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The Tax Publishers Vestas Wind Technology India (P.) Ltd. v. Asstt CIT [IT Appeal No. 177 (Mds.) of 2016, dt. 22-4-2016] : 2016 TaxPub(DT) 2812 (Chen-Trib) Performance warranty given by offshore parent whether interest subject to TDS *Facts:* Assessee in the business of manufacturing windmill turbine and generators had to pay guarantee charges to its Danish parent. This was performance warranty guarantee for the sale made by the Indian arm/assessee for its sales. This was read as interest and since no TDS was done disallowance was made for non-deduction of TDS. On appeal DRP upheld the same. On further appeal assessee pleaded that this was not interest as there was no indebtedness which arose or no debt was granted to the assessee. The ITAT agreed on the premise that it was not interest and as per DTAA did not require TDS. Further it queried why it cannot be taxed in the hands of the parent in India. Assessee replied that there was no Permanent establishment (PE) for the parent in India thus cannot be taxed in India. On further queried whether the warranty can be invoked in India and parent sued for the same, assessee could not come up with a categorical reason to the same. Held in favour of the assessee that the performance product warranty given by parent was not subject to TDS nor was it interest. But whether the warranty could be enforced in India is a question to be put to test, as customer in India cannot be expected to travel all the way to Denmark for invoking his performance obligations/claims. Also whether such performance warranty by parent triggers a PE need examination to this extent the case requires a remand to the DRP for consideration. In ACIT v. GMAC Financial Services India Ltd. in I.T.A. Nos.1509, 1537, 1538 & 1539/Mds/2009, dtd. 20-4-2011 an identical payment was not read as interest as per Indo-US DTAA.

The Tax Publishers

Vestas Wind Technology India (P.) Ltd. v. Asstt CIT [IT Appeal No. 177 (Mds.) of 2016, dt. 22-4-2016] : 2016 TaxPub(DT) 2812 (Chen-Trib)

Performance warranty given by offshore parent whether interest subject to TDS

Facts:

Assessee in the business of manufacturing windmill turbine and generators had to pay guarantee charges to its Danish parent. This was performance warranty guarantee for the sale made by the Indian arm/assessee for its sales. This was read as interest and since no TDS was done disallowance was made for non-deduction of TDS. On appeal DRP upheld the same. On further appeal assessee pleaded that this was not interest as there was no indebtedness which arose or no debt was granted to the assessee. The ITAT agreed on the premise that it was not interest and as per DTAA did not require TDS. Further it queried why it cannot be taxed in the hands of the parent in India. Assessee replied that there was no Permanent establishment (PE) for the parent in India thus cannot be taxed in India. On further queried whether the warranty can be invoked in India and parent sued for the same, assessee could not come up with a categorical reason to the same.

Held in favour of the assessee that the performance product warranty given by parent was not subject to TDS nor was it interest. But whether the warranty could be enforced in India is a question to be put to test, as customer in India cannot be expected to travel all the way to Denmark for invoking his performance obligations/claims. Also whether such performance warranty by parent triggers a PE need examination to this extent the case requires a remand to the DRP for consideration.

In ACIT v. GMAC Financial Services India Ltd. in I.T.A. Nos.1509, 1537, 1538 & 1539/Mds/2009, dtd. 20-4-2011 an identical payment was not read as interest as per Indo-US DTAA.