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2016 (7) TMI 712 - AT - Income TaxGuarantee commission receipt - taxability in India - Held that - As decided in assessee;s own case for Assessment Year 2009-10 guarantee commission earned by the assessee from the two associate Indian concerns cannot be held to be taxable in India. - Decided in favour of assessee. Surcharge and education cess is payable in addition to tax of 10% payable on royalty income - Held that - Since clause (1) of Article 2 provides that the taxes governed would include taxes and surcharge thereon, we find no reason for the Revenue to levy the surcharge and education cess, which is also in the nature of surcharge, over and above the cap of 10% prescribed in Article 13 as the tax rate for royalty income. In any case, the provisions of Article 13 of the India-France DTAA, prescribing a cap of 10% on the rate of tax, read with Article 2 thereof would prevail over the provisions of the domestic income-tax law and thus the tax liability on royalty income shall be capped at 10%. The aforesaid plea of the assessee, in our view, is clearly in tune with the phraseology of the India-France DTAA and is fully supported by the precedents cited before us. As a consequence, we direct the Assessing Officer to re-compute the tax liability on royalty income accordingly. - Decided in favour of assessee.
Issues:
1. Taxability of guarantee commission received by the assessee in India. 2. Taxability of income on account of providing corporate guarantee under the DTAA between India and France. 3. Levying of surcharge and education cess in addition to tax on royalty income under the DTAA between India and France. 4. Charging of interest under sections 234B and 234C of the Income Tax Act. Issue 1: Taxability of Guarantee Commission: The appeal addressed the Assessing Officer's decision to tax the guarantee commission received by the assessee in India. The appellant, a foreign company incorporated in France, argued that the guarantee commission should not be taxable in India under domestic law or the DTAA between India and France. The Tribunal referred to a previous case involving the same issue and concluded that the guarantee commission earned by the assessee from Indian concerns cannot be considered taxable in India. Therefore, the assessee succeeded on this aspect. Issue 2: Taxability of Corporate Guarantee Income under DTAA: The dispute revolved around the income earned by the assessee on account of providing corporate guarantee under the DTAA between India and France. The assessee contended that the income did not accrue in India and, therefore, should not be taxable in India. Citing relevant provisions of the DTAA, the Tribunal agreed with the assessee's argument, stating that the income did not arise in India and, hence, was not taxable under the Income Tax Act. The assessee succeeded on this issue as well. Issue 3: Surcharge and Education Cess on Royalty Income: The controversy arose from the imposition of surcharge and education cess in addition to the tax on royalty income under the DTAA between India and France. The assessee argued that the tax rate prescribed in the DTAA should not be enhanced by including surcharge and education cess. The Tribunal examined the provisions of the DTAA and held that the tax liability on royalty income should be capped at 10%, as specified in the treaty. Therefore, the Tribunal directed the Assessing Officer to re-compute the tax liability on royalty income accordingly, ruling in favor of the assessee. Issue 4: Charging of Interest under Sections 234B and 234C: The appeal also included the charging of interest under sections 234B and 234C of the Income Tax Act. The Tribunal deemed these charges as consequential and did not require specific adjudication, indicating that they were not contentious issues in the appeal. In conclusion, the Tribunal partly allowed the appeal of the assessee, ruling in favor of the assessee on the taxability of guarantee commission, corporate guarantee income, and the imposition of surcharge and education cess on royalty income under the DTAA between India and France. The Tribunal directed the Assessing Officer to re-compute the tax liability on royalty income in accordance with the DTAA provisions.
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