Consideration to foreign attorneys for rendering services in field of IPRs are FTS u/s Section 9(1)(vii) of Income Tax Act: ITAT, Kolkata

Facts of the case:

• Assessee is a patent attorney and paid fees in respect of professional services rendered by foreign attorneys in the field of specialised services in IPRs (Intellectual Property Rights).
• The AO observed that the payments made by the assessee to the foreign attorneys were in connection with profession carried on by him in India and fall within the scope of FTS.
• AO disallowed the same u/ 40(a)(i), since the assessee had failed to deduct tax at source on such payment.

Contention of Assessee:

•  Assessee stated that services rendered to his clients were that of an agent on behalf of a principal. They only made necessary arrangements for registration of the IPs in foreign jurisdictions while the actual acts to execute and file the applications were performed by the non-resident attorneys.
• Assessee further stated, that, he was a Patent Attorney and acted only as a facilitator between the clients and the foreign attorneys, therefore, the remittances made to the non-resident attorneys did not constitute the assesee’s professional expenditure, and hence, there was no question of disallowance under section 40(a)(i) of the Act for non-withholding of tax against the fees paid to the non-resident attorneys.

Contention of Department:

•  Department stated that the services rendered by the non-resident attorneys were specialized services which required technical knowledge and could not be said to be mere clerical or executionary in nature. Accordingly, such services ought to be categorized as FTS.
• Explanation to Section 9(2) inserted by Finance Act 2010, provided that whether or not the non-resident has a residence or place of business or business connection in India; or whether or not the non-resident rendered services in India, the fees for technical services shall be deemed to accrue in India if they are either rendered or consumed in India.
• Further, assessee filed 15CB certificates while making remittances to the foreign attorneys in which such payments were Characterized as fees for professional services.
• DR relying upon the decision made by honorable SC in GVK industries Ltd. V. ITO (2015), contended that the source of income in connection with which the services of foreign attorneys were used, was located in India. Therefore, the payments made to the foreign attorneys do not fall within the exception of FTS taxability u/s 9(1)(vii) (b) the Act.

Conclusion:

• ITAT bench, Kolkata decided the judgement in favor of department for statistical purpose and stated that payments made to foreign attorneys were professionally qualified to render legal services under the relevant IP act, and hence payments made to foreign attorneys came within the ambit of FTS taxability provisions and deemed to accrue or arise in India. Thus, the assessee has an obligation to deduct tax under the provisions of the act.
• However, to meet the ends of justice, tribunal held that it deems fit and proper to restore assesee’s alternate plea raised for the first time for considering the matter in light of the beneficial provisions of the DTAAs with respective countries.

Source: ACIT v. Sri Subhatosh Majumder [ITA No. 2006/Kol/2017]