2016 (3) TMI 1096 - AT - Income Tax

Income accrue or deemed to be accrued in India - Taxing corporate guarantee commission under Article 23 of DTAA between India and France - Held that - From the record we found that guarantee commission received by France company did not accrue in India nor it can be deemed to be accrued in India therefore not taxable in India under Income Tax Act. Furthermore as per Article 23.3 income can be taxed in India only if it arises in India. In the instant case the income clearly arises in France because the guarantee has been given by the assessee a French company to BNP Paribas a French Bank in France and therefore Article 23.3 has no applicability as income does not arise in India. The assessee is also aggrieved for not granting credit for tax deducted at source. We direct the AO to verify the records for granting tax credit as per law.

Summary

Issues: Taxation of corporate guarantee commission under DTAA between India and France, applicability of Article 23, tax credit for TDS.

In this judgment by the Appellate Tribunal ITAT Mumbai, the issue revolved around the taxation of corporate guarantee commission amounting to ?42,31,646 under Article 23 of the Double Taxation Avoidance Agreement (DTAA) between India and France for the assessment year 2009-2010. The assessee, a resident of France, had provided a corporate guarantee to BNP Paribas, a French Bank in France, on behalf of its subsidiaries in India. The Assessing Officer (AO) had taxed the guarantee commission as "Other Income" under Article 23 of the DTAA.

The Tribunal analyzed the facts and contentions, noting that the AO's basis for taxation was the provision of the guarantee for raising finance by an Indian company. However, it was observed that the guarantee commission received by the French company did not accrue in India and, therefore, was not taxable in India under the Income Tax Act. The Tribunal emphasized that income could only be taxed in India if it arises in India, as per Article 23.3 of the DTAA. Since the guarantee was given by a French company to a French bank in France, the income did not arise in India, rendering Article 23.3 inapplicable.

Additionally, the assessee raised a grievance regarding the non-granting of credit for tax deducted at source (TDS). The Tribunal directed the AO to verify the records and grant tax credit as per the law. Consequently, the appeal of the assessee was allowed, providing relief on both the taxation of guarantee commission and the issue of tax credit for TDS. The judgment highlighted the importance of determining the situs of income for taxation under DTAA provisions and ensuring compliance with TDS credit requirements.