2017 (1) TMI 1819 - AT - Income Tax

Income taxable in India - income on account of providing corporate guarantee - India and France DTAA - assessee is non-resident company, having two subsidiaries, in India - HELD THAT - The Tribunal in order 2016 (3) TMI 1096 - ITAT MUMBAI found that guarantee commission, received by France Company neither accrued in India nor deemed to be accrued in India, therefore, not taxable in India under the Income Tax Act. Furthermore, as per Article-23.3, income can be taxed in India only if arises in India and since, in the instant case, the income arose in France, as the guarantee was given by the assessee, a French company to BNP Paribas, a French Bank, in France, therefore, Article-23.3 has no applicability as income arose out of India. Respectfully, following the decisions of the Tribunal, these grounds of the assessee are allowed.

Summary

Issues:
1. Taxability of guarantee commission received by the assessee under the India-France Double Taxation Avoidance Agreement (DTAA).

Analysis:
The judgment revolves around the taxability of guarantee commission received by the assessee under the India-France DTAA. The assessee contended that the guarantee commission did not accrue in India as it was a transaction between two French entities in France. The assessee relied on legal principles established by the Supreme Court to support its argument. Additionally, the assessee argued that even if the income was taxable, it should be considered as business income under Article 7 of the DTAA since the assessee did not have a Permanent Establishment in India. The assessee further contended that under Article 23.3 of the DTAA, income can only be taxed in India if it arises in India, which was not the case here.

The Assessing Officer, however, considered the guarantee commission as "other income" taxable under Article 23 of the India-France DTAA. On appeal before the Dispute Resolution Panel (DRP), the DRP upheld the taxability of the income in India, citing its previous order for a different assessment year. The DRP reasoned that since the Tribunal had not overruled its previous order, it was bound by its own decision. However, the Tribunal, in a previous order for Assessment Year 2009-10, had ruled in favor of the assessee, stating that the guarantee commission did not accrue in India and therefore was not taxable under the Income Tax Act. The Tribunal emphasized that income can only be taxed in India if it arises in India, which was not the case as the transaction occurred between two French entities in France.

Ultimately, the Tribunal allowed the grounds of the assessee, following its previous decision for Assessment Year 2009-10. The Tribunal concluded that the guarantee commission received by the assessee did not accrue in India and therefore was not taxable in India under the Income Tax Act or the India-France DTAA. Consequently, the grounds raised by the assessee were allowed, and the appeal was disposed of in favor of the assessee.