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2020 (6) TMI 406 - AT - Income TaxTDS u/s 195 - non-deduction of tax at source on guarantee commission paid to lease plan Corporation NV Netherland - addition u/s 40 (a)(i) - ‘Fees For Technical Services’ as well as ‘Interest’ as per the article 11 and 12 of The Double Taxation Avoidance Agreement [ DTAA] between India and Netherland - HELD THAT:- In the present case apparently, AE has not provided any capital to the appellant on which income is earned. It is a corporate guarantee , being a surety to the lender bank of the appellant that, if in a case, in future, the appellant fails to pay the due amount owed to those lenders, the Netherland Company will pay to those lenders. Thus, there was promise to reimburse the amount to those lenders on happening of an event i.e. failure of payments by the appellant of the dues owed to the lenders and lenders invoking the guarantee issued by the Netherlands company in favour of those lenders. Therefore it needs to examine whether there is any provision of capital by the Netherland Company to Indian Company appellant, answer is in negative. There should be a “debt claim and ‘form’ such claim income should arise to qualify as ‘interest’. Thus the word ‘debt claim “predicate the existence of debtor – creditor relationship [lender – borrower]. That relationship can arise only when there is a provision of capital. In view of this, we hold that guarantee fee paid by the assessee to Netherlands company, in the above facts, cannot be covered in the definition of interest as per Article 11 of The DTAA.. Whether such guarantee fee can be Fees for technical services within compass of Article 12 (5) of the DTAA? - The ld CIT (A) has held it to be a ‘Consultancy services’. In fact we are of the view that Provision of Guarantee is a service provided by the Netherlands Company to the assessee. US Court decision relied up on by the ld AR also says that provision of Guarantee is a ‘service”. But is it a consultancy service or not needs to be examined. Looking to the nature of ‘Service’ provided by the Netherlands company in providing guarantee, it is a financial service and can by no stretch of imagination is called a ‘Consultancy services. Even otherwise, it does not cross the threshold of ‘make available’ in 12 (5) (b) of the DTAA. Therefore we also hold that, provision of Guarantee fees service is not fees for Technical services under article 12 of The DTAA. AR has also said that guarantee Fees is not chargeable to tax under Article 7 in absence of any permanent establishment of the Netherlands company. We fully agree with that as the revenue has not at all invoked article 7 in this case.In view of this, we hold that assessee is not require, Orders of lower authorities are reversed and ld AO is directed to delete the disallowance for both the years. - Decided in favour of assessee.
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