TaxTMI 
TaxTMI 
2024 (11) TMI 1564
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.... framed by Ld. AO u/s. 143(3) of the Act on 22-02-2019. Previously, Ld. AO passed a draft order on 27-12-2018. The grounds raised by the assessee read as under: - 1. The Assessment Order passed by the Assessing Officer ("AO" or "the DCIT") is bad in law to the extent not able to conclude under which head of the double tax treaty "the Guarantee Fee" is taxable. 2. The Ld. CIT(Appeals)("CIT(A)") grossly erred in concluding that "availing the loan by the subsidiary" that triggers the accrual of income in India, which is against the spirit of international commentary and judicial precedence exist in this regard. 3. The Ld CIT(A) not appreciated the legal position that the taxation of the Guarantee fee is with respect ....
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.... Glass Industries Pvt Ltd Vs ACIT (257 CTR 356), 7.1. Article 22 -Other Income of the Indo-South Korea treaty, clearly specify, "l. items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Agreement shall be taxable only in that state. 8. Consequential relief of interest impact under 234B to be given. As is evident, the sole issue that arises for our consideration is taxability of guarantee fees in terms of Indo-Korea Treaty vis-à-vis the provisions of Income Tax Act. 2. The Ld. AR advanced arguments to support the case of the assessee and referred to various Articles of the Treaty. Reference has been made to various judicial decisions, the copies....
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.... were not in the nature of interest income and the same is not covered under Article-11 of the treaty. The assessee was not a party to loan agreement between the lender and Indian subsidiary. The guarantee fee was also not in the nature of business income since the assessee was predominantly engaged in manufacturing business and not in the business of providing guarantee fees to earn income on regular basis. The guarantee agreement was entered into for limited purpose of enabling the subsidiaries to avail loans and guarantee fees was consequential in nature. Therefore, the same would also not be covered under Article-7 of the treaty. 3.3 The assessee defended its stand on the ground that it routinely extended guarantee as an inevitable p....
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....tracting state i.e., Korea. The assessee also stated that this income is not taxable in India as Business income in view of Article-7 which mandate existence of a permanent establishment of non-resident company in India. In such a case, Ld. AO could not resort to other income clause as held by Hon'ble High Court of Madras in the case of Bangkok Glass Industry Co. Ltd. 4.2 However, Ld., CIT(A) observed that the situs of income was from India. This income accrued to the assessee in India and from the definition of interest u/s 2(28A), it was apparent that the guarantee fees was to be considered as interest income. Therefore, the same would be taxable in India either as business income or income from other source. However, in terms of Artic....
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....eir own commercial benefit. The payment was regular in nature. The guarantee charges were indelibly connected with the extension of services by the assessee in India for the benefit of its subsidiaries. The only parties to the agreement were the assessee and their corresponding Indian subsidiary. The obligation to pay was incurred in India and the same was in respect of services utilized in India. Accordingly, it was held that such fees accrued in India only and liable to tax consequently. 6. At the same time, in paras 20 to 22 of the decision, the Hon'ble Court, considering the term 'interest' as defined in Article-12 of India-UK DTAA, observed that guarantee charges were not received by the assessee in respect of any debt owned to it b....
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....ich the assessee is earning royalty income and fees for technical services. Therefore, extending this guarantee for the benefit of subsidiaries would be in the interest of the assessee entity. Viewed from this angle, such fees as accrued to the assessee could very well be said to be in the nature of business income which would be covered under Article-7 of the treaty which postulate taxation of such income in contracting state unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. The same is not the case here. Therefore, considering the impugned fee as business income, the same is not liable to be taxed in India as per more beneficial provisions of the treaty. 8. Last....