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2016 (11) TMI 730 - ITAT MUMBAI

2016 (11) TMI 730 - ITAT MUMBAI - TMI - TDS u/s 195 - whether Legal fees paid to non-resident Attorneys constitute royalty as per India-UK DTAA and also constitute ‘Royalty’ / ‘Fees for technical services’ [FTS] u/s. 9(1)((vi)/vii)? - PE in India - Held that:- Payment in question do not get covered by Section 9(1)(i) due to the fact that the payee has neither business connection in India nor any permanent establishment in India. - The assessee has obtained the legal services and such service .....

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rendered outside India and no employee of the attorneys were present in India for more than 90 days, we are of the considered view that impugned payments are not taxable in India as per Treaty provisions Hence, the assessee was not liable for tax deduction at source from impugned payment. - Decided in favour of assessee. - ITA No. 3901/Mum/2013. - Dated:- 25-8-2016 - SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM For The Revenue : Shri Sanjeev Jain (Sr. DR) For The Assessee : Shri Farr .....

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stitute Royalty / Fees for technical services [FTS] u/s. 9(1)((vi)/vii) of the Income Tax Act, 1961 and hence liable for tax deduction at source as per the provisions of the act. 2. Facts in brief, are that the assessee is engaged in the banking business and paid certain legal fees amounting to US $ 37318.87 to one legal firm situated in UK. As per the agreement, withholding tax @20% on gross amount amounting to US $ 9329.72 was the liability of the assessee which was duly deposited. Subsequentl .....

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9(1)(vi)/(vii) of the Income Tax Act. Further, impugned payment constitute royalty as per Treaty provisions on the ground that assessee is provided with specialized knowledge, skill and experience in the field of regulatory norms prevalent in the US which can be utilized independently by the assessee on his own without recourse to the service provider. Finally, CIT(A) concluded that impugned payment are taxable both under domestic laws as well as under the Treaty provisions. Aggrieved, by the s .....

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ible acquisition of a Bank in foreign country and hence the impugned payment was incurred for the purpose of making or earning a source of income which is situated outside India. Further, the impugned payments is not taxable in India under Section 9(1)(i) of the Act as the foreign attorneys have neither any business connection in India nor a Permanent Establishment in India as per Treaty Provisions. Also, the impugned payment did not constitute Royalty or FTS as per Treaty provisions as services .....

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with Independent Personal Services which are covered under Article 15 and Article 15 being more specific in nature in the present case and hence override the provisions of Article 13. To support these contentions, AR relies upon following various judicial pronouncements: (i) Commissioner of Income Tax Vs. Rajendra Prasad Moody (Supreme Court) [115 ITR 519] (ii) Asstt. DIT (IT) Vs. M/s Clifford Chance (SB ITAT, Mumbai) [33 Taxmann.com 200] (iii) Income Tax Officer (International Taxation) Vs. Ba .....

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individual service provider and not to firms and hence taxable both under domestic law as well as under Treaty provisions. 4. We have heard the rival contentions are perused the material of record. The facts are not in dispute. First of all, it would be prudent to reproduce the nature of services being obtained by the assessee from the foreign attorneys as contained in letter of engagement dated 14/02/2010 issued by the legal attorneys M/s. Reed Smith :- This will confirm that Kotak Mahindra Ba .....

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Group nominated by Kotak to undertake the proposed acquisition. The contents of this letter shall, where specifically stated below, supercede the Standard Terms. Tom Todd and Michael Bleier will be the partners primarily responsible for the work Reed Smith performs on this matter. Subject to discussion with you, we will utilize Travis Nelson and such other additional attorneys, paralegals and other professionals as necessary to efficiently handle your work and to meet time deadlines. We have di .....

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tion and discussed with them various legal / regulatory requirement of USA for setting up of a Bank Branch or acquisition of banking company etc. The nature of services are nowhere disputed by the revenue and accordingly, the perusal of documents shows that the payments are, in fact, being made for creating/earning a new source of income outside India by way of establishment of new Bank Branch or acquisition of a Bank. With these objectives, the legal / professional fees have been paid to the at .....

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ection 9(1)(vii) is also on similar lines which reads as follows:- (vii)Income by way of fees for technical services payable by- (a)The Government; or (b)a person who is 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… Therefore, as observed by us in preceding paragraph, the payment has been made with a view t .....

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India. It is no doubt true that the source of income has not come into existence. But there is nothing in sec. 9(1)(vii) clause (b) of the Act, to show that the source of income should have come into existence so as to except he 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 sec. 9(1)(vii) clause (b) of the Act, which would go to show that the same is restricted to only to an .....

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the observation of Apex Court in Commissioner of Income Tax Vs. Rajendra Prasad Moody (Supra), it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned. Expenditure in the course of the trade which is un-remunerative is nonetheless a proper deduction, if wholly and exclusively made for the purposes of the trade. It does not require the presence of receipt on credit side to justify the deduction of an expense. It is nowhere necessary that the pu .....

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ify that: 1. We, Reed Smith LLP, are a limited liability partnership (LLP) registered in England (registered number OC303620) with its registered office at The Broadgate Tower, 20 Primrose Street, London EC2A 2RS. 2. Reed Smith LLP is the beneficial owner of the legal fees and expenses for US$37,318.87 for which we have raised an invoice, with number 2077564 and dated 23 December 2010, payable by Kotak Mahindra Bank Limited. 3. For the purposes of the captioned remittance, we confirm that: &bull .....

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permanent Establishment in India within the meaning of Article 5 of the DTAA. • We do not have any office or establishment or fixed place of business in India. • No partner from our firm was, or will be, present in India for more than 90 days during the year. The above facts are nowhere disputed / confronted by the revenue and there is no adverse material on regard in this respect. Therefore, the payment in question do not get covered by Section 9(1)(i) due to the fact that the payee .....

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l, whether in his own capacity or as a member of a partnership, who is a resident of a contracting state in respect of professional services or other independent activities of a similar character may be taxed in that state. Such income may also be taxed in the other contracting state if such services are performed in that other state and if: (a) He is present in that other state for a period or periods aggregating to 90 days in the relevant fiscal year, (b) He, or the partnership, has a fixed ba .....

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t activities of a similar character in that state. 3. The term professional services includes independent, scientific, literacy, artistic, educational or teaching activities as well as the independent activities or physicians, surgeons, lawyers, engineers, architects, dentists and accountants. The assessee has obtained the legal services and such services find specific treatment as per Treaty Article 15 and therefore, not covered by Article 13 which deals with Royalty and Fees for Technical Serv .....

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ons of Article 15 being specific provisions for professional services will override the relatively general provisions of Artcile 13 which apply to broader category of 'managerial, technical or consultancy services'. We may, in this regard, refer to the following observations by the Tribunal in the case of RPG Industries Ltd. v. Asstt. CIT (2003) 79 TTJ (Cal)(TM) 819 : (2003) 85 ITD 105 (Cal) (TM), relevant portion at pp. 115 and 116 wherein one of us observed as follows and those observa .....

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a specialibus non derogant' which lays down that the general provisions will not override the specific provisions. In other words, provisions of Section 73, which specifically deal with speculation business, cannot be derogated by the provisions of Section 72 of the Act which deals with business losses in general. As observed by Hon'ble Supreme Court in the case of Union of India and Anr. v. India Fisheries (P) Ltd. (1965) 57 ITR 331 (SC). "If there is an apparent conflict between t .....

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deciding the competing claims of two provisions in the same enactment, one specific and other general with some overlapping between the two. The requisite conditions to attract this principle are: Firstly, both the general enactment and the particular enactment must be simultaneously operative, the general enactment covering larger filed and particular enactment covering a limited field out of the larger field covered by the general enactment and, secondly, there must be nothing contained in th .....

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