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TMI Blog2021 (12) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... course of assessment proceedings, the Assessing Officer noticed that out of total expenditure incurred of Rs.20,10,394/- on interior decoration, repair and maintenance of the office premises, an amount of Rs.9,00,000/- was paid to Ms. Anjali Lall, wife of the assessee, for professional services rendered by her. He also noticed that the assessee has deducted TDS under section 194C of the Act on the amount paid to Ms. Anjali Lall. In the audit report also, the amount paid to Ms. Anjali Lall was shown as a payment made to a related party. Being of the view that the payment made to Ms. Anjali Lall is unreasonable and excessive having regard to the market value, the Assessing Officer disallowed the amount under section 40A(2) of the Act. While doing so, the Assessing Officer observed that the assessee failed to establish on record that Ms. Anjali lall had the required technical qualification to do the work. Though, the assessee contested the disallowance before learned Commissioner (Appeals), however, he was unsuccessful. 4. Drawing our attention to section 40A(2) of the Act, learned Counsel for the assessee submitted, the Assessing Officer cannot proceed merely on the basis of surmis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll can be disallowed under section 40A(2) of the Act. On reading of the respective orders of the departmental authorities, it is very much clear that the disallowance was made primarily for two reasons. Firstly, Ms. Anjali Lall does not possess the required qualification to undertake the job of interior decoration, repair and maintenance and secondly, the payment is unreasonable and excessive. 7. A plain reading of section 40A(2) of the Act would make it clear that where the payment made to a related party, in the opinion of the Assessing Officer, is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made, it has to be disallowed. However, the expression "the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities" as used in section 40A(2) of the Act makes it abundantly clear that the opinion of the Assessing Officer cannot be formed in vacuum and without any cogent evidence. It is the Assessing Officer who has to establish on record that the payment made to the related party is unreasonable and exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remises payment made to twenty four non-residents aggregating to Rs.65,94,144/- was disallowed under section 40(a)(i) of the Act for non-deduction of tax at source. Though, the assessee contested the aforesaid disallowance before learned Commissioner (Appeals), however, he was unsuccessful. 11. The learned counsel for the assessee submitted, out of the total disallowance of Rs.65,94,145/-, the payment made towards reimbursement of amount recovered on behalf of the client in litigation, payment of official fee, payment for publication and trade fair services has to be deleted at the threshold itself as such payments do not attract the provisions of section 195 of the Act. Proceeding further, he submitted, the payments are not in the nature of Fees for Technical Services (FTS), hence, cannot be considered to be income chargeable to tax in India. Drawing our attention to section 9(1)(vii) of the Act, he submitted, the provision is applicable only to the payment made towards FTS. He submitted, payment made by the assessee to foreign attorneys/lawyers are not in the nature of FTS but are fees for professional services. He submitted, technical service is distinct from professional servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, the departmental authorities have examined the applicability of respective DTAAs qua the payments made. He submitted, since the beneficial provisions of DTAA would override the domestic laws in terms of section 90(2) of the Act, there is no obligation on the assessee to deduct tax at source on the payments made. In support, learned counsel relied upon the following decisions:- i. CIT vs. Dunlop Rubber Co. Ltd.: (1983) 142 ITR 493 (Cal) ii. ABB Ltd.: 322 ITR 564 iii. ITO v. CGI Information Systems in ITA No. 1376/Bang iv. ACIT vs. Modicon Network: 14 SOT 204 v. CIT vs. Fortis Healthcare Ltd: 181 Taxman 257 vi. CIT v. Siemens Aktiongesellschaft: 220 CTR 425 vii. C.I.T. vs. Stewards and Llyods, 165 ITR 416 (Cal) viii. CIT vs. Sundwiger Emfg. & Co.: 262 ITR 116 (AP) ix. Mahindra & Mahindra: 313 ITR (AT) 263 (SB)(MUM) x. Coca Cola India Inc. v. ACIT: (2006) 7 SOT 224 (Del) xi. Clifford Chance v. DCIT: 82 ITD 106 (Mum) xii. Hyder Consulting Ltd. v. CIT: 236 ITR 640 (AAR) xiii. DECTA v. CIT: 237 ITR 190 (AAR) xiv. Cholamandalam MS General Insurance Co. Ltd: 309 ITR 356 (AAR) xv. GE India Technology Centre (P) Ltd. Vs. CIT : 327 ITR 456 (SC) xvi. Enginee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even in respect of payees situated in countries with whom India has entered into DTAA, the assessee failed to furnish TRCs. Therefore, the disallowance made is justified. 15. We have considered rival submissions in the light of the decisions relied upon and perused the material available on record. Facts on record reveal that out of the total payments of Rs.1,89,44,688/- to certain non-resident persons/entities towards legal/professional fees, the Assessing Officer has allowed an amount of Rs.1,23,50,544/-. In other words, he has disallowed Rs.65,94,144/- under section 40(a)(i) of the Act for failure to deduct tax at source under section 195 of the Act. Further, it is evident, the aforesaid disallowance was made solely for the reason that assessee failed to furnish TRCs of the nonresidents to whom such payments were made. In the synopsis filed before us, learned counsel for the assessee has furnished the details of payments made, as under:- S. No. Party Name Status Country Amount (INR) Nature of services I. Professional fee naid to foreign attorneys 1. Stepanovski Papakul & Partners Firm Belarus 76,560 Legal Opinion on the issue of Trademarks 2. Cambridge Mercanti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... air services 23. Chamber & Partners Firm United Kingdom 30,864 Publication and Trade fair services 24. Haveeru Daily Firm Maldives 3,84,620 Publication and Trade fair services Sub-total (IV) 4,15,484 Grand Total (I)+(II)+(III)+ (IV) 65,94,145 16. A careful perusal of the information furnished in the tabular form reveals that payment of Rs.10,68,995/- to Eli Lilly and company, New Zealand, is towards remittance of amount recovered in court proceeding on behalf of the client in litigation. Further, a payment of Rs.2,56,973/- was made to World Intellectual Property, Switzerland, towards official fee for international application. Similarly, amount of Rs.4,15,484/- was paid to two entities in United Kingdom and Maldives for publication and trade fair services. In our considered view, these payments being in the nature of reimbursement and payment made for official purpose and trade fair services cannot come within the purview of either professional or technical services. Therefore, such payments aggregating to Rs.17,41,450/- not being in the nature of income chargeable to tax in India in terms of section 195 of the Act, there was no obligation on the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction in India or it has rendered services in India. 19. Factually, the payments made to non-resident attorneys are neither in the nature of interest, nor in the nature of royalty. This is not even the case of the Revenue as well. Therefore, it has to be seen, whether the payment made comes within the ambit of FTS. Explanation 2 to Section 9(1)(vii) defines FTS to mean any consideration received for any managerial, technical or consultancy services, including provision of services by technical or other personnel. In the facts of the present case, undisputedly, the payments to non-resident attorneys are purely for providing legal/professional services. On careful examination of various provisions of the Act brought to our notice by learned counsel for the assessee, we are convinced that the domestic law provisions recognize legal/professional services and FTS as two distinct and separate categories. 20. Therefore, payments made to non-resident attorneys cannot be regarded as FTS under section 9(1)(vii) of the Act. Further, a conjoint reading of section 40(a)(i) and 40(a)(ia) brings out a clear distinction between FTS and fees for professional services. Though, section 40(a)(ia) en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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