TaxTMI 
TaxTMI 
2017 (11) TMI 1139
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....n the facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals) erred iii upholding the disallowance of Rs. 68,53,700 made tinder Section 40(a)(i) of the Income tax Act, 1961 by the Assessing Officer out of the reimbursement of support service charges aggregating Rs. 2,02,34,000 made to KPMG. an Indian partnership firm. 2. On the facts and circumstances of the case and in law, the Commissioner of Income tax (Appeals) erred in upholding the addition made by the Assessing Officer in respect of amounts aggregating Rs. 1 7,20,344 being alleged undisclosed income from professional services appearing in Annual Information Return" ITA No. 4556/Mum/2013 1. "On the facts and circumstances of case and in law, the Ld. CIT(A) erred in holding that payment made to non-resident r-Gen Consultants Ltd., Bangladesh, of Rs. 1,30,8901- was in the nature of professional charges on which there was no liability for deducting taxes u/ s. 195 r.w.s. 1 95A of the I. T. Act, 1961." 2. "On the facts and circumstances of case and in law, the Ld. CIT(A) erred in ignoring that rendering of consultation service which required high level of technical and industrial knowledg....
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....Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). 5. Before the CIT(A), the assessee has filed elaborate written submissions to challenge each and every additions made by the AO. The assessee further contended that professional charges paid outside India are not coming under the provisions of section 195 and hence, the question of deduction of tax at source does not arise. The assessee also submitted that it is providing professional services in the areas of power sector, financial re-structuring and recovery plan for Bangladesh Power Sector Development through e-Gen Consultants Ltd, Bangladesh and such services rendered by e-Gen Consultants Ltd, Bangladesh fell under the ambit of Article 7 of the Double Taxation Avoidance Agreement (DTAA) between India and Bangladesh. Further, e-Gen Consultants Ltd, Bangladesh did not have a fixed / permanent establishment in India, the income from the services was not chargeable to tax in India, consequently there was no requirement of tax withholding from the remittances made to e-Gen Consultants Ltd, Bangladesh. As regards disallowance made by the AO towards payment of support service charges, the assessee sub....
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....wever, the only exception to the above reimbursement is the payment of rent which is specifically liable to tax at source u/s 194-I of the Act, as the rent is paid to outside parties for a rented accommodation utilized by KPMG and the group companies and as KIPL which is a group company pays part of the rent of the building for which benefit is taken by debiting it to the P&L account and hence, the payment will be liable for TDS u/s 194-I of the Act. The assessee has made the payment for use of space which is a rented accommodation; therefore, non deduction of tax on such rent payment would attract provisions of section 40(a)(i) of the Act, and accordingly, the AO was directed to give relief towards support service charges payment other than rent payment. Insofar as addition made by the AO towards undisclosed professional income on the basis of AIR database, the CIT(A) observed that during the course of appellate proceedings, the AO has submitted remand report on replies received in response to notices issued u/s 133(6) alongwith assessee's explanation with regard to the addition made on the basis of AIR information. The AO, in his remand repot has made party-wise comments on each ....
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....t cannot come under the purview of contractual payment within the meaning of section 194C or 194-I of the Act. 9. The Ld.DR, on the other hand, submitted that the assessee has paid rent for use of premises which has been paid to the landlords. Therefore, the element of lessor and lessee exists and hence, the assessee is required to deduct TDS u/s 194-I on rent payments. The Ld.DR further submitted that though payment is made to KPMG, such amount is paid on the basis of contractual obligation, therefore, the assessee ought to have deducted TDS as per the provisions of section 194-I of the Act. Since the assessee has failed to deduct tax at source, the AO has rightly made disallowance u/s 40(a)(i) and his order should be upheld. 10. We have heard both the sides and considered material on record. The AO has disallowed support service charges paid to KPMG on the ground that impugned payment is in the nature of contractual payments which attracts tax deduction u/s 194C of the Act. The assessee contends that it has entered into an agreement with KPMG, wherein it has agreed to share, office space, infrastructure and immovable assets including softwares, telephones and internet connectio....
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....ompany without deducting TDS. The rent for the whole premises was paid directly by the holding company to the Lessors and the tax was deducted as per provisions of section 194-1 of the Income-tax Act. 1961. The clause 5 of the lease deed for Delhi premises dated 22.10.2007 between CEPCO Industries Pvt. Ltd. and Mccann Erickson India Pvt. Ltd. read as following: "5. The LESSEE may use the Demised Premises or parts thereof for their commercial use as well as for the offices of its subsidiaries and associates and allied companies and for the purposes of companies / firms and business in which the Directors of the LESSEE are interested or concerned, however, any such companies / subsidiaries shall not acquire any interes t in thl Derni sed Pren J Fl ia"Tr " unt c rent, other outgoing, etc . sTi c i l l remain so e responsibilities of the LESSEE." Similarly, the Lease & Licence Agreement between National Organic Chemical Industries Limited and Mafatlal Industries Limited and Mccann Erickson India Pvt. Ltd. also provide in clause 7 (d) as under:- "d. Not to sub-let or give on leave and license basis or on any other basis the Licensed Premises or any portion thereof, nor permit a....
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....onsideration in assessee's appeal is addition sustained by CIT(A) towards undisclosed income from professional services on the basis of AIR information. The AO made addition of Rs. 105,97,352 on the basis of unreconciled entries appeared in the AIR information. According to the AO, the assessee has failed to offer any explanations with regard to certain entries appeared in AIR information. The AO further observed that the assessee not only failed to offer explanations, but also failed to reconcile the difference between AIR information and its books of account. The AO further observed that notices issued u/s 133(6) to various parties appeared in AIR information which were not answered by the parties. The assessee contends that addition cannot be made only on the basis of AIR information as the information in the AIR is only provisional which can be corrected at later stage by the parties. The assessee further submitted that it has fully account, its professional receipts and also reconciled to the extent possible the difference noticed by the AO. However, the other entries, which are unreconciled, are not received by it. Therefore, the AO was incorrect in making additions only on t....
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....of account with necessary evidence. 15. In the result, appeal filed by the assessee in ITA No. 4862/Mum/2013 is partly allowed, for statistical purpose. 16. The facts and issues involved in ITA No.4918/Mum/2013 for the assessment year 2005-06 are identical to the facts and issues discussed in ITA No.4862/Mum/2013 but for the figures. Therefore, for the detailed discussion / reasons appended in the preceding paragraphs while deciding appeal in ITA No. 4862/Mum/2013, the appeal filed by the assessee in ITA No.4918/Mum/2013 is also partly allowed, for statistical purpose. ITA Nos 4554 & 4556/Mum/2013 17. The first issue that came up for our consideration from revenues appeals is deletion of addition made by the AO towards professional charges paid outside India without deduction of tax at source u/s 195 of the Income-tax Act, 1961. The AO made disallowance u/s 40a)(i) for failure to deduct tax at source u/s 195 towards professional charges paid to non-resident, e-Gen Consultants Ltd, Bangladesh for Rs. 1,30,890. According to the AO, the payment made to e-Gen Consultants Ltd, Bangladesh is in the nature of royalty within the meaning of section 9(1)(vi) and Article 13(2) of the Ind....
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....f transportation, lodging, meals and other expenses. The Assessing Officer has given categorically finding that so far as the Article 15 of DTAJ4 is concerned, the same does not apply to KPMG USA as it does not have any PE or business based in India and the services were not rendered for a period exceeding 90 days within the period of 12 months. His only case is that the professional fees paid to KPMG USA are in the nature of royalties within the meanings of 'explanation' to section 9(1)(vi) and is taxable under Article 12 of Indo-US DTAA. The royalties and fees for included services is taxable as per Article 12 in clause 3, reads as under :- "3. The term "royalties" as used in this Article means: (a) payments of any kind received as a consideration for the use of or the right to use any copyright or a literary, artistic or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the aliena....
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.... on cost to cost basis. The AO made addition towards support service charges on the ground that the impugned payments are in the nature of contractual payments coming within the definition of 'contracts' as defined in section 194C of the Act. According to the AO, the assessee has made the impugned payments as per the support service agreement with KPMG which is basically in the nature of contract between the assessee company and KPMG. The AO relying upon the CBDT circular No.681 dated 08-03-1994 came to the conclusion that all types of contracts where carrying out any work including transport contracts, service contracts and advertisement contracts, come within the meaning of 'contract' as defined in section 194C. It is the contention of the assessee that payment made to KPMG is reimbursement of actual expenditure incurred for common facilities like communication cost, technology cost and office supplies. M/s KPMG has procured such service from various vendors on payment and allocated the cost of procurement of services to various group companies on the basis of agreement entered into with its group companies. KPMG has complied with TDS provisions wherever applicable while making p....