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TMI Blog2022 (4) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... . They have concluded that the performance guarantee given by the appellant should be attributable to business activity and income earned in respect of performance guarantee should be treated as business profit. The appellant is not in the business of providing bank guarantee or performance guarantee as the business of the appellant is providing offshore drilling services to Exploration and production companies in India. P L reflects that the revenue of 739.69 Crore out of total revenue of 752.13 Crore is from the core activity of Service in oil sector. Assessing Officer on these facts cannot change the characteristic of one time income by way of performance guarantee commission as business profit to bring it under Article 7 of the DTAA, and hold that in order to avail tax benefit the assessee must have a PE under Article 7. Here, in this case, Singapore based company, DDHPL had entered into a put/call option deed to buy 12 million shares of another entity M/s. DODL. The seller/vendor is also a Singapore based company M/s. DOSPL. The assessee company provided a performance guarantee in favour of the buyer company i.e. DDHPL to the above vendor company M/s. DOSPL. A sum of USD 15 mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee against separate impugned order of even date 16.01.2018, passed by the ld. Commissioner of Income Tax (Appeals)-3, New Delhi [hereinafter referred to CIT (Appeals)] for the quantum of assessment under Section 143(3) of the Income Tax Act, 1961 (the Act) for assessment years 2014-15 and 2015-16. 2. Since grounds in both the years are common arising out of identical set of facts, therefore, same were heard together and are being disposed of, for the sake of convenience, by this common order. 3. In sum and substance, the assessee has challenged the disallowance of ₹ 26,95,950/- in assessment year 2014-15 and ₹ 28,10,930/- in assessment year 2015-16 on account of withholding tax deducted by the Singapore company on the payment of performance guarantee commission. 4. We will take up appeal of A.Y. 2014-15 as lead case and our finding given therein will apply mutatis mutandis for the AY 2015-16 also. The grounds of appeal raised by the assessee for the assessment year 2014-15, for the sake of ready reference, are as under:- "1. The Ld CIT (A) has erred both in law and in facts of the case in upholding disallowance of tax credit of ₹ 26,95,950/- being withhol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed by addendum dated 1.04.2013 as per which the fee was increased from 1.5% and 2%. The agreement was signed and executed in Singapore and was governed by the laws of Singapore. It is a matter of fact that both the vendor and buyer are Singapore resident companies and the above execution deed was executed and signed by Singapore based companies in Singapore. The assessee during the year under consideration had received from the buyer company, Performance Guarantee Commission amounting to ₹ 1,79,73,000/- equivalent USD 3,00,000. The above company withheld tax @ 15% on the above payment under Singapore Tax Laws and deducted tax of USD 45,000 which converted into INR 26,95,950/- @ ₹ 59.9 per USD. 6. AO however held that Performance Guarantee Commission received by the assessee from Singapore company was a business income of assessee and since assessee company did not had any PE in Singapore under Article 7, therefore Singapore Tax Authorities could not have withheld the tax as entire income is taxable in India. He also referred to the decision of Chennai Bench of the ITAT in the case of Vestas Wind Technology India Pvt. Ltd. Vs. ACIT in ITA. No. 177/Mds./2016 dated 22. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew, the AO has rightly relied upon the decision of Hon'ble ITAT Chennai in the case of Vestas Wind Technology India Pvt. Ltd. vs. ACIT, in which the Performance Guarantee Commission for providing guarantee has been held as business incomc. Reference is also made to the decision of Hon'ble ITAT Delhi in the case of DCIT vs. M/S POWER MACHINES (INDIA) LTD. in ITA No. 2221/Del/2014, in which it has been held that - 8.5 Now, the next question arises for determination is, 'as to whether assesses company was liable to deduct the tax at source on the bank guarantee commission paid to VTB bank u/s 195 of the Act'. 8.6 In order to find out the answer to the aforesaid question, first of all, it is required to be decided 'as to whether sum payable on account of bank guarantee commission by the assessee company to VTB bank is chargeable to tax under the Act?' When the Revenue authorities have failed to lay hands on any cogent material that the bank guarantee commission paid by the assessee company paid on account of business transaction between assessee company and VTB hank particularly in the face of the fact that VTB bank has no PE in India, the question of attracting provision c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and a finding is given that the provision of performance guarantee to the joint venture partner is for the strategic purpose in the course of business activity and it is therefore attributable to the business activity. The AO therefore in para 6 at internal pages 4-9 concludes that the performance guarantee given by the appellant should be attributable to business activity and income earned in respect of performance guarantee should be treated as business profit. The above finding of fact is not based on the facts of the case. The appellant is not in the business of providing bank guarantee or performance guarantee and the business of the appellant is providing offshore drilling services to Exploration and production companies in India. The P&L of the appellant on page 47 will show that the revenue of ₹ 739.69 Crore out of total revenue of ₹ 752.13 Crore is from the core activity of Service to oil sector which can be verified from the audited balance sheet at page 39-72 of the paper book. The income from performance guarantee commission forms part of other income in Schedule 18 of the audited balance sheet at page 59 of the paper book. The AO does not give any materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a continuous activity. He referred to para 18 of the order of ITAT. The Hon'ble ITAT took note of the fact that the said company was engaged in the business of manufacturing of technology of advance chemicals known as catalyst for the automobiles and other industries and there was no material that the assessee was also in the business of corporate/bank guarantee on regular basis.The Global guarantee by the assessee is only for limited purpose of securing loans to its subsidiary and therefore recharge income is only incidental income. The Hon'ble ITAT on above facts that the Article 7 of UK Treaty has no application. Incidentally, the Article 7 of UK Treaty and Singapore Treaty are similarly worded. 12. Similarly, the reliance placed by the Assessing Officer on Vestas Wind Technology India Pvt Ltd (supra) to support his above finding that the bank guarantees commission is business income. From the copy of the judgment, he submitted that it can be seen that the bank guarantee has been provided by a parent company to the assessee customers to facilitate the purpose of windmill so that image of the assessee company in market increases and therefore the assessee able to sell its produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is reproduced at page 6 of the Ld CIT (A) order. 15. On the other hand, the ld. DR referred to the various observations of the Assessing Officer and the ld. CIT (Appeals) and strongly relied upon the said finding as incorporated above. His case was that when the entire income is taxable in India, then there is no occasion that same income is taxable in Singapore and therefore, tax deducted in Singapore cannot be given credit to. DECISION 15. We have heard the rival submissions and also perused the relevant finding given in the impugned order as well as the material referred to before us. The only issue before us is, whether tax credit can be allowed to the assessee company on the income offered to tax in India on the tax deducted by the Singapore Company from the Performance Guarantee Commission during the year under assessment. The main reason for denial of the credit by the Assessing Officer and the ld. CIT (Appeals) is that, Performance Guarantee Commission received by the assessee is a business profit in India and directly linked to the business of the appellant. Since assessee does not have a PE in Singapore, therefore, entire commission received from DDHPL in Singapore o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in other Articles or any business income carried out from fixed place or under any of the clauses of Article 5. It then falls under residual head of income, which is covered under Article 23 of DTAA as per which item of income not mentioned in other Articles of DTAA may be taxed in accordance with the taxation laws of the contracting State. 17. Here, in this case, Singapore based company, DDHPL had entered into a put/call option deed to buy 12 million shares of another entity M/s. DODL. The seller/vendor is also a Singapore based company M/s. DOSPL. The assessee company provided a performance guarantee in favour of the buyer company i.e. DDHPL to the above vendor company M/s. DOSPL. A sum of USD 15 million was the consideration for which the assessee was to get fee @ 2%. Now this payment of commission of performance guarantee has been treated as business activity of the assessee by the Revenue authorities and then a view has been taken that it is a business profit of the assessee earned from Singapore and received in Singapore and since assessee does not have a PE under Article 7 of Singapore India DTAA, therefore, the entire profit is to be taxed in India. It is neither the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in Singapore or any shipment in Singapore or payment is expenses to the payer. Thus, in view of Singapore Taxation Laws the income in question is taxable in Singapore even if the assessee has no PE in Singapore, on account of the fact that commission of Performance Guarantee fees is deductible expenses to the entity paying in Singapore. Thus, we are unable to subscribe to the view taken by the Assessing Officer and the CIT (Appeals) and the same is rejected. 18. Since income is also taxable in India, the assessee is eligible for payment of such tax much less income has suffered tax in Singapore by virtue of provisions of Section 90(1) of the Act. Thus, we direct the Assessing Officer to allow tax credit in both the assessment years 2014-15 and 2015-16. 19. While arriving to our aforesaid conclusion we also draw our guidance in support from the decision of Hon'ble Mumbai ITAT in the case of Amarchand Mangaldas and Suresh K Shroff & Co vs ACIT ITA No.2613/Mum/2019 dt: 18.12.2020 where in para 10 at page 8 therein, the Hon'ble Bench held that DTAA provisions don't require that state of residence eliminate the double taxation in all cases where state of source has imposed its tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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