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2018 (1) TMI 666 - AT - Income TaxDisallowance under section 40(a)(i) - assessee as the firm of chartered accountants and has paid sums to various entities on account of professional fee - asseessee firm explained that the payment was made to various nonresidents and it is not in the nature of income chargeable to tax in India and, thus, tax was not required to be deducted in terms of section 195 - Held that - We find that the ITAT in its earlier orders has dealt with DTAA with recipients in all countries except Australia and Philippines. As regards DTAA with Philippines is concerned, the ld. Commissioner of Income Tax (Appeals) has given finding that the same is similar to DTAA with Mauritius. The DTAA with Mauritius has already been dealt with by the ITAT in its orders as above. Hence, we consider this issue also of payment recipients in Philippines covered in favour of the assessee. However, as regards the payment to KPMG Australia is concerned, the concerned DTAA has not been commented upon by the ld. Commissioner of Income Tax (Appeals). He has followed earlier year order in which there is no reference to DTAA to Australia. Hence, we remit this issue to the file of the ld. Commissioner of Income Tax (Appeals) to examine the issue of payment made to KPMG Australia with reference to the concerned DTAA . Disallowance u/s. 40(a)(i) - Held that - As decided in assessee s own case the case of the assessee falls within the four corner of the ambit of the Principle of Mutuality . Thus, we do not find any reason or ground to interfere in the order passed by learned Commissioner (Appeals) hence the appeal filed by the revenue is dismissed.
Issues Involved:
1. Disallowance of sums under section 40(a)(i) for non-deduction of tax at source. 2. Determination of whether payments to KPMG Australia are covered under the relevant DTAA. 3. Classification of KPMGI Co-operative, Switzerland as a mutual association and its tax obligations. Detailed Analysis: 1. Disallowance of Sums under Section 40(a)(i) for Non-Deduction of Tax at Source: The primary issue raised by the Revenue was the disallowance of sums under section 40(a)(i) due to the assessee's failure to deduct tax at source for payments made to various non-resident entities. The assessee firm, a chartered accountants' firm, made payments for professional services to entities in several countries, arguing that these payments were not taxable in India under section 195 of the Act due to the Double Taxation Avoidance Agreements (DTAAs) with respective countries. The assessing officer disagreed, leading to the disallowance of the expenditure. The Commissioner of Income Tax (Appeals) sided with the assessee, referencing previous decisions in similar cases. Upon appeal, the ITAT confirmed that the issue was already settled in favor of the assessee by previous ITAT decisions, including the cases of KPMG vs. Jt. CIT and Asst. CIT vs. M/s. BSR & Co. The Tribunal reiterated that payments for services rendered outside India, where no technical knowledge, skill, or know-how was made available to the assessee, did not fall under 'fee for technical services' and were not taxable under the respective DTAAs. The Tribunal also noted that the non-resident entities did not have a permanent establishment in India, thus their income could not be taxed in India, making the disallowance under section 40(a)(i) unjustified. 2. Determination of Whether Payments to KPMG Australia Are Covered Under the Relevant DTAA: The ITAT found that while the DTAAs with most countries involved were previously addressed, the DTAA with Australia had not been specifically commented upon by the Commissioner of Income Tax (Appeals). Consequently, the Tribunal remitted the issue back to the Commissioner of Income Tax (Appeals) to examine the payments made to KPMG Australia in light of the relevant DTAA and provide a detailed finding. 3. Classification of KPMGI Co-operative, Switzerland as a Mutual Association and Its Tax Obligations: The Revenue challenged the Commissioner of Income Tax (Appeals)'s decision that KPMGI Co-operative, Switzerland, was a mutual association and that its receipts were not income chargeable to tax, thus not requiring tax withholding. The ITAT referred to its previous decision in the assessee’s own case, which concluded that the association's activities fell within the principle of mutuality. This meant there was a complete identity between the contributors and participators, and no profit element was involved. Consequently, the Tribunal upheld the Commissioner of Income Tax (Appeals)'s order, affirming that KPMGI Co-operative's receipts were not taxable. Conclusion: The ITAT ruled in favor of the assessee on most issues, except for the payments to KPMG Australia, which were remitted back for further examination. The appeals by the Revenue in ITA Nos. 4843, 4844, and 4556 were dismissed, while ITA No. 4842 was partly allowed for statistical purposes. The order was pronounced in the open court on 04.01.2018.
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