2010 (10) TMI 995 - AT - Income Tax

Summary

Issues involved: Cross appeals against the order of CIT(Appeals)-XXXIII, Mumbai dated 27-11-2006 regarding payment made to M/s KPMG International without deduction of tax at source u/s 195 of the I.T. Act.

Facts and Main Contention of the Assessee: The assessee, an Indian member firm of M/s KPMG International, made a payment to M/s KPMG International, Switzerland without deducting tax at source u/s 195 of the I.T. Act. Assessee claimed that the payment was reimbursement of costs and not income chargeable to tax, invoking the Principle of Mutuality. AO held assessee in default u/s 201(1) and levied interest u/s 201(1A). CIT(A) held the payment to be royalty and directed reworking of amounts payable u/s 201(1) and interest u/s 201(1A).

Assessee's Grounds of Appeal: Assessee appealed against the characterization of payments as royalty and failure to adjudicate on whether KPMG International is a mutual organization, the nature of the relationship with the assessee, and the presence of income in the remittances.

Revenue's Appeal: Revenue appealed against acceptance of fresh evidence and the treatment of payments for bank guarantee and insurance as reimbursement of expenses not subject to tax deduction.

Decision: The ITAT held that the issue of whether the payment made to M/s KPMG International is chargeable to tax under the Act should have been adjudicated by the CIT(A). Citing a Supreme Court judgment, the ITAT emphasized the assessee's right to argue that the payment does not give rise to taxable income and directed the CIT(A) to decide on the chargeability of the payments. The ITAT rejected the Revenue's argument that deciding on mutual organization status would impact other cases, stating the burden of proof lies with the assessee. Both appeals were allowed for statistical purposes, and the matter was remanded to the CIT(A) for further adjudication.

Conclusion: The ITAT set aside the appeals to the CIT(A) for a decision on the chargeability of payments made to M/s KPMG International, emphasizing the assessee's right to argue against tax deduction based on the nature of the payment and the mutual organization status of KPMG International.