India: Tax treatment of interest income under treaty with Japan
The income, while not taxable as business income, was taxable as interest under the India-Japan income tax treaty.
India-Japan income tax treaty
The Mumbai Bench of the Income-tax Appellate Tribunal held that taxpayer’s interest income was not attributable to a permanent establishment (PE) in India.
Rather, the tribunal found that the income, while not taxable as business income, was taxable as interest under the India-Japan income tax treaty.
The tribunal explained that:
- The mere existence of a PE is not sufficient to invoke taxability of interest income under the interest article of the tax treaty unless this interest income is directly or indirectly attributable to the PE.
- Interest income is effectively connected to a PE only when the connection is such that it leads to taxability in the hands of the taxpayer under the business income article of the tax treaty.
The case is: DCIT v. Marubeni Corporation, Japan.
Read a June 2022 report [PDF 310 KB] prepared by the KPMG member firm in India
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.