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TMI Blog2011 (8) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... ee to KPMG would be taxable in the hands of KPMG in India. 3. According to section 9 of the Act, the following incomes shall be deemed to accrue or arise in India. (vii) income by way of fees for technical services payable by........ (b) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or The aforesaid clause (b) provides two exceptions. In the first case, the payment if made by a resident for services which are utilized in a business or profession carried out by such person outside India, then the said payment would not be deemed to be income accruing or arising to the payee in India. The second exception envisaged by clause (b) of section 9(1)(vii) of the Act, is if the payment is made by a resident for the purpose of making or earning any income from any source outside India, then the said payment would not be deemed to be income accruing or arising to the payee in India. 4. The Assessing Officer was of the view that the assessee ought to have deducted tax at source on the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in question to carry on business outside India and for the purpose of earning any income from any source outside India. It was submitted that the payment made by the assessee was towards services which would be utilized in the business which will be carried out outside India i.e., Brazil through the Assessee's subsidiary company and therefore the aforesaid payment would be squarely covered by the first exception provided in section 9(1)(vii)(b) of the Act and will therefore not be taxable in India. It was submitted that the very fact that the sugar mills/distillery plants to be acquired are located outside India would only mean that the income derived from the said mills/plants will be earned from a source outside India therefore payment made to KPMG would be covered even by the second exception provided in clause (b) of section 9(1)(vii) of the Act viz., "for the purposes of making or earning any income from any source outside India". It was therefore submitted that the payment of USD 100,000 to KPMG does not constitute income deemed to accrue or arise in India under section 9(1)(vii) of the Act and is not taxable in India in the hands of KPMG and therefore the Assessee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re held that that the services rendered by M/s. KPMG was utilized by the Assessee for the purpose of earning income from a source outside India and therefore 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 is 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) of the Act was deleted. 10. Aggrieved by the order of the CIT(A) the revenue has preferred the present appeal before us. 11. The ld. D.R submitted that the assessee initially accepted before the Assessing Officer that there was an obligation on its part to deduct tax at source while making payment to KPMG. Only on 17-8-2007 the assessee in a letter to the Assessing Officer took a stand that the services rendered by KPMG were in the nature of market research and, therefore, not in the nature of FTS. The ld. D.R also drew our attention to the proposal dated 11-5-2006 and submitted that the proposal (contained in pages 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Government or any State Government; (b) fees for technical services payable by a resident, except where the payment is relatable to a business or profession carried on by him outside India or to any other source of his income outside India, and (c) fees or technical services payable by a non-resident if the payment is relatable to a business or profession carried on by him in India or to any other source of his income in India." 13. It was argued that even the Circular talks about source of income outside India which means that it should be an existing source. It was submitted that the exception in clause (b) cannot apply to a future source to be set up. Reliance was also placed on the decision of the ITAT Mumbai in the case of Hindalco Industries Ltd. v. ITO [2004] 91 ITD 64, wherein it was held that utilization of services is essential by the resident only in business or profession carried on by the resident outside India. If a resident pays FTS outside India for the services to be utilized in India then that income per se will be treated as income accruing or arising to the person in India. 14. We have considered the arguments of ld. D.R. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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