TaxTMI 
TaxTMI 
2020 (2) TMI 1368
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....ounts payable as foreign associate fees. 2. That the Ld. CIT(A) has erred in not considering the fact that though the services were performed outside India, they were essentially for the assessee's business/profession carried out in India; these payments made to the foreign associates who are non-residents in the form of professional fees resulted in accrual of income of the foreign associates concerned in India within the meaning of Section 9(1)(vii)(b) of the Income Tax Act'1961 and the assessee was statutorily required to deduct tax at source u/s 195(1). 3. That the Ld. CIT(A) had wrongly opined that the services rendered by the assessee are in nature of legal and professional services and they are not covered by provisions of section 9(1)(vii)(b) explanation (2), therefore, no TDS was deductible on such foreign remittance and therefore, disallowance under section -; 40(a)(3) is not justified. 4. That the Ld. CIT(A) has erred according relief to the assessee despite the fact that the procedural activities relating to the business activity of the assessee i.e. grant of patent, trademark and design in abroad are highly technical works which requires. special skills a....
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....O however did not agree with the submissions of the assessee because in his opinion the payments made to foreign attorneys squarely fell within the definition of fees for technical services, defined in Section 9(1)(vii)(b) read with Explanation 2 of the Act. The AO noted that the assessee was engaged by his clients for rendering services in the field of Intellectual Property Rights ('IPRs') both in India and abroad. In relation thereto, the assessee had obtained technical information or consultancy services from foreign attorneys. The AO observed that although the services were rendered by the foreign attorneys outside India but the services were essentially connected with the assessee's profession carried on by him in India and therefore these payments were chargeable to tax in India by way of fees for technical services within the meaning of Section 9(1)(vii)(b) of the Act. Since the assessee had failed to deduct the tax at source on such payments u/s 195 of the Act, the AO invoked the provisions of Section 40(a)(i) of the Act and disallowed the aggregate foreign associate fees of Rs. 8,28,66,038/- and added it to the total income of the assessee. Aggrieved by the order of the AO....
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....ries Ltd Vs ITO (supra). He thus submitted that the certificate issued by the ADIT(IT), Circle 2(1) Kolkata permitting the assessee to remit such fees without deduction of tax at source was unjustified on facts and in law. The Ld. CIT, DR further argued that the certificate issued u/s 195 was not binding upon the appellate authorities for the reason that the complete facts and the sequence of events as it actually took place subsequently was not known to the officer. To buttress his contention, he referred to the contents of the application u/s 195 filed by the assessee before the AO wherein the assessee had wrongly claimed that the nature of relationship between him and the foreign attorney was akin to an airline ticketing agent and the airline. He pointed out that there was no privity of contract between the foreign attorney and the assessee's clients. Moreover the payments made to foreign attorney were claimed by the assessee as his own expenditure in his Profit & Loss Account as well as the return of income. The Ld. CIT, DR thus argued that the facts as explained by the assessee before the lower authorities being factually wrong and the claim of the assessee that the payments m....
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....x u/s 195 therefrom. 6. The Ld. AR further submitted that the services rendered by the foreign attorneys did not qualify as "fees of technical services" as defined in Section 9(1)(vii) of the Act. According to him the nature of services rendered by the foreign attorneys was neither 'technical' nor 'managerial' nor 'consultancy'. According to him, the term 'consultancy' meant to render or provide advice in a specialized field. In the facts of the present case however the foreign attorneys did not provide any professional advice to clients but executed the tasks as assigned by the assessee on behalf of his clients. According to him such services were clerical and executionary in nature and did not involve any consulting by the foreign attorneys. He further submitted that even the correspondence with the foreign attorneys involved clarifications of his queries for registering the IPRs and did not involve issuance of any professional or legal advice to the clients. Alternatively the Ld. AR submitted that even if it is presumed that the services rendered by the foreign attorneys qualified as "fees of technical services" as defined in Section 9(1)(vii) of the Act but such services fell ....
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....tenable on facts and in law and that the Ld. CIT(A) had rightly deleted the disallowance made u/s 40(a)(i) of the Act. 10. We have heard the rival submissions & perused the written Notes on Arguments furnished by both the parties. We have also carefully gone through the judicial decisions on which reliance was placed by the parties in support of their respective pleadings. We have also examined the orders of the coordinate bench of this Tribunal in assessee's own case for the earlier years in which similar issue was decided in his favour. Having considered these documents, we shall now deal with respective contentions put forth by the parties. 11. In the present case the assessee is a Patent Attorney who renders legal services in his capacity as an Advocate in India. The assessee has a wide client base which inter alia includes multi-national corporations as well as reputed corporate houses of the country. The clients of the assessee hold valuable IPRs which need registrations with the Patent or IP authorities so that IPRs are protected from unauthorized use by others. Since the clients of the assessee have markets beyond the boundaries of India, they seek assessee's assistance f....
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....ngs. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 14. On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter-and if there was no change it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken." (emphasis supplied) 13. On examination of the provisions of Section 9(1)(vii) of the Act read with Explanation to Section 9(2) which was substituted by the Finance Act, 2010, we note that prior to the amendment in order to attract the rigors of Section 195 requiring tax deduction at source from 'fees for technical services', it was necessary for the Revenue to show that the technical servi....
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....ayable in India to a non-resident, shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession" on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted. Accordingly, the assessee cannot be faulted for not deducting TDS and consequently, the deletion of disallowance by CIT(A) is confirmed. This common issue of all the three appeals of revenue is dismissed." 14. From the foregoing findings of the Tribunal, it is quite evident that the Tribunal had upheld the assessee's claim for non-deduction of tax at source having regard to the preamended provisions of Section 9(1)(vii) read with Section 9(2) of the Act even after taking note of the fact that amendment of 2010 was made retrospectively. In the said decision there was explicit admission that the decision was rendered because of provisions of law during pre-amended era and therefore the same would not hold good once the amended provisions of law came in force and the amended provisions of Section 9(1)(vii) were applicable during the year before us. As rightly pointed out by the Ld. CIT, DR, the amended provisions were brought in the statute ....
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.... be registered. As such, having knowledge, experience and expertise in the specialized field of IP laws is an essential pre-requisite for rendering the services. In fact practicing IP laws is one of the specialized branch of legal practice and only few attorneys are well versed with the intricacies of the IP laws as also with regulations and technicalities of the procedures governing registrations to such rights. The bone of contention however in the present case is whether the services rendered were in the nature of 'consultancy'. It was vehemently argued by the Ld. AR that the services rendered by the foreign attorneys were not even 'consultancy' in nature but purely clerical or executionary in nature and therefore did not come within the ambit of Section 9(1)(vii) of the Act. On the other hand, it was the Ld. CIT, DR's contention that having regard to the nature of services, the foreign attorney did render not only 'consultancy' services but also involved a technical element which enabled the assessee and his clients to comply with the IP laws of the relevant country and obtain IPR registrations in conformity with the relevant rules and regulations of that country. But for provi....
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....nt attorneys that the assessee and/or his clients were able to prepare technically intricate documentation, necessary for filing Patents and other IP rights applications in the foreign countries in compliance with their respective IP laws. The foreign attorneys not only advised the assessee in preparing the documentation necessary for submission of applications but also represented the applicants before the Patent/IP authorities and provided clarifications and explanations necessary for grant of registration. We therefore note that on the given facts of the case, but for the consultancy or advisory services rendered by foreign attorneys, the assessee or his clients would not have been able to obtain the Patents or IP registrations in the foreign countries. 18. We also find it relevant to hold that the Ld. CIT, DR rightly relied on the judgment of the Hon'ble Supreme Court in the case of GVK Industries Ltd Vs ITO (supra), wherein meaning of the term 'consultancy service' for the purposes of Section 9(1)(vii) after its amendment in 2010 was explained by the Hon'ble Supreme Court. In the said judgment the Hon'ble Court observed as follows:- "34. In the case at hand, we are concerne....
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.... It had the skill, acumen and knowledge in the specialized field i.e. preparation of a scheme for required finances and to tie-up required loans. The nature of activities undertaken by the NRC has earlier been referred to by us. The nature of service referred by the NRC, can be said with certainty would come within the ambit and sweep of the term 'consultancy service' and, therefore, it has been rightly held that the tax at source should have been deducted as the amount paid as fee could be taxable under the head 'fee for technical service'. Once the tax is payable/paid the grant of 'No Objection Certificate' was not legally permissible. Ergo, the judgment and order passed by the High Court are absolutely impregnable." 19. Applying the ratio laid down in the judgment (supra), we are of the view that the services which the foreign attorneys rendered to the assessee squarely came within the ambit of Section 9(1)(vii) of the Act. In his rebuttal, the ld. AR sought to distinguish the judgment of the Hon'ble Supreme Court stating that the facts of the assessee's case were distinguishable because unlike in the case before the Hon'ble Apex Court, the non-resident ....
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....d on that ground the payment made were in the nature of pure reimbursement. In support of this averment the Ld. AR referred to the Pages 499 to 1121 of Paperbook - 3 & 4, which contained appointment letters issued by the clients to the assessee, assessee's letters of engagement issued to the foreign associates, correspondences between the assessee and his clients as also between the assessee and the foreign associates. The assessee also furnished copies of the invoices raised by him on his clients in India as also the copies of the invoices which the assessee received from foreign associates, copies of the payment instructions etc. On scrutiny of the documents furnished it however appeared that there was no tangible material available in these documents which substantiated the Ld. AR's contention that the payments which the assessee made to the foreign associates was in the nature of pure reimbursement. In fact it appeared that most of the documents furnished in the paper book did not pertain to the transactions of the relevant year. In view of these facts, the assessee's case was re-fixed for clarification on 07.02.2020 and the assessee was specifically requested to furnish docume....
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....work was performed in the relevant year and therefore there may not be any direct evidence of appointment which is dated in the period 01.04.2010 to 31.3.2011. In light of the foregoing therefore to ascertain the nature of relationship between the parties, we may refer to the letter of appointment issued by M/s ITC Limited to the assessee (Page 525 of paper book) engaging him to register their patent in several countries: 23. From the above engagement letter, it is evident that M/s ITC Limited had engaged the services of the assessee for filing application for registration of trade marks 'Checkers' and 'Ace' in several foreign countries. From the terms of appointment, it is evident that nowhere the assessee's client had even suggested that for executing the said work, the assessee should engage services of any particular foreign attorney or that the Indian client had identified any particular foreign attorney with whom the assessee was required to coordinate with for fulfilling his professional commitment. In what manner the assessee was to perform and fulfill the assigned tasks was left to the sole discretion of the assessee. We therefore find that the contractual terms between t....
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....e engaged by the assessee while in discharge of his professional obligations in India. As such, the source of income in connection with which the services of foreign attorneys were used, was located in India. We also note that the mere fact that the Patents or IPs registrations in foreign countries granted protection to the Indian clients within the foreign territories, did not create any 'source of income' for such clients outside India. The protection under the foreign IP laws did not by itself constitute "source" of any income in a foreign country. Nothing has been brought on record by the assessee to show that the clients on whose behalf these Patents/IP were registered had established PEs/branch etc. in such foreign countries so as to hold that the payments were made in relation to source of income located outside India. Viewed from any angle therefore we are unable to agree with the Ld. AR's submissions that the payment made to foreign attorneys fell within the exception carved out Section 9(1)(vii)(b) of the Act. 25. The Ld. AR placed heavy reliance on the fact that the ADIT(IT)-2(1), Kolkata had granted a certificate u/s 195 of the Act authorizing the assessee to pay legal....
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....ign attorneys. In adjudicating the question of allowability of the expenditure, where tax was admittedly not deducted u/s 195 nor certificate u/s 195 was obtained, we need to take into consideration the relevant facts and applicable legal provisions. As rightly stated by the Ld. CIT, DR; there is no estoppel in law and therefore merely because in few cases the Department had issued NIL tax deduction certificate u/s 195 cannot be the sole reason for claiming that every payment made by the assessee to foreign attorneys was not liable to tax in India. 26. In this regard, useful reference can be made to the decision of the Hon'ble Karnataka High Court in the case of CIT Vs Bovis Lend Lease (I) Ltd (208 Taxman 168) wherein the Hon'ble High Court while holding that the certificate granted u/s 195/197 in only applicable to the consideration payable for which such certificate is obtained also held that such certificate does not preclude the Assessing Officer to re-examine the chargeability of income in a regular assessment proceedings. The relevant observations are extracted below: "15. Under the aforesaid provision, there is no obligation on the part of the payer to pay tax as long as ....
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....ecisions have been rendered in the context of the pre-amended Section 9(1)(vii) of the Act as it stood prior to the insertion of Explanation (2) by the Finance Act, 2010 and therefore the ratio laid down therein are not applicable in the relevant year in consideration. 30. For the reasons set out in the foregoing paragraphs therefore, we hold that the payments which the assessee made to his foreign associates or foreign attorneys came within the ambit of Section 9(1)(vii) of the Act in terms of which the income by way of fees for technical services deemed to accrue or arise in India and consequently therefore the assessee had obligation to deduct tax at source under the provisions of the domestic tax laws. The Ld. AR of the assessee however raised an alternate contention that if under the domestic tax provisions, the payments are held to in the nature of 'fees for technical services', even then the assessee did not have obligation to deduct tax source since these payments did not come within charging provisions of the DTAAs with the respective countries of which the foreign attorneys were residents. The Ld. AR submitted that the relevant DTAAs contained specific provisions definin....