AKA Ausfuhrkredit-Gesellschaft MBH Vs DCIT (ITAT Delhi)
Assessee, a German financial institution, received ₹87.34 lakh from Filatex India Ltd. as management/processing fee in connection with a loan guaranteed by Harmes Deckung Germany under a tied buyers’ credit scheme. AO treated this as Fees for Technical Services (FTS) u/s 9(1)(vii) & Article 12(4) of the India–Germany DTAA, taxable @10%, & DRP confirmed the addition relying on earlier departmental stance.
Before ITAT, Assessee argued that identical payment for A.Y. 2016-17 was already held by ITAT to be interest under Section 2(28A) & exempt u/s Article 11(3)(b) of the DTAA since it was integral to loan financing, not technical service.
ITAT noted that facts were identical to A.Y. 2016-17, & the earlier order clearly held that such management/processing fees are “service charges in respect of money borrowed”, hence part of interest. Following that precedent, Tribunal deleted the entire addition of ₹87.34 lakh, holding that the income was not FTS but interest exempt in India.
Interest u/s 234A/234B was directed to be recomputed per law; fee u/s 234F to be verified; penalty u/s 270A held premature.
Held: Processing/management fee linked to loan qualifies as “interest” under Section 2(28A) & Article 11(3)(b) of DTAA; not taxable as FTS; appeal partly allowed.
