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2011 (12) TMI 30 - AAR - Income TaxDouble Tax Avoidance Convention- deduction of tds on the interest payable on installments of promissory notes due under export credit facility – ‘COFACE agreed to ensure the credit facility to be extended by the seller -Dassault Aviation SA (seller) endorsing instruments irrevocably and unconditionally to BNP Paribas- interest payment by applicant is not in connection with debt that is effectively connected to a PE of BNP in India-Held that:- Clause (b) of paragraph 3 of the India France Convention exempts interest income from tax in the State in which it arises in respect of France, if the loan and credits extended or endorsed by Banque Francaise due Commerce Exteriur or COFACE and any institution in change of the public financing of external trade and in respect of India, if it is extended or endorsed by Export Import Bank of India or any institution incharge of the public financing of external trade. In the Convention with Canada, interest arising in India paid to a resident of Canada is taxable only in Canada if it is paid in respect of a loan extended, guaranteed or insured by the Export Development Corporation and interest arising in Canada and paid to a resident of India is taxable only in India if the credit is extended, guaranteed or insured by the Export Import Bank of India. If the coverage or protection is understood as extended to loan or credit insured by one of the institutions referred to in the Convention between India and France in the context of the provisions noticed above, it has to be held that a loan or credit insured by COFACE would also come within the purview of Article 12.3(b) of the India-France Convention. Even though payment were made into the account of BNP Paribas, France in its New York account, still India-France convention will have application & not the treaty between India and USA since BNP Paribas in France continues to be the beneficial owner of the installments of loan and the interest. Thereby in view of the Article 12.3 (b) of the DTAC between India and France as modified by the Most Favoured Nation protocol , the interest payable to Dassault or BNP PARIBAS on endorsement of the promissory notes in its favour is not taxable in India. Consequently, there will be no obligation on the applicant to withhold tax on the interest paid to Dassault or to BNP PARIBAS on the transaction.
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