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2016 (6) TMI 37 - ITAT AGRA

2016 (6) TMI 37 - ITAT AGRA - TMI - TDS u/s 195 - payment in the nature of fees for technical services within the meaning of that expression u/s 9(1)(vii) - withholding of tax - Held that:- 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 payments were rendered in India.

Further it is also not disputed that the entire amount has been paid and nothing is outstand .....

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e. - ITA No.147/Ag/2014, Cross Object ion No. 10/Ag/2014 - Dated:- 26-4-2016 - SHRI BHAVNESH SAINI , JUDICIAL MEMBER 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 .....

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er 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 the effect that the payments were not in the nature of fees for technical services within the meaning of that expression u/s 9(1)(vii) of the Act or under the applicable Double Taxation Avoidance Agreement. It was al .....

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type of payments as mentioned above, the AO accepted payments amounting to ₹ 1,01,97,818/-out of details of purchase of material samples as being for outright purchase of goods without there being any element of technical service and held that the provision of section 9(i)(vii) r.w.s 195 for TDS are not involked on the same. The balance payments out of expenses for purchase of material amounting to ₹ 46,51,070/- (as detailed at pg. no. 7 & 8 of CIT(A) order) were held to be in t .....

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3. Aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) who deleted the impugned disallowance following his decision in the assessee s case in the preceding year i.e. Assessment year 2008-09 holding that the impugned payments were either not in the nature of FTS or if they were so, the provision relating to their taxability came retrospectively and the assessee could not be held to be defaulter for his inability to foresee such amendment. Moreover the expenses categorized a .....

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o 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 appre .....

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by the AO for assessee s default in respect of deduction of tax at source u/s 40(a)(i) of the I.T. Act, 1961. 2. That the order of Ld. Commissioner of Income Tax (Appeals) being erroneous in law and on facts deserves to be quashed to be quashed and that of the Assessing Officer deserves to be restored. Further the assessee filed a Cross Objection against the findings of the CIT(A) raising the following grounds: 1. Because the learned authorities below have erred on facts and in law in consideri .....

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ices. 3. Because the learned authorities below have erred on facts and in law in upholding the disallowance under section 40(a))(i) without appreciating that no amount remained payable to the non resident at the end of the year. 5. At the outset it may be stated that the assessee withdrew the cross objection filed before us. In view of the same it is treated as dismissed. 6. In the appeal filed by the Revenue during the course of hearing before us it was brought to the notice of the bench that i .....

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lly disposed of, vide our order dated 4th February, but it was, vide our order dated 28th February 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 cove .....

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ion, 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 is a non-resident, where the fees are payable in resp .....

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a non-resident to be taxed on income for services, such a service needs to be rendered within India, and has to be part of a business or profession carried on by such person in India. In the above judgment, the apex Court observed that (p. 444) : Sec. 9(1)(vii) of the Act must be read with s. 5 thereof, which takes within its purview the territorial nexus on the basis whereof tax is required to be levied, namely, (a) resident; and (b) receipt of accrual of income . According to the apex Court, t .....

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ficance. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle. An endeavour should, thus, be made to construe the taxability of a non-resident in respect of income derived by it. Having regard to the internationally accepted principle and the DTAA, no extended meaning can be given to the words income deemed to accrue or arise in India as expressed in s. 9 of the Act. Sec. 9 incorporates various heads of income on which tax is sought to be le .....

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her 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..... .....

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simultaneously." 7. The law laid down by Hon ble Supreme Court, in the case of Ishikawajma-Harima Heavy Industries Ltd. vs. Director of Income Tax (supra), binds everyone under Article 141 of the Constitution of India. The legal position thus was that unless the services are rendered in India, the same cannot be brought to tax as fees for technical services under Section 9. However, this legal position did undergo a change when Finance Act 2010 received assent of the President of India on .....

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r arise in India under cl. (v) or cl. (vi) or cl. (vii) of s. 9(1), and shall be included in his total income, whether or not (a) the nonresident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. It is thus no longer necessary that, in order to attract taxability in India, the services must also be rendered in India. As the law stands now, utilization of these services in India is enough to attract its taxability in Indi .....

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thholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The taxdeductor cannot be expected to have clairvoyance of knowing how the law will change in future. A retrospective amendment in 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 paym .....

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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 .....

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from payments to non-residents, and the assessee fails to comply with such an obligation. In view of these discussions, 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 assessee s failure to deduct tax at source from such payments. 9. In the case before us, th .....

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be made in respect of these payments. As we have come to these conclusions in the light of the provisions of the domestic law, i.e. Income Tax Act, itself, there is no need to deal with the taxability of incomes embedded in these payments under the provisions of the applicable tax treaties. That would be relevant with respect to taxability of these payments in the hands of the recipients, but, for the reasons set out above and in the light of the legal position discussed above, will be academic .....

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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 wer .....

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