7. [2020] TS-117-ITAT-(Kol.)
ACIT vs. Sri Subhatosh Majumder
ITA No. 2006/Kol/2017
A.Y.: 2011-12
Date of order: 26th February, 2020
Section 9(1)(vii)(b) of Act – On facts, since payments made
by assessee to foreign attorneys for registration of IPs abroad were not for
services utilised in profession carried on outside India, or for making or
earning any income from any source outside India, FTS was sourced in India and
not covered by exception carved out in section 9(1)(vii)
FACTS
The assessee (resident in
India) was a patent attorney who provided IP registration services to its
clients in India. For registration of the IP of his clients abroad, the
assessee had made payments to foreign lawyers and attorneys. According to the
assessee, services were performed abroad and hence the payments were not
chargeable to tax in India. Therefore, the assessee did not withhold tax from
these payments.
But according to the A.O.,
the assessee had obtained technical information or consultancy services from
foreign attorneys. And although services were rendered outside India, they were
essentially connected with the profession carried on by the assessee in India.
Therefore, the payments were in the nature of FTS in terms of section
9(1)(vii), read with Explanation 2 thereto. Accordingly, the A.O. disallowed
the expenses u/s 40(a)(i).
On an appeal, following the
earlier years’ order in the assessee’s case5, the CIT(A) deleted the
addition by the A.O.
Being aggrieved, the tax
authority appealed before the Tribunal.
HELD
(1) Foreign attorneys were appointed for
registration of IP under patent laws of foreign countries where products were
sold. They had specialised knowledge and experience of foreign IP laws and
procedures for IPR registrations. Only because of the advice of foreign
attorneys the assessee and / or his clients could prepare the requisite,
technically intricate documentation necessary for preparing IP rights
registration applications in foreign countries. Foreign attorneys also
represented the clients of the assessee before the IP authorities abroad and
provided clarifications and explanations necessary for registrations.
(2) The following facts did not
support the contention of the assessee that he had merely acted as a
pass-through facilitating the payment to foreign attorneys or as an agent:
(a) Perusal of the documents furnished by the assessee did not show the
existence of direct and proximate nexus or direct contact between clients and
foreign attorneys.
(b) Clients had not issued any letters which showed that the appointment
of the foreign attorneys was made by the assessee on their specific
instructions or request.
(c) Perusal of the engagement letter issued by a client showed that it
had engaged the services of the assessee for registration of trade marks in
several foreign countries. It nowhere suggested engaging the services of, or
coordinating with, any particular foreign attorney. The manner of performance
was also left to the sole discretion of the assessee. The contractual terms did
not mention reimbursement of costs by the client.
(d) Copies of invoices raised by foreign attorneys showed that privity
of work was between the assessee and the foreign attorneys who performed their
work in terms of the appointment made by the assessee.
(3) Thus,
the foreign attorneys were engaged by the assessee. Payments to them were also
made by him. Such engagement was in the performance of professional services by
the assessee in India. The source of income of the assessee was solely located
in India. The assessee had engaged the services of foreign attorneys for
earning income from sources in India. Accordingly, the services rendered by the
foreign attorneys were in the nature of FTS in terms of section 9(1)(vii)(b)
and were not covered in the exception carved out therein.
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5 Said
order pertained to years prior to amendment made vide Finance Act, 2010
