TaxTMI 
TaxTMI 
2025 (1) TMI 1277
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the Income Tax Officer in not considering the fact that the payments made to lawyers are not technical in nature and the payments to lawyers are to be considered as a independent personal service/business profit as per the DTAA which do not warrant a tax deduction at source if the Permanent establishment of the payee is not in India 2. Period of limitation That on facts, the learned CIT(A) erred in upholding the decision of the Income Tax Officer in not considering the fact that the time limit of 7 years is applicable only for payments to resident and for payments to non-resident specific time limit is not mentioned under the act and therefore ought to have been completed within a reasonable time frame which in any case cannot be seven years and to this extent the order is beyond jurisdiction. For these reasons and for any other reason that may be adduced at the time of hearing, it is prayed that the Hon'ble Tribunal may be pleased to direct that the order of the Income Tax Officer, Internation Taxation Ward 1(1), Chennai to the extent agitated may be set aside insofar as it relates to the demand as against the provisions of the law and contrary....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lectual property service, which requires patents and trade mark to be registered in various countries. The assessee has engaged foreign associate and paid them without deducting the tax u/s 195 of the Act. The assessee has argued that the foreign associates are predominantly individuals and in some cases are body corporate and these services rendered are either professional services or business profit as per respective DTAA. The Ld. AR has argued that these services are taxable in India only if the foreign entity operates through a business connection in India and as per DTAA between India and the respective counties and based on the status of entity, the services of foreign authorities are covered either under independent personal services (if the individual or firms) are business profit if they are firms of a company. The Ld. AR therefore has argued that there is no liability to deduct the tax. The A.O in the order passed u/s. 201/201(1A), has held the payment as fee for technical services as per Explanation-2 to Section 9(1)(viii) of the Act. Though, the AO in the order has observed that if the relevant DTAA provides the clause of independent personal services which includes leg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are engaged by him. It is the assessee's primary contention that the fees charged by the foreign attorneys were reimbursed by his clients along with his own fees. It was therefore his contention that since the amounts paid by the assessee were in the nature of pure reimbursements, no income element was involved in the remittances made to foreign attorneys and therefore no disallowance under Section 40(a)(i) read with Section 195 of the Act was warranted in his case. 12. While supporting the order of the Ld. CIT(A), the Ld. AR of the assessee put much emphasis on the fact that in the assessee's own case for the AYs 2006-07, 2008-09 & 2009- 10, the disallowance u/s 40(a)(i) was made but the same was deleted by this Tribunal in its order dated 27.11.2015. The Ld. AR therefore vehemently claimed on the principle of judicial consistency alone, the order of the Ld. CIT(A) deserved to be upheld since he had granted the relief to the assessee by following the order of his predecessor which was upheld by the Tribunal. After due consideration of the submissions and perusing the order of this Tribunal for AYs 2006-07, 2008-09 & 2009-10, we are unable to agree with the contention put ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard by the Tribunal, amendment to Section 9(2) of the Act, was already in force. Taking judicial note of the amendment which, widened the scope of TDS provisions qua the payments made to foreign attorneys, the Tribunal had observed as follows: "20. From the above facts and circumstances of the case and also precedents cited above, we are of the view that till amendment in Explanation to sec. 9(2) of the Act, the prevailing legal position was that unless the technical services were rendered in India, the fees for such services could not be brought to tax under Section 9(1)(vii) of the Act. The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax deductor is not expected to know how the law will change in future. A retrospective amendment in law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. The tax withholding obligations from payments to non-residents, as set out in Section ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aterially different. 15. The second limb of the ld. AR's argument was that the payments which the assessee made to foreign patent attorneys did not come within the ambit of the term 'fees for technical services'. According to Ld. AR, the services performed by the foreign attorneys were mere clerical or executionary in nature which did not involve any specialized knowledge nor it involved rendering of any advisory service. In order to understand the issue, it is first necessary to set out the relevant provisions of Section 9(1)(vii) of the Act, which define the term 'fees for technical services'. "income by way of fees for technical services payable by- (a) The Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bit of Section 9(1)(vii) of the Act. In this regard, we note that the term 'consultancy' service is not defined in the Act. In the circumstances one must understand the term as understood in normal commercial parlance. As per Oxford Dictionary, the meaning of the word 'consultancy' is "a professional practice that gives expert advice within a particular field". Further, Wikipedia defines 'consultant' as a professional who provides expert advice in a particular area such as security (electronic or physical), management, education, accountancy, law, human resources, marketing (and public relation), finance, engineering, science or any of many other specialised fields." Applying these definitions, we note that the assessee's services were engaged by his clients having regard to his specialized knowledge and experience dealing with IP laws as well as procedures involved in obtaining IPR registrations. The IP laws of each country contain special provisions and the regulations there under prescribe detailed technical and bureaucratic procedures which need to be complied with before Patent or IPR registrations are granted. It is a well-established fact that the Patents or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ory of technical and consultancy services are to some extent overlapping because a consultancy service could also be technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in technology is required to perform it." 35. In this context, a reference to the decision in CIT v. Bharti Cellular Ltd. [2009] 319 ITR 139/[2008] 175 Taxman 573 (Delhi), would be apposite. In the said case, while dealing with the concept of "consultancy services", the High Court of Delhi has observed thus: 'Similarly, the word "consultancy" has been defined in the said Dictionary as "the work or position of a consultant; a department of consultants." "Consultant" itself has been defined, inter alia, as "a person who gives professional advice or services in a specialized field." It is obvious that the word "consultant" is a derivative of the word "consult" which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said Dictionary as "ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permiss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....services rendered by foreign attorneys squarely come within the ambit of such definition. This point has not been negated by the Ld. AR in his submissions. Instead the case made out by the Ld. AR is that the services were rendered abroad and utilized abroad and therefore fell within the exception carved out within Section 9(1)(vii)(b) of the Act.We therefore hold that the ratio laid down in the said judgment is very much relevant in deciding the present appeal. 20. We note in assessee's case his services were engaged by the Indian clients for obtaining registration of patents and IPRs owned by them in foreign jurisdictions. Having obtained the mandate from his clients for obtaining the patent registrations in foreign jurisdictions, it was entirely at the discretion of the assessee to find ways and means to complete the job entrusted by the clients. Instead of providing services on his own, the assessee appointed foreign associates for services such as filing of patent applications, making representations before IP authorities, obtaining registrations from statutory authorities of the respective foreign countries etc. The fact however remains that the services of the foreig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etween the assessee and foreign associates and other relevant documents which would substantiate that the payments made were in the nature of pure reimbursement which would prove that there was existed privity of contract between the client and the foreign associates. In response the Ld. AR of the assessee furnished Paper Book - 5 consisting of Pages 1122 to 1185 and a convenience compilation comprising of 113 pages. On scrutiny of the documents so furnished it was however noted that although the assessee has furnished copies of communications between the assessee and clients as also between the assessee and foreign associates along with supporting invoices, there is nothing discernible in these documents on the basis of which it can be held that there existed direct and proximate nexus between the clients and the foreign associates for rendering services and the assessee was to act only as an intermediary. We did not find any letters of appointment issued by the clients in relation to the scope of work to be performed on the basis of which we could hold that the appointment of foreign associates was made by the assessee on the specific instructions or request of the assessee and f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee merely acted as a pass through facilitating the payment to the foreign attorneys. In this factual background therefore we are unable to accept the plea of assessee that the payments made by him to his foreign associates were in the nature of pure reimbursement and consequently TDS provisions were not applicable. On the contrary, we find that the foreign attorneys performed the services at the behest of the assessee for which the requisite invoices were raised on the assessee and these were paid by him. It is for this reason that the invoiced amounts were debited by way of assessee's own expenditure in his personal Profit & Loss Account. We also note that prior to making the remittances to the foreign attorneys, the assessee had filed certificates with his banker in prescribed Form 15CB certified by Chartered Accountant. In the said certificate, these payments were characterized as fees for professional services. In the Form A2 accompanying the remittance instruction, the purpose of payment was described as "Associate Fee". We thus note that the plea of the assessee that these payments were in the nature of 'pure reimbursements' and hence did not require tax deduction u/s....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee's contention that he had no obligation to deduct tax u/s 195 before remitting the foreign attorney fees. The Ld. AR therefore argued that by the principle of estoppel, the AO was precluded from making disallowance u/s 40(a)(i) because the alleged default of non- deduction of the tax u/s 195 was not attributable to the assessee. The Ld. CIT, DR placed before us the submissions filed by the assessee in the course of proceedings u/s 195 of the Act wherein the assessee had inter alia claimed that the payment was in the nature of pure reimbursement having no income element. In the said letter, the assessee had compared himself with an airline agent who issues air tickets in favour of his customers. The Ld. CIT, DR therefore submitted that since the assessee did not fairly and correctly set out the true and correct facts the certificate u/s 195 was erroneously granted. He submitted that while adjudicating the appeal, the Tribunal should decide the issue taking into consideration true and correct facts and applicable legal provisions of the Act. Having considered the material facts and evidences before us, we note that assessee's contention that the payments made by him to forei....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... collecting tax. However, the payer cannot be treated as an assessee in default and he cannot be proceeded with. It is because as long as the said certificate stands, the payer shall not make any payment and shall not deduct from the consideration payable to the recipient. However, the said certificate is tentative or provisional or interim in nature. It does not have any effect beyond providing immunity under Section 201 of the Act. The immunities stop at that stage. It does not preclude the Assessing Officer to either reexamine the chargeability of income in a regular assessment proceedings or to recover taxes from the payer in his representative capacity. It is only in the nature of a protection against the consequences that may follow out of non-deduction." 27. Same view is expressed by the Hon'ble Delhi High Court in the case of National Petroleum Construction Company Vs Dy. CIT (W.P. 8527/2019) dated 20.12.2019. 28. As far as the Ld. AR's reliance on the decision of Hon'ble Delhi High Court in the case of DIT Vs Panalfa Auto electrik Ltd (49 taxmann.com 412) and the coordinate Bench of this Tribunal in the case of Credit Lyonnais Vs ADIT(IT) (80 TTJ 191) is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quiring deduction of tax u/s 195 of the Act. The Ld. AR submitted that in accordance with the provisions of these DTAAs, the payments made by the assessee to foreign attorneys were liable to be assessed only in the Country of Residence and therefore India being source country did not have right to tax such payments under the respective DTAAs. Having considered the said alternate plea of the ld. AR, we find merit in the same. We however note that before the Ld. CIT(A)/AO this aspect was neither raised by the assessee nor considered and adjudicated by the Ld. CIT(A)/AO. In the circumstances therefore, to meet the ends of justice, we deem it fit and proper to restore this alternate plea raised for the first time before us to the file of the AO. He is directed to examine the assessee's plea that payments were non-taxable in India because of the beneficial provisions of the DTAAs with respective countries. While doing so, the AO shall grant adequate opportunity of being heard to the assessee and will also permit him to furnish necessary documents and evidences in support of his claim. 31. In the result, the appeal of the Revenue is allowed for statistical purpose." 7. We fin....