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2016 (9) TMI 1032 - ITAT MUMBAI

2016 (9) TMI 1032 - ITAT MUMBAI - TMI - TDS u/s 195 - Disallowance u/s 40(a)(i) - Held that:- The assessee has acted under bonafide belief that no tax has to be deducted at source on these payments. Apart from the bonafide belief the Hon’ble ITAT has further held that as per para 4(b) of Article 12 of Indo-US DTAA fees for included services means “If such services made available technical knowledge, experience, skill, know-how, or processes, or consists of the developments and transfer of a tech .....

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Considering the totality of the facts and circumstances of the present case, we are of the view that the learned CIT (A) has passed a reasonable and judicious order. Therefore, we find no reason to deviate from or interfere with the findings of the learned CIT (A). Accordingly, we uphold his order. These grounds of appeal of the revenue stand rejected. - TDS deductable for reimbursement of expenses - Held that:- We have noticed that in the assessment order it has been categorically mentio .....

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r previous year wherein it has been categorically mentioned that the TDS was not deductable for reimbursement of expenses by the assessee accompanied for transporting/mobilizing the helicopters in India and in the absence of any embedded income in the reimbursement of these expenses, the question of deducting TDS does not arise. - Considering it we are of the view that the learned CIT (A) has passed a well reasoned and judicious order. Therefore, we find no reason to deviate from or interfer .....

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r assessment year 2005-06 whereby the learned CIT (A) has allowed the appeal filed by the assessee on the ground mentioned herein below:- 1.1 "On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in deleting the addition made by the AO on account of disallowance of ₹ 30,04,700/- u/s.40(a)(i) of the Act for non-deduction of TDS on payments made for training of Pilots and Staff. 1.2 "On the facts and in the circumstances of the case 'as well .....

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retrospective Amendment w.e.f. 1/6/1976. 2.1 "On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in deleting the addition of ₹ 43,90,000/- made by the AO on account of disallowance ix] s.40(a)(ia) of the Act due to non-deduction of TDS on the mobilization expenses paid in foreign currency. 2.2 "On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in not appreciating that, during assessment, assessee claim .....

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sessing officer be restored." 2. This appeal was fixed for hearing today and was called for several times but, nobody appeared on behalf of the assessee and even; no application for adjournment of the case was filed. As per the records it is revealed that none appeared on behalf of the assessee on the previous date of hearing also though notice was already issued by RPAD. Therefore, it seems that the assessee is not interested to contest the present appeal. The learned DR representing the R .....

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ncome of ₹ 3,55,92,645/-. The return was accompanied by Tax Audit Report u/s 44AB of the Income Tax Act along with other relevant annexure/schedules. The return of income was processed u/s 143(1) and thereafter the case was selected for scrutiny and after serving statutory notices and seeking reply from the assessee. The AO disallowed training expenses paid to three foreign parties amounting to ₹ 30,04,700/- u/s 40(a)(i) of the I.T. Act,1961 on the ground that as the assessee was lia .....

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d 23.09.2013. Aggrieved by the order of the learned CIT (A) the Revenue is now in appeal before us on the aforementioned grounds. Ground No.1.1, 1.2 & 1.3 4. Since all the grounds raised by the assessee are inter-connected and inter-related therefore we thought it fit to dispose off the same through the present common order. The said ground has been dealt by CIT(A) in para number 2.1 & 2.2 and the same is reproduced herein below for the sake of reference: 2.1 The facts of the / were that .....

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ble ITAT, Mumbai in para no.9 held as under: 9. Therefore, in view of the legal proposition discussed by the Ahmedabad Bench (supra), we agree with the contention of the assessee that the assessee has acted under bonafide belief that no tax was to be deducted at source on these payments. Apart from the bonafide belief we further noted that as per para 4(b) of Article 12 of Indo-US DTAA fees for included services means if such services made available technical knowledge, experience, skill, know-h .....

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in the hand of the non resident in view of the retrospective amendment therefore the said principle cannot be applied while deciding the issue of disallowance u/ s.40(a)(i). In view of the above discussion and the facts and circumstances of the case we are of the considered opinion that the disallowance of u/ s. 40(a)(i) is not justified and accordingly the same is deleted." Following the above decision, the addition made by A.D. is deleted. This ground of appeal is allowed. 5. We have hear .....

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1 for A.Y. 2007-08. We find that Hon ble ITAT in the afore mentioned appeals have considered the said ground in detail in para no.8&9 and the same is reproduced herein below: 8. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has disallowed the payment in question as per the provisions of section 9(1)(vii) without considering the provisions of DTAA. The CIT(A) has also relied upon the retrospective amendment brought to the statute by Fin .....

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rior to the assessment year 2006-07 and it is not the case of the assessment of income in the hand of the non-resident recipient of the amount but it is a case of disallowance of the claim of expenditure claimed by the assessee. At the time of such payment the provisions relied upon by the CIT(A) was not in existence. Thus, the assessee was not expected to do something which were impossible to perform. The Ahmedabad Bench of this Tribunal in case of Sterling Abraive Ltd. Vs ACIT (supra) has exte .....

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3 to 31-3-2004, when the obligation to deduct TDS was not on the assessee during that period. The provision of section 9 provides for situations where income is deemed to accrue or arise 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 (vl. [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 sour .....

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It further held that for establishing such territorial nexus, the services have to be rendered in India as well as utilized in India. According to the Legislature this interpretation was not in accordance with the legislative intent that the situs of rendering service in India is not relevant as long as the services are utilized in India and therefore, to remove doubts regarding the source rule, and Explanation was inserted below subsection (2) of section 9 with retrospective effect from 1-6- 1 .....

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(TDS) [2010} 321 ITR 31 has held that the Explanation, in its present form, does not do away with the requirement of rendering of services in India for any income to be deemed to accrue or arise to a non-resident under section 9. It has been held that on a plain reading of the Explanation, the criteria of rendering services in India and the utilization of the service in India laid down by the Supreme Court in its judgment in the case of Ishikawajma-Harima Heavy Industries Ltd. (supra) remains un .....

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sident 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 Financ .....

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o do something which is impossible to perform. This Maxim is accepted by different courts of this country, including the Hon 'ble Supreme Court in the case of Krishnaswamy S. Pd. v. Union of India [2006J 281 ITR 305 made the following observations in relation to the provisions of chapter XX-C of the Act. "The maximum of equity, namely, actus curiae neminem gravabit - an act of court shall prejudice no man, is founded upon justice and good sense which serves a safe and certain guide for .....

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Kumar [2006J 1 SCC 46, Mohammad Gazi v. State of MP [2000J 4 SCC 342 and Gursharan Singh v. New Delhi Municipal Committee [1996J 2 SCC 459." Similarly, while dealing with a question as to whether an assessee can be penalized for failure to carry out an act prior to its incorporation the Apex Court in the case of Lite Insurance Corporation of India v. c/T [1996J 219 ITR 410 made following observations. "11. It is obvious that in the surplus or deficit in any intervaluation period relati .....

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as 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 OT 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 .....

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le 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 financial year in every;- A case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more. ' 7. A combined reading of the above provisions makes it clear that the assessee has to p .....

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ITR 794 (Mad.). In both the decisions, it was clearly laid down by the Hon 'ble jurisdictional High Court that payments to employees under the VRS were in the nature of business expenditure and was deductible under section 37. Therefore, till the introduction of new provisions under section 35DDA, the assessee could have estimated the income legitimately after reducing the expenditure incurred on the VR5. It is a common knowledge that the Finance Bill is introduced on February 28, 2001, and .....

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at is why difficulty has arisen for visualizing the liability and the assessee Could not deduct such expenditure. In fact in almost identical circumstances in the Third Member decision by the Delhi Bench in the case of Haryana Warehousing Corporation v. Deputy OT [2001J 252 ITR (AT) 34 it was held that in such situations the legal dictum ad impossibilia would be attracted. The simple meaning of this dictum is that 'law cannot compel you to do the impossible'. In the case before us also, .....

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advance tax, there is no question of charging tax under sections 2348 and 234C. In similar circumstances in the case of Priyanka Overseas Ltd. v. Deputy OT [2001J 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 2348 and 234C was not chargeable. In these circumstances, we think that the assessee was not liable .....

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d 234C." 1O. While dealing with the question as to whether an assessee can be faulted for not declaring the amount of capital gain on acquisition of land when the amount of compensation itself is not determined Hon ble Allahabad High Court in the case of CIT vs. Prem Kumar [2008] 169 Taxman 351 held as follows: "Lex non cogit ad impossibilie is an age old maxim meaning that the law does not compel a man to do which he cannot possibly perform. Requiring the assessee to file a proper and .....

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connection, the court noted as follows. "In Raj Kumar Dey v. Tarapada Dey AIR 1987 SC 2195, the Supreme Court examined the scope of a stay order on calculation of time/limitation. In this case, an award could not be registered within the time stipulated by the Registration Act owing to an interim injunction and an order directing the award to be deposited in Court. The Supreme Court allowed the entire period during which the stay order was in operation to be excluded while applying the max .....

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the assessee to claim interest, the Delhi High Court held as follows: "Lex non cogir ad impossibitie' is a well-known maxim. It means the law does not compel a man to do that which he cannot possibly perform. If the Assessing Officer could not perform his duties to complete the order of assessment in the absence of any evidence furnished by the assessee, the Department cannot be blamed therefore. A law cannot be interpreted in vacuum. It has to be interpreted having regard to the facts .....

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2007, the assessee was under bona fide belief not to deduct tax and accordingly he acted as per law. Accordingly we allow the appeal of the assessee. 9. Therefore, in view of the legal proposition discussed by the Ahmedabad Bench (supra) we agree with the contention of the assessee that the assessee has acted under bonafide belief that no tax was to be deducted at source on these payments. Apart from the bonafide belief we further noted that as per para 4(b) of Article 12 of Indo-US DTAA fees f .....

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ce make available". The decisions relied upon by the Ld. DR are on the taxability of the income in the hand of the non- resident in view of the retrospective amendment therefore the said principle cannot be applied while deciding the issue of disallowance u/s 40(a)(i). In view of the above discussion and the facts and circumstances of the case we are of the considered opinion that the disallowance of u/s 40(a)(i) is not justified and accordingly the same is deleted. 9. In the result, both t .....

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uch services made available technical knowledge, experience, skill, know-how, or processes, or consists of the developments and transfer of a technical plan or technical design . Since in the present case the training was given to pilots and other staff as per the requirement of the DGCA Rules therefore, training was only a part of the eligibility of the pilots and other staff for working in the industry of aviation and such training would not fall under the term service make available. Ld. CIT( .....

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d No.2.1&2.2 6. Since all the grounds raised by the assessee are inter-connected and inter-related therefore we thought it fit to dispose of the same through the present common order. The said ground has been dealt with by CIT(A) in para no.3.1 and the same is reproduced herein below for the sake of reference: 3.1 I have considered the facts and circumstances of the case. This issue has come into consideration of CIT(A) order in A.Y. 2005-06 wherein in para 3.7 it is held as under: 3.7 In th .....

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