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TMI Blog2021 (3) TMI 832X X X X Extracts X X X X X X X X Extracts X X X X ..... tax (Appeals) is contrary to law, facts and in the circumstances of the case. 2. The Commissioner of Income tax (Appeals) erred in confirming the action of the assessing officer in disallowing the legal and consultancy payment to K&L Gates and retainer fee payment to TWBCA for non deduction of tax under section 195 disregarding the fact that the payment is not chargeable to tax in India as services were rendered outside India and hence no withholding tax ligation in this case. 3. The Commissioner of Income tax (Appeals) ought to have appreciated that M/s.K&L Gates is a law firm providing professional services and the retainer fee for rendering professional services is not taxable in India as it does not make available any technical kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken up for scrutiny and during the course of assessment proceedings, the AO on the basis of evidences filed by the assessee opined that TDS is required to be deducted even though the payment is made to the offshore entities as per the provisions of section 195 of the Act, and accordingly for non-deduction of tax at source, expenditure cannot be allowed as deduction u/s.40(a)(i) of the Act. Accordingly, made disallowance of Rs. 28,34,926/- towards professional charges paid to TWB CA and KL Gates. Similarly, the AO has made additions towards provision for expenses being internet charges and professional charges u/s.40(a)(ia) of the Act, for non-deduction of tax at source u/s.194J of the Act. The assessee carried the matter in appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services or other independent activities of a similar character shall be taxable only in that State unless the individual or firm has a fixed base in India. The ld.AR further submitted that even professional charges paid to a company of Chartered Accountants is outside the scope of provisions of section 195 of the Act, because as per Article 7 of DTAA between India and Australia, the profits of an enterprise of one of the Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. In this case, TWB CA does not have any permanent establishment in India and professional services are rendered outside India in connection with f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en made without deduction of tax at source u/s.195 of the Act. Similarly, the assessee has paid professional charges to M/s. TWB CA for filing of statutory returns and liaisoning with legal statutory authorities without deduction of tax at source u/s.195 of the Act. The AO has disallowed both payments u/s.40(a)(i) of the Act, for non-deduction of tax at source u/s.195 of the Act. We have considered arguments of the assessee in light of facts brought out by the AO and find that professional services rendered by an individual or a firm of individuals [other than a company] who is a resident of one of the Contracting States is taxable only in that State unless individual or firm has a fixed base in India. In this case, on perusal of details ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory authorities. Therefore, said payment is outside the scope of provisions of section 195 of the Act, because it is neither in the nature of royalties as defined u/s.9(1)(vi) of the Act nor in the nature of fess for technical services because the nature of services rendered by the company of accountants does not make available technical knowledge, expertise, skill, know-how or processes to the assessee. Therefore, said payment is also outside the scope of provisions of section 195 of the Act and thus, the assessee is not liable to deduct tax at source u/s.195 of the Act. Therefore, we are of the considered view that the AO as well as the CIT(A) has erred in disallowing professional charges paid to offshore entities for non-deduction of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or before furnishing return of income u/s.139(1) of the Act, then such payment cannot be disallowed u/s.40(a)(ia) of the Act. In this case, the AO has disallowed provision for expenses like internet charges and professional charges on the ground that the assessee has failed to deduct tax at source u/s.194J of the Act. It is a case of the assessee that it has deducted TDS on impugned payments in subsequent financial year, but before the due dates specified in sub-section (1) of section 139 of the Act. If the claim of the assessee is correct, then the impugned payments cannot be disallowed u/s.40(a)(ia) of the Act. Therefore, to verify the facts the issue has been set aside to the file of the AO for the limited purpose of verification with re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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