TaxTMI 
TaxTMI 
2025 (7) TMI 958
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....me KIA India Private Limited. The subsidiary company was provided a corporate guarantee by the assessee, being the holding company, in order to obtain a loan from the bank. The assessee was given a guarantee fee by the subsidiary company on account of guarantee provided by it, which was not offered by the assessee to tax in the return of income filed by it. On questioning by the AO, the assessee responded that the impugned income by way of guarantee fees falls under the head "Other Income" as per Article 22 of the India-Korea Double Taxation Avoidance Agreement (DTAA). As per such article, the income in the form of guarantee fees is taxable in the state of the contracting state, being Korea in the present case. 4. However, the AO was not satisfied with the contention of the assessee on the reasoning that the guarantee fee was given by the subsidiary company to the assessee in connection with the loan availed by the subsidiary company, which was utilized in India, and therefore, the impugned guarantee fee is accruing/arising in India in terms of the provisions of section 5(2) and 9(1)(i) of the Act. Similarly, the AO also held that the provisions of Article 22 of the treaty betwe....
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....tes business profits or interest income. As such the AO has admitted the possession discussed immediately above. 9.3 Accordingly, the residual clause of Article 22 squarely applies. Since the assessee is a resident of South Korea and the income in question does not fall under any specific Article dealt with earlier in the treaty, it shall be taxable only in Korea as per Article 22 of the treaty. 9.4 This interpretation is fortified by the decision of the ITAT in the case of Daechang Seat Co. Ltd. Vs DCIT reported at 152 Taxmann.com 163 (Para 17), where it was held: 17. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee is a foreign company incorporated in Korea which is engaged in the manufacture of automobile and auto parts. During financial year 2014-15 relevant to assessment year 2015-16, the assessee entered into guarantee agreement with its subsidiaries DISPL and KMSIPL to provide guarantees to foreign banks namely Standard Chartered Bank to provide loan to above subsidiary companies. Pursuant to guarantee agreements, the assessee received a sum of Rs. 5,22,88,362/- from its subsidiaries after deducti....
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....ra relates to Indo-UK Treaties and this has been distinguished by Co-ordinate Bench of ITAT, Mumbai in the case of Draegerwerk AG & Co. KGAA (supra), wherein while dealing with Indo-German Treaty it has clearly distinguished the decision cited by ld. CIT-DR. We noted that this issue has been considered by Co-ordinate Bench of Mumbai in the case of Capgemini SA v. DCIT (International Taxation) in [IT Appeal No. 6323 (Mum) of 2016, dated 9-1-2017], wherein the Tribunal considering another decision of the same assessee for Capgemini SA v. Dy. CIT (International Taxation) [2016] 72 taxmann.com 58/160 ITD 13 (Mum.) AY 2012-13, in [ITA No. 888/MUM/2016, order dated 13-7-2016] and further following AY 2009-10 in Capgemini SA (supra) held that the guarantee commission received by French Company in that case neither accrued in India nor deemed to be accrued in India and therefore, not taxable in India under the Act. For this, the Tribunal observed in para 2.4 as under:- "2.4 If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. representative cou....
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....ee, much less a professional/Technical service, and in any case, no service can be said to have been rendered in India. The plea of the assessee did not find favour even with the DRP and accordingly, the Assessing Officer held the guarantee commission of Rs. 33,40,347/- as taxable. 5. At the time of hearing, the learned representative for the assessee pointed out that an identical controversy was considered by the Mumbai Bench of the Tribunal in the assessee's own case for Assessment Year 2009-10 vide ITA No. 7198/Mum/2012 dated 28-3-2016. The relevant discussion in the order of the Tribunal dated 28-3-2016 (supra) reads as under :- "3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is a resident of France and does not have a permanent establishment in India. During the year assessee has given a corporate guarantee BNP Paribas, a French Bank in France, on behalf of its various subsidiaries worldwide. During the year under consideration, in India, two subsidiaries of the assessee M/s. Capgemini India Pvt. Ltd. and Capgemini Business Services (India) Ltd. were sanctioned credit facilities by the Indian Branches of BNP ....
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.... (ITA No. 7198/Mum/2012) found that guarantee commission, received by France Company neither accrued in India nor deemed to be accrued in India, therefore, not taxable in India under the Income-tax Act. Furthermore, as per Article-23.3, income can be taxed in India only if arises in India and since, in the instant case, the income arose in France, as the guarantee was given by the assessee, a French company to BNP Paribas, a French Bank, in France, therefore, Article-23.3 has no applicability as income arose out of India. Respectfully, following the decisions of the Tribunal, these grounds of the assessee are allowed." 17.1 In view of the above and following Article 23 of Indo-Korea DTAA which specifically provides that taxability of 'other income' is only in the contracting state and in the present case, the contracting state is Korea and not India, hence taxability under the Income-tax Act is not at all desirable. Hence, we delete the addition and allow this appeal of assessee on this very issue. The appeal of the assessee is allowed. 9.5 The situation in the present case is analogous and warrants similar treatment as discussed above. Moving further, we note t....