GRANT THORNTON INDIA LLP,NEW DELHI vs. JCIT, RANGE- 52 , NEW DELHI
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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI G.S. PANNU & SHRI SAKTIJIT DEY
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI
BEFORE SHRI G.S. PANNU, PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA No. 274/Del/2019 Assessment Year: 2013-14
Grant Thornton India LLP, Vs. JCIT, L-41, Connaught Circus, Range-52, New Delhi New Delhi PAN :AACFG9740K (Appellant) (Respondent)
Assessee by Shri Vinod Kumar Bindal, CA & Ms. Rinky Sharma, ITP Department by Smt. Sanjay Kumar, Sr. DR
Date of hearing 04.01.2023 Date of pronouncement 31.03.2023
ORDER PER SAKTIJIT DEY: JUDICIAL MEMBER: Present appeal by the assessee arises out of order dated
15.11.2018 of learned Commissioner of Income-Tax (Appeals), New
Delhi pertaining to assessment year 2013-14.
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The dispute in the present appeal is confined to disallowance of
Rs.7,57,940 made under Section 40(a)(i) of the Income-Tax Act,1961.
Briefly, the facts relating to this issue are, the assessee is a
limited liability partnership firm and is a resident of India. As stated
by the Assessing Officer, the assessee provides international
accounting and advisory services to various clients within India and
abroad. For the assessment year under dispute, the assessee filed its
return of income on 27.09.2013 declaring income of Rs.20,05,79,536.
In course of assessment proceedings, the Assessing Officer
noticed that in the year under consideration, the assessee had paid
professional fee amounting to Rs.33,06,542 to various overseas
entities without withholding tax at source.
Noticing this, the Assessing Officer called upon the assessee to
explain why the payments made should not be disallowed under
Section 40(a)(i) of the Act. In response to the show cause notice
issued by the Assessing Officer, the assessee submitted that the
payments made are taxable at the hands of the overseas entities as
profit of business and profession. It was submitted, since, as per the
relevant Double Taxation Avoidance Agreements (DTAAs) business
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profit of the non-residents are not taxable in India in absence of
Permanent Establishment (PE), there was no obligation on the part of
the assessee to withhold tax at source. The assessee further submitted,
the payment made cannot be treated as either royalty or Fee for
Technical Services (FTS}. The assessee submitted, at best, the
payment made can be considered to be for ‘Independent Personal
Services’ which is taxable in the country of residence of the recipient.
In support of such contention, assessee relied upon various judicial
precedents. The Assessing Officer, however, did not accept assessee’s
contention. He was of the view that the payment made is in the nature
of FTS, hence, taxable in India. Since, the assessee had not deducted
tax at source, he disallowed the amount of Rs.33,06,542 under Section
40(a)(i) of the Act. Assessee contested the aforesaid disallowance
before learned Commissioner (Appeals).
After considering the submissions of the assessee in the context
of facts and material on record, learned Commissioner (Appeals) held
that, though, the payment made to entities based in UK, USA and
Singapore, are in the nature of managerial, technical and consultancy
services, however, since, the make available condition enshrined in
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the treaties is not fulfilled, they will not qualify as FTS. Accordingly,
he deleted the disallowance made under Section 40(a)(i) of the Act in
respect of such payments. Further, he deleted the disallowance made
under Section 40(a)(i) in respect of payments made to entities in
Cyprus and Indonesia on different reasonings.
Admittedly, the Revenue is not in appeal against such decision
of learned Commissioner (Appeals). The only disallowance sustained
by learned Commissioner (Appeals) was in respect of payment made
of Rs.7,57,940 to Warth&Klein Grant Thornton AG of Germany.
Learned Commissioner (Appeals) observed that the payment
made is consultancy services, hence, has to be treated as FTS under
Article 12(4) of India-Germany DTAA. Further, he observed that the
definition of FTS under Article 12(4) of the India-Germany Treaty
does not speak of make available condition. Accordingly, he upheld
the disallowance to that extent.
Before us, learned counsel appearing for the assessee submitted
that the entity to whom the assessee has made the payment is a firm of
Chartered Accountants (CA) and the payment made is in the nature of
professional fee for due diligence of a client and for valuation of
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shares of another client. Thus, he submitted, the payment made cannot
be treated to be for managerial, technical or consultancy services.
Thus, he submitted, it cannot be treated as FTS under Article 12(4) of
the Treaty.
On the contrary, he submitted, the payment made falls within the
definition of “Independent Personal Services” under Article 14 of the
Tax-Treaty, hence, taxable in the country of residence of the recipient.
He submitted, this is the ratio laid down by the Tribunal while
deciding identical issue in assessee’s own case in assessment years
2010-11 to 2012-13.
Learned Departmental Representative strongly relied upon the
observations of learned Commissioner (Appeals).
We have considered rival submissions and perused material on
record.
Undisputedly, the assessee has paid the amount to an entity in
Germany towards certain professional services rendered to assessee’s
clients in Germany. The issue which falls for consideration is the
nature of payment made and its taxability in India at the hands of the
recipient. While, learned Commissioner (Appeals) has treated it as
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FTS under Article 12(4) of India-Germany Treaty, the assessee
claimed it as payment for Independent Personal Services falling under
Article 14 of the treaty. On careful reading of Article 14 of treaty as a
whole and specifically Article 14(1), it is observed that it is only
applicable to income derived by an individual towards certain
professional services. The term “Professional Services” has been
defined under Article 14(2) to mean independent scientific, literary,
artistic, educational or teaching activities, as well as the independent
activities of physicians, surgeons, lawyers, engineers, architects,
dentists and accountants. No doubt, while, considering identical nature
of payments made in assessee’s own case in assessment years 2010-11
to 2012-13, the Tribunal has held that payments made were in the
nature of Independent Personal Services falling under Article 15 of
India-UK, India-US, India-France and India Netherlands DTAA.
However, on careful reading of the provisions relating to Independent
Personal Services in aforesaid treaties considered by the Tribunal in
the preceding assessment years in contrast to Article 14 of India-
Germany Treaty, we find a marked difference. While, in all other
treaties considered by the Tribunal in the preceding assessment years,
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Articles governing Independent Personal Services refer to both
individual and partnership firm, however, Article 14 of India-
Germany Treaty is quite restricted in its scope as paragraph 1 of
Article 14 refers only to income earned by an individual. Therefore, in
our view, the decisions of the Tribunal in preceding assessment years
would not apply, qua, the payment made to a German entity, which no
doubt, is a partnership firm. Therefore, the assessee cannot take the
benefit o Article 14 of India-Germany Treaty.
Having held so, the next issue arising for consideration is
whether the payment made can be treated as FTS under Article 12(4)
of the India-Germany Treaty. From the nature of services for which
payment was made, it can very well be said that neither it is
managerial, nor technical nor consultancy services. Even, the
Assessing Officer has admitted that it is in the nature of professional
fee. Thus, undoubtedly, payment made by the assessee to CA firm is
for professional services rendered. The fact that payment made for
professional services will not fall within the definition of FTS under
Article 12(4) of the treaty is evident from putting it under Article 14 of
the treaty, though, it applies to Individuals only. Thus, in absence of a
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specific provision under the treaty, the payments have to be treated as
business profit at the hand of the recipient. Thus, once the payment
does not fall either under Article 12 or Article 14, in absence of any
other provision in the treaty specifically dealing with such payment, it
has to be treated as business profit at the hands of the recipient. Thus
in absence of a PE or fixed base, the payment is not taxable at the
hands of the recipient. That being the case, there was no obligation on
the assessee to withhold tax at source on such payment. Therefore, we
delete the disallowance made under Section 40(a)(i) of the Act.
In the result, the appeal is allowed. Order pronounced in the open court on 31st March, 2023.
Sd/- Sd/- ( G.S. PANNU ) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER Dated: 31st March, 2023. Mohan Lal
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