In a relief to KMPG, Mumbai, the division bench of the Mumbai ITAT deleted penalty imposed on the KPMG, for not deducting tax at source while making payments to the KPMG International.
Recently, the bench had dismissed a departmental appeal, by holding that expense reimbursement paid by the Indian Firm KPMG to the KPMG International under a Mutual Agreement does not attract the provisions of Tax deduction at source under the provisions of Income Tax Act, 1961 since the principle of mutuality applies in the case. The present appeals were filed by the assessee for assessment years 2001-02, 2002-03 to 2004-05, confirming the levy of penalty under section 271C of the Act.
Assessee Firm is a member of KPMG international. The assessee had entered into a Licence Agreement and a Membership agreement both dated 01.10.1998 with KPMG International and also entered into separate sub-licence agreements with other member entities in India of KPMG International. As per these license, sub-license and membership agreements, the assessee had made some payments to the KPMGI in respect of contribution towards share of costs, reimbursement of charges towards intuition of computer based banking, bank guarantees, professional indemnity insurance, etc. the AO found that the above payments constitutes royalty and treated the assessee as assessee-in-default on ground of non-payment of TDS. Simultaneously, penalty proceedings were also initiated against the assessee.
On second appeal, the Tribunal remanded the matter to the first appellate authority, by holding that KPMG International is a mutual association and in keeping with the principle of mutuality, its receipts would not constitute income chargeable to tax and therefore the assessee was not obliged by law to deduct tax at source on payments to KPMG International. Thereafter the first appellate authority concluded the matter in favour of the assessee.
Allowing the appeals, the bench observed that on identical facts as in the four assessment years, the Coordinate Bench of ITAT in the assessee’s own case for A.Y. 2001-02 vide order dated 07.04.2017 has upheld the CIT(A)’s finding that keeping in view the principle of mutuality the assessee is not required to deduct tax at source on payments to KPMG International. Further, the Revenue has not challenged the order of the CIT(A)-10, Mumbai dated 29.02.2012 deleting the penalty levied under section 271C of the Act for A.Y. 2001-02.
In view of these facts, the bench observed that since the very basis for levy and upholding of penalty under section 271C of the Act by the authorities below for assessment years 2000- 01 and 2002-03 to 2004-05 does not survive, the orders levying/upholding the aforesaid penalty are not sustainable. Consequently the said penalty levied under section 271C of the Act upheld by the CIT(A) in the impugned order was deleted.
Read the full text of the Order below.
