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2008 (9) TMI 414 - AT - Income TaxDisallowance u/s. 40(a)(i) - non-deduction of TDS u/s 195 - Payment to Non- resident - Fees For Technical Services - data processing charges - business of providing consultancy services - CIT(A) upheld the findings of the AO that data processing charges paid by the assessee are in the nature of fees for technical services and its deduction to the assessee deserves to be disallowed by virtue of s. 40(a)(i) of the Act because assessee failed to deduct tax on source while making the payment. HELD THAT:- In the present case, Dr. Hutarew & Partner, is not maintaining any server for everybody that anyone can feed the data and get the solution. The solutions are being provided on the specific needs of the customers. The information supplied by the German company is specific which can help the assessee in finalizing its design. Such specific client based information cannot be equated with the standard services provided by a telecommunication company. As far as the second fold of submission is concerned since an Explanation has been appended with cl. (vii) of s. 9(1) of the Act, this Explanation is applicable with retrospective effect. According to this Explanation, if services have been used by the assessee within India, then it is immaterial whether the non-resident has a residence or place of business or business connection in India, if the services are used in India and payment made to non-resident then that sum would be included in the income, which will be deemed to have accrued to the non-resident, therefore, there is no merit in this fold of submission also. We find that the provisions of s.195(2) are not provisions of convenience which the assessee may use or may not use. If a person wants to make payments to a non-resident and those payments are not explicitly declared exempt by the provisions of the IT Act, the person making the payments has to deduct tax at source and he can free himself of the liability to deduct tax source only if he gets the concurrence of the AO under sub-s. (2) of s.195. If the person making the payments has not fulfilled his obligations under the provisions of sub-s. (1), (2) or (3) of s. 195, as the case may be, then he has to face the consequences of the provisions of the IT Act, 1961. We find that from the next year, assessee has started deducting tax on such type of payments at its own. In the result, the appeal filed by the assessee is dismissed.
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