TMI Blog2010 (7) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled for. 3. The learned CIT(A) has erred in law and on facts in not appreciating that the Fees for Technical Services were not made available to it and therefore the provisions of DTAA does not apply and therefore the appellant was not required to deduct withholding tax, consequently no disallowance under section 40( a )( i )( A ) was called for. 4. The learned CIT(A) has erred in law and on facts in not appreciating that as per the decisions of Hon ble the Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT , the appellant was not required to deduct tax at all and precisely for this reason, law has been retrospectively amended. However retrospective amendment cannot cast a retrospective burdon of deducting tax. 5. Alternatively and without prejudice, the learned CIT(A) has erred in law and on facts in not appreciating that the appellant received independent personal service which is covered by Article 15 of DTAA and therefore the appellant was not required to deduct withholding tax, consequently no disallowance under section 40( a )( i )( A ) was called for." 3. The brief facts leading to the above issue are that the assessee-company has ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anent basis. This fact was clearly brought out to the assessee in the show cause dated 3-11-2006. It is once again reiterated that the assessee having once formulated sales strategy as per experience of Mr. Whitehead had the same available with the assessee-company on a reasonably permanent basis. The contention of the assessee-company that it had not rendered services similar to the services for which Mr. Whitehead was engaged it does not come within the purview of DTAA unfounded. But in the case of assessee-company after the services were rendered by Mr. Whitehead if not only had the benefit of using the knowledge of potential market, potential source of raw materials, sales strategy, manufacturing process and long-term alliances on a reasonably permanent basis. The CIT(A) further confirmed the addition by giving following finding in para-2.4 of his appellate order: "2.4 The appellant s contention that it is covered under Article 15 of DTAA is not acceptable. Further, after the amendment to section 9, there is no requirement that the services should be rendered in India. The technical services rendered were made available in India and the appellant is the beneficial owner of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 004, when this provision was not on statute book and this was brought retrospectively. It is well settled, that a person cannot be expected to do an impossible act, nor does law oblige him to do so. This argument was 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. 7. On the other hand, the SR-DR heavily relied on the orders of lower authorities addition stated that this obligation is caste on the assessee by the Legislature by amending the Act as noted above. In view of this, he stated that the orders of lower authorities be uphold. 8. We have heard the rival contentions and gone through the facts and circumstances of the case. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ishikawajma-Harima Heavy Industries Ltd. ( supra ) remains untouched and unaffected by the Explanation . Further the Legislature vide Finance Bill, 2010 in order to remove any doubt about the legislative intent of the aforesaid source rule, substituted in place of the existing Explanation a new Explanation to specifically state that the income of a non-resident shall be deemed to accrue or arise in India under clause ( v ) or clause ( vi ) or clause ( vii ) of sub-section (1) of section 9 and shall be included in his total income, whether or not, ( a )the non-resident has a residence or place of business or business connection in India; or ( b )the non-resident has rendered services in India. This amendment was made retrospectively from 1-6-1976 and will accordingly, apply in relation to the assessment year 1977-78 and subsequent years. 9. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether an assessee can be liable to pay interest for failure to pay advance tax during the year when the liability to pay tax had arisen on account of amendment to law which took place after the end of the year, Hon ble Madras High Court in the case of CIT v. Revathi Equipment Ltd. [2008] 298 ITR 67, reproduced and thereafter approved the reasoning contained in the following passage of the Tribunal order. "We have no doubt in our mind that the levy of interest under sections 234B and 234C are of mandatory nature, but at the same time, if we read sections 234B and 234C carefully, we find that such liability is fastened to those assessees who are liable to pay advance tax. Now, let us see who are liable to pay advance tax and how. Sections 207 and 208 read as under : 207. Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as "current income". 208. Advance tax shall be payable during a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be entitled to deduct the VRS payments. Therefore, the assessee could not have done anything other than to estimate the liability to pay advance tax on the basis of existing provisions. We are of the considered opinion that in such situation, it cannot be said that the assessee was liable to pay advance tax. Once we come to the conclusion that the assessee was not liable to pay advance tax, there is no question of charging tax under sections 234B and 234C. In similar circumstances in the case of Priyanka Overseas Ltd. v. Deputy CIT [2001] 79 ITD 353 (Delhi) where the assessee had treated the receipt of cash assistance as capital receipts, which was subsequently amended to be business receipt by the Finance Act, 1990, it was held that in such cases interest under sections 234B and 234C was not chargeable. In these circumstances, we think that the assessee was not liable to pay advance tax and therefore levy of interest under sections 234B and 234C is not justified. Further, it is pertinent to note that the assessee by way of abundant caution deposited a sum of Rs. 90,00,000 on August 6, 2001, i.e., much before the due date of filing of the return, which also proves ..... X X X X Extracts X X X X X X X X Extracts X X X X
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