Granting tax relief to Deloitte India, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) held that the provisions relating to Tax deduction at Source (TDS) are not applicable to the professional fee paid by them to its Group Entities in US and Singapore. The division bench of the Tribunal further clarified that the said amounts are not taxable in India as per the Double Taxation Avoidance Agreements (DTAA) entered into by India with these countries.

The assessee, Deloitte Haskins & Sells, Mumbai is a Firm of Chartered Accountants. During the relevant year, the Assessing Officer disallowed professional fees paid by the Assessee to Deloitte & Touche, Singapore(DTS), Deloitte & Touche, LLP USA(DTL US), Deloitte Touche Tohmatsu Ltd., Australia (DTTL AUS) amounting to Rs. 22.83 lakhs, Rs.1.56 lakhs, Rs.1.64 lakhs respectively.

On appeal, the first appellate authority held that the payment of fee by the assessee was covered under the provisions of section 9(1) of the Act, that payments made by it were liable for deduction of tax at source, that the disputed amounts deemed to accrue/arise in India under section 9 of the Act.

With regard to the payment made to US entity, the assessee contended that the USA entity had rendered professional services outside India, that no tax was deducted at source on the basis of the certificate obtained from a Chartered Accountant, that payment of professional fee was not liable to tax in India in view of Article XV of the India-USA Tax-treaty. The assessee also made a reference to Article 12 of the DTAA.

The Tribunal noticed an earlier decision of the Tribunal in the own case of the Assessee wherein it was held that the payments made by them to the Canadian and New Zealand entities, under the head professional services are not taxable in India as these foreign entities have no ‘Permanent Establishment’ in India.

After hearing both the sides and judicial precedents, the tribunal held the professional fees paid by the assessee to DTS and DTL were not taxable in India nor were subject to TDS provisions of Chapter XVII of the Act.