SUNDARAM BUSINESS SERVICES LIMITED,CHENNAI vs. ITO CORP. WARD 6(3), CHENNAI

This appeal filed by the assessee is directed against order of learned Commissioner of Income Tax (Appeals)-16, Chennai, dated 17.01.2019 and pertains to assessment year 2014-15.

The assessee has raised the following grounds of appeal:-

The order of The Commissioner of Income tax (Appeals) is contrary to law, facts and in the circumstances of the case.

The brief facts of the case are that the assessee company is engaged in the business of providing IT enabled services, outsourcing services filed its return of income for the assessment year 2014-15 on 27.11.2014 declaring a total loss of Rs.2,73,84,295/-. During the year under consideration, the assessee has paid professional charges to two offshore entities i.e., (1) TWB Pty Ltd., a Chartered Accountant company and (2) KL Gates, a law firm for rendering professional services without

The ld.CIT(A) for the reasons stated in his appellate order dated 17.01.2019 confirmed additions made by the AO towards

The first issue that came up for our consideration from Ground No.2 to 4 of assessee appeal is disallowance of legal and consultancy charges paid to M/s. KL Gates and retainer fee paid to M/s. TWB CA for non-deduction of tax at source u/s.195 of the Act. The ld.AR submitted that the ld.CIT(A) has erred in confirming additions made by the AO towards professional charges paid to offshore entities without appreciating the fact that payment is not eligible to tax in India as services were rendered outside India and hence no withholding tax as per the provisions of section 195 of the Act. The ld.AR for the assessee referring to various documents including professional bill submitted by the parties, argued that as per the provisions of Article 14 of Double Taxation Avoidance Agreement between India and Australia, independent professional services by an Contracting States in respect of professional services or other independent activities of a similar character shall be taxable only in that State unless the individual or firm has a fixed base in India. The ld.AR further submitted that even professional charges paid to a company of Chartered Accountants is outside the scope of provisions of section 195 of the Act, because as per Article 7 of DTAA between India and Australia, the profits of an enterprise of one of the Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. In this case, TWB CA does not have any permanent establishment in India and professional services are rendered outside India in connection with filing of statutory returns and hence, the same cannot be liable for tax in India. The ld.AR for the assessee referring to Article 12 of DTAA between India and Australia submitted that even assuming for a moment, payment to a Chartered Accountant firm is in the nature of fees for technical services, but it does not come under the definition of royalties because rendering of any services which does not make available technical

The ld.DR on the other hand strongly supporting order of the ld.CIT(A) submitted that the assessee has failed to file any evidences to prove that payment to offshore entities is not in the nature of technical fees to exclude from the definition of royalties as defined u/s.9(1)(vi) of the Act and hence, the AO as well as the ld.CIT(A) were right in disallowing expenses u/s.40(a)(i) of the Act for failure to deduct tax at source u/s.195 of the Act.

We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The facts borne out from record clearly indicate that the assessee has paid a sum of Rs.27,11,631/- to M/s. KL Gates, a legal firm for rendering professional services in connection with dispute with Tranzact Financial Services and such payment has been made without deduction of tax at source u/s.195 of the Act. Similarly, the assessee has paid professional charges to M/s. TWB

As regards professional charges paid to M/s. TWB Pty Ltd., a company of Chartered Accounts, although payment made to said company is not covered under Article 14, but said payment is covered under Article 7 of DTAA between India and USA because the business profits of an enterprise of one Contracting State shall be taxable only in that State unless the enterprise carries on business in other Contracting State through a permanent establishment situated therein. In this case, evidences filed by the assessee clearly proves that M/s. TWB CA does not have any permanent establishment in India and services are rendered outside India in connection with filing of statutory returns and liaison with statutory authorities. Therefore, said payment is outside the scope of provisions of section 195 of the Act, because it is neither in the nature of royalties as defined u/s.9(1)(vi) of the Act nor in the nature of fess for technical services because the nature of services rendered by the company of accountants does not make available technical knowledge, expertise, skill, know-how or processes to the assessee. Therefore, said payment

The next issue that came up for our consideration from Ground No.5 of assessee appeal is disallowance of internet charges and professional charges u/s.40(a)(ia) of the Act for non- deduction of tax at source u/s.194J of the Act. The ld.AR for the assessee submitted that although the assessee has furnished necessary evidences to prove that tax has been deducted at source as required under the Act before the due dates of furnishing of return of income u/s.139(1) of the Act, the AO has disallowed the impugned payments disregarding evidences filed by the assessee. Hence, the issue may be set aside to the file of the AO to verify the fact with regard to deduction of tax at source on the said payment.

The ld.DR on the other hand fairly agreed that the issue may be set aside to the file of the AO to verify the fact with regard to deduction of tax at source on impugned payments.

We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. Admittedly if any payment is made without deduction of tax at source, then said payment cannot be allowed as deduction u/s.40(a)(ia) of the Act. Further, if the assessee does not deduct tax at source within the due dates specified in respective provisions of the Act, but tax deducted at source has been deducted on or before furnishing return of income u/s.139(1) of the Act, then such payment cannot be disallowed u/s.40(a)(ia) of the Act. In this case, the AO has disallowed provision for expenses like internet charges and professional charges on the ground that the assessee has failed to deduct tax at source u/s.194J of the Act. It is a case of the assessee that it has deducted TDS on impugned payments in subsequent financial year, but before the due dates specified in sub-section (1) of section 139 of the Act. If the claim of the assessee is correct, then the impugned payments cannot be disallowed u/s.40(a)(ia)

In the result, the appeal filed by the assessee is allowed for statistical purpose.