2018 (5) TMI 418 - AT - Income Tax

TDS u/s 195 - professional fee paid - DTLL AUS rendered professional services outside India - income accrued in India - PE In India - India-Australia DTAA - Held that - The professional fees paid by the assessee to DTLL AUS was not taxable in India, that the FAA and the AO were not justified in invoking the provisions of 40(a)(i)of the Act. - Decided in favour of the assessee. Difference between information gathered from Annual Information Return(AIR)and the professional receipts as per the books of account - Held that - Major amount under the head professional fee received is from Encorn Win Farms (India) Ltd. , that the payer had, in response to section 13(6)notice, admitted that it had not paid any amount to the assessee, that it also ascertained that no professional services were availed from the assessee. We find that the FAA had brushed aside such an important piece of evidence only on the ground that the figure was appearing in the AIR. Mistakes in the information in AIR is not uncommon. In these circumstances and after considering the Pg-53 of the PB, we are of the opinion that we are of the opinion the FAA was not the justified in confirming the addition - Decided in favour of the assessee. Assessee was not liable to deduct tax at source for the payment made to the Netherland entity and that provisions of section 40(a)(ia)of the Act were not applicable. Payment made by the assessee to Sri Lankan entity - Held that - We find that before signing of the DTAA of 2014 there was no provisions in the Indo-Sri Lankan DTAA for charging FTS. The non-resident entity had no PE in India and professional fees was to taxed as per Article 14 of the treaty. Considering the facts of the matter, we hold that the FAA was not justified in upholding the order of the AO with regard to the payments made to Sri Lankan entity. - Decided in favour of the assessee. Addition on account of payment to retired partners - diversion of income by an overriding title - Held that - FAA had taken note of the relevant clauses of the partnership deed, that he followed the judgments delivered in the case of C C Choksi (2008 (7) TMI 1055 - BOMBAY HIGH COURT), that in that matter the Hon ble Court had, in the identical situation, held that the payment made to ex-partners or to the spouses of the deceased partners was not application of money, that the FAA had following the judgments had held that it was a case of diversion of income by an overriding title - the order of the FAA does not suffer from any legal or factual infirmity. - Decided against revenue

Summary

Issues Involved:
1. Tax effect below the prescribed limit.
2. Disallowance of professional fees for non-deduction of TDS.
3. Addition based on difference between AIR information and professional receipts.
4. Disallowance under section 40(a)(ia) of the Act.
5. Interest payment under section 244A of the Act.
6. Payment to retired partners.

Issue-wise Detailed Analysis:

1. Tax Effect Below the Prescribed Limit:
The Departmental Representative (DR) and the Authorised Representative (AR) agreed that the tax effect in the case for AY 2006-07 was below the tax limit prescribed by the CBDT for filing appeals before the Tribunal. Consequently, the appeal filed by the AO for AY 2006-07 was dismissed due to the low tax effect involved.

2. Disallowance of Professional Fees for Non-deduction of TDS:
The primary issue was the disallowance of professional fees paid to various Deloitte entities outside India, where tax was not deducted at source. The AO disallowed these payments citing non-deduction of TDS. The FAA upheld the AO's decision, stating that the payments were liable for TDS under section 9(1) of the Act and relevant DTAA provisions. However, the Tribunal found that identical issues had been previously decided in favor of the assessee for earlier years. It was held that the professional fees paid to Deloitte entities in Australia, Singapore, and the USA were not taxable in India, and thus, the provisions of section 40(a)(i) were not applicable. The Tribunal reversed the FAA's order and decided in favor of the assessee.

3. Addition Based on Difference Between AIR Information and Professional Receipts:
For AY 2007-08 and 2008-09, the AO added amounts based on discrepancies between AIR information and professional receipts as per the books of account. The FAA partly upheld these additions. However, the Tribunal noted that significant evidence provided by the assessee, including confirmations from payers, was disregarded by the FAA on technical grounds. The Tribunal remanded the matter back to the AO for fresh adjudication, emphasizing the need to consider all relevant evidence and ensure that only taxable income is assessed.

4. Disallowance Under Section 40(a)(ia) of the Act:
The AO disallowed payments made to various non-resident entities under section 40(a)(ia) for non-deduction of TDS. The FAA upheld these disallowances, citing that the payments were for managerial/consultancy services and were taxable under section 9(1)(vii). The Tribunal, however, found that the services rendered were professional services and not technical services. Citing earlier Tribunal decisions and the Supreme Court's ruling in GE India Technology Centre, it held that the assessee was not liable to deduct tax at source for these payments. The Tribunal reversed the FAA's order and decided in favor of the assessee.

5. Interest Payment Under Section 244A of the Act:
The AR contended that the AO should have calculated interest up to 18.12.2007 instead of 21.11.2007. The Tribunal directed the AO to follow the Circular issued by the Board and calculate the interest accordingly.

6. Payment to Retired Partners:
The AO disallowed payments made to retired partners, treating them as application of money. The FAA, however, found that these payments were made as per the partnership deed, creating an overriding charge on the firm's income. Citing precedents from the Bombay High Court, the FAA held that these payments constituted diversion of income by overriding title and were not taxable in the hands of the firm. The Tribunal upheld the FAA's decision, confirming that the payments were not application of money and were rightly excluded from the firm's taxable income.

Conclusion:
The appeals filed by the AO were dismissed, while the appeals filed by the assessee for AY 2006-07 and 2008-09 were partly allowed, and the appeal for AY 2007-08 was allowed. The Tribunal's decisions were based on precedents, detailed analysis of DTAA provisions, and the principle of taxing real income.