February 2019

Article 13 of DTAAs; Section 9(1)(vii) – Payment made to non-resident LLPs towards professional services qualified as IPS.

Geeta Jani | Dhishat B. Mehta
Chartered Accountants

21. TS-10-ITAT-2019 (Del) ACIT vs. Grant Thornton Date of Order: 10th January, 2019 A.Y.: 2010-11

 

Article 13 of DTAAs; Section 9(1)(vii) – Payment made to non-resident LLPs towards professional services qualified as IPS.

 

FACTS


Taxpayer, an Indian company was engaged in providing international accountancy and advisory services to various clients in India and abroad. During the year under consideration, Taxpayer availed services2 of various foreign limited liability partnerships (NR LLPs) to render services to its clients abroad and paid fees to such NR LLPs without withholding tax. The taxpayer contended that services obtained from NR LLPs were in the nature of ‘Independent Personal Services’ (“IPS”) rendered outside India and in absence of a fixed base of the NR LLPs in India, tax was not required to be withheld on such payments under the relevant DTAA.

 

The AO, however contended that services rendered by NR LLPs were technical services which accrued or arose in India u/s. 9(1)(vii). Further, the IPS article under the treaty applied only to an individual (both in his own capacity or as a member of a partnership) and not to an LLP. Thus, in absence of any withholding, AO disallowed the payments made to NR LLPs.

 

Aggrieved, Taxpayer appealed before the CIT(A) who reversed AO’s order on the ground that income derived by an individual or a partnership firm by rendering professional services is exempt from tax in India by virtue of IPS article. Further, as the services rendered by the NR LLPs did not make available any technical knowledge or skill, it did not qualify as FIS under the relevant DTAA.

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2.  Profes

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