DCIT 6(2), MUMBAI vs. KPMG ADVISORY SERVICES P. LTD, MUMBAI

1 ITA No.4567/Mum/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “L”, MUMBAI

Before Shri C.N. Prasad(JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER)

I.T.A No.4556/Mum/2013 (Assessment year 2006-07)

Dy.CIT, Cir.6(2), Mumbai vs M/s KPMG Advisory Services Pvt Ltd Lodha Excelus, 1st Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai 400 011 PAN : AABCK2895D APPELLANT RESPONDEDNT

I.T.A No.4862/Mum/2013 (Assessment year 2006-07)

M/s KPMG Advisory Services vs Dy.CIT, Cir.6(2), Mumbai Pvt Ltd Lodha Excelus, 1st Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai 400 011

APPELLANT RESPONDEDNT

I.T.A No.4554/Mum/2013 (Assessment year 2005-06)

Dy.CIT, Cir.6(2), Mumbai vs M/s KPMG India Pvt Ltd Lodha Excelus, 1st Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai 400 011 PAN : AAACK2138A APPELLANT RESPONDEDNT

2 ITA No.4567/Mum/2016

I.T.A No.4918/Mum/2013 (Assessment year 2005-06)

M/s KPMG India Pvt Ltd vs Dy.CIT, Cir.6(2), Mumbai Lodha Excelus, 1st Floor, Apollo Mills Compound, N.M. Joshi Marg, Mahalaxmi, Mumbai 400 011

APPELLANT RESPONDEDNT

Revenue by Shri M.V. Rajguru Assessee by Shri Anjit Chakravarty / Shri Abhishek Tilak

Date of hearing 10-10-2017 Date of pronouncement -10-2017

O R D E R Per G Manjunatha, AM : These cross appeals by two different assessees as well as revenue are

directed against separate, but identical orders of the CIT(A|)-12, Mumbai

dated 20-03-2013 and 22-03-2013 for the assessment years 2005-06 and 2006-

heard together and are disposed of by this common order, for the sake of

convenience.

grounds of appeal. For the sake of brevity, the grounds of appeal raised by the

3 ITA No.4567/Mum/2016 assessee in ITA No.4862/Mum/2013 and the grounds of appeal raised by the

revenue in ITA No.4556/Mum/2013 are reproduced below:-

ITA No.4862/Mum/2013

On the facts and circumstances of the case and in law, the 1. Commissioner of Income tax (Appeals) erred iii upholding the disallowance of Rs.68,53,700 made tinder Section 40(a)(i) of the Income tax Act, 1961 by the Assessing Officer out of the reimbursement of support service charges aggregating Rs.2,02,34,000 made to KPMG. an Indian partnership firm.

On the facts and circumstances of the case and in law, the 2. Commissioner of Income tax (Appeals) erred in upholding the addition made by the Assessing Officer in respect of amounts aggregating Rs. 1 7,20,344 being alleged undisclosed income from professional services appearing in Annual Information Return”

ITA No. 4556/Mum/2013

4 ITA No.4567/Mum/2016 contractual payment liable for deduction u/s. 194C."

issues, viz. (i) disallowance of support service charges in respect of rent

payment sustained by the CIT(A) u/s 40(a)(i) for failure to deduct tax at

source u/s 194-I of the Act; and (ii) addition towards undisclosed income

from professional services appeared in Annual Information Report (AIR)

by the CIT(A). The revenue has challenged two issues, viz. (i) deletion of

addition made by the AO towards professional charges paid outside India

without deduction of tax at source u/s 195 r.w.s. 195A of the Income-tax

Act, 1961; and (ii) deletion made by the CIT(A) towards support service

charges excluding rent paid u/s 40(a)(i) of the Act.

The brief facts of the case extracted from ITA No. 4556/Mum/2013 4.

are that the assessee company part of global network of KPMG, engaged in the

business of consultancy services in the fields of strategy, infrastructure,

performance improvements and software services, etc filed its return of

income for the assessment year 2006-07 on 23-11-2006 declaring total income

of Rs.334,33,838. The case was selected for scrutiny and accordingly notices

u/s 143(2) and 142(1) of the Act alongwith detailed questionnaire were issued.

In response to notices, the authorized representative of the assessee attended

from time to time and filed the details. The assessment was completed u/s

5 ITA No.4567/Mum/2016

143(3) on 24-12-2008 determining total income at Rs662,32,585, interalia

making additions on account of support service charges payments u/s 40(a)(i)

for failure to deduct tax at source u/s 194C and addition on the basis of

AIR information as undisclosed income from business or profession and

disallowance of professional charges paid outside India without deduction

of tax at source u/s 195 of the Act. Aggrieved by the assessment order,

the assessee preferred appeal before the CIT(A).

submissions to challenge each and every additions made by the AO. The

assessee further contended that professional charges paid outside India

are not coming under the provisions of section 195 and hence, the

question of deduction of tax at source does not arise. The assessee also

submitted that it is providing professional services in the areas of power

sector, financial re-structuring and recovery plan for Bangladesh Power

Sector Development through e-Gen Consultants Ltd, Bangladesh and such

services rendered by e-Gen Consultants Ltd, Bangladesh fell under the

ambit of Article 7 of the Double Taxation Avoidance Agreement (DTAA)

between India and Bangladesh. Further, e-Gen Consultants Ltd,

Bangladesh did not have a fixed / permanent establishment in India, the

income from the services was not chargeable to tax in India, consequently

there was no requirement of tax withholding from the remittances made

to e-Gen Consultants Ltd, Bangladesh. As regards disallowance made by

6 ITA No.4567/Mum/2016

the AO towards payment of support service charges, the assessee

submitted that it is part of KPMG group of companies and entered into an

agreement with M/s KPMG for sharing common facilities such as

infrastructure cost, communication & technology cost and office space and

such cost has bee shared amongst group companies on cost to cost basis

without any element of profit. The assessee further submitted that M/s

KPMG procures these services from various vendors on payment and such

payment has been allocated to various group companies on the basis of

pre-determined ratio in accordance with the common facilities shared by

each group companies. Therefore, the said payments are in the nature of

re-imbursement of actual expenditure incurred by M/s KPMG on behalf of

the assessee and hence, the provisions of section 194C has no application

and accordingly disallowance provided u/s 40(a)(i) cannot be made. As

regards addition made by the AO towards undisclosed income on the basis

of AIR information, the assesse submitted that it has re-conciled the

difference to the extent possible within the time allowed to give additional

information. The professional charges appeared in the AIR information of

assessee’s PAN does not pertain to the assessee. The AO added back the

total amounts appeared in the AIR information over and above the gross

receipts admitted by the assessee in its books of account as undisclosed

professional charges on the sole basis of letter sent to various persons u/s

133(6) of the Act. The assessee further submitted that the information in

the AIR is only provisional which can be corrected later stage by the

parties and hence, addition cannot be made only on the basis of non-

7 ITA No.4567/Mum/2016

response from the parties to the letters issued u/s 133(6) of the Act.

assessee, observed that the assessee is not liable for deduction of tax at

source u/s 195 of the Act, to the payments made to e-Gen Consultants

Ltd, Bangladesh since, the services rendered by the foreign entity is

purely professional services and not for supply of scientific, technical,

industrial or commercial knowledge or information. Insofar as

disallowance of support service charges, the CIT(A) observed that support

service charges payments made to KPMG are purely reimbursements

without any profit element and, therefore, cannot be treated as income

chargeable to tax so as to attract tax deduction at source. However, the

only exception to the above reimbursement is the payment of rent which

is specifically liable to tax at source u/s 194-I of the Act, as the rent is

paid to outside parties for a rented accommodation utilized by KPMG and

the group companies and as KIPL which is a group company pays part of

the rent of the building for which benefit is taken by debiting it to the P&L

account and hence, the payment will be liable for TDS u/s 194-I of the

Act. The assessee has made the payment for use of space which is a

rented accommodation; therefore, non deduction of tax on such rent

payment would attract provisions of section 40(a)(i) of the Act, and

accordingly, the AO was directed to give relief towards support service

charges payment other than rent payment. Insofar as addition made by

the AO towards undisclosed professional income on the basis of AIR

8 ITA No.4567/Mum/2016

database, the CIT(A) observed that during the course of appellate

proceedings, the AO has submitted remand report on replies received in

response to notices issued u/s 133(6) alongwith assessee’s explanation

with regard to the addition made on the basis of AIR information. The AO,

in his remand repot has made party-wise comments on each items

appeared in the AIR information. Considering the remand report of the

AO and explanations of the assessee, the CIT(A) deleted the addition in

respect of parties except four parties listed in her order at paragraph 7.5

on page 24 on the ground that the transactions reported in the AIR could

not be reconciled or verified by the assessee. Aggrieved by the order of

CIT(A), the assessee as well as the revenue are in appeal before us.

appeal is addition sustained by the CIT(A) towards rent included in

support service charges payment made to KPMG. The facts which lead to

the impugned addition are that the assessee is a group company of KPMG

involved in providing professional and consultancy services. M/s KPMG

procures various services from vendors including premises on rent,

communication expenses, technology cost and office space which has

been shared among group companies on the basis of agreement entered

into with KPMG. The assessee claims that the infrastructure cost excludes

the rent payment on premise taken on rent and other related costs which

has been directly paid by KPMG to landlords on the basis of separate rent

agreements. The assessee further contended that the rent agreement

9 ITA No.4567/Mum/2016

entered into by KPMG with various landlords specifically provides for

allowing KPMG to occupy the premises jointly with other group companies.

However, does not permit KPMG to sublet the premise to any third

parties.

M/s Kamala Mills Ltd submitted that clause (f) of the agreement provides

for sharing of premises with other group companies. However, no

subletting is allowed to any third party. The assessee has paid support

service charges to M/s KPMG on the basis of agreement, as per which the

cost incurred by KPMG shall be shared by other group companies on cost

to cost basis without any element of profit. The Ld.AR further submitted

that the assessee has reimbursed actual cost incurred by KPMG towards

infrastructure and other expenses which has been directly procured by

KPMG through various vendors on payment and applicable TDS provisions

has been complied with by KPMG, wherever applicable. Since support

service charges paid by the assessee is on cost to cost basis and

reimbursement of actual expenditure incurred by a group company, it

cannot come under the purview of contractual payment within the

meaning of section 194C or 194-I of the Act.

rent for use of premises which has been paid to the landlords. Therefore,

the element of lessor and lessee exists and hence, the assessee is

required to deduct TDS u/s 194-I on rent payments. The Ld.DR further

10 ITA No.4567/Mum/2016

submitted that though payment is made to KPMG, such amount is paid on

the basis of contractual obligation, therefore, the assessee ought to have

deducted TDS as per the provisions of section 194-I of the Act. Since the

assessee has failed to deduct tax at source, the AO has rightly made

disallowance u/s 40(a)(i) and his order should be upheld.

The AO has disallowed support service charges paid to KPMG on the

ground that impugned payment is in the nature of contractual payments

which attracts tax deduction u/s 194C of the Act. The assessee contends

that it has entered into an agreement with KPMG, wherein it has agreed to

share, office space, infrastructure and immovable assets including

softwares, telephones and internet connection and consumables database,

etc. The assessee further contended that support service charges paid to

KPMG is on cost to cost basis without any profit element and such

expenditure has been reimbursed on actual cost incurred by M/s KPMG.

Therefore, the assessee is not required to deduct tax at source u/s 194-I

of the Act.

assessee for the reason that as per the agreement entered into between

KPMG the assessee has agreed to share common cost like infrastructure

cost, communication cost and technology cost on actual basis. We further

observe that the assessee has reimbursed actual cost incurred by KPMG.

We further observe that KPMG has paid rent directly to landlords on the

basis of rental agreements entered into between them. The said rent

11 ITA No.4567/Mum/2016

agreements entered into between KPMG and landlords provides for

sharing premises with other group companies. M/s KPMG also deducted

tax at source wherever applicable on rental payments. Therefore, we are

of the considered view that the impugned amount paid by the assessee to

M/s KPMG is a reimbursement of actual expenditure incurred on behalf of

the assessee. The assessee has reimbursed actual cost incurred by KPMG

without any element of profit. Therefore, we are of the considered view

that the provisions of section 194C or 194-I has no application to the

impugned payments. This view was further supported by the decision of

co-ordinate bench of ITAT, Delhi ‘F’ Bench in the case of Result Services

Pvt Ltd (2012) 52 SOT 598 (Del) wherein the co-ordinate bench under

similar facts observed that where holding company of assessee took a

premises on rent and allowed to use a part of it and there was no

relationship of a lessor-lessee between them, assessee had no TDS

obligation u/s 194-I of the Act while reimbursing a part of the rent to the

holding company. Relevant part of the order is extracted below:- “6. We have heard both the sides. The assessee is a 100% subsidiary of holding company of Mccann Erickson India Pvt. Limited. Mccann Erickson India Pvt. Ltd. has taken on rent office premises located at Delhi and Mumbai. Copies of these two Lease and Licence deeds entered with the landlords are on record. The holding company, Mccann Erickson India Pvt. Ltd., has permitted assessee to use part of theses premises. Assessee had reimbursed the amount to holding company without deducting TDS. The rent for the whole premises was paid directly by the holding company to the Lessors and the tax was deducted as per provisions of section 194-1 of the Income-tax Act. 1961.

12 ITA No.4567/Mum/2016 The clause 5 of the lease deed for Delhi premises dated 22.10.2007 between CEPCO Industries Pvt. Ltd. and Mccann Erickson India Pvt. Ltd. read as following:

"5. The LESSEE may use the Demised Premises or parts thereof for their commercial use as well as for the offices of its subsidiaries and associates and allied companies and for the purposes of companies / firms and business in which the Directors of the LESSEE are interested or concerned, however, any such companies / subsidiaries shall not acquire any interest in thl Dernised Pren J Flia"Tr" unt c rent, other outgoing, etc. sTicill remain so e responsibilities of the LESSEE." Similarly, the Lease & Licence Agreement between National Organic Chemical Industries Limited and Mafatlal Industries Limited and Mccann Erickson India Pvt. Ltd. also provide in clause 7 (d) as under:- "d. Not to sub-let or give on leave and license basis or on any other basis the Licensed Premises or any portion thereof, nor permit any third party to use and occupy the Licensed Premises or any portion thereof save and except to its subsidiaries, affiliates, group entities. associates, which shall be without any prior written consent of the Licensor." The assessee is paying rent to the holding company as reimbursement since last many years. This position has been accepted by the department all through and it has been never disputed even when provisions for TDS were on statute since 1994. Section 194-1 of the Income-tax Act, 1961 was inserted in Act w.e.f. 01.06.1994. Similarly, this position was also not disputed even after the amendment in section 40(a)(1a) of the Act by the Taxation Law (Amendment) Act. 2006 w.e.f. 1.4.2006. on this issue, there is no material change in the facts and law during the year under consideration. The lease deed provides for use of the premises by the subsidiary companies. The actual payments made by the lessee (holding)

13 ITA No.4567/Mum/2016 company) to the lessor and necessary tax was deducted therefrom. The holding company has also not debited the whole of rent to its books of account. It has only debited the rent which pertains to the part of the premises occupied by it. Therefore. in our considered view, there was no lessor and lessee relationship between the holding company and assessee where the provisions of section 194-1 are attracted. Keeping these facts in view, we find merits in the order of the CIT (A) in deleting the addition made u/s 40(a)(i) of the Act. We sustain the order of the CIT (A) and dismiss revenue's appeal.”

has taken premises on rent from landlords. There is no dispute with

regard to the fact that KPMG has complied with TDS provisions on such

rental payments. The assessee has made the payment on the basis of

agreement with KPMG which clearly states that the common cost incurred

by KPMG shall be shared by group companies on cost to cost basis.

Therefore, considering the facts and circumstances of the case and also

relying upon the ratio of co-ordinate bench of Delhi ITAT in Result

Services Pvt Ltd (supra), we are of the view that there is no obligation on

the part of the assessee to deduct TDS on reimbursement of support

service charges to KPMG. Hence, we direct the AO to delete the

disallowance made u/s 40(a)(i) towards rent payments.

appeal is addition sustained by CIT(A) towards undisclosed income from

professional services on the basis of AIR information. The AO made

addition of Rs.105,97,352 on the basis of unreconciled entries appeared in

14 ITA No.4567/Mum/2016

the AIR information. According to the AO, the assessee has failed to offer

any explanations with regard to certain entries appeared in AIR

information. The AO further observed that the assessee not only failed to

offer explanations, but also failed to reconcile the difference between AIR

information and its books of account. The AO further observed that

notices issued u/s 133(6) to various parties appeared in AIR information

which were not answered by the parties. The assessee contends that

addition cannot be made only on the basis of AIR information as the

information in the AIR is only provisional which can be corrected at later

stage by the parties. The assessee further submitted that it has fully

account, its professional receipts and also reconciled to the extent possible

the difference noticed by the AO. However, the other entries, which are

unreconciled, are not received by it. Therefore, the AO was incorrect in

making additions only on the basis of AIR information.

find that the AO has made additions of Rs.1,05,97,352 on the basis of

unreconciled entries appeared in AIR information. The AO made addition

on the basis of assessee’s letter dated 29-23-2008 which states that the

entries to the extent of Rsa.1,05,97,352 did not relate to assessee and

also not able to reconcile with its books of account. The CIT(A), during

the course of appellate proceedings, after considering the remand report

submitted by the AO on the basis of additional information submitted by

the assessee and also information received from parties to whom notices

u/s 133(6) were issued, deleted additions made by the AO except in the

15 ITA No.4567/Mum/2016

case of four parties where either the parties have not responded to letter

issued u/s 133(6) or no information has been submitted by the parties.

The facts remain unchanged. The Ld.AR for the assessee except stating

that no addition can be made only on the basis of AIR information, could

not furnish any evidences to reconcile the difference between AIR

information and books of account. The AIR information appeared in

assessee’s PAN in the database of the income-tax department contains

certain payments made to the assessee. Once there is an entry in the

AIR information, it is incumbent upon the assessee to reconcile the

difference in AIR with its books of account. The assessee neither

reconciled the difference nor filed any explanations as to how entries

appear in the AIR does not belong to the assessee. Merely stating that

the entries in the AIR information is not relating to the assessee would not

absolve the assessee’s responsibility of explaining the entries appeared in

AIR. At the same time, the AO made additions only on the basis of AIR

information without conducting any further enquiry with regard to the

receipts appeared in assessee’s AIR database. Though the AO has issued

notices u/s 133(6) to the parties, completed the assessment without

obtaining any information from such parties. Therefore, we are of the

considered view that the issue needs to be reconsidered in the light of the

explanations of the assessee. Hence, we set aside the issue to the file of

the AO and direct him to cause necessary enquiry. Needless to say, the

assessee is directed to reconcile the difference appearing in AIR

information with its books of account with necessary evidence.

16 ITA No.4567/Mum/2016

4862/Mum/2013 is partly allowed, for statistical purpose.

assessment year 2005-06 are identical to the facts and issues discussed in

ITA No.4862/Mum/2013 but for the figures. Therefore, for the detailed

discussion / reasons appended in the preceding paragraphs while deciding

appeal in ITA No. 4862/Mum/2013, the appeal filed by the assessee in ITA

No.4918/Mum/2013 is also partly allowed, for statistical purpose.

ITA Nos 4554 & 4556/Mum/2013

appeals is deletion of addition made by the AO towards professional

charges paid outside India without deduction of tax at source u/s 195 of

the Income-tax Act, 1961. The AO made disallowance u/s 40a)(i) for

failure to deduct tax at source u/s 195 towards professional charges paid

to non-resident, e-Gen Consultants Ltd, Bangladesh for Rs.1,30,890.

According to the AO, the payment made to e-Gen Consultants Ltd,

Bangladesh is in the nature of royalty within the meaning of section

9(1)(vi) and Article 13(2) of the India Bangladesh DTAA.

submitted that the issue is squarely covered in favour of the assessee by

the decision of ITAT in assessee’s own case for the assessment year 2003-

04 in ITA No.8824/Mum/2004, wherein under similar circumstances, the

ITAT observed that professional charges paid outside India does not fall in

any of the terms / definition given for ‘royalty’ under India and USA DTAA

17 ITA No.4567/Mum/2016 or within the meaning of royalty as defined in section 9(1)(vi) of the Income-tax Act, 1961. Thus, on such payments, there was no liability to deduct tax at source and consequently, section 40(a)(i) will not be applicable. We find that the co-ordinate bench has considered similar issue for the assessment year 2001-02 in assessee’s own case. After considering the relevant provisions of the Act, has held that professional charges paid outside India does not fall under any of the terms of definition given for ‘royalty’ under Article 12 of Indo USA DTAA or section 9(1)(vi) of the Income-tax Act, 1961. The relevant portion of the order is extracted below:- “18. We have carefully considered the rival submissions and also gone through the findings given by the Assessing Officer as well as the CIT(A). The relevant facts are that the assessee company was engaged as a consultant by Essar Oil Limited to provide consultancy services in connection with sale of its energy business. Such a sale was expected to require application of high level office skills besides technical and industry knowledge. For rendering such consultancy a significant number of such overseas companies are based in USA The assessee engaged the services of KPMG Dallas, which is a firm of individual and resident of USA, which had the skill and technical knowledge relating to energy division based industry and technical parameters in giving such consultations and conduct negotiations with the potential parties. It was in lieu of this, that a professional fee of USD 46,248 which in terms of INR come to .20,89,906I-, was paid. The second payment was made to KPMG consulting LP Canada for rendering professional services for the Essar Oil Limited for retail oil marketing and other related services. The payment towards fee was made at USD 30,678/- which in terms of INR is .13,37,229/-, which also included reimbursement of expenses in the nature of transportation, lodging, meals and other expenses. The Assessing Officer has given

18 ITA No.4567/Mum/2016 categorically finding that so far as the Article 15 of DTAJ4 is concerned, the same does not apply to KPMG USA as it does not have any PE or business based in India and the services were not rendered for a period exceeding 90 days within the period of 12 months. His only case is that the professional fees paid to KPMG USA are in the nature of royalties within the meanings of 'explanation' to section 9(1)(vi) and is taxable under Article 12 of Indo-US DTAA. The royalties and fees for included services is taxable as per Article 12 in clause 3, reads as under :- "3. The term "royalties" as used in this Article means: (a) payments of any kind received as a consideration for the use of or the right to use any copyright or a literary, artistic or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity use or disposition thereof: and' 18.1 Looking to the nature of professional services rendered to the KPMG USA, it is evident that it does not fall in any of the terms of definition given for Royalty under Article 12 of Indo US DTAA. It was purely a professional service for consultancy which were rendered outside India and nor for supply of scientific, technical, industrial or commercial knowledge or information. Thus, nature of payment do not fall within the meaning of Article 12 and, therefore, there was no liability to deduct TDS and consequently disallowance made under section 49(la) is uncalled for. Similarly, in the case of payment made to KPMG, Canada were also purely for professional services and reimbursement of expenses, which in any manner does not fall under Article 12. Thus, on such payment also there was no liability to deduct TDS and consequently Section 40(ia) will not be applicable. The finding of the CIT(A) is, thus, upheld. Accordingly, ground No.1 as raised by the department is dismissed.”

19 ITA No.4567/Mum/2016

taken by the co-ordinate bench in assessee’s own case for the earlier

assessment year, we are of the view that there is no obligation on the part of

the assessee to deduct tax at source on professional charges paid to e-Gen

Consultants Ltd, Bangladesh as such payment neither falls under the

definition of ‘royalty’ under Article 12 of Indo-Bangladesh DTAA or under

Explanation to section 9(1)(vi) of the Income-tax Act, 1961. The CIT(A),

after considering relevant facts, has rightly deleted addition made by the

AO. We do not find any error in the order of the CIT(A). Hence, we are

inclined to uphold the order of CIT(A) and reject ground raised by the

revenue.

support service charges paid to KPMG. The facts with regard to the

impugned disallowances are that the assessee has made payment to

KPMG towards sharing common facilities like infrastructure cost,

communication expenses, technology cost and office supplies. The

assessee has made the payment on the basis of agreement entered into

with KPMG. As per the agreement, the assessee has agreed to use

common facilities and also agreed to share expenses incurred in such

facilities on cost to cost basis. The AO made addition towards support

service charges on the ground that the impugned payments are in the

nature of contractual payments coming within the definition of ‘contracts’

as defined in section 194C of the Act. According to the AO, the assessee

20 ITA No.4567/Mum/2016

has made the impugned payments as per the support service agreement

with KPMG which is basically in the nature of contract between the

assessee company and KPMG. The AO relying upon the CBDT circular

No.681 dated 08-03-1994 came to the conclusion that all types of

contracts where carrying out any work including transport contracts,

service contracts and advertisement contracts, come within the meaning

of ‘contract’ as defined in section 194C. It is the contention of the

assessee that payment made to KPMG is reimbursement of actual

expenditure incurred for common facilities like communication cost,

technology cost and office supplies. M/s KPMG has procured such service

from various vendors on payment and allocated the cost of procurement

of services to various group companies on the basis of agreement entered

into with its group companies. KPMG has complied with TDS provisions

wherever applicable while making payment to vendors. Therefore, the

payment made by the assessee to KPMG is only reimbursement of

expenses cannot be called as payments made for carrying out any work.

on record. The facts with regard to sharing of common expenses by

KPMG and its group companies are not disputed by the AO. The AO is

only on the point that the payment made by the assessee are in the

nature of contractual payments coming under the definition of ‘contracts’

as defined u/s 194C of the Income-tax Act, 1961. We do not find any

merit in the findings of the AO for the reason that there is no contract

21 ITA No.4567/Mum/2016

between the assessee and KPMG for carrying out any works. The

assessee as part of the KPMG group of companies agreed to share

common facilities like infrastructure cost and office supplies. Such costs

are incurred by KPMG on payment and the same has been allocated to

group of companies on cost to cost basis without any element of profit.

The assessee being part of KPMG group has used common facilities

provided by KPMG for which it has reimbursed expenditure incurred by

KPMG on cost to cost basis. Therefore, we are of the view that the

impugned payments are only in the nature of reimbursement of actual

expenditure incurred by the assessee for which provisions of section 194C

has no application. The assessee is not under obligation to deduct tax at

source on amount reimbursed on actual cost basis. The CIT(A), after

considering relevant submissions has rightly deleted additions made by

the AO. We do not find any error in the order of the CIT(A); hence, we

are inclined to uphold the order of CIT(A) on this issue and reject ground

raised by the revenue.

ITA No.4554/Mum/2013

identical to the facts and issues in appeal No.4556/Mum/2013 already

discussed / decided by us but for the figures. Therefore, our decision in

the preceding paragraphs applies mutatis mutandis to the present appeal

also. Therefore, we are of the view that there is no merit in the appeal

22 ITA No.4567/Mum/2016 filed by the revenue. Hence, we dismiss the same.

Order pronounced in the open court on 13th October, 2017.

Sd/- sd/- (C.N. Prasad) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dt : 13th October, 2017 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order

Asstt. Registrar, ITAT, Mumbai