KPMG ASSURANCE AND CONSULTING SERVICES LLP,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX-CIRCLE-16(2), MUMBAI

ITA 2414/MUM/2023Status: DisposedITAT Mumbai12 August 2024AY 2015-16110 pages
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What did the Tribunal hold?

The Tribunal decided on several issues concerning the disallowance of professional fees under Section 40(a)(i) for non-deduction of TDS. For tax residents of various countries including USA, Australia, and several others listed in the judgment, the Tribunal concurred with the CIT(A) that the Assessee was not obligated to withhold tax as the payments did not fall under taxable categories as per the respective DTAAs or were not liable to tax in India. Consequently, the disallowances made by the Assessing Officer were deleted. However, for tax residents of France, the Tribunal held that the services fell within the ambit of Article 13 of the DTAA, attracting Section 195 obligations. The Assessee's failure to comply led to a correct disallowance by the Assessing Officer, thus overturning the CIT(A)'s decision and reinstating the disallowance for France. Regarding professional fees aggregating to INR 39,87,237/- (at specific Sl. Nos.), the issue was remitted back to the CIT(A) for adjudication after obtaining a remand report from the Assessing Officer. The disallowance of INR 40,54,71,001/- for remittances to KPMGI was upheld as per the CIT(A)'s order, dismissing the Revenue's grounds. Similarly, an ad-hoc disallowance on advertising and publicity expenses was also dismissed, upholding the CIT(A)'s deletion. The Assessee's cross-objections were allowed, and Revenue's grounds were partly allowed.

What were the facts?

This case involves a batch of cross-appeals and cross-objections filed by M/s KPMG Assurance and Consulting Services LLP (the Assessee) and the Income Tax Department (the Revenue) for Assessment Years 2012-13 to 2017-18. The Assessee, engaged in business advisory, taxation, and audit services, claimed deductions for professional fees paid to non-residents. The Assessing Officer disallowed these deductions under Section 40(a)(i) of the Income Tax Act, 1961, citing the Assessee's failure to deduct tax at source (TDS) under Section 195 on payments deemed taxable in India as Fees for Technical/Included Services (FTS) or Other Income, considering applicable Double Taxation Avoidance Agreements (DTAAs). The Commissioner of Income Tax (Appeals) [CIT(A)] had partly allowed the Assessee's appeals, deleting some disallowances.

What were the issues?

1. Whether the Assessee was obligated to deduct tax at source under Section 195 of the Income Tax Act, 1961, on professional fees paid to non-residents, and consequently, whether disallowance under Section 40(a)(i) was justified? Assessee's Contention: The Assessee argued that for certain non-residents, the payments did not constitute FTS or Other Income taxable in India under the respective DTAAs, as they lacked a fixed base or physical presence. Therefore, no TDS obligation arose, and the disallowance under Section 40(a)(i) was incorrect. The Assessee also contended that payments to KPMG International Cooperative, Switzerland (KPMGI) were not subject to TDS and that an ad-hoc disallowance on advertising expenses was unjustified. Revenue's Contention: The Revenue contended that the professional fees paid to non-residents were taxable in India under the Act and DTAAs, either as FTS or Other Income. Consequently, the Assessee's failure to deduct tax at source under Section 195 warranted disallowance of the expenses under Section 40(a)(i). The Revenue sought to reinstate disallowances deleted by the CIT(A) for payments to residents of France, and for remittances to KPMGI, and to uphold the ad-hoc disallowance on advertising expenses.

Which sections of the Income-tax Act were involved?

Section 40(a)(i),Section 195

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Cases cited in this judgment(3)Show list

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Heard together (3 matters)

ITA No. 2272/MUM/2023
CO No. 126/MUM/2023
ITA No. 2411/MUM/2023

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IN THE INCOME TAX APPELLATE TRIBUNAL "I" BENCH, MUMBAI SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER Deputy Commissioner of Income Tax, Circle 16(2), Mumbai, Room No. 625, 6th Floor, Aayakar Bhavan, M.K. Road, Mumbai – 400020 M/s KPMG Assurance and Consulting Services LLP, 8th Floor, Tower B, DLF Building No. 10, Gurgaon - 122002, Haryana [PAN: AAAFK1415H] Vs CO No. 126/MUM/2023 (Arising out of ITA No. 2272/Mum/2023) (Assessment Year: 2012-13) M/s KPMG Assurance and Consulting Services LLP, 2nd Floor, Block T2 (B Wing), Lodha Excelus, Apollo Mills Compound, N M Joshi Marg, Mahalaxmi - 400011 [PAN: AAAFK1415H] Deputy Commissioner of Income Tax, Circle 16(2), Mumbai, Room No. 479, 4th Floor, Aayakar Bhavan, M.K. Road, Churchgate, Mumbai – 400020 Vs M/s KPMG Assurance and Consulting Services LLP, 2nd Floor, Block T2 (B Wing), Lodha Excelus, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai - 400011 [PAN: AAAFK1415H] Vs Appellant Respondent Appellant Respondent Appellant Assistant Commissioner of Income Tax, Circle 16(2), Mumbai, Room No. 625, 6th

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