TMI Blog2011 (12) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est to Dassault is taxable in view of provision of Article 12(3)(b) of the India-France Agreement for avoidance of double taxation ( treaty ). 2. Whether payment of interest to BNP (after the assignment of promissory notes by Dassault to BNP), is taxable in India in view of the provisions of Article 12(3)(b). 3. (a) Based on the answers to question (1) above, and in view of the facts as stated in Attachment III, and also in light of the declaration provided by Dassault that it does not have a permanent establishment in India in terms of Article 5 of the Treaty (attachment IX), whether the applicant would require to deduct tax at source under section 195(2) of the Act on the payment of interest to Dassault, if yes at what rate. (b) Based on the answers to question (2) above, and in view of the facts as stated in Attachment III, and also in light of the fact the interest payment by applicant is not in connection with debt that is effectively connected to a PE of BNP in India, whether the applicant would require to deduct tax at source under section 195(2) of the Act on the payment of interest to BNP, if yes at what rate. 2. According to the applicant, in view of the insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that the agreements and assignments were executed from outside India. In its further submissions, the applicant sought to controvert the position adopted by the Revenue. 5. A further submission was made by the applicant pleading that Article 12.3 (b) of the Treaty between India and France applied and even if paragraph 3(b) did not apply, the applicant was entitled to the benefit of the Most Favoured Nation clause contained in clause 7 of the protocol to India-France Convention entered into on 29.9.1992. In view of the fact that India had entered into Double Taxation Avoidance Convention with other countries after 1.9.1989, the crucial date as per the India-France protocol, even insurance of the credit extended by COFACE was sufficient to enable the applicant to claim the benefit under Article 12.3(b) of the DTAC. It is pointed out that in treaties entered into with Canada on 6.5.1997, with Hungary on 4.3.2005, and with Ireland on 26.12.2001, insurance of credit facility has also been brought within the purview of relief against taxation with India. The same position would govern the India-Franch Treaty also in view of the Most Favoured Nation Clause. So, in any event, the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to Ramanatha Aiyar s Law Lexicon, endorse is to confirm . According to the Oxford Dictionary, it is to declare one s public approval of Webster gives the meaning as to approve openly . According to the applicant, since COFACE has granted support to Dassault for the export credit facility granted to the applicant, it would be endorsement of the credit by COFACE. 7. Insurance is a contract by which one party in consideration of a premium engages to pay an agreed sum on a certain event or indemnify another against a contingent loss (see Ramanatha Aiyar). In a wider sense, a contract of insurance will come within the scope of a contract of indemnity. But a contract of insurance against loss or damage to the subject matter of the insurance would not be a contract of indemnity. Here, the insurance is extended to the creditor, not to the debtor. The contract by the insurer is to indemnify the creditor, on the basis of the insurance contract. The liability is not based on the contract between the debtor and the creditor. COFACE has not extended the insurance facility to the debtor, the applicant. So, the mere fact that COFACE has insured the credit extended by Dassault, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a resident of France. There is no material before us to show that the beneficial ownership of the credit has passed from BNP Paribas, France to an entity in the United States. We are, therefore, inclined to agree with the submission of the applicant that the Treaty between India and France would govern the transaction. 12. Giving by the Convention between India and France, we are satisfied that the mere extending of insurance cover by COFACE does not amount to extending or endorsing the loan or credit by COFACE so as to attract paragraph 3(b) (i) of Article 12 of the DTAC. 13. It is then argued that a protocol was signed by India and France on 29.9.1992 by which the benefit of the Most Favoured Nation clause has been extended to this Convention and based on it, insurance of the credit by COFACE is sufficient to exempt the interest paid in this case from taxation in India. Clause 7 of the Protocol to the Covenant is relied upon. 14. The Protocol starts by saying that at the time of signing the Convention the two parties have agreed on the provisions set out therein which were to form an integral part of the Convention. Clause 7 which is relied on reads: 7. In resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to the applicant. 16. In his introduction to Double Taxation Conventions (Third Edition), Klaus Vogel, has clarified the role of a protocol and its role in interpreting a treaty. He says, Protocols and in some cases other completing documents are frequently attached to treaties. Such documents elaborate and complete the text of a treaty, sometimes even altering the text. Legally they are a part of the treaty, and their binding force is equal to that of the principal treaty text. When applying a tax treaty, therefore, it is necessary carefully to examine these additional documents. A protocol is said to be a treaty by itself that amends or supports the existing treaty. We cannot also forget the observations of the Supreme Court in Azadi Bachao Andolan (263 ITR 706) at page 751 that An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a political level and have several considerations as their bases . So the argument of the revenue that the protocol cannot be relied on to understand the scope of taxation cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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