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TMI Blog2021 (12) TMI 1354X X X X Extracts X X X X X X X X Extracts X X X X ..... made is unreasonable and excessive, the Assessing Officer has not brought any material on record to demonstrate that the payment made is excessive and unreasonable having regard to the market value of the services for which such payment was made. Thus, the disallowance made under section 40A(2) without being back by cogent evidence and purely on conjectures and surmises, cannot be sustained. Accordingly, we delete the disallowance made - Decided in favour of assessee. TDS u/s 195 - disallowance u/s 40(a)(i) - failure to withhold tax at source on payment made to various persons/entities outside India towards professional/technical fee - HELD THAT:- Payments made to non-resident attorneys cannot be regarded as FTS under section 9(1)(vii) of the Act. Further, a conjoint reading of section 40(a)(i) and 40(a)(ia) brings out a clear distinction between FTS and fees for professional services. Though, section 40(a)(ia) encompasses, both, FTS and fees for professional services, however, section 40(a)(i) is applicable only in case of failure to deduct tax on payments made for FTS. As rightly submitted by learned counsel for the assessee, this could be for the reason that payment of legal/pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Being of the view that the payment made to Ms. Anjali Lall is unreasonable and excessive having regard to the market value, the Assessing Officer disallowed the amount under section 40A(2) of the Act. While doing so, the Assessing Officer observed that the assessee failed to establish on record that Ms. Anjali lall had the required technical qualification to do the work. Though, the assessee contested the disallowance before learned Commissioner (Appeals), however, he was unsuccessful. 4. Drawing our attention to section 40A(2) of the Act, learned Counsel for the assessee submitted, the Assessing Officer cannot proceed merely on the basis of surmises and conjectures to hold that the payment made to the related party is either unreasonable or excessive. He submitted, the burden is entirely on the Assessing Officer to establish through cogent material on record that the payment made is not at arm's length. Without prejudice, he submitted, in the year under consideration, the profession of the assessee grew globally and several international clients started visiting the office premises of the assessee. Therefore, in order to cater to the needs of the business, the strength of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, is excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which the payment is made, it has to be disallowed. However, the expression "the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to the fair market value of the goods, services or facilities" as used in section 40A(2) of the Act makes it abundantly clear that the opinion of the Assessing Officer cannot be formed in vacuum and without any cogent evidence. It is the Assessing Officer who has to establish on record that the payment made to the related party is unreasonable and excessive having regard to the market value of the goods, services or facilities for which payment is made. In the facts of the present case, admittedly, except stating that the related party is not technically qualified to undertake the work and the payment made is unreasonable and excessive, the Assessing Officer has not brought any material on record to demonstrate that the payment made is excessive and unreasonable having regard to the market value of the services for which such payment was made. Thus, the disallowance made under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and trade fair services has to be deleted at the threshold itself as such payments do not attract the provisions of section 195 of the Act. Proceeding further, he submitted, the payments are not in the nature of Fees for Technical Services (FTS), hence, cannot be considered to be income chargeable to tax in India. Drawing our attention to section 9(1)(vii) of the Act, he submitted, the provision is applicable only to the payment made towards FTS. He submitted, payment made by the assessee to foreign attorneys/lawyers are not in the nature of FTS but are fees for professional services. He submitted, technical service is distinct from professional service. To emphasize further, he submitted, as per Explanation 2 to section 9(1)(vii) of the Act, FTS has been defined to mean consideration paid for rendering of any managerial, technical or consultancy services. He submitted, section 44AA of the Act, clearly distinguishes profession from business and as per the said provision, legal and technical consultancy are distinct from each other. Further, drawing our attention to section 194J of the Act, he submitted, professional and technical services have been treated as two separate categorie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT vs. Modicon Network: 14 SOT 204 v. CIT vs. Fortis Healthcare Ltd: 181 Taxman 257 vi. CIT v. Siemens Aktiongesellschaft: 220 CTR 425 vii. C.I.T. vs. Stewards and Llyods, 165 ITR 416 (Cal) viii. CIT vs. Sundwiger Emfg. & Co.: 262 ITR 116 (AP) ix. Mahindra & Mahindra: 313 ITR (AT) 263 (SB)(MUM) x. Coca Cola India Inc. v. ACIT: (2006) 7 SOT 224 (Del) xi. Clifford Chance v. DCIT: 82 ITD 106 (Mum) xii. Hyder Consulting Ltd. v. CIT: 236 ITR 640 (AAR) xiii. DECTA v. CIT: 237 ITR 190 (AAR) xiv. Cholamandalam MS General Insurance Co. Ltd: 309 ITR 356 (AAR) xv. GE India Technology Centre (P) Ltd. Vs. CIT : 327 ITR 456 (SC) xvi. Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT : Civil (Appeal) No. 8733-8734 of 2018 (SC). xvii. Van Oord ACZ India (P) Ltd. Vs. CIT : 323 ITR 130 (Del.) xviii. Estel Communications (P) Ltd. : 2017 CTR 102 (Del) xix. CIT Vs. ICL Shipping Ltd."315 ITR 195 (Mad.) xx. Jindal Thermal Power : 182 Taxman 252 (Kar)- SLP of Department dismissed in 196 Taxman 495 (SC) xxi. NQA Quality Systems Registrar Ltd. Vs. DCIT : 92 TTJ 946 xxii. ONGC Vs. DCIT, Dehradun : 117 taxmann.com 867 (Delhi-Trib.) xxiii. Deloitte Haskins & Sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed Rs.65,94,144/- under section 40(a)(i) of the Act for failure to deduct tax at source under section 195 of the Act. Further, it is evident, the aforesaid disallowance was made solely for the reason that assessee failed to furnish TRCs of the nonresidents to whom such payments were made. In the synopsis filed before us, learned counsel for the assessee has furnished the details of payments made, as under:- S. No. Party Name Status Country Amount (INR) Nature of services I. Professional fee naid to foreign attorneys 1. Stepanovski Papakul & Partners Firm Belarus 76,560 Legal Opinion on the issue of Trademarks 2. Cambridge Mercantile Corp Firm Canada 11,992 Professional Fee for Trademark matters 3. Lehman Lee Firm China 46,996 Filing of application of Trademark registration 4. Beijing Huyang Inti Firm China 79,397 Preparing and filig review of refusal application for "EZMA (logo)" 5. Holec Pavel Judr Individual Czech Republic 43,884 Professional Fee for legal services performed 6. Palomo Y Porras SC Individual Guatemala 6,457 Filing the search for the mark "WOODS" in class 25 7. Vivien Chan & Co Firm Hong Kong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56,973/- was made to World Intellectual Property, Switzerland, towards official fee for international application. Similarly, amount of Rs.4,15,484/- was paid to two entities in United Kingdom and Maldives for publication and trade fair services. In our considered view, these payments being in the nature of reimbursement and payment made for official purpose and trade fair services cannot come within the purview of either professional or technical services. Therefore, such payments aggregating to Rs.17,41,450/- not being in the nature of income chargeable to tax in India in terms of section 195 of the Act, there was no obligation on the assessee to deduct tax at source on such payment. Therefore, we delete the disallowance of the aforesaid amount. 17. In so far as the balance amount of Rs.48,52,693/- is concerned, undisputedly, they represent professional fee paid to non-resident attorneys for various professional services rendered by them in the respective foreign jurisdictions. Therefore, the foremost crucial issue requiring examination is, whether the payment made to the non-residents is "chargeable under the provisions of the Act" so as to attract the provisions of section 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undisputedly, the payments to non-resident attorneys are purely for providing legal/professional services. On careful examination of various provisions of the Act brought to our notice by learned counsel for the assessee, we are convinced that the domestic law provisions recognize legal/professional services and FTS as two distinct and separate categories. 20. Therefore, payments made to non-resident attorneys cannot be regarded as FTS under section 9(1)(vii) of the Act. Further, a conjoint reading of section 40(a)(i) and 40(a)(ia) brings out a clear distinction between FTS and fees for professional services. Though, section 40(a)(ia) encompasses, both, FTS and fees for professional services, however, section 40(a)(i) is applicable only in case of failure to deduct tax on payments made for FTS. As rightly submitted by learned counsel for the assessee, this could be for the reason that payment of legal/professional fee to a non-resident does not accrue or arise in India or is not deemed to accrue or arise in India as per section 5 and section 9 of the Act. It is relevant to observe, in the case of NQA Quality Systems Registrar Ltd. Vs. DCIT (supra), the coordinate Bench has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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