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2016 (12) TMI 1478 - AT - Income TaxTDS u/s 195 - Disallowance u/s 40(a)(i) - whether the payment made to HRD constitutes “fees for technical services” or not? - India-Belgium DTAA - Held that:- We affirm the conclusion of CIT(A) that the impugned payment cannot be characterised as “fees for technical services” having regard to the meaning and scope of the expression “fees for technical services” provided in the India-United Kingdom DTAA, which is amenable for application in the instant case having regard to MFN clause in the India- Belgium DTAA. As a consequence, once it is held that such payment is not to be regarded as “fees for technical services”, as inferred by the Assessing Officer, and considering that HRD does not have any PE in India, the CIT(A) has rightly concluded that such payments are not liable to be taxed in India in the hands of HRD. Thus, there was no justification for the Assessing Officer to have invoked Sec. 40(a)(i) of the Act citing failure of the assessee to deduct tax at source u/s 195(1) of the Act. In the result, we hereby affirm the decision of CIT(A) on this aspect and Revenue fails. Retrospective amendment is determinative of the tax liability in the hands of a recipient of income, but so far as the present case is concerned, what is held against the assessee is the failure to deduct tax at source at the time of payment of such income. Ostensibly, de hors the aforesaid amendment, the impugned income was not subject to tax deduction in India as per the prevailing legal position when the payments were made. Thus, the taxability of a sum in the hands of the recipient on account of a subsequent retrospective amendment would not expose the payer of income to an impossible situation of requiring deduction of tax at source on the anterior date of payment of such income. Thus, on this count also, assessee cannot be held to be in default for not deducting tax at source so as to trigger the disallowance u/s 40(a)(i) of the Act. In the absence of any contrary decision, the aforesaid plea of assessee is also liable to be upheld and thus, the disallowance made by Assessing Officer by invoking Sec. 40(a)(i) of the Act stands correctly deleted by the CIT(A), which we hereby affirm.- Decided in favour of assessee. Claim for Additional depreciation @ 20% in terms of Sec. 32(1)(iia) - activity of cutting and polishing of diamonds - Held that:- The decision of the Tribunal in the case of Sheetal Diamonds Ltd. (2011 (3) TMI 1044 - ITAT, MUMBAI ) is quite eloquent wherein the entire process involved in the activity of cutting and polishing of rough diamonds into polished diamonds has been examined and it has been held that it constituted manufacture. CIT(A) made no mistake in holding that the activity of cutting and polishing of diamonds amounts to manufacture so as to enable the assessee to claim Additional depreciation u/s 32(1)(iia) of the Act. Thus, on this aspect also, Revenue fails.- Decided in favour of assessee.
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