2016 (7) TMI 567 - AT - Income Tax

Tribunal upholds CIT(A)'s order on professional fees tax disallowance

The Tribunal dismissed the Revenue's appeal for A.Y. 2008-09, upholding the CIT(A)'s order that deleted the disallowance under section 40(a)(i) of the ... TDS u/s 195 - professional fees paid outside India without deduction of tax at source - disallowance u/s 40(a)(i) - PE existence - Held that:- From the details on record there is no material to establish that any technical knowledge, skill, etc. have been made available to the assessee in order to establish that it falls within the purview of Article 12 of the Indo-USA DTAA. It is also an undisputed fact that such non-residents recipients do not have any permanent establishment (PE) in India. We find that the similar issue was considered and adjudicated by the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2009 and the Coordinate Bench held in favour of the assessee that such income/amounts cannot be held to be chargeable to tax in India so as to require deduction of tax at source thereon and therefore invoking of section 40(a)(i) of the Act to disallow such expenditure is not sustainable In respect of the payment made by the assessee to KPMG, Ireland for audit services, it is not in dispute that the said services have been rendered outside India and the same cannot be construed as managerial or technical services so as to be governed by Article 13 of India-Ireland DTAA as contended by Revenue. In our view, they are clearly in the nature of independent personal services coming within the purview of Article-14 of the India-Ireland DTAA and therefore in the absence of any fixed place of business of the recipient, the said payments/income is not exigible to tax in India. In this view of the matter, we are of the considered view that the assessee is not liable to deduct tax on the aforesaid payment made to the non-resident entity in Ireland for the provisions of section 40(a)(i) of the Act to be invoked With respect to the payment made by the assessee to Siddharta Siddharta and Widjaja, Indonesia for rendering of audit services the assessee is not liable to deduct tax at source on the aforesaid non-resident entity in Indonesia for the provisions of section 40(a)(i) of the Act to be evoked. We, therefore, uphold the finding of the learned CIT(A) on this issue which has not been controverted before us by the Revenue. - Decided against revenue Issues Involved:1. Disallowance under section 40(a)(i) of the Income Tax Act, 1961 for professional fees paid outside India without deduction of tax at source.Issue-wise Detailed Analysis:1. Disallowance under section 40(a)(i) of the Income Tax Act, 1961 - Rs. 78,21,340/-:Facts of the Case:The assessee, a firm of Chartered Accountants, filed its return of income for A.Y. 2008-09 declaring an income of Rs. 43,35,31,620/-. The assessment was completed under section 143(3) of the Act, determining the income at Rs. 44,95,25,400/- due to certain additions and disallowances, including Rs. 78,21,340/- on account of professional fees paid outside India without deduction of tax at source.Appeal to CIT(A):The assessee appealed against the assessment, and the CIT(A) partially allowed the appeal, deleting the disallowance under section 40(a)(i).Revenue's Appeal to ITAT:The Revenue appealed to the ITAT, challenging the deletion of the disallowance under section 40(a)(i).Tribunal's Findings:The Tribunal examined the issue of disallowance under section 40(a)(i) for payments made to non-resident entities for professional services rendered outside India. The key points considered were:i. Payments to KPMG LLP, USA and Nihal Dalvi, USA:- The services rendered were related to taxation and audit, performed outside India.- The Revenue contended these services were 'fees for technical services' (FTS) and required tax deduction at source under Article 12 of the Indo-USA DTAA.- The Tribunal found no evidence that technical knowledge or skill was made available to the assessee, and the non-residents had no permanent establishment (PE) in India.- The Tribunal relied on a previous decision in the assessee's case for A.Y. 2009-10, where similar payments were held not chargeable to tax in India, thus not requiring tax deduction at source.ii. Payments to KPMG LLP, UK, Nelsons Solicitors, UK, and KPMG IFRG Ltd., UK:- These entities also had no PE in India.- The CIT(A) observed these payments fell under Article 15 of the Indo-UK DTAA for independent personal services, not chargeable to tax in India.- The Tribunal upheld the CIT(A)'s findings, referencing the previous decision for A.Y. 2009-10.iii. Payment to KPMG, Ireland:- The services were audit-related, rendered outside India.- The Tribunal found these services fell under Article 14 of the India-Ireland DTAA for independent personal services, not chargeable to tax in India.- The Tribunal upheld the CIT(A)'s deletion of the disallowance.iv. Payment to Siddharta Siddharta & Widjaja, Indonesia:- The services were audit-related, and the India-Indonesia DTAA did not define FTS.- The Tribunal agreed with the CIT(A) that these payments fell under Article 14 for independent personal services, not chargeable to tax in India.Additional Consideration:- Even if the services were considered FTS under section 9(1)(vii) of the Act, the Tribunal noted that the retrospective amendment by the Finance Act, 2010, would not impose a requirement to deduct tax at source on payments made before the amendment.- The Tribunal referenced the decision in Channel Guide India Ltd. vs. ACIT, supporting the view that retrospective amendments should not create an impossible situation for the payer.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s order deleting the disallowance under section 40(a)(i).General Grounds:Grounds No. 2 and 3 were general and did not require adjudication.Final Order:The Revenue's appeal for A.Y. 2008-09 was dismissed, and the order was pronounced on 8th July 2016.