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of <h1>Conflict of interest claim dismissed, guarantee fee not taxable under Indo-Korea DTAA. AO's addition deleted.</h1> <h3>Daechang Seat Co. Ltd., C/o. M/s. Daechang India Seat Co. Pvt. Ltd. Versus The DCIT, International Taxation -1 (1) /International Taxation -1 & 1 (2), Chennai</h3> Daechang Seat Co. Ltd., C/o. M/s. Daechang India Seat Co. Pvt. Ltd. Versus The DCIT, International Taxation -1 (1) /International Taxation -1 & 1 (2), ... Issues Involved:1. Conflict of Interest2. Taxability of Guarantee Fee under the Income Tax Act and Indo-Korea DTAAIssue 1: Conflict of InterestThe ld.CIT-DR, Dr. S. Palanikumar, raised a preliminary objection on the issue of 'conflict of interest' concerning the representation by Shri Dinesh Inbavadivu and Shri Arjun in the appeals. The ld.CIT-DR argued that since these advocates regularly appear before ITAT Chennai Bench on behalf of their clients, their appointment by ITAT to represent its case before CIC constitutes a direct case of 'conflict of interest.' He contended that this situation could jeopardize the interest of revenue in income tax appeal proceedings before ITAT, Chennai.The ld.Advocate Shri G. Baskar countered that the application filed by ld.CIT-DR is not maintainable and obstructs judicial proceedings. He argued that there is a clear distinction between administrative and quasi-judicial functions, and the engagement of Shri Dinesh before CIC was on the administrative side. He emphasized that the Tribunal's independence and neutrality are not compromised by such representation.The Tribunal, after considering the arguments, concluded that there is no 'conflict of interest' in this matter. It noted that the engagement of Shri Dinesh was purely for administrative purposes and did not influence the judicial functions of the Tribunal. The Tribunal also highlighted that the issue raised by ld.CIT-DR is not appropriate for the Tribunal to decide and should be addressed by the Bar Council of India if necessary. The application by ld.CIT-DR was dismissed as not maintainable, and the Tribunal advised the Revenue to provide proper training to its representatives to avoid such frivolous applications in the future.Issue 2: Taxability of Guarantee Fee under the Income Tax Act and Indo-Korea DTAAThe assessee company received a sum of Rs. 5,22,88,362/- as guarantee fee from its subsidiaries during the relevant assessment year. The AO and DRP treated this income as 'income from other sources' and taxed it in India. The assessee contended that the guarantee fee is not taxable in India under Article 23 of the Indo-Korea DTAA, which stipulates that 'other income' shall be taxable only in the contracting state, i.e., Korea.The Tribunal, after considering the arguments and relevant case laws, concluded that the guarantee fee received by the assessee is not taxable in India under the Indo-Korea DTAA. It noted that the income clearly arises in Korea, and as per Article 23 of the DTAA, it is taxable only in the contracting state. The Tribunal relied on previous decisions, including the case of Capgemini SA vs. DCIT, to support its conclusion. Consequently, the addition made by the AO was deleted, and the appeal of the assessee was allowed.In the related appeal for assessment year 2014-15, the Tribunal quashed the revision order passed by PCIT u/s. 263 of the Act, holding that the guarantee fee is not taxable in India in view of Article 23 of Indo-Korea DTAA. Both appeals filed by the assessee were allowed.
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