2017 (12) TMI 470 - AT - Income Tax

Corporate/bank guarantee recharge - nature of receipt - India U.K. DTAA - payment relate to the tendering of any technical or consultancy service - payment towards seconding an expatriate employee - fee for technical services (FTS) or not - concept of make available - Held that - Having examined the issue of corporate/bank guarantee recharge with reference to Article 12(5) of the Indo U.K. Treaty and Section 2(28A) of the Act, we are of the considered opinion that the authorities below are perfectly justified in concluding that this payment does not fall within the expression of interest and in view of Clause 3 of Article 23 of the Treaty, in the absence of any specific provision dealing with corporate/bank guarantee recharge, the same has to be taxed in India as per the provisions of the Income tax Act, 1961. We do not find any illegality or irregularity in the reasoning given or conclusions reached by the authorities below. We, therefore, dismiss Ground Nos. 2 to 4 & 10. Amount received from JMIPL on account of charges received for the services rendered by senior management employee seconded by the assessee to India - Held that - Both the authorities below recorded a finding that the secondment contract, secondment agreement, the employment contract and salary reimbursement agreement are not made available by the assessee. Statement of Ld. DR that the assessee failed to furnish these documents before the authorities below, by forcing them to consider only such documents as are produced by the assessee and referred to in the order of the AO stood uncontroverted. No administrative convenience or inconvenience is proved before us with reference to any evidence whatsoever. The need of assessee remitting the amounts to the account of the employee is not brought out. It is not known whether it is the regular practice with the assessee to remit the salaries of the seconded employees to their overseas accounts and to claim reimbursements. However, record does not reveal that either the Ld. AO or the Ld. DRP directed the production of these documents and in spite of such direction the assessee failed to produce the same, thereby permitting the authorities to draw an adverse inference against the case of the assessee. However, we feel that in order to appreciate the contention of the Ld. AR as to the nature of this particular receipt in the hands of the assessee on account of the services rendered by the seconded employee - whether it is reimbursement or FTS or business income and the existence or otherwise of the PE these consideration of these documents is absolutely necessary. It is only on such consideration this aspect could be conclusively decided. We find it difficult to give any finding on this aspect without looking into such documents. In these circumstances, we deem it just and proper to direct the assessee to produce such documents before the Ld. AO and to set aside the issue to the file of the AO to give a fresh finding after looking into the documents to be produced by the assessee. We, therefore, restore Ground Nos. 5 to 7 to the file of the AO for considering the nature of receipt of ₹ 55,80,855/- with reference to the above documents and other material to be filed by the assessee.

Issues Involved:
1. Assessment of total income.
2. Taxability of guarantee fee under India-UK Double Taxation Avoidance Agreement (DTAA).
3. Classification of guarantee fee as "Interest Income" or "Other Income".
4. Adjustment of income as Fee for Technical Services (FTS).
5. Secondment of expatriate employee and its tax implications.
6. Levy of consequential interest under section 234B.
7. Initiation of penalty proceedings under section 271(1)(C).

Detailed Analysis:

1. Assessment of Total Income:
The assessee challenged the assessment of total income at ?25,10,69,882 against the declared income of ?24,59,90,022. The tribunal noted that the primary dispute revolved around the additions made by the Assessing Officer (AO) and the Dispute Resolution Panel (DRP).

2. Taxability of Guarantee Fee:
The AO and DRP held that the guarantee fee of ?1,49,15,090 is taxable as "Other Income" under Article 23 of the India-UK DTAA. The assessee argued that this income should be classified as "Interest Income" under Article 12 of the DTAA since it arose from providing guarantees in the normal course of business.

3. Classification of Guarantee Fee:
The assessee contended that the guarantee fee should be regarded as "Interest Income" under Article 12 of the DTAA. The tribunal examined the definitions under Article 12(5) of the DTAA and Section 2(28A) of the Income Tax Act, 1961, concluding that the guarantee fee does not qualify as interest. The tribunal emphasized that the guarantee fee is not related to any debt claims or service fees in respect of borrowed money or incurred debt.

4. Adjustment as Fee for Technical Services (FTS):
The AO made an adjustment of ?50,79,860, treating it as FTS under Section 9(1)(vii) of the Act and Article 13 of the DTAA. The tribunal considered the nature of services rendered by the seconded employee and concluded that the amount received does not qualify as FTS. The tribunal directed the AO to re-examine the nature of the receipt with reference to relevant documents.

5. Secondment of Expatriate Employee:
The tribunal addressed the issue of secondment of an expatriate employee, Mr. Dhananjay Tapasvi, and the tax implications of the reimbursement of his salary. The assessee argued that the reimbursement was merely an administrative convenience and should not be taxed as FTS. The tribunal noted the need to examine the secondment agreement and other relevant documents to determine the nature of the receipt and whether it qualifies as FTS or business income.

6. Levy of Consequential Interest:
The tribunal did not specifically address the issue of consequential interest under Section 234B, as it was consequential to the primary issues under dispute.

7. Initiation of Penalty Proceedings:
The tribunal did not specifically address the initiation of penalty proceedings under Section 271(1)(C), as it was also consequential to the primary issues under dispute.

Conclusion:
The tribunal upheld the AO's classification of the guarantee fee as "Other Income" under Article 23 of the DTAA and dismissed the assessee's contention to treat it as "Interest Income." However, the tribunal directed the AO to re-examine the nature of the receipt related to the seconded employee's salary reimbursement, considering relevant documents. The appeal was allowed in part for statistical purposes.

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