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Income Tax Appellate Tribunal, MUMBAI BENCH “I”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI GAGAN GOYAL
PER GAGAN GOYAL, A.M.
The above mentioned four appeals filed by the Revenue are directed against the orders passed by the Commissioner of Income Tax (A)-NFAC *hereinafter referred to as ‘the CIT(A)’+ vide four different orders dated 11.01.2023 for Assessment Years (AY) 2014-15, 2015-16, 2016-17 and 2017-18 respectively. First, we take up the appeal for the AY 2014-15 wherein the Revenue has raised the following grounds of appeal: -
“1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowance of Rs.68,76,243/- u/s. 40(a)(i) being professional fees paid outside India without deduction of tax at source?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the payment made by the assessee to its associate concerns based in countries apart from Israel, Philippines, constitute payments for Independent Personal Service instead of ‘Fees for Technical Services” as defined under Article 12/13 of the respective DTAAs?
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the payments made by the assessee to its associate concerns based in Israel, Philippines, constitute payments for Independent Personal Services instead of “Royalty” as defined under Article 12/13 of the respective DTAAs?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the services rendered by the associate concerns to the assessee constitute “Independent Personal Services” under DTAAs not appreciating that only those services performed by an independent non-resident alien contractor would constitute “Independent Personal Services” under DTAA which is not the case here as in this case, the Services were rendered by the Group entities to an Indian entity which were closely working with each other?
5. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in holding that the KPMG Co-operative, Switzerland, is a mutual association and its receipts would not constitute income chargeable to tax and is not obliged to withhold and any tax
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP without appreciating the facts, thereby deleting the disallowance of Rs.7,09,17,956/- u/s. 40(a)(i).
6. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) erred in holding that the payments made by the assessee to KPMG for names, mark and other facilities were in the nature of royalty and chargeable to tax in India.”
Facts of the case AY 2014-15:
The assessee is a Limited Liability Partnership firm of Chartered Accountants and filed its return of income for AY 2014-15 electronically on 28.11.2014 declaring a total income of Rs. 23, 23, 64,120/- Thereafter, the assessee filed a revised return of income electronically on 29.03.2016 to claim additional TDS credit and reversal of relief claimed u/s. 90 and 90A of the I.T. Act, 1961.
Assessee’s case was selected for scrutiny under CASS and statutory notices u/s. 142(1) and 143(2) of the I.T Act were issued. During the course of scrutiny proceedings, the Ld. AO made additions on account of two issues i.e. (i) claim of professional fees of Rs. 68,76,243/- paid to non-residents without deduction of tax at source and (ii) claim of remittance of Rs. 7,09,17,956/-made to KPMG International Co-operative, Switzerland without TDS.
Ground Nos. 1 to 4 of AY 2014-15:
During the year under consideration, the assessee has made payments of Rs. 68, 76,243/- as professional fees to various non-residents without deduction of tax at source as under:-
Sr. No. Name of the non-resident Amount 1 KPMG Corporate Finance Pte. Ltd (Singapore) 1,81,560 2 KPMG IFRG Ltd. (UK) 1,82,124 3 KPMG LLP (UK) 17,87,793 4 KPMG LLP (Singapore) 11,53,124 5 KPMG Meijburg& Co (Netherlands) 9,74,589
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 6 KPMG, Norway 7,44,723 7 KPMG S.A. (France) 1,61,807 8 KPMG Services Pte Ltd. (Singapore) 1,77,729 9 Manabat Sanagustin & Co CPA, (Philippines) 1,88,894 10 Somekh Chaikin (Israel) 13,23,900 Total 68,76,243
5. Ld. Counsel of the respondent, at the first instance pointed out that the identical issue had come up for adjudication in assessee’s own case before the “I” bench of Mumbai Tribunal (ITAT) in AY 2013-14 and the same was decided in favour of the respondent. Ld. Counsel also pointed out that while deciding the appeal for the AY 2014-15, the Ld. CIT (A) has relied upon the order of the ITAT for AY 2013-14. Ld. Counsel furnished a chart showing the similarity between the payments made during AY 2013-14 and the impugned assessment year. The same is reproduced hereunder:
Sr. Name of the Payee Amount in Description of Remarks No. INR Services 1 KPMG Corporate Review of Covered in favour of taxpayer by: Finance P. Ltd 1,81,560 regulatory 1. Tribunal order taxpayers own (Singapore) filings cases for AY 2013 - 14 (ITA No. (Company) 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
2 KPMG Services Pte Taxation / Audit Covered in favour of taxpayer by: Ltd. (Singapore) 1,77,729 Services 1. Tribunal order taxpayers own (Company) cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 3 Somekh Chaikin 13,23,900 Tax Advisory Covered in favour of taxpayer by: (Israel) (Firm of Services 1. Tribunal order taxpayers own Individuals) cases for AY 2008 - 09 (ITA No. 2843/M/2014) (refer para 4.8 on page 40 of the case law compilation) (Similar to payments made to KPMG Ireland) 4 KPMG IFRG Ltd. Accounting Covered in favour of taxpayer by: (UK) (Company) 1,82,124 Advisory 1. Tribunal order taxpayers own Services cases for AY 2013 - 14 (refer para 7 to 12 on pages 6 to 10 of the case law compilation) - (Similar payments to KPMG UK Plc) 2. Tribunal order taxpayers own cases for AY 2010 - 11 (ITA No. 4536/M/2016 & ITA No. 4533/M/2016) (refer para 17 page 24 and refer 5 & 6 pages 17 to 22 of the case law compilation) 5 KPMG LLP (UK) Transfer pricing Covered in favour of taxpayer by: (Firm of 17,87,793 Services 1. Tribunal order taxpayers own Individuals) cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) 6 KPMG LLP Audit Services Covered in favour of taxpayer by: (Singapore) (Firm 11,53,124 1. Tribunal order taxpayers own of Individuals) cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 7 KPMG Meijburg & Taxation Covered in favour of taxpayer by: Co Special Services 9,74,589 Services 1. Tribunal order in taxpayer’s BV. (Netherlands) own cases for AY 2013 - 14 (Company) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) - (Similar treaty with Singapore and UK) 2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs. KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) (Similar to payments made to KPMG Accountants NV a company resident of Netherlands)
8 KPMG S.A. (France) Audit Services Covered in favour of taxpayer by: (Company) 1,61,807 1. Tribunal order taxpayers own cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation). (Similar to payments made to KPMG UK Plc)
9 Manabat Audit Services Covered in favour of taxpayer by: Sanagustin & Co 1,88,894 1. Tribunal order taxpayers own CPA,(Philippines) cases for AY 2013 - 14 (refer (Firm of para 7 to 12 on pages 6 to 10 of Individuals) the case law compilation) (Similar Treaty with Bangladesh) 2. Tribunal order taxpayers own cases for AY 2011 - 12 (ITA No.4535/Mum/2016 & (refer para 14 on page 24 and refer 5 & 6 pages 17 to 22of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 10 KPMG, Norway 7,44,723 Tax Advisory Covered in favour of the Services taxpayer by: 1. Bajaj Hindustan Limited 2011(47 SOT 74) (Mumbai)(URO) (refer para 14 on page 103 of the case law compilation)
on the basis of above chart, the Ld. Counsel submitted that:
(a) In the case of payment made to Singapore entities at Sr. No. 1, 2 & 6, payment made to the UK entity at Sr. No. 4 & 5, payment made to France entity at Sr. No. 8 and payment made to the Netherlands entity at Sr. No. 7, the services are in the nature of business profits under Article 7 of the respective tax treaties and are not taxable in India in the absence of permanent establishment of non – residents in India under Article 5 of the said tax treaties since services are not in nature of make available of technical knowledge, experience, skill, know-how or process.
(b) In the case of payment made to Israel entity at Sr. No. 3, it was pointed out that the Israel tax treaty is similar to Ireland tax treaty and the services cannot be construed as managerial or technical services so as to be governed by article 13 of the Israel tax treaty dealing with FTS. Since there is a specific article 15 on Independent Personal services in Israel tax treaty, this specific article will override the general article pertaining to FTS and these would not be taxable in India in absence of fixed base of non-resident in India.
(c) In the case of payment made to Philippines entity at Sr. No. 9, it was pointed out that Philippines tax treaty is similar to Bangladesh tax treaty. There is no article dealing with FTS in both the tax treaties. The payment would be covered under article 15 of the Philippines tax treaty and would not be taxable in India in absence of fixed base of non-resident in India. The payment would not be covered under article 23 dealing with other income. Ld. Counsel of the assessee placed reliance on the (A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP decision of ITAT Mumbai in the case of P.T. McKinsey Indonesia [2013] 29 taxmann.com 100, placed in the case law compilation at page number 94.
(d) In the case of payment made to Norway entity at Sr. No. 10 it is submitted that the professional fees are paid for services utilised for the purpose of earning income from a source outside India and hence, are not taxable in India pursuant to the provisions of Section 9(1) (vii) (b) of the IT Act. Ld. Counsel explained that the professional fees have been paid by the assessee, an India tax resident to KPMG Norway, a non- resident for earning income from a source outside India i.e. from an overseas client. Ld. Counsel of the assessee placed reliance on the decision of ITAT Mumbai in the case of Bajaj Hindustan Limited [2011] 13 taxmann.com 13 placed in the case law compilation at page number 99.
Ground Nos. 1, 2, 3 and 4 are interlinked, hence disposed of by common finding. We have heard both the parties and have gone through the records, contentions of the AO, submissions of the assessee and order of the Ld. CIT (A). The issue before us revolves around the payments made by the assessee to certain non-resident entities for professional services rendered by them outside India which were availed in the course of execution of engagements of the assessee firm.
We have gone through the chart and case law compilation submitted by the assessee before us and the submissions of the assessee before the Ld. CIT(A) and found that the payments made to non-resident firms mentioned at Sr. No. 1 & 2 (Singapore), 4 & 5 (UK), 6 (Singapore), 7 (Netherlands) and 8 (France) in the table at para 5 above, will not come under Article 12 dealing with ‘Fees for Technical Services’, rather they fall under Article 7 dealing with ‘Business Profits’ and there is no Permanent Establishment (PE) in India, and therefore these payments would not be taxable in India.
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 9. With regard to the remittances for professional fees to Singapore, UK and Netherlands and France entities, the services did not fall within the ambit of ‘Fees for Technical Services’ / ‘Royalties as defined in Article 12/13 of the respective tax treaties in that they do not make available technical knowledge, experience and skill and hence does not attract section 195 of the I.T. Act as the said payments were not in the nature of income chargeable to tax in India.
For the above, the appellant relied on decisions of the ITAT, Mumbai, in its own case for A.Y. 2013-14. The Tribunal in I.T. Appeal No. 2549 (Mum) of 2018, A.Y. 2013-14 decided on 15.06.2022, relying upon the decisions of the ITAT, Mumbai, in its own case for AYs. 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13. Held as under:
“In the context of payments made to KPMG Tax Services Pvt. Ltd., Singapore, KPMG LLP, Singapore and KPMG Tax Advisor, Belgium, the CIT (Appeals) noted that they are companies registered in the respective countries, who have rendered services outside India. Such services related to assistance in audit, taxation, information technology services, conducing background checks, etc. Considering the nature of the services rendered, which is not disputed by the Revenue, in our view, the CIT(Appeals) made no mistake in holding that the payments are not 'fee for technical services'. The aforesaid services have been rightly held to be outside the purview of Article-12 and/or Article-13 of the respective tax treaties, and instead such income falls within the scope of Article-7 thereof i.e. in the nature of ‘business profits’. It has also (Assessment Year : 2009-10) not been disputed that such entities do not have a permanent establishment in India, therefore, such incomes are not chargeable to tax in India so as to require deduction of tax at source. On this aspect also, we affirm the stand of the CIT (Appeals) that such payments are not liable for disallowance under section 40(a) (i) of the Act.
5.1 In so far as payments to KPMG LLP, UK and KPMG USMCG Ltd. UK are concerned, herein also the said entities do not have permanent establishment in India. The CIT (Appeals) has found that such entities are eligible for the benefit of Article -15 of Indo-US Double Taxation Avoidance Agreement dealing with independent personal services and hence, payments are not chargeable to tax in India so as to require deduction of tax at source. The aforesaid findings have not been disputed before us on the basis of any cogent material and, therefore, we hereby affirm the same. Consequently, invoking of section 40(a) (i) in the context of aforesaid payments is also not justified.
In the above background, we have carefully considered the rival submissions. Pertinently, the issue revolves around the payments made by the assessee to certain non-resident entities
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP for professional services rendered by them outside India. It has been consistently explained by the assessee that the services of such entities were availed during the (Assessment Year: 2009-10) course of the execution of engagements of assessee firm. The assessee firm did not deduct the tax at source and, therefore, the Assessing Officer invoked the provisions of section 40(a) (i) of the Act and disallowed such expenditure. The details of the entities along with the amounts paid have been culled out by the Assessing Officer in Para3 of the assessment order and the same is not being repeated for the sake of brevity. The payments have been made to 12 different professional entities based in 10 different countries. In so far as the payments that are made to KPMG LLP, USA and KPMG LLP, Canada are concerned, the same has been made on account of professional services rendered in relation to taxation and transfer pricing. Undisputedly, the professional services have been rendered by the aforesaid entities outside India. The stand of the Revenue is that such services are in the nature of ‘fee for technical services’ and, therefore, tax was liable to be deducted at source in India. Factually speaking, the aforesaid stand of the Revenue is devoid of any support because there is no material to establish that any technical knowledge, skill, etc. has been made available to the assessee so as to consider it as falling within the purview of Article-12 of Indo-US Double Taxation Avoidance Agreement. It is also an established fact that such non-resident recipients do not have permanent establishment in India and, therefore, in the said background the same can, at best, be treated as independent personal services covered by Article15 of the Indo-US Double Taxation Avoidance Agreement. As a consequence and in the absence of any fixed base in India, such income cannot be held chargeable to tax in India so as to require deduction of tax at source. (Assessment Year: 2009-10) Therefore, invoking of section 40(a) (i) of the Act to disallow such expenditure is not tenable.
In so far as payment made to Israel entity mentioned at Sr. No. 3 in the table, we note that the Israel tax treaty is similar to the Ireland tax treaty. We are of the view that the services cannot be construed as managerial or technical services so as to be governed by article 13 of the Israel tax treaty dealing with FTS. As pointed by the Ld. Counsel of the assessee, since there is a specific article 15 on Independent Personal services in Israel tax treaty, this specific article will override the general article pertaining to FTS and these would not be taxable in India in absence of Fixed base of non-resident in India. We observe that this issue is covered by the decision of ITAT in assessee’s own case for AY 2008-09 in which is reproduced below:- “4.8 In respect of the payment made by the assessee to KPMG, Ireland for audit services, it is not in dispute that the said services have been rendered outside India and the same cannot be construed as managerial or technical services so as to be governed by Article 13 of India- Ireland DTAA as contended by Revenue. In our view, they are clearly in the nature of independent personal services coming within the purview of Article-14 of the India-Ireland DTAA and therefore in the absence of any fixed place of business of the recipient, the said (A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP payments/income is not exigible to tax in India. In this view of the matter, we are of the considered view that the assessee is not liable to deduct tax on the aforesaid payment made to the non-resident entity in Ireland for the provisions of section 40(a)(i) of the Act to be invoked. We, therefore, uphold the finding of the learned CIT (A) on this issue which has not been controverted before us by the Revenue.”
In so far payment made to Philippines entity at Sr. No. 9 in the table we note that Philippines tax treaty is similar to Bangladesh tax treaty. There is no article dealing with FTS in both the tax treaties. We are of the view that the payment would be covered under article 15 of the Philippines tax treaty and would not be taxable in India in absence of fixed base of non-resident in India. We observe that this issue is covered by decision of ITAT Mumbai in the case of P.T. McKinsey Indonesia [2013] 29 taxmann.com 100, which is reproduced below:
8………….As far as taxing under the head ‘Other Income’ is concerned, as held by the penal, we are of the opinion that residuary head is analogous to sections 56-57 of the Act. If a certain receipt cannot be taxed under any other head, only then sections dealing with ‘Income from Other Sources’ comes into play in domestic taxation matters. Likewise, under the DTAAs if a sum can be taxed under any other Article, provisions of Article 22 will not be applicable. We are of the opinion, in light of the earlier decisions of the Mumbai Tribunal income received by the assessee- company form McKinsey India is not to be treated as Royalty- rather it has to be assessed as business income as per Article 7 of the DTAA.
In so far as payment made to Norway entity at Sr. No. 10 of the table we note that the professional fees have been paid by the assessee, an India tax resident to KPMG Norway, a non-resident. We note from the order of the Ld. AO that the AO has not disputed that the payment has been made by the assessee for earning income from a source outside India i.e. from an overseas client. Thus the payment does not get covered under Section 9(1) (vii) of the IT Act in view of the exclusion pursuant to clause (b) of Section 9(1)(vii) of the Act. We further note that this issue is covered by the decision of ITAT Mumbai in the case of Bajaj Hindustan Limited [2011] 13 taxmann.com 13 reproduced below:-
“14……… As far as the second exception mentioned in Sec.9 (1) (vii) clause (b) is concerned viz., “for the purposes of earning any income from any source outside India.” the undisputed
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP facts are that the Assessee wanted to acquire sugar mills/distillery plants in Brazil and for that purpose also wanted to set up a subsidiary company. In fact, the Assessee had set up a subsidiary 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 into 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 except the payment of fees for technical services. The expression used is “for the purpose of earning any income from any source outside India”. There is 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 therefore uphold the order of the CIT (A) holding that the payment by the Assessee of fees for technical services 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 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………..”
As the facts mentioned above for the year under consideration and findings of the ITAT, Mumbai in earlier years in assessee’s own case and other cases, as reproduced in the preceding paragraphs are found to be similar, we don’t find any perversity in the order of Ld. CIT (A), hence order of the Ld. CIT (A) is sustained and Ground Nos. 1, 2, 3 and 4 raised by the Revenue are dismissed.
Ground Nos. 5 & 6 of AY 2014-15:
Ground Nos. 5 & 6 are interlinked, hence disposed of by common findings. These grounds pertain to claim of remittance of Rs. 7, 09, 17,956/- made by the assessee to KPMG International Co-operative, Switzerland without TDS. On this issue, during the assessment proceedings, Ld. AO held as under:- “4.3 on perusal of the sub-license agreement dated 01.01.2007 filed by the assessee; it appears that the payment is essentially for use of KPMG marks which belong to KPMG International Co-operative. In this regard, reference is drawn to clause 4(a) and (b) of the sub-license agreement as under: “4. Use of KPMG Marks
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP a) The Signatory Sublicense acknowledges that the Sub licensor’s right to the KPMG Marks derive exclusively from the Sub licensor’s rights under the Membership Agreement and that the sublicense to the KPMG Marks granted pursuant to this Section 4 is derivative there from and subject to the terms and conditions of such Membership Agreement. The Signatory Sublicense further acknowledges that the 11 ITA No. 2549/Mum/2018 (A.Y. 2013-14) right of KPMG International to license the KPMG Marks is subject to the terms of the Component License Agreement and the Signatory Sub licensee agrees that it shall not take any action that contravenes the terms of the Component License Agreement. b) Upon the terms and conditions hereinafter set forth, the Sub licensor hereby grants to the Signatory Sub licensee, and the Signatory Sub licensee hereby accepts, the non-exclusive rights, license and privilege to use the KPMG Marks in connection with its marketing and providing of services permitted to be provided by the Signatory Sub licensee in accordance with the provisions of this Agreement, the Statues and the Policies and Regulations, and on products related to such services. Such grant shall include the right and license to issue engagement reports in the name of “KPMG” and to use the KPMG Marks in any local domain name used by the Signatory Sub licensee. Such grant shall not include any right of the Signatory Sub licensee to enter into Sublicense Agreements or otherwise authorize the use of the KPMG Marks to any person, firm or organization other than the Signatory Sub licensee’s Controlled Parties, or allow any other person, firm or organization to otherwise hold itself out to be affiliated with or associated with KPMG International. Thus the payment is primarily for use of the name. The assessee derives substantial benefits by being part of the KPMG group and using the name KPMG. It is clearly evident that the payment is towards acquiring the right to use the name of KPMG which is certainly in the nature of royalty. This would be the position even under Article 12 of the above mentioned DTAA dealing with ‘Royalties’. 4.4 Therefore, once the payments are held to be in the nature of ‘Royalties’, there is income chargeable to tax in the same and the assessee is obliged to deduct tax at source from the payments. 4.5 In view of the above, the assessee should have deducted tax in respect of amounts payable to KPMG International Co-operative under the provisions of section 195 of the Income Tax Act, 1961 on the ground that the amount payable to them was (A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP chargeable to tax in India under Section 9(1)(vi) of the Income Tax Act, 1961 r/w Article 12 of the DTAA. 4.6 In view of the above discussion, the payments amounting to Rs.7, 09, 17,956/- made to KPMG International Co-operative, Switzerland without deduction of tax at source is disallowed u/s. 40(a) (i) of the Income Tax Act, 1961.”
16. The Ld. CIT (A) has allowed the relief to the appellant by observing as under:
4.5 On the similar issue, the Hon'ble ITAT, Mumbai in the assessee’s own case for AY 2013-14 decided in favour of the assessee whereby it was observed as under:
15. Fact of the matter is, the appellant had paid membership fees of Rs.7, 09, 17,956/- to KPMG International Co-operative (“KPMGI”) without deduction of tax at source. KPMGI is a mutual association of its members firms. It has over 150 members across the globe one of whom is KPMG. KPMG is a partnership firm registered, under the Indian Partnership Act, 1932 pursuant to the approval received from the Secretariat of Industrial Approvals, Government of India. KPMG and KPMGI have entered into a Membership Agreement. KPMG, KPMGI and the Appellant have entered into a sub-license agreement. The rights and obligations of KPMG, the member and the Appellant, the sub- licensee are the same. Thus, effectively, the Appellant is a member of KPMGI. The objectives of the KPMGI relate to the development, co-ordination, support, promotion and facilitation of the operations/ services of the KPMG Member Firms to its clients in various ways. KPMGI does not make any profits on its activities and does not have any commercial purpose. All members contribute to their share of costs incurred by KPMGI in providing support to the Member firms. The total costs are shares amongst member firms based on their budgeted revenues and collected in advance/ instalments and adjusted year-on-year for any shortfall/ excess recovery for the eventual benefit of members.
We have given due consideration to the findings of the AO, submission of the assessee and relevant agreement filed by the assessee between assessee and KPMGI Cooperative, Switzerland.
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 17. Keeping in view the agreement between assessee and KPMGI Co- operative, Switzerland, it is apparently clear that KPMGI Co-operative, Switzerland is a mutual association; there is a complete identity between the contributors and 13 ITA No. 2549/Mum/2018 (A.Y. 2013-14) participators. The actions of the contributors and participators are in furtherance of the mandate of the association and no outside party is entitled for any benefit, knowledge sharing and furtherance of business. There seems to be no element of profit by the contributors from a fund made by them. The case of the assessee falls within the four corner of the ambit of the ‘Principle of Mutuality’. The assessee’s plea that the remittances to KPMGI Co-operative, Switzerland are in the nature of reimbursement cost and consequently, there is no need to deduct TDS from the same.
18. ITAT, Mumbai’s decision in assessee’s own case in ITA No. 4535, 4536/Mum/2016 dated 05.12.2018 held as under: “On appraisal of the above said findings, we find that the CIT (A) has decided the matter of controversy on the basis of the decision of the Hon’ble TAT in the assessee’s own case bearing ITA No.2493/ M/2013. It is specifically held that the payment was based on the Principle of Mutuality; therefore, the same is not liable to be taxable in India. At the time of argument, the Ld. Representative of the assessee has also relied upon the decision in the case of DCIT Vs. KPMG (2017) 81 taxmann.com 118 (Mum) dated 07.04.2017 and in the case of ACIT VS. BSR & Company in ITA. No.4842 to 4844 & 4556/M/2016 dated 04.01.2018 etc. Since the issue has squarely been covered by the decision of Hon’ble ITAT in the assessee’s own, therefore, finding no justifiable grounds to interfere with the finding of the CIT (A), we decide the issue in favour of the assessee. We confirmed the finding of the CIT (A) on these issues and decide the issue in favour of the assessee against the revenue.”
19. In this regard, order of CIT(A) and orders of Mumbai ITAT in assessee’s own case for AY 2011-12 and AY 2012-13 held that no disallowance on this front is warranted u/s. 40(a)(i) of the I.T. Act for not withholding tax from membership fees paid to KPMGI Co- operative, Switzerland as the facts mentioned above in the assessee’s case for earlier years and year under consideration are similar and therefore following the decision of Mumbai ITAT, we don’t find any perversity in 14 ITA No. 2549/Mum/2018 (A.Y. 2013-14) the order of the Ld. CIT(A). Hence, order of Ld. CIT (A) is sustained and grounds raised by Revenue are dismissed.
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP Respectfully following the decision of the Ld. ITAT as above, disallowance made u/s 40(a) (i) in respect of claim of remittance made to KPMG International Cooperative; Switzerland without TDS is hereby deleted.”
We have carefully considered the facts of the current year and the decision of ITAT in the case of the assessee in for AY 2013-14 relied upon by the Ld. CIT (A). Respectfully following the decision of coordinate bench for AY 2013-14, we are not inclined to interfere with the findings of the Ld. CIT (A). Hence the order of Ld. CIT (A) on this issue is sustained and the ground number 5 and 6 raised by the Revenue are dismissed.
ITA No. 724/Mum/2023 (AY 2015-16)
Now we turn to the appeal filed by the Revenue for AY 2015-16. The grounds of appeal raised by the Revenue are reproduced below:
“1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowance of Rs.2,70,41,039/- u/s. 40(a)(i) being professional fees paid outside India without deduction of tax at source?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the payment made by the assessee to its associate concerns based in countries apart from Israel, Philippines, constitute payments for Independent Personal Service instead of ‘Fees for Technical Services” as defined under Article 12/13 of the respective DTAAs?
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the payments made by the assessee to its associate concerns based in Israel, Philippines, constitute payments for Independent Personal Services instead of “Royalty” as defined under Article 12/13 of the respective DTAAs?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the services rendered by the associate concerns to the assessee constitute “Independent Personal Services” under DTAAs not appreciating that only those services performed by an independent non-resident alien contractor would constitute “Independent Personal Services” under DTAA which is not the case here as in this case, the (A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP Services were rendered by the Group entities to an Indian entity which were closely working with each other?
5. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in holding that the KPMG Co-operative, Switzerland, is a mutual association and its receipts would not constitute income chargeable to tax and is not obliged to withhold and any tax without appreciating the facts, thereby deleting the disallowance of Rs.7,89,82,072/- u/s. 40(a)(i).
6. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) erred in holding that the payments made by the assessee to KPMG for names, mark and other facilities were in the nature of royalty and chargeable to tax in India.
7. On the facts and circumstances of the case and in law, allowing tax relief in regard to income earned in Japan. The Ld. CIT (A) has not considered the provisions of Article 14A of India-Japan DTAA dealing with Independent Personal Services. As per the provisions of Article 14A the income itself is not taxable, the tax credit in respect thereof is not allowable.”
Facts of the case AY 2015-16:
The assessee is a Limited Liability Partnership firm of Chartered Accountants and filed its return of income for AY 2015-16 electronically on 28.11.2015 declaring a total income of Rs. 40,97,67,300/- Assessee’s case was selected for scrutiny under CASS-Limited and statutory notices u/s. 142(1) and 143(2) of the I.T Act were issued. During the course of scrutiny proceedings, the AO made addition to the total income of the assessee on account of (i) claim of professional fees of Rs. 2,70,41,039/- paid to non-residents without deduction of tax at source and (ii) claim of remittance of Rs. 7,89,82,072/-made to KPMG International Co-operative, Switzerland without TDS. The AO also denied the claim of the assessee of foreign tax credit to the extent of 71, 39,952/- pertaining to Japan.
Ground Nos. 1 to 4 of AY 2015-16:
During the year under consideration, the assessee has made payments of Rs. 2,70,41,039/- as professional fees to various non-residents without deduction of tax at source as under:-
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP Sr. No. Name of the non-resident Amount 1 KPMG Advisory Indonesia 581,227 2 KPMG Al Fozan& Partners Saudi Arabia 907,138 3 KPMG Corporate Finance Pte. Ltd (Singapore) 310,660 4 KPMG LLP, UK 238,240 5 KPMG LLP (Singapore) 597,241 6 KPMG, USA 4,893,905 7 KPMG Phoomchai Audit Ltd. Thailand 529,864 8 KPMG Phoomchai Tax Ltd. Thailand 182,634 9 KPMG, Mauritius 201,493 10 KPMG SA France 37,720 11 RG Manabhat& Co. Philippines 136,819 12 KPMG LLP, USA 18,424,099 Total 27,041,039
Ld. Counsel of the assessee pointed out that the issues in the instant appeal are similar to those in Mumbai Tribunal (ITAT) in AY 2013-14 and the same were decided in favour of the assessee. Ld. Counsel also pointed out that while deciding the appeal for the AY 2015-16, the Ld. CIT (A) has relied upon the order of the ITAT for AY 2013-14. Ld. Counsel furnished a chart showing the similarity between the payments made during AY 2013-14 and the impugned assessment year. The same is reproduced hereunder:
Sr. Name of the Amount in Description of Remarks No. Payee INR Services
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 1 KPMG LLP (USA) 48,93,905 + Taxation Services Covered in favour of taxpayer by: (Firm of Individuals) 1,84,24,099 1. Tribunal order taxpayers own case for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) 2 KPMG Corporate Review of regulatory Covered in favour of taxpayer by: Finance P. Ltd 3,10,660 filings 1. Tribunal order taxpayers own (Singapore) cases for AY 2013 - 14 (ITA No. (Company) 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
3 KPMG LLP (UK) (Firm Taxation Services Covered in favour of taxpayer by: of Individuals) 2,38,240 1. Tribunal order taxpayers own cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
4 KPMG LLP Audit Services Covered in favour of taxpayer by:1. (Singapore) (Firm of 5,97,241 Tribunal order taxpayers own cases Individuals) for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 5 KPMG S.A. (France) Audit Services Covered in favour of taxpayer by: (Company) 37,720 1. Tribunal order taxpayers own cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation).(Similar to payments made to KPMG UK Plc)
6 KPMG Advisory Business Covered in favour of taxpayer by: (Indonesia) 5,81,227 Advisory 1. Tribunal order taxpayers own (Company) Services cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar to payments made to KPMG Hadibroto& Co, a company resident of Indonesia)
2. Covered by Mumbai ITAT case of P.T. Mckinsey Indonesia [2013] 29 taxmann.com 100 (Mumbai-trib) (refer para 8 on pages 98 of the case law compilation) 7 KPMG Al Fozan& Audit Services Covered in favour of taxpayer by:1. Partners (Saudi 9,07,138 Tribunal order in taxpayers own Arabia) (Firm of cases for AY 2013 - 14 (ITA No. Individuals) 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Indonesia) 8 KPMG Phoomchai Audit Services Covered in favour of taxpayer by: Audit Ltd (Thailand) 5,29,864 1. Tribunal order in taxpayers own (Company) cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Indonesia)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 9 KPMG Phoomchai Transfer Pricing Covered in favour of taxpayer by: Tax Ltd (Thailand) 1,82,634 Services 1. Tribunal order in taxpayers own (Company) cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Indonesia)
10 KPMG (Mauritius) 2,01,493 Audit Services Covered in favour of taxpayer by:1. (Firm of Individuals) Tribunal order in taxpayers own cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Bangladesh)2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) 11 R.G. Manabat & Co. 1,36,819 Audit Services Covered in favour of taxpayer by: (Philippines) (Firm of 1. Tribunal order in taxpayers own Individuals) cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Bangladesh)
2. Tribunal order taxpayers own cases for AY 2011 - 12 (ITA No.4535/Mum/2016 & (refer para 14 on page 24 and and refer 5 & 6 pages 17 to 22of the case law compilation) (similar payments made to Manabat Sanagustin & Co, Philippines)
On the basis of above chart, the Ld. Counsel submitted that: 21
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP
(a) Payments made to entities mentioned at Sr. No. 2, 3, 4, 5 and 11 which are located in Singapore, the UK, France and Philippines entities are identical to the payments made in the AY 2014-15 and hence the arguments and submissions made in the earlier AY 2014-15 will apply in the current year too.
(b) In the case of payment made to the USA entity at Sr. No. 1 the services are in the nature of Independent Personal Services under Article 15 of the USA tax treaty and are not taxable in India in the absence of fixed base of non-resident in India since services are not in nature of make available of technical knowledge, experience, skill, know-how or process.
(c) In the case of payment made to Indonesia, Saudi Arabia and Thailand entities at Sr. No. 6, 7, 8 and 9 it was pointed out that Indonesia tax treaty was a subject matter of decision in AY 2013-14 and Saudi Arabia and Thailand tax treaties are similar to Indonesia tax treaty. There is no article dealing with FTS in these tax treaties. The payment would be covered under article 7 of the tax treaties dealing with Business Profits and would not be taxable in India in absence of Permanent Establishment of non-residents in India. The payment would not be covered under article 21/22/23 dealing with other income. Ld. Counsel of the assessee also placed reliance on the decision of ITAT Mumbai in the case of P.T. McKinsey Indonesia [2013] 29 taxmann.com 100, placed in the case law compilation at page number 94.
(d) In the case of payment made to Mauritius (Firm) entity at Sr. No. 10 it was pointed out that Mauritius tax treaty in respect of firm is similar to Bangladesh tax treaty which was a subject matter of decision in AY 2013- 14. There is no article dealing with FTS in these tax treaties. The payment would be covered under article 14 of the tax treaty dealing with Independent Personal Services and would not be taxable in India in absence of fixed base of non-resident in India. The payment would not 22
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP be covered under article 22 dealing with other income. Ld. Counsel of the assessee also placed reliance on the decision of ITAT Mumbai in the case of P.T. McKinsey Indonesia [2013] 29 taxmann.com 100, placed in the case law compilation at page number 94.
Ground Nos. 1 to 4 relate to deleting the disallowance of professional fees paid to various non-residents. We have noted that these grounds of appeal are identical to the grounds of appeal raised by the Revenue in AY 2014-15 which we have already dismissed in the Para No. 14 of this order. Following the principles of consistency, these grounds of appeal are also dismissed with similar observations.
Ground Nos. 5 & 6 of AY 2015-16: 24. Ground of 5 and 6 relate to deleting the disallowance of payment to KPMG International Cooperative Switzerland. We have noted that these grounds of appeal are identical to the grounds of appeal raised by the Revenue in AY 2014-15 which we have already dismissed in the Para No. 17 of this order. Following the principles of consistency, these grounds of appeal are also dismissed with similar observations. Ground No. 7 of AY 2015-16:
The facts pertaining to this ground are that the Ld. AO did not grant credit of INR 71, 39,952 being taxes paid in Japan on income earned by the assessee in Japan. The Ld. AO observed that the income earned by the assessee in Japan was not taxable in Japan pursuant to Article 15 of the India- Japan DTAA dealing with Independent Personal Services. He held that since the income itself is not taxable, the tax credit in respect thereof is not allowed. He placed reliance on the decisions of Ershisanye Construction Group India Pvt. Ltd. In Maharashtra State Electricity Board as reported in 90 ITD 793 (Mum) and Chandbourne & Parke LLP (2005) 2 SOT 434 (Mum).
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 26. Ld. CIT(A) while deciding the matter relied on the decision of Mumbai ITAT in the case of Amarchand & Mangaldas & Suresh A Shroff & Co. in ITA No. 2613/Mum/2019 which is reproduced below:-
“To put a question to ourselves, what could possibly be the situations in which views of the source and residence jurisdictions may differ about the applicability of a treaty taxation provision, and yet the residence country could still provide the related tax credits. In our humble understanding, for the detailed reasons set out above, these are the cases in which the treaty partner source jurisdiction has taken a reasonable bonafide view which is not manifestly erroneous- even though it is not the same as is the view taken by the residence jurisdiction. That aspect alone, however, is not the sole determinative factor in the present context since we have already held that, on the peculiarities of Indo Japanese tax treaty provisions, the legal fees paid to a partnership firm of lawyers can indeed be subjected to levy of tax under article 12 as the exclusion clause under article 12(4) does not get triggered for payments to persons other than individuals, and the provisions of article 14 are required to be read in harmony with the provisions of article12(4).”
Before us, the Ld. Counsel of the assessee relied upon the decision of the ITAT in the case of Amarchand & Mangaldas & Suresh A Shroff & Co. (supra) which has also considered and distinguished the decisions relied upon by the Ld. AO. The Ld. Sr. DR relying upon the assessment order mentioned that the factum of payment of taxes by the assessee has not been placed on record and therefore the matter may be sent back to the AO for verification. In rebuttal, the Ld. Counsel mentioned that the Ld. AO has not challenged the fact of payment of tax.
We have considered the argument of both the parties. While we agree with the Ld. Counsel that the matter is covered by the decision of Amarchand & Mangaldas & Suresh A Shroff & Co. (supra), however, we also agree with the argument of the Ld. Sr. DR that the factum of payment of taxes ought to be verified. In view of this, we remit the matter back to the file of the assessing officer for verification. In the result this ground is allowed for statistical purposes.
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP ITA No. 725/Mum/2023 (AY 2016-17)
Now we turn to the appeal filed by the Revenue for AY 2016-17. The grounds of appeal raised by the Revenue are reproduced below:
“1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowance of Rs.2,59,36,186/- u/s. 40(a)(i) being professional fees paid outside India without deduction of tax at source?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the payment made by the assessee to its associate concerns based in countries apart from Israel, Philippines, constitute payments for Independent Personal Service instead of ‘Fees for Technical Services” as defined under Article 12/13 of the respective DTAAs?
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the payments made by the assessee to its associate concerns based in Israel, Philippines, constitute payments for Independent Personal Services instead of “Royalty” as defined under Article 12/13 of the respective DTAAs?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the services rendered by the associate concerns to the assessee constitute “Independent Personal Services” under DTAAs not appreciating that only those services performed by an independent non-resident alien contractor would constitute “Independent Personal Services” under DTAA which is not the case here as in this case, the Services were rendered by the Group entities to an Indian entity which were closely working with each other?
5. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in holding that the KPMG Co-operative, Switzerland, is a mutual association and its receipts would not constitute income chargeable to tax and is not obliged to withhold and any tax without appreciating the facts, thereby deleting the disallowance of Rs.10,22,44,715/- u/s. 40(a)(i).
6. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) erred in holding that the payments made by the assessee to KPMG for names, mark and other facilities were in the nature of royalty and chargeable to tax in India.
7. On the facts and circumstances of the case and in law, allowing tax relief in regard to income earned in Japan. The Ld. CIT(A) has not considered the provisions of Article 14A of (A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP India-Japan DTAA dealing with Independent Personal Services. As per the provisions of Article 14A the income itself is not taxable, the tax credit in respect thereof is not allowable.”
Facts of the case AY 2016-17:
The assessee is a Limited Liability Partnership firm of Chartered Accountants and filed its return of income for AY 2016-17 electronically on 17.10.2016 declaring a total income of Rs. 74, 44, 04,740/- Assessee’s case was selected for compulsory scrutiny under CASS and statutory notices u/s. 142(1) and 143(2) of the I.T Act were issued. During the course of scrutiny proceedings, the AO made addition to the total income of the assessee on account of (i) claim of professional fees of Rs. 2,59,36,186/- paid to non- residents without deduction of tax at source and (ii) claim of remittance of Rs. 10,22,44,715/-made to KPMG International Co-operative, Switzerland without TDS. The AO also denied the claim of the assessee of foreign tax credit to the extent of 43, 55,934/-.
Ground Nos. 1 to 4 of AY 2016-17:-
During the year under consideration, the assessee has made payments of Rs. 2,59,36,186/- as professional fees to various non-residents without deduction of tax at source as under:-
Sr. No. Name of the non-resident Amount 1 KPMG Advisory Indonesia 5,80,298 2 KPMG LLP, UK 23,86,880 3 KPMG LLP (Singapore) 6,69,650 4 KPMG Meijburg& Co. Special Services BV Netherlands 4,84,637 5 KPMG Phoomchai Audit Ltd. Thailand 5,58,828 6 KPMG, Mauritius 2,66,830 7 KPMG Services Pte. Ltd. Singapore 13,31,234 8 KPMG Tax Services Ltd. Mauritius 2,58,974 9 KPMG Ireland 1,91,910 10 RG Manabhat& Co. Philippines 3,19,196 11 Rahman Rahman Huq 2,91,676
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 12 KPMG LLP, USA 1,85,96,072 Total 2,59,36,186
Ld. Counsel of the assessee pointed out that the issues in the instant appeal are similar to those in 724/Mum/2023 and also came up for adjudication in assessee’s own case before the “I” bench of Mumbai Tribunal (ITAT) in AY 2013-14 and the same were decided in favour of the assessee. Ld. Counsel also pointed out that while deciding the appeal for the AY 2016-17, the Ld. CIT (A) has relied upon the order of the ITAT for AY 2013-14. Ld. Counsel furnished a chart showing the similarity between the payments made during AY 2013-14 and the impugned assessment year. The same is reproduced hereunder:
Sr. Name of the Amount in Description of Remarks No. Payee INR Services 1 KPMG LLP Taxation Covered in favour of taxpayer (USA) (Firm of 1,85,96,072 Services by: Individuals) 1. Tribunal order in taxpayers own cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) 2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) 2 KPMG LLP Taxation Covered in favour of taxpayer (UK) (Firm of 23,86,880 Services by: Individuals) 1. Tribunal order taxpayers own cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 3 KPMG LLP Audit Covered in favour of taxpayer (Singapore) 6,69,650 Services by: (Firm of 1. Tribunal order taxpayers own Individuals) cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
4 KPMG Taxation Covered in favour of taxpayer Services 13,31,234 Services by:1. Tribunal order taxpayers Pte.Ltd. own cases for AY 2013 - 14 (Singapore) (ITA No. 2549/M/2018) (refer (Company) para 7 to 12 on pages 6 to 10 of the case law compilation)
5 Rahman 2,91,676 Taxation Covered in favour of taxpayer Rahman Huq Services by: (Bangladesh) 1. Tribunal order in taxpayers (Firm of own cases for AY 2013 - 14 Individuals) (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
6 KPMG 1,91,910 Taxation Covered in favour of taxpayer (Ireland) Services by: (Firm of 1. Tribunal order taxpayers own Individuals) cases for AY 2008 - 09 (ITA No. 2843/M/2014) (refer para 4.8 on page 40 of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 7 KPMG Taxation Covered in favour of taxpayer Meijburg& Co 4,84,637 Services by:1.Tribunal order in taxpayers Special own cases for AY 2013 - 14 Services B.V. (ITA No. 2549/M/2018) (refer (Netherlands) para 7 to 12 on pages 6 to 10 of (Company) the case law compilation) (Similar Treaty with UK and Singapore)2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) (Similar to payments made to KPMG Accountants NV a company resident of Netherlands) 8 KPMG Audit Covered in favour of taxpayer Phoomchai 5,58,828 services by: Audit Ltd.
Tribunal order in taxpayers (Thailand) own cases for AY 2013 - 14 (Company) (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Indonesia)
9 KPMG Audit Covered in favour of taxpayer (Mauritius) 2,66,830 services by:1. Tribunal order in taxpayers (Firm of own cases for AY 2013 - 14 Individuals) (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Bangladesh)2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) 3. Tribunal order taxpayers own cases for AY 2011 - 12 (ITA No.4535/Mum/2016 & (refer para 14 on page 24 and refer 5 & 6 pages 17 to 22of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 10 KPMG Tax Taxation Covered in favour of taxpayer Services Ltd. 2,58,974 Services by: (Mauritius) 1. Tribunal order in taxpayers (Company) own cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Indonesia) 2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) 3. Tribunal order taxpayers own cases for AY 2011 - 12 (ITA No.4535/Mum/2016 & ITA No. 4533/M/2016) (refer para 14 on page 24 and refer 5 & 6 pages 17 to 22of the case law compilation) 11 R.G 3,19,196 Audit Covered in favour of taxpayer Manabat& Co services by:1. Tribunal order in taxpayers (Phillippines) own cases for AY 2013 - 14 (Firm of (ITA No. 2549/M/2018) (refer Individuals) para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Bangladesh)2. Tribunal order taxpayers own cases for AY 2011 - 12 (ITA No.4535/Mum/2016 & ITA No. 4533/M/2016) (refer para 14 on page 24 and refer 5 & 6 pages 17 to 22of the case law compilation) (similar payments made to Manabat Sanagustin & Co, Philippines)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 12 KPMG 5,80,298 Taxation Services Covered in favour of taxpayer Advisory by: (Indonesia) 1. Tribunal order taxpayers own (Company) cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar to payments made to Hadibroto & Co, a company resident of Indonesia) 2. Covered by Mumbai ITAT case of P.T. Mckinsey Indonesia [2013] 29 taxmann.com 100 (Mumbai-trib) (refer para 8 on pages 98 of the case law compilation)
On the basis of above chart, the Ld. Counsel submitted that:
(a) Payments made to entities mentioned at Sr. No. 1 (the USA), 2 (the UK), 3 & 4 (Singapore), 6 (Ireland), 7 (Netherland), 8 (Thailand), 9 (Mauritius- Firm), 11 (Philippines) and 12 (Indonesia) are identical to the payments made in the AY 2014-15 and AY 2015-16 and hence the arguments and submissions made in the earlier AY 2014-15 and AY 2015-16 will apply in the current year too.
(b) In the case of payment made to Mauritius (Company) entity at Sr. No. 10, it was pointed out that Mauritius tax treaty with respect to company is similar to Indonesia tax treaty. There is no article dealing with FTS in these tax treaties. The payment would be covered under article 7 of the tax treaties dealing with Business Profits and would not be taxable in India in absence of Permanent Establishment of non-residents in India. The payment would not be covered under article 22 dealing with other income. Ld. Counsel of the assessee also placed reliance on the decision of ITAT Mumbai in the case of P.T. McKinsey Indonesia [2013] 29 taxmann.com 100, placed in the case law compilation at page number 94.
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP
(c) In the case of payment made to Bangladesh entity at Sr. No. 5 it was pointed out that Bangladesh tax treaty which was a subject matter of decision in AY 2013-14 and hence the issue is squarely covered in favour of the assessee.
Ground Nos. 1 to 4 relate to deleting the disallowance of professional fees paid to various non-residents. We have noted that these grounds of appeal are identical to the grounds of appeal raised by the Revenue in AY 2014-15 and in AY 2015-16 which we have already dismissed in the Para No. 14 of this order. Following the principles of consistency, these grounds of appeal are also dismissed with similar observations.
Ground Nos. 5 & 6 of AY 2016-17:
Ground of 5 and 6 relate to deleting the disallowance of payment to KPMG International Cooperative Switzerland. We have noted that these grounds of appeal are identical to the grounds of appeal raised by the Revenue in AY 2014-15 which we have already dismissed in the Para No. 17 of this order. Following the principles of consistency, these grounds of appeal are also dismissed with similar observations. Ground No. 7 of AY 2016-17:
Ground of 7 relates to non grant of credit of taxes paid in Japan by the assessee in respect of income earned in Japan. We have noted that this ground of appeal is identical to the ground of appeal raised by the Revenue in in AY 2015-16 which we have already decided in the Para No. 28 of this order. Following the principles of consistency, this ground of appeal is allowed for statistical purposes with similar observations.
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP ITA No. 726/Mum/2023 (AY 2017-18)
Now we turn to the appeal filed by the Revenue for AY 2017-18. The grounds of appeal raised by the Revenue are reproduced below:
“1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowance of Rs.3,48,31,787/- u/s. 40(a)(i) being professional fees paid outside India without deduction of tax at source?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the payment made by the assessee to its associate concerns based in countries apart from Israel, Philippines, constitute payments for Independent Personal Service instead of ‘Fees for Technical Services” as defined under Article 12/13 of the respective DTAAs?
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the payments made by the assessee to its associate concerns based in Israel, Philippines, constitute payments for Independent Personal Services instead of “Royalty” as defined under Article 12/13 of the respective DTAAs?
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the services rendered by the associate concerns to the assessee constitute “Independent Personal Services” under DTAAs not appreciating that only those services performed by an independent non-resident alien contractor would constitute “Independent Personal Services” under DTAA which is not the case here as in this case, the Services were rendered by the Group entities to an Indian entity which were closely working with each other?
5. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in holding that the KPMG Co-operative, Switzerland, is a mutual association and its receipts would not constitute income chargeable to tax and is not obliged to withhold and any tax without appreciating the facts, thereby deleting the disallowance of Rs.10,79,68,274/- u/s. 40(a)(i).
6. On the facts and in the circumstances of the case and in law, whether the Ld. CIT (A) erred in holding that the payments made by the assessee to KPMG for names, mark and other facilities were in the nature of royalty and chargeable to tax in India.
7. On the facts and circumstances of the case and in law, allowing tax relief in regard to income earned in Japan. The Ld. CIT (A) has not considered the provisions of Article 14A of (A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP India-Japan DTAA dealing with Independent Personal Services. As per the provisions of Article 14A the income itself is not taxable, the tax credit in respect thereof is not allowable.”
Facts of the case AY 2017-18:
The assessee is a Limited Liability Partnership firm of Chartered Accountants and filed its return of income for AY 2017-18 electronically on 31.10.2017 declaring a total income of Rs. 93, 92, 72,310/- Assessee’s case was selected for compulsory scrutiny under CASS and statutory notices u/s. 142(1) and 143(2) of the I.T Act were issued. During the course of scrutiny proceedings, the AO made addition to the total income of the assessee on account of (i) claim of professional fees of Rs. 3,48,31,787/- paid to non- residents without deduction of tax at source and (ii) claim of remittance of Rs. 10,79,68,274/-made to KPMG International Co-operative, Switzerland without TDS. The AO also denied the claim of the assessee of foreign tax credit to the extent of 58, 66,651/-.
Ground Nos. 1 to 4 of AY 2017-18:
During the year under consideration, the assessee has made payments of Rs. 3,48,31,787/- as professional fees to various non-residents without deduction of tax at source as under:-
Sr. No. Name of the non-resident Amount 1 KPMG LLP (Singapore) 1,746,709 2 KPMG Al Fozan & Partners Saudi Arabia 676,400 3 KPMG Australia 567,280 4 KPMG LLP, UK 778,765 5 KPMG Advisory Indonesia 37,510 6 KPMG LLP, USA 25,796,510 7 KPMG Meijburg& Co. Special Services BV Netherlands 156,261 8 KPMG Services Pte. Ltd. Singapore 2,425,121 9 KPMG Mauritius 1,007,754 10 RG Manabhat & Co. Philippines 305,336 11 Rahman Rahman Huq Bangladesh 1,334,140
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 34,831,787
Ld. Counsel of the assessee pointed out that the issues in the instant appeal are similar to those in 724 and 725/Mum/2023 and also came up for adjudication in assessee’s own case before the “I” bench of Mumbai Tribunal (ITAT) in AY 2013-14 and the same were decided in favour of the assessee. Ld. Counsel also pointed out that while deciding the appeal for the AY 2017-18, the Ld. CIT (A) has relied upon the order of the ITAT for AY 2013-14. Ld. Counsel furnished a chart showing the similarity between the payments made during AY 2013-14 and the impugned assessment year. The same is reproduced hereunder:
Sr. Name Amount in Description Remarks No. of the Payee INR of Services 1 KPMG LLP Compliance Covered in favour of taxpayer by: (USA) (Firm 2,57,96,510 Services, of Individuals) Tax 1. Tribunal order in taxpayers own Advisory cases for AY 2013 - 14 (ITA No. Services, 2549/M/2018) (refer para 7 to 12 on Audit pages 6 to 10 of the case law services compilation) 2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) 2 KPMG LLP Transfer Covered in favour of taxpayer by: (UK) (Firm of 7,78,765 Pricing 1. Tribunal order taxpayers own Individuals) Service cases for AY 2013 - 14 (ITA No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 3 KPMG LLP Audit Covered in favour of taxpayer by: (Singapore) 17,46,709 Service 1. Tribunal order taxpayers own (Firm of cases for AY 2013 - 14 (ITA No. Individuals) 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
4 KPMG Audit Covered in favour of taxpayer Services Pte. 24,25,121 Service, by:1. Tribunal order taxpayers Ltd. Tax own cases for AY 2013 - 14 (ITA (Singapore) Advisory No. 2549/M/2018) (refer para 7 to (Company) Services 12 on pages 6 to 10 of the case law compilation)
5 KPMG Tax Covered in favour of taxpayer by: (Australia) 5,67,280 Advisory 1. Tribunal order taxpayers own (Firm of Services cases for AY 2013 - 14 (ITA No. Individuals) 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation)
6 Rahman 13,34,140 Taxation Covered in favour of taxpayer by: Rahman Huq Services 1. Tribunal order in taxpayers own (Bangladesh) cases for AY 2013 - 14 (refer para (Firm of 7 to 12 on pages 6 to 10 of the case Individuals) law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 7 KPMG Tax Covered in favour of taxpayer Meijburg& Co 1,56,261 Advisory by:1. Tribunal order taxpayers Special Services own cases for AY 2013 - 14(refer Services BV. para 7 to 12 on pages 6 to 10 of the (Netherlands) case law compilation) - (Similar (Company) treaty with Singapore and UK)2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) (Similar to payments made to KPMG Accountants NV a company resident of Netherlands) 8 KPMG Al Audit Covered in favour of taxpayer by: Fozan& 6,76,400 Service 1. Tribunal order in taxpayers own Partners cases for AY 2013 - 14 (ITA No. (Saudi Arabia) 2549/M/2018) (refer para 7 to 12 on (Firm of pages 6 to 10 of the case law Individuals) compilation) (Similar Treaty with Indonesia)
9 KPMG 10,07,754 Audit Covered in favour of taxpayer (Mauritius) Services by:1. Tribunal order in taxpayers (Firm of own cases for AY 2013 - 14 (ITA Individuals) No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar Treaty with Bangladesh)2. Bombay High Court order in network member firm's case for AY 2008 - 09 CIT - 16 vs KPMG (ITA No. 690 of 2017) (refer para 9/page 48 of the case law compilation) 3. Tribunal order taxpayers own cases for AY 2011 - 12 (ITA No.4535/Mum/2016 & (refer para 14 on page 24 and refer 5 & 6 pages 17 to 22of the case law compilation)
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 10 R.G. Manabat 3,05,336 Audit Covered in favour of taxpayer by: & Co. Services 1. Tribunal order in taxpayers own (Philippines) cases for AY 2013 - 14(refer para 7 (Firm of to 12 on pages 6 to 10 of the case law Individuals) compilation) - (Similar treaty with Bangladesh) 2.Tribunal order taxpayers own cases for AY 2011 - 12 (ITA No.4535/Mum/2016 & ITA No. 4533/M/2016) (refer para 14 on page 24 and refer 5 & 6 pages 17to 22of the case law compilation) (similar payments made to Manabat Sanagustin & Co, Philippines)
11 KPMG 37,510 Tax Covered in favour of taxpayer Advisory Advisory by:1. Tribunal order taxpayers Services (Indonesia) own cases for AY 2013 - 14 (ITA (Company) No. 2549/M/2018) (refer para 7 to 12 on pages 6 to 10 of the case law compilation) (Similar to payments made to Hadibroto & Co, a company resident of Indonesia) 2. Covered by case of P.T. Mckinsey Indonesia v/s. Deputy Director of Income Tax (I.T.) -4(1) [2013] 29 taxmann.com 100 (Mumbai-trib) (refer para 8 on pages 98 of the case law compilation)
On the basis of above chart, the Ld. Counsel submitted that:
(a) Payments made to entities mentioned at Sr. No. 1 (USA), 2 (UK), 3 & 4 (Singapore), 6 (Bangladesh), 7 (Netherland), 8 (Saudi Arabia), 9 (Mauritius-Firm), 10 (Philippines) and 11 (Indonesia) are identical to the payments made in the AY 2014-15, AY 2015-16 & AY 2016-17 and hence
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP the arguments and submissions made in the earlier AY 2014-15, AY 2015- 16 and AY 2016-17 will apply in the current year too.
(b) In the case of payment made to Australia entity at Sr. No. 5 it was pointed out that Australia tax treaty was a subject matter of decision in AY 2013-14 and hence the issue is squarely covered in favour of the assessee.
Ground Nos. 1 to 4 relate to deleting the disallowance of professional fees paid to various non-residents. We have noted that these grounds of appeal are identical to the grounds of appeal raised by the Revenue in AY 2014-15, in AY 2015-16 and ITA No. 725/Mum/2023 in AY 2016-17 which we have already dismissed in the Para No. 14 of this order. Following the principles of consistency, these grounds of appeal are also dismissed with similar observations.
Ground Nos. 5 & 6 of AY 2017-18:
Ground of 5 and 6 relate to deleting the disallowance of payment to KPMG International Cooperative Switzerland. We have noted that these grounds of appeal are identical to the grounds of appeal raised by the Revenue in AY 2014-15 which we have already dismissed in the Para No. 17 of this order. Following the principles of consistency, these grounds of appeal are also dismissed with similar observations.
Ground No. 7 of AY 2017-18:
Ground of 7 relates to non grant of credit of taxes paid in Japan by the assessee in respect of income earned in Japan. We have noted that this ground of appeal is identical to the ground of appeal raised by the Revenue in in AY 2015-16 which we have already decided in the Para No.
(A.Y. 2014-15) (A.Y. 2015-16) ITA No. 725/Mum/2023 (A.Y. 2016-17) ITA No. 726/Mum/2023 (A.Y. 2017-18) M/s. BSR & Co. LLP 28 of this order. Following the principles of consistency, this ground of appeal is allowed for statistical purposes with similar observations.
In the result ITA No. 725/Mum/2023 and ITA No. 726/Mum/2023 are partly allowed for statistical purposes.
Order pronounced in the open court on 6th of June, 2023.