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Issues: (i) Whether guarantee commission received by a French company for corporate guarantees given in France on behalf of its Indian subsidiaries was taxable in India under Article 23 of the DTAA between India and France; (ii) Whether credit for tax deducted at source was to be granted.
Issue (i): Whether guarantee commission received by a French company for corporate guarantees given in France on behalf of its Indian subsidiaries was taxable in India under Article 23 of the DTAA between India and France.
Analysis: The income arose from guarantees executed in France in favour of a French bank, and the recipient was a French resident without a permanent establishment in India. On these facts, the commission neither accrued nor was deemed to accrue in India under the Income-tax Act. Article 23.3 applied only to income arising in India, which was not the case here.
Conclusion: The guarantee commission was not taxable in India and the addition was unsustainable.
Issue (ii): Whether credit for tax deducted at source was to be granted.
Analysis: The record required verification by the Assessing Officer for grant of credit in accordance with law.
Conclusion: The Assessing Officer was directed to verify the claim and allow tax credit as per law.
Final Conclusion: The appeal succeeded on the principal taxability issue, and the ancillary TDS credit claim was remitted for verification and appropriate allowance in accordance with law.
Ratio Decidendi: Income from a foreign-source guarantee commission is not taxable in India unless it accrues, is deemed to accrue, or is shown to arise in India under the applicable treaty.
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