2023 (11) TMI 33 - AT - Income Tax

Foreign consultant payments exempt from TDS under business income article of tax treaty without permanent establishment

The Deputy Commissioner of Income tax Circle 16 (2), Mumbai Versus KPMG Assurance And consulting Services LLP

The ITAT Mumbai dismissed the Revenue's appeal regarding TDS disallowance under section 40(a)(i) for professional fees paid to foreign entities without ... TDS u/s 195 - disallowance u/s 40 (a) (i) being professional fees paid outside India without deduction of tds - CIT- A has referred to the several judicial precedent of BSR and Co LLP on identical issue wherein it has been held that no tax is required to be deducted at source on various payments to the foreign consultant because of the reason that the services do not ‘make available’ those services to the assessee - HELD THAT:- Wherever the Double Taxation Avoidance Agreement did not contain the article of Fees For Technical Services, we are of the opinion that it cannot go to the article of ‘other income’ only because of the reason that FTS article is not there in the Double Taxation Avoidance Agreement. To bring it under article “ other Income “, it has to be established first that income stream does not fall in any other article of DTAA. Undisputedly, all the recipient are in the business of the services. Therefore there income first classify under article of Business income. In absence of permanent Establishment, it cannot be taxed in source country [India]. Therefore it goes out of the residuary article of ‘Other income’. Revenue could not point out that those entities income is not business income. Revenue also could not show that why those decisions do not apply to the facts of the case of the assessee wherein the identical jurisdiction and identical services are involved. Disallowance of contribution and reimbursement of expenses paid by the assessee to KPMG International cooperative, Switzerland without deduction of tax at source - HELD THAT:- As the coordinate bench in assessee’s own case for assessment year 2001 – 02 [2017 (4) TMI 869 - ITAT MUMBAI] has already held that contribution paid by the assessee to KPMG cooperative, Switzerland is covered by Mutuality concept i.e. mutual Association on its receipts would not constitute income chargeable to tax. The learned departmental representative could not controvert the above decision of the coordinate bench in assessee’s own case, therefore disallowance for non-deduction of tax at source is correctly deleted. Revenue appeal dismissed. Issues Involved:1. Disallowance of professional fees paid outside India without deduction of tax at source.2. Disallowance of contribution and reimbursement of expenses paid to KPMG International cooperative, Switzerland without deduction of tax at source.Summary:Issue 1: Disallowance of Professional FeesThe learned assessing officer disallowed professional fees amounting to Rs. 79,915,590 paid to 21 parties outside India without tax deduction at source, arguing that these payments constituted fees for technical services (FTS) under various Double Taxation Avoidance Agreements (DTAAs). The assessee contended that the services did not 'make available' technical knowledge and thus did not fall under FTS, but rather under independent personal services or business profits, which are not taxable in India without a permanent establishment.The CIT(A) noted that the issue was covered in favor of the assessee by previous decisions, including those related to BSR and Co LLP, and deleted the disallowance. The Tribunal upheld this decision, stating that the services did not fall under the FTS article and that the payments were not taxable under the residuary article of 'other income.' Consequently, ground numbers 1-4 of the appeal were allowed in favor of the assessee.Issue 2: Disallowance of Contribution to KPMG International CooperativeThe assessee remitted Rs. 434,019,511 to KPMG International cooperative, Switzerland, without tax deduction at source, arguing that the payments were either membership contributions or reimbursements, and thus not taxable. The AO held that the payments were for the use of the KPMG name, constituting royalty under the DTAA, and disallowed the amount for non-deduction of tax.The CIT(A) referenced a previous decision in the assessee's own case for the assessment year 2001-02, which held that the relationship between KPMG and the assessee was one of mutual association, and thus, the contributions did not constitute taxable income. The Tribunal upheld this decision, dismissing ground numbers 5-6 of the appeal.Conclusion:The appeal filed by the learned assessing officer was dismissed, with the Tribunal upholding the CIT(A)'s deletion of disallowances for both the professional fees and the contributions to KPMG International cooperative. The order was pronounced on 30.10.2023.