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TMI Blog2024 (8) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate Tribunal whereas Income Tax Appeal no. 2129 of 2011 has arisen from an order dated 26 November, 2010 passed by the Tribunal. As the appeals stand, the assessment years in question are 2004-05, 2007-08 and 2003-04 respectively. 3. In these appeals, the revenue has raised the following common question of law for consideration of the Court: "Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the payment for supply of software is not royalty in terms of Section 9 (1) (vi) of the Act as Explanation 4 to Section 9 (1) (vi) is not applicable retrospectively and no tax was required to be deducted by the assessee on such payment." 4. The facts are not in dispute. The assessee in the present case purchased software from a foreign entity based in Hongkong and Cyprus. The payments, which were made by the assessee to the foreign suppliers of such software, were considered by the revenue to be taxable in India as "royalties" under Section 9 (1) (vi) of the Act and the same were treated as business expenditure, and for which, according to the Revenue, tax at source was required to be deducted under section 40 a (i) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Section 9 (1) (vi) with retrospective effect was introduced. It was observed that Explanation 4 as inserted to Section 9 (1) (vi) had the effect of change in law from what prevailed prior to the amendment. The effect of introduction of Explanation 4 was that the computer software was specifically included in the definition of 'right, property or information' which was never assumed to have been included in the provision by any Court of law, prior to the insertion of Explanation 4 by Finance Act, 2012. In such circumstances, the Tribunal, referring to the decision of the Supreme Court in Sedco Forex International Drill Inc. Vs. Commissioner of Income-tax, Dehradun [2005] 149 Taxman 352 (SC), held that such "explanation" inserted in a provision had the effect of a change in law. The Tribunal observed that it was hence required to be presumed that the explanation would not have a retrospective operation, irrespective of the fact that it uses the phrases 'it is declared' or 'for the removal of doubts'. The Tribunal observed that indisputedly for the earlier years, not only various High Courts but also the Tribunal in assessee's own case had taken a view, that the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the revenue, ought to have been subject matter of tax deduction at source. The Court observed that there could not have been deduction under Section 194J of the Act in anticipation of any future amendment with retrospective effect, and this could never be the correct position in law. Considering the assessment years as involved in the present proceedings, certainly as to what was held by this Court in The Commissioner of Income Tax 11 v/s. M/s. NGC Networks (India) Pvt. Ltd. (supra) would become applicable as contended on behalf of the assessee. 11. We are in agreement with the observations as made by the Tribunal referring to the decision of the Supreme Court in Sedco Forex International Drill Inc. Vs. Commissioner of Income-tax, Dehradun (supra) in which the Supreme Court was concerned with the insertion of "Explanation" in Section 9 (1) (ii) by Finance Act, 1999 introduced with effect from 01 April 2000. The Supreme Court interpreting on the retrospective application of the Explanation, held that the Explanation as introduced by Finance Act, 1999 could not have been applied to the assessment years 1992-93 and AY 1993-94, applying the settled law that assessment has to be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in paragraphs 5.2 and 5.3. '5.2 The Act has expanded the existing Explanation which states that salary paid for services rendered in India shall be regarded as income earned in India, so as to specifically provide that any salary payable for rest period or leave period which is both preceded and succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India. 5.3 This amendment will take effect from 1st April, 2000, and will accordingly, apply in relation to the assessment year 2000-2001 and subsequent years". 19. The Departmental understanding of the effect of the 1999 amendment even if it were assumed not to bind the respondents under Section 119 of the Act, nevertheless affords a reasonable construction of it, and there is no reason why we should not adopt it. 20. As was affirmed by this Court in Goslino Mario (supra), a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. [See also: Reliance Jute and Industries vs. CIT (1980) 1 SCC 139]. An Explanation to a statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to perform an impossible act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment. This is in accord with the view taken by this Court in CIT v/s. Cello Plast (2012) 209 Taxmann 617 - wherein this Court has applied the legal maxim lex non cogit ad impossibilia (law does not compel a man to do what he cannot possibly perform). (e) In the present facts, the amendment by introduction of Explanation-6 to Section 9 (1) (vi) of the Act took place in the year 2012 with retrospective effect from 1976. This could not have been contemplated by the Respondent when he made the payment which was subject to tax deduction at source under Section 194C of the Act during the subject Assessment Year, would require deduction under Section 194J of the Act due to some future amendment with retrospective effect." 84. In CIT v. Western Coalfields Ltd., [IT Appeal No. 93 of 2008, dated 01.10.2010], the High Court of Bombay dealt with the insertion of an explanation to section 17 (2) (ii) of the Income Tax Act with retrospective effect and held: "11) We see no merit in the above contentions. The Apex Court in Arun Kumar's case (sup ..... 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