I.P. BANSAL, J.M. ORDER These are cross-appeals and they are directed against order of CIT(A) dt. 3rd Feb., 2006 for asst. yr. 2002-03. 2. Ground of appeal raised by Revenue reads as under : "That learned CIT(A) has erred in law and on facts in holding that revenues on account of reimbursement of expenses received by non- resident company are not includible in gross receipts of non-resident company." Grounds of appeal raised by assessee read as under : "1. learned CIT(A) erred on facts and in law in upholding order of AO with regard to taxing interest on tax refunds as business income as per art. 7 instead of specific provisions of art. 12(2) of DTAA with France merely on existence of PE when interest is payable statutorily on tax refunds and neither arises through PE nor effectively connected with PE. 2. That learned CIT(A) erred in law in upholding order of AO by taking interest on tax refunds as business receipts, when interest on tax refunds does not depend on existence or non-existence of PE in India and is statutorily dependent on outcome of assessment proceedings, appeals conducted by tax consultants and lawyers. 3. learned CIT(A) erred in law in upholding levy of tax on interest of Rs. 1,46,996 on tax refunds @ 48 per cent on gross as per IT Act instead of 10 per cent as prescribed in art. 12(2) of DTAA of IT Act (sic) by virtue of applying beneficial provisions as per s. 90(2) of IT Act." 3 . assessee is French company operating in India in oil drilling operations and related services under various contracts with ONGC. For year under consideration assessee has contract with ONGC for charter hire of Drilling Rig Pride Pennsylvania. assessee had returned gross fee for drilling operation for computation and taxation of income as per s. 44BB of IT. Act, 1961 ( Act ). While working out receipts assessee did not take into computation gross sum of Rs. 34,73,174 details of which are as under : S. Date of Nature of Amount No. Invoice reimbursement (in INR) 1. 5.9.2001 Equipment 17,68,204 Communication 2. 1.10.2002 1,64,162 charges 3. 12.2.2002 -do- 2,12,997 4. 2.8.2001 Dry fruits 32,504 5. 14.12.2001 Equipment 12,39,977 6. 19.7.2002 Dry fruits 17,748 -do- (not yet 7. 12,252 billed) 8. 14.12.2001 Dry fruits 20,876 9. 19.1.2002 -do- 4,454 Total 34,73,174 4. After consolidating above figures into three main heads position as described in order of CIT(A) will be as under : Nature of reimbursement/supply Amounts Dry fruits 87,834 Equipments 30,08,181 Communication charges 3,77,159 Total 34,73,174 5. assessee was asked to show cause as to why abovementioned amount of Rs. 34,73,174 was not included in gross receipts and why on these receipts deemed profit at rate of 10 per cent should not be applied under s. 44BB of Act. It was submitted that these represent reimbursement which is not chargeable to tax under s. 44BB and reliance was placed on decision of Tribunal in case of Sedco Forex International Drilling Inc. vs. Dy. CIT (2000) 67 TTJ (Del) 670 : (2000) 72 ITD 415 (Del) wherein it has been held that expression of reimbursement means to repay or pay equivalent amount for loss of expenses incurred. It was submitted that supply of material in question was obligation of ONGC and assessee simply provided such services to ONGC in conformity with terms of agreement. Thus, it was submitted that reimbursement of actual cost of such supply along with expenses for freight, insurance etc., therefore, cannot be included in amount of contract receipt for purposes of s. 44BB of Act. Considering submission of assessee and nature of reimbursement expenses, AO observed that receipts of assessee were part of contractual receipts and, therefore, these were allowable to be included in payments received while computing profit under s. 44BB of Act. Regarding decision of Delhi Tribunal, AO observed that Department has not accepted said decision of Tribunal, therefore, decision of Tribunal is not applicable. Accordingly, AO treated reimbursement as part of gross receipts and computed profits of assessee. 6. Aggrieved, assessee filed appeal before CIT(A) wherein action of AO was objected. Reference was made to various documents giving details of expenses along with debit notes/invoices issued to ONGC and giving relevant clause of agreement for meeting out of pocket expenses incurred by assessee at instance of ONGC. It was submitted that as per art. 5.1(a)(ii) of contract ONGC was obliged to supply certain items and at request of ONGC assessee incurred specific expenses which were reimbursed on actual basis or at below cost. It was submitted that ONGC personnel and/or their contractors while doing drilling operations on well had lost tubulars and other capital items which is capital equipment for assessee and as per cl. 16.3 of contract, ONGC had to reimburse 75 per cent cost of equipment to assessee which amounted to Rs. 30,08,181 and same being capital expenditure for assessee and also being reimbursement of supply of items was excluded from receipts in terms of s. 44BB(2) r/w s. 5(2) of Act. 7. It was further submitted that assessee has inmarsat connection on rig which is used for communication purposes. ONGC personnel on rig had made calls which were to be borne by them and debit note on basis of actual inmarsat voice was raised on ONGC which amounted to Rs. 3,77,159 during asst. yr. 2002-03 and same also is not in nature of drilling operational services, therefore, could not be added in income as per provisions of s. 44BB of Act. 8 . It was further submitted that ONGC personnel on rig as per their office order were to receive dry fruit packets on daily basis. Such obligation was of ONGC and on request of ONGC assessee had purchased dry fruits from ONGC designated supplier for and on behalf of ONGC and dry fruit packets were given to personnel of ONGC on rig. assessee had debited sum of Rs. 87,834 towards reimbursement cost of dry fruits provided as per order of ONGC and same does not relate to drilling operational services, therefore, said sum also cannot be considered for purpose of s. 44BB of Act. 9 . To substantiate above contentions assessee had filed copy of invoices for expenses and supplies which forms part of paper book from pp. 9-46 and comparison chart was also filed to show that these were incurred at cost or below cost as charged to ONGC. Reliance was also placed on aforementioned decision of Delhi Tribunal in case of Sedco Forex International Drilling Inc. (supra). Learned CIT(A) after considering submissions and after considering case record found that AO had examined issue that whether there was any profit element in reimbursement and evidence was submitted by assessee to show that there was no element of profit. Learned CIT(A) also found that supply of material was of obligation of ONGC and assessee company had simply provided such services to ONGC. Relying on decision of Tribunal in case of Sedco Forex International Inc. (supra), learned CIT(A) has held that reimbursement of expenses to be incurred by contractee is not taxable under s. 44BB and he directed AO not to include amount of Rs. 34,73,174 in gross revenue for working out profit under s. 44BB. Department is aggrieved with such direction of CIT(A) and hence in appeal. 10. Learned Departmental Representative after narrating facts pleaded that return has been filed by assessee by computing its income under s. 44BB of Act and thus, return filed by assessee is under provisions of domestic laws and no reference to DTAA is made. Thus, he contended that income of non-resident company is subject to provisions of ss. 4, 5 and 9 of IT Act. He contended that according to s. 5, in case of non-resident following incomes are taxable : "(a) if it is received or is deemed to be received in India in such year by or on behalf of such person; or (b) if it accrues or arises or is deemed to accrue or arise to him in India during such year." 11. Referring to s. 9 he pleaded that it deals with income which is deemed to accrue or arise in India which includes all income accruing or arising through business connection or for any source of income in India and this also includes income by way of technical services as well as income by way of royalty. He pleaded that s. 44BB needs to be interpreted with regard to background of each and every word used by legislature in that section. And while interpreting provision two principles of interpretation should be necessarily to be kept in mind, firstly, that legislature is not ignorant of other provisions of law; secondly, that each and every word has been used with specific purpose and none of them is redundant. He referred to sub-ss. (2)(a) and (2)(b) of s. 44BB which refer to amount paid or payable whether in or out of India and amount received or deemed to be received in India in respect of provision of services and facilities outside India. He pleaded that sub-s. (1) of s. 44BB is computation section in respect of profits and gains in connection with business of exploration etc. of mineral oil and it provides computation of income on basis of receipts mentioned in section and legislature has taken into account ss. 4, 5 and 9 while framing s. 44BB and any view that s. 44BB is not in accordance with provisions of ss. 4, 5 and 9 of Act will amount to invalidating s. 44BB in case of non-resident and such view, if taken, will be against decision of Hon ble Supreme Court in case of K.S. Venkataraman & Co. (P) Ltd. vs. State of Madras (1966) 60 ITR 112 (SC). 12. Without prejudice, he submitted that s. 44BB is complete code and is in accordance with ss. 4, 5 and 9 of Act. Reference was made to following decisions : (1) Oil India Ltd. vs. CIT (1995) 123 CTR (Ori) 46 : (1995) 212 ITR 225 (Ori); (2) CIT vs. Oil & Natural Gas Commission (2002) 172 CTR (Raj) 297 : (2002) 255 ITR 413 (Raj). 13. It was pleaded that any sum received as result of any supply of goods, commodity or for rendering services of any nature falls within inclusive definition of income as given in s. 2(24) of Act and net income determining as per provisions of Act is required to be taxed until and unless it falls under any of exemptions available under Act. He pleaded that reimbursement is neither excluded from taxation under ss. 4, 5, 9 and 10. Thus, he pleaded that any receipt of business can be exempted from taxation only in case when expenses incurred in earning receipt become equal to receipt itself and it is case of pure reimbursement of expenditure. Reference was made to s. 37 of Act which provides that all expenditure incurred wholly and exclusively (for) earning income shall be allowed as deduction in order to determine total income subject to taxation. It was submitted that s. 44BB starts with non obstante clause that computation shall be made according to section notwithstanding to contrary mentioned in ss. 28 to 41 and 43 and 43A of Act. Thus, he pleaded that s. 44BB is applicable irrespective of s. 37 which cannot be applied as specific provisions for s. 44BB are applicable. For contending that reimbursement is not considered as income only in accordance with s. 37 he placed reliance on decision of Hon ble Delhi High Court in case of CIT vs. Industrial Engineering Projects (P) Ltd. (1993) 109 CTR (Del) 73 : (1993) 202 ITR 1014 (Del). 14. Learned Departmental Representative contended that reliance on decision of Tribunal in case of Sedco Forex International Drilling Inc. (supra) is misplaced as issue was considered by Lordships of High Court of Uttaranchal in case of Sedco Forex International Inc. vs. CIT & Anr. in IT Appeal No. 99 of 1999 (New No. 434 of 2001) vide their order dt. 28th Sept., 2007 [reported at (2008) 214 CTR (Uttarakhand) 192 Ed.] copy of which was furnished of learned Departmental Representative. In said case provision of s. 44BB was considered and it was found that payment was made to assessee company outside India and said payment had no nexus with actual amount incurred by assessee company for transportation of drilling units of rigs to specified drilling locations in India and thus, it was found that such mobilization fee was not reimbursement of expenses. In that case ONGC was liable to pay fixed sum as stipulated in contact regardless of actual expenditure which may be incurred by assessee company thus, it was held that AO was right in adding amount of such mobilization fees. 1 5 . Thus, it was pleaded by learned Departmental Representative that CIT(A) has wrongly excluded abovementioned amount of Rs. 34,73,174 from computation of income under s. 44BB of Act. 1 6 . On other hand it was pleaded by learned Authorised Representative that all reimbursements were on actual basis and were without any element of profit. He referred to p. 37 of paper book where chart has been submitted to show that no element of profit was involved. He pleaded that expenditure was incurred at instance of ONGC and it did not relate to actual drilling operation covered by s. 44BB of Act. It was pleaded that in any case of supply of dry fruits etc. supply is not covered under s. 44BB(2)(a)/(b) of Act. Similarly, it was submitted that employees of ONGC used telecommunication facility which also does not relate to drilling operational activity covered under s. 44BB of Act and it was submitted that reimbursement of 75 per cent cost of equipment damaged by ONGC employees is capital cost recovery and does not relate to drilling operational income. Thus, it was pleaded that reimbursement of expenses/supply of items is not oil drilling activity and in absence of element of gain or profit these could not be included in receipts for computing income as per s. 44BB of Act. 1 7 . We have carefully considered rival submissions in light of material placed before us. assessee has filed its return as per provisions of s. 44BB which is special provision for computing profits and gains in connection with business of exploration, etc. of mineral oils. section reads as under : "44BB. Special provision for computing profits and gains in connection with business of exploration, etc., of mineral oils. (1) Notwithstanding anything to contrary contained in ss. 28 to 41 and ss. 43 and 43A, in case of assessee, being non-resident, engaged in business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils, sum equal to ten per cent of aggregate of amounts specified in sub-s. (2) shall be deemed to be profits and gains of such business chargeable to tax under head Profits and gains of business or profession : Provided that this sub-section shall not apply in case where provisions of s. 42 or s. 44D or s. 115A or s. 293A apply for purposes of computing profits or gains or any other income referred to in those sections. (2) amounts referred to in sub-s. (1) shall be following, namely : (a) amount paid or payable (whether in or out of India) to assessee or to any person on his behalf on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils in India; and (b) amount received or deemed to be received in India by or on behalf o f assessee on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils outside India. (3) Notwithstanding anything contained in sub-s. (1), assessee may claim lower profits and gains than profits and gains specified in that sub- section, if he keeps and maintains such books of account and other documents as required under sub-s. (2) of s. 44AA and gets his accounts audited and furnishes report of such audit as required under s. 44AB, and thereupon A O shall proceed to make assessment of total income or loss of assessee under sub-s. (3) of s. 143 and determine sum payable by, or refundable to, assessee. Explanation For purposes of this section, (i) plant includes ships, aircraft, vehicles, drilling units, scientific apparatus and equipment, used for purposes of said business; (ii) mineral oil includes petroleum and natural gas." 1 8 . According to s. 44BB in case of non-resident assessee who is engaged in business of providing services or facilities in connection with, or supplying plant and machinery on hire used, or to be used, in prospecting for, or extraction or production of, mineral oils, sum equal to 10 per cent of aggregate of amount specified in sub-s. (2) shall be deemed to be profits and gains of such business chargeable to tax under head "Profits and gains of business or profession", subject to exclusion of s. 42, 44D, 115A or 293A. nature of sums which are to be taxed under s. 44BB(1) is described in sub-s. (2) and amount is aggregate of sum paid or payable (whether in or out of India) to non-resident or to any person on his behalf on account of provisions of services and facilities in connection with, or supply of plant and machinery on hire used or to be used in specified activity of extraction of mineral oil in India and also sum received or deemed to be received in India by or on behalf of non-resident on account of provision of services and facilities in connection with, or supply of plant and machinery on hire used or to be used in prospecting for, or extraction or production of mineral oils outside India. In other words income received refers to activity of providing services and facilities in connection with, or supply of plant and machinery on hire used or to be used in prospecting for, or extraction or production of mineral oils in India or outside India. Thus, it is elementary that any sum which is to be assessed under s. 44BB of Act must be connected with activity of providing of services and facilities in connection with, or supply of plant and machinery on hire used or to be used in prospecting for, or extraction or production of mineral oils and if such receipts are not connected with such activity same cannot be assessed under provisions of s. 44BB of Act. Any other receipts, if brought under tax have to come under other provision of Act and not under s. 44BB of Act. There is no dispute to fact that activities in respect of which assessee has been reimbursed were not obligation of assessee in terms of contract entered into by it with ONGC. As it has been specifically found by learned CIT(A) that supply of material was obligation of ONGC and assessee company simply provided such services to ONGC. details were submitted before AO as well as CIT(A) to show that no element of profit was involved in reimbursement. reimbursement on account of equipment was in accordance with contract according to cl. 16.3 of contract and said clause reads as under : "Loss or damage to contractor s down hole equipment Company shall reimburse contractor for loss or damage to contractor s down hole equipment, as under, provided that such loss or damage is not occasioned by normal wear and tear or negligence on part of contractor. (a) In case of contractor s down hole equipment being damaged, company shall reimburse contractor such repair cost, provided however, that company shall not be required to reimburse contractor any amount greater than that which would have been due had such equipment been lost and, therefore, calculated under sub-s. (b) hereinbelow. (b) In case of contractor s down hole equipment being lost, company will reimburse contractor 75 per cent of replacement cost, FOB nearest port of vendor." 1 9 . According to said clause ONGC was not liable to reimburse assessee in case where loss or damage is occasioned by normal wear and tear or negligence on part of contractor and in all other cases if equipment is lost then ONGC was to reimburse assessee with 75 per cent replacement cost. Thus, there was no receipt to assessee related to activities mentioned in s. 44BB of Act. Similar is position with regard to supply of dry fruit and recovery of communication expenses lost which have been claimed s reimbursement on actual basis. These activities also do not relate to activities specified in s. 44BB(2) of Act. There is no material on record to suggest that in respect of these three reimbursements, assessee has received amount more than cost it incurred for same. In other words, there is no element of profit in receipts by assessee. In absence of such profit reimbursement receipts also cannot be brought to tax under normal provision of Act. 20. No doubt that s. 44BB is code in itself and it starts with non obstante clause which excludes application of ss. 28 to 41 and ss. 43 and 43A of Act but at same time, to assess any sum under that section, activity must fall within activity described in sub-s. (2) of s. 44BB of Act. Supply of dry fruits and recovery of communication expenses specifically do not find mention in sub-s. (2) of s. 44BB as these activities have nothing to do with activity of prospecting for or extraction or production of, mineral oils in India or outside India. So (far) as it relates to reimbursement of cost of equipment, same also does not fall within ambit of sub-s. (2) of s. 44BB as same applies on supply of plant and machinery on hire and equipment, 75 per cent cost of which is reimbursed, was not machinery on hire being used in such activity. There is no material on record to show that said equipment was used on hire either by assessee or contractee. Therefore, reimbursement payments received by assessee being not coming within scope of s. 44BB of Act have rightly been held to be excludible by learned CIT(A). case law relied upon by learned Departmental Representative have no application to facts of present case as non obstante clause of s. 44BB is held to be applicable only in respect of activities referred to in s. 44BB(2) of Act. reimbursement of expenses is also not taxable under other provisions of Act as there is no material on record to show that any element of profit was embedded in reimbursement received by assessee. In absence of element of profit in amount received by assessee as reimbursement, no income can be assessed under other provisions of Act. Therefore, we find no force in arguments which have been submitted by learned Departmental Representative. Rather it will be useful to refer to following observations from decision of Hon ble Uttaranchal High Court in case of Sedco Forex International Inc. vs. CIT (supra) : "In present case, finding has been recorded by Tribunal that it w s not in dispute before Tribunal that payment was made to appellant company outside India and mobilization fee as claimed by assessee was paid to appellant by ONGC has no nexus with actual amount incurred by appellant company for transportation of drilling units of rigs to specified drilling locations in India. Hence, mobilization fee is not t h e reimbursement of expenditure. ONGC was liable to pay fixed sum as stipulated in contract regardless of actual expenditure which may be incurred by assessee company for purpose. In view of fictional taxing provision contained under s. 44BB, AO was right in adding amount of Rs. 99,04,000 for asst. yr. 1986-87 and amount worth Rs. 64,64,530 for asst. y r . 1987-88 received by assessee towards mobilization charges for purpose of imposing income-tax and CIT(A) and Tribunal were also right in upholding order of AO." (Emphasis, italicised in print, ours) 22. From above observations it is clear that mobilization fee was not considered reimbursement on ground that this was not in nature of reimbursement; therefore, same could not (sic) be brought to tax under provisions of s. 44BB of Act. Their lordships in said case have considered s. 44BB, s. 4, s. 5(2), s. 9 and s. 98 also and after analyzing these sections it has been concluded that mobilization fee was to be considered under s. 44BB on ground that ONGC was liable to pay fixed sum as stipulated in contract regardless of actual expenditure which may be incurred by assessee company for purpose. It is, therefore, that mobilization fee was considered liable for taxation under s. 44BB. In present case, payments received by assessee were not fixed sum as stipulated in contract. It was based on actual expenditure which has been incurred by assessee for that very purpose. There was no element of profit. Therefore also provisions of s. 44BB could not be applied for present case. In result Departmental appeal is dismissed. Assessee s appeal : 23. issue raised in assessee s appeal is regarding applicability rate of tax on interest received by assessee on income-tax refund. As per claim of assessee rate of tax is applicable according to art. 12(2) of DTAA of India with French Republic and according to AO rate applicable on such income is in terms of art. 12(5) r/w art. 7 of said DTAA. For sake of convenience relevant portions of articles are reproduced below for sake of convenience : "1. profits of enterprise of one of Contracting States shall be taxable only in that Contracting State unless enterprise carries on business in other Contracting State through PE situated therein. If enterprise carries on business as aforesaid, profits of enterprise may be taxed in other Contracting State but only so much of them as is attributable to that PE." "Where profits include items of income which are dealt with separately in other articles of this Convention, then provisions of those articles shall not be affected by provisions of this article." "1. Interest arising in Contracting State and paid to resident of other Contracting State may be taxed in that other Contracting State. 2. However, such interest may also be taxed in Contracting State in which it arises, and according to laws of that State, but if recipient is beneficial owner of interest, tax so charged shall not exceed 10 per cent of gross amount of interest." "5. provisions of paras 1 and 2 shall not apply if beneficial owner of interest, being resident of Contracting State, carries on business in other Contracting State in which interest arises, through PE situated therein, or performs in that other Contracting State independent personal services from fixed base situated therein, and debt claim in respect of which interest is paid is effectively connected with such PE or fixed base. In such case, provisions of art. 7 or art. 15, as case may be, shall apply." 24. According to AO interest received by assessee falls within ambit of art. 12.5 as such interest has accrued to assessee through PE of assessee in India. As against that claim of AO it is case of assessee that interest cannot fall within ambit of art. 12.5 as interest received by assessee is not in respect of debt which is effectively connected with PE. interest was received by assessee from IT Department on delayed refund of taxes. Department also deducted tax at rate of 10 per cent as per rate applicable in terms of art. 12.2 of DTAA (with) France. Therefore, it was contention of assessee that rate of tax chargeable to such interest is 10 per cent. Learned CIT(A) did not accept such submission of assessee and has upheld order of AO on this issue on ground that assessee is operating in India through its PE and interest has rightly been taxed at rate of 48 per cent. He dismissed ground. assessee is aggrieved, hence in appeal. Learned Authorised Representative refers to pp. 4-9 of paper book wherein copies of refund vouchers are enclosed. He also referred to p. 13 of paper book which is order passed by AO giving appeal effect to order of CIT(A). It was pleaded that assessee was entitled to refund on tax paid and interest was paid by Department on delayed refund of income-tax and on such interest Department has deducted tax at rate of 10 per cent as described in art. 12.2 of DTAA with France. Art. 12.2 reads as under : "However, such interest may also be taxed in Contracting State in which it arises, and according to laws of that State, but if recipient is beneficial owner of interest, tax so charged shall not exceed 10 per cent of gross amount of interest." 25. Reference was made to decision of AAR reported in ABC, In re (1999) 151 CTR (AAR) 481 : (1999) 236 ITR 637 (AAR) wherein interest received from income-tax has been held to be not connected with any activity of PE or base in India. It was held that right to get interest arose because of delay in making refund of excessive collection of tax thus, it was case falling under para 2 of art. 12 of DTAA. It may be mentioned here that art. 12(2) of DTAA which was considered in aforementioned decision of AAR as per UK treaty is pari materia with art. 12.2 of DTAA of France. It was pointed out that art. 12.5 has wrongly been held applicable by learned CIT(A). It was pointed out that for asst. yr. 1997-98 Tribunal in assessee s own case while interpreting nature of interest on tax refund and while holding that whether it should be taxable as business income or income from other sources has held that such income was taxable under head "Income from other sources". Reference was made to order of Tribunal, copy of which is placed at pp. 17-28 of paper book which is order dt. 25th Aug., 2004 in ITA No. 1442/Del/2001. relevant observations of Tribunal in this regard are contained in para 7 of order which are reproduced below for sake of convenience : "Having decided that assessee was in business during year under consideration, there is no question of not allowing expenses of Rs. 5,55,152 as business expenses. When assessee was contemplating to revive business and since it was in constant touch with ONGC, it had to keep its establishment running which entailed incurring of expenses. These are normal administrative expenses which are wholly incurred for purposes of business, they are clearly allowable. However, whether these expenses can be set off against interest on income-tax refunds, which is only credit in P&L a/c, is question to be answered. In our opinion, it cannot be so set off simply because such interest income cannot be termed as business income. I t is true that assessee was not out of business and had to pursue and participate in income-tax proceedings, it does not follow that interest on income-tax refund becomes business income of assessee. assessee is not in business of obtaining income-tax refunds and earning interest thereon. It is neither derived from nor attributable to business activity of assessee. It is merely fallout of profits earned by assessee and is appropriation of profits. Thus, when excess amount than what is due under Act is appropriated, assessee gets refund thereof, and when there is delay in granting such refund, assessee is granted interest thereon which is taxable under head Income from other sources . Thus, we hold that though expenses claimed by assessee are allowable expenses, they will not be set off against interest income. Interest income will be taxed as income from other sources and unabsorbed expenses will constitute business loss and be available for inter-head set off under s. 71 of Act." (Emphasis, italicised in print, ours) 26. It was pleaded that no conscious effort was made through PE to earn interest on tax refund from IT Department except for pursuing matters before AO or appellate authorities in compliance with statutory provisions. It was contended that as interest was sui generis, it could not be considered within purview of art. 12.5 of DTAA. Reference was made to decision of Hon ble Supreme Court in case of Vijaya Laxmi Sugar Mills Ltd. vs. CIT (1991) 97 CTR (SC) 257 : (1991) 191 ITR 641 (SC). Thus, it was pleaded that learned CIT(A) has wrongly upheld action of AO. interest received by assessee on income-tax refund was taxable only at rate of 10 per cent. 27. On other hand, learned Departmental Representative relied on orders of AO and CIT(A). 2 8 . We have carefully considered rival submissions in light of material placed before us. Similar issue came for consideration on AAR reported as (1999) 151 CTR (AAR) 481 : (1999) 236 ITR 637 (AAR) (supra). question arose for decision by Authority was that whether interest received on tax refund constituted "income from debt and claims of every kind" and, therefore, qualify as interest as defined in cl. 5 of art. 12 of DTAA. questions referred to AAR are reproduced below for sake of convenience : "Whether, on facts and circumstances of case described in Annex. 3 , taxes paid in excess of tax due in respect of income returned by ABC, lying with Revenue authorities would be covered within terminology debt-claims of every kind, as provided in cl. 5 of art. 12 of DTAA between India and UK ? Whether, on facts and circumstances of case described in Annex. 2, interest of Rs. 30,24,576 under s. 244/243 of IT Act, 1961 ( Act ) paid by Revenue authorities along with tax refunds due to ABC during asst. yr. 1998-99, would constitute income from debt-claims of every kind and therefore, qualify as interest as defined in cl. 5 of art. 12 of DTAA ?" And Authority after considering arts. 12.2 and 12.5 has observed as under : "The only question is whether para 6 of art. 12 stands in way of applicant getting benefit of para 2. However, para 6 will only apply when it can be shown that applicant carries on business in India and interest arose through PE situated in India or performs in India any independent personal service from fixed base situated in India. debt claim in respect of which interest was paid must also be shown to be connected with such PE or fixed base. None of aforesaid provisions of para 6 are attracted in applicant s case. Applicant does not have PE in India. interest amount in dispute has not arisen out of any business operation in India. It is statutory interest granted on delayed refund under provisions of s. 244/243 of IT Act. There cannot be any dispute that interest has been paid on delayed refund. Refund due and payable to assessee is debt owing and payable. For delayed payment of this debt, interest will have to be paid by virtue of provisions of ss. 243 and 244 of IT Act. debt claim is not connected in anyway with any activity of PE or base in India. right to get interest arose because of delay in making refund of excessive collection of tax. This is clearly case falling under para 2 of art. 12 of DTAA." 29. Though order of AAR has no binding force but it has persuasive value. No contrary decision has been brought to our notice to contend that interest received by assessee can be taxed under art. 12.5 of DTAA. It may be mentioned here that art. 12 of DTAA of UK and France are in pari materia. Therefore, said decision will be applicable to present case also. There is no dispute to extent that interest received by assessee is on account of delayed issue of income-tax refunds. 30. There is one more reason to hold that interest could not fall within purview of art. 12.5 as Tribunal in assessee s own case for asst. yr. 1997-98 (the relevant portion of order has already been reproduced in above part of this order) has observed that assessee is not in business of obtaining income-tax refunds and earning interest thereon. And, therefore, interest is neither derived from nor attributable to business activity of assessee. It is merely fallout of profits earned by assessee and is appropriation of profit and when excess amount than what is due under Act is appropriated, assessee gets refund thereto, and when there is delay in granting such refund, assessee is granted interest thereon which is taxable under head "Income from other sources". Therefore also, interest earned by assessee cannot be held to be related to activity of PE. Thus, cannot be related to art. 12.5 of DTAA. 3 1 . In view of our discussion we hold that interest received by assessee on delayed issue of refunds could be taxed only under art. 12.2 of DTAA. 32. Therefore, appeal filed by assessee is allowed. In result, Departmental appeal is dismissed and assessee s appeal is allowed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. PRIDE FORAMER FRANCE SAS