TaxTMI 
TaxTMI 
2011 (12) TMI 30
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....e as export credit facility a sum of $ 30,010400. Out of that amount, the credit insurance premium of $ 510400 was to be paid to COFACE towards insurance premium. The amount loaned, or in respect of which the credit facility was extended was to be repaid in six-monthly instalments commencing from 17.1.2010 and ending on 17.7.2016. The instalment inclusive of interest payable on 17.1.2010 was $ 2502140,92. Two sets of 14 promissory notes, one set each for each installment payable, covering the principal and the interest separately were executed by the applicant in favour of Dassult. On 15.12.2009 all the promissory notes were irrevocably and unconditionally assigned by Dassault to BNP Paribas, France. The present application under section 245Q(1) of the Income-tax Act, 1961 („the Act‟ hereinafter) was thereafter filed by the applicant on 11.6.2010 seeking an advance ruling wanting to know whether it had any obligation to withhold tax on the interest payable on this and the succeeding installments under section 195 of the Act in view of the relevant provision contained in the Double Taxation Avoidance Convention („DTAC‟) entered into by India and France. This ....
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....in India. It is pointed out that COFACE has only provided an export credit insurance covering the risk of non-payment for the seven years export credit originally in favour of Dassault now assigned to BNP PARIBAS. Extending of credit insurance was not extending or endorsing a loan. Moreover, it was seen that the installments were payable in New York in USA and not in Paris in France, by the applicant. The India-France convention had hence no application 4. In its reply, the applicant reiterated the position adopted in the application and contended that the communication from COFACE clearly stated that it supports the credit facility relating to the purchase of the Aircraft by the applicant. The word „endorse‟ was of wide amplitude and the providing of insurance cover amounted to an endorsement of the loan. Even after assignment of the promissory notes the beneficial owner continued to be a resident of France and hence the India-France Treaty applied and Article 12.3 (b) was attracted. Mere payment into the account of BNP Paribas, France in its New York account would not make any difference. In its additional comments, the Revenue reiterated that payment made into the....
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....any other institution as may be agreed from time to time between the competent authorities of the Contracting States; (b) interest arising in a Contracting State shall be exempt from tax in that Contracting State if it is beneficially owned by a resident of the other Contracting State and is derived in connection with a loan or credit extended or endorsed by: (i) in the case of France, the Banque Francaise due Commerce Exteriur, or the Compagnie Francaise d' Assurance pour le Commerce Exterieur (COFACE); (ii) in the case of India, the Export-Import Bank of India; (iii) any institution of the other Contracting State in charge of the public financing of external trade. It is the case of the applicant that the credit facility extended by Dassult to it being insured by COFACE, would amount to it being a loan or credit extended or endorsed by it within the meaning of clause (b) (i) of paragraph 3 of Article 12 of the Convention. The contention of the revenue is that mere extending of an insurance would not amount to extending or endorsing a loan within the meaning of clause (b)(i) of paragraph 3 of Article 12. According to the applicant, the expression „endorse̶....
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....uaranteed or insured‟ by COFACE. Such expressions are not used in the Indo-French Convention. A convention is a matter of bargain between two nations and the terms of a particular convention has to be understood from the words used therein. If the words are not clear, may be, a purposive interpretation can be resorted to. There appears to be no compelling reason for not understanding the words used as they are. 10. The Revenue has argued that admittedly payments were to be made in PNB Paribas branch, New York in the US and hence it should be the treaty between India and USA that should apply, if at all. This argument is met by the applicant by pointing out that BNP Paribas in France continues to be the beneficial owner of the installments of loan and the interest and what is relevant to determine the situs is the beneficial ownership. Merely because the payment was made into the branch in New York, it would not make the branch New York the beneficial owner. The beneficial ownership of BNP Paribas has not been endorsed or assigned to the New York branch. Nor has this transaction, transferred to the New York branch. There was, therefore, no merit in the contention raised on ....
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....vailable not only in respect of loans or credits made, guaranteed or extended, but also in respect of loans insured by institutions corresponding to COFACE in France. The corresponding provision in the India-Canada Convention reads: "(b)(i) interest arising in India and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export Development Corporation." The Convention with Hungary and Ireland include loans or credits insured by the Hungarian Exim Bank and the Central Bank of Ireland respectively. One aspect to be noted is that in the case of the Conventions relied on, the benefit is available only in respect of one institution, namely, the Export Development Corporation in the case of Canada, the Hungarian Exim Bank in the case of Hungary and the Central Bank of Ireland in the case of Ireland whereas in respect of France, it covers loans or credits extended or endorsed by two institutions, the Banque Francaise du Commerce Exteriur or COFACE. 15. It is argued that clause 7 of the Protocol makes it clear that if the taxation at source of interest income....
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....insurance on behalf of the French State, somewhat akin to Export Import Bank of India. 18. Clause (b) of paragraph 3 of the India France Convention exempts interest income from tax in the State in which it arises in respect of France, if the loan and credits extended or endorsed by Banque Francaise due Commerce Exteriur or COFACE and any institution in change of the public financing of external trade and in respect of India, if it is extended or endorsed by Export Import Bank of India or any institution incharge of the public financing of external trade. In the Convention with Canada, interest arising in India paid to a resident of Canada is taxable only in Canada if it is paid in respect of a loan extended, guaranteed or insured by the Export Development Corporation and interest arising in Canada and paid to a resident of India is taxable only in India if the credit is extended, guaranteed or insured by the Export Import Bank of India. 19. If the coverage or protection is understood as extended to loan or credit insured by one of the institutions referred to in the Convention between India and France in the context of the provisions noticed above, it has to be held that a lo....