By 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. Professional services pertaining to the
field of lawyering (giving reviews and opinions) and accounting e.g. SAS70
engagement, review and filing of form number1120, due diligence, review of US
GAAP financials etc
Consequently, AO appealed before the
Tribunal.
HELD
- There is no dispute that the
services rendered by NR LLPs were professional services. The IPS article in
some of the DTAAs applied in respect of payments made to “residents”, while in
some other DTAAs, it applied to individual (both in his own capacity or as a member
of a partnership). Thus, there was no infirmity in the order of CIT(A) who had
upheld the applicability of IPS article on payments made to NR LLPs.
- Further, in absence of
satisfaction of make available condition, the payment made to NR LLPs did not
qualify as FTS under respective DTAAs.
- Thus, in absence of
chargeable income, there was no obligation on Taxpayer to withhold taxes on
payments made to NR LLPs.
