TMI Blog2021 (10) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to the non-resident was on the basis of judgment of Hon'ble Supreme Court Ishikawajma-Harima Heavy Industries Ltd [ 2007 (1) TMI 91 - SUPREME COURT] which clearly held that payment made to a non-resident for services rendered outside India cannot be brought to tax in India as fees for technical services in absence of place of business/permanent establishment in India. Since, there was clear law by the decision of Hon'ble Supreme Court, the assessee has made payment without deducting tax at source. Therefore, liability towards TDS cannot be fastened on the assessee on the basis of subsequent amendment to law with retrospective effect, because it was impossible on the part of assessee to deduct tax on income of non-resident because the assessee cannot foresee the amendment and deduct TDS on said payments. AO as well as the ld. CIT(A) were erred in disallowing payment made to a non-resident u/s. 40(a)(i) of the Act for failure to deduct TDS u/s. 195 - Decided in favour of assessee. - ITA No. 949/CHNY/2017 - - - Dated:- 24-9-2021 - V. Durga Rao, Member (J) And G. Manjunatha, Member (A) For the Appellant : Vikram Vijayaraghavan, Advocate For the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. 3. The brief facts of the case are that the assessee is engaged in the business of manufacture of computer peripherals and uninterrupted power display system, etc., filed its return of income for the assessment year 2005-06 on 31.10.2005 declaring loss of ₹ 43,16,754/-. The case was taken up for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee has made a payment amounting to ₹ 1,04,50,458/- to M/s. Rosewell Group Services Ltd., based in Mauritius, for a survey conducted by them for preparation of project report called 'Opportunities in Asia for Electronics'. Since, the assessee has not deducted TDS on said payment, the AO has disallowed entire sum u/s. 40(a)(i) of the Income Tax Act, 1961 (hereinafter the 'Act') and the ld. CIT(A) has allowed relief to the assessee and deleted additions made by the AO towards management fees paid to M/s. Rosewell Group Services. The Revenue had preferred further appeal before the ITAT. The ITAT, 'B' Bench, Chennai after considering relevant facts has remitted the issue back to the file of the AO with an observation that although the nature of payments made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee has filed detailed written submissions on the issue which had been reproduced at Para 4.3.2 on pages 5 to 8 of ld. CIT(A) order. The sum and substance of argument of the assessee before the ld. CIT(A) are that payment made to a non-resident recipient is neither taxable under the Act as fees for technical services nor taxable under DTAA as business profits because payment made to non-resident for services rendered outside India is outside the scope of definition of FTS before amendment to Section 9(1)(vii) by the Finance Act, 2010 with retrospective effect from 01.06.1976. He, further submitted that DTAA between India and Mauritius is silent about taxation of FTS and once the DTAA does not provide for taxation of FTS, any payment made to non-resident shall come under Article 7(1), which deals with business profits. If you apply Article 7 of India-Mauritius DTAA then, the same is not taxable as business profits, because the non-resident does not have any permanent establishment in India. The Ld. AR further referring to various decisions including decision of Hon'ble Supreme Court in the case of Ishikawa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erever arising, which are not expressly dealt with in the foregoing Articles of this Convention, shall be taxable only in that Contracting State. If you go by Article 22, then if anything not expressly provided in this convention, then same cannot be taxed in India, even if said sum comes under the definition of FTS as per Indian Tax laws. Insofar as, taxation of impugned payment under Article 7 as business profits, we find that since non-resident does not have permanent establishment in India, same cannot be taxed as business profits. 8. Be that as it may. The issue before us is not taxability of payment made by the assessee to non-resident entity for services rendered outside India as fees for technical services or not in terms of section 9(1)(vii) of the Act. The issue before us is disallowance of sum paid to non-resident without TDS u/s. 40(a)(i) of the Act. Admittedly, the AO has brought amended explanation 9(2) with retrospective effect from 1-4-1976 by the Finance Act, 2010 and held payment made by the assessee as FTS u/s. 9(1)(vii) of the Act and further, for non TDS disallowed the same u/s. 40(a)(i) of the Act. Therefore, to decide the issue, one has to understand the j ..... X X X X Extracts X X X X X X X X Extracts X X X X
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