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2016 (7) TMI 567 - ITAT MUMBAI

2016 (7) TMI 567 - ITAT MUMBAI - TMI - TDS u/s 195 - professional fees paid outside India without deduction of tax at source - disallowance u/s 40(a)(i) - PE existence - Held that:- From the details on record there is no material to establish that any technical knowledge, skill, etc. have been made available to the assessee in order to establish that it falls within the purview of Article 12 of the Indo-USA DTAA. It is also an undisputed fact that such non-residents recipients do not have any pe .....

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by the assessee to KPMG, Ireland for audit services, it is not in dispute that the said services have been rendered outside India and the same cannot be construed as managerial or technical services so as to be governed by Article 13 of India-Ireland DTAA as contended by Revenue. In our view, they are clearly in the nature of independent personal services coming within the purview of Article-14 of the India-Ireland DTAA and therefore in the absence of any fixed place of business of the recipien .....

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n-resident entity in Indonesia for the provisions of section 40(a)(i) of the Act to be evoked. We, therefore, uphold the finding of the learned CIT(A) on this issue which has not been controverted before us by the Revenue. - Decided against revenue - ITA No. 2843/Mum/2014 - Dated:- 8-7-2016 - Shri Jason P. Boaz, Accountant Member and Shri Saktijit Dey, Judicial Member For The Appellant : Shri Samir Tekriwal For The Respondent : Shri Harsh Kapadia ORDER Per Jason P. Boaz, A.M. This appeal by Reve .....

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the Act and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 31.12.2011, wherein the income of the assessee was determined at ₹ 44,95,25,400/- in view of the following additions/disallowances: - i) On account of AIR information ₹ 81,72,444/- ii) Disallowance under section 40(a)(i) ₹ 78,21,340/- 2.2 Aggrieved by the order of assessment for A.Y. 2008-09 dated 31.12.2011, the assessee preferred an appea .....

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nal raising the following grounds: - 1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowance of ₹ 78,21,340/- u/s. 40(a)(i) being professional fees paid outside India without deduction of tax at source. 2. The appellant prays that the order of the CIT (Appeals) on the above grounds be set aside and that of the Assessing Officer be restored. 3. The appellant craves leave to amend or alter any ground or add a new grou .....

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In the course of assessment proceedings the AO observed that the assessee had made payments to various entities on account of professional fees outside India without deducting tax at source thereon. On being required to show cause by the AO as to why the aforesaid payments of professional fees outside India should not be disallowed under section 40(a)(i) of the Act, the assessee, in its reply dated 16.12.2010, explained that the payments were made to various non-residents and these payments wer .....

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heard in support of the ground raised and placed reliance on the order of the AO on this issue. 4.4 The learned A.R. for the assessee supported the impugned order of the learned CIT(A) on this issue. It was submitted that the names of the parties country-wise and nature of services rendered by each of the non resident recipients of the said payments, detailed at para 2.9 of the impugned order, indicate that the professional services rendered by these entities are for assistance in audit, taxatio .....

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dated 06.05.2016. The learned A.R. prays that in view of the above, the order of the learned CIT(A) ought to be upheld and Revenue s appeal dismissed. 4.5.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record, including the judicial pronouncement cited and placed reliance upon. The issue before us revolves around the payments made by the assessee to certain non resident entities for professional services rendered by them outside In .....

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Resident of Constitution Nature of services Amount 1 2(A) and (B) KPMG LLP USA Firm of individuals Taxation and audit services 50,67,431 2 2(c) Mr. Nihal Dalvi USA Individual Taxation services 8,86,240 3 2(e) and (f) KPMG LLP UK Limited liability partnership of individuals Taxation 2,76,540 4 2(g) Nelsons Solicitors UK Limited liability partnership of individuals Taxation 81,300 5 2(d) KPMG IFRG Ltd. UK Company Response to query on accounting matters 1,39,562 6 2(h) KPMG Ireland Partnership fir .....

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it services, which have been undisputedly rendered by these entities outside India. The stand of Revenue is that such services are in the nature of fees for technical services (FTS) and therefore tax was to have been deducted at source by the assessee on such payments/expenditure in India. From the details on record there is no material to establish that any technical knowledge, skill, etc. have been made available to the assessee in order to establish that it falls within the purview of Article .....

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source thereon and therefore invoking of section 40(a)(i) of the Act to disallow such expenditure is not sustainable. In this regard, at para 5 of its order, the Coordinate Bench has held as under: - 5. ...... 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 entiti .....

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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. Therefore, invoking of section 40(a)(i) of the Act .....

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section 40(a)(i) of the Act to disallow the same is not sustainable. 4.7.1 In respect of payments made to KPMG LLP, UK, Nelsons Solicitors, UK and KPMG IFRG Ltd. UK, we find that these non-resident entities too undisputedly do not have any PE in India. The learned CIT(A) has also observed that these entities are eligible for the benefit of Article 15 of the Indo-UK DTAA dealing with independent personal services and that therefore the said payments are not exigible to tax in India so as to requi .....

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hat such entities are eligible for the benefit of Article -15 of Indo-US Double Taxation Avoidance Agreement dealing with independent personal services and hence, payments are not chargeable to tax in India so as to require deduction of tax at source. The aforesaid findings have not been disputed before us on the basis of any cogent material and, therefore, we hereby affirm the same. Consequently, invoking of section 40(a)(i) in the context of aforesaid payments is also not justified. 4.7.2 Foll .....

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inable. 4.8 In respect of the payment made by the assessee to KPMG, Ireland for audit services, it is not in dispute that the said services have been rendered outside India and the same cannot be construed as managerial or technical services so as to be governed by Article 13 of India-Ireland DTAA as contended by Revenue. In our view, they are clearly in the nature of independent personal services coming within the purview of Article-14 of the India-Ireland DTAA and therefore in the absence of a .....

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made by the assessee to Siddharta Siddharta and Widjaja, Indonesia for rendering of audit services, it is seen by the learned CIT(A) that the India-Indonesia DTAA does not have any Article defining FTS and that the services were rendered in respect of audit and taxation matters. In these factual circumstances the learned CIT(A) was of the view that since the payment made by the assessee for such services fall within the scope of Article-14 of the India-Indonesia DTAA dealing with independent per .....

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Act to be evoked. We, therefore, uphold the finding of the learned CIT(A) on this issue which has not been controverted before us by the Revenue. 4.10 Apart from our findings above (supra), even if we were to accept, for the sake of argument, that the services by the aforesaid entities are in the nature of FTS and are rendered and utilized in India so as to be taxable in terms of section 9(1)(vii) of the Act, even then the disallowance is not warranted for the following reasons. Ostensibly, the .....

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