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Income Tax Appellate Tribunal, I BENCH, MUMBAI
Per Bench:
This is a batch of cross-appeals and cross objections pertaining to Assessment Years 2012-2013 to 2017-2018. The facts, common to all the cross appeals and cross objections are as under.
The Assessee is engaged in providing business advisory, taxation and audit related services. In the return of income filed for the relevant assessment year(s), the Assessee claimed deduction for professional fee expenses debited to the Profit & Loss Account. The case of the Assessee was selected for regular scrutiny. During the assessment proceedings the Assessing Officer noted that the Assessee has failed to deduct tax on professional fee paid to various non-residents. According to the Assessing Officer, the professional fee paid to various non-residents was liable to tax in India in the hands of such non-residents in terms of the provisions of the Act read with the applicable articles of the corresponding Double Taxation Avoidance Agreement (for short ‘DTAA’) between India and the country of tax resident of the search non-resident(s) as (a) Fee for Technical/Included Services (for short ‘FTS’), or (b) as Other Income (in absence of Article on FTS). Thus, the Assessee was under obligation to withhold tax from professional fee paid to such non-residents in terms of Section 195 of the Act. Since the Assessee had failed to deduct tax at source from the professional fee paid to non-residents, the Assessing Officer disallowed the deduction for the same by invoking provisions contained in Section 40(a)(i) of the Act. Further, the Assessing Officer also disallowed deduction claimed by the Assessee for remittance made by the Assessee to KPMG International Co-operative, Switzerland holding that the deduction as claimed by the Assessee could not be allowed in view of Section 40(a)(i) of the Act since the Assessee has failed to deduct tax at source from the aforesaid remittances. Additionally, 25% of advertisement and promotion expenses were also disallowed by the Assessing Officer on ad-hoc basis on the ground that such expenses incurred by the Assessee promoted the brand held by the parent entity which benefitted the parent entity (and not the Assessee).
In appeal preferred by the Assessee, the CIT(A) granted substantial relief to the Assessee. The CIT(A) deleted substantial amount of disallowance made by the Assessing Officer under Section 40(a)(i) of the Act in respect of professional fee and allowed deduction as claimed by the Assessee holding that the professional fee paid to most of the non-residents was not liable to tax in India as FTS or Other Income. The CIT(A) accepted the contention of the Assessee that the professional fee was in the nature of Business Profits or income from Independent Personal Services (IPS); and in absence of a Permanent Establishment (PE) or fixed base in India, respectively, the same was not liable to tax in India. The Assessee was, therefore, not under obligation to deduct tax from the same and no disallowance under Section 40(a)(i) of the Act was warranted. The CIT(A) also allowed Assessee’s claim for deduction for remittance made to KPMG International Co-operative, Switzerland by following, inter alia, the decision of the Mumbai Bench of the Tribunal, dated 07/04/2017, in the case of Assessee for the Assessment Year 2001-2002 [ITA No. 2493/Mum/2012]. The ad-hoc disallowance of advertisement and promotion expenses was also deleted by the CIT(A) by, inter alia, placing reliance on the order passed by the first appellate authority in appeals preferred by the Assessee for the Assessment Years 2009-2010 & 2010-11, and 2011-12.
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 Of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf Of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf Of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf Of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf Of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf Of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea Of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year 2013-14
The appeal/cross-appeal/cross-objection for the AY 2013-14 arise from order, dated 09/05/2023, passed by the National Faceless Appeal Centre (NFAC), Delhi, [hereinafter referred to as the ‘CIT(A)’], whereby the Ld. CIT(A) had partly allowed the appeal of the Assessee against the Assessment Order, dated 29/03/2016, passed by the Assistant Commissioner of Income Tax -16(2), Mumbai under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal in ITA No. 2273/Mum/2023:
"
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.11,21,42,029/- under Section 40(a)(i) being professional fees paid outside India without deduction of tax at source.
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.
On the fact 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.
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.
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. 16,55,49,225/- under Section 40(a)(i).
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 where in the nature of royal and chargeable to tax in India.
On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) was justified in deleting the disallowing a sum of Rs.14,31,415/- being 25% of the total advertisement and publicity expenses of Rs.57,25,658/ on the presumption that a portion of the expenses incurred by the assessee benefits KPMG International Co-operative.
The assessee craves leave to amend of alter any ground or add a new ground which may be necessary.
The Assessee has raised following grounds in the cross objections [CO No.125/Mum/2023] filed by the Assessee in appeal preferred by the Revenue: "1 On the facts and in the circumstances of the case and in law and without prejudice, the payment of professional fees of Rs. 19,19,086 to a resident of Sweden and Rs. 35,67.738 to residents of Spain are for availing professional services rendered entirely outside India and are not taxable in India being eligible for the beneficial provisions of Article 14/15 Independent Personal Services under the respective tax treaties with India and accordingly, the payment for these professional services continues to be non-taxable in India.."
The Assessee has raised the following grounds of appeal in ITA No. 2410/Mum/2023 "Ground No. 1 Commissioner of Income Tax (Appeals) remanding issue to the Assessing Officer is bad in law
On facts and circumstances of the case and in law, the CIT(A) erred in directing the AO to verify the Appellant's arguments in respect of disallowances under Section 40(a)(i) of the Income Tax Act, 1961 [the Act'] amounting to Rs. 8,55,053 and decide the issue. Such findings of the CIT(A) are in violation of the provisions of section 251 of the Act,
accordingly the said findings are bad in law and ought to be quashed. Ground No. 2 Issues are covered by the Hon'ble ITAT orders in respect of Member Firm of the Appellant
On the facts and circumstances of the case and in law, AO/CIT(A) erred in not appreciating that the said disallowances u/s 40(a)(i) of the Act, are covered by the Hon'ble ITAT orders in respect of Member firm of the Appellant. Accordingly, the said disallowances be deleted.”
We have heard the both the sides and perused the material on record including the written submission filed by both the sides (though the same have not been reproduced herein for the sake to brevity and to avoid repetition). We have also taken into consideration the Written Submissions, dated 05/02/2024, chart of issues, paper-book and case laws compilation filed on behalf Of the Assessee, as well as the Written Submissions, dated 08/02/2024, and case laws compilation filed on behalf of the Revenue to the extent the same were relied upon during the course of hearing. Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; Ground No. 1 & 2 raised by the Assessee
Ground No. 1 to 4 raised by the Revenue; Cross Objection No. 1 raised by the Assessee; and Ground No. 1 & 2 raised by the Assessee pertain to disallowance made by the Assessing Officer under Section 40(a)(i) of the Act.
The Assessee claimed deduction for the following fee paid/payable to the non-residents aggregating to INR 11,21,42,029/-: Sl.No. Name & Country of Tax Residence Status Amount (INR) Note Ref
Houthoff Buruma, Netherlands Company 8,89,560/- 2
KPMG AB, Sweden Company 19,19,086/- 2
KPMG Abogados S.L., Spain Company 1,93,758/- 2
KPMG Advisory N.V., Netherlands Company 16,75,488/- 2
KPMG Advisory Services, Nigeria LLP 29,50,726/- 3
KPMG ASESORES S.L., Spain Company 33,73,980/- 2
KPMG Audyt Sp. Zoo, Poland LLP 5,62,275/- 3
KPMG Hadibroto, Indonesia Company 2,81,781/- 2
KPMG IFRG LTD, United Kingdom Company 8,03,238/- 2
KPMG LLP, Singapore Firm 43,02,822/- 2
KPMG LLP, United Kingdom Firm 2,66,44,228/- 2
KPMG LLP, United States of America Firm 2,78,12,989/- 1
KPMG Lower Gulf Limited, UAE Company 10,36,145/- 2
KPMG Meijburg & Co Special Services B V, Netherlands Company 1,71,131/- 2
KPMG Services Pte.Ltd., Singapore Company 2,09,48,526/- 2
KPMG Siddharta Advisory, Indonesia Company 4,11,141/- 2
KPMG, Tanzania Firm 4,47,678/- 1
KPMG United Kingdom Plc United Kingdom Company 74,17,104/- 2
KPMG, Ireland Firm 1,20,808/- 1
KPMG, Sri Lanka Firm 30,05,238/- 1
Manabat Sanagustin & Co. CPAs Philippines Firm 59,15,576/- 1
Mr. Philip Baker Q.C, UK Individual 4,07,375/- 1
Rahman Rahman Huq, Bangladesh Firm 1,48,076/- 2
Simon Mort Reports Limited, UK Company 7,03,300/- 2 Total 11,21,42,029/-
The Assessing Officer denied deduction for the entire amount of INR 11,21,42,029/- holding that the Assessee was under obligation to withhold tax from professional fee paid to non- resident under Section 195 of the Act as the same were chargeable to tax in India in terms of Section 9(1)(vii) of the Act read with either Article 12 or Article 22/23 of the corresponding DTAAs as FTS or Other Income, respectively. Since the Assessee had failed to deduct tax from the same in terms of Section 195 of the Act, the Assessing Officer made disallowance of INR 11,21,42,029/- invoking provisions contained in Section 40(a)(i) of the Act.
In appeal before the CIT(A), by placing reliance upon the judgments/decision including those in the case of the Assessee and its member concerns, it was contended on behalf of the Assessee that disallowance under Section 40(a)(i) of the Act was not warranted since the Assessee was not under obligation to withhold tax in view of the following: (i) In respect of 6 non-resident parties2 [at Sl.No. 12, 17, 19, 20, 21, 22 and 23 of Table in paragraph 5 above] it was contended that professional fee paid to the parties was in the nature of income from IPS and in absence of a fixed base/physical presence of the said parties in India, the same was not liable to tax in India in terms of Article 14/15 of the corresponding DTAA. [Refer to Note 1 at 65 of impugned order passed by the CIT(A)] (ii) In respect of 2 non-resident parties3 [at Sl.No. 5 and 7 of Table in paragraph 5 above] it was contended that professional fee were not liable to tax in India in terms of Section 9(1)(vii)(b) of the Act for the reason the same were utilized outside India and/or for earning income from source outside India. [Refer to Note 3 at 65 of impugned order passed by the CIT(A)] (iii) In respect of balance 16 non-resident parties4 [at Sl.No. 1 to 4, 6, 8 to 10, 13 to 16, 18 and 23 to 24 of Table in paragraph 10.1 above] it was contended that professional fee paid to some parties was in the nature of Business Profits and in absence of a Permanent Establishment of the said parties in India, the same was not liable to tax in India under Article 7 of the corresponding DTAA. [Refer to Note 2 at 65 of impugned order passed by the CIT(A)]
Now, both, the Revenue and the Assessee are before us in appeal/cross-objection.
We note that there is a delay of around 55 days in filing the Cross Objections. We have considered the rival submission on the application seeking condonation of aforesaid delay. It was submitted on behalf of the Assessee that filing of cross objections was necessitated on account of the judgment of the Hon’ble Supreme Court in the case of Assessing Officer (International Taxation) Vs. Nestle SA: [2024] 296 Taxman 580 (SC)/[2023] 458 ITR 756 (SC)[19-10-2023] wherein it was held that the benefit of Most Favoured Nation Clause1 [for short ‘MFN Clause’] would be available only on notification by the Government. As a result, for the purpose of challenging the disallowance made by the Assessing Officer under Section 40(a)(i) of the Act, the Assessee could no longer claim the shelter of MFN Clause for the purpose of importing into the applicable DTAA the ‘Make Available Clause’ and contend that the professional fee paid/payable to the non-residents were not liable to tax in India as FTS since no technical knowledge, skill, experience, know-how etc. was made available to the Assessee. Therefore, the Assessee was required to set-up alternative plea of the services rendered by non-residents qualified as IPS and therefore, income from the same was not liable to tax in India. Accordingly, soon after the pronouncement of the aforesaid judgment, the Assessee took steps to file the cross objections. It was submitted that the delay in filling the cross objections was not deliberate and was on account of the aforesaid bonafide reasons. We have considered the explanation offered by the Assessee and find the same to be reasonable. In any case, the grounds raised by the Assessee in the cross objections are in the nature of legal plea not requiring examination of any fresh facts. Accordingly, the delay in filing cross objections for all the assessment years is condoned.
During the course of hearing it was submitted that appeals/cross objections for the Assessment Year 2013-14 could be taken as lead matters, and that the findings/adjudication on issues raised in the appeals/cross objections for Assessment Year 2013-14 would apply mutatis mutandis to other appeals/cross objections for Assessment year 2012-2013, 2014-2015, 2015-2016, 2016- 2017, and 2017-2018. Accordingly, taking note of the fact that the CIT(A) has dealt with the grounds raised in all the 6 appeals pertaining to the Assessment Year 2012-2013 to 2017-2018, we proceed to take up appeals & cross objection for the Assessment Year 2013-14 as lead matters.
Assessment Year