Foreign Reimbursement of Expenses.

S.40(a)(i): Amounts not deductible-Deduction at source–Professional fees and reimbursement of
expenses-Outside India-Non-resident –Not necessary to pay tax in contracting State to a
resident of contracting State. Mere right of contracting state to tax such person by reason of
domicile, place of management or incorporation is sufficient-DTAA-India-UAE. [S.90, Art 14 ]
Professional fees to non–resident as no PE in India-services is not liable to tax India-DTAAIndia-
UAE, USA-UK [S.9(1),9(1)(vii), 195,Art. 4(1),7, 12, 13, 15 ]
The asssessee made reimbursement of expenses to V of U.A.E. It claimed that “V “had not stayed in

India for more than 183 days and did not have a fixed base in India. Therefore V’s income was not
chargeable to tax in India and therefore there was no need to deduct TDS u/s.40(a)(i) of the IT Act .
The AO disallowed payments u/s.40(a)(i) for non - deduction of TDS as he was of the view that
assessee could not be treated as a resident of UAE as per Article 4(1) of Indo UAE of DTAAA as
he was not paying Tax in UAE. CIT (A) confirmed the disallowance. On further appeal in Tribunal,
Tribunal allowed the appeal and held that as per Art 4(1) of Indo-UAE DTAA, it is not necessary to
pay tax in contracting state to be a resident of contracting State. Mere right of contracting State to tax
such person by reason of domicile, place of management or incorporation is sufficient. Therefore “V”
was not chargeable to Tax in India. Assesee paid professional Fees to various persons in USA, UK,
and Malaysia in respect of training & professional services without deduction of tax . The asssessee
claimed that the Professionals did not have any permanent establishment in India and services were
not in nature of make available of technical knowledge, experience, skill, know how or process and
therefore, in view of DTAA with US & UK, services were not taxable. Assessing officer disallowed

payments u/s 40(a)(i)for on-deduction of tax at source. CIT (A) allowed assesse’s appeal. On appeal
in Tribunal it was held that where Foreign professionals did not have any PE in India, nor were the
services in nature of make available of technical knowledge, experience, skill, know-how or process,
Professional fees not taxable in India in view of DTAA provision. (A.Y.2004-05)
KPMG v. JCT (2013) 142 ITD 323/157 TTJ 722 (Mum.)(Trib.)