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TMI Blog2025 (1) TMI 1277X X X X Extracts X X X X X X X X Extracts X X X X ..... being heard to the assessee and will also permit him to furnish necessary documents and evidences in support of his claim. In view of the above, the appeal filed by the assessee is allowed for statistical purposes only. X X X X Extracts X X X X X X X X Extracts X X X X ..... order of A.O holding the foreign remittances are in the nature of fee for technical services and tax needs to be deducted u/s. 195 of the Act. 5. The Ld. Authorized Representative (AR) of the assessee has submitted that the Ld AO/CIT(A) have not considered the provisions of DTAA that payment made to attorneys in foreign countries are to be considered as independent personal services/business and do not warrant a tax deduction at source if the permanent establishment of the payee is not in India. The Ld. AR submitted that the Ld AO though observed that relevant DTAA provides the clause of independent personal services which includes legal services, and the assessee is eligible to avail the benefit but has not examined the DTAA and held the payments as fee for technical services as per explanation 2 to section 9(1)(vii) of Income Tax Act. 6. The Departmental Representative (DR), on the other hand, supported the orders of authorities below. 7. We have heard the rival submissions and perused the materials available on record. The assessee is engaged in providing intellectual property service, which requires patents and trade mark to be registered in various countries. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Patent Attorney who renders legal services in his capacity as an Advocate in India. The assessee has a wide client base which inter alia includes multi- national corporations as well as reputed corporate houses of the country. The clients of the assessee hold valuable IPRs which need registrations with the Patent or IP authorities so that IPRs are protected from unauthorized use by others. Since the clients of the assessee have markets beyond the boundaries of India, they seek assessee's assistance for obtaining registrations under the patent laws of the foreign countries where products of the customers are marketed under their IPRs. In order to comply with the legal formalities associated with registration of IPRs with the patent authorities of the respective countries, the assessee seeks assistance of IP attorneys carrying on similar professional activities in the respective countries where the IP registrations are sought to be obtained. For the services rendered by the foreign patent attorneys, the fees are paid by the assessee because their services are engaged by him. It is the assessee's primary contention that the fees charged by the foreign attorneys were reimbursed by his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n decided by the Commissioner in the earlier proceedings, a different and contradictory stand should have been taken." (emphasis supplied) 13. 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 of the Act. Consequently therefore no disallowance was warranted u/s 40(a)(i) of the Act. We however find that at the time when the matter was heard by the Tribunal, amendment to Section 9(2) of the Act, was already in force. Taking judicial note of the amendment which, widened the scope of TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9(1)(vii) read with Section 9(2) of the Act even after taking note of the fact that amendment of 2010 was made retrospectively. In the said decision there was explicit admission that the decision was rendered because of provisions of law during pre-amended era and therefore the same would not hold good once the amended provisions of law came in force and the amended provisions of Section 9(1)(vii) were applicable during the year before us. As rightly pointed out by the Ld. CIT, DR, the amended provisions were brought in the statute on 08.05.2010 and therefore it was applicable to the payments made by the assessee to foreign attorneys during the previous year relevant to AY 2011-12. In the circumstances therefore the assessee could not avail benefit of the order of this Tribunal which was rendered in the context of pre- amended provisions of Section 9(1)(vii) read with Section 9(2) of the Act. We therefore find that the Ld. CIT(A) was legally not justified in following the order of his predecessor for AY 2006-07 when the legal position was materially different. 15. The second limb of the ld. AR's argument was that the payments which the assessee made to foreign patent attorneys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy' in nature but purely clerical or executionary in nature and therefore did not come within the ambit of Section 9(1)(vii) of the Act. On the other hand, it was the Ld. CIT, DR's contention that having regard to the nature of services, the foreign attorney did render not only 'consultancy' services but also involved a technical element which enabled the assessee and his clients to comply with the IP laws of the relevant country and obtain IPR registrations in conformity with the relevant rules and regulations of that country. But for provision of advisory and execution services by the foreign attorneys, the assessee could not have successfully provided to his clients IP registrations in the respective countries where patents/IPRs were registered. 17. In our considered view, the moot point to be adjudicated in the present appeal therefore is whether the legal services rendered by the foreign attorneys could be classified as 'consultancy services' so as to bring these payments within the ambit of Section 9(1)(vii) of the Act. In this regard, we note that the term 'consultancy' service is not defined in the Act. In the circumstances one must understand the term as underst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee or his clients would not have been able to obtain the Patents or IP registrations in the foreign countries. 18. We also find it relevant to hold that the Ld. CIT, DR rightly relied on the judgment of the Hon'ble Supreme Court in the case of GVK Industries Ltd Vs ITO (supra), wherein meaning of the term 'consultancy service' for the purposes of Section 9(1)(vii) after its amendment in 2010 was explained by the Hon'ble Supreme Court. In the said judgment the Hon'ble Court observed as follows:- "34. In the case at hand, we are concerned with the expression "consultancy services". In this regard, a reference to the decision by the Authority for Advance Ruling P. No. 28 of 1999, In re [2000] 242 ITR 208/[1999] 105 Taxman 218 (AAR - New Delhi), would be applicable. The observations therein read as follows: "By technical services, we mean in this context services requiring expertise in technology. By consultancy services, we mean in this context advisory services. The category of technical and consultancy services are to some extent overlapping because a consultancy service could also be technical service. However, the category of consultancy services also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical 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." 19. Applying the ratio laid down in the judgment (supra), we are of the view that the services which the foreign attorneys rendered to the assessee squarely came within the ambit of Section 9(1)(vii) of the Act. In his rebuttal, the ld. AR sought to distinguish the judgment of the Hon'ble Supreme Court stating that the facts of the assessee's case were distinguishable because unlike in the case before the Hon'ble Apex Court, the non-resident attorneys had merely performed executionary functions which were rendered abroad and also utilized outside India. We are however unable to persuade ourselves to agree with the contention put forth by the Ld. AR of the assessee. In the first instance, the Hon'ble Supreme Court in the case of GVK Industries Ltd (supra) defined the expression 'consultancy services' in the context of Section 9(1)(vii) and the services rendered by foreign attorneys squarely come within the ambit of such definition. This point has not been negated by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 these documents which substantiated the Ld. AR's contention that the payments which the assessee made to the foreign associates was in the nature of pure reimbursement. In fact it appeared that most of the documents furnished in the paper book did not pertain to the tansactions of the relevant year. In view of these facts, the assessee's case was re- fixed for clarification on 07.02.2020 and the assessee was specifically requested to furnish documents for the relevant year inter alia including the audited financial statements for the FY 2010-11, letters of appointment issued by clients for the work performed during the relevant year, letters of engagement issued to foreign associates in the relation to the payments made to them during the relevant year, corresponding copies of communications between the assessee and clients as also between the assessee and foreign associates and other relevant documents which would substantiate that the payments made were in the nature of pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee 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 suggested that for executing the said work, the assessee should engage services of any particular foreign attorney or that the Indian client had identified any particular foreign attorney with whom the assessee was required to coordinate with for fulfilling his professional commitment. In what manner the assessee was to perform and fulfill the assigned tasks was left to the sole discretion of the assessee. We therefore find that the contractual terms between the assessee and his client nowhere prescribed that the client would be reimbursing the costs and expenses incurred by the assessee while discharging his obligations under the terms of engagement. We therefore do not find any material available in the records from which we can infer that there was direct privity of contract between the clients and the foreign attorneys and the assessee merely acted as a pass through facilitating the payment to the foreign attorneys. In this factual background therefore we are unable to accept th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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 countries so as to hold that the payments were made in relation to source of income located outside India. Viewed from any angle therefore we are unable to agree with the Ld. AR's submissions that the payment made to foreign attorneys fell within the exception carved out Section 9(1)(vii)(b) of the Act. 25. The Ld. AR placed heavy reliance on the fact that the ADIT(IT)- 2(1), Kolkata had granted a certificate u/s 195 of the Act authorizing the assessee to pay legal & professional fees to Merchant & Gould, United Trademark & Patent Services, Saba& Co., Elisabet Berbery & Wuesthoff & Wueshoff without deduction of tax on 09.09.2010. Since the said certificate was issued after the amendment in Section 9(2) of the Act by the Finance Act, 2010 came in force, the Ld. AR claimed that the Revenue had in principle accepted the assessee's contention that he had no obligation to deduct tax u/s 195 before remitting the foreign attorney fees. The Ld. AR therefore argued that by the principle of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Hon'ble High Court while holding that the certificate granted u/s 195/197 in only applicable to the consideration payable for which such certificate is obtained also held that such certificate does not preclude the Assessing Officer to re-examine the chargeability of income in a regular assessment proceedings. The relevant observations are extracted below: "15. Under the aforesaid provision, there is no obligation on the part of the payer to pay tax as long as the said certificate is in force and rest cancelled. Even if tax is payable under the Act, the payer cannot be treated as an assessee in default. If in a regular assessment, an order is passed holding that the said income is liable to tax, the issue of such a certificate under the aforesaid provision would not come in the way of levying and collecting tax. However, the payer cannot be treated as an assessee in default and he cannot be proceeded with. It is because as long as the said certificate stands, the payer sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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. AR of the assessee however raised an alternate contention that if under the domestic tax provisions, the payments are held to in the nature of 'fees for technical services', even then the assessee did not have obligation to deduct tax source since payments did not come within charging provisions of the DTAAs with the respective countries of which the foreign attorneys were residents. The Ld. AR submitted that the relevant DTAAs contained specific provisions defining the terms such as 'fees for technical services', 'fees for included services', 'independent personal services' etc. and the payments made by the assessee could fall under different categories defined in DTAAs and consequently therefore payments made did not include element of income chargeable to tax in India, requiring deduction of tax u/s 195 of the Act. The Ld. AR submitted that in accordance with the provisions of these DTAAs, the payments made by the assessee to foreign attorneys were liable to be assessed o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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