Assessee  company which was incorporated in Japan and received interest income on loans provided to Indian parties in form of supplier’s credit.  Assessee claimed that interest income would be taxed at the rate of 10 per cent as per article 11(2) of DTAA.  The assessing Officer denied said claim on ground that the assessee had a PE in India which would trigger an exclusion clause under article 11(6) and the assessee would not be eligible for a concessional rate of taxation and taxed interest income at 40 per cent as per DTAA. Held that triggering of exclusion under article 11(6) would not, by itself, result in taxation of interest income at the normal rate of tax, unless interest income was taxable under article 7(1) or Article 14(1). Since interest income was not directly or indirectly attributable to its PE in India, the mere existence of the assessee’s PE in India could not be reason enough to invoke taxability of interest income under Article 7 and the exclusion clause under Article 11(6) could not be triggered. Accordingly, the interest income is to be taxed at the rate of 10 per cent as per Article 11(2) of DTAA. Considered the words and phrases: Words ‘effectively connected with such permanent establishment’ as occurring in article 11(6) of the DTAA between India and Japan. (AY. 2016-17)