ITAT Permits 15% Interest Rate to Assessee During Tax Calculation as per India-USA Tax Treaty

In a recent ruling, the Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT), under India-USA Tax Treaty, permitted the non-resident Indian assessee for a beneficial rate of tax at 15% on interest income during the calculation of tax amount.

The appellant assessee, Parag Bhikhubhai Patel, a U.S. citizen and a Non-Resident Indian (NRI) e-filed the return of income (ROI). The centralised processing centre processed the ROI and collected the tax at a “normal rate” on interest income. The rate prescribed was not applied by them under the India-USA Tax Treaty.

The assessee appealed challenging the directive passed by the Commissioner of Income Tax (Appeals) to maintain the calculation of tax by the Centralised processing centre by applying the maximum marginal rate instead of the applicable rate under the treaty.

Hem Chhajed, the representative of the assessee, argued that the assessee was an NRI and was eligible for a beneficial rate of tax on interest income under the India-USA Tax Treaty.

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Chhajed submitted that the assessee’s (NRI) calculation of tax amount was as the amount of tax at the special rate of 15% under the India-USA Tax Treaty.

The counsel for the revenue, Aashish Rajesh Revar, argued that the assessee had not been able to explain his being a tax resident of the USA. Even though he had many chances, he had not been able to present the Tax Residency Certificate (TRC) to prove he was a tax resident of the USA.

The bench noted that in this particular case, even as of the date of this hearing, the assessee did not have a copy of the tax residence certificate to prove that he was a tax resident of the USA.

Merely possessing a copy of the US Passport with travel records to and from India is insufficient to fully verify or demonstrate the assessee’s tax residency status in the USA.

The two-member panel consisting of Anil Chaturvedi (Accountant) and Siddhartha Nautiyal (Judicial) returned the file to the Commissioner of Income Tax (Appeals). They instructed the CIT (Appeals) to permit the assessee to submit additional documents as evidence to establish their tax residency in the USA for the beneficial rate of tax calculation under the India-USA Tax Treaty. Simultaneously, the panel granted the appeal filed by the assessee.