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TMI Blog2016 (4) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.08.2012 passed against assessment order u/s 143(3) of the Act for the Assessment Year 2007-08 on the following grounds: "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 1,22,58,136/- u/s. 40(a)(i) being professional fees paid outside India without deduction of tax at source." 4. The brief facts are that during the year under consideration the assessee was engaged in the business of rendering taxation, business advisory, audit related services and other consultancy services. 4.1. During the course of assessment proceedings it was noted by AO that assessee had paid fee for professional services outside India without deduction of tax at source to the following parties: (i) KPMG LLP, UK (ii) KPMG LLP, USA (iii) KPMG, France (iv) KPMG LLP, Huazhen, China 4.2. During the course of assessment proceedings, assessee was asked by the AO to show cause as to why the professional fees paid outside India without deduction of tax at source should not be disallowed u/s 40(a) (i) of the Act. It was explained that payment made outside India was not a sum chargeable to tax in India, hence provisions of section 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 587(SC) and CIT v Samsung Electronics Co. Ltd. [2010] 320 ITR 209 in support of his contention. 4.4. In the light of above discussion, the AO held that these entities had provided services which give enduring benefit, thus the services fall under the ambit of Article 12 /13 of respective treaty. Accordingly, he disallowed the above payments u/s 40(a)(i) of the Act. 4.5. Being aggrieved, the assessee filed an appeal before the Ld. CIT(A) and contested the action of the AO in disallowing an aggregate amount of Rs. 1,28,58,618/- paid to the above said non-residents persons on the ground that TDS was not deducted u/s 195 of the Act. The assessee made detailed submissions before Ld. CIT(A) to argue that these payments were not subject to TDS provisions u/s 195 for various reasons. The assessee relied upon the various judgments in support of its detailed arguments. The assessee also submitted that similar issue in assessee's own case was decided in favour of the assessee by the Ld. CIT(A) in assessee's own case for A.Y. 2004-05. The Ld. CIT(A) considered submissions of the assessee in detail and decided the issue substantially in favour of the assessee except for one of these remittan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of the DTAA. In support of the above said propositions, Ld. Counsel has placed reliance on the following judgments: 1. KPMG v JCIT 33 taxmann.com 23 (Mum) 2. NQA Quality Systems Registrar Ltd. v DCIT 2 SOT 249 (Delhi) 3. Invensys Systems Inc., In re 183 Taxman 81 (AAR) 4. CIT v. De Beers India Minerals (P.) Ltd. 21 taxmann.com 214(Kar) 5. Raymond Ltd. vs DCIT 86 ITD 791 (Mum) 6. Mahindra & Mahindra Ltd. v. DCIT 122 TTJ 577 (Mum) 7. Guy Carpenter & Co. Ltd. vs ADIT 48 SOT 463(Del) 8. DDIT v. Peroy A.G. 39 SOT 187 (Mum) 9. DCIT v. Boston Consulting Group Pte. Ltd 94 ITD 31 (Mum) 10. Bharat Petroleum Corpn. Ltd. v JCIT 111 TTJ 375 (Mum) 11. Wockhardt Ltd. v ACIT 10 taxmann.com 208 (Mum (2) Independent Personal Services v. Fees for Technical Services : In case a payment falls within the scope of expression 'independent personal services' within the meaning of article 15, the same shall automatically be out of ambit of article 12(4) since, in view of the specific provisions of article 12(5), not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. ITO 9 SOT 156 (3) No disallowance under section 40(a)(i) when law is amended with retrospective effect: The law, as it stood during the relevant assessment year, required that services be rendered in India as well as utilized in India for the taxability under section 9(1)(vii). The requirement of 'rendering of services' in India was done away with by the insertion of an Explanation by the Finance Act, 2010, with retrospective effect. The effect however, as far as withholding of tax liability is concerned, depends on the law as it existed at the point of time when payments were made from which taxes ought to have been withheld. A retrospective amendment in law might change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. Since the subject services were rendered outside India, the same were not subjected to withholding tax obligation at that point of time and thus, no disallowance tinder section 40(a)(i) of the Act can be made. In support of this proposition reliance was made upon following judgments: 1. Rich Graviss Products P. Ltd. vs. ACIT 49 taxmann.com 531 (M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of a payee can be taxed in India only if provider of the services stays in India for a period aggregating to 90 days or more during the relevant financial year or if the said person has a PE (Permanent Establishment) or fixed basis regularly available to him in India for performing such activities. It is noted from the facts of this case that no such case has been made by the AO. Admittedly there is no PE in India of the payee and services have been rendered outside India. Thus, in absence of any PE etc, and payment being in the nature of independent person services, the same would be clearly outside the scope of taxation in India. Thus, viewed from this angle also, TDS was not required to be deducted at source. 4.10. It is further noted by us that the law as it stood in the year before us i.e. A.Y. 2007-08, provided a mandatory condition that services should be rendered in India before it could be made taxable u/s 9(1)(vii). This requirement of rendering services in India was done away with insertion of an explanation by the Finance Act, 2010, with retrospective effect. But the issue that arises here is that even if a retrospective amendment may legally change the determinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) receipt of accrual of income'. According to the apex Court, the global income of a resident although is subjected to tax, the global income of a non-resident may not be. The answer to the question would depend upon the nature of the contract and the provisions of the DTAA. What is relevant is receipt or accrual of income, as would be evident from a plain reading of s. 5(2) of the Act subject to the compliance with 90 days rule.' As per the above judgment of the apex Court, the interpretation with reference to the nexus to tax territories also assumes significance. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle. An endeavor should, thus, be made to construe the taxability of a nonresident in respect of income derived by it. Having regard to the internationally accepted principle and the DTAA, no extended meaning can be given to the words 'income deemed to accrue or arise in India' as expressed in s. 9 of the Act. Sec. 9 incorporates various heads of income on which tax is sought to be levied by the Republic of India. Whatever is payable by a resident to a non-resident by way of fees for services, thus, would not alwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (vi) or cl. (vii) of s. 9(1), and shall be included in his total income, whether or not (a) the nonresident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. It is thus no longer necessary that, in order to attract taxability in India, the services must also be rendered in India. As the law stands now, utilization of these services in India is enough to attract its taxability in India. To that effect, recent amendment in the statute has virtually negated the judicial precedents supporting the proposition that rendition of services in India is a sine qua non for its taxability in India. 8. It is thus clear that till 8th May 2010, the prevailing legal position was that unless the technical services were rendered in India, the fees for such services could not be brought to tax under Section 9(1)(vii). The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax deductor cannot be expected to have clairvoyance of knowing ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices, for which impugned payments were made, were rendered in India. Therefore, the assessee did not have any liability under section 195 r.w.s. 9(1)(vii) to deduct tax at source from these payments. Once we come to the conclusion that the assessee did not have any obligation to deduct tax at source from these payments, in the light of the above discussions and as corollary thereto, no disallowance can be made in respect of these payments. As we have come to these conclusions in the light of the provisions of the domestic law, i.e. Income Tax Act, itself, there is no need to deal with the taxability of incomes embedded in these payments under the provisions of the applicable tax treaties. That would be relevant with respect to taxability of these payments in the hands of the recipients, but, for the reasons set out above and in the light of the legal position discussed above, will be academic in the present context. As regards learned Departmental Representative vehement reliance on a decision of Chennai A bench of this Tribunal in the case of ACIT Vs Evolv Clothing Pvt. Ltd [(2013) 33 taxmann.com 309] wherein on the basis of taxability of income alone, the coordinate bench has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same would not fall within the ambit of fees for technical service. These payments also cannot be taxed under Article 7 as none of them were having any P.E. or fixed base in India and the duration of their visit in India was also for a very less period. Therefore, such a payment does not attract the provisions of TDS under section 195. Provision of section 195(1) uses the expression "chargeable under the provisions of the Act". The payer is bound to deduct tax at source only if the sum paid is assessable to tax in India. The obligation to deduct tax is limited to the appropriate proportion of income which is chargeable under the Act and not otherwise. Reliance was placed upon the judgment of Hon'ble Supreme Court, in G.E. India Technology Centre (P.) Ltd vs CIT 327 ITR 456, wherein similar observations were made. In view of the detailed discussion, it was held by the Bench that no payments were liable or chargeable to be taxed in India, and therefore, TDS was not required to be deducted u/s 195. Thus, we find that the case of the assessee is covered also covered in its favour with the order of the tribunal for A.Y. 2004-05. 4.13. Thus, we find that the impugned order passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e remittances made to KPMG-China. 6.4. We have considered the submissions of the assessee and find that we have discussed this issue already in detail while disposing the appeal of the Revenue as discussed above, in detail. The legislature cannot expect an assessee to do impossible. In our considered opinion, no law can create an obligation to deduct tax at source by retrospective operation. Thus, in our considered view, the assessee was not required to deduct tax at source on the said payment. It is further noted by us that KPMG Huazhen is an entity registered in China and it is resident of China as is understood in Indo-China tax Treaty. The admitted facts on record are that services were rendered in China in relation to the review of information securities services and assistance in audit. The assessee has claimed that services in question would fall specifically in article 14 of Indo China Treaty. We have gone through article 14 of the Tax Treaty which provide that income derived by 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 except when the said resident has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hands of the assessee. Thus, with these directions, this issue is sent back to the file of the AO. As a result, ground no.2 as may be treated as allowed for statistical purposes. 8. Ground No.3: In this ground the assessee has made request for directing the AO to grant credit of Rs. 15,05,849/- being the amount of taxes paid in the United Kingdom, the corresponding income whereof was offered to tax in India. 8.1. It has been submitted further that although the assessee has filed a petition u/s 154 before the AO but no relief has been granted show far. The AO has passed the order u/s 154 dated 07.02.2011 wherein the AO has accepted the claim in principle but stated that credit shall be granted after verification of relevant documents. 8.2. This kind of order is found to be quite strange and unusual by us. The AO should either grant the credit or should clearly specify that credit cannot be granted for the reasons to be stated. Therefore, we send this issue back to the file of the AO with the direction to grant the credit of the taxes paid after verification of required documents for which he shall give adequate opportunity of hearing to the assessee. Thus, this ground is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is noticed that Rahman Rahman Huq, Bangladesh and KPMG Mauritius are firms of invidividuals registered in Bangladesh and Mauritius respectively. KPMG Portugal, KPMG Sweden, KPMG Netherlands, Background Bureau Inc., USA Scherzer Intl., USA, KPMG IFRG Ltd, UK and KPMG USCMG Ltd., UK are companies registered in the respective countries. The services were entirely rendered outside India. Further the services relate to assistance in audit, taxation, information technology services, conducting background checks, responses to queries related to International Financial Reporting Standards and review of documents to be filed with Securities and Exchange Commission in respect of companies listed in US stock exchanges. which are not fees for technical services in nature and having been rendered outside India, fall outside the purview of Article 12 / 13 of the respective tax treaties, therefore the income fell under the ambit of Article 7 of the respective tax treaties dealing with 'Business Profits'. Since the overseas entities did not have a permanent establishment in India, there was no income chargeable to tax in India and consequently, no requirement of tax withholding. 2.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not towards services. Thus the question of considering them as 'fees for technical services' does not arise. Therefore the disallowance u/s 40[a){i) in respect of payment mode to The Conference Board Inc. is deleted. 2.3.3. I also find that the payment made to KPMG international towards the usage charges of online database and GTPS interpreter (Transfer pricing database) for the period 01 October 2006 to 30 September 2007 is towards reimbursement of expenses and not towards services. As can be seen from the details the remittance is towards membership fees and not towards services. Thus the question of considering them as 'fees for technical services' does not arise. Therefore the disallowance u/s 40[a){i) in respect of payment mode to The Conference Board Inc. is deleted. 11.3. It has been argued before us by the Ld. Counsel that issues involved in this year are same as were involved in A.Y. 2007-08. No distinction has been made on facts or law by the Ld. DR also. In view of the same, we find force in the submissions of the assessee, and therefore, relying upon our order for A.Y. 2007-08, we incline to uphold the order of Ld. CIT(A). The grounds raised by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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