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TMI Blog2024 (8) TMI 1074X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shri Shailesh Nayampalli For the Respondent/Department : Shri Ajay Kumar Sharma ORDER PER BENCH: 1. This is a batch of cross-appeals and cross objections pertaining to Assessment Years 2012-2013 to 2017-2018. The facts, common to all the cross appeals and cross objections are as under. 1.1. The Assessee is engaged in providing business advisory, taxation and audit related services. In the return of income filed for the relevant assessment year(s), the Assessee claimed deduction for professional fee expenses debited to the Profit & Loss Account. The case of the Assessee was selected for regular scrutiny. During the assessment proceedings the Assessing Officer noted that the Assessee has failed to deduct tax on professional fee paid to various non-residents. According to the Assessing Officer, the professional fee paid to various non-residents was liable to tax in India in the hands of such non-residents in terms of the provisions of the Act read with the applicable articles of the corresponding Double Taxation Avoidance Agreement (for short 'DTAA') between India and the country of tax resident of the search non-resident(s) as (a) Fee for Technical/Included Services (for shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first appellate authority in appeals preferred by the Assessee for the Assessment Years 2009-2010 & 2010-11, and 2011-12. 1.3. Now, both, the Revenue and the Assessee are before us in appeal/cross-objection. 1.4. We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon'ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause (Most Favoured Nation (MFN) clause is contained in various Indian tax treaties with countries that are members of the Organisation for Economic Cooperation and Development (OECD). This clause provides for lower of rate of taxation at source on dividends, interest, royalties or fees for technical services as the case may be, or restriction of scope of royalty/fee for technical services in the tax treaty, similar to concession given to another OECD c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 2.1. The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023: "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 Rs. 11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the payment made by the assessee to its associate concerns based in countries apart from Israel, Philippines constitute payments for Independent Personal service instead of Fees for Technical Services" as defined under Article 12/13 of the respective DTAAs. 3. On the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the payments made by the assessee to its associate concerns based in Israel, Philippines constitute payments for Independent Personal Services instead of "Royalty" as defined under Article 12/13 of the respective DTAAs. 4. On the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law 1. On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act, accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant 2. On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted." 3. We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was under obligation to withhold tax from professional fee paid to non-resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act. 7. In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties (Tax Residents of (1) United Stated America, (2) Tanzania, (3) Ireland, (4) Sri Lanka, (5) Philippines and (6) United Kingdom) [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,029/- made by the Assessing Officer under Section 40(a)(ia) of the Act, the CIT(A) deleted the disallowance of INR 11,12,86,976/- (INR.9,72,62,585 - INR.4,07,375 + INR.5,68,486 - INR.4,47,678 + INR.1,07,97,957 + INR.35,13,001 - INR.8,55,053). 9. Now, both, the Assessee as well as the Revenue are in appeal against before the Tribunal against the above order passed by the CIT(A). 9.1. The Revenue is aggrieved by the deletion of disallowance made by the Assessing Officer under Section 40(a)(i) of the Act. While the Assessee has challenged, by way of cross-appeal, the directions issued by the CIT(A) to the Assessing Officer in respect of the professional fee of INR 8,55,053/- consisting of INR 4,47,678/- and INR 4,07,375/- paid/payable to KPMG Tanzania and Mr. Phillip Baker, respectively. 9.2. By way of cross-objections, the Assessee is supporting order of CIT(A) deleting the disallowance made under Section 40(a)(i) of the Act on the ground that provisions of Section 40(a)(i) and Section 195 of the Act do not get triggered in case the payments made to tax residents of Sweden [at Sl. No 2 of Table in paragraph 5 above] and Spain [at Sl. No 3 & 6 of Table in paragraph 5 above] are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature of FTS liable to tax in India in terms of Article 12/13 of the applicable DTAA in the hands of such non-residents. In view of the judgment of the Hon'ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2023] 458 ITR 756 (SC) the benefit of 'Make Available Clause' was not available in respect of DTAAs having MFN Clause in absence of a separate notification having been issued by the Government of India in respect of the applicable DTAA. FTS Clause being specific clause shall prevail over other general clauses dealing with Book Profits (Article 7) or Independent Personal Services (Article 14/15). (c) Article 14/15 of the DTAAs provides for beneficial treatment only in respect of specified professional services of personal and independent nature provided by individuals. The use of term 'his', 'him' and 'his' clearly shows that the said article was intended to cover only individuals. The provisions contained in Article 14/15 of the applicable DTAAs cannot be interpreted in a manner so as to extend the benefit of the said article to non-residents (other than individuals). The use of expression 'resident of contracting state' must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riate to refer to the relevant legal background common to all the contentions. 13.1. Section 40(a)(i) of the Act, inter alia, provides that while computing the income chargeable under the head 'Profits and Gains of Business or Profession', deduction shall not be allowed for royalty, fees for technical services or other sum chargeable under the Act paid/payable outside India in case of a default committed by the Assessee in withholding tax from the same. 13.2. Section 195 of the Act, inter alia, casts obligation on person responsible for making payment to a non-resident to withhold tax from amounts paid/payable to non-resident payees in case the same is chargeable to tax in India. 13.3. As per Section 4 of the Act, income tax is chargeable in respect of total income of the previous year of every person (including a non-resident). For a non-resident the total income of a previous year is to be determined as per the scope of total income specified in Section 5(2) of the Act read with deeming provisions contained in Section 9 of the Act. 13.4. As per Section 9(1)(vii) of the Act income by way of fee for technical services payable by person resident in India shall be deemed to accru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D Model Tax Convention, 1998 [for Short 'MTC98'] deals with allocation of taxing rights between source state and resident state with respect of Business Profits. Article 7(1) of MTC98 reads as under: "1. The profits of an enterprise of a 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. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment." 13.8. The term 'profits' was not been defined in MTC98 and therefore, had to be given a broad meaning to include all income derived in carrying on an enterprise in a contracting state so that the same could correspond to the use of the term 'profits' as made in the domestic tax laws of OECD member countries. Since the term 'profits' includes all income derived by an enterprise, it was felt desirable to lay down a rule of interpretation in order to clarify the field of application of Article 7 in relation to the other Articles dealing with a specific category of income. (Refer to OE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Article covers income arising in third States as well as income from a Contracting State". In other words, an income is of such a nature as, on satisfaction of conditions specified in the related provision, could be taxed under any of these specific treaty provisions, cannot be covered by this residuary clause. Take for example, income earned by a resident of a contracting state by carrying on business in the other contracting state. When, for example, article 5 provides that the income of resident of a contracting state, from carrying on business in the other contracting state, cannot be taxed in the source state unless such a resident has a permanent establishment in the other contracting state, i.e. source state, it cannot be open to the tax administration of source state to contend that even if it cannot be taxed as business income, it can be taxed as 'other income' nevertheless. It is important to bear in mind the import of expression 'not expressly dealt with in the foregoing articles'. Similarly, if independent personal services cannot be taxed in the source state as minimum threshold limit of fixed base is not satisfied, such a treaty concession cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly, therefore, the income in question is covered by the provisions of the Indo Thai tax treaty but is not taxable on the facts of the case before us as the recipients did not have a PE in India. Once we come to the conclusion that the income embedded in the payments in question is of such a nature which is covered by articles 6 to 21 of the treaty but is not taxable in India as the condition precedent for the taxability under the related article is not satisfied, it is an inevitable corollary of this finding that article 22 cannot be pressed into service in respect of the said income. As we hold so, we are alive to the fact that there is no specific taxability provision, under India Thailand tax treaty with respect to taxability of fees for technical services. Profits earned by rendering fees for technical services are only a species of business profits just as the profits any other economic activity. However, without the character of such receipts in the nature of business receipts being altered, the fee for technical services is dealt with separately in some treaties for the reason because, under those treaties the related contracting states proceed on the basis that even in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... context of Indo Thai tax treaty itself. It is only elementary that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, "the provisions of this (i.e. Income Tax) Act shall apply to the extent they are more beneficial to that assessee". While on this issue, we may also take note of the landmark Special Bench decision in the case of Motorola Inc. vs. Dy. CIT [(2005) 96 TTJ (Del)(SB) 1] wherein the Tribunal had, inter alia, observed that "DTAA is only an alternate tax regime and not an exemption regime" and, therefore, "the burden is first on the Revenue to show that the assessee has a taxable income under the DTAA, and then the burden is on the assessee to show that that its income is exempt under DTAA". Quite clearly, when there is no taxability under the respective treaty provisions, there cannot be any taxability under the provisions of the Income Tax Act either. 1. Ground no. 2 is thus dismissed." (Emphasis Supplied) 13.10. On perusal of above, it can be seen that unless otherwise provided in the specific DTAA, profits of an enterprise from professional services shall fall wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ident of contracting state' has also been used in Article 15 of MTC98 dealing with Dependent Personal Services. However, it is settled position that the benefit Article 15 dealing with dependent personal services can be availed only by individuals. 13.12. We note that Article 14 as contained in MTC98 read as under: "Article 14: Independent Personal Services 1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other State but only so much of it as is attributable to that fixed base. 2. The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants" (Emphasis Supplied) 13.13. The above IPS Clause contained in MTC98 gives right to the source state to tax income from IPS on fulfillment of requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also uses the pronoun "his" when referring to the various criteria for full liability to tax. 15. Whilst the Commentary on Article 14 does not directly deal with this issue, the Commentary on the United Nations Model notes that the Experts Group generally agreed that a payment for services made to an individual would fall under Article 14 whilst "payments made to an enterprise in respect of the furnishing by that enterprise of the activities of employees or other personnel are subject to Article 5" [i.e. would fall under Article 7 because of the definition of permanent establishment under Article 5]. That statement, however, can be explained by the fact that the United Nations Model includes a 183 day rule applicable to services in both Articles but that only the provision in Article 5 is drafted in a way that makes it readily applicable to a legal person. Also, the Commentary of the United Nations Model expressly allows parties that believe that the relationship between Articles 5 and 14 needs to be clarified to do so in the course of negotiations, thereby recognising the potential uncertainty. 16. In an observation included in the Commentary on Article 14 (cf. paragraph 4.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were deleted from the OECD Model Tax Convention on 29 April 2000. Paragraph 1(b) allows the country of source to tax income from independent personal services in one additional situation not covered by paragraph 1 of Article 14 of the 1997 OECD Model Tax Convention: while the former OECD Model Tax Convention allowed the source country to tax income from independent personal services only if the income was attributable to a fixed base of the taxpayer, the United Nations Model Tax Convention also allows taxation at source if the taxpayer is present in that country for more than 183 days in any twelve-month period commencing or ending in the fiscal year concerned. 2-8 xx xx 9. The former Group of experts discussed the relationship between Article 14 and paragraph 3(b) of Article 5. It was generally agreed that remuneration paid directly to an individual for the performance of activities in an independent capacity was subject to the provisions of Article 14. Payments to an enterprise in respect of the furnishing by that enterprise of the activities of employees or other personnel are subject to Articles 5 and 7. The remuneration paid by the enterprise to the individual who performe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ...]. Also in other respects Article 7 and the Commentary thereon could be of assistance for the interpretation of Article 14, e.g. in determining whether computer software payments should be classified as commercial income within Article 7 or 14 or as royalties within Article 12. 4. Even if Articles 7 and 14 are based on the same principles, it was thought that the concept of permanent establishment should be reserved for commercial and industrial activities. The term "fixed base" has therefore been used. It has not been thought appropriate to try to define it, but it would cover, for instance, a physician's consulting room or the office of an architect or a lawyer. A person performing independent personal services would probably not as a rule have premises of this kind in any other State than of his residence. But if there is in another State a centre of activity of a fixed or a permanent character, then that State should be entitled to tax the person's activities." (Emphasis Supplied) 13.16. On perusal of above it can be seen that there were two views in relation to the IPS provided by persons (other than individuals). First, that Article 14 covered only IPS provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g State except in the following circumstances when such income may also be taxed in the other Contracting State :..." USA "15(1) Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State:" Bangladesh " 15(1) Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that Contracting State. However, such income may be taxed in the other Contracting State, if.." Netherlands "14(1) Income derived by a resident of one of the States in respect of professional services or other activities of an independent character shall be taxable only in that State except in the following circumstances, when such income may also be taxed in the other State:..." 13.19. Given the difference in the text of Article 14/15 dealing with i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to non-residents would continue to fall within the ambit of Article 7 or Article 14/15, as the case may be, and shall not be liable to tax in India for identical reasons. We have also concluded that in case the countries having FTS Article with Make Available Clause, in the case of the Assessee for the preceding years, it has been held that the payments for services of similar nature were not liable to tax in India under Article 12 of the applicable DTAA as FTS as the same did not make available any knowledge, skill, experience etc. to the Assessee. In all the aforesaid scenarios, the professional fee paid/payable to non-residents would not be liable to tax in India. As a result the tax withholding requirements contained in Section 195 of the Act would not apply and therefore, provisions of Section 40(a)(i) would not be attracted. 13.23. Thus, what remains to be examined is where the FTS Article of a DTAA, being special Articles having priority over Article 7 of the DTAA by virtue of Article 7(7) or corresponding article of the applicable DTAA, defines the expression 'Fee for Technical Services' in a wide manner to include services which do not make available any skill, knowledge, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid countries should be deleted. 16. Singapore 16.1. The professional fee paid/payable to tax residents of Singapore are listed at Sl. No. 10 and 15 of Table in paragraph 5 above. 16.2. On perusal of Article 14 of India-Singapore DTAA, we find that the benefit of Article 14 is available only to an individual resident of Singapore. Therefore, income from performance of IPS by an enterprise carried on by a firm or a company shall be governed by the provisions contained in Article 7 of India-Singapore DTAA. We note that Article 7(7) of the India-Singapore DTAA provides that where profits include items of income dealt separately by other articles, the provisions of those articles shall not be affected by the provisions of Article 7. We note that Article 12(4)(b) of India-Singapore DTAA contains Make Available Clause. Since, the services provided by tax resident of Singapore to the Assessee do not make available technical knowledge, skill, experience etc to the Assessee, the same shall not qualify as FTS for the purpose of Article 12 of India-Singapore DTAA. Therefore, in the facts of the present case the provisions contained in Articles 7(7) of India-Singapore DTAA would not be attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a PE in India under article 5(2)(k) of the India-UK tax treaty, and, accordingly, profits attributable to the PE are taxable under article 7 of the India-UK tax treaty. 107. In view of the above discussions, we are unable to uphold the plea so strenuously argued by the learned counsel for the assessee, and we hold that the authorities below have rightly invoked the provisions of article 5(2)(k). We approve the same, and decline to interfere in the matter." (Emphasis Supplied) 17.4. As per Article 7(1) of the India-UK DTAA, the Business Profits, to the extent attributable to PE in India, can be brought to tax in India. Similarly, as per Article 15 of India-UK DTAA income from IPS can be brought to tax in India only in case the tax resident of UK has fixed base or physical presence in India. We have noted hereinabove that it is not the case of the Revenue that the tax-resident of UK receiving payments from the Assessee had a PE in India in terms of Article 5 or a fixed base or physical presence in India in terms of Article 15 during the relevant previous year. Therefore, in either case, the payments made to tax resident of UK cannot be brought to tax in India as Business Profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee in appeal before us. The contention of the Assessee before the Tribunal was that the CIT(A) does not have the power to remand the issue back to the file of Assessing Officer. We find merit in the aforesaid contention advanced on behalf of the Assessee. We have already concluded that an individual, who is tax resident of UK, would be entitled to claim benefit of Article 15 of DTAA in respect of income from IPS, and such income would not be liable to tax in India in case such individual does not have a fixed base or physical presence in India in terms of provisions contained in Article 15 of the India- UK DTAA. The contention of the Assessee is that the tax resident of UK did not have a fixed base/physical presence in India during the relevant previous year. The contention of the Revenue is that this aspect requires verification. In view of the aforesaid, we deem it appropriate to restore the issue back to the file of the CIT(A). Accordingly, we direct the CIT(A) to adjudicate the issue afresh after calling for a remand report from the Assessing Officer in this regard, in case the CIT(A) so desires. It is clarified that the Assessee would be granted a reasonable opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfied. In the present case the Revenue has not set up a case that the tax-resident of USA have a fixed base or physical presence in India. 18.4. In view of the above, the income from IPS would not be liable to tax in India under Article 15 in the hands of firm of individuals which is tax resident of USA. Thus, we concur with the conclusion drawn by the CIT(A) that the Assessee was not required to withhold tax from the payments made to tax resident of USA reflected at Sl. No. 12 of Table in paragraph 5 above. Accordingly we do not find any infirmity in the order passed by the CIT(A) holding that the disallowance made by the Assessing Officer in respect of payments made to tax resident USA invoking provisions of Section 40(a)(i) of the Act cannot be sustained. 19. Tanzania 19.1. The professional fee paid/payable to firm of individuals, being tax residents of Tanzania, are listed at Sl. No. 17 of Table in paragraph 5 above. 19.2. On perusal of Article 15 of the India-Tanzania DTAA (Applicable India-Tanzania DTAA entered into force from 12/12/2011 and came into effect from 01/04/2012. [Notification No. 8/2012-FT&TR-II[F.No.503/02/2005-FTDII]/ S.O.No.303(E), dated 16/02/2012]) it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sory Services LLP, Nigeria) and Poland (i.e. KPMG Audht Sp. ZOO LLP, Poland) were in the nature of Income Tax Advisory/Audit services and the same were utilized for the purpose of earning income from customers/clients of the Assessee located outside India. While the Assessing Officer rejected the aforesaid contention, the CIT(A) accepted the same holding that the professional fee paid to tax resident of Nigeria and Poland were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act as the professional fee was paid for earning income from source outside India and therefore, the Assessee was not required to withhold tax from the same. Accordingly, the CIT(A) deleted the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of the professional fee payment under consideration. 20.3. On perusal of the order passed by the CIT(A), we note that there is no discussion on the facts relevant to the adjudication of the issue under consideration. Therefore, in view the aforesaid facts & circumstances and having regard to the submission of the Assessee and material on record, we set aside the order passed by the CIT(A) to this extent and direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers are not subject to tax and consequently, the Appellant was not required to withhold tax from its contributions. It was also contended that the aforesaid remittances were in the nature of reimbursement of costs and therefore, there was no need to withhold tax from the same. Without prejudice to the aforesaid it was submitted that the remittances to KPMGI were in the nature of business profits not taxable in India under Article 7 of the India-Switzerland DTAA in the absence of any Permanent Establishment of KPMGI in India under Article 5 of the DTAA. However, the Assessing Officer was not convinced. The Assessing Officer considered the remittance to KPMGI to be essentially for the use of name and held that the Assessee derived substantial benefits by being part of KPMG group and using the name KPMG. Therefore, the Assessing Officer concluded that the payment were towards acquiring the right to use the name of KPMG and thus, in the nature of royalty taxable in India. Since the remittances were made without withholding tax from the same, the Assessing Officer made disallowance under Section 40(a)(i) of the Act. 22.3. In appeal the CIT(A) deleted the disallowance by following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2001 - 02 in para number 5.15 and 5.16 wherein it has been held that the KPMG and the assessee is having a relationship of mutual Association and its member respectively and no element of income was embedded in the remittances received by the foreign entity. 07. Therefore, the learned assessing officer is in appeal before us. The learned departmental representative imminently supported the order of the learned assessing officer. 08. - 12 xx xx 13. With respect to ground number 5 - 6 of the appeal we find that the coordinate bench in assessee's own case for assessment year 2001 - 02 has already held that contribution paid by the assessee to KPMG cooperative, Switzerland is covered by Mutuality concept i.e. mutual Association on its receipts would not constitute income chargeable to tax. The learned departmental representative could not controvert the above decision of the coordinate bench in assessee's own case, therefore, respectfully following the decision of the coordinate bench in assessee's own case for assessment year 2001 - 02, which has been followed by the learned CIT - A, we do not find any infirmity in the order of the learned CIT - (A) thus, the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit accrued to person other than the Assessee from incurring of expenses, deduction for the same cannot be denied merely on that ground alone so long as the requirement of the law are otherwise satisfied. 23.4. Further, in our view, there is no basis for the ad-hoc disallowance made by the Assessing Officer. During the course of hearing reliance was placed on behalf of the Assessee on the judgment of the Hon'ble Delhi High Court in the case of Principal Commission of Income Tax (Central) - 3, Vs. Seagram Manufacturing Private Limited : [2017] 245 Taxman 389 (Delhi HC). In that case, in similar facts and circumstances, the Hon'ble Delhi High Court confirmed the order passed by the Tribunal deleting ad-hoc disallowance of 10% brand enhancement expenses made by the Assessing Officer observing that disallowance made on an entirely artificial and notional basis from the expense otherwise deductible was not justified. The relevant extract of the aforesaid judgment of the Hon'ble Delhi High Court reads as under: "6. Regarding Question No.2, during the course of proceedings in the relevant Assessment Year 2003-04, the AO disallowed 10% from the expenditure on brand enhancement on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) partly allowing the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Act. 24.1. For the Assessment Year 2012-13 the Revenue has raised 7 grounds of appeal in ITA No. 2272/Mum/2023. Ground No. 1 to 4 pertain to disallowance made under Section 40(a)(i) of the Act in relation to professional fees paid/payable to non-residents; Ground No. 5 & 6 pertain to disallowance made under Section 40(a)(i) of the Act in relation to remittances made to KPMG Cooperative, Switzerland and Ground No. 7 pertain to ad-hoc disallowance at the rate of 25% of the total advertisement and publicity expenses made by the Assessing Officer. 24.2. The Assessee has raised cross objections [CO No.126/Mum/2023] in above appeal preferred by the Revenue in relation to professional fee paid/payable to tax residents of Sweden and Spain setting up a claim that the aforesaid professional fee is not liable to tax in India in terms of Article 14/15 of the applicable DTAA and therefore, tax withholding provisions and consequently, provisions contained in Section 40(a)(i) of the Act are not attracted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Singapore Company 81,57,187 2 25 KPMG Mauritius Firm 37,287 26 KPMG UAE Sole Proprietor 13,50,164 1* 27 KPMG Ireland Firm 78,218 1** 28 K Studio Associate, Italy Firm 10,30,446 1** 29 Lexis Nexis Screening Solutions Inc., USA Company 14,53,993 2 30 Manabat Sanagustin & Co., CPAs, Philippines Firm 15,18,069 1* 31 KPMG Siddhartha Advisory, Indonesia Company 6,86,377 2&& 32 Rahman Rahman Huq, Bangladesh Firm 14,58,496 1* 33 Sarrau Thomas Couderc, France Firm 1,79,644 1&& 34 Scherzer International, USA Company 32,723 2 35 KPMG LLP, USA Firm 3,97,42,963 1 36 KPMG LLP (USCMG), USA Company 2,14,07,696 2 37 KPMG United Kingdom Pic., UK Company 6,83,217 2 38 KPMG Australia Firm 11,65,340 1 39 Somekh Chaikin, Israel Firm 1,52,190 1** 40 Willkie Farr- & Gallagher LLP, USA Firm 12,41,64,354 1 & 41 KPMG Tanacsado Kft, Hungary Company 2,70,249 5 Total 23,52,84,267 27. Ground No. 1 to 4 are directed against the order of CIT(A) deleting/setting aside the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of professional fee aggregating to IN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sl.No.30], (n) Bangladesh [applicable to non-resident party at Sl.No.32], (o) Israel [applicable to non-resident parties at Sl.No.39] 28.2. In absence of fixed base/physical presence of tax residents of the above countries in India, professional fee paid/payable to such non-residents would not be liable to tax in India in terms of Article 14/15 of the applicable DTAA. There is nothing on record to persuade us to take a different view. Thus, the Assessee would not under obligation to withhold tax from the payments under consideration. Therefore, we concur with the conclusion drawn by the CIT(A) that the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of the professional fee paid/payable to tax residents of aforesaid countries should be deleted. 29. Singapore 29.1. The professional fee paid/payable to tax residents of Singapore are listed at Sl. No. 18, & 24 of Table in paragraph 26 above. 29.2. In view of paragraph 16 to 16.2 above, we hold that in the facts of the present case the provisions contained in Articles 7(7) of India-Singapore DTAA would not be attracted and the profession fee paid/payable to tax residents of Singapore shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by Article 5 read with Article 7 of the India-UK DTAA. As per Article 7(1), the Business Profits, to the extent attributable to PE in India, can be brought to tax in India. Similarly, as per Article 15 of India-UK DTAA income from IPS can be brought to tax in India in case of existence of fixed base or physical presence in India during the relevant previous year. We have noted in paragraph 10 above that the Revenue has not set up a case to show that the tax-resident of UK had a PE in India in terms of Article 5 or a fixed base or physical presence in India in terms of Article 15 of India-UK DTAA during the relevant previous year. Therefore, in either case, the payments made to tax resident of UK cannot be brought to tax in India as Business Profits or as income from IPS. Therefore, we concur with the conclusion drawn by the CIT(A) that the Assessee was not required to withhold tax from the payments made to tax residents of UK reflected at Sl.No. 14, 19 & 37 of Table in paragraph 26 above. There is nothing on record to persuade us to take a different view. Accordingly, we do not find any infirmity in the order passed by the CIT(A) deleting the disallowance made under Section 40( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he professional fee paid/payable to tax residents of Canada reflected at Sl. No. 17 of Table in paragraph 26 above. Accordingly, we concur with the conclusion drawn by the CIT(A) and decline to interfere with the order passed by the CIT(A) deleting the disallowance made under Section 40(a)(i) of the Act in respect of aforesaid professional fee. 34. France 34.1. The professional fee paid/payable to firm of individuals being tax residents of France are listed at Sl. No. 33 of Table in paragraph 26 above. 34.2. On perusal of Article 15 of the India-France DTAA it becomes clear that the benefit of the said article is available to an individual and firm of individuals. Thus, the income from professional services derived by an enterprise carried on by a firm of individual in India shall be governed by the provisions contained in Article 15 of the India-France DTAA. Since the Revenue has failed to set up a case that tax resident of France has a fixed base or physical presence in India in terms of Article 15(1)(a) and 15(1)(b) of the India-France DTAA, respectively, such income would not be liable to tax in India. As a result, the Assessee would not be required to withhold tax from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ysical presence of non-resident(s) in India during the relevant previous year, and the existence of source of income being outside India; required verification. However, the CIT(A) could not have simply set aside the issue to the file of the Assessing Officer. Therefore, we deem it appropriate to set aside the order passed by the CIT(A) to this extent. The CIT(A) is directed to adjudicate the issue/grounds raised by the Assessee after calling for a remand report from the Assessing Officer. Since we have restored the issue back to the file of CIT(A), all rights and contentions of the Assessee are left open. The CIT(A) shall grant a reasonable opportunity of being heard to the Assessee. 37. In view of the above, Ground No. 1 to 4 raised by the Revenue are partly allowed; Cross Objection No. 1 raised by the Assessee is allowed; and Ground No. 1 & 2 raised by the Assessee are allowed for statistical purposes. Ground No. 5 & 6 raised by the Revenue 38. Ground No. 5 raised by the Revenue pertains to disallowance of INR 10,89,14,639/- made by the Assessing Officer under Section 40(a)(i) of the Act in respect of remittance of made by the Assessee to KPMG International Cooperative, Switz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot attracted in relation to the same. 40.3. The Assessee has raised the 2 grounds of appeal in ITA No. 2415/Mum/2023 challenging the direction given by CIT(A) to verify arguments made by the Assessee in respect of disallowance made by the Assessing Officer under Section 40(a)(i) of the of the Act in respect of aggregate professional fee of INR 39,87,237/-. 41. Both the sides had adopted the submission made in relation to issues raised in appeal for the preceding assessment year. Accordingly, keeping in view our reasoning/findings/adjudication in relation to appeal/cross-appeal/cross objection pertaining to preceding assessment years, we proceed to adjudicate the above issues raised pertaining to Assessment Year 2014-15. 42. For the Assessment Year 2014-15, the Assessee claimed deduction for the following professional fee paid/payable to the non-residents aggregating to INR 91,450,086/- . Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref 1 KPMG LLP, UK LLP 2,43,99,801/- 2 2 KPMG Services Pte Ltd(Singapore) Company 2,29,03,186/- 2 3 Manabat Sanagustin & Co. CPAs (Philippines) Firm 70,48,006/- 1 4 KPMG Australia Firm 48,89,515/- 1 5 KPMG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the nature of income from IPS which cannot be brought to tax in India in absence of fixed base/physical presence of tax resident of Sweden/Spain in India. 44. Article 14/15 on IPS containing the expression 'resident of contracting state' 44.1. On perusal of Article 14/15 of DTAA entered by India with the following countries (Please refer to Table in paragraph 42 for details) we find that the scope of IPS Article contained in the applicable DTAA covers income derived by 'resident of a contacting state' from IPS: (a) Singapore [applicable to non-resident parties at Sl.No.2, & 5]; (b) Philippines [applicable to non-resident party at Sl.No.3]; (c) Netherlands [applicable to non-resident parties at Sl.No.7,10, & 11]; (d) Indonesia (Applicable India-Indonesia DTAA [Repealed by Notificaiton No. S.O. 1144(E) [NO. 17/2016 (F.NO. 503/4/2005-FTD-II], DATED 16-3-2016]) [applicable to non-resident parties at Sl.No.9 & 21]; (e) Bangladesh [applicable to non-resident party at Sl.No.12]; (f) Spain [applicable to non-resident party at Sl.No.13]; (g) Sweden [applicable to non-resident party at Sl.No.14]; (h) Mauritius [applicable to non-resident party at Sl.No.16]; (i) Sri Lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer Section 40(a)(i) of the Act in respect of the same. 47. New Caledonia 47.1. The professional fee paid/payable to firm of individuals being tax residents of New Caledonia are listed at Sl.No.15 of Table in paragraph 42 above. 47.2. During the course of hearing, in support of the order passed by the CIT(A), it was submitted on behalf of the Assessee that India does not have a DTAA with New Caledonia. However, as per the provisions contained in Section 9(1)(vii)(b) of the Act the professional fee paid to tax resident of New Caledonia is not liable to tax in India. It was submitted that the aforesaid professional fee was paid for earning income from source outside India being Branch of an Indian Company (i.e. Bharat Heavy Electricals Ltd). The Assessee had no obligation to withhold tax and therefore, no disallowance could have been made under Section 40(a)(i) of the Act. The aforesaid submissions were opposed by the Learned Departmental Representative. On perusal of the order passed by the CIT(A), we note that there is no discussion on the facts relevant to the adjudication of the issue under consideration. Therefore, in view the aforesaid facts & circumstances and having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of professional fee paid/payable to tax resident of France has been correctly disallowed by the Assessing Officer by invoking provisions contained in Section 40(a)(i) of the Act. To this extent we uphold the contention of the Revenue and overturn the decision of CIT(A) reinstating disallowance of professional fee paid/payable to company being tax residents of France listed at Sl.No.20 of Table in paragraph 42 above. 50. Belgium 50.1. The professional fee paid/payable to firm of individuals being tax residents of Belgium are listed at Sl. No. 26 of Table in paragraph 42 above. 50.2. On perusal of Article 14 of the India-Belgium DTAA it becomes clear that the benefit of the said article is available to an individual. Thus, the income from professional services derived by an enterprise carried on by a company shall not be governed by the provisions contained in Article 15 of the India-Belgium DTAA and shall fall within the Ambit of Article 7 dealing with Business Profits generally. Article 7(7) of the India-Belgium DTAA provides that when profits include items of income covered separately by other articles, then the provision of those special articles shall not be affected by Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia as per Section 9(1)(vii)(b) of the Act. It was submitted that the Assessee was engaged by the customers in Kuwait and therefore, the professional services under consideration were utilized for the purpose of earning income from source outside India. Entire work was done outside India. The aforesaid submissions were opposed by the Learned Departmental Representative. On perusal of the order passed by the CIT(A), we note that there is no discussion on the facts relevant to the adjudication of the issue under consideration. In our view the tax resident of Kuwait is entitled to claim the benefit of more beneficial provisions contained in the Act. Thus, in case the professional fee is not chargeable to tax in hands of tax resident of Kuwait as per the provisions of the Act, the tax withholding provisions contained in Section 195 of the Act and the provisions contained in Section 40(a)(i) of the Act would not get attracted. Therefore, keeping in view the aforesaid facts & circumstances and having regard to the submission of the Assessee as well as the material on record, we set aside the order passed by the CIT(A) to this extent and direct the CIT(A) to adjudicate the issue afresh aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change fluctuation of INR 23,00,200/- which was deleted by the CIT(A) as being consequential in nature. The aforesaid amount is included in amount of INR 9,14,50,086/- specified in Ground No. 1 raised by the Revenue. As per the chart furnished by the Assessee the foreign exchange fluctuation loss pertains to professional fee paid/payable to tax residents of UK, Sweden, Indonesia and Bangladesh. We have confirmed the order passed by the CIT(A) deleting the disallowance made under Section 40(a)(i) of the Act in respect of the professional fee paid to the tax residents aforesaid countries. Accordingly, the order passed by CIT(A) deleting the disallowance of the aforesaid loss on account of foreign exchange fluctuation is also confirmed. 55. In view of the above, Ground No. 1 to 4 raised by the Revenue are partly allowed; Cross Objection No. 1 raised by the Assessee is allowed; and Ground No. 1 & 2 raised by the Assessee are allowed for statistical purposes. Ground No. 5 & 6 raised by the Revenue 56. Ground No. 5 raised by the Revenue pertains to disallowance of INR 22,65,64,370/- made by the Assessing Officer under Section 40(a)(i) of the Act in respect of remittance of made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in Section 40(a)(i) of the Act are not attracted in relation to the same. 58.3. The Assessee has raised the 2 grounds of appeal in ITA No. 2414/Mum/2023 challenging the direction given by CIT(A) to verify arguments made by the Assessee in respect of disallowance made by the Assessing Officer under Section 40(a)(i) of the of the Act in respect of aggregate professional fee of INR 68,04,160/-. 59. Both the sides had adopted the submission made in relation to issues raised in appeal for the preceding assessment years. Accordingly, keeping in view our reasoning/findings/adjudication in relation to appeal/cross-appeal/cross objection pertaining to preceding assessment years, we proceed to adjudicate the above issues raised pertaining to Assessment Year 2015-16. 60. For the Assessment Year 2015-16, the Assessee claimed deduction for the following professional fee paid/payable to the non-residents aggregating to INR 13,18,09,731/- Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref 1 B.K. Agrawal & Co, Nepal Firm 1,03,488 1 2 Blakes Professional Corporation, Canada Company 4,99,680 2 3 Financial Reporting Council Ltd, UK Company 18,61,540 2 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orting order of CIT(A) deleting the disallowance made under Section 40(a)(i) of the Act on the ground that provisions of Section 195 of the Act and consequently the provisions contained in Section 40(a)(i) of the Act do not get triggered since the professional fee paid/payable to tax residents of Sweden & Spain [at Sl. No 8 and 14 & 25, respectively, of Table in paragraph 60 above] are not liable to tax in India in terms of Article 14/15 of the corresponding DTAAs since the same are in the nature of income from IPS which cannot be brought to tax in India in absence of fixed base/physical presence of tax resident of Sweden/Spain in India. 62. Article 14/15 on IPS containing the expression 'resident of contracting state' 62.1. On perusal of Article 14/15 of DTAA entered by India with the following countries (Please refer to Table in paragraph 60 for details) we find that the scope of IPS Article contained in the applicable DTAA covers income derived by 'resident of a contacting state' from IPS: (a) Singapore [applicable to non-resident parties at Sl.No. 6, & 23]; (b) Philippines [applicable to non-resident party at Sl. No. 31 & 32]; (c) Netherlands [applicable to non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any technical knowledge, skill, experience etc. to the Assessee. Therefore, the provisions contained in Article 7(7) of India-Canada DTAA would not be triggered. Thus, the payments made to company, being tax residents of Canada, would not fall within the ambit of Article 12 and shall be governed by Article 7 of the India-Canada DTAA. In case the tax resident of Canada does not have a PE in India, the same would not be taxable in India in terms of Article 7(1) of the DTAA. In the present case the Revenue has not set up a case that the tax resident of Canada has a PE in India. In view of the aforesaid, we concur with the conclusion drawn by the CIT(A) that the Assessee was not required to withhold tax from the payments made to tax residents of the Canada reflected at Sl. No. 2 of Table in paragraph 60 above. Accordingly we do not find any infirmity in the order passed by the CIT(A) deleting the disallowance made under Section 40(a)(i) of the Act in respect of the aforesaid professional fee payment to tax resident of Canada. 64. United Kingdom (UK) 64.1. The professional fee paid/payable to tax residents of United Kingdom, being LLP/company, are listed at Sl. No. 3, 16, 27 & 34 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication with directions identical to those given for Assessment Year 2014-15 in paragraph 53 above. Since we have restored the issue back to the file of the CIT(A), all right and contention of the Assessee are left open. 67. Saudi Arabia 67.1 The professional fee paid/payable to tax residents of Saudi Arabia, being a firm of individuals, are listed at Sl. No. 13 of Table in paragraph 60 above. 67.2 Adopting the reasoning given in paragraph 32.1 to 32.2, we hold that the professional services provided by a firm of individuals, being the tax-resident of Saudi Arabia, to the Assessee would be characterized as profits falling within the ambit of Article 7 of the DTAA. In case the tax resident of Saudi Arabia does not have a PE in India, such profits would not be liable to tax in India. The Revenue has failed to set up a case that the tax resident of Saudi Arabia had a Permanent Establishment in India during the relevant previous year. Therefore, we concur with the conclusion drawn by the CIT(A) that the disallowance made under Section 40(a)(i) of the Act in respect of payments made to a firm of individuals, being tax residents of Saudi Arabia, at Sl.No.13 of Table in paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d reasonable opportunity of being heard. 70. Australia 70.1. The professional fee paid/payable to firm of individuals being tax residents of Australia are listed at Sl. No. 28 of Table in paragraph 60 above. 70.2. Payments made to tax resident of Australia, being a firm of individuals, is not liable to tax in India in the present case in view of reasoning given in paragraph 35 to 35.2 above. Accordingly, the Assessee was not under obligation to deduct tax from the amounts paid/payable to the tax residents of the aforesaid countries and therefore, we do not find any infirmity in the order passed by the CIT(A) deleting the disallowance made by the Assessing Officer Section 40(a)(i) of the Act Ground No. 1 & 2 raised by the Assessee - Remand to Assessing Officer 71. As regards the professional fee aggregating to INR 68,04,160/- [at Sl. No. 1, 30 & 36 of Table at Paragraph 60 Above] the CIT(A) has remitted the issue to the file of Assessing Officer for adjudication after verification. Adopting the reasoning given in paragraph 36 above, we set aside the order passed by the CIT(A) to this extent and direct the CIT(A) to adjudicate the issue/grounds raised by the Assessee after calli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not find any infirmity in the order passed by the CIT(A) and therefore, Ground No. 7 raised by the Revenue are dismissed. Assessment Year 2016-17 75. Next we would take up appeal/cross-appeal/cross-objection pertaining to Assessment Year 2016-17 arising from order, dated 09/05/2023, passed by the CIT(A) partly allowing the appeal of the Assessee against the Assessment Order, dated 24/12/2019, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Act. 75.1 For the Assessment Year 2016-17 the Revenue has raised 7 grounds of appeal in ITA No. 2276/Mum/2023. Ground No. 1 to 4 pertain to disallowance made under Section 40(a)(i) of the Act in relation to professional fees paid/payable to non-residents; Ground No. 5 & 6 pertain to disallowance made under Section 40(a)(i) of the Act in relation to remittances made to KPMG Cooperative, Switzerland and Ground No. 7 pertain to ad-hoc disallowance at the rate of 25% of the total advertisement and publicity expenses made by the Assessing Officer. 75.2 The Assessee has raised cross objections [CO No.128/Mum/2023] in the above appeal preferred by the Revenue in relation to professional fee paid/pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pte.Ltd. Singapore Company 16,200,770/- 2 19 KPMG Siddharta Advisory, Indonesia Company 981,691/- 2 20 KPMG Spain (KPMG Assesores S.L.) Company 1,735,530/- 2 21 KPMG Tax and Advisory LLC, Kazakhstan Company 29,123/- 22 KPMG Tax Services Ltd. Mauritius Company 1,762,800/- 2 23 KPMG, Kenya Firm 3,122,626/- 1 24 KPMG, Mauritius Firm 471,438//- 1 25 R.G Manabat & Co. Philippines Firm 4,063,956/- 1 26 Rahman Rahman Huq. Bangladesh Firm 1,152,942/- 2 Total 13,69,99,679/- Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; 78. Ground No. 1 to 4 are directed against the order of CIT(A) deleting/setting aside the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of professional fee aggregating to INR 13,69,99,679/-. By way of cross-objections, the Assessee is supporting order of CIT(A) deleting the disallowance made under Section 40(a)(i) of the Act on the ground that provisions of Section 195 of the Act and consequently the provisions contained in Section 40(a)(i) of the Act do not get triggered since the professional fee paid/payable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e countries in India, professional fee paid/payable to such non-residents would not be liable to tax in India in terms of Article 14/15 of the applicable DTAA. There is nothing on record to persuade us to take a different view. Thus, the Assessee was not under obligation to withhold tax from the payments under consideration. Therefore, we concur with the conclusion drawn by the CIT(A) that the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of the professional fee paid/payable to tax residents of aforesaid countries cannot be sustained. 81. United Stated of America (USA) 81.1. The professional fee paid/payable to tax residents of USA are listed at Sl. No. 3 & 13 of Table in paragraph 77 above. 81.2. In view of paragraph 18 to 18.4 above, we concur with the conclusion drawn by the CIT(A) that the Assessee was not required to withhold tax from the payments made to tax resident of USA reflected at Sl.No. 3 & 13 of Table in paragraph 77 above. Accordingly we do not find any infirmity in the order passed by the CIT(A) deleting the disallowance made by the Assessing Officer in respect of payments made to tax resident USA invoking provisions of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, we set aside the order passed by the CIT(A) deleting the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of professional fee paid/payable to firm of individuals being tax resident of Kuwait listed at Sl. No. 17 of Table in paragraph 77 above; and direct the CIT(A) to adjudicate the issue afresh after verification of facts prevailing during the relevant previous year. The Assessee would be at liberty to furnish such documents/details at the Assessee may deem fit to support its contentions. All rights and contentions of the Assessee are left open. The Assessee shall be granted reasonable opportunity of being heard. Ground No. 1 & 2 raised by the Assessee - Remand to Assessing Officer 85. As regards the professional fee aggregating to INR 56,60,499/- [at Sl. No. 4, 5, 7, 10, 21 & 23 of Table at Paragraph 77 Above] the CIT(A) has remitted the issue to the file of Assessing Officer for adjudication after verification. Adopting the reasoning given in paragraph 36 above, we set aside the order passed by the CIT(A) to this extent and direct the CIT(A) to adjudicate the issue/grounds raised by the Assessee after calling for a remand report from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 40(a)(i) of the Act in relation to remittances made to KPMG Cooperative, Switzerland and Ground No. 7 pertain to ad-hoc disallowance at the rate of 25% of the total advertisement and publicity expenses made by the Assessing Officer. 89.3 The Assessee has raised cross objections [CO No.123/Mum/2023] in the above appeal preferred by the Revenue in relation to professional fee paid/payable to tax residents of Sweden and Spain setting up a claim that the aforesaid professional fee is not liable to tax in India in terms of Article 14/15 of the applicable DTAA and therefore, tax withholding provisions contained in Section 195 of the Act and consequently, the provisions contained in Section 40(a)(i) of the Act are not attracted in relation to the same. 89.4 The Assessee has raised the 2 grounds of appeal in ITA No. 2277/Mum/2023 challenging the direction given by CIT(A) to verify averments/submission made by the Assessee in respect of disallowance made by the Assessing Officer under Section 40(a)(i) of the of the Act in respect of aggregate professional fee of INR 39,87,237/-. 90. Both the sides had adopted the arguments made in relation to issues raised in appeal for the prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 32 KPMG Meijburg& Co, Netherlands Company 3,59,158 2 Total 18,05,48,835 Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; 92. Ground No. 1 to 4 raised by the Revenue are directed against the order of CIT(A) deleting/setting aside the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of professional fee aggregating to INR 18,05,48,835/-. By way of cross-objections, the Assessee is supporting order of CIT(A) deleting the disallowance made under Section 40(a)(i) of the Act on the ground that provisions of Section 195 of the Act and consequently the provisions contained in Section 40(a)(i) of the Act do not get triggered since the professional fee paid/payable to tax residents of Sweden & Spain [at Sl. No 2 and 3 & 6, respectively, of Table in paragraph 91 above] are not liable to tax in India in terms of Article 14/15 of the corresponding DTAAs since the same are in the nature of income from IPS which cannot be brought to tax in India in absence of fixed base/physical presence of tax resident of Sweden/Spain in India. 93. Article 14/15 on IPS containing the expression 'resid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act 95. Saudi Arabia 95.1. The professional fee paid/payable to firm of individuals, being tax residents of Saudi Arabia, are listed at Sl. No. 10 of Table in paragraph 91 above. 95.2. Adopting the reasoning given in paragraph 32.1 to 32.2, we hold that the professional services provided by a firm of individuals, being the tax-resident of Saudi Arabia, to the Assessee would be characterized as profits falling within the ambit of Article 7 of the DTAA. In case the tax resident of Saudi Arabia does not have a PE in India, such profits would not be liable to tax in India. The Revenue has failed to set up a case that the tax resident of Saudi Arabia had a Permanent Establishment in India during the relevant previous year. Therefore, we concur with the conclusion drawn by the CIT(A) that the disallowance made under Section 40(a)(i) of the Act in respect of payments made to a firm of individuals, being tax residents of Saudi Arabia, at Sl.No.10 of Table in paragraph 91 above cannot be sustained. Therefore, we decline to interfere with the order passed by the CIT(A) in this regard. 96. Australia 96.1. The professional fee paid/payable to firm of individuals being tax residents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made to tax residents Thailand reflected at Sl. No. 23 of Table in paragraph 91 above. Therefore, we concur with the conclusion drawn by the CIT(A) that the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of payments made to tax residents of Thailand cannot be sustained. 99. France 99.1. The professional fee paid/payable to company being tax residents of France are listed at Sl. No. 20 of Table in paragraph 91 above. 99.2. In view of reasoning given in paragraph 49 to 49.2 above, we hold that in the present case the services provided by a company being tax-resident of France to the Assessee would fall within the ambit of Article 13 of the DTAA and therefore, the tax withholding provisions contained in Section 195 of the Act would be attracted. Since the Assessee had failed to comply with tax withholding requirements contained in Section 195 of the Act, deduction claimed by the Assessee in respect of professional fee paid/payable to tax resident of France has been correctly disallowed by the Assessing Officer by invoking provisions contained in Section 40(a)(i) of the Act. To this extent we uphold the contention of the Revenue and ove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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