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TMI Blog2018 (5) TMI 418X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006-07 19/10/2006 Rs. 4. 62 crores 30/12/2008 Rs. 5. 43 crores 30/03/2011 2007-08 27/10/2007 Rs. 10 crores 30/12/2009 Rs. 11. 14 crores 01/08/2011 2008-09 30/09/2008 Rs. 8. 99 crores 31/12/2010 Rs. 21. 29 crores 17/01/2013 ITA/4484/Mum/2011-AY. 2006-07: 2. The Departmental Representative(DR)and the Authorised Representative(AR) agreed that the tax effect in the case under consideration was below the tax limit, prescribed by the CBDT for filing appeals before the Tribunal. Therefore, we dismiss the appeal, filed by the AO, for the AY. 2006-07, considering the low tax effect involved. ITA/5095/Mum/2011, AY. 2006-07: 3. During the course of hearing before us, the AR stated that assessee was not interested in pressing ground number four, considering the smallness of the tax effect. It deals with disallowance made u/s. 40(i)(a)of the Act for sponsorship fee paid to Deloitte Touche Tohmatsu, Switzerland( DTT SL). We dismiss the ground, as not pressed. 4. First Effective ground of appeal(Gs. AO. 1-3), raised by the assessee, is about confirming the disallowance of professional fees paid by it to Deloitte & Touche, Singapore(DTS), Deloitte & Touche, LLP USA(DTL US) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Alok Industries Ltd. (Alok), that the services provided by DTS would squarely fall under the provisions of Article 14 of the India-Singapore DTAA, that the Singapore entity was the reporting accounttant of Alok, that it was required to issue an audit opinion in respect of various matters pertaining to Alok, that for issuing financial statements partners of Singapore entity would have visited India, that assessee did not file details in that regard, that it was not explained as to how DTS perform the job of auditing without access to the books of accounts, that Alok head a fixed place in India, that the payment was attributable to the activities carried out by Alok, that the payment was taxable in India, that the AO was justified in disallowing the amount. With regard to payment of two sums(Rs. 44, 841/-and Rs. 1. 54 lakhs), the FAA held that the said amounts had not fall within the purview of Article 12/14 of the DTAA, that the disputed payments could not be considered business income/profit, that the condition of existence of Permanent Establishment (PE)was not satisfied. Accordingly, she deleted the disallowance of the said two sums. 4.1. b. With regard to payments(Rs. 9. 83 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided in favour of the assessee by the Tribunal vide its order dtd. 30. 11. 2016 (ITA. s/5096, 5097 and 5094/Mum/ 201, AY. s 2003-04 to 2005-06). . 4.2.a. With regard to the payments made to DTS and DTL US, he stated that the DTAA. s entered into with both the countries contained make available clause, that under the Act the payments were not taxable, that services rendered by both the entities were professional services and not technical services, that both of them did not have Permanent Establishment in India, that the FAA put negative onus on the assessee with regard to disallowance confirmed in the case of DTL US. He referred to page 140 of the PB and Article XII of the DTAA and stated that nothing was made available to the assessee, that no technical services were rendered by DTL US to the assessee. About DTS, he stated that the assessee had furnished all the necessary details during the assessment proceedings, that out of four bill two bills did not carry the names, that under the provisions of the Act the disputed payments were not taxable, that same were not taxable under the DTAA , that the services rendered were not exclusionary, He referred to Art. XII of the Taxtreaty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce the findings given by the Tribunal, in the order for the AY. 2003-04 to 2005-06(supra), for payments made to the Canadian and New Zealand entities, under the head professional services. The Tribunal has mentioned about both the entities in the preceding paragraphs and the order is very relevant for deciding the first two grounds. The orders of the AO and FAA for the year under consideration are almost same that of the earlier years. The AR and the DR had advanced the identical arguments before the Tribunal. We are reproducing the order of the Tribunal for the earlier years(supra)and it reads as under: "16. Now, we shall advert to the second issue of disallowance of payment of "professional fees" in respect of two parties under 40(a)(i)(a)(i); namely: (i) DTT (Deloitte Touche Tohmatsu) Canada of Rs. 2, 90, 000/-; and (ii) DTT (Deloitte Touche Tohmatsu) New Zealand of Rs. 1, 45, 290/- . Regarding payment to DTT Canada, it was submitted that, the assessee was appointed by Punjab Agro Industrial Corporation Ltd. , a Government of Punjab enterprise to carry out a study of the dairy sector and assist the Government in development of its business plan. In the process of providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, the payment has to be reckoned under section 9(1)(vii) being 'fee for technical services‟. Not only that, she further held that the payment made to DTT Canada also falls under Article 12(3)(a) and Article 12(4)(a). 17. From the perusal of the impugned orders and material on record, first of all, we are unable to appreciate the approach of the Assessing Officer for the reason that he has not given any finding as to how the payment of fees for "professional services‟ which has been paid to DTT Canada is taxable in India either in terms of the provisions of the Act or under any article of the DTAA. If the payment has been made to non-resident, then it has to be seen firstly, whether under the terms of DTAA such a fee or payment is taxable in India or not and if not, then whether it is taxable in terms of Income Tax Act. Without any finding qua the taxability of the payment, how disallowance u/s40(a)(i) can be made. The Ld. CIT(A) too without analyzing the factual aspect and ascertaining the nature of payment has simply came to a conclusion sans any finding by the AO that the impugned payment is taxable as „fee for technical services‟. She simply referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days or there is some kind of PE in India. The term "Professional services" has been defined in para 2 of Article 14, which deals with independent personal services. The Article reads as under:- ARTICLE 14: Independent personal services - 1. Income derived by an individual or a firm of individuals (other than a company) who is a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State. However, in the following circumstances, such income may be taxed in the other Contracting State, that is to say (a) if he has or had a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; or (b) if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the relevant fiscal year; or (c) if the remuneration for the services in the other Contracting State is either derived from residents of that other Contracting State or is borne by a permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defines "fees for technical services" as any consideration for rendering of any managerial, technical or consultancy services. These services are distinct from "professional services" which has been separately defined under the Income Tax Act in Clause (a) to Explanation below Section 194J which for the sake of ready reference is reproduced hereunder:- (a)professional services‖ means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purpose of Section 44AA or of this section. " Clause (b) of the same Explanation defines "fee for technical services" as having the same meaning given in Explanation 2 to Section9(1)(vii). Separate definitions of"professional services" and "technical services" under the Act inter-alia indicates that the Statute makes clear distinction between these two terms. The term "profession" alludes to some kind of vocation or occupation which requires special, advanced education, knowledge or skill etc. A person professing any kind o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have made remittance to the Deloitte Touche Tohmatsu, New Zealand without deduction of tax at source based on the certificate obtained from a chartered accountant. With regard to this payment also there is no specific finding by the AO or the CIT (Appeal) as to how it is taxable in India and under which provision of the Act. In this case also the learned CIT (A) has reckoned the payment as "fees for technical services" without elaborating or elucidating the nature of payment. So far as the benefit under India-New Zealand DTAA, the payment of professional fee is not taxable under Article 14, which deals with "Independent personal services". The language of Article 14 is similar to the language of India-Canada DTAA which has been reproduced hereinabove. Here also DTT New Zealand neither has any fixed base/ PE nor had any of its employees/professionals stayed in India for the period exceeding 183 days in any consecutive twelve months period. Accordingly, under the DTAA the "professional fee" paid to DTT is not taxable in India. However, Article 12(4) of India-New Zealand DTAA dealing with "fees for technical services" imbibes same definition as has been given under the Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the absence of any contrary material brought on record no addition could be made, that the assessee had not received more than the professional fee reflected in the AIR, that no opportunity was provided to the assessee to examine or rebut the replies made by the parties in response to the notice issued u/s. 133(6)of the Act, the assessee was able to reconcile the entire alleged undisclosed professional fee. He referred to the amounts attributable to Encorn Win Farms (India) Ltd. (Rs. 19. 09 lakhs+28. 41 lakhs) and stated that that the payee vide its letter dtd. 29/2/12 had confirmed that the assessee had not issued any invoice, that no payment was made to the assessee towards professional fee. He also referred to the case of Sri Vallabh Lohia(ITA/4120/Mum/2011, dtd. 8/8/12) and stated that the assessee was following cash method of accounting and that all the receipts were by cheque. DR stated that matter should be sent to AO for further verification. 10.3. We have heard the rival submissions. We find 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(Pg-53 of the PB) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty was put to cross examination or the ledger account of the assessee in the books of account of the said party were given to the assessee and assessee was confronted thereon. We agree with ld A. R. that merely on the basis of AIR information and without bringing any evidence on record, it cannot be held that interest income has been received by the assessee from Rajvaibhav Enterprises (P)Ltd. Therefore, the said addition is not justified. Accordingly, we delete the addition of Rs. 2, 66, 916 by allowing ground Nos. 3 & 4 of appeal taken by the assessee. " Following the above , we decide Ground No. 1 in favour of the assessee. 11. GOA. 3 is about confirming the disallowance u/s. 40(a)(ia) of the Act of Rs. 24. 04 lakhs in respect of professional fee paid. During the assessment proceeding, the AO found that the assesee had paid Rs. 5. 36 lakhs to DTS, that Rs. 8. 45 lakhs and Rs. 9. 15 lakhs were paid to DTLL US and Deloitte Tax LLP respectively, that it had also made payments to Deloitte Belastinga Dviseirs B. V. , Netherlands(Rs. 59, 008/-); SJMS Associates, Sri Lanka (Rs. 48, 145/-). The AO directed the assessee to explain as to why the payment made to above entities should no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTLL US, the FAA observed that Tech Mahindra Ltd wanted to list the securities in US market, that the US entity reviewed the GAAP Financial Information prevailing in US so that Tech Mahindra could comply with the US regulations, that Rediff was an audit client of the assessee, that it had made payment to its US entity in connection with Rediff, that assessee did not file necessary details in that regard, that it was not explained as to how the US entity carried out the audit work without access to the books of accounts, that services were availed in India, that it was taxable as per the provisions of section 9(1)(vii) of the Act. About the payment of Rs. 9. 15 lakhs to Deloitte tax LLP, USA, the FAA observed that the payments were made for rendering the professional services in the fields of research, that payments were made in connection with consultancy on transfer pricing analysis of Micro Inks Corpora - tion for the fiscal year ended on 31/03/2005, that the services were in the nature of consultancy services. He further observed that payment to Netherlands entity was made for services availed in connection with providing tax advice on Netherland tax laws, that the payment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t payment made for the same was not covered by the provisions of section 9(1). He also made reference to case of NQA Quality System Registrar Ltd (92TTJ 946) and stated that provision fees paid to the non-resident entities were not taxable in India in view of the tax treaties entered into between India and those countries. 11.2. a. With regard to payment to the Netherland entity, he argued that the non-resident entity had rendered professional services in connection with providing tax advice on Netherlands tax laws, that Article 12 of the Tax-treaty provided payment for royalties and fees for technical services, that sub-clause 5(a) of the Article covered the payment for services which were ancillary and subsidiary to the royalty payment, that Article 12(5)(b) covered those services which would make available technical knowledge, experience, skill, know-how, that Article 12 (5)(b) contained the condition regarding make available, that the Netherlands entity had not made available technical knowledge/experience/skill etc. , that the professional services rendered could not be categorised as FTS under Article 12 of the Tax-treaty that as per Article 14 of the DTAA professional fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct tax if such sum is not chargeable to tax under the Act. Section 195 contemplates not merely amounts, the whole of which are pure income payments ; it also covers composite payments which have an element of income imbedded or incorporated in them. The obligation to deduct tax at source is, however, limited to appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. It is for this reason that the CBDT has clarified in Circular No. 728 dated October 31, 1995, that the tax deductor can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting tax at source. The expression "chargeable under the provisions of the Act" in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. If tax is not so assessable, there is no question of tax at source being deducted. " Considering the above discussion, we hold that the 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. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14, 436/- was liable to be disallowed as an expenditure. He further held that at the most it was a gratuitous payment, which could not be treated as business expenditure. 13.1. During the course of hearing before the FAA, the assessee furnished the details in respect of names of the retired partners and spouse of deceased partner covered under Clause 10. m of the Partnership Deed along with the amounts paid to them. After considering the available material, the FAA stated that the assessee was obliged to pay the amount computed under clause 23 before distribution of the same under clause 28 of the partnership deed, that it was not an application of the income by the assessee-firm, that as per the legal obligation the income was diverted before it reached the assessee, that the assessee was in fact in the position of a collector of income on behalf of the persons to whom if was payable and was only paying the amount subsequently, that the payment to retired partners and wives of the deceased partners was made as per provisions of clause 10. m of the partnership deed, that the said payment had a prior and overriding charge on the receipts of the assessee -firm as per the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heirs of deceased partners was application of money, that the disputed amount was to be taxed in the hands of the assessee, that the payment to ex-partners was made in pursuance of the various clauses of the partnership deed, that during the assessment proceedings a copy of the deed was submitted, that he did not took cognigance of clauses 7 and 10 of the deed, that the deed clearly provided that the ex partners or the spouses of deceased partners would be paid part of the income of the assessee for the services rendered by them, that the FAA had taken note of the relevant clauses of the partnership deed, that he followed the judgments of the Hon'ble jurisdictional High Court delivered in the case of C C Choksi(ITA 193 of 2008, dtd. 25. 07. 2008), 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. In our opinion, the order of the FAA does not suffer from any legal or factual infirmity. So, confirming the same, we decide the effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led reconciliation, that the FAA had partly allowed the appeal, that he had rejected the claim of the assessee about two entries, that he did not admit the additional evidence filed by it in the case of CRPIL and CEIL, that both the parties had categorically stated that there were mistakes in their books of accounts. In our opinion, the FAA was not justified in rejecting such a vital peiece of evidence, even if it was filed belatedly. It is said that technicalities and procedures should not get preference over the spirit of the Act i. e. to tax real income and to collect 'due' taxes only. As a representative of the Sovereign, the FAA should ensure that only taxable income, and not hypothetical income, is taxed. He has discarded the relevant evidence on technical ground, so, we are remanding back the matter to the file of the AO for fresh adjudication, as it would be in the interest of justice. The AO would afford a reasonable opportunity of hearing to the assessee before deciding the taxability of the disputed sums. Ground no. 1 is partly allowed. 15. Second Ground of appeal, as per the AR, was infructuous. Threfore, we are not adjudicating the same. 16. Next Ground of appeal dea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment, that the AO had rightly made disallowance for the payment made to Italian entity. About the professional fee paid to Puerto Rico entity, the FAA held that the services were utilised in India, that source of income was from India, that income was generated from Indian source, that the professional fee paid to its counterpart was taxable as per the provisions of the Act, that the AO was justified in making the disallowance. With regard to the payment made to Belgium entity, the FAA held that the AO was justified in making the disallowance, that the services were availed in India. 16.2. During the course of hearing before us, the AR submitted that issue of payments made to the USA entities stands decided by the order of the Tribunal for the earlier AY. s. About the payment made to Italian entity he stated that it was not FTS, that services rendered by the non-resident entity fell in the category of professional services, that even if it was FTS it was not taxable in India as the payment was as per the provisions of section 9(1)(vii)(b) of the Act, that the FAA himself had admitted that services were utilised outside India and that the source was also outside India. About payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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