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2022 (3) TMI 1022

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....contrary to law, facts and in the circumstances of the case. 2. The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Professional fees paid to nonresidents for non-deduction of Tax at source. 2.1 The Commissioner of Income Tax (Appeals) erred in relying on the decision of the Tribunal in the case of Van Oord ACZ India Pvt. Ltd. v. Addl. CIT (112 ITD 79) which has been reversed by the Hon'ble High Court in 323 ITR 130 (Del). 2.2 The Commissioner of Income Tax (Appeals) erred in holding that appellant has not proved as to whether the payment made to the non-residents was a professional fee or a commission without appreciating that the assessing officer has not disputed the payment of professional fee to non-residents. 2.3 The Commissioner of Income Tax (Appeals) ought to have appreciated that the above payments were made for services rendered outside India and hence tax was not deducted. 2.4 The Commissioner of Income Tax (Appeals) ought to have appreciated that the nonresidents do not have PE in India and the amount paid to nonresidents are in the nature of business profits for service rendered outside India under Article 7 of the India - US....

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....al fee in foreign currency to (i) Eva Delith, Germany, towards payment for customer support services in Germany, (ii) Folk Craft Trading, Australia, for rendering professional services in connection with promotion of products in Australia and (iii) Pro Maxus SDN BHD, Malaysia, towards professional fee for market study. The assessee has made payment to the above three non-resident service providers without deduction of TDS as required u/s. 195 of the Act. The AO disallowed the payment made to non-residents u/s. 40(a)(i) of the Act on the ground that in order to prove the payment made to non-residents are outside the scope of taxation in India, the assessee needs to obtain Certificate u/s. 195(2) of the Act from the AO. Unless, the assessee produce the certificate u/s. 195(2) of the Act, the claim of the assessee that income of non-residents is not liable to tax in India and consequently, the assessee is not required to deduct TDS u/s. 195 of the Act, cannot be accepted. Therefore, rejected the arguments of the assessee and made additions u/s. 40(a)(i) of the Act, for non-deduction of TDS on payment made to non-residents. The assessee carried the matter in appeal before the Ld. CIT(A....

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.... made to non-residents, because, the assessee cannot foresee the amendment and deduct TDS on said payment and consequently, payment made to non-residents, cannot be disallowed u/s. 40(a)(i) of the Act, for failure to deduct TDS u/s. 195 of the Act. The relevant findings of the Tribunal are as under: 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 judgment of Hon'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd., vs. DIT, (supra. The Hon'ble Supreme court while deciding the issue of FTS has considered preamended provisions of section 9(1)(vii) and held th....

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....lier date, because the assessee cannot foresee the amendment and deduct TDS and hence, we are of the considered view that the AO was erred in disallowing the payment made to non-residents u/s. 40(a)(i) of the Act, for failure to deduct TDS u/s. 195 of the Act. The Ld. CIT(A) without considering the relevant facts, simply sustained the additions made by the AO. Hence, we are reversed the findings of the Ld. CIT(A) and direct the AO to delete the additions made towards disallowance of payment made to non-residents u/s. 40(a)(i) of the Act. 8. The next issue that came up for our consideration from Ground No. 3 of the assessee's appeal is disallowance of compensation paid to employees' under 'Welfare Oriented VRS Scheme' amounting to Rs. 23,61,528/-. The AO has disallowed the compensation paid to employees under 'Welfare Oriented VRS Scheme' on the ground that the assessee failed to establish that tax deducted at source was claimed as refund by claiming deduction u/s. 10(10C) of the Act. It was the explanation of the assessee before the AO that payments made to five employees under 'Welfare Oriented VRS Scheme', is not covered under Rule 2BA to be eligi....

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....to nonresidents and consequently, payment cannot be disallowed u/s. 40(a)(i) of the Act. We find that an identical issue has been considered by us in ITA No. 1175/Chny/2017 for the AY 2008-09, wherein, we by following the decision of ITAT Chennai Benches in the case of M/s. TVS Electronics Ltd. v. ACIT in ITA No. 949/Chny/2017 for the AY 2005-06 dated 24.09.2021, held that the assessee cannot be expected to do impossible things on the basis of subsequent amendment to law with retrospective effect and deduct TDS on payment made to non-residents. The reasons given by us in the preceding paragraphs shall mutatis mutandis to this appeal, as well. Therefore, for similar reasons, we direct the AO to delete the additions made towards payment made to non-residents u/s. 40(a)(i) of the Act, for non-deduction of TDS u/s. 195 of the Act. 12. In the result, the appeal filed by the assessee in ITA No. 1495/Chny/2017 is allowed. ITA No. 1496/Chny/2017 for the AY 2010-11: 13. The first issue that came up for our consideration from Ground Nos. 2.1 to 2.3 of the assessee's appeal is disallowance of payment made to non-residents u/s. 40(a)(i) of the Act for non-deduction of TDS u/s. 195 of th....