India: Business losses attributable to PE may be offset against interest income not attributable to PE under UAE treaty (tribunal decision)
Treaty allowed for computation of income under income tax law which includes set-off provisions.
The Mumbai Bench of the Tribunal held that the taxpayer was allowed under the India-UAE income tax treaty to offset business losses attributable to the taxpayer’s permanent establishment (PE) in India against interest income earned on external commercial borrowings extended directly by the taxpayer’s overseas head office to Indian customers, which was not attributable to the PE.
The case is: Abu Dhabi Commercial Bank PJSC v. DCIT
The tribunal rejected the tax authority’s argument that treaty mandated taxation of interest on a gross basis, without allowing for deduction of any expenses or losses, and concluded that the treaty allowed computation of interest income in accordance with the provisions of the Income-tax Act, 1961 (the Act) using the set-off provisions under the Act.
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