ITO Vs Macrotech Developer Ltd. (ITAT Mumbai)
ITAT Mumbai held that there is no element of technical knowledge, experience, skill knowhow or process in the rendering of brokerage services. Therefore, the payment of brokerage by the assessee to the brokers not being covered as FTS/FIS is not taxable in India either pursuant to Sec. 9(1)(vii)
Facts- Assessee is engaged in the business of land development and construction of real estate properties. The AO passed an order dated 31.07.2018 raising demand of Rs.1,29,23,408/- u/s 201(1) and interest of Rs.78,10,519/- u/s 201(1A) of the Act on account of not withholding tax u/s 195 of the Act pertaining to payment made under the Architectural Consultancy and payment for other services; Brokerage payment; and reimbursement of expenses.
CIT(A) deleted all the additions made by AO. Being aggrieved, the present appeal is filed by the revenue.
Conclusion- In the case of Gera Development (P) Ltd. Vs. DCIT, ITAT Pune held that payments made by the assesse, India Company to US company for architectural design and drawings of different buildings and facilities could not be held as fees for technical services as mere passing of project specific architectural drawings and design with measurements did not amount to ‘making available’ technical knowledge, know or process and, consequently no TDS was deductible from said payments.
From the perusal of material on record it is observed that there is no element of technical knowledge, experience, skill knowhow or process in the rendering of brokerage services. No such technical knowledge etc. is made available to the assessee by such brokers. Therefore, we don’t find any infirmity in the decision of ld. CIT(A) that the payment of brokerage by the assesse to the brokers is not taxable in India either pursuant to Sec. 9(1)(vii) or under the provisions of DTAA due to restrictive definition of FTS/FIS, therefore, the ground of appeal of revenue stand dismissed.
The expenses were incurred by such parties on account of travel, meal, hotel stay etc. Reimbursement were made in respect of actual expenditure incurred on cost to cost basis without any mark up. The assessee has also referred CBDT Circular No. 715 dated 08.08.1995 as per question no. 30 it provide that if separate bill has been raised for reimbursement of expenses then no taxes are deductible on such payment. The claim of the assessee that remittance was made towards reimbursement of expenses on cost to cost basis was not contrary disproved by the assessing officer.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
All these 5 appeals filed by the revenue and 4 Cross Objection filed by the assesse are directed against the different orders of ld. CIT(A)-57, Mumbai. Since, similar issues and identical facts are involved in these appeals except the variation in the amount, therefore for the sake of convenience all these 5 appeals are adjudicating together by taking ITA No.497/Mum/2022 as a lead case and its finding will be applied as mutatis mutandis to the other 4 appeals.
ITA No. 497/Mum/2022
“1. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to various non resident entities towards Architectural Design consultancy services, Wind Engineering Consultancy services and Landscape Architectural Consultancy Services as consultancy services when the services provided are make available in nature and come in the purview of Fees for Technical Services as per India Singapore DTAA.
2. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to LDL UK Ltd. towards marketing services for projects of the assessee company as consultancy services when the services provided come in purview of Fees for Technical Services as per India UK DTAA.”
3. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to various non resident entities towards. brokerage for sale of projects in India as consultancy services ignoring the fact that the income of the non resident has accrued in India.”
4. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to various non resident entities for reimbursement of expenses as consultancy services when reimbursement were for services rendered by vendors whose services were in the nature of Fees for Technical Services.”
5. The Appellant prays that the order of the ld CIT(A) on the above ground(s) be set aside and that of the Assessing Officer be restored.
6. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
2. Fact in brief is that assesse is engaged in the business of land development and construction of real estate properties. The AO passed an order dated 31.07.2018 raising demand of Rs.1,29,23,408/- u/s 201(1) and interest of Rs.78,10,519/- u/s 201(1A) of the Act on account of not withholding tax u/s 195 of the Act pertaining to payment made under the following categories:-
(i) Architectural Consultancy and payment for other services.
(ii) Brokerage payment.
(iii) reimbursement of expenses.
3. During the course of assessment the assesse submitted that such payments were not taxable in the hands of foreign recipients as per the provision of the Act r.w. the provisions of applicable Double Tax Avoidance Agreement (DTAA).
Ground No. 1 & 2: Levy of demand u/s 201/201A of foreign payment towards architectural design consultancy services and other services:
4. During the year under consideration the assesse has made the following remittances to the foreign vendors:
