TMI Blog2016 (6) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... R AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER For The Assessee : Sh. Saahib Satsangi For The Department : Sh. Waseem Arshad ORDER PER ANNAPURNA MEHROTRA A.M. This appeal of the Revenue and the Cross Objection of the assessee have been filed challenging the correctness of the order of Ld. CIT(A)-II, Agra dt. 10/12/2013 in the matter of assessment framed under section 143(3) of the Income Tax Act 1961, for the Assessment year 2009-10. 2. Brief facts relating to the case are that the assessee is an exporter of leather footwear and footwear uppers. During the impugned Assessment year the assessee debited an amount of ₹ 2,03,72,774/- under the head design charges on account of payments made foreign nationals / foreign companies. During assessment proceedings the AO was of the view that the assessee was under an obligation to deduct tax at source from these payments as per the provisions of section 195 r.w.s 9(1)(vii) of the Act and the assessee having failed to do so, the payments were rendered ineligible for business deduction in view of the provisions of section 40(a)(i) of the Act. Detailed submissions were made by the assessee before the AO to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable in India in view of the provisions of Article 13 15 of the DTAA with Spain alongwith section 9(i)(vii)(b) Section 90(2) of the Act. Further the expenses categorized as reimbursement of expenses were held to be in the nature of reimbursement as such and therefore it was held that there was no question of adding such sum under section 40(a)(i) of the Act. Ld. CIT(A) further held that since no services were rendered in India with respect to the impugned payments, no disallowance under section 40(a)(i) could be made on account of retrospective amendment to section 9(1) by virtue of Explanation 2. 4. Aggrieved by the same the Revenue filed the present appeal before us in ITA No 147/Ag/ 2014 raising the above mentioned grounds: 1. That the Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting the addition of ₹ 1,01,74,956/- made by the AO u/s 40(a)(i) read with section 195 of the Act, without appreciating the facts of the case that the assessee should have deducted TDS u/s 9(i)(vii) read with section 195 as the payment is certainly in the nature of fee for technical services and the explanation inserted in section 9 vide Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 2014, recalled for the limited purposes of dealing with the plea that notwithstanding the taxability of amounts paid to non-resident, section 40(a)(i) r.w.s 195 of the Income Tax Act, 1961, cannot be invoked in a case in which no services are rendered in India, in view of pre-amended section 9(1)(vii) read with Explanation thereto. 2. Learned representatives fairly agree that this issue is now covered by order dated 14/02/2014 of this Tribunal in the case of DCIT Vs. Virola International (ITA No. 256/Agra/2013) wherein the Tribunal has, inter alia, observed as follows: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax. Whereas a resident would come within the purview 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for a legal question which has not been dealt with in that decision, or not having been raised in that case. 3. In the present case also, there is nothing on record to show that the services, in respect of which the impugned payments were made, were rendered in India. 4. In view of the above discussions, we deem it appropriate to uphold the conclusions arrived at by the CIT(A) on the short ground that so far as payments made before 8th May 2010 are concerned, the assessee did not have any tax withholding liabilities from foreign remittances for fees for technical services unless such services were rendered in India, and a fortiori no disallowance can be made under section 40(a)(i) for assessess s failure to deduct tax at source from such payments. However, taxability of the amounts in the hands of the nonresident receipients , as upheld in the original order passed by us, remains unaffected by these findings. 7. The facts in the present case we find are identical to that in AY 2008-09. Undisputedly disallowance has been made in the present case by holding the impugned payments as being in the nature of FTS. Admittedly no services in respect of the impugned payme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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