KPMG, MUMBAI V. JCIT 11(2), MUMBAI

ITA 1480/MUM/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3469 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 22-02-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2013
• Court: TRIBUNAL
• Department Lawyers: RAMAPRIYA RAGHAVAN
• Assessee Lawyers: HARSH KAKADIA
• Keywords: Transfer pricing; Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment
• Section: 143(3); 5(2); 154

Judgement Text

, , L, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.6286/MUM/2012 ASSESSMENT YEAR: 2007-08 KPMG LODHA EXCELUS, 1 ST FLOOR, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAXMI MUMBAI- 400011 / VS. A CIT 11(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 (ASSESSEE ) (REVENUE) P.A. NO. AAAFK1415H ITA NO.6694/MUM/2012 ITA NO.1918/MUM/2013 ASSESSM ENT YEARS: 2007-08, 2008-09 ACIT 11(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. KPMG LODHA EXCELUS, 1ST FLOOR, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAXMI MUMBAI- 400011 (REVENUE) (ASSESSEE ) P.A. NO. AAAFK1415H ITA NO.1480/MUM/2013 ASSESSMENT YEAR: 2008-09 KPMG LODHA EXCELUS, 1ST FLOOR, APOLLO MILLS COMPOUND, N.M. JOSHI MARG, MAHALAXMI MUMBAI- 400011 / VS. ACIT 11(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 ( ASSESSEE ) (REVENUE) P.A. NO. AAAFK1415H KPMG 2 / ASSESSEE BY SHRI PARAS SAVLA & SHRI HARSH KAKADIA (AR) / REVENUE BY SHRI RAMAPRIYA RAGHAVAN , (DR) / DATE OF HEARING : 22/02/2016 / DATE OF ORDER: 18/03/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THESE ARE CROSS APPEALS PERTAINING TO THE SAME ASSE SSEE FOR A.YS. 2007-08 & 2008-09. SINCE IDENTICAL ISSUES ARE INVOLVED, THESE WERE HEARD TOGETHER AND DISPOSED BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI PARAS SAVLA & SHRI HARSH KAPADIA, AUTHORISED REPRESENTATIVE (AR) ON BEHALF OF THE ASSESSEE AND B Y SHRI RAMAPRIYA RAGHAVAN, DEPARTMENTAL REPRESENTATIVE (DR ) ON BEHALF OF THE REVENUE. FIRST WE TAKE OF REVENUES APPEAL IN ITA NO. 6694/MUM/2012 FOR A.Y. 2007-08 3. THE REVENUE HAS FILED AGAINST THE ORDER OF LD. COM MISSIONER OF INCOME TAX (APPEALS), MUMBAI-3 {(IN SHORT CIT(A )}, ORDER DATED 03.08.2012 PASSED AGAINST ASSESSMENT ORDER U/ S 143(3) KPMG 3 OF THE ACT FOR THE ASSESSMENT YEAR 2007-08 ON THE F OLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE OF RS.1,22,58,136/- U/S. 40(A)(I) BEING PROFESSIONAL F EES PAID OUTSIDE INDIA WITHOUT DEDUCTION OF TAX AT SOURCE. 4. THE BRIEF FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED IN THE BUSIN ESS OF RENDERING TAXATION, BUSINESS ADVISORY, AUDIT RELATE D SERVICES AND OTHER CONSULTANCY SERVICES. 4.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY AO THAT ASSESSEE HAD PAID FEE FOR PROFESSIONAL S ERVICES OUTSIDE INDIA WITHOUT DEDUCTION OF TAX AT SOURCE TO THE FOLLOWING PARTIES: (I) KPMG LLP, UK (II) KPMG LLP, USA (III) KPMG, FRANCE (IV) KPMG LLP, HUAZHEN, CHINA 4.2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSES SEE WAS ASKED BY THE AO TO SHOW CAUSE AS TO WHY THE PROFESSIONAL FEES PAID OUTSIDE INDIA WITHOUT DEDUCT ION OF TAX AT SOURCE SHOULD NOT BE DISALLOWED U/S 40(A) (I ) OF THE ACT. IT WAS EXPLAINED THAT PAYMENT MADE OUTSIDE IND IA WAS NOT A SUM CHARGEABLE TO TAX IN INDIA, HENCE PROVISIONS OF SECTION 195 WERE NOT APPLICABLE, CONSEQUENTLY NO DISALLOWANCE COULD BE MADE U/S 40(A)(I) OF THE ACT. THE ASSESSEE ALSO SUBMITTED TH AT THE KPMG 4 AFORESAID PAYMENTS WERE GOVERNED BY PROVISIONS OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) ENTERED BETWEEN INDIA WITH UK, USA, FRANCE AND CHINA. KPMG WAS LIMITED LIABILITY REGISTERED IN UK AND INCOME O F KPMG WAS TAXABLE AS INCOME OF THE PARTNER'S OF KPMG LLP. THE PARTNER'S IN KPMG LLP WERE INDIVIDUAL RESIDENT IN T HE UK AS PER THE TREATY. KPMG LLP DID NOT HAVE FIXED BASIS /ESTABLISHMENT IN INDIA. THE INCOME WAS THEREFORE N OT TAXABLE IN INDIA, AND HENCE NO WITHHOLDING OF TAX W AS REQUIRED. WITHOUT PREJUDICE, THE AMOUNT WOULD BE DE RIVED BY THE INDIVIDUAL PARTNER'S OF KPMG LLP WHO WERE TAX RESIDENT OF UK AS UNDERSTOOD IN ARTICLE 4 OF TREAT Y AND AS SUCH WOULD NOT BE TAXABLE IN THEIR HANDS UNDER ARTI CLE 15 OF THE TREATY. IN THE CASE OF KPMG US, IT WAS FI RM OF INDIVIDUALS AND PAYMENTS MADE WOULD BE COVERED BY ARTICLE 15, AND HENCE WOULD NOT TAXABLE. IT WAS EXP LAINED THAT KPMG, HUAZHEN WAS A COMPANY REGISTERED IN CHIN A AS PER TREATY. THE SERVICES WERE RENDERED IN CHINA. TH E INCOME FROM SERVICES WAS NOT TAXABLE IN INDIA; CONSEQUENTL Y, NO WITHHOLDING OF TAX WAS REQUIRED. 4.3. THE AO EXAMINED THE SUBMISSIONS OF THE ASSESSEE, BUT DID NOT FIND IT ACCEPTABLE. THE AO OBSERVED THA T THE SERVICES RENDERED BY NON-RESIDENTS WERE IN THE AREA S OF APPLICATION OF HIGH LEVEL OF SKILLS AS WELL AS TECH NICAL AND INDUSTRIAL KNOW-HOW. THE AO NOTED THAT THE ASSESSEE EMPHASIZED ON MAKE AVAILABLE OF TECHNICA L KNOWLEDGE, EXPERIENCE, SKILL KNOW-HOW OR PROCESS OF KPMG 5 CONSISTING DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHNICAL DESIGN. BUT, ACCORDING TO THE AO, THEY HAD ACTUALLY CAUSED THE IMPARTING OF CERTAIN SPECIALIZED DOCUMENT REQUIRING USE OF HIGH SKILL AN D TECHNICAL KNOWLEDGE. THUS, THEY HAD PROVIDED SERVICES WHICH GIVE ENDURING BENEFIT TO THE ASSESSE E. THUS, THE SERVICES MUST BE CONSIDERED AS FEES FOR T ECHNICAL SERVICES UNDER ARTICLE 12 OF USA AND CHINA AND ARTI CLE 13 OF UK DTAA. IN SUPPORT OF HIS VIEW, THE AO RELIED U PON THE CASE OF RAYMOND LTD. VS DCIT [2003] 86 ITD 791 (MUM) AND HINDALCO INDUSTRIES LTD. VS ACIT 94 ITD 2 42. IT WAS FURTHER STATED THAT THE ASSESSEE DID NOT TAK E ANY APPROVAL OF REMITTANCE AS PER PROVISIONS OF SECTION 195 OR 197 OF THE ACT. THE AO ALSO RELIED UPON THE CASE S OF TRANSMISSION CORPORATION OF A. P. LTD. V CIT 239 IT R 587(SC) AND CIT V SAMSUNG ELECTRONICS CO. LTD. [201 0] 320 ITR 209 IN SUPPORT OF HIS CONTENTION. 4.4. IN THE LIGHT OF ABOVE DISCUSSION, THE AO HELD THAT THESE ENTITIES HAD PROVIDED SERVICES WHICH GIVE ENDURING BENEFIT, THUS THE SERVICES FALL UNDER THE AMBIT OF ARTICLE 12 /13 OF RESPECTIVE TREATY. ACCORDINGLY , HE DISALLOWED THE ABOVE PAYMENTS U/S 40(A)(I) OF THE A CT. 4.5. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE LD. CIT(A) AND CONTESTED THE ACTION OF THE AO IN DI SALLOWING AN KPMG 6 AGGREGATE AMOUNT OF RS.1,28,58,618/- PAID TO THE AB OVE SAID NON-RESIDENTS PERSONS ON THE GROUND THAT TDS WAS NO T DEDUCTED U/S 195 OF THE ACT. THE ASSESSEE MADE DETA ILED SUBMISSIONS BEFORE LD. CIT(A) TO ARGUE THAT THESE P AYMENTS WERE NOT SUBJECT TO TDS PROVISIONS U/S 195 FOR VARI OUS REASONS. THE ASSESSEE RELIED UPON THE VARIOUS JUDGM ENTS IN SUPPORT OF ITS DETAILED ARGUMENTS. THE ASSESSEE ALS O SUBMITTED THAT SIMILAR ISSUE IN ASSESSEES OWN CASE WAS DECID ED IN FAVOUR OF THE ASSESSEE BY THE LD. CIT(A) IN ASSESSEES OWN CASE FOR A.Y. 2004-05. THE LD. CIT(A) CONSIDERED SUBMISSIONS OF THE ASSESSEE IN DETAIL AND DECIDED THE ISSUE SUBSTANTIA LLY IN FAVOUR OF THE ASSESSEE EXCEPT FOR ONE OF THESE REMITTANCES I.E. PAYMENT MADE TO KPMG, CHINA. IT WAS HELD BY HIM THA T WITH REGARD PAYMENTS MADE TO FIRST THREE PARTIES OUT OF TOTAL FOUR PARTIES I.E. KPMG LLP (UK), KPMG LLP (USA), AND KPM G FRANCE, TDS WAS NOT REQUIRED TO BE DEDUCTED, WHEREA S WITH RESPECT TO THE REMAINING FOURTH PARTY I.E. KPMG HUA ZHEN, CHINA, IT WAS HELD BY HIM THAT TDS WAS LIABLE TO BE DEDUCTED. 4.6. BEING AGGRIEVED, THE REVENUE FILED AN APPEAL AGAIN ST THE RELIEF GIVEN BY THE LD. CIT(A) FOR THE ABOVE MENTIO NED THREE PARTIES, WHEREAS ASSESSEE FILED AN APPEAL BEFORE TH E TRIBUNAL WITH RESPECT TO THE FOURTH PARTY I.E. KPMG, HUAZHEN (CHINA) FOR WHICH RELIEF WAS NOT GRANTED BY THE LD. CIT(A). DURING THE COURSE OF HEARING BEFORE US, LD. DR HAS RELIED UPON THE ORDERS OF THE AO. ON THE OTHER HAND LD. COUNSEL OF THE ASS ESSEE ARGUED THE MATTER IN DETAIL AND IN ADDITION TO RELY ING UPON THE ORDER OF THE LD. CIT(A), IT WAS SUBMITTED BY HIM TH AT THESE KPMG 7 ISSUES WERE COVERED IN FAVOUR OF THE ASSESSEE BY TH E ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2004-0 5 VIDE ORDER DATED 22.02.2013 IN ITA NO. 1820 & 2497/MUM/0 9. IN ADDITION TO THAT FOLLOWING ARGUMENTS HAVE BEEN MADE BY HIM IN SUPPORT OF THE ORDER OF LD. CIT(A) WHEREIN IT HA S BEEN HELD THAT TDS WAS NOT REQUIRED TO BE DEDUCTED ON THE IMP UGNED PAYMENTS. HIS ARGUMENTS CAN BE SUMMARIZED AS UNDER: (1) PROFESSIONAL SERVICES DO NOT 'MAKE AVAILABLE' TECHNICAL KNOWLEDGE, SKILL, EXPERIENCE, KNOW-HOW OR PROCESS: IN ORDER TO CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER THE DTAA, MERE PROVISION OF SERVICES IS NOT ENOUGH, THE SERVICES SHOULD ALSO MAKE AVAILABLE TECHNICAL KNOWL EDGE, SKILL, EXPERIENCE, KNOW-HOW OR PROCESS. TO FIT INTO THE TERMINOLOGY 'MAKING AVAILABLE', THE TECHNICAL KNOWL EDGE, SKILL, ETC., MUST REMAIN WITH THE PERSON RECEIVING THE SERVICES EVEN AFTER THE PARTICULAR CONTRACT COMES T O AN END. IT IS NOT ENOUGH THAT THE SERVICES OFFERED ARE THE PRODUCT OF INTENSE TECHNOLOGICAL EFFORT AND A LOT O F TECHNICAL KNOWLEDGE AND EXPERIENCE OF THE SERVICE P ROVIDER HAVE GONE INTO IT. THE TECHNICAL KNOWLEDGE OR SKILL S OF THE PROVIDER SHOULD BE IMPARTED TO AND ABSORBED BY THE RECEIVER SO THAT THE RECEIVER CAN DEPLOY SIMILAR TE CHNOLOGY OR TECHNIQUES IN THE FUTURE WITHOUT DEPENDING UPON THE PROVIDER. TECHNOLOGY WILL BE CONSIDERED 'MADE AVAIL ABLE' WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION OF THE SERVICE THAT MAY REQUIRE TECHNICAL KNOWLEDGE, SKILLS, ETC., DOES KPMG 8 NOT MEAN THAT TECHNOLOGY IS MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE, WITHIN THE MEANING O F THE DTAA. IN SUPPORT OF THE ABOVE SAID PROPOSITIONS, LD . COUNSEL HAS PLACED RELIANCE ON THE FOLLOWING JUDGME NTS: 1. KPMG V JCIT 33 TAXMANN.COM 23 (MUM) 2. NQA QUALITY SYSTEMS REGISTRAR LTD. V DCIT 2 SOT 249 (DELHI) 3. INVENSYS SYSTEMS INC., IN RE 183 TAXMAN 81 (AAR) 4. CIT V. DE BEERS INDIA MINERALS (P.) LTD. 21 TAXM ANN.COM 214(KAR) 5. RAYMOND LTD. VS DCIT 86 ITD 791 (MUM) 6. MAHINDRA & MAHINDRA LTD. V. DCIT 122 TTJ 577 (MU M) 7. GUY CARPENTER & CO. LTD. VS ADIT 48 SOT 463(DEL) 8. DDIT V. PEROY A.G. 39 SOT 187 (MUM) 9. DCIT V. BOSTON CONSULTING GROUP PTE. LTD 94 ITD 31 (MUM) 10. BHARAT PETROLEUM CORPN. LTD. V JCIT 111 TTJ 375 (MUM) 11. WOCKHARDT LTD. V ACIT 10 TAXMANN.COM 208 (MUM (2) INDEPENDENT PERSONAL SERVICES V. FEES FOR TECHN ICAL SERVICES : IN CASE A PAYMENT FALLS WITHIN THE SCOPE OF EXPRESSION 'INDEPENDENT PERSONAL SERVICES' WITHIN T HE MEANING OF ARTICLE 15, THE SAME SHALL AUTOMATICALLY BE OUT OF AMBIT OF ARTICLE 12(4) SINCE, IN VIEW OF THE SPECIF IC PROVISIONS OF ARTICLE 12(5), NOTWITHSTANDING THE PROVISIONS OF ARTICLE 12(4), 'FEES FOR INCLUDED SERVICES' DO NOT, INTER ALIA, IN CLUDE AMOUNTS PAID TO ANY INDIVIDUAL FOR INDEPENDENT PERSONAL SER VICES AS DEFINED IN ARTICLE 15. IN OTHER WORDS, WHEN AN AMOU NT PAID TO AN INDIVIDUAL OR A FIRM RESIDENT IN THE CONTRACTING STATE, IS FOUND TO BE COVERED BY THE SCOPE OF EXPRESSION INDE PENDENT PERSONAL SERVICES' WITHIN THE MEANING ASSIGNED IN A RTICLE 15, IT IS IMMATERIAL WHETHER OR NOT THE SAME IS COVERED BY THE SCOPE KPMG 9 OF EXPRESSION 'FEES FOR INCLUDED / TECHNICAL SERVIC ES' UNDER ARTICLE 12. IN THAT EVENTUALITY, IN VIEW OF THE PRO VISIONS OF ARTICLE 12(5), IF AT ALL THAT AMOUNT IS LIABLE TO T AX IN INDIA; IT CAN ONLY BE TAXABLE UNDER ARTICLE 15, AND TO THAT EXTEN T, THE PROVISIONS OF ARTICLE 12(4) AND ARTICLE 15 ARE NON- COMPETING AND MUTUALLY EXCLUSIVE. IN SUPPORT OF THIS PROPOSIT ION HE HAS RELIED UPON THE FOLLOWING JUDGMENTS: 1. GRAPHITE INDIA LTD. V. DCLT 86 ITD 384 (KOL) 2. DCLT V. CHADBOURNE & PARKE LLP (2 SOT 434 (MUM) IT WAS FURTHER SUBMITTED THAT ONCE THE SERVICES IN QUESTION CONSTITUTED 'PROFESSIONAL SERVICES', THE NATURAL CO ROLLARY TO THIS FINDING IS THAT THE PROVISIONS OF ARTICLE 15 WERE T O BE APPLIED, WHICH SPECIFICALLY DEALT WITH PROFESSIONAL SERVICES . THE PROVISIONS OF ARTICLE 15, BEING SPECIFIC PROVISIONS FOR PROFESSIONAL SERVICES, WILL OVERRIDE THE RELATIVELY GENERAL PROVISIONS OF ARTICLE 13, WHICH DEAL WITH 'FEES FOR TECHNICAL SERVICES' AND IT WILL APPLY TO BROADER CATEGORY OF 'MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES'. THUS, IF THE AM OUNTS PAID WERE IN THE NATURE OF PROFESSIONAL SERVICES, THE SA ME CAN BE TAXED IN INDIA ONLY UNDER ARTICLE 15 I.E. ONLY IF T HE PERSON RENDERING THE SERVICE STAYS IN INDIA FOR A PERIOD A GGREGATING TO 90 DAYS OR MORE DURING THE RELEVANT FISCAL YEAR OR HE HAS A FIXED BASED REGULARLY AVAILABLE TO HIM IN INDIA FOR PERFORMING SUCH ACTIVITIES. IN OTHER WORDS, THE REMUNERATION P AID WOULD BE OUTSIDE THE SCOPE OF FEES FOR TECHNICAL SERVICES , IF THEY WERE IN THE NATURE OF FEES FOR PROFESSIONAL SERVICES AND CONSEQUENTLY WOULD BE TAXABLE IN INDIA ONLY IF CONDITIONS STIPUL ATED IN KPMG 10 ARTICLE 15 WERE COMPLIED WITH. IN SUPPORT OF THIS P ROPOSITION, LD. COUNSEL HAS RELIED UPON FOLLOWING JUDGMENT: 1. MAHARASHTRA STATE ELECTRICITY BOARD V. DCIT 90 I TD 793 2. NQA QUALITY SYSTEMS REGISTRAR LTD. V. DCIT 2SOT 249 3. IMP POWER LTD. V. ITO 9 SOT 156 (3) NO DISALLOWANCE UNDER SECTION 40(A)(I) WHEN LAW IS AMENDED WITH RETROSPECTIVE EFFECT: THE LAW, AS IT STOOD DURING THE RELEVANT ASSESSMENT YEAR, REQUIRED THAT SERVICES BE RENDERED IN INDIA AS WELL AS UTILIZED IN INDIA FOR THE TAXABILITY UNDER SECTION 9(1)(VII) . THE REQUIREMENT OF 'RENDERING OF SERVICES' IN INDIA WAS DONE AWAY WITH BY THE INSERTION OF AN EXPLANATION BY THE FINA NCE ACT, 2010, WITH RETROSPECTIVE EFFECT. THE EFFECT HOWEVER , AS FAR AS WITHHOLDING OF TAX LIABILITY IS CONCERNED, DEPENDS ON THE LAW AS IT EXISTED AT THE POINT OF TIME WHEN PAYMENTS WERE MADE FROM WHICH TAXES OUGHT TO HAVE BEEN WITHHELD. A RETROSPE CTIVE AMENDMENT IN LAW MIGHT CHANGE THE TAX LIABILITY IN RESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY, WITH RETROSPECTIVE EFFEC T. SINCE THE SUBJECT SERVICES WERE RENDERED OUTSIDE INDIA, THE S AME WERE NOT SUBJECTED TO WITHHOLDING TAX OBLIGATION AT THAT POINT OF TIME AND THUS, NO DISALLOWANCE TINDER SECTION 40(A) (I) OF THE ACT CAN BE MADE. IN SUPPORT OF THIS PROPOSITION REL IANCE WAS MADE UPON FOLLOWING JUDGMENTS: 1. RICH GRAVISS PRODUCTS P. LTD. VS. ACIT 49 TAXMAN N.COM 531 (MUM) 2. UNITED HELICHARTERS (P) LTD. V. ACIT 37 TAXMANN. COME 343 (MUMBAI ITAT) KPMG 11 3. CHANNEL GUIDE INDIA LTD. V. ACIT 25 TAXMANN.COME 25 (MUMBAI ITAT) 4. NEW BOMBAY PARK HOTEL PVT. LTD. V. ITO (IT) ITA NO.7641/MUM/2011 (MUMBAI ITAT) 5. DCIT V. VIROLA INTERNATIONAL 42 TAXMANN.COM 286 (AGRA ITAT) 6. STERLING ABRASIVES LTD. V. ITO ITAT NO.2243 & 22 44/AHD/2008 (AHD) 7. METRO & METRO V. ACIT 39 TAXMANN.COM 26 (AGRA IT AT) 8. INFOTECH ENTERPRISES LTD. V. ACIT 41 TAXMANN.COM 364 (HYDERABAD ITAT) 9. SONATA INFORMATION TECHNOLOGY LTD. V. DCIT 25 TA XMANN.COM 125 (MUMBAI ITAT) 4.7. WE HAVE GONE THROUGH ALL THE ARGUMENTS MADE BEFORE US BY BOTH THE SIDES, ORDERS OF THE LOWER AUTHORITIES AS WELL AS JUDGMENTS PLACED BEFORE US. 4.8. IT IS NOTED THAT THE PAYMENTS HAVE BEEN MADE TO TH E AFORESAID THREE PARTIES NAMELY KPMG LLP-UK, KPMG LL P- USA, & KPMG LLP-FRANCE WHO WERE ENGAGED IN THE REND ERING PROFESSIONAL SERVICES IN AUDIT, TAXATION, BUSINESS ADVISORY, RELATED SERVICES AND OTHER CONSULTANCY SERVICES. TH E UNDISPUTED FACTS ARE THAT THESE PAYEES ARE NON-RESI DENTS AND DO NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA UNDE R THE RESPECTIVE DTAA, KEEPING IN VIEW THE NATURE OF THE SERVICES RENDERED BY THEM. IT IS NOTED THAT SERVICES HAVE BE EN PROVIDED OUTSIDE INDIA AND THESE WERE OF THE NATURE OF AUDIT AND/OR ADVISORY SERVICES. IT IS SEEN THAT NONE OF THE SERV ICES WAS HAD THE ATTRIBUTES OF MAKING AVAILABLE OF ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESS. THE RELEVAN T PROVISIONS KPMG 12 OF TREATIES WITH THESE COUNTRIES STIPULATE THAT IN CASE OF FTS, IT IS MANDATORY THAT TECHNICAL KNOWLEDGE ETC. SHOULD B E MADE AVAILABLE TO THE RECIPIENT OF SERVICES AND THE SAI D RECIPIENT SHOULD BE FREE TO USE IT IN ITS OWN RIGHT. IF THE S ERVICES RENDERED DO NOT RESULT IN MAKING AVAILABLE OF ANY S UCH THING, THEN IT WOULD NOT FALL WITHIN THE AMBIT OF FTS (FEE FOR TECHNICAL SERVICES). THIS VIEW HAS BEEN FOLLOWED IN MANY JUDG MENTS UNIFORMLY. SOME OF THESE JUDGMENTS WERE RELIED UPON BY THE LD. COUNSEL AND HAVE BEEN MENTIONED ABOVE IN THIS O RDER. THUS, IN OUR CONSIDERED VIEW, THESE PAYMENTS CANNOT BE CONSIDERED AS FEE FOR TECHNICAL SERVICES AS PER ITS DEFINITION GIVEN IN RESPECTIVE TREATY. 4.9. IT IS FURTHER NOTED BY US THAT THESE PAYMENTS FALL WITHIN THE DEFINITION OF INDEPENDENT PERSON SERVICE AS PRO VIDED IN RESPECTIVE DTAAS, MOSTLY IN ARTICLE 15, UNDER WHICH , THE PAYMENT IN THE HANDS OF A PAYEE CAN BE TAXED IN IND IA ONLY IF PROVIDER OF THE SERVICES STAYS IN INDIA FOR A PERIO D AGGREGATING TO 90 DAYS OR MORE DURING THE RELEVANT FINANCIAL YE AR OR IF THE SAID PERSON HAS A PE (PERMANENT ESTABLISHMENT) OR F IXED BASIS REGULARLY AVAILABLE TO HIM IN INDIA FOR PERFORMING SUCH ACTIVITIES. IT IS NOTED FROM THE FACTS OF THIS CASE THAT NO SUCH CASE HAS BEEN MADE BY THE AO. ADMITTEDLY THERE IS N O PE IN INDIA OF THE PAYEE AND SERVICES HAVE BEEN RENDERED OUTSIDE INDIA. THUS, IN ABSENCE OF ANY PE ETC, AND PAYMENT BEING IN THE NATURE OF INDEPENDENT PERSON SERVICES, THE SAME WOULD BE CLEARLY OUTSIDE THE SCOPE OF TAXATION IN INDIA. THU S, VIEWED KPMG 13 FROM THIS ANGLE ALSO, TDS WAS NOT REQUIRED TO BE DE DUCTED AT SOURCE. 4.10. IT IS FURTHER NOTED BY US THAT THE LAW AS IT STOOD IN THE YEAR BEFORE US I.E. A.Y. 2007-08, PROVIDED A MANDAT ORY CONDITION THAT SERVICES SHOULD BE RENDERED IN INDIA BEFORE IT COULD BE MADE TAXABLE U/S 9(1)(VII). THIS REQUIREME NT OF RENDERING SERVICES IN INDIA WAS DONE AWAY WITH INSE RTION OF AN EXPLANATION BY THE FINANCE ACT, 2010, WITH RETROSPE CTIVE EFFECT. BUT THE ISSUE THAT ARISES HERE IS THAT EVEN IF A RE TROSPECTIVE AMENDMENT MAY LEGALLY CHANGE THE DETERMINATION OF T AX LIABILITY IN THE HANDS OF RECIPIENT OF INCOME WITH THE RETROSPECTIVE EFFECT, BUT WHETHER IT CAN ALSO CREAT E AN OBLIGATION UPON THE PAYER TO DEDUCT TAX AT SOURCE, THAT TOO WITH RETROSPECTIVE EFFECT. THIS ISSUE HAS ALSO BEEN DISCUSSED AND DECIDED IN FAVOUR OF THE ASSESSEE IN MANY CASES BY HOLDING THAT OBLIGATION TO DEDUCT TAX AT SOURCE CAN NOT BE CREATED WITH THE HELP OF AN AMENDMENT MADE WITH RETROSPECTIVE EFFECT. IT IS NOTED THAT SIMILAR ISSU E CAME BEFORE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. VIROLA INTERNATIONAL (SUPRA); SOME RELEVANT OBSERVATIONS O F THE HONBLE BENCH ARE REPRODUCED HEREUNDER: 6. HONBLE SUPREME COURT, IN THE CASE OF ISHIKAWAJ IMA HARIMA HEAVY INDUSTRIES LTD VS DIT (288 ITR 408), H AD HELD THAT IN ORDER TO BRING A FEES FOR TECHNICAL SE RVICES TO TAXABILITY IN INDIA, NOT ONLY THAT SUCH SERVICES SH OULD BE UTILIZED IN INDIA BUT THESE SERVICES SHOULD ALSO BE RENDERED KPMG 14 IN INDIA. ANALYZING THIS LEGAL POSITION, HONBLE BO MBAY HIGH COURT HAS, IN THE CASE OF CLIFFORD CHANCE VS D CIT (318 ITR 237), OBSERVED AS FOLLOWS: 'THE APEX COURT HAD OCCASION TO CONSIDER THE ABOVE QUESTION IN THE CASE OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. VS. DIRECTOR OF IT (2007) 288 ITR 4 08 (SC), WHEREIN, WHILE INTERPRETING THE PROVISIONS OF S. 9(1)(VII)(C) OF THE ACT, THE SUPREME COURT HELD AS UNDER (P. 444): SEC. 9(1)(VII)(C) OF THE ACT STATES THAT A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRI ED ON BY SUCH PERSON IN INDIA, OR FOR THE PURPOSES OF MAK ING OR EARNING ANY INCOME FROM ANY SOURCE OF INDIA. READING THE PROVISION IN ITS PLAIN SENSE, AS PER TH E APEX COURT IT REQUIRES TWO CONDITIONS TO BE METTHE SERVICES WHICH ARE THE SOURCE OF THE INCOME THAT IS SOUGHT TO BE TAXED, HAS TO BE RENDERED IN INDIA, AS WELL AS UTILIZED IN INDIA, TO BE TAXABLE IN INDIA. BOTH THE ABOVE CONDITIONS HAVE TO BE SATISFIED SIMULTANEOUSL Y. THUS FOR A NON-RESIDENT TO BE TAXED ON INCOME FOR SERVICES, SUCH A SERVICE NEEDS TO BE RENDERED WITHI N INDIA, AND HAS TO BE PART OF A BUSINESS OR PROFESSI ON CARRIED ON BY SUCH PERSON IN INDIA. IN THE ABOVE JUDGMENT, THE APEX COURT OBSERVED THAT (P. 444) : SEC. 9(1)(VII) OF THE ACT MUST BE READ WITH S. 5 T HEREOF, WHICH TAKES WITHIN ITS PURVIEW THE TERRITORIAL NEXU S ON KPMG 15 THE BASIS WHEREOF TAX IS REQUIRED TO BE LEVIED, NAM ELY, (A) RESIDENT; AND (B) RECEIPT OF ACCRUAL OF INCOME . ACCORDING TO THE APEX COURT, THE GLOBAL INCOME OF A RESIDENT ALTHOUGH IS SUBJECTED TO TAX, THE GLOBAL I NCOME OF A NON-RESIDENT MAY NOT BE. THE ANSWER TO THE QUESTION WOULD DEPEND UPON THE NATURE OF THE CONTRA CT AND THE PROVISIONS OF THE DTAA. WHAT IS RELEVANT IS RECEIPT OR ACCRUAL OF INCOME, AS WOULD BE EVIDENT F ROM A PLAIN READING OF S. 5(2) OF THE ACT SUBJECT TO THE COMPLIANCE WITH 90 DAYS RULE. AS PER THE ABOVE JUDGMENT OF THE APEX COURT, THE INTERPRETATION WITH REFERENCE TO THE NEXUS TO TAX TERRITORIES ALSO ASSUMES SIGNIFICANCE. TERRITORIAL NEXUS FOR THE PURPOSE OF DETERMINING THE TAX LIABILITY IS AN INTERNATIONALLY ACCEPTED PRINCIPLE. AN ENDEAVOR SHO ULD, THUS, BE MADE TO CONSTRUE THE TAXABILITY OF A NON- RESIDENT IN RESPECT OF INCOME DERIVED BY IT. HAVING REGARD TO THE INTERNATIONALLY ACCEPTED PRINCIPLE AN D THE DTAA, NO EXTENDED MEANING CAN BE GIVEN TO THE WORDS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AS EXPRESSED IN S. 9 OF THE ACT. SEC. 9 INCORPORATES V ARIOUS HEADS OF INCOME ON WHICH TAX IS SOUGHT TO BE LEVIED BY THE REPUBLIC OF INDIA. WHATEVER IS PAYABLE BY A RESIDENT TO A NON-RESIDENT BY WAY OF FEES FOR SERVI CES, THUS, WOULD NOT ALWAYS COME WITHIN THE PURVIEW OF S . 9(1)(VII) OF THE ACT. IT MUST HAVE SUFFICIENT TERRI TORIAL NEXUS WITH INDIA SO AS TO FURNISH A BASIS FOR IMPOS ITION OF TAX. WHEREAS A RESIDENT WOULD COME WITHIN THE KPMG 16 PURVIEW OF S. 9(1)(VII) OF THE ACT, A NON-RESIDENT WOULD NOT, AS SERVICES OF A NON-RESIDENT TO A RESIDENT UT ILIZED IN INDIA MAY NOT HAVE MUCH RELEVANCE IN DETERMINING WHETHER THE INCOME OF THE NON-RESIDENT ACCRUES OR ARISES IN INDIA. IT MUST HAVE A DIRECT LINK BETWEEN THE SERVICES RENDERED IN INDIA. WHEN SUCH A LINK IS ESTABLISHED, THE SAME MAY AGAIN BE SUBJECTED TO ANY RELIEF UNDER THE DTAA. A DISTINCTION MAY ALSO BE MA DE BETWEEN RENDITION OF SERVICES AND UTILIZATION THERE OF. WITH THE ABOVE UNDERSTANDING OF LAW LAID DOWN BY TH E APEX COURT, IF ONE TURNS TO THE FACTS OF THE CASE I N HAND AND EXAMINES THEM ON THE TOUCHSTONE, S. 9(1)(VII)(C ) WHICH CLEARLY STATES....... WHERE THE FEES ARE PAY ABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFE SSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPO SES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. IT IS THUS, EVIDENT THAT S. 9(1)(VII)(C), R EAD IN ITS PLAIN, ENVISAGES THE FULFILLMENT OF TWO CONDITIONS : SERVICES, WHICH ARE SOURCE OF INCOME SOUGHT TO BE T AXED IN INDIA MUST BE (I) UTILIZED IN INDIA, AND (II) RE NDERED IN INDIA. IN THE PRESENT CASE, BOTH THESE CONDITIONS H AVE NOT BEEN SATISFIED SIMULTANEOUSLY.' 7. THE LAW LAID DOWN BY HONBLE SUPREME COURT, IN T HE CASE OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. VS . DIRECTOR OF INCOME TAX (SUPRA), BINDS EVERYONE UNDE R ARTICLE 141 OF THE CONSTITUTION OF INDIA. THE LEGAL POSITION THUS WAS THAT UNLESS THE SERVICES ARE RENDERED IN I NDIA, KPMG 17 THE SAME CANNOT BE BROUGHT TO TAX AS FEES FOR TECH NICAL SERVICES UNDER SECTION 9. HOWEVER, THIS LEGAL POSI TION DID UNDERGO A CHANGE WHEN FINANCE ACT 2010 RECEIVED ASS ENT OF THE PRESIDENT OF INDIA ON 8TH MAY 2010. EXPLAINI NG THE SCOPE OF THIS AMENDMENT, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ASHAPURA MINICHEM LTD VS A DIT (131 TTJ 291), HAS EXPLAINED THUS: (THIS LEGAL POSITION) DOES NO LONGER HOLD GOOD IN VIEW OF RETROSPECTIVE AMENDMENT W.E.F. 1ST JUNE, 1976 IN S. 9 BROUGHT OUT BY THE FINANCE ACT, 2010. UNDER THE AME NDED EXPLANATION TO S. 9(1), AS IT EXISTS ON THE STATUTE NOW, IT IS SPECIFICALLY STATED THAT THE INCOME OF THE NON-RESI DENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CL. (V) OR CL. (VI) OR CL. (VII) OF S. 9(1), AND SHALL BE INCLUDED IN H IS TOTAL INCOME, WHETHER OR NOT (A) THE NONRESIDENT HAS A RE SIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDI A; OR (B) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA. IT IS THUS NO LONGER NECESSARY THAT, IN ORDER TO ATTRACT TAXAB ILITY IN INDIA, THE SERVICES MUST ALSO BE RENDERED IN INDIA. AS THE LAW STANDS NOW, UTILIZATION OF THESE SERVICES IN IN DIA IS ENOUGH TO ATTRACT ITS TAXABILITY IN INDIA. TO THAT EFFECT, RECENT AMENDMENT IN THE STATUTE HAS VIRTUALLY NEGAT ED THE JUDICIAL PRECEDENTS SUPPORTING THE PROPOSITION THAT RENDITION OF SERVICES IN INDIA IS A SINE QUA NON FO R ITS TAXABILITY IN INDIA. 8. IT IS THUS CLEAR THAT TILL 8TH MAY 2010, THE PRE VAILING LEGAL POSITION WAS THAT UNLESS THE TECHNICAL SERVIC ES WERE RENDERED IN INDIA, THE FEES FOR SUCH SERVICES COULD NOT BE KPMG 18 BROUGHT TO TAX UNDER SECTION 9(1)(VII). THE LAW AME NDED WAS UNDOUBTEDLY RETROSPECTIVE IN NATURE BUT SO FAR AS TAX WITHHOLDING LIABILITY IS CONCERNED, IT DEPENDS ON T HE LAW AS IT EXISTED AT THE POINT OF TIME WHEN PAYMENTS, FROM WHICH TAXES OUGHT TO HAVE BEEN WITHHELD, WERE MADE. THE T AX DEDUCTOR CANNOT BE EXPECTED TO HAVE CLAIRVOYANCE OF KNOWING HOW THE LAW WILL CHANGE IN FUTURE. A RETROS PECTIVE AMENDMENT IN LAW DOES CHANGE THE TAX LIABILITY IN R ESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BUT IT CAN NOT CHANGE THE TAX WITHHOLDING LIABILITY, WITH RETROSPE CTIVE EFFECT. THE TAX WITHHOLDING OBLIGATIONS FROM PAYMEN TS TO NON-RESIDENTS, AS SET OUT IN SECTION 195, REQUIRE T HAT THE PERSON MAKING THE PAYMENT AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME O F PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, D EDUCT INCOME -TAX THEREON AT THE RATES IN FORCE. WHEN TH ESE OBLIGATIONS ARE TO BE DISCHARGED AT THE POINT OF TI ME WHEN PAYMENT IS MADE OR CREDITED, WHICHEVER IS EARLIER, SUCH ASSESSMENT YEAR : 2008 -0 9 PAGE 6 OF 7 OBLIGATIONS CAN ONLY BE DISCHARGED IN THE LIGHT OF THE LAW AS IT ST ANDS THAT POINT OF TIME. SECTION 40(A)(I) PROVIDES THAT, INTE R ALIA, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION S 30 TO 38, ANY AMOUNT PAYABLE OUTSIDE INDIA, OR PAYABLE IN INDIA TO A NON-RESIDENT, SHALL NOT BE DEDUCTED IN COMPUTI NG 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 BE EN KPMG 19 DEDUCTED'. THE DISALLOWANCE UNDER SECTION 40(A)(I) IS NOT FOR THE PAYMENTS MADE TO NON-RESIDENTS, WHICH ARE T AXABLE IN INDIA, BUT FOR THE PAYMENTS ON WHICH TAX WAS DED UCTIBLE AT SOURCE BUT TAX HAS NOT BEEN DEDUCTED, AND SUCH DEDUCTIBILITY OF TAX AT SOURCE, AS WE HAVE DISCUSSE D ABOVE, HAS TO BE IN THE LIGHT OF THE LEGAL POSITION AS IT STOOD AT THE POINT OF TIME WHEN PAYMENT WAS MADE OR CREDITED- WHICHEVER IS EARLIER . CLEARLY, THEREFORE, THE DISA LLOWANCE UNDER SECTION 40(A)(I) CAN COME INTO PLAY ONLY WHEN THE ASSESSEE HAD AN OBLIGATION TO DEDUCT TAX AT SOURCE FROM PAYMENTS TO NON-RESIDENTS, AND THE ASSESSEE FAILS T O COMPLY WITH SUCH AN OBLIGATION. IN VIEW OF THESE DISCUSSIONS, SO FAR AS PAYMENTS MADE BEFORE 8TH MAY 2010 ARE CONCERNED, THE ASSESSEE DID NOT HAVE ANY T AX WITHHOLDING LIABILITIES FROM FOREIGN REMITTANCES FO R FEES FOR TECHNICAL SERVICES UNLESS SUCH SERVICES WERE RENDER ED IN INDIA, AND A FORTIORI NO DISALLOWANCE CAN BE MADE U NDER SECTION 40(A)(I) FOR ASSESSEES FAILURE TO DEDUCT T AX AT SOURCE FROM SUCH PAYMENTS. 9. IN THE CASE BEFORE US, THERE IS NO MATERIAL WHA TSOEVER TO DEMONSTRATE AND ESTABLISH THAT THE DESIGN AND DEVELOPMENT SERVICES, FOR WHICH IMPUGNED PAYMENTS W ERE MADE, WERE RENDERED IN INDIA. THEREFORE, THE ASSESS EE DID NOT HAVE ANY LIABILITY UNDER SECTION 195 R.W.S. 9(1 )(VII) TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS. ONCE WE C OME TO THE CONCLUSION THAT THE ASSESSEE DID NOT HAVE AN Y OBLIGATION TO DEDUCT TAX AT SOURCE FROM THESE PAYME NTS, IN THE LIGHT OF THE ABOVE DISCUSSIONS AND AS COROLLARY THERETO, KPMG 20 NO DISALLOWANCE CAN BE MADE IN RESPECT OF THESE PAYMENTS. AS WE HAVE COME TO THESE CONCLUSIONS IN T HE LIGHT OF THE PROVISIONS OF THE DOMESTIC LAW, I.E. I NCOME TAX ACT, ITSELF, THERE IS NO NEED TO DEAL WITH THE TAXA BILITY OF INCOMES EMBEDDED IN THESE PAYMENTS UNDER THE PROVISIONS OF THE APPLICABLE TAX TREATIES. THAT WOU LD BE RELEVANT WITH RESPECT TO TAXABILITY OF THESE PAYMEN TS IN THE HANDS OF THE RECIPIENTS, BUT, FOR THE REASONS SET O UT ABOVE AND IN THE LIGHT OF THE LEGAL POSITION DISCUSSED AB OVE, WILL BE ACADEMIC IN THE PRESENT CONTEXT. AS REGARDS LEAR NED DEPARTMENTAL REPRESENTATIVE VEHEMENT RELIANCE ON A DECISION OF CHENNAI A BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS EVOLV CLOTHING PVT. LTD [(2013) 33 TAXMANN. COM 309] WHEREIN ON THE BASIS OF TAXABILITY OF INCOME A LONE, THE COORDINATE BENCH HAS CONFIRMED THE DISALLOWANCE UND ER SECTION 40(A)(I), WE CAN ONLY SAY THAT A DECISION C ANNOT BE AN AUTHORITY FOR A LEGAL QUESTION WHICH HAS NOT BEE N DEALT WITH IN THAT DECISION, OR NOT HAVING BEEN RAISE D I N THAT CASE. 10. IN VIEW OF THESE DISCUSSIONS, AS ALSO BEA RING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE CONCLUSION S ARRIVED AT BY THE LEARNED CIT(A) AND DECLINE TO INT ERFERE IN THE MATTER. AS WE HAVE DECIDED THIS APPEAL ON THIS SHORT LEGAL POINT REGARDING SCOPE OF SECTION 40(A)(I) R.W .S SECTION 195, WE SEE NO NEED TO DEAL WITH OTHER ERUDITE CONT ENTIONS OF THE PARTIES AS ALSO FINDINGS OF THE LEARNED CIT( A), WHICH, GIVEN OUR ADJUDICATION ON THIS LEGAL ISSUE, ARE NOW RENDERED ACADEMIC IN THE PRESENT CONTEXT. KPMG 21 4.11. IT IS NOTED BY US THAT IN THE CASE BEFORE US, THE ASSESSMENT ORDER INVOLVED IS IN A.Y. 2007-08 AND TH EREFORE, AMENDMENT MADE BY THE FINANCE ACT, 2010 CANNOT BE P RESSED INTO SERVICE TO CREATE AN OBLIGATION UPON THE ASSES SEE FOR DEDUCTION OF TAX AT SOURCE, WHICH OTHERWISE, WAS NO T UPON THE ASSESSEE, AS PER LAW EXISTING AT THE TIME OF MAKING OF IMPUNED REMITTANCES. 4.12. FURTHER, WE FIND THAT IDENTICAL ISSUE HAD ARISEN I N ASSESSEES OWN CASE IN A.Y. 2004-05, WHEREIN DISALL OWANCE WAS MADE BY THE AO U/S 40(A)(I) ON THE PAYMENTS MAD E ON ACCOUNT OF FEE PAID FOR PROFESSIONAL SERVICES TO TH E NON- RESIDENTS. THE TRIBUNAL, VIDE ITS ORDER, SUBSEQUENT LY REPORTED IN KPMG VS JCIT 33 TAXMANN.COM 23, DISCUSSED THE IS SUE IN DETAIL AND HELD THAT TDS WAS NOT REQUIRED TO BE DED UCTED ON THE SIMILAR GROUNDS ON WHICH ARGUMENT HAVE BEEN MAD E BY THE LD. COUNSEL BEFORE US. HONBLE BENCH HAS ALSO C ONSIDERED THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F TRANSMISSION CORPN. OF A.P. LTD. V. CIT 239 ITR 587 (SC), WHICH HAS BEEN RELIED UPON BY THE AO IN THE CASE BE FORE US. IT WAS OBSERVED BY THE BENCH THAT LOOKING INTO THE NAT URE OF SERVICES RENDERED BY ALL THE PERSONS, IT IS SEEN TH AT, FIRSTLY, NONE OF THESE SERVICES FALL IN THE NATURE OF MAKE- AVAILABLE OF ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW -HOW OR PROCESS. THE PROVISIONS OF INDO-U.S. AND U.K. TREAT IES ARE ABSOLUTELY CLEAR THAT IN CASE OF FEES FOR TECHNICAL SERVICES, IT IS ESSENTIAL THAT TECHNICAL KNOWLEDGE, SKILL, KNOW-HOW SHOULD BE MADE AVAILABLE TO THE ASSESSEE A ND THE KPMG 22 ASSESSEE SHOULD BE AT LIBERTY TO USE THEM IN ITS OW N RIGHT. IF THE SERVICE DOES NOT RESULT IN MAKING AVAILABLE OF ANY SUCH THING, THEN THE SAME WOULD NOT FALL WITHIN THE AMBI T OF FEES FOR TECHNICAL SERVICE. THESE PAYMENTS ALSO CANNOT B E TAXED UNDER ARTICLE 7 AS NONE OF THEM WERE HAVING ANY P.E . OR FIXED BASE IN INDIA AND THE DURATION OF THEIR VISIT IN INDIA WAS ALSO FOR A VERY LESS PERIOD. THEREFORE, SUCH A PAYMENT DOES NOT ATTRACT THE PROVISIONS OF TDS UNDER SECTIO N 195. PROVISION OF SECTION 195(1) USES THE EXPRESSION 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. THE PAYER IS BOUN D TO DEDUCT TAX AT SOURCE ONLY IF THE SUM PAID IS ASSESS ABLE TO TAX IN INDIA. THE OBLIGATION TO DEDUCT TAX IS LIMIT ED TO THE APPROPRIATE PROPORTION OF INCOME WHICH IS CHARGEABL E UNDER THE ACT AND NOT OTHERWISE. RELIANCE WAS PLACE D UPON THE JUDGMENT OF HONBLE SUPREME COURT, IN G.E. INDI A TECHNOLOGY CENTRE (P.) LTD VS CIT 327 ITR 456, WHEREIN SIMILAR OBSERVATIONS WERE MADE. IN VIEW OF THE DETA ILED DISCUSSION, IT WAS HELD BY THE BENCH THAT NO PAYMEN TS WERE LIABLE OR CHARGEABLE TO BE TAXED IN INDIA, AND THER EFORE, TDS WAS NOT REQUIRED TO BE DEDUCTED U/S 195. THUS, WE F IND THAT THE CASE OF THE ASSESSEE IS COVERED ALSO COVERED IN ITS FAVOUR WITH THE ORDER OF THE TRIBUNAL FOR A.Y. 2004-05. 4.13. THUS, WE FIND THAT THE IMPUGNED ORDER PASSED BY TH E LD. CIT(A) IS IN ACCORDANCE WITH LAW AND FACTS, AND THE REFORE, NO INTERFERENCE IS CALLED FOR THEREIN AND THEREFORE, S AME IS UPHELD AND GROUND RAISED BY THE REVENUE DISMISSED. KPMG 23 5. AS A RESULT APPEAL OF THE REVENUE IS DISMISSED. NOW, WE SHALL TAKE THE ASSESSEES APPEAL IN ITA NO.6286/MUM/2012 FOR A.Y. 2007-08 6. GROUND NO.1: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN UPHOLDING THE DISALLOWA NCE MADE BY THE AO U/S 40A(I) IN RESPECT OF PROFESSIONAL FEE OF RS. 6,00,482/- PAID TO KPMG HUAZHEN, CHINA. 6.1. THE REASONS FOR UPHOLDING THE DISALLOWANCE FOR LD. CIT(A) IS THAT SINCE THE INDO CHINA TREATY DOES NOT HAVE MAKE AVAILABLE CLAUSE, THEREFORE THE PAYMENT CAN BE CON SIDERED AS FEE FOR TECHNICAL SERVICES AND THEREFORE, WOULD BE TAXABLE IN INDIA. IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THIS CASE ALSO SERVICES WERE RENDERED OUTSI DE INDIA AND THUS MANDATORY CONDITION WAS DONE AWAY WITH BY FINA NCE ACT 2010, AND SINCE THIS IS ASSESSMENT YEAR 2007-08, TH E OBLIGATION TO DEDUCT TDS COULD NOT HAVE BEEN CREATE D BY RETROSPECTIVE EFFECT. 6.2. IT WAS FURTHER ARGUED BY HIM THAT SERVICES IN QUES TION CONSTITUTED PROFESSIONAL SERVICES, AND THEREFORE, PROVISIONS OF ARTICLE 14 ARE TO BE APPLIED WHICH SPECIFICALLY DEA L WITH PROFESSIONAL SERVICES. PROVISIONS OF ARTICLE 14, BEING SPECIFIC PROVISIONS FOR PROFESSIONAL SERVICES, WILL OVERRIDE THE RELATIVELY GENERAL PROVISIONS OF ARTICLE 12, WHICH DEALS WITH FEES FOR TECHNICAL SERVICES. THUS, THE SERVICES (RELATING T O REVIEW OF KPMG 24 INFORMATION SECURITY SERVICES & ASSISTANCE IN AUDIT ) WHICH WERE PROFESSIONAL SERVICES & RENDERED BY A RESIDE NT OF CHINA, WOULD BE COVERED UNDER INDEPENDENT PERSONAL SERVIC ES AS CONTEMPLATED UNDER ARTICLE 14 OF THE DTAA AND, SINC E IT DOES NOT HAVE A FIXED BASE IN INDIA, THE INCOME FROM THE SAID PROFESSIONAL SERVICES WILL NOT BE TAXABLE IN INDIA. 6.3. IT HAS BEEN FURTHER SUBMITTED THAT THE IMPUGNED SE RVICES SHALL NOT GET COVERED IN ARTICLE 12(4) WHEREIN DEFI NITION OF FEE FOR TECHNICAL SERVICES HAS BEEN PROVIDED, WHEREIN IT HAS BEEN CLEARLY STATED THAT PROVISIONS OF SERVICES SHOULD B E PROVIDED IN INDIA, AND SINCE SERVICES HAVE BEEN PROVIDED OUTSID E INDIA, THEREFORE, THESE SERVICES WOULD NOT FALL IN THE DEF INITION OF FTS AND ACCORDINGLY THESE WOULD NOT FALL IN ARTICLE 12, AND THEREFORE LD. CIT(A) ERRED IN HOLDING THAT TDS WAS REQUIRED TO DEDUCTED ON THE REMITTANCES MADE TO KPMG-CHINA. 6.4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND FIND THAT WE HAVE DISCUSSED THIS ISSUE ALREADY IN D ETAIL WHILE DISPOSING THE APPEAL OF THE REVENUE AS DISCUSSED AB OVE, IN DETAIL. THE LEGISLATURE CANNOT EXPECT AN ASSESSEE T O DO IMPOSSIBLE. IN OUR CONSIDERED OPINION, NO LAW CAN C REATE AN OBLIGATION TO DEDUCT TAX AT SOURCE BY RETROSPECTIVE OPERATION. THUS, IN OUR CONSIDERED VIEW, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE ON THE SAID PAYMENT. IT IS FUR THER NOTED BY US THAT KPMG HUAZHEN IS AN ENTITY REGISTERED IN CHINA AND IT IS RESIDENT OF CHINA AS IS UNDERSTOOD IN INDO-CH INA TAX TREATY. THE ADMITTED FACTS ON RECORD ARE THAT SERVI CES WERE KPMG 25 RENDERED IN CHINA IN RELATION TO THE REVIEW OF INFO RMATION SECURITIES SERVICES AND ASSISTANCE IN AUDIT. THE AS SESSEE HAS CLAIMED THAT SERVICES IN QUESTION WOULD FALL SPECIF ICALLY IN ARTICLE 14 OF INDO CHINA TREATY. WE HAVE GONE THROU GH ARTICLE 14 OF THE TAX TREATY WHICH PROVIDE THAT INCOME DERI VED BY RESIDENT OF A CONTRACTING STATE IN RESPECT OF PROFE SSIONAL SERVICES OR OTHER ACTIVITIES OF AN INDEPENDENT CHAR ACTER SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE EXCEPT WH EN THE SAID RESIDENT HAS A PE OR FIXED BASIS OR STAY EXCEEDING PRESCRIBED NUMBER OF DAYS IN THE OTHER CONTRACTING STATES. THE TERMS PROFESSIONAL SERVICES HAVE BEEN DEFINED TO INCLUD E INTER ALIA INDEPENDENT ACTIVITIES OF LAWYERS AND ACCOUNTANTS. THUS, PERUSAL OF THIS ARTICLE REVEALS THAT SERVICES PROVI DED BY RESIDENTS (IT COULD BE AN INDIVIDUAL, FIRM OR COMPA NY) SHALL FALL IN THIS ARTICLE IF THE SERVICES PROVIDED ARE OF THE NATURE OF ANY ONE OR MORE OF THE CATEGORIES AS MENTIONED IN ARTIC LE 14(2). 6.5. IT IS NOTED ON THE BASIS OF FACTS BROUGHT BEFORE U S THAT THESE PROFESSIONAL SERVICES HAVE BEEN PROVIDED IN C HINA BY A TEAM CONSISTING OF ACCOUNTANTS, LAWYERS AND ENGINEE RS. THUS, WE FIND THAT THESE SERVICES SPECIFICALLY FALL IN AR TICLE 14, AND IN ABSENCE OF THEIR BEING ANY PE OR ANY STAY OF THE PE RSONS OF KPMG CHINA, IN INDIA, THE PAYMENT MADE BY THE ASSES SEE WAS NOT TAXABLE IN INDIA AND THEREFORE, NOT LIABLE TO D EDUCTION OF TAX AT SOURCE. THE LD. COUNSEL HAS FURTHER TAKEN UP ANOTHER ARGUMENT THAT FOR INVOKING PROVISIONS OF ARTICLE 12 (4) OF INDO CHINA TREATY, IT IS MANDATORY THAT THE SERVICES MUS T BE RENDERED IN INDIA BY RESIDENTS OF CHINA, IN VIEW OF CLEAR KPMG 26 PROVISIONS OF DEFINITION OF FEE FOR TECHNICAL SERV ICES AS PROVIDED IN ARTICLE 12(4). SINCE WE HAVE ALREADY HE LD IN OUR EARLIER PART OF OUR ORDER THAT THE IMPUGNED SERVICE S ARE NOT TAXABLE IN INDIA, THEREFORE, WE DO NOT FIND IT NECE SSARY TO DECIDE THIS ISSUE, AND THUS WE LEAVE THIS ISSUE OPE N, AT THIS STAGE. AS A RESULT, THIS GROUND IS ALLOWED. 7. GROUND NO.2: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN HOLDING THE ADDITION MA DE BY THE AO IN RESPECT OF AMOUNTS AGGREGATING TO RS.52,743/- AS UNDISCLOSED INCOME FROM PROFESSIONAL SERVICES ON TH E BASIS OF ANNUAL INFORMATION RETURN. 7.1. WE HAVE GONE THROUGH THE FACTS OF THE CASE; IT APP EARS THAT PROPER DETAILS COULD NOT BE EXAMINED BY THE LO WER AUTHORITIES. WE FIND IT APPROPRIATE TO SEND THIS IS SUE BACK TO THE FILE OF THE AO, WHO SHALL EXAMINE ALL THE DETAI LS AND EVIDENCES BEFORE DECIDING THIS ISSUE AND SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. 7.2. WE SHALL LIKE TO FURTHER CLARIFY THAT NO ADDITION CAN BE MADE BY THE AO MERELY ON THE BASIS OF INFORMATION G ATHERED ON THE BASIS OF ANNUAL INFORMATION RETURN. THE AIR CAN BE AT BEST, THE BASIS TO INITIATE THE INQUIRY BY THE AO. BUT IT CANNOT BE TAKEN AS CONCLUSIVE EVIDENCE TO MAKE ADDITION IN THE HANDS OF THE ASSESSEE. THUS, WITH THESE DIRECTIONS, THIS ISSUE IS SENT BACK TO THE FILE OF THE AO. AS A RESULT, GROUND NO. 2 AS MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. KPMG 27 8. GROUND NO.3: IN THIS GROUND THE ASSESSEE HAS MADE REQUEST FOR DIRECTING THE AO TO GRANT CREDIT OF RS. 15,05,849/- BEING THE AMOUNT OF TAXES PAID IN THE UNITED KINGDO M, THE CORRESPONDING INCOME WHEREOF WAS OFFERED TO TAX IN INDIA. 8.1. IT HAS BEEN SUBMITTED FURTHER THAT ALTHOUGH THE AS SESSEE HAS FILED A PETITION U/S 154 BEFORE THE AO BUT NO R ELIEF HAS BEEN GRANTED SHOW FAR. THE AO HAS PASSED THE ORDER U/S 154 DATED 07.02.2011 WHEREIN THE AO HAS ACCEPTED THE CL AIM IN PRINCIPLE BUT STATED THAT CREDIT SHALL BE GRANTED A FTER VERIFICATION OF RELEVANT DOCUMENTS. 8.2. THIS KIND OF ORDER IS FOUND TO BE QUITE STRANGE AN D UNUSUAL BY US. THE AO SHOULD EITHER GRANT THE CREDI T OR SHOULD CLEARLY SPECIFY THAT CREDIT CANNOT BE GRANTE D FOR THE REASONS TO BE STATED. THEREFORE, WE SEND THIS ISSUE BACK TO THE FILE OF THE AO WITH THE DIRECTION TO GRANT THE CRED IT OF THE TAXES PAID AFTER VERIFICATION OF REQUIRED DOCUMENTS FOR W HICH HE SHALL GIVE ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSE E. THUS, THIS GROUND IS TREATED AS ALLOWED FOR STATISTICAL P URPOSES. 9. AS A RESULT, APPEAL FILED BY THE ASSESSEE IS PARTL Y ALLOWED. WE SHALL TAKE APPEAL OF THE REVENUE IN ITA NO.1918/MUM/2013 FOR A.Y. 2008-09. 10. THE REVENUE HAS RAISED FOLLOWING GROUNDS: KPMG 28 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETI NG THE DISALLOWANCE OF RS.6,68,10,721/- U/S 40(A)(I) BEING PROFESSIONAL FEES PAID OUTSIDE INDIA WITHOUT DEDUCT ED OF TAX AT SOURCE. 11. IN THIS YEAR DISALLOWANCE WAS MADE ON ACCOUNT OF P AYMENT MADE TO THE FOLLOWING PARTIES FOR THE PROFESSIONAL SERVICES RECEIVED BY THE ASSESSEE: DESCRIPTION AMOUNT IN RS. 1) PAYMENT TO RAHMAN RAHMAN HUQ. BANGLADESH 64,606/ - 2)PAYMENT OF KPMG HUAZHEN CHINA 33,54,628/ - 3)PAYMENT TO KPMG MAURITIUS 3,77,865/ - 4)PAYMENT TO KPMG PORTUGAL 2,19,480/ - 5)PAYMENT TO KPMG SWEDEN 3,36,050/ - 6)PAYMENT TO KPMB ACCOUNTANTS N.V., THE NETHERLANDS 2,64,170/ - 7)PAYMENT TO BACKGROUND BUREAU INC. USA 34,322/ - 8)PAYMENT TO SIDNEY AUSTIN LLP, USA 6,03,146/ - 9)PAYMENT TO SCHERZER INTERNATIONAL, USA 49,702/ - 10) PAYMENT TO THE CONFERENCE BOARD INC. USA 74,068/ - 11) PAYMENT TO KPMG IFRG LTD. UK 1,78,693/ - 12) PAYMENTS TO KPMG LLP, USA 86,63,354/ - 13) PAYMENTS MADE TO KPMG USCMG LTD. UK 5,52,80,313/ - 14) PAYMENTS MADE TO KPMG INTERNATIONAL, THE NETHERLANDS 5,64, 952/ - TOTAL 7,06,65,349/ THE AO HAS MADE DISALLOWANCE BY PASSING A BRIEF ASS ESSMENT ORDER RELYING UPON ITS EARLIER YEAR FOR A.Y. 2007-0 8. KPMG 29 11.1. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE LD. CIT(A) AND MADE DETAILED SUBMISSIONS. THE ARGUMENTS WERE MADE BY THE ASSESSEE BEFORE THE LD. CIT(A) ON THE S IMILAR PATTERN AS WERE MADE IN EARLIER YEAR 2007-08. THE L D. CIT(A) CONSIDERED THE SUBMISSIONS AS WELL AS HIS OWN ORDER FOR A.Y. 2007-08, AND DELETED DISALLOWANCE WITH RESPECT TO A LL THE PARTIES EXCEPT WITH RESPECT PAYMENT MADE TO KPMG HU AZHEN, CHINA AS WAS DONE BY HIM IN A.Y. 2008-09. ACCORDING LY, BOTH THE PARTIES CAME IN APPEAL BEFORE THE TRIBUNAL. 11.2. IT IS NOTED BY US THAT LD. CIT(A) HAD MADE PROPER ANALYSIS OF THE FACTS AND LAW APPLICABLE WITH RESPE CT TO THE SERVICES IN QUESTION AND PAYMENT MADE THEREOF BY TH E ASSESSEE. WE FIND IT APPROPRIATE TO REPRODUCE RELEV ANT PART OF ORDER OF LD. CIT(A): 2.3. I HAVE CONSIDERED THE FACTS AND PERUSED THE M ATERIAL ON RECORD. IT IS NOTICED THAT RAHMAN RAHMAN HUQ, BANGLADESH AND KPMG MAURITIUS ARE FIRMS OF INVIDIVI DUALS REGISTERED IN BANGLADESH AND MAURITIUS RESPECTIVELY . KPMG PORTUGAL, KPMG SWEDEN, KPMG NETHERLANDS, BACKGROUND BUREAU INC., USA SCHERZER INTL., USA, KPMG IFRG LTD, UK AND KPMG USCMG LTD., UK ARE COMPANIES REGISTERED IN THE RESPECTIVE COUNTRIES. T HE SERVICES WERE ENTIRELY RENDERED OUTSIDE INDIA. FURT HER THE SERVICES RELATE TO ASSISTANCE IN AUDIT, TAXATION, I NFORMATION TECHNOLOGY SERVICES, CONDUCTING BACKGROUND CHECKS, RESPONSES TO QUERIES RELATED TO INTERNATIONAL FINAN CIAL REPORTING STANDARDS AND REVIEW OF DOCUMENTS TO BE F ILED KPMG 30 WITH SECURITIES AND EXCHANGE COMMISSION IN RESPECT OF COMPANIES LISTED IN US STOCK EXCHANGES. WHICH ARE N OT FEES FOR TECHNICAL SERVICES IN NATURE AND HAVING BE EN RENDERED OUTSIDE INDIA, FALL OUTSIDE THE PURVIEW OF ARTICLE 12 / 13 OF THE RESPECTIVE TAX TREATIES, THE REFORE THE INCOME FELL UNDER THE AMBIT OF ARTICLE 7 OF THE RESPECTIVE TAX TREATIES DEALING WITH 'BUSINESS PROF ITS'. SINCE THE OVERSEAS ENTITIES DID NOT HAVE A PERMANEN T ESTABLISHMENT IN INDIA, THERE WAS NO INCOME CHARGEA BLE TO TAX IN INDIA AND CONSEQUENTLY, NO REQUIREMENT OF TAX WITHHOLDING. 2.3.1. I ALSO FIND THAT PAYMENTS MADE BY THE ASSESS EE TO SIDNEY AUSTIN LLP, USA AND KPMG [[F, USA WERE FO R LEGAL OPINION AND TAXATION AND AUDIT SERVICES WHICH WERE IN NATURE OF PROFESSIONAL FEES. THEY ARE NOT F EES FOR TECHNICAL SERVICES IN NATURE AND HAVING BEEN RENDER ED OUTSIDE INDIA EXCEPT FOR PRESENCE OF A COUPLE OF DA YS IN INDIA IN CASE OF KPMG LLP,USA, FALL OUTSIDE THE PUR VIEW OF ARTICLE 12 OF THE INDIA- USA TAX TREATY DEALING WIT H 'FEES FOR INCLUDED SERVICES'. EVEN IF THESE SERVICES ARE CONSIDERED AS 'FEES FOR TECHNICAL SERVICES' UNDER A RTICLE 12 OF INDIA-USA TAX TREATY, EVEN THEN THEY DO NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, K NOW-HOW OR PROCESSES OR DO NOT CONSIST OF THE DEVELOPMENT A ND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN BY VIRTUE OF ARTICLE 12(5)(E). THEREFORE SAME ARE NOT TAXABLE IN INDIA. THE ARS RELIED IN THE CASE OF MAHARASHTRA STATE ELE CTRICITY BOARD V. DCII (2004) 90 ITD 793 (BORN) AND CLIFFORD KPMG 31 CHANCE, UNITED KINGDOM V. DOT (2004) 176 TAXMAN 458 (BORN) WHICH ALSO SUPPORT THEIR CASE. THE SERVICES FALL WITHIN THE AMBIT OF ARTICLE 15 OF THE INDIA-USA TAX TREATY DEALING WITH 'INDEPENDENT PERSONAL SERVICES' AND THE NON-RE SIDENTS DO NOT HAVE A FIXED BASE IN INDIA UNDER THE INDIA-U SA TAX TREATY. THEREFORE, THE INCOME FROM THE SERVICES WAS NOT TAXABLE IN INDIA AND CONSEQUENTLY TAX IS DEDUCTIBLE AT SOURCE UNDER SECTION 195 OF THE ACT ONLY FROM 'SUMS CHARGEABLE TO INCOME TAX' AND THE PAYER IS NOT LIAB LE TO DEDUCT TAX AT SOURCE OR MAKE AN APPLICATION UNDERSECTIONL95/197OF THE ACT IN THE TIGHT OF RATIO OF DECISION IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT. LTD. V CIT 327 11R456 [SC). IT IS ALSO NOTICED THAT SIMILAR ISSUE IN THE CASE OF THE APPELLANT HAS ALSO BEEN AC CEPTED BY THE CIT [A) IN APPELLANT'S OWN CASE FOR AY 2004- 05 AND AY 2007-08. THEREFORE DISALLOWANCE U/S 40[A)[I) IN RESPECT OF PAYMENT MODE TO SIDNEY AUSTIN LLP, USA A ND KPMG [[F, USA IS DELETED. 2.3.2.IT IS ALSO SEEN THAT THE PAYMENT MADE TO THE CONFERENCE BOARD INC. IS TOWARDS MEMBERSHIP FEES AN D NOT TOWARDS SERVICES. THE CONFERENCE BOARD INC. IS A GL OBAL, INDEPENDENT BUSINESS MEMBERSHIP AND RESEARCH ASSOCIATION WORKING IN THE PUBLIC INTEREST. IT IS A NON- ADVOCACY, NOT-FOR-PROFIT ENTITY HOLDING 501 (C) (3) TAX- EXEMPT STATUS IN THE UNITED STATES. AS CAN BE SEEN FROM THE DETAILS THE REMITTANCE IS TOWARDS MEMBERSHIP FE ES AND NOT TOWARDS SERVICES. THUS THE QUESTION OF CONSIDERING THEM AS 'FEES FOR TECHNICAL SERVICES' D OES NOT KPMG 32 ARISE. THEREFORE THE DISALLOWANCE U/S 40[A){I) IN R ESPECT OF PAYMENT MODE TO THE CONFERENCE BOARD INC. IS DELETE D. 2.3.3. I ALSO FIND THAT THE PAYMENT MADE TO KPMG INTERNATIONAL TOWARDS THE USAGE CHARGES OF ONLINE DATABASE AND GTPS INTERPRETER (TRANSFER PRICING DATABASE) FOR THE PERIOD 01 OCTOBER 2006 TO 30 SEPT EMBER 2007 IS TOWARDS REIMBURSEMENT OF EXPENSES AND NOT TOWARDS SERVICES. AS CAN BE SEEN FROM THE DETAILS T HE REMITTANCE IS TOWARDS MEMBERSHIP FEES AND NOT TOWARDS SERVICES. THUS THE QUESTION OF CONSIDERING THEM AS 'FEES FOR TECHNICAL SERVICES' DOES NOT ARIS E. THEREFORE THE DISALLOWANCE U/S 40[A){I) IN RESPECT OF PAYMENT MODE TO THE CONFERENCE BOARD INC. IS DELETE D. 11.3. IT HAS BEEN ARGUED BEFORE US BY THE LD. COUNSEL TH AT ISSUES INVOLVED IN THIS YEAR ARE SAME AS WERE INVOL VED IN A.Y. 2007-08. NO DISTINCTION HAS BEEN MADE ON FACTS OR L AW BY THE LD. DR ALSO. IN VIEW OF THE SAME, WE FIND FORCE IN THE SUBMISSIONS OF THE ASSESSEE, AND THEREFORE, RELYING UPON OUR ORDER FOR A.Y. 2007-08, WE INCLINE TO UPHOLD THE OR DER OF LD. CIT(A). THE GROUNDS RAISED BY THE REVENUE ARE DISMI SSED. 12. AS A RESULT, APPEAL OF THE REVENUE IS DISMISSED. WE SHALL TAKE UP ASSESSEES APPEAL IN ITA NO.1480/M /2013 FOR A.Y. 2008-09 13. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEA L: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, KPMG 33 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICE R IN RESPECT OF AMOUNTS AGGREGATING RS.2,93,090 BEING ALLEGED UNDISCLOSED INCOME FROM PROFESSIONAL SERVIC ES APPEARING IN ANNUAL INFORMATION RETURN. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OF FICER UNDER SECTION 40(A)(I) OF THE INCOME-TAX ACT, 1961 IN RESPECT OF PROFESSIONAL FEES OF RS.33.54,628 PAID TO KPMG HUAZHEN, CHINA. 14. GROUND NO1: IN THIS GROUND THE ASSESSEE IS AGGRIEVED WITH THE ADDITION MADE BY AO OF RS.2,93,090/- ON THE BAS IS OF ANNUAL INFORMATION RETURN. WE FIND IT APPROPRIATE T O SEND THIS ISSUE BACK TO THE FILE OF THE AO FOR REEXAMINATION AND RE- ADJUDICATION WITH THE SAME DIRECTIONS AS WERE GIVEN BY US IN OUR ORDER FOR A.Y. 2007-08. THUS, THIS GROUND IS SE NT BACK TO THE FILE OF THE AO AND MAY BE TREATED AS ALLOWED FO R STATISTICAL PURPOSES. 15. GROUND NO.2: IN THIS GROUND THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN UPHOLDING THE DISALLOWA NCE OF RS.33,54,628/- BEING THE AMOUNT PAID TO M/S. KPMG HUAZHEN CHINA. 15.1. WE FIND THAT THE FACTS INVOLVED OF THIS GROUND ARE IDENTICAL TO GROUND NO.1 OF ASSESSEES APPEAL FOR A .Y. 2007-08 AND THEREFORE, RELYING UPON OR ORDER FOR A.Y. 2007- 08, WE DELETE THE DISALLOWANCE BY AO. 16 . AS A RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLO WED. KPMG 34 17. IN THE RESULT, APPEALS FILED BY THE ASSESSEE AND R EVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MARCH , 2016. SD/- (C.N. PRASAD) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER MUMBAI; DATED : 18/ 03/2016 CTX? P.S/. .. # $%&'&($ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !'# / THE RESPONDENT. 3. $# $# % ( ) / THE CIT, MUMBAI. 4. $# $# % / CIT(A)- , MUMBAI 5. ()* # !+ , $# # +- , / DR, ITAT, MUMBAI 6. *. / / GUARD FILE. / BY ORDER, '#( ! //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI