TMI Blog2023 (1) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... final assessment order had held that objections raised by the assessee before the ld. DRP were rejected and accordingly, added the transfer pricing adjustment made on account of guarantee commission - This action of the ld. AO is merely erroneous in view of the fact that against the categorical finding of ld. DRP on objections 6-7, which were allowed in favour of the assessee, the Revenue had not preferred any appeal before us. Hence, in view of the aforesaid observations we have no hesitation in directing the ld. AO to delete the transfer pricing adjustment made on account of guarantee commission income - Accordingly, the grounds raised by the assessee are allowed. - ITA No.547/Mum/2022 - - - Dated:- 9-11-2022 - Shri M.Balaganesh, Accountant Member And Smt Kavitha Rajagopal, Judicial Member For the Assessee : Shri M.P. Lohia For the Revenue : Shri Raghuveer M ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.547/Mum/2022 for A.Y.2017-18 preferred by the order against the final assessment order passed by the Assessing Officer dated 25/01/2022 u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, hereinafter referred to as Act, pursuant to the directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to tax in India, the transfer pricing provisions being machinery provisions, would not apply. 6.Erred in not considering the rectification application of the Appellant by considering disallowance/ addition of notional income arising from commission on provision of corporate guarantee is not taxable in India, and thereby the transfer pricing provisions being machinery provisions, would not apply. 7. Without prejudice to the above, erred in affirming the draft order holding that the notional income added on account of corporate guarantee commission is taxable in India under Article 21 (Other Income) of the India-Germany DTAA without considering the DRP directions which has held that as per the said Article. the right to tax such a transaction would vest with Germany: Levy of interest and penalty 8. Erred in levying interest of INR 29,58,580 under Section 234B of the Act; 9. Erred in initiating penalty proceedings under Section 274 read with Section 270A of the Act. The Appellant craves leave to add, delete, alter, vary, omit, substitute or amend any of the above grounds at any some before or during hearing before the Hon'ble Tribunal to decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d case the relevant treaty was the India-UK DTAA which is not identical to the India-Germany DTAA applicable in the present case; Objection No. 8: Failed to appreciate that in absence of any income chargeable to tax in India, the transfer pricing provisions being machinery provisions, would not apply: 3.3. The assessee submitted that during the year under consideration, it had not incurred any cost expenses for providing the corporate guarantee and hence had not charged its AE for the same. A copy of the guarantee letter submitted by the assessee to HSBC Bank was filed before the ld. TPO. The ld. TPO considered the corporate guarantee provided by the assessee on behalf of its AE as an international transaction under Section 92B of the Act. Further, the ld.TPO concluded that since the underlying loan transaction (for which guarantee was issued) took place in India, the guarantee commission income would be said to accrue in India and therefore, included in the assessee's total income. The assessee submitted that the corporate guarantee was provided by it on behalf of its AE on account of business reasons to augment the group's worldwide business. It was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. TPO in its order has stated that none of the Articles of the India- Germany DTAA deal with guarantee commission. Accordingly, the ld.TPO concluded that the transaction of guarantee commission would be covered under the residuary Article which deals with Other Income ie, Article 21 of the India-Germany DTAA. It was submitted before the ld. DRP that as per Article 21 on Other Income of the India-Germany DTAA , any income covered under the said Article shall be taxable only in the resident state of the taxpayer i.e, Germany in the present case. The only exception provided for this is in Para 2 and Para 3 of Article 21 which are not applicable in the instant case. 3.6. We further find that the ld. TPO relied on the decision of the Delhi Tribunal in case of Johnson Matthey Public Limited Company ([2017] 88 taxmann.com 127) to support its conclusion that guarantee commission would be taxable in India under Article 21 of the India-Germany DTAA. In this regard, it is submitted that the aforementioned case of Johnson Matthey Public Limited Company is completely different on facts, as the relevant treaty in that case was the India-UK DTAA. The court in that case held that guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrues the guarantee commission to the assessee took place in India, the income to the assessee accrues in India. 9.2 In view of above, the Panel is of considered opinion that income from providing corporate guarantee accrues in India and falls within the scope of section 5(2) of the Income Tax Act. 9.3 However, the Panel is also conscious of the fact that the assessee is a tax resident of Germany and DTAA has been signed between India and Germany. So, it has to be examined what are the provisions in India-Germany DTAA in this regard. The TPO in point 5 at page 7 of his order has concluded that such income would chargeable to tax as Other Income under Article 21 of India-Germany DTAA. 9.4 Article 21 of India-Germany DTAA reads as under: ARTICLE 21 OTHER INCOME 1. Items of Income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Agreement shall be taxable only in that State. 2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated the therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 15 of this Convention, as the case may be, shall apply. 3. Notwithstanding the provisions of paragraphs 1 and 2 of this Article, items of income of a resident of a Contracting State not dealt with in the foregoing articles of this Convention, and arising in the other Contracting State may be taxed in that other State. (emphasis added) 9.7 Thus it is clear that under para 3 of Article 23 of India UK DTAA. Income of the kind of corporate guarantee charges which are to be treated as Other Income of a resident of a Contracting State (UK) arising in the other Contracting State (India) may be taxed in that other State (India). This is opposite of the situation under India Germany DTAA, as noted under para 9.5 above, 9.8 In view of the above discussion, the Panel holds the view that although there arises an income on account ..... X X X X Extracts X X X X X X X X Extracts X X X X
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