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TMI Blog2016 (11) TMI 730X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the considered view that impugned payments are not taxable in India as per Treaty provisions Hence, the assessee was not liable for tax deduction at source from impugned payment. - Decided in favour of assessee. - ITA No. 3901/Mum/2013. - - - Dated:- 25-8-2016 - SHRI MAHAVIR SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM For The Revenue : Shri Sanjeev Jain (Sr. DR) For The Assessee : Shri Farrokh Irani ORDER PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) : 1. This instant appeal has been filed by the assessee for A.Y. 2012-13 against the order of Commissioner of Income Tax (Appeals)-10, Mumbai [In Short CIT(A) ] dated 28.03.2013 passed u/s. 248 of the Income Tax Act. By way of this appeal, the assessee has assailed the stand of the CIT(A) that certain legal fees paid to non-resident Attorneys constitute royalty as per India-UK Double Taxation Avoidance Agreement [ Treaty ] and also constitute Royalty / Fees for technical services [FTS] u/s. 9(1)((vi)/vii) of the Income Tax Act, 1961 and hence liable for tax deduction at source as per the provisions of the act. 2. Facts in brief, are that the assessee is engaged in the banking business and paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r transfer of a technical plan or design. As per Section 90(2), Treaty provision applies to the case of the assessee to the extent they are more beneficial to the assessee. The AR further contended that Treaty Article 13 which deals with Royalties and Fees for Technical Services do not apply to the present case at all as the assessee has been provided with Independent Personal Services which are covered under Article 15 and Article 15 being more specific in nature in the present case and hence override the provisions of Article 13. To support these contentions, AR relies upon following various judicial pronouncements: (i) Commissioner of Income Tax Vs. Rajendra Prasad Moody (Supreme Court) [115 ITR 519] (ii) Asstt. DIT (IT) Vs. M/s Clifford Chance (SB ITAT, Mumbai) [33 Taxmann.com 200] (iii) Income Tax Officer (International Taxation) Vs. Bajaj Hindustan Ltd. (ITAT Mumbai) [13 Taxmann.com 13] (iv) Maharashtra State Electricity Board Vs. DCIT (ITAT Mumbai) [90 ITD 193] The Ld. Departmental Representative [DR] on the other hand, has contended that in the absence of creation of new source of income by obtaining the services, it is difficult to say that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal / regulatory requirement of USA for setting up of a Bank Branch or acquisition of banking company etc. The nature of services are nowhere disputed by the revenue and accordingly, the perusal of documents shows that the payments are, in fact, being made for creating/earning a new source of income outside India by way of establishment of new Bank Branch or acquisition of a Bank. With these objectives, the legal / professional fees have been paid to the attorneys. 5. Now, It would be prudent to reproduce the relevant extract of Section 9(1)(vi) which reads as follows:- (vi)Income by way of royalty payable by- (a)The Government; or (b)a person who is resident, except where the royalty is payable in respect of any, right, property or information used or services utilized for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or Section 9(1)(vii) is also on similar lines which reads as follows:- (vii)Income by way of fees for technical services payable by- (a)The Government; or (b)a person who is resident, except where the fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary that the expenditure must fructify into any benefit by way of return in the shape of income. Therefore, we are of the considered opinion that the impugned payments are not taxable under Section 9(1)(vi)/(vii). 6. So far as applicability of Section 9(1)(i) is concerned, AR has produced before us a certificate from legal attorneys M/s Reed Smith, the relevant portion of which reads as follows:- This is to certify that: 1. We, Reed Smith LLP, are a limited liability partnership (LLP) registered in England (registered number OC303620) with its registered office at The Broadgate Tower, 20 Primrose Street, London EC2A 2RS. 2. Reed Smith LLP is the beneficial owner of the legal fees and expenses for US$37,318.87 for which we have raised an invoice, with number 2077564 and dated 23 December 2010, payable by Kotak Mahindra Bank Limited. 3. For the purposes of the captioned remittance, we confirm that: As an LLP, the partners of Reed Smith LLP resident in the UK pay tax on the LLP s profits, that is, the LLP itself is not a taxpayer. We enclose a letter from our tax authority, Her Majesty s Revenue Customs, which confirms this and which certifies t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent, scientific, literacy, artistic, educational or teaching activities as well as the independent activities or physicians, surgeons, lawyers, engineers, architects, dentists and accountants. The assessee has obtained the legal services and such services find specific treatment as per Treaty Article 15 and therefore, not covered by Article 13 which deals with Royalty and Fees for Technical Services . This view has also been upheld in the case of M aharashtra State Electricity Board Vs. DCIT (ITAT Mumbai) [Supra] wherein it has been observed that:- 20.As to Revenue's contention that the provisions of Article 13 will be applicable in this case because these services, whether or not in the nature of 'professional services', are also covered by the scope of Article 13 being in the nature of 'managerial, technical or consultancy services', suffice to say that the provisions of Article 15 being specific provisions for professional services will override the relatively general provisions of Artcile 13 which apply to broader category of 'managerial, technical or consultancy services'. We may, in this regard, refer to the following observations by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Article 13 have to give way to more specific provisions of Article 15 which will hold field in the present case. In this view of the matter, we are unable to uphold the stand of the authorities below that Article 15 will govern the fact situation in this case. It is also not in dispute that in case Article 15 does not apply to this case, the payments to Freshfields will not be exigible to tax in India as, in view of the uncontroverted and unchallenged findings of the CIT(A), the condition of Article regarding stay in India are not satisfied. We are, therefore, of the considered view that the payment of fees for legal consultancy services to the UK based firm of solicitors is taxable only in United Kingdom and is not exigible to tax in India. Moreover, Article 15 applies not only to individual but to firms also as upheld by Special Bench of the Tribunal in the case of M/s Clifford Chance Vs. Asstt. DIT (IT)(supra) . Therefore, in the absence of any business connection in India or permanent establishment of India and considering the fact that services are rendered outside India and no employee of the attorneys were present in India for more than 90 days, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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