DELOITTE HASKINS AND SELLS,MUMBAI vs. ASST CIT 11(2), MUMBAI

आयकर अपीलीय अधधकरण “एल” न्यायपीठ म ुंबई में। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “L”, MUMBAI

श्री राजेंद्र, लेखा सदस्य एवुं श्री अधमत श क्ला, न्याधयक सदस्य के समक्ष । BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA No. : 5096/Mum/2011 (Assessment year: 2003-04) ITA No. : 5097/Mum/2011 (Assessment year: 2004-05) ITA No. : 5094/Mum/2011 (Assessment year: 2005-06) डेऱोआइट हासक िंस अँड सेल्लल्लस Vs Asst CIT –11(2), Aayakar Bhavan, Delotte Haskins and Sells, M K Road, 264-265 Vasawani Chambers, Mumbai -400 020 Dr. A B Road, Worli, Mumbai -400 030 PAN:AACFD 4815 A प्रत्यथी (Respondent) अपीलाथी (Appellant) Appellant by : श्री ऩी जे ऩारडीवाऱा Shri P J Pardiwalla मिस वासिंती ऩटेऱ Miss Vasanti Patel Respondent by : श्री टी आर ऩूटे Shri T R Poote सुनवाई ी तारीख /Date of Hearing : 19-09-2016 घोषणा ी तारीख /Date of Pronouncement : 30-11-2016 आदेश ORDER श्री अधमत श क्ला, न्याधयक सदस्य PER AMIT SHUKLA, J.M.: The aforesaid appeals have been filed by the assessee against separate impugned orders of even date, 22.03.2011 for the assessment years 2003-04 and 2004-05 and order

2 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 dated 30.03.2011 for the assessment year 2004-06, passed by Ld. CIT (Appeals)-3, Mumbai for the quantum of assessment passed under section 143(3). Since the issues involved in all the three appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed off by way of this consolidated order.

3 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 1.6 Without prejudice to the above, the learned Commissioner (Appeals) ought to have directed the Assistant Commissioner to restrict the disallowance under section 40(a)(i) to the extent of net amount debited to the Profit and Loss Account after reducing recovery; 2. Payments for professional services 2.1 The learned Commissioner (Appeals) erred in confirming disallowance of Rs.2,90,580 under section 40(a)(i) in respect of payment of professional fees to Deloitte Touche Tohmatsu, Canada on the ground that tax ought to have been deducted; 2.2 The learned Commissioner (Appeals) ought to have appreciated that professional fee paid to Deloitte Touche Tohmatsu, Canada was not chargeable to tax in India in the absence of accrual or deemed accrual/receipt or deemed receipt thereof; 2.3 Alternatively, the learned Commissioner (Appeals) ought to have appreciated that professional fee paid to Deloitte Touche Tohmatsu, Canada was not chargeable to tax in view of Article 7 of the Tax Treaty between India and Canada; 2.4 The learned Commissioner (Appeals) erred in confirming disallowance of Rs.1,45,290 under section 40(a)(i) in respect of payment of professional fee to Deloitte Touche Tohmatsu, New Zealand on the ground that tax ought to have been deducted; 2.5 The learned Commissioner (Appeals) ought to have appreciated that professional fees paid to Deloitte Touche Tohmatsu, New Zealand was not chargeable to tax in India in the absence of accrual or deemed accrual/receipt or deemed receipt thereof. 3. Interest under section 244A The learned Commissioner (Appeals) erred in not directing the Assessing Officer to grant interest under section 244A (1)(a) at the rate of rate of two-third per cent for the month of September 2003.‖ 3. The brief facts qua the issue involved are that, the assessee is a firm of Chartered Accountants, which had filed its return of income on 27.11.2003 declaring total income of Rs.42,46,760/-. During the course of the assessment

4 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 proceedings, the Assessing Officer noted that the assessee has made payments towards subscription and fees amounting to Rs.27,32,335/- which was paid to Swiss Verein, „Deloitte Touche Tohmatsu International‟ (DTTL). The assessee was required to furnish the details of TDS deducted on such payment and also specify the nature of payment. In response, the assessee has given the following break-up:- Invoice No. Date Nature of TDS Assessee’s Payment Amt Share Amt. (Rs.) (Rs.) DTT02- 1 February Allocated share of Nil 12,06,456 SF187 2002 Deloitte Touche Tohmatsu‟s operation budget for the year ending 31 May 2002 DTT03- 1 June Allocated share of Nil 11,98,558 SF023 2002 Deloitte Touche Tohmatsu‟s operation budget for the year ending 31 May 2003 DTTSI02- 17 July 2001 Technology subscription 1,02,942 2,66,988 36 charges for the period 1 June 2001 to 31 August, 2001 DTTSL02 16 October Technology subscription 2,17,681 29,55,914 118 2001 Charges for the period 1 September 2001 To 30 November 2001 Total 2,17,681 29,55,914 Less: Share of subscription fees received from other Firm 2,23,579 Deduction claimed for subscription fees 27,32,335

Regarding non-deduction of TDS for the sums aggregating to Rs.21,81,435/- (comprising of Rs.12,06,456 + Rs.11,98,558 – Rs.2,23,579) it was submitted that assessee firm is associated with Deloitte Touche Tohmatsu (DTT), which is a global organization of Professional Services Firms. Apart from assessee firm there were other Indian firms also which were also associated with DTT, which is a Swiss Verein (i.e., association). The members of the Verien are professional

5 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 service firms in several countries around the world. The operational expenditure of DTT is shared by its member firms. DTT recovers the amount of their operating expenditure from its member firms. Thus, it was submitted that assessee‟s share of DTT‟s operational expenditure was Rs.21,81,435/- on which assessee was not required to deduct tax at source, because, it was in the nature of reimbursement of expenditure. It was also pointed out that, the share of operational expenditure which was remitted to DTT without deduction of tax at source was based on the certificate obtained from a Chartered Accountant, who has certified that no tax was required to be deducted at source out of the said remittance.

6 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 7 D & T, New Zealand, 61, Rs.548021 Rs.54374 Professional Molesworth Street, PO 17.03.2003 services Box 1490, Wellington, New Zealand 8 D & T, New Zealand, 61, Rs.729535 Rs.72383 Professional Molesworth Street, PO 17.03.2003 services Box 1490, Wellington, New Zealand The Assessing Officer required the assessee has to why the TDS has not been deducted in respect of professional fees / paid to the three parties for sums aggregating to Rs.8,20,320/- (illustrated at Serial No.1, 2 and 3). In response, the assessee highlighted the nature of payment and also the services rendered by them and it was stated that these services were rendered by the non-resident entities outside India and same is not taxable in India either in terms of section 9(1)(i) or section 9(1)(vii). The assessee‟s submissions with regard to aforesaid three parties before the AO were as under:-

Payment to Deloitte Touche Tohmatsu, New Zealand of Rs.1,45,290. We were appointed by Punjab Agro Industrial Corporation Ltd., a Government of Punjab enterprise to carry out a study of the aqua sector and assist the Government in development of its business plan. In the process of providing the above services, we availed services of Deloitte Touche Tohmatsu, New Zealand. Deloitte Touche Tohmatsu, New Zealand is a firm of Certified Public Accountants. Deloitte Touche Tohmatsu, New Zealand rendered professional services of providing information on the global environment in the aqua sector in respect of the markets, competition, technology and regulations and other best practices followed by the global players. The entire services in relation to this job were performed outside India by Deloitte Touche Tohmatsu, New Zealand. In respect of the aforesaid services, Deloitte Touche Tohmatsu, New Zealand raised the invoice dated 9 October 2002 for an amount of USD 3,000. A copy of the invoice is enclosed at page 72 of the Compilation. We have made remittance to the

7 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 Deloitte Touche Tohmatsu, New Zealand without deduction of tax at source based on the certificate obtained from a chartered accountant. In this connection, we are to submit that Deloitte Touche Tohmatsu, New Zealand is a non-resident. For a non-resident, the following income is liable to tax in India: Income received or deemed to be received in India Income accrued or arisen in India Income deemed to accrue or arisen in India We have remitted fees of USD 3,000 (equivalent to Rs. 1,45,290) to Deloitte Touche Tohmatsu, New Zealand outside India. Thus Deloitte Touche Tohmatsu, New Zealand has received fees for professional services outside India. Therefore, the same cannot be said to be received in India or deemed to be received in India. Similarly, Deloitte Touche Tohmatsu, New Zealand has rendered their professional services outside India. Therefore, payment of professional fees cannot be said to accrue or arise in India‖.

Payment to Deloitte & Touche, London Rs.3,83,250 We were appointed by C & M Farming Ltd in connection with their arbitration proceedings in UK. In the process or providing the above services, we availed services of Deloitte & Touche, London. Deloitte & Touche, London is a partnership firm which is tax resident of UK Deloitte & Touche, London provided the professional services in connection with the arbitration proceedings in UK. The entire services in relation to this job were performed outside India by Deloitte & Touche, London In respect of the aforesaid services, Deloitte & Touche, London raised the invoice dated 30 July 2002 for an amount GBP 5,000. A copy of the invoices is enclosed at page 73 of the Compilation. We have remitted GBP 5,000 to Deloitte & Touche, London without deduction of tax at source based on the certificate obtained from a chartered accountant. In this connection, we are to submit that Deloitte & Touche, London is a non-resident. For nonresident, the following income is liable to tax in India: Income received or deemed to be received in India

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8 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 Income accrued or arisen in India Income deemed to accrue or arisen in India We have remitted fees of GBP 5,000 ('equivalent to Rs. 3,83,250) to Deloitte & Touche, London outside India. Thus Deloitte & Touche, London has received fees for professional services outside India. Therefore, the same cannot he said to be received in India or deemed to be received in India. Similarly, Deloitte & Touche, London has rendered their professional services outside India. Therefore, payment of professional fees cannot be said to accrue or arise in India‖. Payment to Deloitte Touche Tohmatsu, Canada of Rs.2,91,780/- We were appointed by Punjab Agro Industrial Corporation Ltd, a Government of Punjab enterprise to carry out a study of the dairy sector and assist the Government in development of its business plan. In the process of providing the above services, we availed services of Deloitte Touche Tohmatsu, Canada. Deloitte Touche Tohmatsu, Canada rendered professional services in respect of providing information of the global environment in the dairy sector in respect of the markets, competition, technology and regulations and other best practices followed by the global players. The entire services in relation to this job were performed outside India by Deloitte Touche Tohmatsu, Canada. In respect of the aforesaid services, Deloitte Touche Tohmatsu, Canada raised the invoice dated 23 October 2002 for an amount of USD 6,000. A copy of the invoice is enclosed at page 74 of the Compilation. We have made remittance to the Deloitte Touche Tohmatsu, Canada without deduction of tax at source based on the certificate obtained from a chartered accountant. In this connection, we are to submit that Deloitte Touche Tohmatsu, Canada is a non-resident. For non-resident, the following income is liable to tax in India: Income received or deemed to be received in India Income accrued or arisen in India Income deemed to accrue or arisen in India We have remitted fees of USD 6,000 (equivalent to Rs.2,91,780/- to Deloitte Touche Tohmatsu, Canada outside India. Thus Deloitte Touche Tohmatsu, Canada has received

9 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 fees for professional services outside India. Therefore, the same cannot be said to be received in India or deemed to be received in India. Similarly, Deloitte Touche Tohmatsu, Canada has rendered their professional services outside India. Therefore, payment of professional fees cannot be said to accrue or arise in India‖. 5. Apart from the above submissions, it was submitted that, since the relationship and dealing with the assessee and the said entities was on Principal to Principal basis, therefore, there was no „business connection‟ or any kind of continuing relationship between the business of the non-resident and their activity in India, therefore, such a transaction have not resulted into „business connection‟ in India in terms of section 9(1)(i). In support, various decisions were relied upon which has been noted by the AO assessment order. Lastly, it was also submitted that the said payment for „professional fees‟ will not fall within the ambit of fees for technical services under section 9(1)(vii), because, professional services cannot be reckoned as technical services and the definition of „professional services‟ has been specifically given in section 194J which is separate from definition of „fee for technical services‟. Another very important submissions which was made by the assessee with regard to payment made to DTT Switzerland was that, the said entity is an organization of the Members and it does not carry on any income earning activity of rendering professional services and it operates through contributions made by the Members, therefore, “principle of mutuality” is applicable and hence, on this score also there is no requirement for deducting TDS.

10 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 6. The Ld. Assessing Officer without considering the assessee‟s submissions which has been though incorporated by him in the assessment order, drew his conclusion by placing heavy reliance on a decision of ITAT Mumbai Bench in the case of Arthur Anderson and Co. Mumbai in ITA No. 9125/ Mum/ 1995, order dated 29th July, 2003. He, first of all, extracted the relevant portion of the decision of the Tribunal and observed as under:- ―3.5 It is therefore, evident that in this case the tribunal is of the view that wherever there exists a doubt as to the chargeability of income to tax, tax must be deducted EX- ABUNDANTI-CAUTEA (by way of abundant caution). The assessee should have deducted the tax on payments made to its sister organizations (as mentioned above) based outside India and should have filed the return on behalf of its sister organizations (as representative assessee or otherwise) and could have claimed refund if it were still of the view that the income is not chargeable to tax in India. There certainly exists a doubt about the chargeability of income to tax on the principle of mutuality since the assessee itself has deducted tax on some of the payments‖. Thereafter, he referred to the decision of Hon‟ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh and Others vs. CIT, reported in 239 ITR 587 and came to the conclusion that, since assessee has not made any application under section 195 or 197 therefore, the payment made to DTT, Switzerland without deduction of tax is to be disallowed under section 40(a)(i) and accordingly, he disallowed sum of Rs.24,05,014/-. He also disallowed the payment of legal and professional charges paid to the

11 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 aforesaid three parties under section 40(a)(i) for sums aggregating to Rs.8,19,120/-.

12 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 profession is subject to filing of return and an assessment by the assessing authority. To reiterate, while filing return of income an appellant can claim the deduction under section 80 P and thereby file a nil return of income if such was warranted on the facts of its case but that such an income was taxable. It is seen that DTT has never filed a return of income nor claimed deduction under section 80 P in any of the earlier assessment years. Appellant would have been aware of this fact, when providing details to the chartered accountant for obtaining the certificate as required under section 195. Consequently it was not established that DTT was an entity based on and operating under the principles of mutuality under the Indian Income Tax Act. Therefore, there was no ascertainable basis on which the chartered accountant and/or appellant which is a firm of chartered accountants, could have formed an opinion that tax was not deductible at source on account of the principle of mutuality. Moreover, in view of the provisions of the Income Tax Act, it cannot be considered that decision in respect of such a claim would lie with an authority other than the assessing officer, who is in the unique position of determining whether any receipts to DTT on account of payments made by its member associates i.e., appellant was exempt from deduction of tax at source on grounds of mutuality. Appellant in the submissions has also referred to a recent decision of Chennai Special Bench in ITO versus M/s Prasad production Ltd in ITA No. 663/MDS/2003. It is seen that honorable ITAT Chennai has observed that payee need not undergo the procedure of section 195 at all if he is of the bona fide belief that no part of payment is chargeable to tax in India. In the impugned matter, discussion indicates that there was no substantive ground for appellant to have a bona fide belief that no amount was chargeable to tax in respect of these two payments to DTI.

2.1.10 Apart from appellant not able to establish that these were operational expenses payable by appellant to DTT on principles of mutuality, there is also no evidence on record to indicate that the remittances made by appellant to DTT consisted only of payment of operational

13 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 charges and that payments were not or did not include amounts for professional or technical services. In absence of such details, appellant's claim that the remittance to DTT was not liable for tax deduction at source due to the principle of mutuality is prima facie incorrect and not in consonance with the provisions of Income Tax Act.‖

On the issue of claim of reimbursement of expenses to DTT by assessee, the observation of Ld. CIT (A) was as under:-

―2.1.11 The other claim of appellant is that this payment was in the nature of reimbursement of expenses. It is to be observed that appellant is claiming payment to be of the nature of reimbursement and not that it was factually a reimbursement. Appellant has cited various case laws which were specifically on the issue of reimbursement of expenses and not in respect of payment in the nature of reimbursement. As discussed supra, appellant has not been able to establish any ascertainable basis regarding expenses pertaining to appellant's share except stating that an invoice was raised upon it to pay the same as appellant's share. As observed by the Authority on Advance Ruling in Danfoss Industries (P) Ltd. 2004) 268 ITR 001, when the direct nexus between actual cost incurred and sums payable are inconclusive, it cannot be stated that it is imbursement of actual expenditure and no income is embedded in the payments made and therefore, payments have to be made after withholding tax.

2.1.2 It is also not ascertainable that this was reimbursement of expenses by appellant as appellant in the same arguments also claims that the payments were subscription fee. Details filed by appellant also indicate quite clearly that the payments form part of contract revenues i.e. where appellant is paying for expenses which are the obligation of recipient but are contractually agreed to be borne by the payer. The payments can, therefore, be regarded as taxable and included in the gross amount of fee for technical services/royalty. In the facts and circumstances of the case, the claim of reimbursement of expenses has also not been established by appellant and, therefore, on facts the cited case laws, with due respect, are

14 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 not applicable. 2.1.3 In view of the facts and circumstances of the case discussed supra and further in view of AO's reliance upon (i) the honorable Supreme Court in the case of Transmission Corporation supra and (ii) the decision of honorable ITAT in Arthur Andersen and Co, the view of the AO that appellant ought to have approached the assessing officer under section 195 is held to be reasonable. In view of the discussion supra, it is held that the payments made to DTT stated to be on account of appellant's share of operational charges are not allowable expenses under section 40(a)(i). The assessing officer's action in disallowing the same under section /40(a)(i) is, therefore, confirmed.

15 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 point for triggering the provision of section 195 is that, there should be sum chargeable to tax under the Act. Here in this case, the assessee had specifically pleaded that the amount paid to DTT Switzerland is not chargeable to tax under the Act, firstly, for the reason that, „principle of mutuality‟ should be applied; and secondly, the payment is purely in the nature of reimbursement of expenses. Explaining the principle of mutuality, he drew our attention to the Articles of Association of Verein DTT Switzerland and drew our specific attention to Article 1, which deals with situation and the purpose; Article 8 which deals with the finance matters and expenditures; and Article 12 dealing with the Dissolution. After referring to the various Articles, he highlighted the following points:- (i) The Articles of Verein being the constitutional document establishes that it is a members‟ organization, various provisions of Articles such as objects, members‟ eligibility criteria, management of activities, distribution in the event of dissolution clearly establishes that it is an organization by the member, of the members and for the members; (ii) The Verein itself does not carry on any income earning activity of rendering professional services. The expenses of Verein are met through the contributions by its members; (iii) The contribution is made by the members in the form of annual subscription fees and the articles provide for distribution amongst members in the event of winding up; (iv) Based on annual budgeted expenses of DTT, members are expected to contribute in the proportion of their size

16 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 considered on the basis of their respective gross revenue; and (v) DTT is a Verein established in Zurich, Switzerland. The Verein has an office in the USA. Subscription fees were remitted to the US office of the Verein. The beneficial owner of subscription fees is DTT being entity established in Zurich, Switzerland.

17 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 have discussed or given a specific finding that the subscription fee paid by the assessee to DTT was in fact chargeable to tax under the Act and provision of TDS are applicable, then only disallowance under section 40(a)(i), if at all, could have been made. As regards the strong reliance placed by the Assessing Officer and ld. CIT(A) on the decision of ITAT, Mumbai Bench in the case of „Arthur Andersen & Co.‟, he submitted that the ratio of the said decision loses its significance in the light of the subsequent judgment of Hon‟ble Supreme Court in the case of G E Technology Centre Pvt. Ltd vs. CIT, reported in 327 ITR 456. He also referred to ITAT decision of Mumbai Bench in the case of K. S. Aiyer and Co., reported in [2013] 36 taxman.com 317 wherein, this decision of Arthur Andersen & Co. has been distinguished by the coordinate bench.

18 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 in India in terms of Article 14, where the right to tax lies with the Canada. Apart from that, the professional fees cannot be said to be covered under Article 12 as FIS/FTS also, because the services do not make available any kind of technical knowledge, experience, skill or knowhow to the assessee. Hence, it cannot be taxed under Article 12 also. Regarding DTT New Zealand, he submitted that, here also Article 14 of India-New Zealand DTAA provides that if the services have been performed outside India and recipient does not have any fixed base or PE in India or none of its employee or professional was in India for more than 183 days, then same cannot be taxed in India. However, so far as the definition for “fees for technical services” under Article 12(4), he admitted that same is similar to the definition as provided in Domestic Law i.e., under section 9(1)(vii) r.w. Explanation 2 of the Income Tax Act. However before that, to fall within the definition of fee for technical services, the nature of services should be in the category specified under 9(1)(vii) r.w. Explanation 2, that is, rendering of managerial, technical or consultancy services. The professional services cannot be held to be covered under section 9(1)(vii) under the Income-tax Act because same has been separately dealt and defined under section 194J r.w. clause (a) of Explanation thereto which provides separate definition of professional services.

19 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 the allocation of expenses is decided by the Board of Directors and not on the basis of actual, then how can it be reckoned as reimbursement of expenses. He also submitted that, the payment is made to USA office and not to the Swiss entity, as noted by the CIT(A) in third paragraph. The reimbursement means the actual reimbursement and not which could be something more or something less. On the issue of mutuality he submitted that matter can be restored back to the file of AO to examine the relationship and activities qua the members. On the issue of disallowance of professional fees paid to two parties, the Ld. DR strongly relied upon the orders of the authorities below.

20 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 Member firms. The nature and constitution and purpose have been enumerated in Article 1 of Verein which reads as under:-

ARTICLE: 1 NAME, DOMICILE AND PURPOSES 1.1 Name and Domicile. A Verein is hereby established with domicile in Zurich, Switzerland, under the name of Deloitte Touche Tohmatsu ("Verein"). The Verein consists of members that are professional firms ("Member Firms"). The Member Firms are engaged in rendering professional services, to the extent they may lawfully be performed under Local Laws (§7.1), in the fields of accounting, auditing, insolvency, law, management consulting, taxation and related services ("Professional Services"). The Verein is governed by these Articles, by the Supplemental Agreement among the Member Firms supplementing these Articles ("Supplemental Agreement"), and by the applicable provisions of the Swiss Civil Code. 1.2 Purposes. The purposes of the Verein shall be: (a) to further international cooperation and cohesion among the Member Firms; (b) to assure that their practices shall conform to professional standards of the highest quality; (c) to advance the international and national leadership of the Member Firms in rendering Professional Services; and to perform all other functions incidental to the above purposes‖.

Article 8 deals with financial matters and Clause (b) of the said Article reads as under:- / (a) Each Member Firm shall contribute toward the budgeted operating expenses of the Verein for each fiscal Year in such proportions as shall be allocated by the Board of Directors; and (b) The amount allocated to each Member Firm shall be based upon aggregate revenues and such other factors, if any, as

21 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 may be determined by the Board of Directors and approved by the Member Firms.

and Article 12 deals with dissolution, which reads as under:-

12.1 By Resolution. a dissolution of the Verein shall occur if a resolution to that effect is, adopted by the Member Finns. 12.2 Distributions. Upon dissolution of the Verein, any liquidation proceeds shall be applied in the following order: (a) payment or discharge of all liabilities of the Verein, including any unpaid principal of and accrued interest on any loans and advances made by the Member Firms to the Verein; and (b) payment of any remaining balance to each Member Finn in the proportion that its allo- cated contributions to budgeted operating expenses of the Verein bear to the total budgeted operating expenses of the Verein for the then current Fiscal Year, less any unpaid portion of the Member Finn's contribution outstanding on the date of dissolution‖.

From the reading of above Articles, it is seen that the association constitutes of Member firms which are engaged in rendering of professional services and the purpose of Verein is to further the international cooperation and cohesion among the member firms; to assure that practices of the Members shall conform to professional standards of highest quality; to advance the international and national leadership of the Member firms in rendering professional services, etc. Each Member contributes towards the budgeted operating expenses of Verein in such proportion which has been

22 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 allocated to them. The amount allocated to the each Member firm is based on aggregate revenues and other factors as illustrated therein. In pursuance of such allocation, invoices were issued by DTT to assessee in India allocating the DTT‟s operational budget. This is evident from certificate of the Chartered Accountant given at page 67. While making the said payment, the assessee had not deducted the TDS inter alia on the ground that, firstly, the relationship between the DTT and its Member is based on „principle of mutuality‟, therefore, the Verein itself does not earn any income or renders any kind of professional services and the expenses are made through contribution by its members; and secondly, the reimbursement of expenses is based on allocation made by the DTT which in turn is on the basis of actual expenses. However both the authorities, Assessing Officer as well as CIT (A), instead of adjudicating the issue whether the subscription fees paid by the assessee to DTT Switzerland is taxable under the Act in India or not, have proceeded to disallow the payment on the premise that even if there existed a doubt regarding chargeability of Income Tax, the assessee should have any way deducted the tax and should have complied with the provision of section 195 and 197. In support, strong reliance has been placed on the decision of ITAT Mumbai Bench in the case of Arthur Andersen & Co. and Hon‟ble Supreme Court judgment in the case Transmission Corporation Andhra Pradesh (supra).

23 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 that, the sum which is subject matter of remittance should be first held to be chargeable to tax in the hands of the non- resident in India under the provisions of the Act. Prelude to invoking of section 195 is that, the sum should be chargeable under the provisions of the Income-tax Act. If the sum is not chargeable to tax under the provisions of the Act then no tax is required to be deducted at source and consequentially section 195 has no applicability. The Hon‟ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd vs. CIT (supra) after taking note of the decision of Hon‟ble Supreme Court in the case of Transmission Corporation Ltd Andhra Pradesh Ltd (supra) (which has been relied upon by the authorities below) observed as under:-

―The most important expression in s. 195(1) consists of the words "chargeable under the provisions of the Act". A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the IT Act. For instance, where there is no obligation on the part of the payer and no right to receive the sum by the recipient and that the payment does not arise out of any contract or obligation between the payer and the recipient but is made voluntarily, such payments cannot be regarded as income under the IT Act. It may be noted that s. 195 contemplates not merely amounts, the whole of which are pure income payments, it also covers composite payments which has an element of income embedded or incorporated in them. Thus, where an amount is payable to a non-resident, the payer is under an obligation to deduct tax at source in respect of such composite payments. The obligation to deduct tax at source is, however, limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in s. 195(1), namely, "chargeable under the provisions of the Act". It is for this reason that vides Circular No. 728, dt. 30th Oct., 1995 the CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while

24 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 deducting tax at source. The application of s. 195(2) pre- supposes that the person responsible for making the payment to the non-resident is in no doubt that tax is payable in respect of some part of the amount to be remitted to a non-resident but is not sure as to what should be the portion so taxable or is not sure as to the amount of tax to be deducted. In such a situation, he is required to make an application to the ITO (TDS) for determining the amount. It is only when these conditions are satisfied and an application is made to the ITO(TDS) that the question of making an order under s. 195(2) will arise. While deciding the scope of s. 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of s. 195. Hence, apart from s. 9 (1), ss. 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying TDS provisions. Reference to ITO (TDS) under s. 195(2) or s. 195(3) either by the nonresident or by the resident payer is to avoid any future hassles for both resident as well as non-resident. Sec. 195(2) and 195(3) are safeguards. The said provisions are of practical importance. From this it follows that where a people responsible for deduction is fairly certain then he can make his own determination as to whether the tax was deductible at source and, if so, what should be the amount thereof. If the contention of the Department that the moment there is remittance the obligation to deduct tax at source arises is to be accepted then the words "chargeable under the provisions of the Act" in s. 195(1) would be obliterated. The said expression in s. 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct tax at source only if the income is assessable in India. If income is not so assessable, there is no question of tax at source being deducted—Transmission Corporation of A. Ltd. vs. CIT (1999) 155 CTR (SC) 489: (1999) 239 ITR 587 (SC) and Vijay Ship Breaking Corpn. & Ors. vs. CIT (2008) 219 CTR (SC) 639: (2008) 14 DTR (SC) 74: (2009) 314 ITR 309 (SC) relied on; CIT vs. Cooper Engineering Ltd. (1968) 68 ITR 457 (Bom) impliedly approved. Sec. 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression "sum chargeable under the provisions of the Act" is used only in s. 195. In none of the provisions the expression "sum chargeable under the provisions of the Act" is found, which, is an expression used only in s. 195(1). It follows, therefore, that the obligation to deduct tax at source arises only when there

25 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 is a sum chargeable under the Act. Sec. 195(2) is not merely a provision to provide information to the ITO (TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non- resident. Therefore, s. 195 has to be read in conformity with the charging provisions, i.e., ss. 4, 5 and 9. This reasoning flows from the words "sum chargeable under the provisions of the Act" in s. 195(1). The fact that the Revenue has not obtained any information per se cannot be a ground to construe s. 195 widely so as to require deduction of tax at source even in a case where an amount paid is not chargeable to tax in India at all. Sec. 195 cannot be read, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct tax at source arises. If such a contention is accepted it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mean obliteration of the expression "sum chargeable under the provisions of the Act" from s. 195(1). While interpreting a section one has to give weightage to every word used in that section. While interpreting the provisions of the IT Act one cannot read the charging sections of that Act de hors the machinery sections. The Act is to be read as an integrated code. Hence, the provision relating to TDS applies only to those sums which are chargeable to tax under the IT Act. If the contention of the Department that any person making payment to a non- resident is necessarily required to deduct tax at source is accepted then the consequence would be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the IT Act by which a payer can obtain refund. Sec. 237 r/w s. 199 implies that only the recipient of the sum, i.e., the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. Sec. 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax. The entire basis of the

26 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 Department's contention is based on administrative convenience in support of its interpretation. There is no merit in the contention. As stated hereinabove, s. 195(1) uses the expression "sum chargeable under the provisions of the Act." One has to give weightage to those words. Further, s. 195 uses the word 'payer' and not the word "assessee". The payer is not an assessee. The payer becomes an assessee-in-default only when he fails to fulfill the statutory obligation under s. 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The contention of the Department is based on an apprehension which is ill founded. The payer is also an assessee under the ordinary provisions of the IT Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the IT Act for the said sum as an "expenditure". Under s. 40(a)(i), inserted vide Finance Act, 1988 w.e.f. 1st April, 1989, payment in respect of royalty, fees for technical services or other sums chargeable under the IT Act would not get the benefit of deduction if the assessee fails to deduct tax at source in respect of payments outside India which are chargeable under the IT Act. This provision ensures effective compliance of s. 195 relating to TDS in respect of payments outside India in respect of royalties, fees or other sums chargeable under the IT Act. In a given case where the payer is an assessee he will definitely claim deduction under the IT Act for such remittance and on inquiry if the AO finds that the sums remitted outside India comes within the definition of royalty or fees for technical service or other sums chargeable under the IT Act then it would be open to the AO to disallow such claim for deduction. Similarly, vide Finance Act, 2008, w.e.f. 1st April, 2008 sub-s. (6) has been inserted in s. 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. Therefore, there are adequate safeguards in the Act which would prevent revenue leakage.— CIT vs. Eli Lilly & Company (India) (P) Ltd. (2009) 223 CTR (SC) 20: (2009) 21 DTR (SC) 74 : (2009) 312 ITR 225 (SC) relied on; Transmission Corporation of A.P. Ltd. vs. CIT (1999) 155 CTR (SC) 489 : (1999) 239 ITR 587 (SC) distinguished; CIT vs. Samsung Electronics Co. Ltd. & Ors. (2009) 227 CTR (Kar) 335 : (2009) 31 DTR (Kar) 257 and CIT (International Taxation) & Anr. vs. Sonata Information Technology Ltd. (2010) 232 CTR (Kar) 20 : (2010) 38 DTR (Kar) 350 set aside‖.

Thus, aforesaid decision, clearly clinches the issue and in wake of law laid down by the Hon‟ble Apex Court, the decision

27 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 of ITAT Mumbai Bench in the case of Arthur Andersen and Co. has no relevance or bearing at all which laid down the proposition that even where there existed a doubt to the chargeability of Income-tax then also the tax is to be deducted at source by way of abundant caution and the fact whether income is eligible to tax or not can only be determined after the assessment. On the contrary, as the Hon‟ble Apex Court as reproduced above has held that, the person making the payment to non-resident would be liable to deduct tax under section 195 only if such sum is chargeable to tax in India and not otherwise. Thus, prerequisite condition for going through the procedure of 195 is that, income should be first held to be chargeable to tax in India. The assessee, as noted above, has made out its case in a very elaborate manner as to why the payment made to DTT Switzerland is not liable for tax in India. However, both the authorities have not properly adjudicated these aspects. Therefore, in the interest of justice, we are of the opinion that this matter should go back to the file of the Assessing Officer who shall decide, firstly, whether the payment of subscription fee to DTT is liable to tax in India under the provisions of the Act or not; and secondly, he should also to examine whether it is in the nature of reimbursement of expenses. If it is found that the payment made to DTT Switzerland is in the nature of reimbursement of expenses, then assessee cannot be held to be liable for deducting TDS. With this direction, the matter is restored back to the file of the Assessing Officer and accordingly, ground No.1 is treated as party allowed for statistical purposes.

28 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 16. Now, we shall advert to the second issue of disallowance of payment of „professional fees‟ in respect of two parties under section 40(a)(i); namely: (i) DTT (Deloitte Touche Tohmatsu) Canada of Rs.2,90,000/-; and (ii) DTT (Deloitte Touche Tohmatsu) New Zealand of Rs.1,45,290/-. Regarding payment to DTT Canada, it was submitted that, the assessee was appointed by Punjab Agro Industrial Corporation Ltd., a Government of Punjab enterprise to carry out a study of the dairy sector and assist the Government in development of its business plan. In the process of providing the above services, the appellant availed services of DTT, Canada, who had rendered the “professional services” in respect of providing information of the global environment in the dairy sector in respect of the markets, competition, technology and regulations and other best practices followed by the global players. The entire services in relation to this job were performed outside India by the DTT and in respect of the aforesaid services it raised the invoice dated 23 October 2002 for an amount of USD 6,000. The assessee made remittance to the DTT, Canada without deduction of tax at source based on the certificate obtained from a chartered accountant in a prescribed form. The Ld. Counsel before us had stated that, relationship between the assessee and DTT Canada was occasional and there is absolutely no business connection of DTT Canada in India in terms of section 9(1)(i) and since services have been rendered outside India, therefore, it cannot be taxed in India. The Assessing Officer has made disallowance under section 40(a)(i) on the

29 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 ground that, in some of the cases, the assessee itself has deducted TDS and in some it does not. With regard to this allegation, it has been clarified before us that in respect of other DTT entities, the professional people had come to India for rendering of the services and that is why the assessee had deducted the TDS. But in these two cases, services were rendered outside India, therefore, same is not liable to be taxed in India. Here again, the allegation of the Assessing Officer has been that, assessee should have sought approval under section 195 without giving any cogent reason as why and how such professional fees payable to non-resident entity is taxable either under the Act or in terms of DTAA. The Ld. CIT(A), came to different conclusion and finding that it is in the nature of “fees for technical services‖, which was not the case of AO. She referred to the decision of ITAT Mumbai Bench in the case of Ashapura Minichem vs. ADIT, reported in [2010] 5 taxman.com 57 and after quoting the said decision, she observed that, if „fee for technical services‟ is rendered outside India the same is taxable in view of retrospective amendment to section 9(1)(vii) brought by Finance Act, 2010, which envisages/clarifies that it is not necessary that services should have been rendered in India. Accordingly, she concluded that, the payment has to be reckoned under section 9(1)(vii) being „fee for technical services‟. Not only that, she further held that the payment made to DTT Canada also falls under Article 12(3)(a) and Article 12(4)(a).

30 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 approach of the Assessing Officer for the reason that he has not given any finding as to how the payment of fees for „professional services‟ which has been paid to DTT Canada is taxable in India either in terms of the provisions of the Act or under any article of the DTAA. If the payment has been made to non-resident, then it has to be seen firstly, whether under the terms of DTAA such a fee or payment is taxable in India or not and if not, then whether it is taxable in terms of Income Tax Act. Without any finding qua the taxability of the payment, how disallowance u/s 40(a)(i) can be made. The Ld. CIT(A) too without analyzing the factual aspect and ascertaining the nature of payment has simply came to a conclusion sans any finding by the AO that the impugned payment is taxable as „fee for technical services‟. She simply referred to a decision of Tribunal and held that retrospective amendment which has been brought in section 9(1)(vii) by the Finance Act, 2010, whereby it has been clarified that, if the technical services have been rendered outside India then also same is taxable in India. Before coming to this conclusion, she has not given any finding whatsoever how such a payment of fees for rendering of professional services falls within the ambit of fees for technical services. She has also failed to take the note of the fact that, under the DTAA with Canada, there is “make available clause”, if this kind of payment is to be reckoned as „fees for included services‟. For the sake of ready reference Article 12(4) fees for technical services is reproduced hereunder:-

31 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design.

Thus, to fall within the meaning of „fee for included services‟ or for rendering of any technical or consultancy services it is sine-qua-non that such services should „make available‟ technical knowledge, experience, skill, knowhow or processes or consist of development and transfer of technical plan or technical design. Here in this case, the professional service has been rendered by DTT Canada only for providing information about the „Diary Sector‟ and not for the purpose of any “technical services” as defined. In any case there is no „make available‟ of any of the terms as mentioned in the said Article. Therefore, in terms of Article 12(4) the payment does not fall within the realm of fee for included services. If it is a payment for „independent personal services‟ in terms of Article 14, then same can be taxed only when in the hands of non-resident, if he has some kind of „fixed base‟ or is regularly available in India or his stay for rendering of professional services has exceeded 183 days or there is some kind of PE in India. The term “Professional services” has been defined in para 2 of Article 14, which deals with independent personal services. The Article reads as under:-

32 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 ARTICLE 14: Independent personal services – 1. Income derived by an individual or a firm of individuals (other than a company) who is a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State. However, in the following circumstances, such income may be taxed in the other Contracting State, that is to say (a) if he has or had a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; or (b) if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 183 days in the relevant fiscal year; or (c) if the remuneration for the services in the other Contracting State is either derived from residents of that other Contracting State or is borne by a permanent establishment which a person not resident in that other Contracting State has in that other Contracting State and such remuneration exceeds two thousand five hundred Canadian dollars ($2,500) or its equivalent in Indian Currency in the relevant fiscal year. 2. The term 'professional services' includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.

Here in this case, even if the payment is said to be made towards professional services then also same cannot be taxed because, DTT Canada does not have any fixed base, PE or any of its employee have stayed in India for more than 183 days. Thus, under the DTAA, the said payment is not taxable as fee for “professional services” because none of the conditions as mentioned in the aforesaid Para of Article 14 is satisfied.

33 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 Once, the “professional fee” is not taxable under DTAA, then, no disallowance under Section 40(a)(i) can be made. On this ground alone, the disallowance made by the AO and confirmed by the CIT (A) stands deleted.

34 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 Explanation below Section 194J which for the sake of ready reference is reproduced hereunder:-

―(a) ―professional services‖ means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purpose of Section 44AA or of this section.‖ Clause (b) of the same Explanation defines “fee for technical services” as having the same meaning given in Explanation 2 to Section 9 (1) (vii). Separate definitions of “professional services” and “technical services” under the Act inter-alia indicates that the Statute makes clear distinction between these two terms. The term “profession” alludes to some kind of vocation or occupation which requires special, advanced education, knowledge or skill etc. A person professing any kind of profession requires extensive training and study and mastery of specialized knowledge. A professional person has to conduct himself within specified code of conduct or ethical conduct which is required from his field of profession like legal, medical, accountancy etc. In the case of rendering of technical services, the emphasis is more on giving services which are technical in nature and alludes to some kind of giving advice or consultancy in the field of technology or imparting of technical skills, knowledge, experience, know- how etc. Here „consultancy‟ also means some kind of technical consultancy because it is preceded by the word „technical‟. The term „managerial‟ is indicative of management of business or something like which is distinct from profession or rendering of professional services. Here in this

35 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 case, professional services were rendered by DTT Canada in respect of providing information of the Global environment in dairy sector in respect of the markets, competition, regulations and other best practices followed by global players. Thus, the impugned payment cannot be reckoned as fees for rendering of technical services in terms of Section 9 (1) (vii). /

With regard to this payment also there is no specific finding by the AO or the CIT (Appeal) as to how it is taxable in India and under which provision of the Act. In this case also the learned CIT (A) has reckoned the payment as “fees for

36 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 technical services” without elaborating or elucidating the nature of payment. So far as the benefit under India-New Zealand DTAA, the payment of professional fee is not taxable under Article 14, which deals with “Independent personal services”. The language of Article 14 is similar to the language of India-Canada DTAA which has been reproduced hereinabove. Here also DTT New Zealand neither has any fixed base/ PE nor had any of its employees/professionals stayed in India for the period exceeding 183 days in any consecutive twelve months period. Accordingly, under the DTAA the “professional fee” paid to DTT is not taxable in India. However, Article 12(4) of India-New Zealand DTAA dealing with “fees for technical services” imbibes same definition as has been given under the Income Tax Act. Our finding given on the issue of FTS under Section 9 (1) (vii) will apply mutatis mutandis here also. Therefore, in view of our finding given therein, the said payment cannot be held to be taxable in India either under Section 9 (1) (vii) or under Section 9 (1) (i). Accordingly, disallowance made by the AO u/s 40(a) (i) is directed to be deleted.

37 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 partly allowed for statistical purposes.

(i) Disallowance u/s 40(a) (ia) of Rs.15,02,099/- in respect of payment of subscription fee to DTT Swiss Verein.

(ii) Disallowance u/s 40(a) (i) for non-deduction of tax at source in respect of remittance of professional fee to DTT Australia of Rs.1,16,693/-.

(iii) Disallowance of Satyanarayan Puja expenses of Rs.93,980/-.

38 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 by DTT Australia, it was submitted that the assessee had sought professional service in respect of „Sydney Strat. OS Service Centre‟ audit for one of the assessee‟s client namely, Vatico India (Mumbai) for the year ending 31st December, 2002. The entire professional services were rendered outside India. DTT Australia raised invoice for Rs.1,60,693/- which was remitted without deduction of tax at source based on certificate obtained from Chartered Accountant. Similar submission was made by the assessee with regard to this payment. Our finding given in respect of DTT Canada as well as DTT New Zealand will apply mutatis mutandis qua this payment also. In view of our finding given above, the payment of professional fee to DTT Australia is held not to be taxable u/s 9(1)(i) or 9(1)(vii) or in terms of Article 12(4) of DTAA, which has „make available clause‟ and is similar to India Canada DTAA. Thus, the disallowance made by the AO and as confirmed by the CIT (A) is directed to be deleted. Accordingly, ground No.2 is allowed.

39 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 the said disallowance, on the ground that it is religious in nature.

(i) CIT Vs Mohan Meakin Ltd. [2010] 189 Taxman 377 (Delhi) (ii) Commercial Mills Co. Ltd. v. CIT [1994] 204 ITR 505 (Guj.) (iii) Brijram Das & Sons v. CIT 142 ITR 509 (iv) Pranav Construction Co. v. Asst. CIT 61 TTJ 145 (Mumbai) On the other hand, the learned DR strongly relied upon the orders of the authorities below.

40 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 aforesaid decisions cited above by the learned Counsel. In the aforesaid cases, the puja expenses have been allowed for business purposes. Thus, following the ratio laid down in the aforesaid decisions, we direct the AO to allow the said expenses. Accordingly, ground No.5 is treated as allowed.

(i) Disallowance u/s 40(a) (i) for non-deduction of tax at source in respect of remittance of professional fee to DTT UK of Rs.1,09,273/-.

(ii) Disallowance u/s 40(a) (ia) of Rs.30,33,217/- in respect of payment of subscription fee to DTT Swiss Verein.

(iii) Disallowance of entertainment expenses of Rs.1,00,000/-.

41 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 disputed. Both the AO and the CIT (A) have given the same reasoning as has been given in the earlier years.

42 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 to Rs.51,93,534/-. The AO noted that the assessee has not furnished the details of the entertainment expenses. Hence, he held that nature of personal expenses cannot be ruled out. The learned CIT (A) has scaled down the disallowance to Rs.1,00,000/-.

Order pronounced in the open Court on 30th November, 2016.

Sd/- Sd/- (राजेंद्र) (अधमत श क्ला) लेखा सदस्य न्याईक सदस (RAJENDRA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 30th November, 2016.

43 डेऱोआइट हासक िंस अँड सेल्लल्लस Delotte Haskins and Sells ITA No.: 5096/Mum/2011 ITA No.: 5097/Mum/2011 ITA No. : 5094/Mum/2011 प्रतत/Copy to:- 1) अऩीऱाथी /The Appellant. 2) प्रत्यथी /The Respondent. 3) The CIT (Appeal) –3, Mumbai. 4) The CIT-11, Mumbai 5) धवभागीय प्रधतधनधध “एल”, आयकर अपीलीय अधधकरण, म ुंबई/ The D.R. “L” Bench, Mumbai. 6) गाडड पाईऱ \ Copy to Guard File. आदेशानुसार/By Order

उऩ/सहाय ऩिंजी ार आय र अऩीऱीय अधध रण, िुिंफई Dy./Asstt. Registrar I.T.A.T., Mumbai *चव्हान व.धन.स *Chavan, Sr.PS अनु क्र. आदेश का घट्नक्रम ददनाक स्वाशशरर यथोचित Sr.N Episode of an order Date Initials Concerned 1 Draft on handwritten Manuscript 06.11.2016 व.तन.स Sr.PS 2 Draft placed before author 17.11.2016 व.तन.स Sr.PS 3 Draft proposed & placed before the second Member न्यास/ JM 4 Draft discussed/approved by Second Member ऱेस/AM 5 Approved Draft comes to the Sr.PS/PS व.तन.स Sr.PS 6 Kept for pronouncement on व.तन.स Sr.PS 7 File sent to the Bench Clerk व.तन.स Sr.PS 8 Date on which file goes to the Head Clerk 9 Date of dispatch of Order