TaxTMI 
TaxTMI 
2025 (8) TMI 1373
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....inafter referred as 'the Act') by the ACIT, Circle 63(1), Delhi (hereinafter referred to as the Ld. AO) and the ITA No.2134/Del/2018 is the appeal preferred by the assessee, Anand and Anand against the order dated 18.01.2018 of the Ld. FAA in Appeal No.18/10496/2016-17/248 arising out of the appeal before it against the order dated 19.03.2016 passed u/s 143(3) of the Act by the Ld. AO. 2. Heard and perused the records. The case of these two assessee were heard together as similar question of facts and law were involved. However, for convenience the facts and relevant orders in case of Subramaniam Hariharan, are being discussed and findings arrived shall mutatis mutandi apply to case of Anand and Anand too. What comes up from the hearing is that the both assessee as lawyers are engaged in the practice of Intellectual Property Laws and in the relevant previous year, Subramaniam Hariharan, was running his sole proprietorship concern by the name of "Subramaniam & Associates". The practice areas of the assessee comprise all aspects of Intellectual Property Rights. The assessment under section 143(3) of the Act was completed at an income of Rs. 18,21,35,920/-, after making, inter alia....
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....ing a response. (iii) Receiving instructions from the Appellant and preparing and filing responses to the Examination Report issued by the local Patent Office (iv) Undertaking trademark searches in the records of the Intellectual Property offices in respective jurisdictions to ascertain availability of trademarks in question; (v) Maintenance of grant/ registration of Intellectual Property or services in relation thereto, as required under law, like towards annuity payment, renewal fee, restoration of patent, etc.; (vi) Maintaining records and forwarding documents of grant or refusal received from the Intellectual Property offices; (vii) Facilitating translation, processing and typing of relevant documents. 5. Ld. Sr. Counsel has submitted that while making such payments, the Appellant remitted the amount without withholding taxes under section 195 of the Act as the income of the legal practitioners/ law firms located abroad did not accrue or arise in India. Referring to section 195 of the Act it was submitted an obligation is cast on a person making payment to a non-resident of any sum, which is chargeable under the provisions of the ....
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....ction 4 of the Act provides that income-tax shall be charged on the 'total income' of an assessee. The scope of total income is defined in section 5 of the Act. What comes up from the arguments of ld. Sr. Counsel is that in the case of a non-resident, it is provided that (i) income received in India, (ii) deemed to be received in India, (iii) income which accrues or arises in India, or (iv) income which is deemed to accrue or arise in India, shall be included in the total income. It is indisputable that the income of the non-resident lawyers/ law firms for services rendered entirely outside India, does not fall under category (i), (ii) or (iii) above. In respect of (iv), it is submitted that an income is deemed to accrue or arise in India only if it is included in the various clauses provided under section 9 of the Act, and as per ld. Sr. Counsel, wherein, payment of professional fee is conspicuously absent. 10. In this context we find that Explanation 2 to section 9(1)(vii) of the Act defines FTS to mean payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other per....
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....hitectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act." 13. Very apparently term 'technical consultancy' used in section 44AA of the Act has to be read ejusdem generis along with the words 'professional' activities based on certain skills acquired by study of particular domain of studies and which have some regulatory bodies to oversee the conduct of practitioner of the those skills and the same, very much distinguishes it, with generic term 'technical services', read ejusdem generis with managerial or consultancy services (including the provision of services of technical or other personnel), falling in category of FTS. Thus these afore-reproduced provisions of the Act, make it crystal clear that "professional services", which includes legal services, is a separate category of services, recognized as distinct from FTS, which is primarily "managerial, technical or consultancy" service....
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.... date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-For the purposes of this sub-clause,- (A) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (B) "fees for technical services" shall have the same meaning as in Explanation2 to clause (vii) of sub-section (1) of section 9;" ................ (ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid : Provided further that where an assessee fails to....
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....d on such payments being made to non-residents. 15.3 Aforesaid, establish unequivocally that the Legislature has notably and deliberately created two separate classes of income, viz., fee for technical services and fee for professional services. Whereas the former is defined in Explanation 2 to section 9(1)(vii), the latter draws its meaning from Explanation (a) to section 194J of the Act. Reliance in this regard is also placed on the decision in the case of NQA Quality Systems Registrar Ltd vs DCIT: 92 TTJ 946 (Del Trib.), wherein it was held as under: "17............ There is a marked difference between fees for technical services and fees for professional services. Professional services are a category distinct from technical services. Even under the provisions of section 194J of the Act requiring deduction of tax at source, the definition of professional services includes the legal, medical, engineering, accountancy, technical consultancy and interior decoration, whereas the expression 'fees for technical services as given in Expln. 2 to section 9(1)(vii) of the Act do not include within its fold the professional services as explained in section 194J of the Act..........
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....nd the special provisions relating to taxation of professionals, it is submitted, override the general provision relating to taxation of FTS. 17. The reason for the aforesaid is also not far to seek. A professional's services have geographical limitations regulated by certain statues, as in case of Lawyers, the Bar Council of India. Lawyer, registered as an Advocate can practice in Indian courts, but for representing Indian clients his qualifications as an Advocate may not be sufficient to represent the Indian client in courts or proceedings abroad. Thus here in the case in hand the recipients of the income were individual lawyers or law firms. They were only competent to practice in respective jurisdiction of which they were residents. Their services were vital for Indian clients for protecting their IPRs in foreign jurisdictions. The role of assessee was to engage with these non-resident lawyers and law firm and to work with them, in ensuring necessary compliances and following regulatory framework in those jurisdictions for protection of IPRs of Indian customers. The services so rendered may be technical in sense that it needs expertise but expertise alone is not sufficient t....
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.... notice by learned counsel for the assessee, we are convinced that the domestic law provisions recognize legal/professional services and FTS as two distinct and separate categories. 20. Therefore, payments made to non-resident attorneys cannot be regarded as FTS under section 9(1)(vii) of the Act. Further, a conjoint reading of section 40(a)(i) and 40(a)(ia) brings out a clear distinction between FTS and fees for professional services. Though, section 40(a)(ia) encompasses, both, FTS and fees for professional services, however, section 40(a)(i) is applicable only in case of failure to deduct tax on payments made for FTS. As rightly submitted by learned counsel for the assessee, this could be for the reason that payment of legal/professional fee to a non-resident does not accrue or arise in India or is not deemed to accrue or arise in India as per section 5 and section 9 of the Act. It is relevant to observe, in the case of NQA Quality Systems Registrar Ltd. Vs. DCIT (supra), the coordinate Bench has held that professional services are a category distinct from technical services. Similar view has been expressed in the following decisions as well: (i) ONGC Vs. DCIT ....