ITO (IT) TDS-3, MUMBAI V. M/S. BAJAJ HINDUSTAN LTD., MUMBAI

ITA 63/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54926 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 01-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 05-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: KIRIT R KAMDAR
• Keywords: Deemed to accrue or arise in india
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH L, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI J.SUDHAKAR R EDDY (A.M) ITA NO.63/MUM/09(2007-08) ITO(IT)-TDS-3, FIRST FLOOR, SCINDIA HOUSE, BALLAD PIER, MUMBAI 400 038. (APPELLANT) VS. M/S. BAJAJ HINDUSTAN LTD., BAJAJ BHAVAN, 226, NARIMAN POINT, MUMBAI 21 PAN:AAACB 4351J (RESPONDENT) APPELLANT BY : SHRI JITENDRA YADAV RESPONDENT BY : SHRI KIRIT R. KAMDAR DATE OF HEARING : 03/08/2011 DATE OF PRONOUNCEMENT : ____ _________ ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 17/9/2008 OF CIT(A) 33 MUMBAI RELATING TO ASSESSMENT YEAR 200 7-08. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SUGAR. ACCORDING TO THE ASSESSE, IT ENGAGED THE SERVICES OF M/S. KPMG CORPORATE FINANCE LTD., BRAZIL (KPMG)(NON -RESIDENT), TO ADVICE AND ASSIST THE ASSESSEE IN ACQUISITION OF SUGAR MIL LS/DISTILLERIES IN BRAZIL. IN CONNECTION WITH THE SERVICES RENDERED BY KPMG FOR T HE SAID PURPOSE, THE ASSESSEE HAD MADE PAYMENT TO KPMG. THE QUESTION BE FORE THE ITO (INTERNATIONAL TAXATION),TDS-3, MUMBAI (AO), WAS AS TO WHETHER THE ASSESSEE WAS BOUND TO DEDUCT TAX AT SOURCE ON THE P AYMENT MADE TO KPMG IN TERMS OF SEC.195 OF THE INCOME TAX ACT, 1961 (TH E ACT). THAT WOULD AGAIN ITA NO.63/MUM/09(2007-08) 2 DEPEND ON THE QUESTION WHETHER THE PAYMENT BY THE A SSESSEE TO KPMG WOULD BE TAXABLE IN THE HANDS OF KPMG IN INDIA. 3. ACCORDING TO SEC.9 OF THE ACT, THE FOLLOWING IN COMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY.. (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FE ES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFE SSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MA KING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR THE AFORESAID CLAUSE (B) PROVIDES TWO EXCEPTIONS. IN THE FIRST CASE, THE PAYMENT IF MADE BY A RESIDENT FOR SERVICES WHICH AR E UTILIZED IN A BUSINESS OR PROFESSION CARRIED OUT BY SUCH PERSON OUTSIDE INDIA , THEN THE SAID PAYMENT WOULD NOT BE DEEMED TO BE INCOME ACCRUING OR ARISIN G TO THE PAYEE IN INDIA. THE SECOND EXCEPTION ENVISAGED BY CLAUSE(B) OF SEC. 9(1)(VII) OF THE ACT, IS IF THE PAYMENT IS MADE BY A RESIDENT FOR THE PURPOSE O F MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA, THEN THE SAID PAYMENT WOULD NOT BE DEEMED TO BE INCOME ACCRUING OR ARISING TO THE PAYE E IN INDIA. 4. THE AO WAS OF THE VIEW THAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE ON THE PAYMENT MADE TO KPMG. ACCORDING TO T HE AO THE AMOUNT RECEIVED FROM THE ASSESSEE BY KPMG WAS IN THE NATUR E OF FEES FOR TECHNICAL SERVICES RENDERED. THE AO WAS ALSO OF THE VIEW THA T IN TERMS OF SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961(THE ACT) INCO ME BY WAY OF FEES FOR TECHNICAL SERVICES (FTS) PAYABLE TO A PERSON WHO IS A RESIDENT SHALL BE INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. ACCORDI NG TO THE AO THE PAYMENT BY THE ASSESSEE TO KPMG DID NOT FALL WITHIN THE EXC EPTIONS AND, THEREFORE, THE PAYMENT WOULD BE INCOME WHICH ACCRUES OR ARISES IN INDIA IN THE HANDS OF KPMG CHARGEABLE TO TAX. THE AO THEREFORE HELD T HAT SINCE THE AMOUNT WAS CHARGEABLE TO TAX IN INDIA IN THE HANDS OF KPMG , THE ASSESSEE IN THE TERMS OF SECTION 195 OF THE ACT OUGHT TO HAVE DEDUC TED TAX AT SOURCE ON THE ITA NO.63/MUM/09(2007-08) 3 PAYMENT MADE TO KPMG. SINCE THE ASSESSEE HAD NOT D ONE SO THE AO TREATED THE ASSESSEE AS AN ASSESSEE IN DEFAULT AND PASSED A N ORDER FOR RECOVERY OF THE TAXES THAT OUGHT TO HAVE BEEN DEDUCTED AND INTE REST THEREON IN TERMS OF SECTION 201(1) AND 201(1A) OF THE ACT. 5. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT THE A SSESSEE WAS THE LARGEST SUGAR PRODUCER IN INDIA AND IN ORDER TO EXP AND THEIR OPERATIONS THEY APPOINTED KPMG TO EXPLORE THE POSSIBILITY OF ACQUIR ING SUGAR MILL/DISTILLERY PLANT IN BRAZIL. IN THIS REGARD THE ASSESSEE SUBM ITTED THAT KPMG WAS TO PROVIDE THE ASSESSEE THE FOLLOWING SERVICES: (I) ASSISTANCE IN THE IDENTIFICATION OF TARGETS FI TTING ASSESSEES NEEDS AND CONTACT OF THOSE COMPANIES; (II) PRESENT THE ASSESSEE SELECTED INFORMATION ON T HOSE TARGETS. (III) PERFORM PRICING ANALYSIS OF SELECTED TARGETS; (IV) ASSIT THE ASSESSEE IN THE ACQUISITION PROCESS OF TARGET(S), WITH THE INTERNAL TEAM OF THE ASSESSEE AND OTHER EXTERNAL ADVISORS NA MED BY THE COMPANY, FOR A CLOSING OF THE TRANSACTIONS9S) IN THE BEST POSSIB LE CONDITIONS. 6. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE INCO RPORATED A COMPANY CALLED BAJAJ INTERNATIONAL PAATICI PACOES LTD. IN BRAZIL I N ORDER TO ACQUIRE SUGAR MILLS/DISTILLERY PLANTS IN BRAZIL. A COPY OF THE M EMORANDUM OF ASSOCIATION OF THE SUBSIDIARY COMPANY SO INCORPORATED IN BRAZIL WA S ALSO FILED. IT WAS POINTED OUT THAT THE OBJECTIVE OF APPOINTING KPMG W AS TO IDENTIFY AND ACQUIRE SUGAR MILLS/DISTILLERY PLANTS IN BRAZIL. T HUS THE ASSESSEE MADE THE PAYMENT IN QUESTION TO CARRY ON BUSINESS OUTSIDE IN DIA AND FOR THE PURPOSE OF EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA . IT WAS SUBMITTED THAT THE PAYMENT MADE BY THE ASSESSEE WAS TOWARDS SERVIC ES WHICH WOULD BE UTILIZED IN THE BUSINESS WHICH WILL BE CARRIED OUT OUTSIDE INDIA I.E. BRAZIL THROUGH THE ASSESSEES SUBSIDIARY COMPANY AND THERE FORE THE AFORESAID PAYMENT WOULD BE SQUARELY COVERED BY THE FIRST EXCE PTION PROVIDED IN SECTION 9(1)(VII)(B) OF THE ACT AND WILL THEREFORE NOT BE T AXABLE IN INDIA. IT WAS SUBMITTED THAT THE VERY FACT THAT THE SUGAR MILLS/D ISTILLERY PLANTS TO BE ITA NO.63/MUM/09(2007-08) 4 ACQUIRED ARE LOCATED OUTSIDE INDIA WOULD ONLY MEAN THAT THE INCOME DERIVED FROM THE SAID MILLS/PLANTS WILL BE EARNED FROM A SO URCE OUTSIDE INDIA THEREFORE PAYMENT MADE TO KPMG WOULD BE COVERED EVE N BY THE SECOND EXCEPTION PROVIDED IN CLAUSE (B) OF SECTION 9(1)(VI I) OF THE ACT VIZ., FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY S OURCE OUTSIDE INDIA. IT WAS THEREFORE SUBMITTED THAT THE PAYMENT OF USD 100,000 TO KPMG DOES NOT CONSTITUTE INCOME DEEMED TO ACCRUE OR ARISE IN INDIA UNDER SECTION 9(1)(VII) OF THE ACT AND IS NOT TAXABLE IN INDIA I N THE HANDS OF KPMG AND THEREFORE THE ASSESSEE WAS NOT LIABLE TO LIABLE TO DEDUCT TAX AT SOURCE THEREON. 7. SINCE THE AFORESAID SUBMISSION WAS MADE BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE CIT(A), THE CIT(A) CALLED FOR A REM AND REPORT FROM THE AO. IN HIS REMAND REPORT DATED 18/1/08, THE AO ACCEPTED TH AT THE CONTENTION PUT FORTH BY THE ASSESSEE WAS LEGAL CONTENTION AND REQU ESTED THE CIT(A) TO CONSIDER THE SAID CONTENTION ON MERITS. HOWEVER, T HE CIT(A) INFORMED THE CIT(A) THAT THE FACTS REGARDING INCORPORATION OF A SUBSIDIARY BY THE ASSESSEE IN BRAZIL NEEDED TO BE VERIFIED. 8. ON A CONSIDERATION OF THE ABOVE SUBMISSIONS THE CIT(A) NOTICED THAT THE AGREEMENT BETWEEN THE ASSESSEE AND KPMG WAS IN THE FORM OF PROPOSAL DATED 11/5/2006. THE PROPOSAL REFERS TO THE ASSESS EE BEING THE LARGEST SUGAR PRODUCER IN INDIA AND ITS DESIRE TO STUDY THE POSSIBILITY OF EXPANDING ITS OPERATIONS, THROUGH TRANSACTIONS INVOLVING THE ACQUISITION OF A SUGAR MILLS/ DISTILLERY PLANTS IN BRAZIL. FOR THE SAID P URPOSE THE ASSESSEE WAS CONSIDERING APPOINTMENT OF A FINANCIAL ADVISOR TO A SSIST DURING THE ACQUISITION PROCESS. KPMG BEING ONE OF THE LEADERS IN BRAZIN IN MERGERS AND ACQUISITIONS (M&A) IN THE SUGAR AND ALCOHOL SEC TION AND HAVE ALREADY ADVISED IN TRANSACTIONS RELATED TO DISPOSALS OF SUG AR MILLS AND SUGAR REFINERY WERE BEING ENGAGED FOR THE AFORESAID PURPOSE. THE PROPOSAL ALSO MENTIONS ITA NO.63/MUM/09(2007-08) 5 THAT THE ACQUISITION IS TO BE DONE BY THE ASSESSEE OR ANY OF ITS SUBSIDIARIES OR ITS NEAREST COMPANY OR ANY COMPANY CONTROLLED BY THE ASSESSEE. 9. ON A CONSIDERATION OF THE ABOVE FEATURES OF THE AGREEMENT, THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE WANTED TO ACQUIRE SU GAR MILLS/DISTILLERY PLANTS IN BRAZIL. FOR THAT PURPOSE, THE ASSESSEE HAD AVAI LED THE SERVICES OF KPMG. HE FOUND THAT THE SERVICES WERE TO BE RENDERED IN BRAZIL AND THAT SERVICES ARE CONNECTED WITH THE ACQUISITION OF SUGAR MILLS/D ISTILLERIES IN BRAZIL. THE CIT(A) WAS OF THE VIEW THAT THE WORDS USED IN SEC.9 (1)(VII) CLAUSE (B) SECOND EXCEPTION WAS FOR THE PURPOSES OF EARNING ANY INCOME FROM ANY SOU RCE OUTSIDE INDIA. . HE WAS OF THE VIEW THAT THE SERVICES RENDERED B Y KPMG WERE TO BE USED FOR THE PURPOSE OF ACQUISITION OF S UGAR MILL / DISTILLERY IN BRAZIL FOR THE PURPOSE OF EARNING INCOME FROM SUGAR MILL / DISTILLERY FROM BRAZIL. HE WAS OF THE VIEW THAT THE WORDS USED IN SEC. 9(1)(VII) WERE VIDE ENOUGH TO COVER EVEN FUTURE SOURCE OF INCOME. THE CIT(A) THEREFORE HELD THAT THAT THE SERVICES RENDERED BY M/S. KPMG WAS UTILIZE D BY THE ASSESSEE FOR THE PURPOSE OF EARNING INCOME FROM A SOURCE OUTSID E INDIA AND THEREFORE THE PAYMENT BY THE ASSESSEE OF FEES FOR TECHNICAL SERV ICES RENDERED BY M/S. KPMG WAS OUTSIDE THE SCOPE OF SEC. 9(1)(VII) OF THE INCOME TAX ACT. HENCE IT CANNOT BE CONSIDERED AS INCOME DEEMED TO HAVE ACCRU ED IN INDIA AND NOT CHARGEABLE TO TAX IN INDIA AND HENCE THE ASSESSEE I S NOT LIABLE TO DEDUCT TAX U/S. 195 OF INCOME TAX ACT. THE DEMAND RAISED FOR TAX AND INTEREST U/S.201(1) AND 201(1A) OF THE ACT WAS DELETED. 10. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVEN UE HAS PREFERRED THE PRESENT APPEAL BEFORE US. 11. THE LD. D.R SUBMITTED THAT THE ASSESSEE INITIA LLY ACCEPTED BEFORE THE AO THAT THERE WAS AN OBLIGATION ON ITS PART TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENT TO KPMG. ONLY ON 17/8/2007 THE ASSESSEE IN A LETTER TO THE AO ITA NO.63/MUM/09(2007-08) 6 TOOK A STAND THAT THE SERVICES RENDERED BY KPMG WER E IN THE NATURE OF MARKET RESEARCH AND, THEREFORE, NOT IN THE NATURE O F FTS. THE LD. D.R ALSO DREW OUR ATTENTION TO THE PROPOSAL DATED 11/5/06 AN D SUBMITTED THAT THE PROPOSAL( CONTAINED IN PAGE 1 TO 17 OF THE ASSESSEE S PAPER BOOK) IS NOT IN THE FORM OF AN AGREEMENT AND THE GENUINENESS OF THE CLAIM OF THE ASSESSEE THAT THIS WAS THE AGREEMENT FOR RENDERING SERVICES IS DOUBTFUL. WE HAVE EXAMINED THIS CONTENTION AND FIND THAT IN THE LETTE R DATED 17/8/2007 THE ASSESSEE HAS MADE A CLAIM THAT THE PROPOSAL( CONTAI NED IN PAGE 1 TO 17 OF THE ASSESSEES PAPER BOOK) WAS THE AGREEMENT BETWEE N ASSESSEE AND KPMG. THE ASSESSEE ALSO MADE IT CLEAR THAT KPMG WAS ENGAG ED TO STUDY THE POSSIBILITY OF EXPANSION OF ASSESSEES BUSINESS FOR ACQUISITION OF SUGAR MILLS/DISTILLERY PLANTS IN BRAZIL. THE AO HAS PROC EEDED TO EXAMINE THE PROPOSAL DATED 11/5/2006 ACCEPTING THE SAME AS AN A GREEMENT BETWEEN THE PARTIES. AT THIS STAGE IT IS NOT OPEN TO THE LD. D .R TO RAISE ISSUES CONCERNING THE GENUINENESS OF THE AGREEMENT. WE, THEREFORE, P ROCEED TO EXAMINE THE CASE ON THE BASIS THAT THE PROPOSAL DATED 11/5/2006 AS CONTAINED IN PAGE 1 TO 17 OF THE ASSESSEES PAPER BOOK CONSTITUTES THE AGREEMENT BETWEEN THE ASSESSEE AND KPMG IN CONNECTION WITH WHICH THE ASSE SSEE MADE PAYMENT TO KPMG. 12. THE NEXT SUBMISSION OF THE LD. D.R WAS THAT TH E ASSESSEE WAS UTILIZING THE SERVICES OF KPMG IN RESPECT OF A BUSINESS OR PR OFESSION CARRIED ON BY THE ASSESSEE IN INDIA AND, THEREFORE, THE PAYMENT WAS F TS. FURTHER IT WAS SUBMITTED THAT THE CLAIM OF THE ASSESSEE THAT THE P AYMENT MADE TO KPMG WAS FOR THE PURPOSE OF EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA OUGHT NOT TO HAVE BEEN ACCEPTED BY THE CIT(A) BECAU SE THE EXCEPTION CONTEMPLATED IN SECTION 9(1)(VII)(B) OF THE ACT IS ONLY IN RESPECT OF AN EXISTING SOURCE OF INCOME. IT WAS SUBMITTED BY HIM THAT IN A CASE WHERE THE SOURCE OF INCOME IS TO COME INTO EXISTENCE AT FUTURE DATE THE EXCEPTION CANNOT APPLY. IT WAS POINTED OUT BY THE LD. D.R THAT THE PAYMENT IN QUESTION WAS FOR THE PURPOSE OF EARNING INCOME FROM A SOURCE OUT SIDE INDIA WHICH SOURCE ITA NO.63/MUM/09(2007-08) 7 HAD NOT COME INTO THE EXISTENCE AND THE ASSESSEE ON LY PROPOSED TO CREATE THE SOURCE OF EARNING INCOME OUTSIDE INDIA IN FUTURE. THE LD. D.R BROUGHT TO OUR NOTICE CIRCULAR NO.202, PARA 16.2 WHICH EXPLAINS TH E PROVISIONS OF FINANCE BILL 1976, WHEREIN IT HAS BEEN OBSERVED AS FOLLOWS: 16.2 UNDER THE NEW PROVISION, INCOME BY WAY OF FE ES FOR TECHNICAL SERVICES OF THE FOLLOWING TYPES WILL BE DEEMED TO ACCRUE OR ARISE IN INDIA: (A) FEES FOR TECHNICAL SERVICES PAYABLE BY THE CENTRAL GOVERNMENT OR ANY STATE GOVERNMENT; (B) FEES FOR TECHNICAL SERVICES PAYABLE BY A RESIDENT, EXCEPT WHERE THE PAYMENT IS RELATABLE TO A BUSINESS OR PROFESSION CA RRIED ON BY HIM OUTSIDE INDIA OR TO ANY OTHER SOURCE OF HIS INCOME OUTSIDE INDIA, AND (C) FEES OR TECHNICAL SERVICES PAYABLE BY A NON-RESIDE NT IF THE PAYMENT IS RELATABLE TO A BUSINESS OR PROFESSION CARRIED O N BY HIM IN INDIA OR TO ANY OTHER SOURCE OF HIS INCOME IN INDIA. 13. IT WAS ARGUED THAT EVEN THE CIRCULAR TALKS ABO UT SOURCE OF INCOME OUTSIDE INDIA WHICH MEANS THAT IT SHOULD BE AN EXIS TING SOURCE. IT WAS SUBMITTED THAT THE EXCEPTION IN CLAUSE (B) CANNOT A PPLY TO A FUTURE SOURCE TO BE SET UP. RELIANCE WAS ALSO PLACED ON THE DECISIO N OF THE ITAT MUMBAI IN THE CASE OF HINDALCO INDUSTRIES LTD. VS. ITO 91 ITD 64(MUM), WHEREIN IT WAS HELD THAT UTILIZATION OF SERVICES IS ESSENTIAL BY T HE RESIDENT ONLY IN BUSINESS OR PROFESSION CARRIED ON BY THE RESIDENT OUTSIDE IN DIA. IF A RESIDENT PAYS FTS OUTSIDE INDIA FOR THE SERVICES TO BE UTILIZED IN IN DIA THEN THAT INCOME PER-SE WILL BE TREATED AS INCOME ACCRUING OR ARISING TO TH E PERSON IN INDIA. 14. WE HAVE CONSIDERED THE ARGUMENTS OF LD. D.R. THERE IS NOT DISPUTE THAT THE PAYMENT IN QUESTION MADE BY ASSESSEE TO KPMG IS IN RESPECT OF SERVICES WHICH OTHERWISE FELL WITHIN THE DEFINITION OF FTS AS GIVEN IN THE ACT. THE DISPUTE IS WHETHER THE EXCEPTIONS MENTIONED IN CLAU SE (B) TO SEC.9(1)(VII) OF THE ACT WOULD APPLY SO THAT IT CAN BE SAID THAT THE FEES IN THE NATURE OF FTS HAS NOT ACCRUED OR ARISEN TO KPMG IN INDIA. AS FAR AS THE FIRST EXCEPTION IN ITA NO.63/MUM/09(2007-08) 8 SEC.9(1)(VII) CLAUSE (B) OF THE ACT, IS CONCERNED V IZ., WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINE SS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA, WE FIND THAT THE ASS ESSEE CARRIES ON BUSINESS IN INDIA AND HAS UTILIZED THE SERVICES OF KPMG IN C ONNECTION WITH SUCH BUSINESS. THEREFORE THE CASE OF THE ASSESSEE WOULD NOT FALL WITHIN THE FIRST EXCEPTION, NOTWITHSTANDING THE FACT THAT SERVICES W ERE RENDERED ONLY IN BRAZIL. AS FAR AS THE SECOND EXCEPTION MENTIONED I N SEC.9(1)(VII) CLAUSE (B) IS CONCERNED VIZ., FOR THE PURPOSES OF EARNING ANY INCOME FROM ANY SOU RCE OUTSIDE INDIA. , THE UNDISPUTED FACTS ARE THAT THE ASSESSEE WANTE D TO ACQUIRE SUGAR MILLS/DISTILLERY PLANTS IN BRAZIL AND FOR THAT PURPOSE ALSO WANTED TO SET UP A SUBSIDIARY COMPANY. IN FACT, TH E ASSESSEE HAD SET UP A SUBSDIARY COMPANY ON 8.8.2006 IN BRAZIL. THUS THE ASSESSEE WAS CONTEMPLATING TO CREATE A SOURCE FOR EARNING INCOME OUTSIDE INDIA. IT IS NO DOUBT TRUE THAT THE SOURCE OF INCOME HAD NOT COME I NTO EXISTENCE. BUT THERE IS NOTHING IN SEC.9(1)(VII) CLAUSE (B) OF THE ACT, TO SHOW THAT THE SOURCE OF INCOME SHOULD HAVE COME INTO EXISTENCE SO AS TO EXC EPT THE PAYMENT OF FEES FOR TECHNICAL SERVICES. THE EXPRESSION USED IS FO R THE PURPOSE OF EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA. THERE I S NOTHING IN THE LANGUAGE OF SEC.9(1)(VII) CLAUSE (B) OF THE ACT, WHICH WOULD GO TO SHOW THAT THE SAME IS RESTRICTED TO ONLY TO AN EXISTING SOURCE OF INCOME. WE THEREFORE AGREE WITH THE CONCLUSIONS OF THE CIT(A) ON THIS ASPECT. WE T HEREFORE UPHOLD THE ORDER OF THE CIT(A) HOLDING THAT THE PAYMENT BY THE ASSES SEE OF FEES FOR TECHNICAL SERVICES RENDERED BY M/S. KPMG WAS OUTSIDE THE SCOP E OF SEC. 9(1)(VII) OF THE INCOME TAX ACT. HENCE IT CANNOT BE CONSIDERED AS I NCOME DEEMED TO HAVE ACCRUED IN INDIA AND NOT CHARGEABLE TO TAX IN INDIA AND HENCE THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX U/S. 195 OF INCOME TAX ACT. THE DEMAND RAISED FOR TAX AND INTEREST U/S.201(1) AND 201(1A) OF THE ACT WAS THEREFORE RIGHTLY DIRECTED TO BE DELETED. WE FIND NO GROUNDS TO INTE RFERE WITH THE ORDER OF THE ITA NO.63/MUM/09(2007-08) 9 CIT(A) AND UPHOLD THE ORDER OF CIT(A) AND DISMISS T HE APPEAL BY THE REVENUE. 15. IN THE RESULT, THE APPEAL BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12 TH DAY OF AUGUST, 2011. SD/- SD/- (J.SUDHAKAR REDDY ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 12 TH AUGUST.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RL BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.63/MUM/09(2007-08) 10 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 4/8/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 5/8/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER