TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Tribunal reverses tax disallowance, rules guarantee commission not taxable under DTAA</h1> <h3>Lease Plan India Pvt. Ltd Versus DCIT, Circle-4 (1), New Delhi</h3> Lease Plan India Pvt. Ltd Versus DCIT, Circle-4 (1), New Delhi - TMI Issues Involved:1. Disallowance under section 40(a)(i) for non-deduction of tax at source on guarantee commission.2. Situs of services and income accrual in India under section 9 of the Income Tax Act.3. Classification of guarantee commission as 'interest' under Article 11 of the DTAA.4. Classification of guarantee commission as 'fees for technical services' under Article 12 of the DTAA.5. Taxability of guarantee commission under the Act or DTAA.6. Charging of interest under section 234D and withdrawal of interest under section 244A.Issue-wise Detailed Analysis:1. Disallowance under section 40(a)(i):The Commissioner of Income-tax (Appeals) confirmed the disallowance of the guarantee commission paid to Lease Plan Corporation NV, Netherlands, due to non-deduction of tax at source, invoking provisions of section 40(a)(i) of the Income-tax Act, 1961.2. Situs of Services and Income Accrual in India:The CIT(A) held that the situs of services rendered by Lease Plan Corporation NV was in India. Therefore, the guarantee commission was considered income of the non-resident under section 9 of the Act.3. Classification as 'Interest' under Article 11 of the DTAA:The CIT(A) held that the guarantee commission was income from a debt claim and thus classified it as 'interest' under Article 11 of the DTAA between India and Netherlands. However, the Tribunal disagreed, stating that there was no provision of capital or debt claim, and thus the guarantee fee could not be considered 'interest' under Article 11.4. Classification as 'Fees for Technical Services' under Article 12 of the DTAA:The CIT(A) alternatively held that the guarantee commission represented payment for ancillary and subsidiary services to the application or enjoyment of a right, thus qualifying as 'fees for technical services' under Article 12 of the DTAA. The Tribunal refuted this, stating that the provision of a guarantee is a financial service, not a consultancy service, and does not meet the 'make available' criteria of Article 12(5)(b).5. Taxability under the Act or DTAA:The Tribunal concluded that the guarantee commission paid to the Netherlands company was not chargeable to tax in India under the DTAA. Consequently, the assessee was not required to deduct tax at source under section 195, and the disallowance under section 40(a)(i) was reversed.6. Charging of Interest under section 234D and Withdrawal of Interest under section 244A:The other grounds related to the charging of interest under section 234D and the withdrawal of interest under section 244A were considered consequential and did not require separate adjudication.Conclusion:The Tribunal allowed the appeals, reversing the orders of the lower authorities and directing the deletion of the disallowance for both assessment years. The Tribunal also noted that the order was passed beyond 90 days after the hearing, following the precedent set by a coordinate bench.
TaxTMI 
TaxTMI 
