AAR rules that the
‘front-end fee’ payable by a customer in India, for appraisal of loan
application carried outside India, under the financing arrangement with the
Applicant (a France based Financial Institution), not ‘interest’ under Article
12 of India-France DTAA, follows Bombay HC ruling in Commonwealth Development
Corporation; Notes that in order to constitute interest under India-France
DTAA, the income must be from debt claims, observes that there was no debt
claim in existence when the ‘front-end fee’ for loan application appraisal was
payable, further notes that the payment was fixed and mandatory and neither
dependent upon nor connected with the loans advanced; Also holds payment was
not taxable as FTS under Article 13 of DTAA, absent ‘make available’ of
technical knowledge, experience, skill, know-how or processes to the borrower,
follows Delhi HC ruling in Steria (India) Limited for reading the restricted
scope of FTS into the India-France DTAA, however, holds that the fees shall be
taxable as business income if PE for applicant exists in India; With respect to
front end fees other than appraisal fee, AAR notes that those are charged only
in respect of a successful loan approval at a certain percentage of the
proposed investment, and thus have a direct nexus with the debt claim;
Likewise AAR holds that the commitment fee, cancellation fee, amendment fee and
monitoring fee are directly related to debt claim as the fees are charged after
disbursement of loan, accordingly upholds taxability as ‘interest’ on these
payments under DTAA:AAR
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