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TMI Blog2020 (2) TMI 1368X X X X Extracts X X X X X X X X Extracts X X X X ..... efore his contention that since the amounts paid by the assessee were in the nature of pure reimbursements, no income element was involved in the remittances made to foreign attorneys and therefore no disallowance u/s 40(a)(i) read with Section 195 of the Act was warranted in his case. On examination of the provisions of Section 9(1)(vii) of the Act read with Explanation to Section 9(2) which was substituted by the Finance Act, 2010, we note that prior to the amendment in order to attract the rigors of Section 195 requiring tax deduction at source from fees for technical services , it was necessary for the Revenue to show that the technical services as defined in Section 9(1)(vii) of the Act were rendered as well as consumed in India. Since in the earlier years, the Tribunal found as a matter of fact that no services were rendered by the foreign attorneys in India, it was held that as per the law, which existed at the time when the assessee made payments to foreign attorneys, he had no obligation to deduct tax under Section 195 - Consequently therefore no disallowance was warranted u/s 40(a)(i) - at the time when the matter was heard by the Tribunal, amendment to Section 9(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g his own commitments to his clients while carrying on his professional work in India. The source of income in the assessee s hands was solely located in India and for the purpose of earning income from the Indian source, the assessee had called upon his foreign associates to render certain services for which payments were made by him. We therefore find that the payments made to the foreign attorneys were used by the assessee while discharging his professional commitments in India and therefore the conditions prescribed in Section 9(1)(vii) were satisfied. Foreign attorneys performed the services at the behest of the assessee for which the requisite invoices were raised on the assessee and these were paid by him. It is for this reason that the invoiced amounts were debited by way of assessee s own expenditure in his personal Profit Loss Account. We also note that prior to making the remittances to the foreign attorneys, the assessee had filed certificates with his banker in prescribed Form 15CB certified by Chartered Accountant. In the said certificate, these payments were characterized as fees for professional services. In the Form A2 accompanying the remittance instruction, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys u/s 40(a)(i) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) on account of non-deduction of tax at source on such payments u/s 195 of the Act. The grounds taken in the appeal are reproduced hereunder: Grounds of appeal 1. That the Ld. CIT(A) has erred according relief to the assessee despite the fact that TDS had not been deducted u/s 194J out of the amounts payable as foreign associate fees. 2. That the Ld. CIT(A) has erred in not considering the fact that though the services were performed outside India, they were essentially for the assessee's business/profession carried out in India; these payments made to the foreign associates who are non-residents in the form of professional fees resulted in accrual of income of the foreign associates concerned in India within the meaning of Section 9(1)(vii)(b) of the Income Tax Act'1961 and the assessee was statutorily required to deduct tax at source u/s 195(1). 3. That the Ld. CIT(A) had wrongly opined that the services rendered by the assessee are in nature of legal and professional services and they are not covered by provisions of section 9(1)(vii)(b) explanation (2), therefore, no TDS was ded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attorneys were in connection with profession carried on by him in India and therefore show caused the assessee to explain why the expenditure in question would not be disallowed u/s 40(a)(i) of the Act in as much as the act of the assessee was in contravention of Section 195 of the Act. The submission of the assessee in this regard has been extensively reproduced in the assessment order. The AO however did not agree with the submissions of the assessee because in his opinion the payments made to foreign attorneys squarely fell within the definition of fees for technical services, defined in Section 9(1)(vii)(b) read with Explanation 2 of the Act. The AO noted that the assessee was engaged by his clients for rendering services in the field of Intellectual Property Rights ( IPRs ) both in India and abroad. In relation thereto, the assessee had obtained technical information or consultancy services from foreign attorneys. The AO observed that although the services were rendered by the foreign attorneys outside India but the services were essentially connected with the assessee s profession carried on by him in India and therefore these payments were chargeable to tax in India by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax at source was also factually erroneous. Inviting our attention to the certificate dated 09.09.2010 issued by the ADIT(IT), Kolkata, he submitted that the ADIT(IT), Circle 2(1) Kolkata had categorically held that these payments were in the nature of legal professional services, which qualified as fees for technical services as interpreted by the Hon ble Supreme Court in the case of GVK Industries Ltd Vs ITO (supra). He thus submitted that the certificate issued by the ADIT(IT), Circle 2(1) Kolkata permitting the assessee to remit such fees without deduction of tax at source was unjustified on facts and in law. The Ld. CIT, DR further argued that the certificate issued u/s 195 was not binding upon the appellate authorities for the reason that the complete facts and the sequence of events as it actually took place subsequently was not known to the officer. To buttress his contention, he referred to the contents of the application u/s 195 filed by the assessee before the AO wherein the assessee had wrongly claimed that the nature of relationship between him and the foreign attorney was akin to an airline ticketing agent and the airline. He pointed out that there was no privity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was only an agent who would collect the fees of foreign attorneys from the clients and reimburse it to the latter and in the process retained his own share of fees. According to the Ld. AR therefore these payments made to foreign attorneys did not constitute his professional expenditure, and hence there was no question of making disallowance u/s 40(a)(i) for the alleged default of not withholding tax u/s 195 therefrom. 6. The Ld. AR further submitted that the services rendered by the foreign attorneys did not qualify as fees of technical services as defined in Section 9(1)(vii) of the Act. According to him the nature of services rendered by the foreign attorneys was neither technical nor managerial nor consultancy . According to him, the term consultancy meant to render or provide advice in a specialized field. In the facts of the present case however the foreign attorneys did not provide any professional advice to clients but executed the tasks as assigned by the assessee on behalf of his clients. According to him such services were clerical and executionary in nature and did not involve any consulting by the foreign attorneys. He further submitted that even the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case the services rendered by the foreign attorneys are held to be liable to tax under the provisions of the Act, the payments would still fall outside the charge of tax in India under the beneficial provisions of the DTAAs which India has with the respective foreign countries to which the payments have been remitted. He therefore submitted that viewed from any angle, the disallowance made by the AO was untenable on facts and in law and that the Ld. CIT(A) had rightly deleted the disallowance made u/s 40(a)(i) of the Act. 10. We have heard the rival submissions perused the written Notes on Arguments furnished by both the parties. We have also carefully gone through the judicial decisions on which reliance was placed by the parties in support of their respective pleadings. We have also examined the orders of the coordinate bench of this Tribunal in assessee s own case for the earlier years in which similar issue was decided in his favour. Having considered these documents, we shall now deal with respective contentions put forth by the parties. 11. In the present case the assessee is a Patent Attorney who renders legal services in his capacity as an Advocate in India. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs provided that there is no change either in the factual matrix or in the relevant legal provisions governing the transaction during the intervening period. In this regard, useful reference can be made to the following observations of the Hon ble Supreme Court in the case of Radhasoami Satsang Vs CIT (supra) : 13. We are aware of the fact that strictly speaking res judicata does not apply to income-tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 14. On these reasonings in the absence of any material change justifying the revenue to take a different view of the matter-and if there was no change it was in support of the assessee-we do not think the question should have been reopened and contrary to what had been decided by the Commissioner in the earlier proceedings, a different and contradictory stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income tax thereon at the rates in force . When these obligations are to be charged at the point of time when payment is made or credited, whichever is earlier, such obligations can only be discharged in the light of the law as it stands that point of time. Section 40(a)(i) of the Act provides that inter alia, notwithstanding anything to the contrary in sections 30 to 38 of the Act, any amount payable outside India, or payable in India to a non-resident, shall not be deducted in computing the income chargeable under the head profits and gains of business or profession on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted. Accordingly, the assessee cannot be faulted for not deducting TDS and consequently, the deletion of disallowance by CIT(A) is confirmed. This common issue of all the three appeals of revenue is dismissed. 14. From the foregoing findings of the Tribunal, it is quite evident that the Tribunal had upheld the assessee s claim for non-deduction of tax at source having regard to the preamended provisions of Section 9(1)(vii) read with Section 9(2) of the Act even after taking note of the fact that amendment of 2010 was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. In the present case, admittedly payments were made to foreign attorneys who were professionally qualified to render legal services. It is also well known fact that under the relevant Patent / IP laws, the applicant or attorney representing him is required to comply with the technical formalities as well as legal procedures contained in relevant laws, rules and regulations of the countries where the patent/IPR is sought to be registered. As such, having knowledge, experience and expertise in the specialized field of IP laws is an essential pre-requisite for rendering the services. In fact practicing IP laws is one of the specialized branch of legal practice and only few attorneys are well versed with the intricacies of the IP laws as also with regulations and technicalities of the procedures governing registrations to such rights. The bone of contention however in the present case is whether the services rendered were in the nature of consultancy . It was vehemently argued by the Ld. AR that the services rendered by the foreign attorneys were not even consultancy in nature but purely clerical or executionary in nature and therefore did not come within the ambit of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aws, constitutes specialized branch in the field of legal service. We therefore find that the assessee as well as the foreign associates appointed by him enjoyed expertise and specialized knowledge in the field of IP laws and procedures associated with obtaining legal protections or registrations under the relevant laws governing IP rights in the respective countries. It is with the use and aid of the advice given by the foreign patent attorneys that the assessee and/or his clients were able to prepare technically intricate documentation, necessary for filing Patents and other IP rights applications in the foreign countries in compliance with their respective IP laws. The foreign attorneys not only advised the assessee in preparing the documentation necessary for submission of applications but also represented the applicants before the Patent/IP authorities and provided clarifications and explanations necessary for grant of registration. We therefore note that on the given facts of the case, but for the consultancy or advisory services rendered by foreign attorneys, the assessee or his clients would not have been able to obtain the Patents or IP registrations in the foreign countri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onary meaning of 'consultation' in Black's Law Dictionary, Eighth Edition. The word 'consultation' has been defined as an act of asking the advice or opinion of someone (such as a lawyer). It means a meeting in which a party consults or confers and eventually it results in human interaction that leads to rendering of advice. 37. As the factual matrix in the case at hand, would exposit the NRC had acted as a consultant. It had the skill, acumen and knowledge in the specialized field i.e. preparation of a scheme for required finances and to tie-up required loans. The nature of activities undertaken by the NRC has earlier been referred to by us. The nature of service referred by the NRC, can be said with certainty would come within the ambit and sweep of the term 'consultancy service' and, therefore, it has been rightly held that the tax at source should have been deducted as the amount paid as fee could be taxable under the head 'fee for technical service'. Once the tax is payable/paid the grant of 'No Objection Certificate' was not legally permissible. Ergo, the judgment and order passed by the High Court are absolutely impregnable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o render certain services for which payments were made by him. We therefore find that the payments made to the foreign attorneys were used by the assessee while discharging his professional commitments in India and therefore the conditions prescribed in Section 9(1)(vii) were satisfied. 21. As regards the Ld. AR s contention that the assessee had acted only as a facilitator or pass through entity while making payments to the foreign attorney and on that ground the payment made were in the nature of pure reimbursement. In support of this averment the Ld. AR referred to the Pages 499 to 1121 of Paperbook 3 4, which contained appointment letters issued by the clients to the assessee, assessee s letters of engagement issued to the foreign associates, correspondences between the assessee and his clients as also between the assessee and the foreign associates. The assessee also furnished copies of the invoices raised by him on his clients in India as also the copies of the invoices which the assessee received from foreign associates, copies of the payment instructions etc. On scrutiny of the documents furnished it however appeared that there was no tangible material available in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the invoices as also the communication between the parties, it was not discernible that the foreign associates was having any direct contact with the client of the assessee so as to hold that the assessee acted only as an intermediary. 22. In the course of hearing on 7.02.2020, in response to the query, the assessee himself clarified that there may be instances where the appointment letters were issued by the clients in the earlier years but the work was performed in the relevant year and therefore there may not be any direct evidence of appointment which is dated in the period 01.04.2010 to 31.3.2011. In light of the foregoing therefore to ascertain the nature of relationship between the parties, we may refer to the letter of appointment issued by M/s ITC Limited to the assessee (Page 525 of paper book) engaging him to register their patent in several countries: 23. From the above engagement letter, it is evident that M/s ITC Limited had engaged the services of the assessee for filing application for registration of trade marks Checkers and Ace in several foreign countries. From the terms of appointment, it is evident that nowhere the assessee s client had even sugg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed sources of income outside India and since the services were rendered by the foreign attorneys in connection with such foreign source, the income did not deem to accrue or arise in India warranting deduction of tax u/s 195 of the Act. As we observed in the preceding paragraph 20, the services of the foreign attorneys were not engaged by the assessee s clients in whose favour the patents or IPRs were registered in foreign countries. Instead the services were engaged by the assessee while in discharge of his professional obligations in India. As such, the source of income in connection with which the services of foreign attorneys were used, was located in India. We also note that the mere fact that the Patents or IPs registrations in foreign countries granted protection to the Indian clients within the foreign territories, did not create any source of income for such clients outside India. The protection under the foreign IP laws did not by itself constitute source of any income in a foreign country. Nothing has been brought on record by the assessee to show that the clients on whose behalf these Patents/IP were registered had established PEs/branch etc. in such foreign countri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively. In our considered opinion, no disallowance under Section 40(a)(i) was warranted in respect of the aforesaid three payments for which the assessee had obtained NIL certificates u/s 195 of the Act from the ADIT(IT)-2(1), Kolkata. However the mere fact that the assessee obtained certificates u/s 195 of the Act in relation to three specific payments by itself did not grant blanket immunity to the assessee in respect of other remittances made to the foreign attorneys. In adjudicating the question of allowability of the expenditure, where tax was admittedly not deducted u/s 195 nor certificate u/s 195 was obtained, we need to take into consideration the relevant facts and applicable legal provisions. As rightly stated by the Ld. CIT, DR; there is no estoppel in law and therefore merely because in few cases the Department had issued NIL tax deduction certificate u/s 195 cannot be the sole reason for claiming that every payment made by the assessee to foreign attorneys was not liable to tax in India. 26. In this regard, useful reference can be made to the decision of the Hon ble Karnataka High Court in the case of CIT Vs Bovis Lend Lease (I) Ltd (208 Taxman 168) wherein the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e also gone through the decisions of the coordinate Benches of the Tribunal in the cases of Wipro Ltd Vs ACIT reported in 80 TTJ 191, Ajappa Integrated Project Management Consultants (P.) Ltd. Vs ACIT reported in 52 SOT 612 and Aqua Omega Services (P.) Ltd Vs ACIT reported in 141 ITD 134; relied upon by the Ld. AR of the assessee. It is noted that the nature of services and facts involved in these cases are not similar with that of the assessee s case. Moreover these decisions have been rendered in the context of the pre-amended Section 9(1)(vii) of the Act as it stood prior to the insertion of Explanation (2) by the Finance Act, 2010 and therefore the ratio laid down therein are not applicable in the relevant year in consideration. 30. For the reasons set out in the foregoing paragraphs therefore, we hold that the payments which the assessee made to his foreign associates or foreign attorneys came within the ambit of Section 9(1)(vii) of the Act in terms of which the income by way of fees for technical services deemed to accrue or arise in India and consequently therefore the assessee had obligation to deduct tax at source under the provisions of the domestic tax laws. The Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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