Treaty taxation of guarantee fees: residuary DTAA article assigned taxing rights to Korea, so India could not tax the receipt.

Guarantee fee received by a Korean tax resident without a permanent establishment in India was held taxable only in Korea under Article 22 of the India-Korea DTAA. The Tribunal followed its earlier view in the assessee's own case and treated the receipt as income from other sources falling within the residuary treaty article, so India had no taxing right on these facts. Tax deduction at source and disclosure in the return did not change the treaty allocation, and the addition was deleted.

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Issues: Whether guarantee fees received by a Korean tax resident from its Indian subsidiaries were taxable in India under the Income-tax Act, 1961 or Article 22 of the India-Korea DTAA.

Analysis: The assessee was a non-resident company resident in Korea and had no permanent establishment in India. The receipt in question was treated by the Revenue as income taxable in India, while the assessee contended that the amount fell within the residuary treaty article governing other income. The Tribunal noted that the same issue had already been decided in the assessee's own case for earlier assessment years and followed that view. It held that the guarantee fee was assessed as income from other sources and, under Article 22 of the India-Korea DTAA, such income is taxable only in the state of residence. The fact that tax had been deducted at source and the amount had been offered in the return did not alter the treaty position.

Conclusion: The guarantee fee was not taxable in India and the addition was deleted.

Final Conclusion: The appeal succeeded because the treaty allocated taxing rights over the guarantee fee to Korea, leaving no taxable income chargeable in India on these facts.

Ratio Decidendi: Where a non-resident receives income that is not classifiable as business profits or another specifically taxed category under the treaty, and the applicable DTAA provides that residuary income is taxable only in the state of residence, India cannot tax such receipt in the absence of a different treaty allocation.

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