UPS ASIA GROUP PTE LTD,MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) -4(3)(1), MUMBAI

ITA 4797/MUM/2023

AI Insights

UPS Asia Group Pte. Ltd., a Singapore-based company, appealed against the final assessment order for the assessment year 2021-22, which was passed by the Assistant Commissioner of Income-tax (International Taxation) based on the directions of the Dispute Resolution Panel. The primary issues in the appeal included the incorrect conclusion of the existence of a 'Business Connection' and a 'Permanent Establishment' in India, and the erroneous attribution of taxable income to these entities. The Tribunal examined whether the Indian Associated Enterprise (AE) constituted a PE and whether the income attributed was at arm's length. The Tribunal also addressed the taxation of interest on an income-tax refund, which the Assessing Officer had taxed at normal rates instead of the reduced rate applicable under the India-Singapore Tax Treaty.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 32113 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 19-09-2024
• Assessment Year: 2021-2022
• Appeal Filed On: 26-12-2023
• Other Referred Cases: ACIT v. Clough Engineering Ltd., Dy. CIT v. Marubeni Corporation
• Laws Referred To: Income-tax Act, 1961, India-Singapore Tax Treaty
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANIL SANT
• Assessee Lawyers: NITESH JOSHI
• Keywords: Set aside; Business income; Transfer pricing; Double taxation relief; Permanent establishment

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND MS. KAVITHA RAJAGOPAL (JUDICIAL MEMBER) ITA No. 4797/MUM/2023 Assessment Year: 2021-22 UPS Asia Group Pte. Ltd., Bhagwati Compound, Plot No. 2, Compartment 10/11, Marol Co- operative Industrial Estate, Off M.V. Road, Andheri (East), Mumbai-400059. Vs. Asst. CIT (International Taxation)- 4(3)(1), 16th floor, Air India Building, Nariman Point, Mumbai-400021. PAN NO. AABCU 5192 M Appellant Respondent Assessee by : Mr. Nitesh Joshi Revenue by : Mr. Anil Sant, Addl. CIT-DR Date of Hearing : 19/09/2024 Date of pronouncement : 28/10/2024 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee has been preferred against final assessment order dated 31.10.2023 passed by the Ld. Assistant Commissioner of Income-tax (International Taxation)-4(3)(1), Mumbai [in short ‘the Ld. Assessing Officer’] for assessment year 2021-22, pursuant to the direction of the Ld. Dispute Resolution Panel (DRP) dated 22.09.2023. The grounds raised by the assessee in its appeal are reproduced as under: Ground No. 1 constituting a 'Business Connection' under Section 9(1)(i) of the Income-tax Act, 1961 Establishment (PE') under Article 5 of the India Tax Treaty (Tax Treaty') in India 1.1 On the facts and circumstances of the case and in law, the Assessing Officer ('AO') erred in concluding and the Dispute Resolution Panel ('DRP') erred in confirming that the Appellant has a Business Connection under Section 9(1)i) of the Act and PE under Article 5 of the Tax Treaty in India due to the activities of UPS SCS (India) Private Limited (*USIPL') without appreciating that the Appellant operates entirely outside India and does not have any presence in India / carry out any operations in India. 1.2 The Appellant prays that the conclusion of Appellant having a Business Connection under Section 9(1)(i) of the Act and PE under Article 5 of the Tax Treaty is erroneous, unwarranted and should be deleted. Ground No. 2 Rs.1,46,69,018 to the alleged Business Connection under Section 9(1)i) of the Act / PE under Article 5 of the Tax Treaty in India (this Ground is without prejudice to Ground No. 1) 2.1 On the facts and circumstances of the case and in law, the AO erred in concluding and the DRP erred in confirming the attribution of revenues / profits (55% of revenue in case of outbound consignments and 22.5% in case of inbound consignments as gross India taxable revenue) to the alleged Business Connection / PE without appreciating that the transactions between the Appellant and USIPL (the alleged Business Connection / PE) is at an arm's length price. 2.2 The Appellant prays that the attribution of further revenue / profits to the alleged Business Connection / PE of the Appellant in India is erroneous, unwarranted and should be deleted Ground No. 3 refund of Rs.51,46,211 as per the provisions of the Act 3.1 On the facts and circumstances of the case and in law, the AO erred in concluding and the DRP erred in confirming that the interest on Income provisions of the Panel (DRP) dated 22.09.2023. The grounds raised by the assessee in its appeal are reproduced as under: Ground No. 1 - Erroneous conclusion of the Appellant constituting a 'Business Connection' under Section 9(1)(i) of tax Act, 1961 (the 'Act') and Permanent Establishment (PE') under Article 5 of the India-Singapore Tax Treaty (Tax Treaty') in India 1.1 On the facts and circumstances of the case and in law, the Assessing Officer ('AO') erred in concluding and the Dispute nel ('DRP') erred in confirming that the Appellant has a Business Connection under Section 9(1)i) of the Act and PE under Article 5 of the Tax Treaty in India due to the activities of UPS SCS (India) Private Limited (*USIPL') without appreciating that the Appellant operates entirely outside India and does not have any presence in India / carry out any operations in India. 1.2 The Appellant prays that the conclusion of Appellant having a Business Connection under Section 9(1)(i) of the Act and PE under le 5 of the Tax Treaty is erroneous, unwarranted and should Ground No. 2 - Erroneous attribution of taxable income of Rs.1,46,69,018 to the alleged Business Connection under Section 9(1)i) of the Act / PE under Article 5 of the Tax dia (this Ground is without prejudice to Ground 2.1 On the facts and circumstances of the case and in law, the AO erred in concluding and the DRP erred in confirming the attribution of revenues / profits (55% of revenue in case of outbound nts and 22.5% in case of inbound consignments as gross India taxable revenue) to the alleged Business Connection / PE without appreciating that the transactions between the Appellant and USIPL (the alleged Business Connection / PE) is at an arm's 2.2 The Appellant prays that the attribution of further revenue / profits to the alleged Business Connection / PE of the Appellant in India is erroneous, unwarranted and should be deleted Ground No. 3 - Erroneous taxation of interest on Income und of Rs.51,46,211 as per the provisions of the Act 3.1 On the facts and circumstances of the case and in law, the AO erred in concluding and the DRP erred in confirming that the interest on Income-tax refund is taxable as per the normal provisions of the Act instead of Article 11(2)(b) of the Tax Treaty UPS Asia Group Pte. Ltd. 2 ITA No. 4797/MUM/2023 Panel (DRP) dated 22.09.2023. The grounds raised by the assessee Erroneous conclusion of the Appellant constituting a 'Business Connection' under Section 9(1)(i) of (the 'Act') and Permanent Singapore 1.1 On the facts and circumstances of the case and in law, the Assessing Officer ('AO') erred in concluding and the Dispute nel ('DRP') erred in confirming that the Appellant has a Business Connection under Section 9(1)i) of the Act and PE under Article 5 of the Tax Treaty in India due to the activities of UPS SCS (India) Private Limited (*USIPL') without appreciating that the Appellant operates entirely outside India and does not have any 1.2 The Appellant prays that the conclusion of Appellant having a Business Connection under Section 9(1)(i) of the Act and PE under le 5 of the Tax Treaty is erroneous, unwarranted and should Erroneous attribution of taxable income of Rs.1,46,69,018 to the alleged Business Connection under Section 9(1)i) of the Act / PE under Article 5 of the Tax dia (this Ground is without prejudice to Ground 2.1 On the facts and circumstances of the case and in law, the AO erred in concluding and the DRP erred in confirming the attribution of revenues / profits (55% of revenue in case of outbound nts and 22.5% in case of inbound consignments as gross India taxable revenue) to the alleged Business Connection / PE without appreciating that the transactions between the Appellant and USIPL (the alleged Business Connection / PE) is at an arm's 2.2 The Appellant prays that the attribution of further revenue / profits to the alleged Business Connection / PE of the Appellant in Erroneous taxation of interest on Income-tax und of Rs.51,46,211 as per the provisions of the Act 3.1 On the facts and circumstances of the case and in law, the AO erred in concluding and the DRP erred in confirming that the tax refund is taxable as per the normal Act instead of Article 11(2)(b) of the Tax Treaty without appreciating that the interest on Income attributable to the Appellant and not to the alleged PE in India. 3.2 The Appellant prays that the conclusion of taxation of interest on Income-tax refund as per provisions of the Act is erroneous, unwarranted and should be deleted 2. Briefly stated facts of the case are that the assessee is a company incorporated under the laws of Singapore and is engaged in the business of provision of supply the provision of freight forwarding and logistics services. For the year under consideration, the assessee filed return of income on 15.03.2022 declaring total income at Rs.52,93,600/ income filed by the assesse and statutory notices under the Act were issued and complied with. The assessee had entered into agreement w.e.f. 01.01.2012 with Indian A (AE) namely UPS, SCS (Indi and logistics services under the transportation agreement. the transport agreement, t international freight transportation through the Ocean Liner/Airlines and provide overseas Indian AE performed Indian customers and to the assessee. The service agreement was slightly modified in relation to assessment year under consideration. 2.1 During the course of the assessment proceedings, the assessee was asked to explain as why the Indian AE should not treated as without appreciating that the interest on Income-tax refund is attributable to the Appellant and not to the alleged PE in India. 3.2 The Appellant prays that the conclusion of taxation of interest tax refund as per provisions of the Act is erroneous, unwarranted and should be deleted Briefly stated facts of the case are that the assessee is a company incorporated under the laws of Singapore and is engaged in the business of provision of supply chain management, including the provision of freight forwarding and logistics services. For the year under consideration, the assessee filed return of income on 15.03.2022 declaring total income at Rs.52,93,600/ income filed by the assessee was selected for scrutiny assessment and statutory notices under the Act were issued and complied with. The assessee had entered into an original transport service w.e.f. 01.01.2012 with Indian Associated E namely UPS, SCS (India) Pvt. Ltd. for the provision of freight services under the transportation agreement. the transport agreement, the assessee arranged ght transportation through the Ocean provide overseas support services ed freight and logistics service in India to its Indian customers and to the assessee. The service agreement was slightly modified in relation to assessment year under During the course of the assessment proceedings, the assessee was asked to explain as why the Indian AE should not treated as UPS Asia Group Pte. Ltd. 3 ITA No. 4797/MUM/2023 tax refund is attributable to the Appellant and not to the alleged PE in India. 3.2 The Appellant prays that the conclusion of taxation of interest tax refund as per provisions of the Act is erroneous, Briefly stated facts of the case are that the assessee is a company incorporated under the laws of Singapore and is engaged chain management, including the provision of freight forwarding and logistics services. For the year under consideration, the assessee filed return of income on 15.03.2022 declaring total income at Rs.52,93,600/-. The return of e was selected for scrutiny assessment and statutory notices under the Act were issued and complied with. original transport service ociated Enterprises a) Pvt. Ltd. for the provision of freight services under the transportation agreement. Under arranged to perform ght transportation through the Ocean support services, while the service in India to its Indian customers and to the assessee. The service agreement was slightly modified in relation to assessment year under During the course of the assessment proceedings, the assessee was asked to explain as why the Indian AE should not treated as business connection of the assessee in India u/s 9(1)(i) of the Act and profit be attributed thereto in the draft assessment order dated 20.12.2022, the Assessing Officer held that assessee had a business connection in India u/s 9(1)(i) of the Act in the form of its Indian AE attributable to the operation in India is taxabl Assessing Officer further held that the Indian constitute Permanent meaning of Article 5(1), 5(2), 5(8) of the India Assessing Officer, accordingly orders, attributed 55 transaction amounting to Rs.4,28,63,752/ from the inbound transaction amounting to Rs.28,75,19,543/ totaling to Rs.33,03,83,295/ applying global profitability rate of 4.4% Rs.1,46,69,018/- and Assessing Officer also held that interest received on the Income refund was taxable at the normal rats i.e. t applicable surcharge and cess instead of claim of the assessee taxability @ 15% as The assessee filed objection before the Ld. DRP, assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. business connection of the assessee in India u/s 9(1)(i) of the Act and profit be attributed thereto in the relevant assessment ye the draft assessment order dated 20.12.2022, the Assessing Officer held that assessee had a business connection in India u/s 9(1)(i) of the Act in the form of its Indian AE, thus, its business income attributable to the operation in India is taxable in India. The Assessing Officer further held that the Indian AE of the assessee ermanent Establishment (PE) in India within the meaning of Article 5(1), 5(2), 5(8) of the India-Singapore DTAA. The accordingly, following earlier years attributed 55% of the revenue in respect outbound unting to Rs.4,28,63,752/- and 25% of the revenue from the inbound transaction amounting to Rs.28,75,19,543/ totaling to Rs.33,03,83,295/- as attributable to the assessee and applying global profitability rate of 4.4% computed and was added in the hands of the assessee. The Assessing Officer also held that interest received on the Income refund was taxable at the normal rats i.e. taxable @ 40% along with applicable surcharge and cess instead of claim of the assessee % as per article 11(2) of the India Singapore DTAA. The assessee filed objections against the draft assessment order , however could not succeed. Aggrieved assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. UPS Asia Group Pte. Ltd. 4 ITA No. 4797/MUM/2023 business connection of the assessee in India u/s 9(1)(i) of the Act the relevant assessment year. In the draft assessment order dated 20.12.2022, the Assessing Officer held that assessee had a business connection in India u/s 9(1)(i) of its business income, e in India. The AE of the assessee India within the Singapore DTAA. The lier years assessments % of the revenue in respect outbound 25% of the revenue from the inbound transaction amounting to Rs.28,75,19,543/- he assessee and computed profit of was added in the hands of the assessee. The Assessing Officer also held that interest received on the Income-tax axable @ 40% along with applicable surcharge and cess instead of claim of the assessee of 11(2) of the India Singapore DTAA. against the draft assessment order not succeed. Aggrieved, the assessee is in appeal before the Tribunal by way of raising grounds 3. Before us, the Ld. counsel for the assessee submitted that the ground No. 2 of the appeal in relation to attribution of the profit to the assessee has been held in favour of the assessee by the Tribunal in earlier years and therefore permanent establishment of the assessee in India academic. 4. We have heard rival submission of the parties and peru relevant materials on record. change in the service agreement in the year under consideration but, in our opinion that might be relevant for determination of existence of PE, but case of assessee is concerned same is not relevant, because the AO has treated the Indian AE as an establishment (DAPE) arm’s length value and no adjustment had been made by the the case of DAPE, required in the case of the assessee. This principle has been followed in the case of the assessee by the Tribunal in ITA No. 7171/Mum/2017, 7319/Mum/2018 and 6631/Mum/2019 for assessment years 2013 1220/Mum/2021 for assessment year 2017 & 2244/Mum/2022 for assessment years 2018 also this ratio has been followed and it is held that since, the Indian AE which has been held to be dependable agent permanent Before us, the Ld. counsel for the assessee submitted that the ground No. 2 of the appeal in relation to attribution of the profit to he assessee has been held in favour of the assessee by the Tribunal in earlier years and therefore the issue of whether there is permanent establishment of the assessee in India heard rival submission of the parties and peru relevant materials on record. The ld DR has referred to slight change in the service agreement in the year under consideration but, in our opinion that might be relevant for determination of as far as issue of attribution of th assessee is concerned same is not relevant, because the AO has treated the Indian AE as an dependable agent permanent establishment (DAPE), and said agent has been remunerated and no adjustment had been made by the then no further attribution of the profit is required in the case of the assessee. This principle has been followed in the case of the assessee by the Tribunal in ITA No. 7171/Mum/2017, 7319/Mum/2018 and 6631/Mum/2019 for nt years 2013-14 to 2015-16. Thereafter in ITA No. 1220/Mum/2021 for assessment year 2017-18 and in ITA No. 2243 & 2244/Mum/2022 for assessment years 2018-19 and 2019 ratio has been followed and it is held that since, the Indian been held to be dependable agent permanent UPS Asia Group Pte. Ltd. 5 ITA No. 4797/MUM/2023 Before us, the Ld. counsel for the assessee submitted that the ground No. 2 of the appeal in relation to attribution of the profit to he assessee has been held in favour of the assessee by the whether there is permanent establishment of the assessee in India, is merely heard rival submission of the parties and perused the The ld DR has referred to slight change in the service agreement in the year under consideration but, in our opinion that might be relevant for determination of of attribution of the profit in assessee is concerned same is not relevant, because the AO dependable agent permanent agent has been remunerated on and no adjustment had been made by the TPO in then no further attribution of the profit is required in the case of the assessee. This principle has been followed in the case of the assessee by the Tribunal in ITA No. 7171/Mum/2017, 7319/Mum/2018 and 6631/Mum/2019 for hereafter in ITA No. 18 and in ITA No. 2243 19 and 2019-2020 ratio has been followed and it is held that since, the Indian been held to be dependable agent permanent establishment, has been remunerated at arm’s length price no further attribution of profit assessee. We are of the opinio transaction of the assessee with Indian AE i.e. DAPE, the transactions which are covered by the transfer pricing study observed by the AO and no adjustment had been made by the TPO then no further profit can be attributed to the Indian entity which has been held to be DAPE by the AO. attribution by the AO is accordingly deleted. T Indian entity is permanent establishment of the assessee is therefore, merely rendered appeal of the assessee is accordingly allowed in favour of the assessee and ground No. 1of the appeal of the assessee is rendered academic and therefore we are not adjudicating upon. 5. The ground No. 3 of the appeal relates to the taxation of interest on income-tax ref the issue in dispute are that assessee received interest on income tax refund amounting to Rs.51,46,211/ 15% of India-Singapore Tax Treaty. But according to the Assessing Officer, the assessee was not qualified for the benefit of the 15% tax rate on the interest of the income taxed as per the normal provisions of the income AO held that as per the para 4 of the Article of DTAA between Indi and Singapore, 15% tax of the interest income cannot be given if has been remunerated at arm’s length price no further attribution of profit is required in the case of the assessee. We are of the opinion that unless any activities e assessee with Indian AE i.e. DAPE, the transactions which are covered by the transfer pricing study and no adjustment had been made by the TPO then no further profit can be attributed to the Indian entity which held to be DAPE by the AO. The addition for profit attribution by the AO is accordingly deleted. The issue whether the Indian entity is permanent establishment of the assessee is rendered academic. The ground No. 2 of the ssessee is accordingly allowed in favour of the assessee and ground No. 1of the appeal of the assessee is rendered academic and therefore we are not adjudicating upon. The ground No. 3 of the appeal relates to the taxation of tax refund of Rs,51,46,211/-. The brief facts qua the issue in dispute are that assessee received interest on income tax refund amounting to Rs.51,46,211/- which was offered to tax @ Singapore Tax Treaty. But according to the Assessing ssessee was not qualified for the benefit of the 15% tax rate on the interest of the income-tax refund and should have been taxed as per the normal provisions of the income-tax Act. The Ld. AO held that as per the para 4 of the Article of DTAA between Indi 15% tax of the interest income cannot be given if UPS Asia Group Pte. Ltd. 6 ITA No. 4797/MUM/2023 has been remunerated at arm’s length price, hence required in the case of the n that unless any activities or the e assessee with Indian AE i.e. DAPE, other than the transactions which are covered by the transfer pricing study are and no adjustment had been made by the TPO, then no further profit can be attributed to the Indian entity which The addition for profit he issue whether the Indian entity is permanent establishment of the assessee is academic. The ground No. 2 of the ssessee is accordingly allowed in favour of the assessee and ground No. 1of the appeal of the assessee is rendered academic and therefore we are not adjudicating upon. The ground No. 3 of the appeal relates to the taxation of . The brief facts qua the issue in dispute are that assessee received interest on income- which was offered to tax @ Singapore Tax Treaty. But according to the Assessing ssessee was not qualified for the benefit of the 15% tax tax refund and should have been tax Act. The Ld. AO held that as per the para 4 of the Article of DTAA between India 15% tax of the interest income cannot be given if the interest arises through PE in the contracting state. According to the Assessing Officer, the assessee had DAPE in India and only source of income as trademark/technical assistance fees USPIL. Therefore, interest income received from the Income Department arises through DAPE in India and thus taxable as per the normal provisions of the Act. The Ld. finding of the Assessing Officer. 5.1 Before us, the Ld. coun decision of the Co-ordinate Bench of the Tribunal in the case of ACIT v. Clough Engineering Ltd. [2011] 11 taxmann.com 70 (Delhi) (SB) and Co-ordinate Bench Tribunal in the case of Dy. CIT v. Marubeni Corporation [2022] 1 Trib.). 5.2 We have heard rival submission of the parties and perused the relevant material on record. The issue of interest arising from the Income-tax refund has been dealt by the Co Tribunal in the case o held that such interest was not effectively connected with the PE either on the basis of asset test or was taxable under paragraph 2 of the Article 11 of the DTAA. relevant finding of the Tribunal is reproduced as under: “11.4 Thus, we are again left with the fundamental question as to whether the debt connected with the PE. We have already held that the claim is connected with th deduction at source from the receipts of the PE. However, it is also a the interest arises through PE in the contracting state. According to the Assessing Officer, the assessee had DAPE in India and only source of income as trademark/technical assistance fees USPIL. Therefore, interest income received from the Income Department arises through DAPE in India and thus taxable as per the normal provisions of the Act. The Ld. DRP also upheld the finding of the Assessing Officer. Before us, the Ld. counsel for the assessee relied on the ordinate Bench of the Tribunal in the case of ACIT v. Clough Engineering Ltd. [2011] 11 taxmann.com 70 (Delhi) ordinate Bench Tribunal in the case of Dy. CIT v. Marubeni Corporation [2022] 139 taxmann.com 367 (Mumbai We have heard rival submission of the parties and perused the relevant material on record. The issue of interest arising from the tax refund has been dealt by the Co-ordinate Bench of the Tribunal in the case of the Clough Engineering Ltd. (supra) and held that such interest was not effectively connected with the PE either on the basis of asset test or activities test and therefore, it was taxable under paragraph 2 of the Article 11 of the DTAA. ding of the Tribunal is reproduced as under: 11.4 Thus, we are again left with the fundamental question as to whether the debt-claim in this case can be said to be effectively connected with the PE. We have already held that the claim is connected with the PE in the sense that it has arisen on account of tax deduction at source from the receipts of the PE. However, it is also a UPS Asia Group Pte. Ltd. 7 ITA No. 4797/MUM/2023 the interest arises through PE in the contracting state. According to the Assessing Officer, the assessee had DAPE in India and only source of income as trademark/technical assistance fees from USPIL. Therefore, interest income received from the Income-tax Department arises through DAPE in India and thus taxable as per also upheld the sel for the assessee relied on the ordinate Bench of the Tribunal in the case of ACIT v. Clough Engineering Ltd. [2011] 11 taxmann.com 70 (Delhi) ordinate Bench Tribunal in the case of Dy. CIT v. 39 taxmann.com 367 (Mumbai- We have heard rival submission of the parties and perused the relevant material on record. The issue of interest arising from the ordinate Bench of the f the Clough Engineering Ltd. (supra) and held that such interest was not effectively connected with the PE test and therefore, it was taxable under paragraph 2 of the Article 11 of the DTAA. The ding of the Tribunal is reproduced as under: 11.4 Thus, we are again left with the fundamental question as to claim in this case can be said to be effectively connected with the PE. We have already held that the claim is e PE in the sense that it has arisen on account of tax deduction at source from the receipts of the PE. However, it is also a fact that payment of tax is the responsibility of the foreign company. The same is determined after computation of its income and forms not an expenditure for earning the income but an item of appropriation of profit. Therefore, even if the debt is connected with the receipts of the PE, it cannot be said to be effectively connected with such receipts because the responsibilit shoulders of the assessee as on the last date of the previous year and on closing the books of account. It is for the company to pay the tax from any source available with it. It so hap deducted from the receipts of the PE by operation of law. Such collection of tax by force of law would not establish effective connection of the indebtedness with the PE as ultimately it is only the appropriation of profit of the assessee company. However, we may add that we do not venture to say that the interest income has to be necessarily business income in nature for establishing the effective connection with the PE because that would render provision c in paragraph 4 of Article XI redundant. Thus, there may be cases where interest may be taxable under the Act under the residuary head and yet be effectively connected with the PE. The bank interest in this case is an example of effective connectio income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income tax refund. Such interest is not effectively connected with PE either on the basis of asset part of interest is taxable under paragraph No. 2 of Article XI. Thus, the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with order.” 5.3 Further in the case of Marubeni Corporation (supra), the Tribunal held that unless the interest is connected with the permanent establishment it has to be taxed under DTAA. The Article 7 of DTAA income is directly or indirectly attributable to its PE. Respectfully following the finding of the Special Bench of the Tribunal in the case of Clough Engineering Ltd. (supra) income-tax refund is hel Accordingly, we set aside the finding of the Assessing Officer hold that interest received on the income fact that payment of tax is the responsibility of the foreign company. The same is determined after computation of its income and forms not an expenditure for earning the income but an item of appropriation of profit. Therefore, even if the debt is connected with the receipts of the PE, it cannot be said to be effectively connected with such receipts because the responsibility to pay the tax lies on the shoulders of the assessee-company from the final profit ascertained as on the last date of the previous year and on closing the books of account. It is for the company to pay the tax from any source available with it. It so happened in this case that the tax got automatically deducted from the receipts of the PE by operation of law. Such collection of tax by force of law would not establish effective connection of the indebtedness with the PE as ultimately it is only the iation of profit of the assessee company. However, we may add that we do not venture to say that the interest income has to be necessarily business income in nature for establishing the effective connection with the PE because that would render provision c in paragraph 4 of Article XI redundant. Thus, there may be cases where interest may be taxable under the Act under the residuary head and yet be effectively connected with the PE. The bank interest in this case is an example of effective connection between the PE and the income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income tax refund. Such interest is not effectively connected with PE either on the basis of asset-test or activity-test. Accordingly, it is held that this part of interest is taxable under paragraph No. 2 of Article XI. Thus, the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with Further in the case of Marubeni Corporation (supra), the Tribunal held that unless the interest is connected with the permanent establishment it has to be taxed under of DTAA comes into play only when t directly or indirectly attributable to its PE. Respectfully following the finding of the Special Bench of the Tribunal in the case of Clough Engineering Ltd. (supra), the interest received on tax refund is held to be not connected with the P Accordingly, we set aside the finding of the Assessing Officer ld that interest received on the income-tax refund is not UPS Asia Group Pte. Ltd. 8 ITA No. 4797/MUM/2023 fact that payment of tax is the responsibility of the foreign company. The same is determined after computation of its income and the tax forms not an expenditure for earning the income but an item of appropriation of profit. Therefore, even if the debt is connected with the receipts of the PE, it cannot be said to be effectively connected with y to pay the tax lies on the company from the final profit ascertained as on the last date of the previous year and on closing the books of account. It is for the company to pay the tax from any source available pened in this case that the tax got automatically deducted from the receipts of the PE by operation of law. Such collection of tax by force of law would not establish effective connection of the indebtedness with the PE as ultimately it is only the iation of profit of the assessee company. However, we may add that we do not venture to say that the interest income has to be necessarily business income in nature for establishing the effective connection with the PE because that would render provision contained in paragraph 4 of Article XI redundant. Thus, there may be cases where interest may be taxable under the Act under the residuary head and yet be effectively connected with the PE. The bank interest in this n between the PE and the income as the indebtedness is closely connected with the funds of the PE. However, the same cannot be said in respect of interest on income- tax refund. Such interest is not effectively connected with PE either on test. Accordingly, it is held that this part of interest is taxable under paragraph No. 2 of Article XI. Thus, the ground referred to the Special Bench is partly allowed. The Division Bench shall dispose off the appeal in conformity with this Further in the case of Marubeni Corporation (supra), the Tribunal held that unless the interest is connected with the permanent establishment it has to be taxed under Article 11(2) of comes into play only when the interest directly or indirectly attributable to its PE. Respectfully following the finding of the Special Bench of the Tribunal in the the interest received on connected with the PE. Accordingly, we set aside the finding of the Assessing Officer and tax refund is not effectively connected with the PE and to be taxed as per Article 11(2) of the DTAA between India and Singa of the appeal is accordingly allowed. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on Sd/ (KAVITHA RAJAGOPAL JUDICIAL MEMBER Mumbai; Dated: 28/10/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// effectively connected with the PE and to be taxed as per Article 11(2) of the DTAA between India and Singapore. The ground No. 3 of the appeal is accordingly allowed. In the result, the appeal of the assessee is allowed. nounced in the open Court on 28/10/2024. Sd/- Sd/ (KAVITHA RAJAGOPAL) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai UPS Asia Group Pte. Ltd. 9 ITA No. 4797/MUM/2023 effectively connected with the PE and to be taxed as per Article pore. The ground No. 3 In the result, the appeal of the assessee is allowed. /10/2024. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai "