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2010 (7) TMI 803 - AT - Income TaxTDS u/s 195 - Disallowance u/s 40A(a)(i)(A) - assessee has not deducted withholding tax on fees for technical services as per the provisions of DTAA - as submitted appellant was not the beneficial owner of Fees for Technical services and therefore the provision of DTAA does not apply - whether the assessee can be asked to do impossible Act, i.e., to deduct tax for the past period? - HELD THAT:- We find that by amendment in the Finance Act, 2007, the Legislature inserted the explanation retrospectively with retrospective effect from 1-6-1976 to section 9(2) of the Act, whereas the assessment year involved is 2004-05 relevant to previous year 2003-04 and it is impossible for the assessee to deduct tax in the financial year 1-4-2003 to 31-3-2004, when the obligation to deduct TDS was not on the assessee during that period. The provision of section 9 provides for situations where income is deemed to accrue or arise in India to a non-resident. We find that the Legislature vide Finance Act, 1976, a source rule was provided in section 9 through insertion of clauses (v), (vi) and (vii ) in sub-section (1) for income by way of interest, royalty or fees for technical services respectively and the intention of introducing the source rule was to bring to tax interest, royalty and fees for technical services, by creating a legal fiction in section 9, even in cases where services are provided outside India as long as they are utilized in India but the Hon’ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd. [2007 (1) TMI 91 - SUPREME COURT] held that despite the deeming fiction in section 9, for any such income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. In view of the above facts and legal position, whether the assessee can be asked to do impossible Act, i.e., to deduct tax for the past period. With the insertion of the explanation retrospectively by the Finance Act, 2007 with retrospective effect from 1-6-1976 to section 9(2) of the Act, whereas the assessment year involved is 2004-05 relevant to previous year 2003-04, it is impossible for the assessee to deduct tax in the financial year 1-4-2003 to 31-3-2004, when the obligation to deduct TDS was not on the assessee during that period. The argument canvassed by the Ld. counsel on the basis of a legal Maxim lex non cogit ad impossibilia, meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform. This Maxim is accepted by different courts of this country, including the Hon’ble Supreme Court in the case of Krishnaswamy S. Pd. v. Union of India [2006 (2) TMI 75 - SUPREME COURT]. At the relevant point of time it was impossible on the part of the assessee to deduct tax on the income of non-resident. Admittedly, up to the insertion of explanation vide Finance Act, 2007, the assessee was under bona fide belief not to deduct tax and accordingly he acted as per law. Accordingly we allow the appeal of assessee. In the result, assessee’s appeal is allowed.
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