Corporate guarantee commission earned in France was held outside Indian tax net under domestic law and the India-France DTAA.

A non-resident French company's corporate guarantee commission was held not taxable in India because the guarantee was furnished in France to a French bank, the transaction was entirely executed in France, and no service was rendered in India. The Tribunal applied its earlier rulings in the assessee's own case and held that the income neither accrued nor arose in India, nor could it be deemed to accrue in India under the Income-tax Act, 1961. It further held that Article 23.3 of the India-France DTAA applied only where the income arose in India, which was not satisfied on these facts, so the commission was outside Indian tax net.

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Issues: Whether guarantee commission received by a non-resident French company for corporate guarantees given in France to a French bank on behalf of Indian subsidiaries was taxable in India under the Income-tax Act, 1961 and Article 23 of the India-France DTAA.

Analysis: The Tribunal noted that the assessee was a tax resident of France and had given the guarantee in France to BNP Paribas, France. The commission was received for a transaction entirely executed in France and no service was rendered in India. Following its earlier decisions in the assessee's own case, the Tribunal held that the commission neither accrued nor arose in India nor could it be deemed to accrue in India. It further held that Article 23.3 applied only where the income arose in India, which was not the position on these facts.

Conclusion: The guarantee commission was not taxable in India and the issue was decided in favour of the assessee.

Ratio Decidendi: Where a non-resident earns corporate guarantee commission for a guarantee furnished in the foreign jurisdiction to a foreign bank, the income does not accrue or arise in India and cannot be taxed in India under the residual article of the applicable DTAA.

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