×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
12-06-2019, Knight Frank (India), Section 40(a)(i), 9(2), 195, Tribunal Mumbai
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-5, Mumbai, dated 16.12.2016, which in turn arises from the order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „I-T Act‟), dated 12.03.2015. The assessee has assailed the order of the CIT(A) on the following amended grounds of appeal:
“This Appeal is against the Order passed by Commissioner of Income-tax (Appeals) - 5, Mumbai and relates to the Assessment year 2012-2013.
1. The learned Commissioner of Income Tax (Appeals) erred in disallowing commission paid to Newmark Knight Frank under section 40(a)(i) Rs. 24,62,367/-.
2. The learned Commissioner of Income Tax (Appeals) erred in holding that the appellant had failed to demonstrate how the commission was not taxable under the Double Taxation Avoidance Agreement between India and USA. The said finding is perverse.
3. Having regard to the facts and circumstances, the appellant submits the disallowance of Rs. 24,62,367/- is unjustified and is required to be deleted. The Appellant craves leave to add to, amend, alter, modify or withdraw any or all the Grounds of Appeal before or at the time of hearing of the Appeal, as they may be advised from time to time.”
2. Briefly stated, the assessee company which is engaged in the business of rendering international real estate advisory and property management services had filed its return of income for A.Y. 2012-13 on 29.11.2012, declaring total income of Rs.7,23,59,570/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the I-T Act. Subsequently the case of the assessee was selected for scrutiny assessment under Sec. 143(2).
3. During the course of the assessment proceedings it was observed by the A.O that the assessee had paid a referral fees of Rs. 24,62,367/- to a foreign concern, namely Newmark & Company Real Estate Inc., New York USA, for introducing clients to the assessee. Observing, that no tax was deducted at source by the assessee at the time of making the aforesaid payment, therefore, the A.O called upon it to explain as to why the said payment which was claimed as an expense in the profit & loss account may not be disallowed under Sec. 40(a)(i) of the I-T Act. In reply, it was submitted by the assessee that no obligation was cast upon it to deduct tax at source on the aforesaid amount, for the reason viz. (i) that, as the services rendered by the foreign concern for introducing a client did not “make available” any technical knowledge, experience, skill, know-how or processes to the assessee, therefore, the same did not fall within the realm of “Fees for included services” as envisaged in Article 12 of the India-USA, DTAA; and (ii). that, as the payment made to the foreign concern for the services which were rendered entirely in USA, constituted its business profits within the meaning of Article 7 of the India-USA DTAA, therefore, in the absence of any Permanent Establishment (for short „PE‟) of the said foreign concern in India, the said amount could only be brought to tax in USA. In sum and substance, the assessee tried to impress upon the A.O that as it was not obligated to deduct any tax at source on the payment made to the foreign concern towards referral fees, therefore, no disallowance u/s 40(a)(i) was called for in its hands. However, the A.O was not persuaded to accept the explanation of the assessee. It was observed by the A.O, that a similar payment was disallowed by his predecessor under Sec. 40(a)(i) while framing the assessment in the case of the assessee for A.Y. 2009-10. The A.O relied on the view taken by his predecessor, wherein he had after referring to the „Explanation‟ to Section 9(2) that was made available on the statute by the Finance Act, 2010 w.r.e.f 01.06.1976 observed, that the income of a non-resident was deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1), and was to be included in the total income of the non-resident, whether or not, (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India. It was noticed by the A.O that his predecessor on the basis of the aforesaid retrospective amendment had concluded, that irrespective of the fact that the foreign concern towhich referral fees was paid by the assessee had a residence or place of business or business connection in India, or had rendered services in India, or not, the amount of referral fees would be taxable in the hands of the said foreign concern in India. Apart there from, it was also observed by the A.O that the assessee had failed to demonstrate as to how the aforesaid amount was not taxable in India as per the India-USA DTAA. On the basis of his aforesaid deliberations, the A.O being of the view that the assessee who was obligated to deduct tax at source on the referral fees of Rs. 24,62,367/-, however, had failed to comply with the said statutory obligation, thus, disallowed the said amount under Sec. 40(a)(i) of the I-T Act.
4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). However, the CIT(A) following the view taken by his predecessor who had upheld the said disallowance while disposing off the appeal in the case of the assessee for A.Y. 2009-10, dismissed the appeal.
5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorised Representative (for short „A.R‟) for the assessee, at the very outset of the hearing of the appeal submitted, that there was a delay of 17 days in filing of the present appeal before the Tribunal. The ld. A.R explaining the reason which h d led to the delay in filing of the appeal submitted, that the same had occasioned on account of an inadvertent omission on the part of the tax consultant of the assessee company, namely M/s Kalyaniwalla & Mistry LLP. It was submitted by the ld. A.R that as the tax consultant of the assessee at the relevant point of time i.e 25.03.2017 till 10.04.2017, was engrossed in shifting of its office to a new premises, therefore, on account of a bonafide omission the filing of the appeal with the Tribunal had skipped from the mind of the concerned person and, the same had resulted to the delay of 17
days in filing of the present appeal. In order to drive home his aforesaid contention, the ld. A.R took us through the “affidavit” of the assessee, wherein the latter had deposed the aforesaid facts. Per contra, the ld. D.R objected to the admission of the appeal which was filed beyond the stipulated time period.