Recently, the High Court in the case of B.J. Services Company Middle East Limited held that the interest earned on an income tax refund is taxable as business income under the India-UK tax treaty where the debt claim in respect of which interest is paid is effectively connected with a permanent establishment (PE) in India.
The High Court also held that Section 44BB of the Income-tax Act, 1961 (the Act) concerning profits and gains on exploration of mineral oils is not applicable to interest on an income tax refund since the amount of such interest is not on account of the provision of services and facilities in connection with, or supply of plant and machinery on hire in the prospecting for, or extraction or production of, mineral oils.
