Assessee, a UAE-based bank, advanced External Commercial Borrowing (ECB) loans to Indian customers directly through its head office without the involvement of Indian branches, which constituted its PE in India.  Assessee earned interest income from Indian customers on ECB loans advanced to them and claimed that interest income so earned would fall within the ambit of Article 11(2) and, being the beneficial owner of such interest income, would be subject to tax on a gross basis at a concessional rate of 5 per cent. Assessee set off business losses of PE against interest income and on balance interest income, computed tax at 5 per cent. Assessing Officer disallowed assessee’s claim of set-off of business losses of PE against interest income and computed tax liability at applicable rate of 5 per cent on entire interest income earned by assessee from Indian customers. DRP upheld the order of the Assessing Officer. On appeal, the Tribunal held that the assessee could claim set-off of current year business loss of PE against interest income, since the treaty itself provided for taxability of income in terms of domestic law provisions. Therefore, assessee’s claim of set off of loss of PE against interest income was allowable. Further, since there was no allegation by Departmental Authorities that ECB loans violated RBI guidelines, interest income would be covered under section 115A(1)(a)(iiaa), hence, subject to a concessional rate of tax at 5 per cent with applicable cess and surcharge.  (AY. 2020-21)