Case Law Details
Grant Thornton Advisory (P.) Ltd. Vs DCIT (ITAT Delhi)
Conclusion: No TDS was to be deducted under section 195 on payment made by assessee to GTIL, UK towards membership and subscription fee as the relationship between GTIL, UK and its members would be governed by the principle of mutuality, hence, would not be taxable.
Held: Assessee, a resident company, was engaged in the business of advisory services. AO noticed that assessee had paid to Grant Thornton International Ltd., London, UK (GTIL) towards membership/ subscription. AO observed such payment made to overseas entity was in the nature of income deemed to accrue or arise in India. Therefore, before paying the amount, assessee should have deducted tax at source in terms of section 195. Since, assessee had failed to do so, AO show-caused assessee to explain, as to why the amount should not be disallowed under section 40(a)(i). Assessee submitted that the overseas entity did not have any fixed base in India and rendered professional services outside India. AO however, was not convinced with the submissions of the assessee. AO disallowed the amount of Rs.2,73,52,203/- under section 40(a)(i). It was held that the Member Firms Agreement read as whole would demonstrate that the umbrella association, GTIL, was formed for the benefit of its members. Therefore, the relationship between GTIL and its members would be governed by the principle of mutuality. While dealing with, more or less, identical issue concerning payment of membership fee by KPMG to an international association/umbrella association, viz, KPMG International, the Coordinate Bench held that the amount paid by a member firm to the umbrella association would fall within the ambit of principle of mutuality, hence, would not be taxable. Therefore, the Bench held that there was no obligation on the assessee to deduct tax at source. Following the same, it was held that the payment made by assessee to GTIL towards membership and subscription fee was not taxable at the hands of the payee and assessee was not required to withhold tax at source in terms with section 195.
FULL TEXT OF THE ORDER OF ITAT DELHI
Captioned appeal of the assessee arises out of order dated 30.03.2017 of learned Commissioner of Income Tax (Appeals)-16, New Delhi, pertaining to assessment year 2011-12.
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