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2024 (8) TMI 1074 - AT - Income TaxTDS u/s 195 - disallowance u/s 40(a)(i) assessee failed to deduct tax on professional fee paid to various non-residents - as per AO 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 DTAA CIT(A) deleted substantial amount of disallowance made by the AO u/s 40(a)(i) in respect of professional fee and allowed deduction as claimed by the Assessee holding that the professional fee paid to most of the non-residents was not liable to tax in India as FTS or Other Income - CIT(A) accepted the contention of the Assessee that the professional fee was in the nature of Business Profits or income from Independent Personal Services (IPS); and in absence of a Permanent Establishment (PE) or fixed base in India, respectively, the same was not liable to tax in India - HELD THAT - We do not find merit in the contention advanced on behalf of the Revenue and concur with the conclusion drawn by the CIT(A) that the professional fee paid/payable to tax resident of UK was not liable to tax in India and therefore, Assessee was not required to withhold tax from the payments made to tax residents of UK. 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 u/s 40(a)(i) of the Act by the Assessing Officer in respect of the aforesaid professional fee paid/payable to tax residents of UK. Disallowance in respect of remittance made by the Assessee to KPMG International Cooperative, Switzerland (KPMGI) without deduction of tax at source which was deleted by the CIT(A) - We find that the coordinate bench in assessee s own case for assessment year 2001 02 2017 (4) TMI 869 - ITAT MUMBAI 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 for non-deduction of tax at source is correctly deleted. Disallowance of ad-hoc basis, 25% of the total advertisement and publicity expenses - CIT(A) deleted addition - HELD THAT - There is no basis for the ad-hoc disallowance made by the Assessing Officer. Also decided in Seagram Manufacturing Private Limited 2016 (12) TMI 1284 - DELHI HIGH COURT as confirmed the order passed by the Tribunal deleting ad-hoc disallowance of 10% brand enhancement expenses made by the AO observing that disallowance made on an entirely artificial and notional basis from the expense otherwise deductible was not justified. We do not find any infirmity in the order passed by the CIT(A) deleting the disallowance being ad-hoc disallowance of 25% of advertisement expenses. Professional fee paid/payable to firm of individuals being tax residents of Australia - On perusal of Article 14 of the India Australia 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 14 of the India-Australia DTAA. The Revenue has failed to set up a case that tax resident of Australia has a fixed base or physical presence in India in terms of Article 14(1)(a) and 14(1)(b) of the India-Australia DTAA, respectively, and therefore, such income would not be liable to tax in India. As a result, the Assessee would not be required to withhold tax from the payments made to tax residents of Australia. Therefore, we concur with the conclusion drawn by the CIT(A), that the disallowance made by the AO in respect of payments made to tax residents of France by invoking provisions of Section 40(a)(i) of the Act cannot be sustained. Foreign Exchange Fluctuation - AO disallowed loss in account of foreign exchange fluctuation which was deleted by the CIT(A) as being consequential in nature - HELD THAT - As per the chart furnished by the Assessee that the foreign exchange fluctuation loss pertains to professional fee paid/payable to tax residents of UK, Sweden, Indonesia and Bangladesh. Since we have confirmed the order passed by the CIT(A) in respect of the professional fee paid to the tax residents aforesaid countries. The order passed by CIT(A) deleting the disallowance of the aforesaid loss on account of foreign exchange fluctuation is confirmed.
Issues Involved:
1. Disallowance under Section 40(a)(i) for non-deduction of tax at source on professional fees paid to non-residents. 2. Disallowance under Section 40(a)(i) for non-deduction of tax at source on remittances to KPMG International Cooperative, Switzerland. 3. Ad-hoc disallowance of 25% of advertisement and publicity expenses. 4. Remand of issues by CIT(A) to the Assessing Officer for verification. Detailed Analysis: Issue 1: Disallowance under Section 40(a)(i) for Non-deduction of Tax at Source on Professional Fees Paid to Non-residents Assessment Year 2013-14: The Assessee claimed deductions for professional fees paid to various non-residents, which the Assessing Officer disallowed under Section 40(a)(i) due to non-deduction of tax at source. The CIT(A) deleted most of these disallowances, holding that the professional fees were either Business Profits or income from Independent Personal Services (IPS) and not liable to tax in India due to the absence of a Permanent Establishment (PE) or fixed base in India. Key Findings: - Business Profits and IPS: Professional fees paid to non-residents without a PE or fixed base in India are not taxable in India under Article 7 or Article 14/15 of the applicable DTAA. - FTS Clause: Payments do not qualify as Fees for Technical Services (FTS) under DTAAs with a "Make Available" clause, as they do not make available technical knowledge or skills. - Other Income: In the absence of a specific FTS clause in the DTAA, such payments cannot be treated as "Other Income" and are governed by Article 7 or Article 14/15. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the disallowances, except for professional fees where verification was needed. The CIT(A) was directed to adjudicate these issues after obtaining a remand report from the Assessing Officer. Issue 2: Disallowance under Section 40(a)(i) for Non-deduction of Tax at Source on Remittances to KPMG International Cooperative, Switzerland Assessment Year 2013-14: The Assessing Officer disallowed deductions for remittances to KPMG International Cooperative, Switzerland, considering them as royalty payments for the use of the KPMG name. The CIT(A) deleted this disallowance, following the Tribunal's earlier decision in the Assessee's case. Key Findings: - Mutual Association: KPMG International Cooperative is a mutual association, and contributions from members are not subject to tax. - No Element of Income: The remittances were reimbursements of costs and did not contain any element of income. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the disallowance, confirming that the remittances to KPMG International Cooperative were not taxable. Issue 3: Ad-hoc Disallowance of 25% of Advertisement and Publicity Expenses Assessment Year 2013-14: The Assessing Officer disallowed 25% of the advertisement and publicity expenses on the grounds that they benefitted the parent entity, KPMG International Cooperative. The CIT(A) deleted this ad-hoc disallowance. Key Findings: - Benefit to Others: The fact that an expense benefits another entity does not disqualify it as a deductible expense if it meets the legal requirements. - No Basis for Ad-hoc Disallowance: The ad-hoc disallowance was not justified and lacked a factual basis. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the ad-hoc disallowance of advertisement and publicity expenses. Issue 4: Remand of Issues by CIT(A) to the Assessing Officer for Verification Assessment Year 2013-14: The CIT(A) remanded certain issues to the Assessing Officer for verification, which the Assessee contested, arguing that the CIT(A) does not have the power to remand. Key Findings: - Verification Needed: The Tribunal agreed that verification of certain factual aspects was necessary. - CIT(A)'s Power: The CIT(A) was directed to adjudicate the issues after obtaining a remand report from the Assessing Officer. Conclusion: The Tribunal restored the issues back to the CIT(A) for adjudication after verification, ensuring that the Assessee is granted a reasonable opportunity of being heard. Summary: The Tribunal upheld the CIT(A)'s decisions on most issues, including the deletion of disallowances under Section 40(a)(i) for professional fees and remittances to KPMG International Cooperative, as well as the ad-hoc disallowance of advertisement expenses. However, it directed the CIT(A) to verify certain factual aspects before making a final decision. The Tribunal's decisions were consistent across the assessment years 2012-13 to 2017-18.
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