Performance Guarantee Commission is not Taxable as Royalty under Indo-Singapore DTAA: ITAT [Read Order]

The Kolkata bench of the UTAT has held that the performance guarantee commission received from a Singapore entity cannot be taxable as royalty under the provisions of the DTAA between India and Singapore.

The assessee, Dynamic Drilling, has challenged the disallowance of Rs.26,95,950/- in assessment year 2014-15 and Rs.28,10,930/- in assessment year 2015-16 on account of withholding tax deducted by the Singapore company on the payment of performance guarantee commission. The Assessing Officer observed that the assessee has received Performance Guarantee Commission of Rs.1,79,73,000/- from its Associated Enterprises in Singapore.

The Tribunal bench comprising Shri Amit Shukla, Judicial Member And Dr. B.R.R. Kumar, Accountant Member found that the main reason for denial of the credit by the Assessing Officer and the ld. CIT (Appeals) is that, Performance Guarantee Commission received by the assessee is a business profit in India and directly linked to the business of the appellant.

The bench observed that the appellant is not in the business of providing bank guarantee or performance guarantee as the business of the appellant is providing offshore drilling services to Exploration and production companies in India. The P&L reflects that the revenue of Rs.739.69 Crore out of total revenue of Rs.752.13 Crore is from the core activity of Service in oil sector.

“The Assessing Officer on these facts cannot change the characteristic of one time income by way of performance guarantee commission as business profit to bring it under Article 7 of the DTAA, and hold that in order to avail tax benefit the assessee must have a PE under Article 7,” the Tribunal said.

After perusing the provisions of section 12(6) of the Singapore Income Tax Act, the Tribunal observed that “Thus, in view of Singapore Taxation Laws the income in question is taxable in Singapore even if the assessee has no PE in Singapore, on account of the fact that commission of Performance Guarantee fees is deductible expenses to the entity paying in Singapore. Thus, we are unable to subscribe to the view taken by the Assessing Officer and the CIT (Appeals) and the same is rejected.”

To Read the full text of the Order CLICK HERE

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