TMI Blog2018 (12) TMI 1146X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee’s foreign clients. Thus, the fees for technical services was paid by the assessee for the purpose of making or earning any income from any source outside India. Clearly, the source of income namely the assessee’s customers were the foreign based companies. In the view by a judgment of Karnataka High Court in the case of Commissioner of Income tax, Bangalore v. ITC Hotels Limited, reported in [ [2015 (8) TMI 987 - KARNATAKA HIGH COURT]] in which it was held that where the recipient of income of parent company is not chargeable to tax in India, then the question of deduction of tax at source by the payer would not arise. Delhi High Court in the case of Commissioner of Income tax vs. Havells India Limited, reported in [2012 (5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It provides software related services to its overseas clients. During the course of scrutiny assessment for AY 20092010, the Assessing Officer raised question of non deduction of tax at source, while making payment of a sum of ₹ 5.51 Crores [ rounded off ] by the assessee towards fees for technical services to one foreign based company M/s. Pacific Hub Corporation, Philippines. The assessee argued that such payment received by the nonresident was not taxable and that therefore, there was no requirement for deducting tax at source while making such payment. The Assessing Officer, however, with an aid of Section 195 of the Incometax Act, 1961 [ the Act for short] and in particular, second explanation to sub-section [1] thereof, cam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of providing human resources and infrastructure services. Further, under the provisions of Section 9 [1] (vii) (b) of th Act, an exception is provided, wherein, if the fees for technical services are paid in respect of services utilized outside India in a business or profession carried on outside India or for the purpose of earning any income from outside India, then in such circumstances, the deeming provisions of Section 9 [1](vii) (b) of the Act will not be applicable. In the instant case, the assessee has certain contracts for rendering outsource in Philippines and for providing such services, it availed the services of PHC Philippines. 8. We therefore in the given facts and circumstances of the case as well as in view of the lucid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amended Section 195 of the Act by inserting Explanation II by the Finance Act, 2012, but with retrospective effect from 1st April 1962. Such explanation provides that for removal of doubts, it is clarified that the obligation to comply with sub-section [1] of Section 195, and to make deduction as provided therein applies and shall be deemed to have always applied to all persons, resident or nonresident, whether or not the nonresident person has a residence or place of business or business connection in India; or any other presence in any manner whatsoever in India. Mere requirement of permanent establishment in India was thus done away with. Nevertheless, the basic principle that requirement of deduction of tax at source would arise only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other presence in any manner whatsoever in India. It is indisputably true that such explanation inserted with retrospective effect provides that obligation to comply with sub-section [1] of Section 195 would extend to any person resident or nonresident, whether or not nonresident person has a residence or place of business or business connections in India or any other persons in any manner whatsoever in India. This expression which is added for removal of doubt is clear from the plain language thereof, may have a bearing while ascertaining whether certain payment made to a nonresident was taxable under the Act or not. However, once the conclusion is arrived that such payment did not entail tax liability of the payee under the Act, as h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical services payable by a person who is a resident would be deemed to accrue or arise in India. However, this clause contains two explanations namely where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India, or for the purpose of making or earning any income from any source outside India. In other words, therefore, if the assessment of an assessee falls in either of these two clauses, the income by way of fees or technical services paid by the assessee would still not be covered within the deeming clause of sub-section [1] of Section 9. In the present case, the Commissioner [Appeals] and the Tribunal have accepted assessee s factual assertion that the payments wer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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