TaxTMI 
TaxTMI 
2025 (12) TMI 1706
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....ccount of providing corporate guarantee was taxable in India under Article 22 of the Double Taxation Avoidance Agreement (DTAA) between India and Japan. (iii) That the above said addition has been confirmed despite the fact that guarantee commission received by the assessee did not accrue in India nor it can be deemed to be accrued in India, therefore, not taxable in India under Income Tax Act. 3. Without prejudice to the above, the Ld. CIT(A) erred in applying tax rate at the rate of 40% on the amount of guarantee commission instead of 10% which was applied by the Ld. AO. 4. (i) On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 5,94,71,205/- made by the AO on account of Network Maintenance Service Fees. (ii) That the above said addition has been confirmed despite the fact that the said income is not taxable in the hands of the assessee. 5(i) On the facts and circumstances of the case, the learned CIT(A) has erred in confirming the addition of Rs. 20,06,892/- made by the AO on account of Interest Income. (ii) That the above said addition has been confirmed despite the fact....
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....of the loan taken by Toto India Industries Pvt. Ltd. 11. The Assessing Officer considered the amount of Rs. 1,20,95,809/- on account of guarantee fees as taxable @ 10% as interest invoking Article 11 of the DTAA. Although the AO made an addition on account of the said income treating it as taxable at 10%, however, the Assessing Officer did not grant credit of the TDS of 10% deducted by the payers. 12. Aggrieved, the assessee preferred an appeal before the CIT(A) who however, invoked Article 22(3) of the India-Japan DTAA and vide order dated 30.04.2019, held that the guarantee fees is liable to tax in the hands of the assessee as "other income" and enhanced the tax rate in respect of the income from guarantee fees from 10% to 40%. 13. Aggrieved by the order of CIT(A), the assessee is in appeal before us. Before us, the ld. counsel for the assessee submitted vehemently that in the present case, the guarantee fee falls under the business income because it is the business of the assessee to provide loans and guarantees which is reflected from the "Articles of Association" of the assessee company, enclosed at PB pg. 6-12, under clause (O) that "lending money, guarantying and as....
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....e income tax return guarantee fee as interest income taxable at 10% and the ITAT dealt with the issue whether the guarantee fees received by the assessee is interest income or not. However, in the present case, the assessee has claimed the guarantee fees as not taxable in the income return, treating it as business income under Article 7 of the India-Japan DTAA. 17. Further, the ld AR submitted that in the said case, while adjudicating the issue whether the guarantee amounts to business income or not, the ITAT has itself observed that it is not the 'interest'. Further, on appeal filed by Johnson Matthey before the Hon'ble Delhi High Court, the Hon'ble Court has explicitly left open the issue whether guarantee fees can be considered as business income or not since question of law was not framed on the said aspect. 18. The ld. counsel for the assessee further submitted that in the case of the assessee, in the preceding year, this income has been consistently taxed @ 10% as is evident from the order passed for the AY 2012-13 (PB Page 291-331 relevant page 330) and Revenue has accepted the same and has not come in appeal on this issue as is evident from Revenue's Groun....
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....ness in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. 3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Contracting State in which the permanent establishment is situated or elsewhere. 4. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary; the method of apportionment adop....
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.... itself, a political sub-division or a local authority thereof or a resident of that Contracting State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention. ARTICLE....
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....r income'. 23. We further find that the assessee's reliance on the decision of Tricentis Gmbh TMI and Ge Hydro France 2024 (11) are not apt as both the decisions did not examine the taxability of the receipts as being accrued or arisen under section 9(1)(i) through business connection. In the instant case, there explicitly exist a business connection as obliquely accepted by the assessee when it relies on the decision of Supreme Court in the case of S.A. Builders (supra) for the proposition that when a parent company provides services to its subsidiary to protect its interest, the said act in itself is construed a business activity. 24. We however note that though the assessee claims that the assessee is in the business of providing corporate/bank guarantees on a regular basis and with a profit motive, as evidenced by its Articles of Association and financial statements of providing guarantee, the issue whether Guarantee Fee income is business income in the case of the assessee has not been examined and considered both by AO and the CIT(A). Accordingly, we are of the view that this issue needs to be remitted back to the assessing officer to examine the same. In the event ....