TaxTMI 
TaxTMI 
2016 (4) TMI 953
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...., Mumbai-3 {(in short 'CIT(A)'}, order dated 03.08.2012 passed against assessment order u/s 143(3) of the Act for the Assessment Year 2007-08 on the following grounds: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,22,58,136/- u/s. 40(a)(i) being professional fees paid outside India without deduction of tax at source." 4. The brief facts are that during the year under consideration the assessee was engaged in the business of rendering taxation, business advisory, audit related services and other consultancy services. 4.1. During the course of assessment proceedings it was noted by AO that assessee had paid fee for professional services outside India without deduction of tax at source to the following parties: (i) KPMG LLP, UK (ii) KPMG LLP, USA (iii) KPMG, France (iv) KPMG LLP, Huazhen, China 4.2. During the course of assessment proceedings, assessee was asked by the AO to show cause as to why the professional fees paid outside India without deduction of tax at source should not be disallowed u/s 40(a) (i) of the Act. It was explained that payment made ou....
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....he AO also relied upon the cases of Transmission Corporation of A. P. Ltd. v CIT 239 ITR 587(SC) and CIT v Samsung Electronics Co. Ltd. [2010] 320 ITR 209 in support of his contention. 4.4. In the light of above discussion, the AO held that these entities had provided services which give enduring benefit, thus the services fall under the ambit of Article 12 /13 of respective treaty. Accordingly, he disallowed the above payments u/s 40(a)(i) of the Act. 4.5. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and contested the action of the AO in disallowing an aggregate amount of Rs. 1,28,58,618/- paid to the above said non-residents persons on the ground that TDS was not deducted u/s 195 of the Act. The assessee made detailed submissions before Ld. CIT(A) to argue that these payments were not subject to TDS provisions u/s 195 for various reasons. The assessee relied upon the various judgments in support of its detailed arguments. The assessee also submitted that similar issue in assessee's own case was decided in favour of the assessee by the Ld. CIT(A) in assessee's own case for A.Y. 2004-05. The Ld. CIT(A) considered submissions of the assessee in detail an....
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.... the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of the DTAA. In support of the above said propositions, Ld. Counsel has placed reliance on the following judgments: 1. KPMG v JCIT 33 taxmann.com 23 (Mum) 2. NQA Quality Systems Registrar Ltd. v DCIT 2 SOT 249 (Delhi) 3. Invensys Systems Inc., In re 183 Taxman 81 (AAR) 4. CIT v. De Beers India Minerals (P.) Ltd. 21 taxmann.com 214(Kar) 5. Raymond Ltd. vs DCIT 86 ITD 791 (Mum) 6. Mahindra & Mahindra Ltd. v. DCIT 122 TTJ 577 (Mum) 7. Guy Carpenter & Co. Ltd. vs ADIT 48 SOT 463(Del) 8. DDIT v. Peroy A.G. 39 SOT 187 (Mum) 9. DCIT v. Boston Consulting Group Pte. Ltd 94 ITD 31 (Mum) 10. Bharat Petroleum Corpn. Ltd. v JCIT 111 TTJ 375 (Mum) 11. Wockhardt Ltd. v ACIT 10 taxmann.com 208 (Mum (2) Independent Personal Services v. Fees for Technical Services : In case a payment falls within the scope of expression 'ind....
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....n support of this proposition, Ld. Counsel has relied upon following judgment: 1. Maharashtra State Electricity Board v. DCIT 90 ITD 793 2. NQA Quality Systems Registrar Ltd. v. DCIT 2SOT 249 3. IMP Power Ltd. v. ITO 9 SOT 156 (3) No disallowance under section 40(a)(i) when law is amended with retrospective effect: The law, as it stood during the relevant assessment year, required that services be rendered in India as well as utilized in India for the taxability under section 9(1)(vii). The requirement of 'rendering of services' in India was done away with by the insertion of an Explanation by the Finance Act, 2010, with retrospective effect. The effect however, as far as withholding of tax liability is concerned, depends on the law as it existed at the point of time when payments were made from which taxes ought to have been withheld. A retrospective amendment in law might change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. Since the subject services were rendered outside India, the same were not subjected to withholding tax o....
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....ese payments cannot be considered as fee for technical services as per its definition given in respective treaty. 4.9. It is further noted by us that these payments fall within the definition of independent person service as provided in respective DTAAs, mostly in Article 15, under which, the payment in the hands of a payee can be taxed in India only if provider of the services stays in India for a period aggregating to 90 days or more during the relevant financial year or if the said person has a PE (Permanent Establishment) or fixed basis regularly available to him in India for performing such activities. It is noted from the facts of this case that no such case has been made by the AO. Admittedly there is no PE in India of the payee and services have been rendered outside India. Thus, in absence of any PE etc, and payment being in the nature of independent person services, the same would be clearly outside the scope of taxation in India. Thus, viewed from this angle also, TDS was not required to be deducted at source. 4.10. It is further noted by us that the law as it stood in the year before us i.e. A.Y. 2007-08, provided a mandatory condition that services should be rend....
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....and has to be part of a business or profession carried on by such person in India. In the above judgment, the apex Court observed that (p. 444) : 'Sec. 9(1)(vii) of the Act must be read with s. 5 thereof, which takes within its purview the territorial nexus on the basis whereof tax is required to be levied, namely, (a) resident; and (b) receipt of accrual of income'. According to the apex Court, the global income of a resident although is subjected to tax, the global income of a non-resident may not be. The answer to the question would depend upon the nature of the contract and the provisions of the DTAA. What is relevant is receipt or accrual of income, as would be evident from a plain reading of s. 5(2) of the Act subject to the compliance with 90 days rule.' As per the above judgment of the apex Court, the interpretation with reference to the nexus to tax territories also assumes significance. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle. An endeavor should, thus, be made to construe the taxability of a nonresident in respect of income derived by it. Having regard to the internationally acc....
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.... thus: ......(this legal position) does no longer hold good in view of retrospective amendment w.e.f. 1st June, 1976 in s. 9 brought out by the Finance Act, 2010. Under the amended Explanation to s. 9(1), as it exists on the statute now, it is specifically stated that the income of the non-resident shall be deemed to accrue or arise in India under cl. (v) or cl. (vi) or cl. (vii) of s. 9(1), and shall be included in his total income, whether or not (a) the nonresident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. It is thus no longer necessary that, in order to attract taxability in India, the services must also be rendered in India. As the law stands now, utilization of these services in India is enough to attract its taxability in India. To that effect, recent amendment in the statute has virtually negated the judicial precedents supporting the proposition that rendition of services in India is a sine qua non for its taxability in India. 8. It is thus clear that till 8th May 2010, the prevailing legal position was that unless the technical services were rendered in India, the fees fo....
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....holding liabilities from foreign remittances for fees for technical services unless such services were rendered in India, and a fortiori no disallowance can be made under section 40(a)(i) for assessee's failure to deduct tax at source from such payments. 9. In the case before us, there is no material whatsoever to demonstrate and establish that the design and development services, for which impugned payments were made, were rendered in India. Therefore, the assessee did not have any liability under section 195 r.w.s. 9(1)(vii) to deduct tax at source from these payments. Once we come to the conclusion that the assessee did not have any obligation to deduct tax at source from these payments, in the light of the above discussions and as corollary thereto, no disallowance can be made in respect of these payments. As we have come to these conclusions in the light of the provisions of the domestic law, i.e. Income Tax Act, itself, there is no need to deal with the taxability of incomes embedded in these payments under the provisions of the applicable tax treaties. That would be relevant with respect to taxability of these payments in the hands of the recipients, but, for the re....
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...., skill, know-how or process. The provisions of Indo-U.S. and U.K. treaties are absolutely clear that in case of fees for technical services, it is essential that technical knowledge, skill, know-how should be made available to the assessee and the assessee should be at liberty to use them in its own right. If the service does not result in making available of any such thing, then the same would not fall within the ambit of fees for technical service. These payments also cannot be taxed under Article 7 as none of them were having any P.E. or fixed base in India and the duration of their visit in India was also for a very less period. Therefore, such a payment does not attract the provisions of TDS under section 195. Provision of section 195(1) uses the expression "chargeable under the provisions of the Act". The payer is bound to deduct tax at source only if the sum paid is assessable to tax in India. The obligation to deduct tax is limited to the appropriate proportion of income which is chargeable under the Act and not otherwise. Reliance was placed upon the judgment of Hon'ble Supreme Court, in G.E. India Technology Centre (P.) Ltd vs CIT 327 ITR 456, wherein similar observation....
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....tion of 'fee for technical services' has been provided, wherein it has been clearly stated that provisions of services should be provided in India, and since services have been provided outside India, therefore, these services would not fall in the definition of FTS and accordingly these would not fall in Article 12, and therefore Ld. CIT(A) erred in holding that TDS was required to deducted on the remittances made to KPMG-China. 6.4. We have considered the submissions of the assessee and find that we have discussed this issue already in detail while disposing the appeal of the Revenue as discussed above, in detail. The legislature cannot expect an assessee to do impossible. In our considered opinion, no law can create an obligation to deduct tax at source by retrospective operation. Thus, in our considered view, the assessee was not required to deduct tax at source on the said payment. It is further noted by us that KPMG Huazhen is an entity registered in China and it is resident of China as is understood in Indo-China tax Treaty. The admitted facts on record are that services were rendered in China in relation to the review of information securities services and assistance in ....
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....etails and evidences before deciding this issue and shall give adequate opportunity of hearing to the assessee. 7.2. We shall like to further clarify that no addition can be made by the AO merely on the basis of information gathered on the basis of Annual Information Return. The AIR can be at best, the basis to initiate the inquiry by the AO. But it cannot be taken as conclusive evidence to make addition in the hands of the assessee. Thus, with these directions, this issue is sent back to the file of the AO. As a result, ground no.2 as may be treated as allowed for statistical purposes. 8. Ground No.3: In this ground the assessee has made request for directing the AO to grant credit of Rs. 15,05,849/- being the amount of taxes paid in the United Kingdom, the corresponding income whereof was offered to tax in India. 8.1. It has been submitted further that although the assessee has filed a petition u/s 154 before the AO but no relief has been granted show far. The AO has passed the order u/s 154 dated 07.02.2011 wherein the AO has accepted the claim in principle but stated that credit shall be granted after verification of relevant documents. 8.2. This kind of order is fo....
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.... disallowance with respect to all the parties except with respect payment made to KPMG Huazhen, China as was done by him in A.Y. 2008-09. Accordingly, both the parties came in appeal before the Tribunal. 11.2. It is noted by us that Ld. CIT(A) had made proper analysis of the facts and law applicable with respect to the services in question and payment made thereof by the assessee. We find it appropriate to reproduce relevant part of order of Ld. CIT(A): "2.3. I have considered the facts and perused the material on record. It is noticed that Rahman Rahman Huq, Bangladesh and KPMG Mauritius are firms of invidividuals registered in Bangladesh and Mauritius respectively. KPMG Portugal, KPMG Sweden, KPMG Netherlands, Background Bureau Inc., USA Scherzer Intl., USA, KPMG IFRG Ltd, UK and KPMG USCMG Ltd., UK are companies registered in the respective countries. The services were entirely rendered outside India. Further the services relate to assistance in audit, taxation, information technology services, conducting background checks, responses to queries related to International Financial Reporting Standards and review of documents to be filed with Securities and Exchange Comm....
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....disallowance u/s 40[a)[i) in respect of payment mode to Sidney Austin LLP, USA and KPMG [[F, USA is deleted. 2.3.2.It is also seen that the payment made to The Conference Board Inc. is towards membership fees and not towards services. The Conference Board Inc. is a global, independent business membership and research association working in the public interest. It is a nonadvocacy, not-for-profit entity holding 501 (c) (3) taxexempt status in the United States. As can be seen from the details the remittance is towards membership fees and not towards services. Thus the question of considering them as 'fees for technical services' does not arise. Therefore the disallowance u/s 40[a){i) in respect of payment mode to The Conference Board Inc. is deleted. 2.3.3. I also find that the payment made to KPMG international towards the usage charges of online database and GTPS interpreter (Transfer pricing database) for the period 01 October 2006 to 30 September 2007 is towards reimbursement of expenses and not towards services. As can be seen from the details the remittance is towards membership fees and not towards services. Thus the question of considering them as &....