TMI Blog2014 (2) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... he conclusions arrived at by the CIT(A) upheld – Decided against Revenue. - I.T.A. No. 256 /Agr/2013 - - - Dated:- 14-2-2014 - Bhavnesh Saini JM And Pramod Kumar AM,JJ. For the Appellant : Waseem Arshad For the Respondent : S. P. Satsangi ORDER Per Pramod Kumar: 1. By way of this appeal, the assessee appellant has challenged the correctness of learned Commissioner (Appeals)'s order dated 21 st March 2013, in the matter of assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for the assessment year 2008-09. 2. Grievance raised by the Assessing Officer is that, on the facts and in the circumstances of the case, learned Commissioner (Appeals) erred in deleting the disallowance of Rs 51,98,819, made under section 40(a)(ia) of the Act, with respect to foreign remittances, for design and development expenses, without deducting tax at source. 3. To adjudicate on this appeal, only a few material facts need to be taken note of. The assessee before us is an exporter of leather footwear and footwear uppers. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has, inter ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as FTS, no TDS was required to be made at the time of credit/ payment as per the law existing at that time because services were not rendered in India ...". The disallowance was thus deleted. The Assessing Officer is aggrieved and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered factual matrix of the case as also the applicable legal position. 6. Hon'ble Supreme Court, in the case of Ishikawajima Harima Heavy Industries Ltd Vs DIT (288 ITR 408), had held that in order to bring a fees for technical services to taxability in India, not only that such services should be utilized in India but these services should also be rendered in India. Analyzing this legal position, Hon'ble Bombay High Court has, in the case of Clifford Chance Vs DCIT (318 ITR 237), observed as follows: "The apex Court had occasion to consider the above question in the case of Ishikawajma-Harima Heavy Industries Ltd. vs. Director of IT (2007) 288 ITR 408 (SC), wherein, while interpreting the provisions of s. 9(1)(vii)(c) of the Act, the Supreme Court held as under (p. 444): 'Sec. 9(1)(vii)(c) of the Act states that 'a person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of s. 9(1)(vii) of the Act, a non-resident would not, as services of a non-resident to a resident utilized in India may not have much relevance in determining whether the income of the non-resident accrues or arises in India. It must have a direct link between the services rendered in India. When such a link is established, the same may again be subjected to any relief under the DTAA. A distinction may also be made between rendition of services and utilization thereof. With the above understanding of law laid down by the apex Court, if one turns to the facts of the case in hand and examines them on the touchstone, s. 9(1)(vii)(c) which clearly states....... 'where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India'. It is thus, evident that s. 9(1)(vii)(c), read in its plain, envisages the fulfilment of two conditions : services, which are source of income sought to be taxed in India must be (i) utilized in India, and (ii) rendered in India. In the present case, both these conditions have not been satisfied simultaneously." 7. The law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith retrospective effect. The tax withholding obligations from payments to non-residents, as set out in Section 195, require that the person making the payment "at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income -tax thereon at the rates in force". When these obligations are to be discharged at the point of time when payment is made or credited, whichever is earlier, such obligations can only be discharged in the light of the law as it stands that point of time. Section 40(a)(i) provides that, inter alia, notwithstanding anything to the contrary in sections 30 to 38, any amount payable outside India, or payable in India to a non-resident, shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession' " on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted". The disallowance under section 40(a)(i) is not for the payments made to non-residents, which are taxable in India, but for the payments on which tax was deductible at source but tax has n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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