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Tax Publishers Lease Plan India (P) Ltd. v. DCIT [ITA Nos. 6461 and 6462/Del/2015, dt. 15-6-2020] : 2020 TaxPub(DT) 2522 (Del-Trib) Disallowance due to non-deduction of TDS under section 40(a)(i) on overseas guarantee commission -- thereof *Facts* Assessee in the business of vehicle leasing, financial services and fleet management had taken loans from bankers in India based on the counter guarantee provided by an Associated Enterprise (AE) entity of Netherlands called Lease plan corporation NV. Reimbursement of guarantee charges was thus made to Netherlands; its AE without effecting TDS. This was alleged to be taxable either as interest under Article 11 and/or as Fee for technical services (FTS) under Article 12(5) of Indo-Netherlands DTAA by lower authorities. Aggrieved assessee went in higher appeal. Held in favour of the assessee that there was no obligation to do TDS. The guarantee charges did not fall in the scope of interest as they did not arise out of any indebtedness in the first place. The same cannot be classified as FTS as well as it was not a technical service - besides the Indo-Netherlands DTAA also having 'make available' clause to mandate taxing of FTS. There is no other income clause as well under Indo-Netherlands DTAA so treaty override benefit meant the guarantee commission paid could not fall in the tax ambit at all. As there was no taxability for the AE in India in the absence of a PE - Permanent Establishment no TDS obligation arose for the assessee. *Relied:* Johnson Mathey Public Limited Company v. Deputy Commissioner of Income Tax (International Taxation) New Delhi dated 6-12-2017 : (2017) 88 taxman.com 127 (Del-Trib) : 2017 TaxPub(DT) 5227 (Del-Trib). *Editorial Note:* Interest under section 2(28A) also warrants an indebtedness in it; to be called as interest. The absence of a taxing clause in DTAA will this trigger other income clause by default is a debatable point as each clause in DTAA has a scope purpose to fall in its definition to come into DTAA reading. The absence of something or a heading does not then mean it has to be other income under DTAA as what is read in the domestic law - schedular system of tax head residual head being income from other sources cannot be telescoped into DTAA. In income tax law also it is required to be defined under section 2(24) as income and then if no heads fit may fit into income from other sources if intended.

Tax Publishers

Lease Plan India (P) Ltd. v. DCIT [ITA Nos. 6461 and 6462/Del/2015, dt. 15-6-2020] : 2020 TaxPub(DT) 2522 (Del-Trib)

Disallowance due to non-deduction of TDS under section 40(a)(i) on overseas guarantee commission -- thereof

Facts

Assessee in the business of vehicle leasing, financial services and fleet management had taken loans from bankers in India based on the counter guarantee provided by an Associated Enterprise (AE) entity of Netherlands called Lease plan corporation NV. Reimbursement of guarantee charges was thus made to Netherlands; its AE without effecting TDS. This was alleged to be taxable either as interest under Article 11 and/or as Fee for technical services (FTS) under Article 12(5) of Indo-Netherlands DTAA by lower authorities. Aggrieved assessee went in higher appeal.

Held in favour of the assessee that there was no obligation to do TDS.

The guarantee charges did not fall in the scope of interest as they did not arise out of any indebtedness in the first place.

The same cannot be classified as FTS as well as it was not a technical service - besides the Indo-Netherlands DTAA also having 'make available' clause to mandate taxing of FTS.

There is no other income clause as well under Indo-Netherlands DTAA so treaty override benefit meant the guarantee commission paid could not fall in the tax ambit at all.

As there was no taxability for the AE in India in the absence of a PE - Permanent Establishment no TDS obligation arose for the assessee.

Relied: Johnson Mathey Public Limited Company v. Deputy Commissioner of Income Tax (International Taxation) New Delhi dated 6-12-2017 : (2017) 88 taxman.com 127 (Del-Trib) : 2017 TaxPub(DT) 5227 (Del-Trib).

Editorial Note: Interest under section 2(28A) also warrants an indebtedness in it; to be called as interest. The absence of a taxing clause in DTAA will this trigger other income clause by default is a debatable point as each clause in DTAA has a scope purpose to fall in its definition to come into DTAA reading. The absence of something or a heading does not then mean it has to be other income under DTAA as what is read in the domestic law - schedular system of tax head residual head being income from other sources cannot be telescoped into DTAA. In income tax law also it is required to be defined under section 2(24) as income and then if no heads fit may fit into income from other sources if intended.