POONAWALLA AVIATION PRIVATE LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The applicant, a company incorporated in India entered into an agreement dated 13.8.2008 for purchase of an aircraft from Dassault Aviation SA, a company incorporated in France. That agreement was amended on 20.8.2008 and again on 23.6.2009. On 17.3.2009, the Compagnie Francaise d' Assurance pour le Commerce Exterieur (?COFACE? hereafter) agreed to ensure the credit facility to be extended by the seller. As per amended agreement, the price payable was $ 41,000,000. Out of that amount, Dassault, the seller, agreed to provide as export credit facility a sum of $ 30,010400. Out of that amount, the credit insurance premium of $ 510400 was to be paid to COFACE towards insurance premium. The amount loaned, or in respect of which the credit facility was extended was to be repaid in six -monthly instalments commencing from 17.1.2010 and ending on 17.7.2016. The instalment inclusive of interest payable on 17.1.2010 was $ 2502140,92. Two sets of 14 promissory notes, one set each for each installment payable, covering the principal and the interest separately were executed by the applicant in favour of Dassult. On 15.12.2009 all the promissory notes were irrevocably and unconditionally assigned by Dassault to BNP Paribas, France. The present application under section 245Q(1) of the Income -tax Act, 1961 ('the Act' hereinafter) was thereafter filed by the applicant on 11.6.2010 seeking an advance ruling wanting to know whether it had any obligation to withhold tax on the interest payable on this and the succeeding installments under section 195 of the Act in view of the relevant provision contained in the Double Taxation Avoidance Convention ('DTAC') entered into by India and France. This Authority admitted the application under section 245R(2) of the Act for giving a ruling on the following questions:

(2.) WHETHER payment of interest to Dassault is taxable in view of provision of Article 12(3)(b) of the India -France Agreement for avoidance of double taxation ('treaty')?

(3.) (a) Based on the answers to question (1) above, and in view of the facts as stated in Attachment III, and also in light of the declaration provided by Dassault that it does not have a permanent establishment in India in terms of Article 5 of the Treaty (attachment IX), whether the applicant would require to deduct tax at source under section 195(2) of the Act on the payment of interest to Dassault, if yes at what rate?