a) The assessee was engaged in the banking business and paid certain legal fees to one legal firm situated in UK. The assessee had deducted and deposited 20% withholding taxes on such payment as per the agreement.
b) Subsequently, it filed an appeal before Commissioner (Appeals) and contended that the impugned payment was not liable to be taxed in India. Said contention was considered but dismissed by the Commissioner (Appeals) on the ground that no new source of income came into existence by obtaining the legal services, and hence, the impugned payment constituted 'Royalty'/'FTS' as per section 9(1)(vi)/(vii).
The ITAT held as under:
1) The impugned payments were made by assessee for creating or earning a new source of income outside India by way of establishment of new Bank Branch or acquisition of Bank.
2) Section 9 provides that royalty or FTS is deemed to accrue or arise in India if it is payable by a person who is resident, except where the fees are payable for the purposes of making or earning any income from any source outside India;