Case Name : Re. Poonawalla Aviation Private Limited (AAR Delhi)
Appeal Number : A.A.R. No. 953 of 2010
Date of Judgement/Order : 05/12/2011
Related Assessment Year :
Re Poonawalla Aviation Private Limited (AAR) – Clause 7 speaks of India limiting its taxation at source on interest dealt with in Article 12 of the Convention by providing a lower rate or by providing a scope more restricted than the rate or scope provided for in the Convention, the same rate or scope shall also apply to the Convention in question. A question of lowering of rates is not involved here. What is contended is that the scope of taxation of interest has been further restricted by taking out of the purview of taxation, even loans or credits insured by Banque Francaise du Commerce Exteriur or COFACE. Going strictly by the other treaties relied on the restriction is only on taxing the interest income insured by Banque Francaise. No entity similar to COFACE is referred to in the treaties with Canada, Hungary and Ireland. It is seen that COFACE is a body incorporated under the laws of France, acting on behalf of the French State in the export credit insurance. It appears, therefore, to be a body created for extending insurance on behalf of the French State, somewhat akin to Export Import Bank of India.
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 in charge 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. Hence, on the argument on behalf of the applicant based on the Most Favoured Nation clause, we have to rule that the interest payable in the case on hand is not taxable in India.
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