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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 ..... - SHRI ABY T. VARKEY, HON BLE JUDICIAL MEMBER AND SHRI S. R. RAGHUNATHA, HON BLE ACCOUNTANT MEMBER For the Appellant: Shri. Shreyansh Kumar Kochar, CA For the Respondent: Smt. M.S. Deeptha, JCIT ORDER PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER: This appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income Tax (Appeals), Chennai-16, dated 18.09.2023 and pertains to assessment year 2016-17. 2. The assessee has raised the following grounds of appeal: 1. General 1. I The adjustment made in the order passed by the Commissioner of Income-Tax. Appeal, CIT(A), Chennai -16 (Ld. CIT(A)') under section 250 of the Income-tax Act, 1961 (the Act') is contrary to the law, facts and circumstances of the case and hence liable to be deleted. 2. Addition of guarantee fees received from Daechang India Seat Private Limited and K.M. Seat Company Private Limited (Indian subsidiaries) 2.1 The Appellant erroneously offered the 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 appreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a as per the provisions of Double Taxation Avoidance Agreement (DTAA) entered between India and Korea. Further, the assessee claimed that the CPC failed to appreciate the facts of the case and has erroneously concluded that the guarantee fees received by the assessee to the tune of Rs. 3,59,62,021/- was liable to tax. The assessee stated that the CPC has failed to appreciate that the guarantee fees received by assessee 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. Hence, 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 assessee. 5. The ld.CIT(A), after consideration of the submissions made by the assessee dismissed this ground of appeal of the assessee by holding as under: 6.1 Ground 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 Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, being a tax resident of Korea is entitled to the benefits of the India-Korea DTAA. In this regard, the ld.AR submitted that the guarantee fees would not be liable to tax in India for the following reasons: a) The guarantee fees would not fall under the classification of 'Interest' as per the Act or under Article 11 of the India- Korea DTAA. b) The guarantee fees would also not fall under 'Fees for Technical service' as per section 9(1)(vii) of the Act or under the India - Korea DTAA. c) The guarantee fees would fall under the nature of business profits. As Daechang does not have a permanent establishment in India, the same would not be taxable in India. d) Without prejudice to the above, if the guarantee fees are considered as Other Income' under Article 22 of the India-Korea DTAA, the same would not be taxable in India since Other income is taxed only in the country of residence, i.e. 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence and not the country of source of income. As Daechang is a tax resident of Korea, the guarantee fees shall be taxable only in Korea and not in India. 7.5 This view is also supported by the ruling of the AAR in the case of Lanka Hydraulic Institute Limited (11 Taxman 97), rendered in the context of the India-Sri Lanka DTAA, which held as under: 14. It is true that the treaty does not contain a specific article for the taxation of fees for technical services. In that event reference is to be made to Article 22 of the Tax Treaty which reads as follows: Item of income of a resident of a Contracting State which are not expressly mentioned in the foregoing Article of this Agreement in respect of which he is subject to tax in that state shall be taxable only in the state. Accordingly, Question No. 1 is answered by holding that the fees for technical 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 Dae ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn of income by offering the guarantee fees as taxable income in India and the subsidiaries have paid this amount to the assessee after deducting tax at source in India u/s. 195 of the Act and remitted to the government account. Further, the assessee has not even filed the revised return by claiming the guarantee fees as non taxable in India and hence, the decision of the Ld.CIT(A) be upheld by dismissing the appeal of the assessee. 9. We have heard the rival contentions, perused the material available on record and gone through the order of the ld.CIT(A). It is admitted fact that the assessee is a foreign company incorporated in Korea, a non resident and do not have PE in India, which is engaged in the business of manufacture of automobile and auto parts. During the impugned assessment year the assessee has received guarantee 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) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormal income of the foreign company is upheld and to be taxed accordingly. It means that the DRP treated the guarantee fee as income from other sources. This direction of the DRP was complied by the Assessing Officer and further noted that the guarantee fee is not in the nature of business income since the assessee company was predominantly engaged in the manufacturing business and not in the business of providing corporate / bank guarantee to earn income on regular basis. Hence, according to Assessing Officer the guarantee agreement is entered into for limited purpose for enabling its subsidiaries to secure loans and the guarantee income is incidental in nature, since the assessee was not in the business of providing corporate / bank guarantee to earn income on regular basis. Hence, the Assessing Officer held that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support, sustenance and developmental service to Capgemini Group companies across the world. During the year under consideration, assessee-company had earned royalty from two of its associate concerns in India, viz., Capgemini India Pvt. Ltd and Capgemini Business Services India Pvt. Ltd. In the return of income filed by the assessee for the assessment year under consideration it declared an income of Rs. 9,52,52,240/- on account of such royalty income. In the course of assessment proceedings, the Assessing Officer noticed that assessee had received guarantee commission of Rs. 33,40,347/- from the two associate Indian concerns in return for assessee having extended corporate guarantee to BNP Paribas, France for the credit facilities extended by BNP Paribas, France to the associate concerns in India. Before 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the income clearly arises in France because the guarantee has been given by the assessee, a French company to BNP Paribas, a French Bank, in France and, therefore, Article 23.3 has no applicability as income does not arise in India. 6. Before us, it was a common point between the parties that the facts and circumstances of the dispute in the instant year are similar to those considered by the Tribunal in Assessment Year 2009-10 (supra). It was also a common point between the parties that decision of the Tribunal dated 28.3.2016 (supra) continues to hold the field and, therefore, following the aforesaid precedent, in the instant year also the guarantee commission of Rs. 33,40,347/- earned by the assessee from the two associate Indian concerns cannot be held to be taxable in India. As 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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