Case Law Details
ITAT Mumbai that payment made by M/s. BSR & Co to KPMG group professional entities based in Various Countries outside India for Services in relation to taxation matters, independent personal services, assistance in audit, taxation, information technology services, conducing background checks, etc. rendered abroad are not taxable as per DTAA with respective countries so TDS was not required to be deducted and so, the expenditure is not disallowable in terms of section 40(a)(i) of the Act.
Briefly put, the relevant facts are that the respondent assessee is a firm of Chartered Accountants and during the year under consideration, it was found to have paid a sum of Rs.1,45,89,345/- to various entities detailed in Para-3 of the assessment order on account of professional fee. On being show-caused as to why the requisite tax was not deducted at source, the assessee firm explained that the payments were made to various non-residents and it is not in the nature of income chargeable to tax in India and thus, tax was not required to be deducted in terms of section 195 of the Act. The Assessing Officer however, did not accept the submissions of the assessee and instead held that tax was required to be deducted tax at soruce and on the failure to do so, the expenditure of Rs.1,45,89,345/- was disallowable in terms of section 40(a)(i) of the Act.
Before the CIT(Appeals), assessee contended that the payments made to various non-resident entities governed by the provisions of Double Taxation Avoidance Agreement (DTAA) with the respective countries, in terms of which such payments were not income chargeable to tax in India. The CIT(Appeals) has since upheld the stand of the assessee and did not find any merit in the stand of the Assessing Officer and accordingly, he deleted the disallowance made under section 40(a)(i) of the Act.
At the time of hearing, Ld. Representative for the assessee has furnished a fact sheet, which brings out the nature of services rendered by each of the recipients of income. Primarily, it is revealed that professional services have been rendered by such entities for assistance in audit, taxation, IT services, professional services in relation to transfer pricing, VAT, etc. Ld. Representative for the assessee has also tabulated the recipient entities country-wise and made reference to the respective clauses in the Double Taxation Avoidance Agreements. In sum and substance, the discussion made by the CIT(Appeals) on each of the payments, in Para 1.3 to 1.3.4 by the CIT(Appeals) has been relied
In the above background, we have carefully considered the rival submissions. Pertinently, the issue revolves around the payments made by the assessee to certain non-resident entities for professional services rendered by them outside India. It has been consistently explained by the assessee that the services of such entities were availed during the course of the execution of engagements of assessee firm. The assessee firm did not deduct the tax at source and, therefore, the Assessing Officer invoked the provisions of section 40(a)(i) of the Act and disallowed such expenditure. The details of the entities alongwith the amounts paid have been culled out by the Assessing Officer in Para-3 of the assessment order and the same is not being repeated for the sake of brevity. The payments have been made to 12 different professional entities based in 10 different countries. In so far as the payments that are made to KPMG LLP, USA and KPMG LLP, Canada are concerned, the same has been made on account of professional services rendered in relation to taxation and transfer pricing. Undisputedly, the professional services have been rendered by the aforesaid entities outside India. The stand of the Revenue is that such services are in the nature of ‘fee for technical services’ and, therefore, tax was liable to be deducted at source in India. Factually speaking, the aforesaid stand of the Revenue is devoid of any support because there is no material to establish that any technical knowledge, skill, etc. has been made available to the assessee so as to consider it as falling within the purview of Article-12 of Indo-US Double Taxation Avoidance Agreement. It is also an established fact that such non-resident recipients do not have permanent establishment in India and, therefore, in the said background the same can, at best, be treated as independent personal services covered by Article-15 of the Indo-US Double Taxation Avoidance Agreement. As a consequence and in the absence of any fixed base in India, such income cannot be held chargeable to tax in India so as to require deduction of tax at source.
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