September 2019

Sections 5, 9, 40(a)(i) and 195 of the Act; Article 7 of India-USA DTAA – As services were rendered outside India and payment was also made outside India, receipts of the foreign company were not within the scope of ‘total income’ in section 5(2) – Fee received for merely referring and introducing clients is business income which, in absence of PE in India, would not be chargeable in India – Besides, the services were not in the nature of managerial, technical or consultancy services

Geeta Jani | Dhishat B. Mehta
Chartered Accountants

20.  [2019] 107 taxmann.com 363 (Mum – Trib.) Knight Frank (India) (P) Ltd. vs. ACIT ITA No.: 2842 (Mum.) of 2017 A.Y.: 2012-13 Date of order: 12th June, 2019;

 

Sections 5, 9, 40(a)(i) and 195 of the Act; Article 7 of India-USA DTAA – As services were rendered outside India and payment was also made outside India, receipts of the foreign company were not within the scope of ‘total income’ in section 5(2) – Fee received for merely referring and introducing clients is business income which, in absence of PE in India, would not be chargeable in India – Besides, the services were not in the nature of managerial, technical or consultancy services

 

FACTS

The assessee was engaged in the business of rendering international real estate advisory and property management services. During the course of the relevant year, the assessee had paid referral fees to an American company (US Co) for introduction of clients to the assessee. According to the assessee, the services rendered by the US Co did not ‘make available’ any technical knowledge, experience, skill, knowhow or processes to the assessee. Therefore, they were not in the nature of ‘Fees for included services’ in terms of Article 12 of the India-USA DTAA. Since they were business profits of the US Co, in the absence of a PE in India they could not be brought to tax in India.

 

However, the predecessor of the AO had, in an earlier year, held that after retrospective amendment and insertion of Explanation to section 9(2) of the Act, the income of a non-resident was deemed to accrue or arise in India u/s 9(1)(v), (vi) or (vii)irrespective of whether the non-resident had a place of business or business connection in India or whether he had rendered services in India, and hence, the referral fee was taxable in India. Following the order of his predecessor, the AO disallowed the fee u/s 40(a)(i) of the Act. The CIT(A) also followed the view held by his predecessor CIT(A) and dismissed the appeal.

 

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