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TMI Blog2024 (12) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... he guarantee fee received during the year in the return of" income, despite it being taxable only in Korea as per provisions of Double Taxation Avoidance Agreement entered between India and Korea. 2.2 The Ld. CIT(A) failed to appreciate the facts of the case and has erroneously concluded that the guarantee fees received by the Appellant amounting to INR 35,962,022 was liable to tax in India. 2.3 The Ld. CIT(A) failed to appreciate that the tax was deducted at source by the Indian subsidiaries on such payment is merely out of abundant caution. 2.4 The Ld. CIT(A) have erred on facts and failed to appreciate that the guarantee fees received by Appellant arises only in Korea (contracting state) in terms of Article 22 Other Income' of Double Taxation Avoidance Agreement ('DTAA') between Republic of Korea and India and hence, the same is not taxable in India. 2.5 The Ld. CIT(A) based on the facts of the case and the provisions of law, ought of have excluded the guarantee fee received from total income of the Appellant 2.6 The Ld. CIT(A) have erred in law and on facts in not following the Hon'ble Chennai Tribunals ruing in the Appellant's own case for AY 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal no. 1(a)(b)(c) and (d) raised by the appellant is treated as one conjoint ground on perusal of facts on record. It is seen that the appellant has received Rs. 35,962,022- as guarantee fee from Deachang India Seat Pvt Ltd and K.M. Seat Company Private Ltd for enabling Indian subsidiaries to obtain loans from foreign banks. It is also noticed that TDS was done on by Daechang India Seat Private Ltd and K.M. Seat Company Private Ltd on the said payments. The appellant has included the said receipts as taxable in India and declared the same in its return of income. The same was processed by CPC u/s 1431). As the appellant by its own self has included "Guarantee Fee" received as income taxable in India, its claim that the same cannot be taxable invoking the beneficial provisions of Indo-Korea DTAA is not entertained. Thus, Grounds of appeal no 1(a)(b)(c) and (d) are dismissed." Aggrieved by the order of the ld.CIT(A), the assessee is before us. 6. The Ld.AR argued that the Ld.CIT(A) has erred in dismissing the appeal of the assessee without appreciating the fact that the the 'Guarantee fees' has been received from Daechang India Seat private Limited and KM Seat Company Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Korea. 7.2 Business Income : Based on the nature of the payment, it can be said that the guarantee fees can be classifiable as "Business profits" under Article 7 of the India-Korea DTAA. The taxability under this article is based on the presence of a Permanent Establishment ('PE') as defined under Article 5 of the India-Korea DTAA. 7.3 Article 5 of the India-Korea DTAA explains the PE as follows: 1. The term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: a) a place of management; b) a branch; c) an office; d) a factory; e) a workshop; f) a sales outlet; g) a warehouse in relation to a person providing storage facilities for others; h) a farm, plantation or other place where agricultural, forestry, plantation or related activities are carried on; and i) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. Article 7 of the DTAA explains "Business Profits" as; "The profits of an enterprise of a contracting state shall be taxable only in that state unless the enterp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical services shall be governed by Article 22 of the Tax Treaty and not as per Article 7 of the Tax Treaty which deals with taxation of business profits." As per Article 22 of the India-Korea DTAA, the taxing right for "Other Income" is given to the country of residence and not the country of source of income. In the Instant case, given that Daechang, being the recipient of the guarantee fees, is a tax resident of Korea, it is submitted that the guarantee fee is taxable only in Korea and not in India. 7.6 In this regard the ld.AR brought our attention the below judicial precedent wherein the facts are similar to the present case and the Honourable Mumbai Tribunal upheld such issue in favour of the assessee. The Honourable Mumbai Tribunal in case of Capgemini SA vs DCIT (Mumbai /TAT) IT A No888 (MUM.) of 2016 had discussed Article 23(3) of the India-France treaty which states "items of income of a resident of a Contracting State not dealt with in the foregoing articles of this convention and arising in the other Contracting State may be taxed in that of the Contracting State". i.e., Article 23(3) has applicability only when income accrues / arises in India. It was held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees of Rs. 3,59,62,021/- from its subsidiaries for providing guarantee to foreign banks namely Standard Chartered Bank. The assessee has filed its return of income u/s. 139(1) of the Act, by offering the same as taxable income and the same was processed by the CPC by accepting the return of income. Later, the assessee filed an appeal before the Ld.CIT(A) by claiming that the guarantee fees received is not taxable in India as per Article 22 of the DTAA entered between the India and Korea. However, the ld.CIT(A) has upheld the action of the AO. Since, the guarantee fees has been assessed as income from other sources but not a business Income, the same cannot be taxed in the hands of the assessee in India as per Article 22 of the DTAA and hence the we do not countenance the action of the ld.CIT(A). Further, we note that, the similar issue for the A.Y. 2014-15 & 2015-16 with the same facts and circumstances in assessee's own case has been held as not taxable in India in IT(TP)A No.101/CHNY/2018 dated 05.07.2023 by holding as under: "17. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee is a foreign company incorporated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the guarantee fee received from Indian Subsidiaries namely DISPL and KMSIPL has accrued and arised in India as income from other sources. We noted that this is a clear cut case of applicability of DTAA of Indo-Korea, whereby by virtue of Article 23, the other income has to be taxed in the contracting state i.e., Korea and not India. We also noted that reliance placed by ld.CIT-DR on the decision of Johnson Matthey Public Ltd., supra relates to Indo-UK Treaties and this has been distinguished by Co-ordinate Bench of ITAT, Mumbai in the case of M/s. Draegerwerk AG & Co. KGAA, wherein while dealing with Indo-German Treaty it has clearly distinguished the decision cited by ld.CIT-DR. We noted that this issue has been considered by Co-ordinate Bench of Mumbai in the case of Capgemini SA vs. DCIT (International Taxation) in ITA No.6323/Mum/2016, dated 09.01.2017, wherein the Tribunal considering another decision of the same assessee for AY 2012- 13, in ITA No.888/MUM/2016, order dated 13.07.2016 and further following AY 2009-10 in ITA No.7198/MUM/2012, order dated 28.03.2016 held that the guarantee commission received by French Company in that case neither accrued in India nor deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the Assessing Officer the plea of the assessee was that such guarantee commission was not chargeable to tax in India either under the domestic law or even in terms of Double Taxation Avoidance Agreement (DTAA) between India and France. The pertinent point made out by the assessee was that no service was rendered by the assessee, much less a professional/ Technical service, and in any case, no service can be said to have been rendered in India. The plea of the assessee did not find favour even with the DRP and accordingly, the Assessing Officer held the guarantee commission of Rs. 33,40,347/- as taxable. 5. At the time of hearing, the learned representative for the assessee pointed out that an identical controversy was considered by the Mumbai Bench of the Tribunal in the assessee's own case for Assessment Year 2009-10 vide ITA No. 7198/Mum/2012 dated 28.3.2016. The relevant discussion in the order of the Tribunal dated 28.3.2016 (supra) reads as under :- "3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a resident of France and does not have a permanent establishment in India. During the year assessee has given a corporate gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a consequence, on this aspect, the assessee succeeds. In the light of the foregoing order, the one of the reason that the order for Assessment Year 2012-13 of Ld.DRP has not been reversed by Tribunal, no more survives. The Tribunal in order dated 28/03/2016 for Assessment Year 2009-10 (ITA No.7198/Mum/2012) 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." 17.1 In view of the above and following Article 23 of Indo- Korea DTAA which specifically provides that taxability of 'other income' is only in the contracting state and in the present case, the contracting state is Korea and not India, hence taxability under the Income Tax Act is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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