TMI Blog2016 (7) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... as the other Courts. Once this is an admitted position, then it is very difficult to comprehend that, assessee should have deducted TDS on such payment when law of the land did not permit so or envisage any withholding of tax, on the basis of law which was brought from subsequent date albeit with retrospective date stating that, now all such payment for services even rendered outside India is taxable in India. Here, the maxim of “lex non cogit ad impossibilia, is fully applicable that is, the law does not possibly compel a person to do something which is impossible, that is, when there was no provision for taxing an amount in India at the relevant time then how it can be expected that a tax should be deducted on such a payment. Here in this case, the decision of Hon’ble Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd vs. DIT (2007 (1) TMI 91 - SUPREME COURT ) was rendered on 4th January, 2007; agreement was entered by the assessee with SP Italy on 26th April; 2007; application was made before the AO on 23rd August, 2007 for the payment to be made in September, 2007; therefore, assessee had a valid reason and reasonable ground for not with holding the tax at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 Advance During Pre Basic Test : SP shall provide assistance services during Pre Basic Test ( PBT ) to be carried out by TCL on the UREA PLANT in India as per para 2 of Appendix I to this AGREEMENT. The PARTIES agree that the PBT already completed in June 2006 is considered valid and that SP has complied with its obligations in connection with the said PBT. 2.2 License : Subject to the terms and conditions of this AGREEMENT and to the full payment LICENSE FEE as per sub-clause 4.2, SP shall grant to TCL a non-exclusive non-transferable right and license: a) to have the CAPACITY AUGMENNTATION PROJECT designed and implemented using BEDP provided by SP under this AGREMENT; b) to practice SP PROCESS as may be required for operation of the CAPACITY AUGMENTATION PROJECT. To sell export to, or use in any country the urea produced in the CAPACITY AUGMENTATION PROJECT. Purview of existing Urea Plant SP shall review, in Italy, the documents of existing UREA PLANT as described in para 2 of Appendix I to this AGREEMENT. 2.4 Basic Engineering Design Package : SP shall perform the Basic Engineering Design Package ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and BEDP will be supplied by S.P. in Italy. Detailed engineering design will be prepared by local engineering firm engaged by the applicant. The applicant has made an application dt. 23.08.2007. In BEDP, SP will supply their standard design which they already have wherein it is stated that the specific core services are not liable to Income tax in India under the provision of Income Tax Act 1961. The taxability of fees for technical service u!s.9(1)(vii) is governed by provisions of section 115A. An overview of above provisions of section 9(1)(vii) read with provisions of section 115A which leads to the following interpretation: 1 Payment made by the M/s. Tata Chemical Ltd. Snampragetti SpA of Italy is in the nature of fees for technical services u/s.9(1)(vii) and 2. The aforesaid type of payment is taxable in India in the hands of SP of Italy @ 10.56% including surcharge and education cess as fees for technical services as per clause BB of section 115(1)(h) as the agreement is entered into after 11th June 2005. Accordingly, I direct that applicant shall deduct tax at 10.56% on the payments made to M/s. SP of Italy. This certificate is issued on the prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a service transaction by submitting that in the case of a sale, it presupposes the title tit goods as that of the transferor, prior to the same being conveyed to the buyer and whereas case of services, the property always belongs to the person who makes the payment for the services. The assessee has non-exclusive and a nontransferable right and license to use the BEDP provided by SP. As per the agreement the title and copyright of the BEDP will remain with the SP. Iii this regards we state that the payment made is not for the purchase of the title/rights/copyrights but for acquiring the copyrighted article . Thus, it was contended that the payment made is for the acquiring of technical know-how and not for rendering of any services in India. Besides this, various case laws were relied upon to contend that this firstly, payment made to SP Italy was not for FTS or any services and secondly, it is not taxable in India. Specific reliance for later proposition was made on Hon ble Apex Court decision in Ishikawajma Harima Heavy Industries Ltd vs DIT, reported in [2007] 288 ITR 408. 5. The Ld. CIT(A), has dealt extensively with the assessee s arguments; relevant clauses of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which has been contested before us by the parties is that, whether assessee can be held to be liable for deducting TDS or not in view of retrospective amendment brought in the statute from the subsequent date of the payment. 6. Before us, the Ld. Counsel has restricted his argument that, even if the said payment is reckoned to be payment for rendering of technical services, which though assessee has been denying all through, then one thing is absolutely clear that such services were not performed in India which is borne out from the agreement that the whole BEDP was performed by SP Italy only. Thus, at the time of making the payment, there was a settled law in India that if a payment has been made for rendering any services outside India then the same would not be held to be chargeable to tax in India. This law was settled in view of the decision of Hon ble Supreme Court in the case of Ishikawajma Harima Heavy Industries Ltd ( supra ). Hence, assessee could not be expected to deduct TDS on such a payment. The law was amended by virtue of insertion of Explanation in section 9(1)(vii) with retrospective effect from 01.06.1976. In support, that assessee could not be expect to wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized in India so as to be held to be taxable in India. Both the conditions have to be satisfied simultaneously, that is, the services which are source of income should be utilized in India and services should have been rendered in India. However, if the second limb is not satisfied that is, services have been rendered outside India, then same was held to be outside the purview of taxability in India. The Ld. CIT(A) has also admitted to this position, however, he held that the Explanation to section 9(1)(vii) inserted by the Finance Act, 2010 with retrospective effect from 01.06.1976 was brought specifically to overcome the said decisions of Hon ble Supreme Court as well as the other Courts. Once this is an admitted position, then it is very difficult to comprehend that, assessee should have deducted TDS on such payment when law of the land did not permit so or envisage any withholding of tax, on the basis of law which was brought from subsequent date albeit with retrospective date stating that, now all such payment for services even rendered outside India is taxable in India. Here, the maxim of lex non cogit ad impossibilia , is fully applicable that is, the law does not poss ..... X X X X Extracts X X X X X X X X Extracts X X X X
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