TMI Blog2011 (8) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, which would go to show that the same is restricted to only to an existing source of income - Decided in favor of the assessee - 63 (MUM.) OF 2009 - - - Dated:- 12-8-2011 - N.V. VASUDEVAN, J. SUDHAKAR REDDY, JJ. Jitendra Yadav for the Appellant. Kirit R. Kamdar for the Respondent. ORDER N.V. Vasudevan, Judicial Member. This is an appeal by the assessee against the order dated 17-9-2008 of CIT(A) 33 Mumbai relating to assessment year 2007-08. 2. The assessee is a company. It is engaged in the business of manufacturing of sugar. According to the assessee, it engaged the services of M/s. KPMG Corporate Finance Ltd., Brazil (KPMG) (Non-Resident), to advice and assist the assessee in acquisition of Sugar Mills/Distilleries in Brazil. In connection with the services rendered by KPMG for the said purpose, the assessee had made payment to KPMG. The question before the ITO (International Taxation),TDS-3, Mumbai (Assessing Officer), was as to whether the Assessee was bound to deduct tax at source on the payment made to KPMG in terms of section 195 of the Income-tax Act, 1961 (the Act). That would again depend on the question whether the payment by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sugar producer in India and in order to expand their operations they appointed KPMG to explore the possibility of acquiring sugar mill/distillery plant in Brazil. In this regard the assessee submitted that KPMG was to provide the assessee the following services : (i) Assistance in the identification of targets fitting assessee's needs and contact of those companies; (ii) Present the assessee selected information on those targets. (iii) Perform pricing analysis of selected targets; (iv) Assit the assessee in the acquisition process of target(s), with the internal team of the Assessee and other external advisors named by the company, for a closing of the transaction(s) in the best possible conditions. 6. It was further submitted that the assessee incorporated a company called Bajaj International Paatici Pacoes Ltd., in Brazil in order to acquire sugar mills/distillery plants in Brazil. A copy of the Memorandum of Association of the subsidiary company so incorporated in Brazil was also filed. It was pointed out that the objective of appointing KPMG was to identify and acquire sugar mills/distillery plants in Brazil. Thus the assessee made the payment in question to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions related to disposals of sugar mills and sugar refinery were being engaged for the aforesaid purpose. The proposal also mentions that the acquisition is to be done by the Assessee or any of its subsidiaries or its nearest company or any company controlled by the assessee. 9. On a consideration of the above features of the Agreement, the CIT(A) was of the view that the Assessee wanted to acquire sugar mills/distillery plants in Brazil. For that purpose, the assessee had availed the services of KPMG. He found that the services were to be rendered in Brazil and that services are connected with the acquisition of sugar mills/distilleries in Brazil. The CIT(A) was of the view that the words used in section 9(1)(vii) clause (b) second exception was "for the purposes of earning any income from any source outside India.". He was of the view that the services rendered by KPMG were to be used for the purpose of acquisition of sugar mill/distillery in Brazil for the purpose of earning income from sugar mill/distillery from Brazil. He was of the view that the words used in section 9(1)(vii) were vide enough to cover even future source of income. The CIT(A) therefore held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r profession carried on by the assessee in India and, therefore, the payment was FTS. Further it was submitted that the claim of the assessee that the payment made to KPMG was "for the purpose of earning any income from any source outside India" ought not to have been accepted by the CIT(A) because the exception contemplated in section 9(1)(vii)(b) of the Act is only in respect of an existing source of income. It was submitted by him that in a case where the source of income is to come into existence at future date the exception cannot apply. It was pointed out by the ld. D.R that the payment in question was for the purpose of earning income from a source outside India which source had not come into the existence and the assessee only proposed to create the source of earning income outside India in future. The ld. D.R. brought to our notice Circular No. 202, para 16.2 which explains the provisions of Finance Bill, 1976, wherein it has been observed as follows : "16.2 Under the new provision, income by way of "fees for technical services" of the following types will be deemed to accrue or arise in India : (a) fees for technical services payable by the Central Government or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary 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 section 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 section 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 section 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 under section 195 of Income-tax Act. The demand raised for tax and interest under section 201(1) and 201(1A) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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