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Income Tax Appellate Tribunal, MUMBAI BENCHES “L”, MUMBAI
Before: Shri Joginder Singh, & Shri Ashwani Taneja
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 26/07/2016 of the Ld. Disputes Resolution Panel-1 (hereinafter DRP), Mumbai. The ground nos. 1 to 4, raised by the assessee, pertains to holding that guarantee commission, received by the assessee, amounting to Rs.30,11,660/-, was liable to tax in India and further holding that the income on account of providing corporate guarantee was taxable in India under Article-23 of the Double Taxation Avoidance Agreement (hereinafter DTAA) between India and France.
During hearing, the ld. counsel for the assessee, Shri M.M. Golvala, along with Shri Raunak Vardhan, at the outset, claimed that the impugned issue is covered in favour of the assessee by the decision of the Tribunal in the case of assessee itself for Assessment Year 2009-10 (ITA No.7198/Mum/2012), order dated 28/03/2016. It was explained that the guarantee commission did not accrue or arose in India under the Income Tax Act, 1961 (hereinafter the Act). It was contended that the income arose in France because the guarantee commission 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 does not arise in India. The ld. CIT-DR, Shri Jasbir Chouhan, though defended the impugned order but did not controvert the factual matrix/assertion of the ld. counsel for the assessee.
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee is non-resident company, having two subsidiaries, in India, namely Capgemini India Pvt. Ltd. and Capgemini business services (India) Ltd. The assessee gave a guarantee to BNP Paribas in France, whereunder some of its worldwide subsidiaries are entitled to avail of various facilities from a local BNP Paribas Branch, without the subsidiary furnishing any security. The English translation of the guarantee is available at page 19 to 27 of the application before the ld. DRP. For furnishing the said guarantee and in keeping with Transfer Pricing Regulations, the assessee raised an Arms Length Charge on its Indian affiliates. The guarantee commission charged by the assessee was at a flat rate of 0.5% on the guaranteed amount, irrespective of amount actually utilized. In the case of the Capgemini India, the guarantee amount was USD 50 million and in the case of Capgemini business services (India), the guarantee amount was USD 2 million. It is noted that vide communication 28/08/2015, before the ld. Assessing Officer, the claim of the assessee was that the guarantee commission as not liable to tax in India for the following three reasons:- i. There was no accrual of income in India either u/s 5 or U/S 9, as it was a case of one French company giving a guarantee to another French company, in France. The commission was received for giving the said guarantee. The entire operation of giving the said guarantee had been carried out in France, and no operation of activity was carried out in India. Under the provisions of Section 90(2) of the Income-tax Act, the assessee could choose to apply the provisions of the Income-tax Act, to the extent to which they were beneficial to it, and, therefore, there was no necessity to consider the Double Tax Avoidance Agreement (DTAA), between India and France. This is a legal principle approved by the Supreme Court in UOI vs. Azadi Bachao Andolan 263 ITR 706 and in CIT vs. P.V.A.L. Kulandagan Chettiar 267 ITR 654. ii. Without prejudice to the contention of the assessee that there was no income liable to tax under the Income-tax Act, 1961, it was contended, in the alternative, that the character of the income earned by the appellant was "business" income and, therefore, under the DTAA between India and France, the provisions of Article 7 were applicable. As the appellant did not have a Permanent Establishment (PE) in India, there was no liability to tax in India on the said business income. It was further contended that since Article 7 was applicable to the said guarantee commission, Article 23 was not at all applicable thereto. It was also submitted that this was further clear from the provisions of Article 23.1 itself. iii. Without prejudice to both the above contentions, it was contended as a second alternative that even under Article 23.3 the said amount was not taxable in India, as the said article could apply, only if income arises in India. In the instant case, the income arises in France because the guarantee is given by the appellant, a French company, to BNP Paribas in France and, therefore, even under Article 23.3 the said guarantee commission could not be taxed in India - it could only be taxed in France. 2.2. However, the ld. Assessing Officer, considering the explanation of the assessee was of the view that the amount of Rs.30,11,660/- was nothing but "other income", therefore, taxable under Article 23 of the India-France DTAA.
2.3. On appeal, before the ld. DRP following the directions contained in Assessment Year 2012-13 held that the income is taxable in India and the reasoning contained in the order for Assessment Year 2012-13 still not overruled by the Tribunal, meaning thereby, followed its own order for Assessment Year 2012-13. The aggrieved assessee is in further appeal before this Tribunal.
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. respective counsels, if kept in juxtaposition and analyzed, broadly, the ld. DRP has followed its own order, in the case of assessee, for Assessment Year 2012-13 on the reasons that the Tribunal has not still overrules the order of the ld. DRP and further the guarantee is normally sought at the instance of the guarantee seeker and not at the instance of guarantor. However, under the facts available before us, we find that for Assessment Year 2012-13, the Tribunal vide its order dated 13/07/2016 (ITA No.888/Mum/2016), by following the order of the Tribunal, in the case of assessee itself, for Assessment Year 2009-10 (ITA No.7198/Mum/2012) dated 28/03/2016, decided the issue in favour of the assessee. The relevant portion from the order of the Tribunal is reproduced hereunder for ready reference:-
“3. Insofar as Ground of appeal nos. 1 to 4 are concerned, they relate to a single issue arising from the action of income-tax authorities in holding that guarantee commission earned by the assessee amounting to Rs.33,40,347/- was liable to tax in India.
4. In this context, the relevant facts are that the appellant is a foreign company incorporated in France and is a tax resident of France. It is engaged in the business of providing various support, sustenance and developmental service to Capgemini Group companies across the world. During the year under consideration, assessee-company had earned royalty from two of its associate concerns in India, viz., Capgemini India Pvt. Ltd and Capgemini Business Services India Pvt. Ltd. In the return of income filed by the assessee for the assessment year under consideration it declared an income of Rs.9,52,52,240/- on account of such royalty income. In the course of assessment proceedings, the Assessing Officer noticed that assessee had received guarantee commission of Rs.33,40,347/- from the two associate Indian concerns in return for assessee having extended corporate guarantee to BNP Paribas, France for the credit facilities extended by BNP Paribas, France to the associate concerns in India. Before the Assessing Officer the plea of the assessee was that such guarantee commission was not chargeable to tax in India either under the domestic law or even in terms of Double Taxation Avoidance Agreement (DTAA) between India and France. The pertinent point made out by the assessee was that no service was rendered by the assessee, 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 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 Paribas, which credit facilities to the extent of USD 15 million4and 2 million respectively, were secured by the said corporate guarantee given by the assessee. The assessee has charged guarantee commission @ 0.5% per annum for the corporate guarantees given on behalf of its subsidiaries in India. The AO has taxed the same by holding it to be Other Income" under Article 23 of the DTAA between India and France.
4. The assessee is before us against the said addition.
We have considered rival contentions and found that the AO taxed the guarantee commission on the plea that guarantee has been provided for the purpose of raising finance by an India company. As per the AO finance was raised in India. The AO further observed that finance requirement is met by a Indian branch of the bank, the benefits of guarantee are shared by the Indian entity with the assessee by making a compensatory payment. Accordingly the AO held that fees for guarantee arise in India. From the record we found that guarantee commission received by France company did not accrue in India nor it can be deemed to be accrued in India, therefore, not taxable in India under Income Tax Act. Furthermore, as per Article 23.3, income can be taxed in India, only if it arises in India. In the instant case, the income clearly arises in France because the guarantee has been given by the assessee, a French company to BNP Paribas, a French Bank, in France and, therefore, Article 23.3 has no applicability as income does not arise in India.”
Before us, it was a common point between the parties that the facts and circumstances of the dispute in the instant year are similar to those considered by the Tribunal in Assessment Year 2009-10 (supra). It was also a common point between the parties that decision of the Tribunal dated 28.3.2016 (supra) continues to hold the field and, therefore, following the aforesaid precedent, in the instant year also the guarantee commission of Rs. 33,40,347/- earned
by the assessee from the two associate Indian concerns cannot be held to be taxable in India. As a consequence, on this aspect, the assessee succeeds.”
In the light of the foregoing order, the one of the reason that the order for Assessment Year 2012-13 of Ld. DRP has not been reversed by Tribunal, no more survives. The Tribunal in order dated 28/03/2016 for Assessment Year 2009-10 (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.
Ground Nos. 5 & 6 were argued to be consequential in nature. In the light of the foregoing discussion/decision, we hold that both these grounds are consequential in nature.
Ground no. 7 is with respect to disregarding the order of the Tribunal by the Ld. Assessing Officer/Ld. DRP in the case of assessee itself for Assessment Year 2009-10. Since, we have decided the issue in favour of the assessee itself, therefore, this ground does not survive.
Finally, the appeal of the assessee is disposed in terms indicated hereinabove.
This Order was pronounced in the open court in the presence of ld. representatives of both sides at the conclusion of the hearing on 09/01/2017