TaxTMI 
TaxTMI 
2023 (12) TMI 585
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....on Panel-2, Mumbai, (the learned DRP) dated 29th April, 2022, were incorporated. 02. Assessee is aggrieved and has raised following grounds of appeal:- "Issue no. 1-Debt/Corporate guarantee fees taxed in India 1. The learned DCIT, Int. Tax-3(3)(1). Mumbai (referred to as AO) erred in law and on facts in taxing alleged arm's length Debt/Corporate guarantee fees of Rs. 2,70,84,735/- in India under "Article 22: Other Income" of the DTAA between India and Japan. 2. The learned DRP Panel-2, Mumbai (referred to as DRP Panel) and the learned AO erred in law and on facts in not appreciating that as per "Article-7: Business Profits" of DTAA between India and Japan, in the absence of PE in India, debt/corporate guarantee fees charged to Indian AE are taxable only in Japan. 3. The learned AO erred in law and on facts in taxing alleged arm's length Debt/Corporate guarantee fees of Rs. 2,70,84,735/- in India under "Article 22: Other Income" of the DTAA between India and Japan instead of applying "Article 11: Interest" as per specific directions of learned DRP Panel and thereby erred in law in charging tax on debt/corporate guarantee fees @ 40% instead of 10%. 4. The appellant....
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....eived from Nipro India Corporation private limited being income offered for taxation as per the Double Taxation Avoidance Agreement rate at the rate of 10%. Accordingly tax of Rs. 7813/- was determined. Assessee has also received interest of Rs. 25,135,155 from Nipro tube glass Ltd and further interest of Rs. 2,864,302/- from Nipro Pharma packaging India private limited. This sum totaling to Rs. 27,999,457/- was offered for taxation at a special rate under section 115A (1) (a) (iiaa) as interest received under section 194LC and taxed accordingly. 05. Return of income was picked up for scrutiny for verification of international transaction in respect of lending or borrowing of money as per transfer pricing risk parameters. The notice under Section 143(2) of the Act was issued on 9 August 2018. 06. As the assessee has entered into an international transaction, reference was made to the learned Transfer Pricing Officer for determination of Arm's Length Price of international transaction. 07. Assessee has entered in to following international transaction of corporate guarantee over and above the interest disclosed in the return of income, which are in dispute :- Sr No Transact....
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....rantee fee charged to the Indian associated enterprises exempt from tax in India as per India Japan double taxation avoidance agreement, the learned TPO held that it would be the jurisdiction of the assessing officer to examine the taxability of the guarantee commission fee. 011. On the basis of above adjustment of Alp of international transaction, learned Assessing Officer issued a show cause notice on 26th April, 2021, holding that corporate guarantee fee should be brought to tax in accordance with Article 22(3) of Indo Japan Double Taxation Avoidance Agreement [DTAA] which provides taxation rights to sources state in case of 'other income'. Further, in view of the corporate guarantee fee accrues and arises in India as fees are linked to Indian Associated Enterprises availing credit facility from banks. Thus according to ld AO Guarantee fee should be taxed as 'other income' as per article 22(3) of DTAA. Assessee submitted that such guarantee fee is classified as 'business income' and therefore, is chargeable to tax as per Article 7 read with Article 5 of the Indo Japan Double Taxation Avoidance Agreement. It was further submitted that Article 22 of the Double Taxation Avoidance ....
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....'s Length. The learned Transfer Pricing Officer determined the Arm's Length Price of ECB loan at 3.51% and rupee loan at 14.05%. Arm's Length Price of the interest received on ECB loan of Rs.28,64,302/-, was determined at Rs.77,33,615/-, whereas the interest received of rupee loan of Rs.2,31,31,157/- was determined at Rs.3,36,33,234/-. Therefore, the interest received of Rs.279,99,459/- had Arm's Length Price of Rs.4,73,66,849/-. This resulted into upward adjustment of Rs.1,33,57,390/-. The learned Dispute Resolution Panel upheld the action of the learned Transfer Pricing Officer with respect to the benchmarking of rupee loan, however, with respect to ECB loan following the decision of the co-ordinate Bench in assessee's own case for A.Y. 2014-15 considered the Arm's Length Price of six months LIBOR +100 basis points. Accordingly, the interest adjustment was reduced to 1,13,62,379/-. 016. Based on the direction of learned Dispute Resolution Panel, the learned Assessing Officer made the adjustment on account of guarantee fee commission of Rs.2,70,84,735/-, however, taxed same as under head 'income from other sources' taxable at the rate of 40%. Further, transfer....
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....e order. He extensively read the paragraph no.15, wherein it has been held that article 22 can be applied only when an amount in question is not taxable under any other specific provision of Double Taxation Avoidance Agreement. He also submitted a chart of the bank rates showing bank group wise average lending rates on fresh rupee loans stating that nowhere 14.50% rate is available . He further referred to the decision of the co-ordinate Bench in 117 taxmann.com 343, wherein it has been held that corporate guarantee fee also not be taxable under Article 11 of Double Taxation Avoidance Agreement. He specifically referred to Para nos.23 and 24 of that decision. 022. The learned CIT Departmental Representative vehemently supported the order of learned lower authorities. 023. We come with respect to the first ground of appeal wherein it has been challenged that (1) that the learned assessing officer has not followed the direction of the learned dispute resolution panel, (2) of the act that guarantee fee is not chargeable to tax in India, (3) the guarantee fee is not an interest, (4) the guarantee fee is also not chargeable to tax under the head income from other sources and, (5) even....
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.... Avoidance Agreement between India and Japan source state of tax has a right to tax any other income not dealt in other specific articles be taxed under article 22 of ' other income', provided that sources state has statutory provision to tax such income in its state. The AO for specifically referred the decision of the Delhi bench of ITAT in 88 taxmann.com 127 to support his findings. Therefore, about the taxability of the income according to the double taxation avoidance agreement, the learned AO held that same is chargeable to tax under article 22 (3) of the act in India. With respect to the head of income under which such income is chargeable to tax as per the income tax act, he taxed the same under the head 'income from other sources'. Thus, this guarantee fee was charged to tax at the rate of 40% tax in the draft assessment order. When assessee objected before the dispute resolution panel, while raising the objection assessee specifically stated that assessee is aggrieved with taxability of the same at the rate of 40% and also its taxability in India, under article 22 (3) of the Double Taxation Avoidance Agreement and also that it should be held as a business income. The lear....
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....can be invoked only when the amount in question is not taxable under any other specific provision. Once, therefore, the assessing officer holds the view that the amount is taxable under article 11, for that short reason alone, the jurisdiction to tax under article 22 is ousted. To this extent, uphold the plea of the assessee in principle. It is then contended that there are decisions of the coordinate benches holding that the income in question cannot be treated under article 11, and as there is no PE in India, it cannot be taxed under articles 7 either. This aspect of the matter has however not been examined by any of the authorities below. We, therefore, deemed it fit and proper to remit the matter to the file of the assessing officer for adjudication on this point, and to this limited extent, by way of a speaking order, in accordance with the law dealing with all the contention of the assessee. Ordered, accordingly." 024. On careful consideration of the decision of learned AO, learned dispute resolution panel and the coordinate bench, we do not find that it gives an answer that whether the income chargeable to tax in the hands of the assessee under which head of income. Whether....
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....ce of interest charged on external commercial borrowing lent to associated enterprises in India. The assessee has advanced a loan to Nipro tube glass India private limited in Indian rupees wherein the assessee has received total interest of Rs. 25,135,155/- wherein the assessee receives such interested the rate of 10.50% of the loan amount. For benchmarking, assessee used Indian associated enterprise as tested party, compared reserve bank of India prescribed 'all in cost ceiling rate, and the state bank of India private lending rate. Further, the above interest payment was held to be at arm's-length in case of Indian associated enterprises and therefore it was believed by the assessee that it is also at arm's-length in assessee's own case. The learned TPO proposed the arm's-length price of the interest at the rate of 14.05% and proposed an upward adjustment. The claim of the assessee before the learned dispute resolution panel was that the identical transaction took place in assessment year 2014 - 15 and benchmarked in the similar manner, there is no change in the facts and circumstances of the case, despite the same the learned transfer pricing officer has disturbed the ALP of the....
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....r tax rate of 30.90% is not acceptable as there is no provision in the act which provides for adjustment in the hence of the Indian entity. Therefore, with regard to the transaction of interest of Rs. 25,135,157 the interest rate of 10.50% is not at arm's-length and interest rate of 14.05% is confirmed. The charters been placed before us by the learned authorized representative extracted from RBI.org to 10 wherein the weighted average lending rates of fresh rupees on sanctioned for March 2013 to March 2018 are placed stating that in none of the times the rate was higher than 11.46% and in the subsequent year from June 15 - March 2018 the rates are almost 10%. In this case, the assessee has charged interest at the rate of 10.5% whereas the learned TPO has charged the arm's-length price at 14.50%. As per the order of the learned transfer-pricing officer in paragraph number eight, the rate of statement of India prime lending rate of 14.05% was also given by the assessee contending that the interest is received from an Indian entity to a foreign AE and therefore it should not be disturbed. The loan facility agreement is dated 21st of January 2015 between the assessee and the Indian AE ....