Fees received by KPMG for assisting an Indian Company in acquisition of Sugar mills in Brazil is not Fees for Technical Services under the Income-tax Act

ITO Vs Bajaj Hindustan Ltd. (ITAT Mumbai)- There is not dispute that the payment in question made by Assessee to KPMG is in respect of services which otherwise fell within the definition of FTS as given in the Act. The dispute is whether the exceptions mentioned in clause (b) to Sec.9(1)(vii) of the Act would apply so that it can be said that the fees in the nature of FTS  has not accrued or arisen to KPMG in India.

As far as the first exception in Sec.9(1)(vii) clause (b) of the Act, is concerned viz., “where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India”, we find that the Assessee carries on business in India and has utilised the services of KPMG in connection with such business. Therefore the case of the Assessee would not fall within the first exception, notwithstanding the fact that services were rendered only in Brazil.

As far as the second exception mentioned in Sec.9(1)(vii) clause (b) is concerned viz., “ for the purposes of earning any income from any source outside India.”, the undisputed facts are that the Assessee wanted to acquire sugar mills/ distillery plants in Brazil and for that purpose also wanted to set up a subsidiary company. In fact, the Assessee had set up a subsidiary company on 8.8.2006 in Brazil. Thus the Assessee was contemplating to create a source for earning income outside India. It is no doubt true that the source of income had not come into existence. But there is nothing in Sec.9(1)(vii) clause (b) of the Act, to show that the source of income should have come into existence so as to except the payment of fees for technical services. The expression used is “for the purpose of earning any income from any source outside India”. There is nothing in the language of Sec.9(1)(vii) clause (b) of the Act, which would go to show that the same is restricted to only to an existing source of income. We therefore agree with the conclusions of the CIT(A) on this aspect. We therefore uphold the order of the CIT(A) holding that the payment by the Assessee of fees for technical services rendered by M/s. KPMG was outside the scope of Sec. 9(1)(vii) of the Income Tax Act. Hence it cannot be considered as income deemed to have accrued in India and not chargeable to tax in India and hence the Assessee was not liable to deduct tax u/s. 195 of Income Tax Act.

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ITO(IT)-TDS-3 Vs.  M/s. Bajaj Hindustan Ltd.

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