2010 (10) TMI 995

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... for ready reference : " M/s KPMG is an Indian member firm of M/s KPMG International. M/s KPMG International is registered in Switzerland and has its Head Quarters in the Netherlands. It was learnt that M/s KPMG made payment of Rs. 3,57,19,148/- to M/s KPMG International, Switzerland during the year relevant to the A.Y. 2001-02 and while making the said payment, no tax was deducted at source u/s 195 of the I.T. Act. A show-cause notice was issued to M/s KPMG on 11-06-2004 requiring them to show-cause as to why the said amount was paid to non-resident entity without deducting tax at source and why proceedings u/s 201(1) and 201(1A) of the I.T. Act, 1961 not be initiated against it. In response to the said letter, a reply dated 23-06-2004 ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....o element of income chargeable to tax therein." Thus assessee submitted that Principle of Mutuality applies to its case. It was further explained that the amount remitted by it outside India was in the nature of Reimbursement of Cost to KPMG International and the same was remitted to enable the latter in discharging its functions within the terms of the Membership Agreement signed by KPMG with the KPMG International. Hence, it was claimed that no tax was liable for deduction at source because the expenses reimbursed can not be treated as income assessable to tax. Thereafter, further queries were raised vide this office letter dated 30-06- 2004, 2707-2004 and 17-11-2004. Replies dated 15-07-2004, 04-08-2004, 03-12-2004, 10-12-2004,02-0....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... contentions. He held that the assessee is an assessee in default u/s 201(1). He also levied interest u/s 201(1A). Aggrieved, the assessee carried the matter in appeal. The first appellate authority held that the payment made by the assessee to KPMG is in the nature of royalty. Thereafter at para 5.5 he held as follows : "5.5 I am not adjudicating whether M/s KPMG International is a mutual organization or not as it is not required in the present appeal and it is for the KPMG International to prove its case before it's A.O. I am of the view that the payments made (except for guarantee charges, Idemnity insurance) is towards royalty as defined in the I.T. Act and the DTAA and the appellant should have deducted the tax on those payments. Th....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....mittances received by KPMG International or not. 4. The Revenue has also filed the appeal against the order of the CIT(Appeals) on the following grounds: "a) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting fresh evidence which were not produced before the Assessing Officer in contravention of Rule 46A of the I.T. Rules. b) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the payments made on account of bank guarantee and insurance are actual reimbursement of expenses and accordingly no tax is required to be deducted on these payments. " 4. The learned counsel for the assessee Shri Arvind Sonde, contended that the CIT(Appeals) was no....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... other hand, submitted that the burden of proving as to whether M/s KPMG International is a mutual organization or not, squarely lies on the assessee and the Revenue can make in-depth investigation into the issue before coming to a conclusion. He submitted that the Revenue cannot shut of the assessee for raising a particular argument, just because the conclusions that may be drawn on this argument, will have certain ramifications in other cases. 8. On a careful consideration of the facts and circumstances of the case and a perusal of the papers on record and the orders of the authorities below as well as the case laws cited, we hold as follows : 9. The assessee has raised a legal argument that the payment made to M/s KPMG Internationa....