Case Law Details
Lease Plan India Pvt. Ltd Vs DCIT (ITAT Delhi)
These appeals are against disallowance made by the learned assessing officer under section 40 (a)(i) on account of non-deduction of tax at source on guarantee commission paid to lease plan Corporation NV Netherland is confirmed holding it to be payment in nature of Fees For Technical Services as well as”Interest as per the article 11 and 12 of The Double Taxation Avoidance Agreement [ DTAA] between India and Netherland.
The learned assessing officer held that tax is required to be deducted at source on the above payment under section 195 of The Income Tax Act [The Act]. In para number 3.2 while raising a show cause notice to the assessee the AO was of the view that the sums were paid by way of an expenses to a non-resident third parties who had rendered services to the assessee and those payments fall within the purview of section 9 (1) (vii) and therefore are taxable in India as “fees for technical services”. However, while disallowing ,in para number 3.11 the learned assessing officer merely referred to the fact that tax should have been deducted on the amount of reimbursement made under section 195 of the income tax act and therefore the sum is disallowable. Accordingly, he passed an assessment order under section 143 (3) of the act disallowing a sum of ₹ 1,19,88,958/– on account of guarantee charges paid to a non-resident without deduction of tax at source.
The assessee submitted that that appeal on similar issue has been filed before the tribunal for the assessment year 2006 – 07 to 2008 – 09 and therefore the matter may be kept pending till the outcome of those appeals. However, on merits, assessee submitted that appellant for the purpose of its business has obtained a corporate guarantee from an overseas company based in Netherland. The said corporate guarantee was pursuant to an agreement dated 21 March 2004 entered into with LEASE PLAN CORPORATION, which provided guarantee at the fee at the rate of 1/8 percentage per annum. During the year the appellant has made payment of Rs. 11988958/- towards fees for guarantee to the above company and such guarantee charges are not chargeable to tax in India and therefore tax was not deducted at source there from. Assessee submitted that it is not at all in the nature of “fees for technical services” as it does not involve any element of technical, consultancy or advisory services
Admittedly in this case the assessee has obtained a corporate guarantee from its Netherland based associated enterprise for a fee. There is no dispute between the parties that the above sum is chargeable to tax as per the domestic law. It is not also in dispute that the recipient of the income is entitled to invoke the provisions of Double Taxation Avoidance Agreement. Now the issue is whether the corporate guarantee fee paid by the assessee to the non-resident entity is chargeable to tax as Fees for Technical Services under Article 12 of the Double Taxation Avoidance Agreement or under article 11 of the Double Taxation Avoidance Agreement, if at all it is chargeable to tax in India. Apparently, if the above sum is not chargeable to tax in India as per the provisions of Double Taxation Avoidance Agreement, assessee is not obliged to deduct tax at source under section 195 of the income tax act and therefore there cannot be any disallowance under section 40 (a) (i) of the income tax act.
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