M/s Gupta H.C.Overseas(I) Pvt. Ltd., Agra V. A.C.I.T., Circle-4(1), Agra

CO 10/AGR/2014

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2269 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 9 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-04-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 09-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Double taxation relief; Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 143(3); 5(2)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.147/AG/2014 ASSESSMENT YEAR: 2009-10 THE ACIT 4(1), VS. M/S GUPTA H.C. OVERSEAS(I)PVT . LTD., AGRA, 425, NEAR TUBE WELL COLONY BYE PASS ROAD, AGRA PAN NO. AADCG1250E CROSS OBJECTION NO. 10/AG/2014 ASSESSMENT YEAR: 2009-10 M/S GUPTA H.C. OVERSEAS(I)PVT. LTD. VS. THE ACIT 4(1), 425, NEAR TUBE WELL COLONY AGRA BYE PASS ROAD, AGRA (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SAAHIB SATSANGI DEPARTMENT BY : SH. WASEEM ARSHAD DATE OF HEARING : 01/02/2016 DATE OF PRONOUNCEMENT : 26/04/2016 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE HAVE BEEN FILED CHALLENGING THE CORRECTNESS OF THE ORDE R OF LD. CIT(A)-II, AGRA DT. 10/12/2013 IN THE MATTER OF ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961, FOR THE ASSESSMENT YEAR 2009- 10. 2. BRIEF FACTS RELATING TO THE CASE ARE THAT THE AS SESSEE IS AN EXPORTER OF LEATHER FOOTWEAR AND FOOTWEAR UPPERS. DURING THE IM PUGNED ASSESSMENT YEAR THE ASSESSEE DEBITED AN AMOUNT OF RS. 2,03,72,774/- UNDER THE HEAD DESIGN CHARGES ON ACCOUNT OF PAYMENTS MADE FOREIGN NATIONA LS / FOREIGN COMPANIES. DURING ASSESSMENT PROCEEDINGS THE AO WAS OF THE VIE W THAT THE ASSESSEE WAS 2 UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE FROM TH ESE PAYMENTS AS PER THE PROVISIONS OF SECTION 195 R.W.S 9(1)(VII) OF THE AC T AND THE ASSESSEE HAVING FAILED TO DO SO, THE PAYMENTS WERE RENDERED INELIGIBLE FOR BUSINESS DEDUCTION IN VIEW OF THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. D ETAILED SUBMISSIONS WERE MADE BY THE ASSESSEE BEFORE THE AO TO THE EFFECT THAT TH E PAYMENTS WERE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES WITHIN THE M EANING OF THAT EXPRESSION U/S 9(1)(VII) OF THE ACT OR UNDER THE APPLICABLE DOUBLE TAXATION AVOIDANCE AGREEMENT. IT WAS ALSO SUBMITTED THAT SINCE NONE OF THESE PERSONS HAD ANY PERMANENT ESTABLISHMENT IN INDIA THE AMOUNTS IN QUE STION COULD NOT BE BROUGHT TO TAX IN INDIA AS BUSINESS PROFITS EITHER. THE ASS ESSEE FURTHER STATED THAT ITS ENTIRE EXPENDITURE COULD BE BIFURCATED UNDER THE THREE HEA DS AS OUTLINED AT PAGE 4-6 OF THE CIT(A) ORDER AS FOLLOWS: PURCHASE OF MATERIAL SAMPLES RS. 1,48,48,888/ OFF SHORE SERVICES RS. 27,53,236/- REIMBURSEMENT OF EXPENSES RS. 27,70,650/- AFTER EXAMINING THE DETAILS OF EACH TYPE OF PAYMENT S AS MENTIONED ABOVE, THE AO ACCEPTED PAYMENTS AMOUNTING TO RS. 1,01,97,818/ -OUT OF DETAILS OF PURCHASE OF MATERIAL SAMPLES AS BEING FOR OUTRIGHT PURCHASE OF GOODS WITHOUT THERE BEING ANY ELEMENT OF TECHNICAL SERVICE AND HE LD THAT THE PROVISION OF SECTION 9(I)(VII) R.W.S 195 FOR TDS ARE NOT INVOLKE D ON THE SAME. THE BALANCE PAYMENTS OUT OF EXPENSES FOR PURCHASE OF MATERIAL A MOUNTING TO RS. 46,51,070/- (AS DETAILED AT PG. NO. 7 & 8 OF CIT(A) ORDER) WERE HELD TO BE IN THE NATURE OF FTS. SIMILARLY THE PAYMENTS CATEGORIZED AS OFF SHORE SE RVICES AND REIMBURSEMENT OF EXPENSES WERE ALSO HELD TO BE IN THE NATURE OF FTS. THE AO HELD THAT SINCE NO TAX WAS DEDUCTED ON THE ABOVE, THE SAME WERE DISALL OWABLE UNDER SECTION 40(A)(I) OF THE ACT. THUS OUT OF DESIGN CHARGES OF RS. 2,03,72,774/- FIVE PAYMENTS 3 OF RS. 26,74,320/-, RS. 41,731/- RS. 19,35,019/- RS . 27,53,236/- AND RS. 27,70,650/- WERE DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE LD. CIT(A) WHO DELETED THE IMPUGNED DISALLOWANCE FOLLOW ING HIS DECISION IN THE ASSESSEES CASE IN THE PRECEDING YEAR I.E. ASSESSME NT YEAR 2008-09 HOLDING THAT THE IMPUGNED PAYMENTS WERE EITHER NOT IN THE NATURE OF FTS OR IF THEY WERE SO, THE PROVISION RELATING TO THEIR TAXABILITY CAME RET ROSPECTIVELY AND THE ASSESSEE COULD NOT BE HELD TO BE DEFAULTER FOR HIS INABILITY TO FORESEE SUCH AMENDMENT. MOREOVER THE EXPENSES CATEGORIZED AS OFFSHORE SERV ICES WERE HELD TO BE NOT TAXABLE IN INDIA IN VIEW OF THE PROVISIONS OF ARTIC LE 13 & 15 OF THE DTAA WITH SPAIN ALONGWITH SECTION 9(I)(VII)(B) & SECTION 90(2) OF T HE ACT. FURTHER THE EXPENSES CATEGORIZED AS REIMBURSEMENT OF EXPENSES WERE HEL D TO BE IN THE NATURE OF REIMBURSEMENT AS SUCH AND THEREFORE IT WAS HELD T HAT THERE WAS NO QUESTION OF ADDING SUCH SUM UNDER SECTION 40(A)(I) OF THE ACT. LD. CIT(A) FURTHER HELD THAT SINCE NO SERVICES WERE RENDERED IN INDIA WITH RESPE CT TO THE IMPUGNED PAYMENTS, NO DISALLOWANCE UNDER SECTION 40(A)(I) CO ULD BE MADE ON ACCOUNT OF RETROSPECTIVE AMENDMENT TO SECTION 9(1) BY VIRTU E OF EXPLANATION 2. 4. AGGRIEVED BY THE SAME THE REVENUE FILED THE PRES ENT APPEAL BEFORE US IN ITA NO 147/AG/ 2014 RAISING THE ABOVE MENTIONED GRO UNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 1,01,74,956/- MADE BY THE AO U/S 40(A)(I) READ WITH SECTION 195 OF THE ACT, WITHOUT APPRECIAT ING THE FACTS OF THE CASE THAT THE ASSESSEE SHOULD HAVE DEDUCTED TDS U/S 9(I)(VII) READ WITH SECTION 195 AS THE PAYMENT IS CERTAINLY IN THE NATURE OF FEE FOR TECHN ICAL SERVICES AND THE EXPLANATION INSERTED IN SECTION 9 VIDE FINANCE ACT, 2010 WAS ONLY CLARIFICATORY IN NATURE. THE INCOME OF THE PAYEE IS ALSO CHARGEABLE TO TAX IN INDIA IN VIEW OF ARTICLE 13(2) READ WITH 134(4) OF THE DTAA BETWEEN INDIA OTHER COUNTRIES. THEREFORE, THE DISALLOWANCE OF RS. 1,01,74,956/- HA S BEEN MADE CORRECTLY BY THE AO FOR ASSESSEES DEFAULT IN RESPECT OF DEDUCTION O F TAX AT SOURCE U/S 40(A)(I) OF THE I.T. ACT, 1961. 2. THAT THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS) BEING ERRONEOUS IN LAW AND ON FACTS DESERVES TO BE QUASHED TO BE QUASH ED AND THAT OF THE ASSESSING OFFICER DESERVES TO BE RESTORED. 4 FURTHER THE ASSESSEE FILED A CROSS OBJECTION AGAINS T THE FINDINGS OF THE CIT(A) RAISING THE FOLLOWING GROUNDS: 1. BECAUSE THE LEARNED AUTHORITIES BELOW HAVE ERRED ON FACTS AND IN LAW IN CONSIDERING THE PAYMENTS MADE TO M/S CALZATURIFICIO EFFIGI STYLE S. P.A A RESIDENT OF ITALY AMOUNTING TO RS. 26,74,320/- AS FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 9(1)(VII)(B) OF THE INCOME TAX ACT, 1961. 2. BECAUSE THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THE UNDER DTAA BETWEEN INDI A AND ITALY, THE PAYMENTS MADE FOR ARTISTIC WORK FOR PROFESSIONAL SERVICES FALLS UNDER ARTICLE 15 OF THE SAID TREATY AS INDEPENDENT PERSONAL SERVICES. 3. BECAUSE THE LEARNED AUTHORITIES BELOW HAVE ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE UNDER SECTION 40(A))(I) WITHOUT APPREC IATING THAT NO AMOUNT REMAINED PAYABLE TO THE NON RESIDENT AT THE END OF THE YEAR. 5. AT THE OUTSET IT MAY BE STATED THAT THE ASSESSEE WITHDREW THE CROSS OBJECTION FILED BEFORE US. IN VIEW OF THE SAME IT I S TREATED AS DISMISSED. 6. IN THE APPEAL FILED BY THE REVENUE DURING THE CO URSE OF HEARING BEFORE US IT WAS BROUGHT TO THE NOTICE OF THE BENCH THAT IDEN TICAL ISSUE HAD BEEN DECIDED BY THE AGRA BENCH OF THE HONBLE ITAT VIDE ITS ORDE R DT. 05/03/2014, IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE IN THE PREC EDING YEAR IN ITA NO. 257/AG/2013 BY HOLDING THAT SECTION 40(A)(I) R.W.S 195 CANNOT BE INVOKED IN A CASE WHERE NO SERVICES ARE RENDERED IN INDIA, IN VI EW OF THE PRE-AMENDED SECTION 9(1)(VII) READ WITH EXPLANATION THERETO. TH E HONBLE BENCH, WHILE DECIDING THE ISSUE HELD AS FOLLOWS: 1. THIS IS A RECALLED MATTER. THE APPEAL WAS ORIGIN ALLY DISPOSED OF, VIDE OUR ORDER DATED 4 TH FEBRUARY, BUT IT WAS, VIDE OUR ORDER DATED 28 TH FEBRUARY 2014, RECALLED FOR THE LIMITED PURPOSES OF DEALING WITH THE PLEA T HAT NOTWITHSTANDING THE TAXABILITY OF AMOUNTS PAID TO NON-RESIDENT, SECTION 40(A)(I) R.W.S 195 OF THE INCOME TAX ACT, 1961, CANNOT BE INVOKED IN A CASE IN WHICH NO SERVICES ARE RENDERED IN INDIA, IN VIEW OF PRE-AMENDED SECTION 9(1)(VII) REA D WITH EXPLANATION THERETO. 2. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS I SSUE IS NOW COVERED BY ORDER DATED 14/02/2014 OF THIS TRIBUNAL IN THE CASE OF DCIT VS. VIROLA INTERNATIONAL (ITA NO. 256/AGRA/2013) WHEREIN THE TRIBUNAL HAS, I NTER ALIA, OBSERVED AS FOLLOWS: 6. HONBLE SUPREME COURT, IN THE CASE OF ISHIKAWAJI MA HARIMA HEAVY INDUSTRIES LTD VS DIT (288 ITR 408), HAD HELD THAT IN ORDER TO BRING A FEES FOR TECHNICAL SERVICES TO TAXABILITY IN INDIA, NOT ONLY THAT SUCH SERVICES SH OULD BE UTILIZED IN INDIA BUT THESE SERVICES SHOULD ALSO BE RENDERED IN INDIA. ANALYZIN G THIS LEGAL POSITION, HONBLE BOMBAY HIGH COURT HAS, IN THE CASE OF CLIFFORD CHANCE VS D CIT (318 ITR 237), OBSERVED AS FOLLOWS: 'THE APEX COURT HAD OCCASION TO CONSIDER THE ABOVE QUESTION IN THE CASE OF ISHIKAWAJMA- HARIMA HEAVY INDUSTRIES LTD. VS. DIRECTOR OF IT (20 07) 288 ITR 408 (SC), WHEREIN, WHILE INTERPRETING THE PROVISIONS OF S. 9(1)(VII)(C) OF T HE ACT, THE SUPREME COURT HELD AS UNDER (P. 444): SEC. 9(1)(VII)(C) OF THE ACT STATES THAT A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZE D IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA, OR FOR THE PURPOSES OF MAK ING OR EARNING ANY INCOME FROM ANY 5 SOURCE OF INDIA. READING THE PROVISION IN ITS PLA IN SENSE, AS PER THE APEX COURT IT REQUIRES TWO CONDITIONS TO BE METTHE SERVICES WHICH ARE THE SOURCE OF THE INCOME THAT IS SOUGHT TO BE TAXED, HAS TO BE RENDERED IN INDIA, AS WELL A S UTILIZED IN INDIA, TO BE TAXABLE IN INDIA. BOTH THE ABOVE CONDITIONS HAVE TO BE SATISFIED SIMU LTANEOUSLY. THUS FOR A NON-RESIDENT TO BE TAXED ON INCOME FOR SERVICES, SUCH A SERVICE NEE DS TO BE RENDERED WITHIN INDIA, AND HAS TO BE PART OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA. IN THE ABOVE JUDGMENT, THE APEX COURT OBSERVED THAT (P. 444) : SEC. 9(1)(VII) OF THE ACT MUST BE READ WITH S. 5 THEREOF, WHICH TAKES WITHIN ITS PURVIEW T HE TERRITORIAL NEXUS ON THE BASIS WHEREOF TAX IS REQUIRED TO BE LEVIED, NAMELY, (A) R ESIDENT; AND (B) RECEIPT OF ACCRUAL OF INCOME. ACCORDING TO THE APEX COURT, THE GLOBAL IN COME OF A RESIDENT ALTHOUGH IS SUBJECTED TO TAX, THE GLOBAL INCOME OF A NON-RESIDE NT MAY NOT BE. THE ANSWER TO THE QUESTION WOULD DEPEND UPON THE NATURE OF THE CONTRA CT AND THE PROVISIONS OF THE DTAA. WHAT IS RELEVANT IS RECEIPT OR ACCRUAL OF INCOME, A S WOULD BE EVIDENT FROM A PLAIN READING OF S. 5(2) OF THE ACT SUBJECT TO THE COMPLIANCE WIT H 90 DAYS RULE. AS PER THE ABOVE JUDGMENT OF THE APEX COURT, THE INTERPRETATION WITH REFERENCE TO THE NEXUS TO TAX TERRITORIES ALSO ASSUMES SIGNIFICANCE. TERRITORIAL NEXUS FOR THE PURPOSE OF DETERMINING THE TAX LIABILITY IS AN INTERNATIONALLY ACCEPTED PRINCI PLE. AN ENDEAVOUR SHOULD, THUS, BE MADE TO CONSTRUE THE TAXABILITY OF A NON-RESIDENT IN RES PECT OF INCOME DERIVED BY IT. HAVING REGARD TO THE INTERNATIONALLY ACCEPTED PRINCIPLE AN D THE DTAA, NO EXTENDED MEANING CAN BE GIVEN TO THE WORDS INCOME DEEMED TO ACCRUE OR A RISE IN INDIA AS EXPRESSED IN S. 9 OF THE ACT. SEC. 9 INCORPORATES VARIOUS HEADS OF INCOM E ON WHICH TAX IS SOUGHT TO BE LEVIED BY THE REPUBLIC OF INDIA. WHATEVER IS PAYABLE BY A RESIDENT TO A NON-RESIDENT BY WAY OF FEES FOR SERVICES, THUS, WOULD NOT ALWAYS COME WITH IN THE PURVIEW OF S. 9(1)(VII) OF THE ACT. IT MUST HAVE SUFFICIENT TERRITORIAL NEXUS WITH INDIA SO AS TO FURNISH A BASIS FOR IMPOSITION OF TAX. WHEREAS A RESIDENT WOULD COME WI THIN THE PURVIEW OF S. 9(1)(VII) OF THE ACT, A NON-RESIDENT WOULD NOT, AS SERVICES OF A NON -RESIDENT TO A RESIDENT UTILIZED IN INDIA MAY NOT HAVE MUCH RELEVANCE IN DETERMINING WHETHER THE INCOME OF THE NON-RESIDENT ACCRUES OR ARISES IN INDIA. IT MUST HAVE A DIRECT L INK BETWEEN THE SERVICES RENDERED IN INDIA. WHEN SUCH A LINK IS ESTABLISHED, THE SAME MA Y AGAIN BE SUBJECTED TO ANY RELIEF UNDER THE DTAA. A DISTINCTION MAY ALSO BE MADE BETW EEN RENDITION OF SERVICES AND UTILIZATION THEREOF. WITH THE ABOVE UNDERSTANDING O F LAW LAID DOWN BY THE APEX COURT, IF ONE TURNS TO THE FACTS OF THE CASE IN HAND AND EXAM INES THEM ON THE TOUCHSTONE, S. 9(1)(VII)(C) WHICH CLEARLY STATES....... WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. IT IS THUS, EVIDENT THAT S. 9(1)(VII)(C), READ IN ITS PLAIN, ENVISAGES THE FULF ILMENT OF TWO CONDITIONS : SERVICES, WHICH ARE SOURCE OF INCOME SOUGHT TO BE TAXED IN INDIA MU ST BE (I) UTILIZED IN INDIA, AND (II) RENDERED IN INDIA. IN THE PRESENT CASE, BOTH THESE CONDITIONS HAVE NOT BEEN SATISFIED SIMULTANEOUSLY.' 7. THE LAW LAID DOWN BY HONBLE SU PREME COURT, IN THE CASE OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. VS. DIRECT OR OF INCOME TAX (SUPRA), BINDS EVERYONE UNDER ARTICLE 141 OF THE CONSTITUTION OF I NDIA. THE LEGAL POSITION THUS WAS THAT UNLESS THE SERVICES ARE RENDERED IN INDIA, THE SAME CANNOT BE BROUGHT TO TAX AS FEES FOR TECHNICAL SERVICES UNDER SECTION 9. HOWEVER, THIS LEGAL POSITION DID UNDERGO A CHANGE WHEN FINANCE ACT 2010 RECEIVED ASSENT OF THE PRESID ENT OF INDIA ON 8TH MAY 2010. EXPLAINING THE SCOPE OF THIS AMENDMENT, A COORDINAT E BENCH OF THIS TRIBUNAL, IN THE CASE OF ASHAPURA MINICHEM LTD VS ADIT (131 TTJ 291), HAS EXPLAINED THUS: (THIS LEGAL POSITION) DOES NO LONGER HOLD GOOD IN VIEW OF RETRO SPECTIVE AMENDMENT W.E.F. 1ST JUNE, 1976 IN S. 9 BROUGHT OUT BY THE FINANCE ACT, 2010. UNDER THE AMENDED EXPLANATION TO S. 9(1), AS IT EXISTS ON THE STATUTE NOW, IT IS SPECIF ICALLY STATED THAT THE INCOME OF THE NON- RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDI A UNDER CL. (V) OR CL. (VI) OR CL. (VII) OF S. 9(1), AND SHALL BE INCLUDED IN HIS TOTAL INCOME, WH ETHER OR NOT (A) THE NONRESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTI ON IN INDIA; OR (B) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA. IT IS THUS NO LONGER NE CESSARY THAT, IN ORDER TO ATTRACT TAXABILITY IN INDIA, THE SERVICES MUST ALSO BE REND ERED IN INDIA. AS THE LAW STANDS NOW, UTILIZATION OF THESE SERVICES IN INDIA IS ENOUGH TO ATTRACT ITS TAXABILITY IN INDIA. TO THAT EFFECT, RECENT AMENDMENT IN THE STATUTE HAS VIRTUAL LY NEGATED THE JUDICIAL PRECEDENTS SUPPORTING THE PROPOSITION THAT RENDITION OF SERVIC ES IN INDIA IS A SINE QUA NON FOR ITS TAXABILITY IN INDIA. 8. IT IS THUS CLEAR THAT TILL 8TH MAY 2010, THE PREVAILING LEGAL POSITION WAS THAT UNLESS THE TECHNICAL SERVICES WERE RENDERE D IN INDIA, THE FEES FOR SUCH SERVICES COULD NOT BE BROUGHT TO TAX UNDER SECTION 9(1)(VII) . THE LAW AMENDED WAS UNDOUBTEDLY RETROSPECTIVE IN NATURE BUT SO FAR AS TAX WITHHOLDI NG LIABILITY IS CONCERNED, IT DEPENDS ON 6 THE LAW AS IT EXISTED AT THE POINT OF TIME WHEN PAY MENTS, FROM WHICH TAXES OUGHT TO HAVE BEEN WITHHELD, WERE MADE. THE TAXDEDUCTOR CANN OT BE EXPECTED TO HAVE CLAIRVOYANCE OF KNOWING HOW THE LAW WILL CHANGE IN FUTURE. A RETROSPECTIVE AMENDMENT IN LAW DOES CHANGE THE TAX LIABILITY IN RESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY, WIT H RETROSPECTIVE EFFECT. THE TAX WITHHOLDING OBLIGATIONS FROM PAYMENTS TO NON-RESIDE NTS, AS SET OUT IN SECTION 195, REQUIRE THAT THE PERSON MAKING THE PAYMENT AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THER EOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME -TAX THEREON AT THE RATES IN FORCE. WHEN THESE OBLIGATIONS ARE TO BE DISCHARGED AT THE POINT OF TIME WHEN PAYMENT IS MADE OR CREDITED, WHICHEVER IS EARL IER, SUCH OBLIGATIONS CAN ONLY BE DISCHARGED IN THE LIGHT OF THE LAW AS IT STANDS THA T POINT OF TIME. SECTION 40(A)(I) PROVIDES THAT, INTER ALIA, NOTWITHSTANDING ANYTHING TO THE C ONTRARY IN SECTIONS 30 TO 38, ANY AMOUNT PAYABLE OUTSIDE INDIA, OR PAYABLE IN INDIA T O A NON-RESIDENT, SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED'. THE DISALLOWANCE U NDER SECTION 40(A)(I) IS NOT FOR THE PAYMENTS MADE TO NON-RESIDENTS, WHICH ARE TAXABLE I N INDIA, BUT FOR THE PAYMENTS ON WHICH TAX WAS DEDUCTIBLE AT SOURCE BUT TAX HAS NOT BEEN DEDUCTED, AND SUCH DEDUCTIBILITY OF TAX AT SOURCE, AS WE HAVE DISCUSSED ABOVE, HAS T O BE IN THE LIGHT OF THE LEGAL POSITION AS IT STOOD AT THE POINT OF TIME WHEN PAYMENT WAS M ADE OR CREDITED- WHICHEVER IS EARLIER . CLEARLY, THEREFORE, THE DISALLOWANCE UNDER SECTIO N 40(A)(I) CAN COME INTO PLAY ONLY WHEN THE ASSESSEE HAD AN OBLIGATION TO DEDUCT TAX AT SOU RCE FROM PAYMENTS TO NON-RESIDENTS, AND THE ASSESSEE FAILS TO COMPLY WITH SUCH AN OBLIG ATION. IN VIEW OF THESE DISCUSSIONS, SO FAR AS PAYMENTS MADE BEFORE 8TH MAY 2010 ARE CONCER NED, THE ASSESSEE DID NOT HAVE ANY TAX WITHHOLDING LIABILITIES FROM FOREIGN REMITT ANCES FOR FEES FOR TECHNICAL SERVICES UNLESS SUCH SERVICES WERE RENDERED IN INDIA, AND A FORTIORI NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(I) FOR ASSESSEES FAILURE TO DE DUCT TAX AT SOURCE FROM SUCH PAYMENTS. 9. IN THE CASE BEFORE US, THERE IS NO MATERIAL WHAT SOEVER TO DEMONSTRATE AND ESTABLISH THAT THE DESIGN AND DEVELOPMENT SERVICES, FOR WHICH IMPUGNED PAYMENTS WERE MADE, WERE RENDERED IN INDIA. THEREFORE, THE ASSESSEE DID NOT HAVE ANY LIABILITY UNDER SECTION 195 R.W.S. 9(1)(VII) TO DEDUCT TAX AT SOURCE FROM T HESE PAYMENTS. ONCE WE COME TO THE CONCLUSION THAT THE ASSESSEE DID NOT HAVE ANY OBLIG ATION TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS, IN THE LIGHT OF THE ABOVE DISCUSSIO NS AND AS COROLLARY THERETO, NO DISALLOWANCE CAN BE MADE IN RESPECT OF THESE PAYMEN TS. AS WE HAVE COME TO THESE CONCLUSIONS IN THE LIGHT OF THE PROVISIONS OF THE D OMESTIC LAW, I.E. INCOME TAX ACT, ITSELF, THERE IS NO NEED TO DEAL WITH THE TAXABILITY OF INC OMES EMBEDDED IN THESE PAYMENTS UNDER THE PROVISIONS OF THE APPLICABLE TAX TREATIES . THAT WOULD BE RELEVANT WITH RESPECT TO TAXABILITY OF THESE PAYMENTS IN THE HANDS OF THE RECIPIENTS, BUT, FOR THE REASONS SET OUT ABOVE AND IN THE LIGHT OF THE LEGAL POSITION DISCUS SED ABOVE, WILL BE ACADEMIC IN THE PRESENT CONTEXT. AS REGARDS LEARNED DEPARTMENTAL RE PRESENTATIVE VEHEMENT RELIANCE ON A DECISION OF CHENNAI A BENCH OF THIS TRIBUNAL IN T HE CASE OF ACIT VS EVOLV CLOTHING PVT LTD [(2013) 33 TAXMANN.COM 309] WHEREIN ON THE BASI S OF TAXABILITY OF INCOME ALONE, THE COORDINATE BENCH HAS CONFIRMED THE DISALLOWANCE UND ER SECTION 40(A)(I), WE CAN ONLY SAY THAT A DECISION CANNOT BE AN AUTHORITY FOR A LEGAL QUESTION WHICH HAS NOT BEEN DEALT WITH IN THAT DECISION, OR NOT HAVING BEEN RAISED IN THAT CASE. 3. IN THE PRESENT CASE ALSO, THERE IS NOTHING ON RE CORD TO SHOW THAT THE SERVICES, IN RESPECT OF WHICH THE IMPUGNED PAYMENTS WERE MADE, WERE RENDERED IN INDIA. 4. IN VIEW OF THE ABOVE DISCUSSIONS, WE DEEM IT APP ROPRIATE TO UPHOLD THE CONCLUSIONS ARRIVED AT BY THE CIT(A) ON THE SHORT G ROUND THAT SO FAR AS PAYMENTS MADE BEFORE 8 TH MAY 2010 ARE CONCERNED, THE ASSESSEE DID NOT HAVE ANY TAX WITHHOLDING LIABILITIES FROM FOREIGN REMITTANCES FO R FEES FOR TECHNICAL SERVICES UNLESS SUCH SERVICES WERE RENDERED IN INDIA, AND A FORTIOR I NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(I) FOR ASSESSESSS FAILURE TO DEDUCT TAX AT SOURCE FROM SUCH PAYMENTS. HOWEVER, TAXABILITY OF THE AMOUNTS I N THE HANDS OF THE NON- RESIDENT RECEIPIENTS , AS UPHELD IN THE ORIGINAL OR DER PASSED BY US, REMAINS UNAFFECTED BY THESE FINDINGS. 7 7. THE FACTS IN THE PRESENT CASE WE FIND ARE IDENTI CAL TO THAT IN AY 2008-09. UNDISPUTEDLY DISALLOWANCE HAS BEEN MADE IN THE PRES ENT CASE BY HOLDING THE IMPUGNED PAYMENTS AS BEING IN THE NATURE OF FTS. AD MITTEDLY NO SERVICES IN RESPECT OF THE IMPUGNED PAYMENTS WERE RENDERED IN I NDIA. LD. CIT(A) HAS GIVEN A CATEGORICAL FINDINGS TO THIS EFFECT IN PARA 6.2 P AGE 35 OF ITS ORDER WHEREIN IT HAS HELD AS FOLLOWS: SINCE IN CASE OF THE PRESENT ASSESSEE, THE SERVIC ES WERE NOT RENDERED IN INDIA BY THE FOREIGN PARTIES TO WHOM PAYMENT WAS MADE UNDER THE HEAD DESIGN & DEVELOPMENT CHARGES. FURTHER IT IS ALSO NOT DISPUTED THAT THE ENTIRE AMO UNT HAS BEEN PAID AND NOTHING IS OUTSTANDING FOR PAYMENT. THUS ALL PAYMENT HAVING BEEN MADE BEFORE 8 TH MAY 2010, AND NO SERVICES HAVING BEEN RENDERED IN INDIA , THE DECISION OF THE HONBLE TRIBUNAL IN THE PRECEDING YEAR SQUARELY APP LIES IN THIS YEAR ALSO AND FOLLOWING THE SAME WE UPHOLD THE CONCLUSION ARRIVED AT BY THE LD. CIT(A) THAT THE ASSESEE DID NOT HAVE ANY TAX WITHHOLDING LIABIL ITIES FROM FOREIGN REMITTANCE FOR FEES FOR TECHNICAL SERVICES AND THUS NO DISALLO WANCE UNDER SECTION 40(A)(I) WAS WARRANTED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26/04/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR