AAR : ​Rules on 'loan fee' taxability under French treaty; Debt claims existence crucial

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