ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 12 FROM THE CARRYING ON OF THE BUSINESS ON YEAR TO YEA R BASIS AND SUCH PAYMENT OF INCOME-TAX IS AN EVENT WHICH TAKES PLACE AFTER THE DETERMINATION OF THE PROFITS OF THE BUSINESS FOR THE RELEVANT YEAR. 15. THE LEARNED A.R. HAS ACCENTUATED THAT THE PAYM ENT OF INCOME-TAX WAS OUT OF THE FUNDS CONNECTED WITH THE OPERATION OF SHIPS AND WHEN THE EXCESS AMOUNT WAS REFUNDED IT WOULD PARTAKE OF THE SAME CHARACTER, B EING THE FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONA L TRAFFIC. WHEN WE LOOK AT THE PHRASEOLOGY IN ARTICLE 8(3) BEING INTEREST ON ` FUNDS CONNECTED WITH THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC , IT IS DISCERNABLE THAT THE REFERENCE TO THE INTEREST INCOME IN THIS CLAUSE IS QUA THE FUNDS CONNECTED WITH THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC. IN OTHER WORDS, TH ERE MUST BE DIRECT AND IMMEDIATE RELATION OF INTEREST INCOME WITH THE FUNDS FROM THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC. ONCE THIS RELATIONSHIP CEAS ES TO EXIST, THE INTEREST INCOME WOULD GO OUT OF THE AMBIT OF THIS CLAUSE. THE CAS E WOULD BE COVERED WITHIN THE SCOPE OF CLAUSE (3) WHEN ASSESSEE, ENGAGED IN THE OPERATION OF SHIPS IN INTERNATIONAL TRAFFIC, RAISES INVOICE ON HIS CUST OMER TOWARDS CHARGES FOR CARRYING HIS CARGO TO OTHER DESTINATION ON SHIP AND THE AMOU NT REMAINS UNPAID FOR A PARTICULAR PERIOD, AFTER WHICH THE ASSESSEE RECOVE RS INTEREST ON SUCH INVOICE AMOUNT. THE AMOUNT OF INTEREST SO RESULTING SHALL BE THE INTEREST ON FUNDS CONNECTED WITH THE OPERATION OF SHIPS. THE ARGUME NT OF THE LD. AR THAT INTEREST INCOME RESULTING FROM THE DEPLOYMENT OF FUNDS FROM THE SHIPPING BUSINESS IN ANY MANNER AS QUALIFYING FOR INCLUSION IN CLAUSE (3) OF ARTICLE 8, IS FAR FETCHED AND DESERVES TO BE JETTISONED. IF THE INTENTION HAD BE EN TO PROVIDE IMMUNITY FROM TAXATION IN RESPECT OF EACH AND EVERY KIND OF INTER EST RESULTING FROM THE PARKING OF FUNDS OF SHIPPING BUSINESS, THEN THE LANGUAGE OF TH IS CLAUSE WOULD HAVE BEEN WORDED SOMETHING LIKE `INTEREST ON FUNDS FROM SHIPPING BUSINESS . AT ANY RATE, THE PAYMENT OF INCOME-TAX, AS HAS BEEN NOTED SUPRA , IS A DISCHARGE OF STATUTORY LIABILITY OF THE ASSESSEE AND HENCE CANNOT BE EQUA TED WITH THE INVESTMENT OF FUNDS ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 13 OF BUSINESS. AS EXEMPTION EXTENDS ONLY TO THE INT EREST INCOME ON FUNDS WHICH ARE `CONNECTED WITH THE OPERATION OF SHIPS IN INTERNATI ONAL TRAFFIC , THE SAME CANNOT BRING IN ITS FOLD INTEREST INCOME OF EVERY NATURE, RESULTING FROM THE USE OF THE FUNDS OF SHIPPING BUSINESS. IN ANY CASE, INTEREST ON INC OME-TAX REFUND IS MILES AWAY FROM THE INTEREST ON FUNDS CONNECTED WITH THE OPERA TION OF SHIPS IN INTERNATIONAL TRAFFIC. 16. IT IS PERTINENT TO NOTE THE LANGUAGE OF CLAUSE (1) OF ARTICLE 8, WHICH ALSO CONTAINS THE EXPRESSION PROFITS FROM THE OPERATIO N OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC. THE EXPRESSION THE OPERATI ON OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC HAS BEEN COMMONLY EMPLOYED B OTH IN CLAUSE (1) AS WELL AS CLAUSE (3) OF ARTICLE 8, WHICH DEMONSTRATES THAT I T COVERS ONLY THE PROFIT FROM THE OPERATION OF SHIPS AND THE INTEREST ON FUNDS WHIC H ARE DIRECTLY CONNECTED WITH THE OPERATION OF SHIPS AND NOT FROM OTHER SOURCES WHICH ARE NOT CONNECTED OR REMOTELY CONNECTED WITH THE OPERATION OF SHIPS IN INTERNATIO NAL TRAFFIC. THE JUDGEMENT IN THE CASE OF GOVINDA CHOUDHURY (SUPRA), AS RELIED BY THE LEARNED A.R., IS TO BE SEEN IN THIS CONTEXT. IN THAT CASE THE ASSESSEE WAS ENGAGE D IN THE BUSINESS OF EXECUTING GOVERNMENT CONTRACTS. IN THE COURSE OF THE EXECUTIO N OF THE CONTRACTS, THERE WERE DISPUTES WITH THE STATE GOVERNMENT WITH REGARD TO T HE PAYMENTS UNDER THE CONTRACTS AND THE DISPUTES WERE REFERRED TO THE ARB ITRATOR. THE ASSESSEE RECEIVED CERTAIN AMOUNT UNDER THE AWARD OF ARBITRATORS WHICH ALSO INCLUDED INTEREST FOR DELAY IN PAYMENT OF THE AMOUNTS DUE TO IT . WHEN EVENTUALLY THE MATTER CAME UP BEFORE THE HONBLE SUPREME COURT, IT WAS HELD THAT IF THE AMOUNTS UNDER A CONTRACT WERE NOT PAID AT THE PROPER TIME AND INTEREST WAS AWARDE D FOR SUCH DELAY, THE INTEREST WAS ONLY AN ACCRETION TO THE RECEIPTS FROM THE CON TRACT AND HENCE IT PARTOOK OF THE SAME CHARACTER AS THE RECEIPTS FOR THE PAYMENT. COM ING BACK TO THE DTAA WITH GERMANY, WE FIND THAT THE INTEREST REFERRED TO IN A RTICLE 8(3) IS CONFINED ONLY TO THE FUNDS WHICH ARE CONNECTED WITH THE OPERATION OF SHI PS OR AIRCRAFTS . ACCORDINGLY INTEREST ON ACCOUNT OF DELAYED PAYMENT OF THE INVOI CE VALUE WOULD PARTAKE OF THE SAME CHARACTER AS THE ORIGINAL AMOUNT, BEING THE P ROFIT FROM THE OPERATION OF SHIPS ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 14 OR AIRCRAFTS IN INTERNATIONAL TRAFFIC. IN THAT VIEW OF THE MATTER IT BECOMES AMPLY CLEAR THAT ONLY INTEREST ON FUNDS WHICH ARE CONCERNED WIT H THE OPERATION OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC IS COVERED WITHI N THE AMBIT OF CLAUSE (3) FOR ASSUMING THE CHARACTER OF PROFITS FROM THE OPERATIO N OF SHIPS OR AIRCRAFTS IN INTERNATIONAL TRAFFIC AS PER ARTICLE 8. IT DOES NOT AND CANNOT REFER TO ANY INTEREST OTHER THAN THAT. NATURALLY THE INTEREST ON INCOME-T AX REFUND CANNOT HAVE ANY RELATION WITH OPERATION OF SHIPS OR AIRCRAFTS IN IN TERNATIONAL TRAFFIC AND HENCE CANNOT BE BROUGHT WITHIN THE PURVIEW OF ARTICLE 8. IN VIEW OF THE EXCLUSION OF INTEREST ON INCOME-TAX REFUND FROM THE AMBIT OF ARTICLE 8(3), T HE SAME WOULD GO BACK FOR CONSIDERATION UNDER ARTICLE 11, WHICH IS OTHERWISE A SPECIAL PROVISION DEALING WITH THE TREATMENT OF INTEREST. 17. WE CAN EXAMINE THIS CASE FROM ANOTHER ANGLE AS WELL. CLAUSE (4) OF ARTICLE 11 DEFINES INTEREST TO MEAN INCOME INTER ALIA FROM DEBT-CLAIMS OF VERY KIND. IN AN EARLIER PARA WE HAVE EXAMINED THE NATU RE OF INCOME TAX WHICH IS PAYABLE ON ASSESSEES INCOME AFTER THE SAME IS DETE RMINED. IN THAT VIEW OF THE MATTER THE EXCESS AMOUNT OF TAX PAID BY THE ASSESSE E BECOMES RECOVERABLE AND ASSUMES THE CHARACTER OF `DEBT-CLAIM AS HAS BEEN H ELD BY THE AUTHORITY FOR ADVANCE RULINGS IN ABC (SUPRA). IN THAT CASE THE AP PELLANT, A COMPANY INCORPORATED IN U.K., MADE APPLICATION FOR ADVANCE RULINGS ON THE FOLLOWING QUESTIONS:- 1. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE DESCRIBED IN ANNEXURE 3, THE TAXES PAID IN EXCESS O F TAX DUE IN RESPECT OF INCOME RETURNED BY ABC, LYING WITH THE R EVENUE AUTHORITIES WOULD BE COVERED WITHIN THE TERMINOLOGY `DEBT-CLAIMS OF EVERY KIND AS PROVIDED IN CLAUSE (5) OF ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND UNIT ED KINGDOM (DTA)? 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE DESCRIBED IN ANNEXURE 2, INTEREST OF RS.30,24,576 U NDER SECTION 244/243 OF THE INCOME-TAX ACT, 1961 PAID BY THE REV ENUE AUTHORITIES ALONG WITH TAX REFUNDS DUE TO ABC DURING ASSESSMENT YEAR 1998-99, WOULD CONSTITUTE `INCOME FROM DEBT-CLAIMS OF EVERY KIND, AND, ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 15 THEREFORE, QUALIFY AS `INTEREST AS DEFINED IN CLAU SE (5) OF ARTICLE 12 OF THE DTA? 18. THE AUTHORITY ANSWERED BOTH THE QUESTION IN AF FIRMATIVE BY HOLDING THAT THE TAX PAID IN EXCESS OF TAX DUE WOULD BE COVERED WITH IN THE TERMINOLOGY DEBT-CLAIMS OF EVERY KIND AND INTEREST PAID BY THE REVENUE AUT HORITIES ALONG WITH TAX REFUNDS DUE WOULD CONSTITUTE INCOME FROM DEBT-CLAIMS OF EV ERY KIND AND THEREFORE, QUALIFY AS INTEREST AS DEFINED IN CLAUSE (5) OF A RTICLE 12 OF DTAA WITH U.K. (WHICH IS ANALOGOUS TO ARTICLE 11(4) OF DTAA WITH G ERMANY). IN THIS CASE THE AUTHORITY HELD AS UNDER:- THE INTEREST AMOUNT IN DISPUTE HAD NOT ARISEN OUT OF ANY BUSINESS OPERATION IN INDIA. IT WAS STATUTORY INTEREST GRANTED ON DELAYED REFUND UNDER THE PROVISIONS OF SECTION 234/244 OF T HE INCOME-TAX ACT , 1961. THERE COULD NOT BE ANY DISPUTE THAT THE INT EREST HAD BEEN PAID ON DELAYED REFUND. REFUND DUE AND PAYABLE TO T HE ASSESSEE IS DEBT OWING AND PAYABLE . FOR DELAYED PAYMENT OF THIS DEBT, INTEREST WOULD HAVE TO BE PAID BY VIRTUE OF THE PROVISIONS O F SECTIONS 243 AND 244 OF THE ACT. THE DEBT CLAIM WAS NOT CONNECTED IN ANY WAY WITH ANY ACTIVITY OF A PERMANENT ESTABLISHMENT OR BASE I N INDIA. THE RIGHT TO GET INTEREST AROSE BECAUSE OF THE DELAY IN MAKIN G REFUND OF EXCESSIVE COLLECTION OF THE TAX. THIS WAS CLEARLY A CASE FALLING UNDER PARAGRAPH 2 OF ARTICLE 12 OF THE DOUBLE TAXATION AV OIDANCE AGREEMENT. 19. IN VIEW OF THE FOREGOING DISCUSSION, WE HOLD TH AT THE INTEREST ON INCOME-TAX REFUND IS INCLUDIBLE UNDER ARTICLE 11 AND THE AUTHO RITIES BELOW WERE JUSTIFIED IN REPELLING THE CONTENTION OF THE ASSESSEE FOR ITS IN CLUSION IN ARTICLE 8(3). RESULTANTLY SUCH INTEREST ON INCOME-TAX REFUND IS C HARGEABLE TO TAX IN THE HANDS OF THE NON-RESIDENT ASSESSEE AS THE SAME IS ARISING IN INDIA. AS THE AO HAS ADMITTEDLY CHARGED TAX AT THE RATE OF 10% ON SUCH INTEREST AC CORDING TO THE PROVISIONS OF ARTICLE 11, WE ARE UNABLE TO FIND ANY FLAW IN THE O PINION EXPRESSED BY THE LD. FIRST APPELLATE AUTHORITY. WE, THEREFORE, UPHOLD THE IMPU GNED ORDER. ITA NO.6214/MUM/2007 M/S.HAPAG LLOYD CONTAINER LINIE GMBH. 16 20. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THIS 27 TH DAY OF DECEMBER, 2010. SD/- SD/- ( V.DURGA RAO ) ( R.S.SYAL ) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI : 27 TH DECEMBER, 2010. DEVDAS* COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED 4. THE CIT(A) - XXXIII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.