SUBRAMANIAM HARIHARAN,DELHI V. ACIT, CIRCLE-63(1), NEW DELHI

ITA 9832/DEL/2019

AI Insights

The case involves appeals by the Revenue and the assessees, Subramaniam Hariharan and Anand and Anand, against the orders of the Commissioner of Income-tax (Appeals) which arose from the assessments made under section 143(3) of the Income Tax Act, 1961. The primary issue was whether the payments made by the assessees to non-resident attorneys for legal services should have tax deducted at source under section 195 of the Act, as these payments were classified as 'Fees for Technical Services' (FTS) under section 9(1)(vii) of the Act. The Tribunal examined the nature of the services provided and the relevant legal provisions, ultimately deciding that the services were professional in nature and distinct from FTS, thus not taxable in India.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 716801 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 27-12-2019
• Other Referred Cases: GE India Technology Centre (P) Ltd vs CIT, Engineering Analysis Centre of Excellence (P) Ltd vs CIT, Van Oord ACZ India (P) Ltd vs CIT, Estel Communications (P) Ltd vs CIT, CIT vs ICL Shipping Ltd, Jindal Thermal Power vs CIT, Chander Mohan Lall vs ACIT, ONGC vs DCIT, Deloitte Haskins & Sells vs ACIT, NQA Quality Systems Registrar Ltd vs DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TANYA SHARMA
• Assessee Lawyers: AJAY VOHRA
• Keywords: Deemed to accrue or arise in india; Double taxation relief; Non-deduction of tax
• Section: 143(3); 139; 28; 40(a)(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: D : NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER ITA No.600/Del/2020 Assessment Year: 2013-14 ACIT, Circle-61(1), New Delhi. Vs Subramaniam Hariharan, E-556, 2nd Floor, Greater Kailash, New Delhi – 110 048. PAN: AABPH0358K ITA No.9832/Del/2019 Assessment Year: 2013-14 Subramaniam Hariharan, Subramaniam & Associates, Attorneys-at-law, Central Square, Suite No.328, Plaza ill, 20, Manohar Lal Khorana Marg, Bara Hindu Rao (Off Rani Jhansi Road), Delhi – 110 006. PAN: AABPH0358K ACIT, Circle-63(1), New Delhi. ITA No.2134/Del/2018 Assessment Year: 2013-14 Anand and Anand B-41, Nizamuddin East, New Delhi – 110 013. PAN: AAAFA0186F Vs. JCIT, Range-37, New Delhi (Appellant) (Respondent) Assessee by : Shri Ajay Vohra, Sr. Advocate; Shri Neeraj Jain & Shri Aditya Vohra, Advocates; & Shri Arpit Goyal, CA Revenue by : Ms Tanya Sharma, Sr. Advocate Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 2 Date of Hearing : 13.08.2025 Date of Pronouncement : 20.08.2025 ORDER PER ANUBHAV SHARMA, JM: The ITA Nos.600/Del/2020 and 9832/Del/2019 are cross appeals preferred by the Revenue as well as the assessee Subramaniam Hariharan, respectively, against the order dated 29.11.2019 of the Ld. Commissioner of Income-tax (Appeals)-43, New Delhi (hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.10031/2019-20 arising out of the appeal before it against the order dated 22.03.2016 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Circle 63(1), Delhi (hereinafter referred to as the Ld. AO) and the ITA No.2134/Del/2018 is the appeal preferred by the assessee, Anand and Anand against the order dated 18.01.2018 of the Ld. FAA in Appeal No.18/10496/2016-17/248 arising out of the appeal before it against the order dated 19.03.2016 passed u/s 143(3) of the Act by the Ld. AO. 2. Heard and perused the records. The case of these two assessee were heard together as similar question of facts and law were involved. However, for convenience the facts and relevant orders in case of Subramaniam Hariharan, are being discussed and findings arrived shall mutatis mutandi apply to case of Anand and Anand too. What comes up from the hearing is that the both assessee as lawyers are engaged in the practice of Intellectual Property Laws and in the Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 3 relevant previous year, Subramaniam Hariharan, was running his sole proprietorship concern by the name of “Subramaniam & Associates”. The practice areas of the assessee comprise all aspects of Intellectual Property Rights. The assessment under section 143(3) of the Act was completed at an income of Rs.18,21,35,920/-, after making, inter alia, disallowance of Rs.13,97,24,628/- under section 40(a)(i) of the Act for alleged non-deduction of tax at source on payments of fee for professional services made to individuals/ law firms located outside India during F.Y. 2012-13 relevant to AY 2013-14. The CIT(A) has restricted the same to Rs.3,32,04,701/- for which the assessee is in appeal raising following grounds; 3. It comes up that the assessee were providing legal services in the field of IP laws and these assessee had availed the services of foreign legal practitioners who are individual lawyers or law firms and the services were taken on behalf of the assessee’s clients who were located in India. These services were primarily taken for patent applications in respective foreign countries. The assessee had made payments for availing legal services on behalf of its clients including reimbursements of official fee and miscellaneous expenditure, to non- residents, who were individual lawyers or law firms or companies. The assessing officer disallowed payments amounting to these law firms or individuals invoking provisions of section 40(a)(i) of the Act, allegedly holding that the said payments were in the nature of Fees for Technical Services (FTS) Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 4 and therefore, were chargeable to tax in India, thus tax at source should have been deducted. The same was sustained by the ld. CIT(A) for which both the assesse are in appeals. It is ground no. 2, 2.1 and 2.3 in ITA no 9832 and ground no. 1(a) in ITA no. 2134, which were pressed and need to be decided first as their determination, if in favour of respective assessee, will make other grounds in appeal of assesse, academic and corresponding ground no. 1 to 4 and 6 in appeal of revenue ITA 600 shall become infructuous. 4. Ld. Sr. Counsel has submitted that the services received by the Appellant are not in the nature of managerial, technical or consultancy services but are purely professional services. The payment of professional fee has been made by the Appellant to the foreign legal practitioners, for the following specific services rendered by them or the actual expenses incurred: (i) For receiving instructions from the Appellant and filing application at the local Patent Office and reporting the filing to the Appellant. (ii) Reporting Examination report issued by the local Patent Office to the Appellant along with due date for filing a response. (iii) Receiving instructions from the Appellant and preparing and filing responses to the Examination Report issued by the local Patent Office (iv) Undertaking trademark searches in the records of the Intellectual Property offices in respective jurisdictions to ascertain availability of trademarks in question; Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 5 (v) Maintenance of grant/ registration of Intellectual Property or services in relation thereto, as required under law, like towards annuity payment, renewal fee, restoration of patent, etc.; (vi) Maintaining records and forwarding documents of grant or refusal received from the Intellectual Property offices; (vii) Facilitating translation, processing and typing of relevant documents. 5. Ld. Sr. Counsel has submitted that while making such payments, the Appellant remitted the amount without withholding taxes under section 195 of the Act as the income of the legal practitioners/ law firms located abroad did not accrue or arise in India. Referring to section 195 of the Act it was submitted an obligation is cast on a person making payment to a non-resident of any sum, which is chargeable under the provisions of the Act, to deduct tax at the rates in force at the time of payment of such sum or at the time of credit thereof to the account of the payee, whichever is earlier. Thus, as per the aforesaid provision, tax is required to be withheld in respect of payments made to a non-resident only if such payment is chargeable to tax in India. Reliance in this regard is placed on the decision of the Supreme Court in the case of GE India Technology Centre (P) Ltd vs CIT: 327 ITR 456 (SC) and Engineering Analysis Centre of Excellence (P) Ltd vs CIT: 432 ITR 471 (SC); Van Oord ACZ India (P) Ltd vs CIT: 323 ITR 130 (Del); Estel Communications (P) Ltd: 217 CTR 102 (Del); CIT vs ICL Shipping Ltd: 315 ITR 195 (Mad); Jindal Thermal Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 6 Power: 182 Taxman 252 (Kar) – SLP of department dismissed in 196 Taxman 495 (SC). 6. In this regard here itself we find it relevant to reproduce Section 195 of the Act which reads as under: “Section 195 (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head \"Salaries\") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force” 7. Referring to various aspects of taxability of income earned by professionals, like lawyers, the Ld. Sr. Counsel has submitted that the payments made by the Appellant were for availing professional services and were not in the nature of “Fees for Technical Services”, thus, not chargeable to tax under section 4 read with sections 5 and 9 of the Act. Ld. DR on the contrary relied the impugned orders. 8. Appreciating the material on record it can be seen that the assessing officer himself, in the impugned assessment order, has referred to the payments being made to non-residents as professional fee. However, the assessing officer has held the impugned payments for legal and professional services as being covered within the meaning of Fees for Technical Services (FTS) and therefore, chargeable to tax in India in terms of section 9(1)(vii) of the Act. Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 7 9. We observe that in terms of the scheme of the Act, section 4 of the Act provides that income-tax shall be charged on the ‘total income’ of an assessee. The scope of total income is defined in section 5 of the Act. What comes up from the arguments of ld. Sr. Counsel is that in the case of a non-resident, it is provided that (i) income received in India, (ii) deemed to be received in India, (iii) income which accrues or arises in India, or (iv) income which is deemed to accrue or arise in India, shall be included in the total income. It is indisputable that the income of the non-resident lawyers/ law firms for services rendered entirely outside India, does not fall under category (i), (ii) or (iii) above. In respect of (iv), it is submitted that an income is deemed to accrue or arise in India only if it is included in the various clauses provided under section 9 of the Act, and as per ld. Sr. Counsel, wherein, payment of professional fee is conspicuously absent. 10. In this context we find that Explanation 2 to section 9(1)(vii) of the Act defines FTS to mean payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel and the plain reading of section 9(i)(vii) of the Act does not cover payments of fees for professional services. 11. Elaborating it further, our attention was invited to section 194J of the Act which provides for tax deduction at source in respect of “Fees for professional Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 8 or technical services”. It is submitted that the distinction between “Fee for professional services” and “FTS” is statutorily recognised, in as much as, under the aforesaid section, Legislature in its wisdom has created two separate classes of income, viz., “Fees for professional services” and “Fees for technical services”. The said expressions have also been separately defined in Explanation to section 194J. Relevant extracts of section 194J along with Explanation there of, are reproduced as under: “194J. Fees for professional or technical services. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— (a) fees for professional services, or (b) fees for technical services, or ………………. shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein: ……………………… Explanation.—For the purposes of this section,— (a) “professional services\" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) \"fees for technical services\" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9.” (emphasis supplied) Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 9 12. In this context we are of considered view that the controversy can be best resolved by reference to provision of law u/s 44AA of the Act, which mandates for maintenance of accounts by certain persons carrying on profession or business. The relevant sub-section (1) is reproduced below; “44AA. (1) Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act.” 13. Very apparently term ‘technical consultancy’ used in section 44AA of the Act has to be read ejusdem generis along with the words ‘professional’ activities based on certain skills acquired by study of particular domain of studies and which have some regulatory bodies to oversee the conduct of practitioner of the those skills and the same, very much distinguishes it, with generic term ‘technical services’, read ejusdem generis with managerial or consultancy services (including the provision of services of technical or other personnel), falling in category of FTS. Thus these afore-reproduced provisions of the Act, make it crystal clear that “professional services”, which includes legal services, is a separate category of services, recognized as distinct from FTS, which is primarily “managerial, technical or consultancy” services as referred to in section 9(1)(vii) of the Act, by the Legislature itself. If “FTS” as defined in Explanation 2 to section 9(1)(vii) were to include “professional services” as referred to in section 44AA, it would not have been necessary to Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 10 refer to the latter specifically in Explanation (a) to section 194J of the Act, and Explanation (b) to that section would have been sufficient. 14. Further, ld. Sr. Counsel has drawn our attention to the fact that Finance Act, 2020, w.e.f. 01.04.2020, has amended section 194J of the Act to provide that payment in the nature of ‘fees for technical services (not being professional services)’ shall be liable to tax deduction at source @ 2% whereas in respect of payment(s) being in the nature of ‘fees for professional services’, liability to deduct tax at source shall remain constant, i.e., 10%. 14.1 In addition to the above, attention was also invited to section 194M of the Act, inserted by Finance (No.2) Act, 2019, w.e.f. 01.09.2019, wherein the Legislature has mandated deduction of tax at source by individuals and HUFs on payments made in the nature of fees for professional services exceeding Rs.50 lakhs in a financial year, without introducing any such obligation in respect of payments made towards ‘fees for technical services’. 15. Ld. Sr. Counsel has also drawn attention to the provisions of section 40(a)(i) and 40(a)(ia) of the Act, which read as under: “40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head \"Profits and gains of business or profession\",— (a) in the case of any assessee— (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,— Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 11 (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 : Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.—For the purposes of this sub-clause,— (A) \"royalty\" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (B) \"fees for technical services\" shall have the same meaning as in Explanation2 to clause (vii) of sub-section (1) of section 9;” ……………. (ia) thirty per cent of any sum payable to a resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, thirty per cent of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid : Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub- clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso. Explanation.—For the purposes of this sub-clause,— (i) \"commission or brokerage\" shall have the same meaning as in clause (i) of the Explanation to section 194H; Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 12 (ii) \"fees for technical services\" shall have the same meaning as in Explanation2 to clause (vii) of sub-section (1) of section 9; (iii) \"professional services\" shall have the same meaning as in clause (a) of the Explanation to section 194J; ……” (emphasis supplied) 15.1 It was submitted that upon perusal of provisions of section 40(a)(i) and 40(a)(ia), reproduced above, it may be appreciated that rigours of section 40(a)(ia) apply in respect of any sum payable to a resident on which tax is deductible at source under Chapter XVII-B of the Act, encompassing section 194J within its scope, which specifically refers to payments in the nature of “Fee for technical services” and “Fee for professional services”. Accordingly, Explanation to section 40(a)(ia) defines both the expressions, “fee for technical services” as well as “professional services”, as reproduced above. 15.2 However, it is pertinent to note that section 40(a)(i) only provides for tax deduction in respect of payments made to non-resident of “fees for technical services or other sum chargeable under the Act” and accordingly, while the Explanation to that section provides the definition of “fees for technical services”, no mention is made about “fees for professional services”. It was submitted that the Legislature has deliberately not defined the expression “fees for professional services” in Explanation to section 40(a)(i) for the reason that payment of such nature being made to a non-resident does not accrue or arise in India or is not deemed to accrue or arise in India, in terms of section 5 or section Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 13 9 of the Act and therefore, the same is not covered within the expression “other sum chargeable under this Act” and no tax is required to be deducted on such payments being made to non-residents. 15.3 Aforesaid, establish unequivocally that the Legislature has notably and deliberately created two separate classes of income, viz., fee for technical services and fee for professional services. Whereas the former is defined in Explanation 2 to section 9(1)(vii), the latter draws its meaning from Explanation (a) to section 194J of the Act. Reliance in this regard is also placed on the decision in the case of NQA Quality Systems Registrar Ltd vs DCIT: 92 TTJ 946 (Del Trib.), wherein it was held as under: “17………… There is a marked difference between fees for technical services and fees for professional services. Professional services are a category distinct from technical services. Even under the provisions of section 194J of the Act requiring deduction of tax at source, the definition of professional services includes the legal, medical, engineering, accountancy, technical consultancy and interior decoration, whereas the expression ‘fees for technical services as given in Expln. 2 to section 9(1)(vii) of the Act do not include within its fold the professional services as explained in section 194J of the Act…………” (emphasis supplied) 15.4 Similarly, the Mumbai bench of the Tribunal in the case of Deloitte Haskins & Sells v. ACIT:[2017] 184 TTJ 801 (Mum Trib.) observed as under: “19. ………………………………………………………………………………… ……………. Separate definitions of \"professional services\" and \"technical services\" under the Act inter alia indicates that the Statute makes clear distinction between these two terms. The term \"profession\" Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 14 alludes to some kind of vocation or occupation which requires special, advanced education, knowledge or skill etc. A person professing any kind of profession requires extensive training and study and mastery of specialized knowledge. A professional person has to conduct himself within specified code of conduct or ethical conduct which is required from his field of profession like legal, medical, accountancy etc. In the case of rendering of technical services, the emphasis is more on giving services which are technical in nature and alludes to some kind of giving advice or consultancy in the field of technology or imparting of technical skills, knowledge, experience, know- how etc. Here 'consultancy' also means some kind of technical consultancy because it is preceded by the word 'technical'. The term 'managerial' is indicative of management of business or something like which is distinct from profession or rendering of professional services. Here in this case, professional services were rendered by DTT Canada in respect of providing information of the Global environment in dairy sector in respect of the markets, competition, regulations and other best practices followed by global players. Thus, the impugned payment cannot be reckoned as fees for rendering of technical services in terms of Section 9(1)(vii).” 16. As contended by ld. Sr. counsel, it will not be out of place to consider that section 28 of the Act refers to the income head “profits and gains of business or profession”, which, too, demonstrates that profession is distinct from business. Even under the Double Taxation Avoidance Agreements which India has entered into with various countries, there are separate Articles/provisions relating to taxation of “Fee for Technical Services” and “Independent Personal Services” (“IPS”), like that of lawyer, doctors and other professionals and the special provisions relating to taxation of professionals, it is submitted, override the general provision relating to taxation of FTS. 17. The reason for the aforesaid is also not far to seek. A professional’s services have geographical limitations regulated by certain statues, as in case of Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 15 Lawyers, the Bar Council of India. Lawyer, registered as an Advocate can practice in Indian courts, but for representing Indian clients his qualifications as an Advocate may not be sufficient to represent the Indian client in courts or proceedings abroad. Thus here in the case in hand the recipients of the income were individual lawyers or law firms. They were only competent to practice in respective jurisdiction of which they were residents. Their services were vital for Indian clients for protecting their IPRs in foreign jurisdictions. The role of assesse was to engage with these non-resident lawyers and law firm and to work with them, in ensuring necessary compliances and following regulatory framework in those jurisdictions for protection of IPRs of Indian customers. The services so rendered may be technical in sense that it needs expertise but expertise alone is not sufficient to deliver these services before statutory and regulatory authorities or courts in foreign jurisdictions, the professional status these lawyers and law firms hold to represent clients, is the most vital element and make them only eligible to deliver the professional services, but that does not give rise to FTS. 17.1 Thus that justifies that under the domestic tax laws, e.g., under the Income-tax Act, 1961 and also under the respective DTAAs, professional services, as lawyers, are subjected to taxation in the country of residence of such professional service provider. It is supported by the contention of ld. Sr. Counsel that it is for that reason, under the Income-tax Act, 1961, while, Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 16 payment made for professional services to residents is subjected to deduction of tax at source under section 194J of the Act, in case of non-residents, such payments are not regarded as income accruing or arising in India under section 9(1)(vii) of the Act and therefore, not subjected to tax withholding under section 195 of the Act. 18. In this regard, ld. Sr. Counsel has relied co-ordinate bench of the Tribunal decision dated 09.12.2021 passed in the case of Chander Mohan Lall vs ACIT: 134 taxmann.com 292 (Del Trib.), where identical issue has been considered and determined in favour of the assessee by deleting the disallowance made by the assessing officer under section 40(a)(i) in respect of legal and professional fee paid to foreign attorneys without deduction of tax at source holding that there is a clear distinction between FTS and fee for professional services; the latter not being covered under the scope of section 9(1)(vii) of the Act. The relevant findings of the are reproduced hereunder: “19. Factually, the payments made to non-resident attorneys are neither in the nature of interest, nor in the nature of royalty. This is not even the case of the Revenue as well. Therefore, it has to be seen, whether the payment made comes within the ambit of FTS. Explanation 2 to Section 9(1)(vii) defines FTS to mean any consideration received for any managerial, technical or consultancy services, including provision of services by technical or other personnel. In the facts of the present case, 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. Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 17 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 that professional services are a category distinct from technical services. Similar view has been expressed in the following decisions as well: (i) ONGC Vs. DCIT (supra) (ii) Deloitte Haskins & Sells Vs. ACIT (supra) No contrary decision has been brought to our notice by learned Departmental Representative. In view of the aforesaid, we hold that the payments made to non-resident attorneys being not in the nature of FTS, there was no obligation on the assessee to deduct tax at source. ………………………………………………………………………………………… ………………………………………………………………………………………… 23. Be that as it may, on overall analysis of facts and applicable statutory provisions as well as keeping in view the ratio laid down in the decisions cited before us, we hold that the payments made to foreign attorneys are not chargeable to tax under the provisions of the Act, in terms of section 195 of the Act. Therefore, the assessee was not required to withhold tax on the payments made. Accordingly, we delete the disallowance made under section 40(a)(i) of the Act. 24. In the result, the appeal of the assessee is allowed, as indicated above.” (emphasis supplied) Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 18 19. To the same effect is the decision of the Delhi bench in the case of ONGC vs DCIT: 117 taxmann.com 867 (Del Trib.) wherein the co-ordinate bench held as under: “20……………Even otherwise also under section 9(1)(vii) legal services cannot be reckoned as FTS albeit it is professional services outside the scope of section 9(1)(vii). It has also been brought on record that in assessee’s own case for the Assessment Year 2009-10, the tribunal in the context of legal services rendered by the same party with regard to litigation between ONGC and Amur Shipbuilding Yard was held not taxable as FTS u/s 9(1)(vii). Accordingly, we hold that such payment cannot be brought to tax u/s 9(1)(vii). Hence, the appeal of the assessee is allowed.” (emphasis supplied) 20. It is a settled legal position that, “Lex specialis derogat legi generali”, which means that special legislation overrides general legislation. (Refer, Britannia Industries Ltd v. CIT: 278 ITR 546 (SC) and New Okhla Industrial Development Authority vs CCIT: [2018] 95 taxmann.com 58 (SC)]. Taxation of income on basis of deemed to accrue or arising out of such cross-border transaction, require adhering to the rule “Lex specialis derogat legi generali” and thus nature of source of income has to relate to specific definitions in the ACt and not general context. In that view of the matter, since there is specific definition of professional services provided under section 194J of the Act, the same needs to be adopted and the action of the assessing officer in classifying such professional services received from foreign attorneys/ law firms as FTS is erroneous. The discussion of the language of sections 194J, 9(1)(vii), 40(a)(i) and 194M of the Act, make it clear and unambiguous, the same are required to Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 19 be interpreted strictly and it is impermissible to resort to any interpretative process to unfold the legislative intent. [Refer: CIT vs Tara Agencies: 292 ITR 444 (SC), CIT vs T.V. Sundaram Iyyengar: [1975] 101 ITR 764 (SC), CIT vs Elphinstone Spg&Wvg Mills Co Ltd: 40 ITR 142 (SC), CIT vs Motors & General Stores Ltd: 66 ITR 692 (SC) and KeshavjiRavji& Co. vs CIT: [1990] 49 Taxman 87 (SC). In that view of the matter, it is concluded that since the payments made by the Appellants to non-resident foreign attorneys/ law firms were purely for professional services, which do not partake the character of FTS under section 9(1)(vii), the same are therefore, not chargeable to tax in India under the provisions of the Act. That being the case all other contentions and grounds become otiose and need no further discussion. 21. We are thus inclined to allow ground no. 2, 2.1 and 2.3 in ITA no 9832 and ground no. 1(a) in ITA no. 2134. These appeals of assesse are allowed. The consequential effect of same makes appeal of Revenue liable to be dismissed and accordingly ordered. Order pronounced in the open court on 20.08.2025. Sd/- Sd/- (MANISH AGARWAL) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 20th August, 2025. dk Printed from counselvise.com ITAs No.600/Del/2020, 9832/Del/2019 & 2134/Del/2018 20 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi Printed from counselvise.com "