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2021 (10) TMI 210 - AT - Income TaxTDS u/s 195 - addition u/s 40(a)(i) - non-deduction of tax at source on payment made to non-resident 40(a)(i) of the Act for non-deduction of tax at source on payment made to non-resident - India - Mauritius DTAA - HELD THAT:- India-Mauritius DTAA does not cover FTS. Once FTS is not covered under DTAA, then by virtue of residual clause 22 of DTAA between India and Mauritius, said sum can be considered under Article 7 as business profits. Further, as per Article 22, where any item of income of a resident of a contracting state, wherever arising, which are not expressly dealt with in the foregoing Articles of this Convention, shall be taxable only in that Contracting State. If you go by Article 22, then if anything not expressly provided in this convention, then same cannot be taxed in India, even if said sum comes under the definition of FTS as per Indian Tax laws. Insofar as, taxation of impugned pay As definition of FTS was amended by the Finance Act, 2010 with retrospective effect from 01.06.1976 but, the law prevailing at the time of making payment by the assessee to the non-resident was on the basis of judgment of Hon'ble Supreme Court Ishikawajma-Harima Heavy Industries Ltd [2007 (1) TMI 91 - SUPREME COURT] which clearly held that payment made to a non-resident for services rendered outside India cannot be brought to tax in India as fees for technical services in absence of place of business/permanent establishment in India. Since, there was clear law by the decision of Hon'ble Supreme Court, the assessee has made payment without deducting tax at source. Therefore, liability towards TDS cannot be fastened on the assessee on the basis of subsequent amendment to law with retrospective effect, because it was impossible on the part of assessee to deduct tax on income of non-resident because the assessee cannot foresee the amendment and deduct TDS on said payments. AO as well as the ld. CIT(A) were erred in disallowing payment made to a non-resident u/s. 40(a)(i) of the Act for failure to deduct TDS u/s. 195 - Decided in favour of assessee.
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