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2026 Supreme(Online)(ITAT) 9449
INCOME TAX APPELLATE TRIBUNAL (DEHRADUN BENCH)
Satbeer Singh Godara, Judicial Member, Manish Agarwal, Accountant Member
Baker Hughes Singapore Pte. Ltd. – Appellant
Versus
DCIT Circle-1 Intl. Taxation Dehradun – Respondent
ITA Nos.146 & 147/DDN/2025 | ITA Nos.154 & 170/DDN/2025
For the Appellants/Petitioners: Amit Arora, CA, Vishal Mishra, CA
For the Respondents: Mohan Lal Joshi, Sr. DR
Interest on tax refund is business income taxable at marginal rate if effectively connected to PE, per DTAA Article 11(6); chemical management services in oil exploration taxable under s.44BB presumptive basis, not as FTS.
Headnote:(A) Income-tax Act, 1961 - Sections 9(1)(vi), 9(1)(vii), 44BB, 44DA, 143(3) r.w.s. 144C - Interest on income tax refund - Taxability under DTAA Article 11 - Where assessee has PE in India, interest on refund u/s 244A arising from excess tax paid is business income effectively connected with PE and taxable at maximum marginal rate under Article 7 (business profits), not at 15% under Article 11(2), following jurisdictional High Court overruling contrary Tribunal view. (Paras 2, 3)
(B) Income-tax Act, 1961 - Sections 9(1)(vii), 44BB, 44DA - Chemical management services and related activities in connection with exploration, exploitation, extraction of mineral oils - Receipts taxable on presumptive basis u/s 44BB, not as fee for technical services u/s 9(1)(vii) or under s.44DA, as intrinsically linked to mining activity per Supreme Court ratio, irrespective of PSC/non-PSC contracts. (Paras 5, 6)
(C) Judicial discipline - Jurisdictional High Court decision binding on Tribunal, overrides prior inconsistent Tribunal rulings in same matter; consistency mandates following higher court precedent unless overruled. (Para 3)
Facts of the case:
Cross appeals by assessee and revenue for AYs 2016-17 & 2017-18 against CIT(A) orders. Assessee (foreign company with PE) claimed interest on tax refund taxable at 15% under DTAA; revenue contested certain receipts as FTS taxable under s.44DA instead of presumptive s.44BB.
Findings of Court:
Interest on refund held business profits taxable at maximum marginal rate; receipts from chemical management and allied services upheld taxable under s.44BB.
Issues: (1) Tax rate on interest on income tax refund under DTAA given PE existence; (2) Characterisation of receipts from chemical management services as business profits under s.44BB or FTS under s.44DA.
Ratio Decidendi: Interest refund linked to PE via asset/activity test, invoking DTAA Article 11(6) for business profits taxation; services integral to mineral oil extraction qualify under s.44BB exception to FTS, following Supreme Court and consistent prior Tribunal rulings.
Result: Both assessee’s and revenue’s appeals dismissed.
| Table of Content |
|---|
| 1. cross appeals against cit(a) orders on refund interest and fts taxability. (Para 1) |
| 2. interest on tax refund taxable as business profits at mmr, not dtaa 15%, following jurisdictional hc. (Para 2 , 3) |
| 3. chemical management services taxable under section 44bb, not fts under 44da. (Para 4 , 5 , 6) |
| 4. both assessee's and revenue's cross appeals dismissed. (Para 7) |
ORDER
PER SATBEER SINGH GODARA, JM:
These assessee’s and the Revenue’s twin cross appeals each ITA Nos.146 & 147/DDN/2025 and ITA Nos. 154 & 170/DDN/2025 for as many assessment years 2016-17 and 2017- 18 are directed against the Commissioner of Income Tax (Appeals) [in short, the “CIT(A)”], Noida’s-2 orders, both dated 19.06.2025 having DINs and orders no ITBA/APL/S/250/2025- 26/1077215744(1) and ITBA/APL/S/250/2025- 26/1077216284(1), involving proceedings under section 143(3) r.w.s. 144C of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties. Case file perused.
2. We advert to the assessee’s twin appeals ITA Nos.146 & 147/DDN/2025 wherein its identical sole substantive grounds reads that both the learned lower authorities have erred in law and on facts in holding its interest on income tax refund as assessable to tax under the maximum marginal rate of 40% than that of the rate of 15% as per article 11 of India – USA Double Taxation Avoidance Agreement “DTAA” in issue. Our attention is further invited to the learned CIT(A)’s detailed discussion upholding the assessment findings to this effect, reading as under:
“5.3.2 I have carefully considered the issue at hand and submission of the appellant as reproduced above. The appellant in its ITR has claimed interest on income-tax refund of Rs. 1,62,35,295/- to be chargeable to tax @ 15% under Article 11 of the India-Singapore DTAA. The appellant has pleaded that the Hon’ble Tribunal has in appellant’s own case for AY 2015-16 has held that “interest on income tax refund is not effectively connected with the PE either on the basis of asset test or activity test. Hence, it is taxable as per the provisions in the Para No. 2 of Article 11 of Indo-US DTAA”. The appellant has placed reliance on other case laws also as reproduced in its reply above.
5.3.3 It is an undisputed fact that the appellant has PE in India in the present year and also in the year to which refund of income-tax and interest arising thereon pertains. In this context, it is important to take note of the decision of the Hon’ble jurisdictional High Court of Uttarakhand wherein the Hon’ble HC while dwelling on the said issue in the case of M/s B.J Services vide order dated 19.05.2015 reported at 60 taxmann.com 246 (Uttarakhand) has held that interest on income tax refund u/s 244A of the Act is business income as this indebtedness on which interest income is earned is effectively connected with the Permanent Establishment (PE) of the appellant in India. The relevant extract of the observation of the hon’ble HC is reproduced hereunder for ready reference:
“6. The agreement is one for avoidance of double taxation and prevention of fiscal evasion between United Kingdom of Great Britain and Northern Ireland. Since we are concerned with only Article 12 of the Treaty which deals with interest, we refer to the relevant portions which are Clause 1, 2 & 6 of Article 12 of the Treaty.
1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such interest may also be taxed in the Contracting State in which it arises and accordingly to the law of that State, provided that where the resident of the other Contracting State is the beneficial owner of the interest the tax so charged shall not exceed 15 per cent of the gross amount of the disinterest.
6. The provisions of paragraphs 1, 2 and 3(a) of this Article shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting Stat
