M/s R.N. Bajaj Overseas, Agra V. A.C.I.T.,Circle-4(1), Agra

CO 11/AGR/2014

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2268 (ITAT-AGRA)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-04-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 15-07-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SAAHIB SATSANGI
• Keywords: Business income; Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Non-deduction of tax; Capital expenditure
• Section: 143(3); 5(2); 6

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.146/AG/2014 ASSESSMENT YEAR: 2009-10 THE ACIT 4(1), VS. M/S R.N. BAJAJ OVERSEAS, AGRA, 589-A, ARTONI, AGRA PAN NO. AAFFR2386F CROSS OBJECTION NO. 11/AG/2014 ASSESSMENT YEAR: 2009-10 M/S. R.N. BAJAJ OVERSEAS, VS. THE ACIT 4(1), 589-A, ARTONI AGRA AGRA (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SAAHIB SATSANGI DEPARTMENT BY : SH. WASEEM ARSHAD DATE OF HEARING : 02/02/2016 DATE OF PRONOUNCEMENT : 29/04/2016 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 ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF SHOES. RETU RN DECLARING INCOME OF RS. 2,64,43,320/- WAS FILED BY THE ASSESSEE FOR THE IMP UGNED ASSESSMENT YEAR WHICH WAS ASSESSED UNDER SECTION 143(3) AT RS. 3,24,74,05 5/- AFTER MAKING THE FOLLOWING ADDITIONS / DISALLOWANCES: 2 1. EXCHANGE GAIN ON VALUATION OF EXPORT DEBTORS R S. 23,50,485/- 2. PURCHASE OF MOULDS HELD AS CAPITAL EXPENSES RS. 1,10,451/- 3. INTEREST ACCRUED ON SECURITY DEPOSIT RS. 36, 994/- 4. TESTING CHARGES PAID TO FOREIGN PARTIES WITHOUT DEDUCTING TDS RS. 35,32,815/- THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT (A)WHO VIDE HIS ORDER DT. 10/12/2013, UPHELD THE DISALLOWANCE OF RS. 1,10,451 /- AND DELETED THE ADDITION OF INTEREST AMOUNTING TO RS. 36,994/- AS ALSO THE A DDITION OF RS. 35,32,815/- MADE UNDER SECTION 40(A)(IA) ON ACCOUNT OF NON-DEDUCTION OF TAX OF FTS PAID TO FOREIGN NATIONALS. 3. AGGRIEVED BY THE SAME THE REVENUE FILED THE PRES ENT APPEAL BEFORE US TAKING THE FOLLOWING GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS 35,32,815/- MADE BY THE AO US 40(A)(I) READ WITH SECTION 195 OF THE ACT, WITHOUT APPRECIATING T HE FACTS OF THE CASE THAT THE ASSESSEE SHOULD HAVE DEDUCTED TDS U/S 9(I)(VII) REA D 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. 35,32,815/- HAS BEEN MADE CORRECTLY BY THE AO FOR ASSESSEES DEFAULT IN RESPECT OF DEDUCTION OF T AX AT SOURCE UNDER SECTION 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 QUASHE D AND THAT OF THE ASSESSING OFFICER DESERVES TO BE RESTORED. FURTHER THE ASSESSEE FILED A CROSS OBJECTION RAISIN G THE FOLLOWING GROUNDS: 1. BECAUSE THE LEARNED AUTHORITIES BELOW HAVE ERRED ON FACTS AND IN LAW IN CONSIDERING THE MOULD PURCHASED FOR SAMPLE DEVELOPM ENT AMOUNTING TO RS. 1,10,451/- AS CAPITAL EXPENDITURE. 2. BECAUSE THE LEARNED AUTHORITIES BELOW HAVE ERRED ON FACTS AND IN LAW IN CONSIDERING THE TESTING CHARGES PAID TO NON RESIDEN T FOR OBTAINING TEST REPORT AS FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VI)( B) OF THE INCOME TAX ACT, 1961. 3. BECAUSE THE LEARNED AUTHORITIES BELOW HAVE ERRED ON FACTS AND IN LAW IN UPHOLDING THE DISALLOWANCE UNDER SECTION 40(A)(I) W ITHOUT APPRECIATING THAT NO AMOUNT REMAINED PAYABLE TO THE NON RESIDENT AT THE END OF THE YEAR. AT THE OUTSET IT MAY BE STATED THAT THE ASSESSEE WI THDREW THE CROSS-OBJECTION FILED BEFORE US. IN VIEW OF THE SAME IT IS TREATED AS DISMISSED. 3 4. IN THE APPEAL FILED BY THE REVENUE THE ONLY GRIE VANCE IS AGAINST THE DELETION OF ADDITION OF RS. 35,32,815/- MADE UNDER SECTION 40(A)(I) OF THE ACT. 5. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURIN G ASSESSMENT PROCEEDING, THE AO FOUND THAT THE ASSESSEE HAD MADE PAYMENT ON ACCO UNT OF TESTING CHARGES WHICH RELATED TO CHEMICAL TESTS GOT DONE ABROAD OF FOOTWEAR AND COMPONENTS, TO THREE FOREIGN PARTIES AS TABULATED AT PAGE 10 OF THE CIT(A) ORDER AND NO TDS HAD BEEN DEDUCTED ON THE SAME. WHEN CONFRONTED WITH THE SAME, THE ASSESSEEE STATED THAT THEY WERE EITHER IN THE NATUR E OF REIMBURSEMENT OF EXPENSES OR BUSINESS INCOME OF THE FOREIGN PARTIES WHO HAD NO PE IN INDIA. AS PER THE ASSESSEE, THEY WERE NOT IN THE NATURE OF FT S AND THERE WAS THUS NO WITHHOLDING TAX LIABILITY ON THE SAME. THE AO REJEC TED THE ASSESSEES CONTENTION AND HELD THE IMPUGNED PAYMENT TO BE IN THE NATURE O F FTS, WHICH WERE TAXABLE IN INDIA AND SINCE NO TAX HAD BEEN DEDUCTED ON THE SAME THE ENTIRE AMOUNT WAS ADDED BACK TO THE INCOME OF THE ASSESSEE APPLYI NG THE PROVISIONS OF SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961. THE M ATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A) WHERE THE ASSESSEE REITERATED THE ARGUMENTS MADE BEFORE THE AO. THE ASSESSEE FURTHER ARGUED THAT ITS CASE W AS COVERED BY THE EXCEPTION TO SECTION 9(I)(VII)(B) SINCE ITS ENTIRE SALES WERE EXPORTED AND THUS PAYMENT MADE TO NON-RESIDENTS WAS FOR EARNING INCOME FROM S OURCES OUTSIDE INDIA. THE ASSESSEE ALTERNATIVELY ARGUED THAT THE ASSESSEE WAS LIABLE TO WITHHOLD TAX ON THE IMPUGNED PAYMENTS ON ACCOUNT OF THE RETROSPECTIVE A MENDMENT TO SECTION 9(I)(VII)OF THE ACT, WHICH WAS MADE AFTER THE ASSES SEE HAD MADE THE IMPUGNED PAYMENTS. THE LD. AR STATED THAT THE ASSESSEE THERE FORE COULD NOT HAVE BEEN POSSIBLY AWARE OF THE SAME AND CANNOT BE HELD TO BE IN DEFAULT FOR NOT WITHHOLDING TAX. LD. CIT(A) AFTER CONSIDERING THE PROVISION OF SECTI ON 9(I)(VII) OF THE INCOME TAX ACT, HELD THAT TESTING CHARGES INCURRED BY THE BUYE R AND RECOVERED FROM THE ASSESSEE TO THE EXTENT OF RS. 31,51,177/- WAS IN TH E NATURE OF REIMBURSEMENT AND 4 THEREFORE NOT TAXABLE IN INDIA. AS FOR THE REMAININ G AMOUNT. LD. CIT(A) HELD THAT TESTING CHARGES PAID AMOUNTING TO RS. 1,87,980/- & RS. 1,93,658/- WERE IN THE NATURE OF FEES FOR TECHNICAL SERVICES LIABLE TO TAX ABLE IN INDIA DUE TO THE RETROSPECTIVE AMENDMENT MADE TO SECTION 9(I)(VII), WHICH NOT BEING ON THE STATUTE WHEN THE PAYMENT WAS MADE COULD NOT HAVE B EEN POSSIBLY FORSEEN BY THE ASSESSEE AT THE TIME OF MAKING PAYMENT. LD. CIT (A) HELD THAT NO ADDITION ON ACCOUNT OF NON-DEDUCTION OF TAX ON THE SAME COULD T HEREFORE BE MADE. THE ENTIRE ADDITION OF RS. 35,32,815/- WAS THUS DELETED BY THE LD. CIT(A). 6. DURING THE COURSE OF HEARING BEFORE US IT WAS BR OUGHT TO THE NOTICE OF THE BENCH THAT THE ISSUE IN THE PRESENT APPEAL RELATING TO DISALLOWANCE OF PAYMENT MADE TO FOREIGN PARTIES HOLDING THE SAME TO BE IN T HE NATURE OF FTS AS PER THE PROVISION OF SECTION 9(1)(VII) OF THE ACT HAS ALREA DY BEEN DEALT WITH BY THE HONBLE ITAT, AGRA BENCH IN THE CASE OF M/S GUPTA O VERSEAS IN ITA NO. 257/AG/2013DT. 05/03/2014 , WHEREIN THE ENTIRE ADDI TION WAS DELETED FOR THE REASON THAT FOR PAYMENT MADE BEFORE 08/05/2010 THE ASSESSEE DID NOT HAVE ANY TAX WITHHOLDING LIABILITY FOR FOREIGN REMITTANC ES RELATING TO FEES FOR TECHNICAL SERVICES, UNLESS THESE SERVICES WERE RENDERED IN IN DIA. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE D OCUMENTS AND THE ORDER PLACED BEFORE US. 8. WE FIND THAT IDENTICAL ISSUE HAD CAME UP FOR CON SIDERATION BEFORE THE ITAT, AGRA BENCH OF THE TRIBUNAL IN THE CASE OF THE M/S GUPTA OVERSEAS IN ITA NO. 257/AG/2013 WHEREIN THE DISALLOWANCE MADE BY HOLDIN G THE IMPUGNED PAYMENT AS FTS AND FOR THE REASONS THAT NO TAX WAS DEDUCTED AT SOURCE ON THEM WAS DELETED BY HOLDING THAT DURING THE IMPUGNE D ASSESSMENT YEAR THE PREVAILING POSITION OF LAW WAS THAT UNLESS TECHNICA L SERVICES WERE RENDERED IN INDIA, FEES FOR SUCH SERVICES COULD NOT BE BROUGHT TO TAX IN INDIA UNDER SECTION 9(1)(VII) OF THE ACT, IN VIEW OF THE PROPOSITION LA ID DOWN BY THE HONBLE SUPREME 5 COURT IN THE CASE OF ISHIKAWAJIMA- HARIMA HEAVY IND USTRIES LTD.(SUPRA). THE LAW AMENDED, THOUGH UNDENIABLY RETROSPECTIVE IN NATURE, BUT SO FAR AS THE TAX WITHHOLDING LIABILITY WAS CONCERNED THE TAX DEDUCTO R COULD NOT HAVE BEEN AWARE OF THE SAME AT THAT POINT OF TIME SINCE THE A MENDMENT WAS NOT THERE ON THE STATUTE AT THE PREVAILING TIME AND THUS THERE W AS NO WITHHOLDING TAX LIABILITY ON THE SAME AT THE POINT OF TIME THE PAYMENT WAS MA DE. THE HONBLE BENCH DELETED THE DISALLOWANCE MADE IN ASSESSMENT YEAR 2 008-09 BY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS. VI ROLA INTERNATIONAL IN ITA NO. 256/AG/2013. THE HONBLE TRIBUNAL 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 SHOULD BE UTILIZED IN INDIA BUT THESE SERVICES SHOULD ALSO BE RENDERED IN INDIA. AN ALYZING THIS LEGAL POSITION, HONBLE BOMBAY HIGH COURT HAS, IN THE CASE OF CLIFF ORD CHANCE VS DCIT (318 ITR 237), OBSERVED AS FOLLOWS: 'THE APEX COURT HAD OCCA SION TO CONSIDER THE ABOVE QUESTION IN THE CASE OF ISHIKAWAJMA-HARIMA HEAVY IN DUSTRIES LTD. VS. DIRECTOR OF IT (2007) 288 ITR 408 (SC), WHEREIN, WHILE INTERPRETIN G THE PROVISIONS OF S. 9(1)(VII)(C) OF THE 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 UTILIZED IN A BUSINESS OR PROFESSION CA RRIED ON BY SUCH PERSON IN INDIA, OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FR OM ANY SOURCE OF INDIA. READING THE PROVISION IN ITS PLAIN SENSE, AS PER TH E APEX COURT IT REQUIRES TWO CONDITIONS TO BE METTHE SERVICES WHICH ARE THE SOU RCE OF THE INCOME THAT IS SOUGHT TO BE TAXED, HAS TO BE RENDERED IN INDIA, AS WELL AS UTILIZED IN INDIA, TO BE TAXABLE IN INDIA. BOTH THE ABOVE CONDITIONS HAVE TO BE SATISFIED SIMULTANEOUSLY. THUS FOR A NON-RESIDENT TO BE TAXED ON INCOME FOR S ERVICES, SUCH A SERVICE NEEDS 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 THE TERRITORIAL NEXUS ON THE BAS IS WHEREOF TAX IS REQUIRED TO BE LEVIED, NAMELY, (A) RESIDENT; AND (B) RECEIPT OF AC CRUAL OF INCOME. ACCORDING TO THE APEX COURT, THE GLOBAL INCOME OF A RESIDENT ALT HOUGH IS SUBJECTED TO TAX, THE GLOBAL INCOME OF A NON-RESIDENT MAY NOT BE. THE ANS WER TO THE QUESTION WOULD DEPEND UPON THE NATURE OF THE CONTRACT AND THE PROV ISIONS OF THE DTAA. WHAT IS RELEVANT IS RECEIPT OR ACCRUAL OF INCOME, AS WOULD BE EVIDENT FROM A PLAIN READING OF S. 5(2) OF THE ACT SUBJECT TO THE COMPLI ANCE WITH 90 DAYS RULE. AS PER THE ABOVE JUDGMENT OF THE APEX COURT, THE INTERPRET ATION WITH REFERENCE TO THE NEXUS TO TAX TERRITORIES ALSO ASSUMES SIGNIFICANCE. TERRITORIAL NEXUS FOR THE PURPOSE OF DETERMINING THE TAX LIABILITY IS AN INTERNATIONA LLY ACCEPTED PRINCIPLE. AN ENDEAVOUR SHOULD, THUS, BE MADE TO CONSTRUE THE TAX ABILITY OF A NON-RESIDENT IN RESPECT OF INCOME DERIVED BY IT. HAVING REGARD TO T HE INTERNATIONALLY ACCEPTED PRINCIPLE AND THE DTAA, NO EXTENDED MEANING CAN BE GIVEN TO THE WORDS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AS EXPR ESSED IN S. 9 OF THE ACT. SEC. 9 6 INCORPORATES VARIOUS HEADS OF INCOME ON WHICH TAX I S SOUGHT TO BE LEVIED BY THE REPUBLIC OF INDIA. WHATEVER IS PAYABLE BY A RESIDEN T 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 O F A NON-RESIDENT TO A RESIDENT UTILIZED IN INDIA MAY NOT HAVE MUCH RELEVANCE IN DE TERMINING WHETHER THE INCOME OF THE NON-RESIDENT ACCRUES OR ARISES IN IND IA. IT MUST HAVE A DIRECT LINK BETWEEN THE SERVICES RENDERED IN INDIA. WHEN SUCH A LINK IS ESTABLISHED, THE SAME MAY AGAIN BE SUBJECTED TO ANY RELIEF UNDER THE DTAA . A DISTINCTION MAY ALSO BE MADE BETWEEN RENDITION OF SERVICES AND UTILIZATION THEREOF. WITH THE ABOVE UNDERSTANDING OF LAW LAID DOWN BY THE APEX COURT, I F ONE TURNS TO THE FACTS OF THE CASE IN HAND AND EXAMINES THEM ON THE TOUCHSTONE, S . 9(1)(VII)(C) WHICH CLEARLY STATES....... WHERE THE FEES ARE PAYABLE IN RESPEC T 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 FULFILMENT OF TWO CONDITIONS : SERVICES, WHICH ARE SOURCE OF INCOME SOUGHT TO BE TAXED IN INDIA MUST B E (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 SUPREME COURT, IN THE CASE OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. VS . DIRECTOR OF INCOME TAX (SUPRA), BINDS EVERYONE UNDER ARTICLE 141 OF THE CO NSTITUTION OF INDIA. THE LEGAL POSITION THUS WAS THAT UNLESS THE SERVICES ARE REND ERED 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 AC T 2010 RECEIVED ASSENT OF THE PRESIDENT OF INDIA ON 8TH MAY 2010. EXPLAINING THE SCOPE OF THIS AMENDMENT, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ASHAPURA MINICHEM LTD VS ADIT (131 TTJ 291), HAS EXPLAINED THUS: (THIS LEG AL POSITION) DOES NO LONGER HOLD GOOD IN VIEW OF RETROSPECTIVE AMENDMENT W.E.F. 1ST JUNE, 1976 IN S. 9 BROUGHT OUT BY THE FINANCE ACT, 2010. UNDER THE AMENDED EXPLANA TION TO S. 9(1), AS IT EXISTS ON THE STATUTE NOW, IT IS SPECIFICALLY STATED THAT THE INCOME OF THE NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CL. (V) OR CL. (VI) OR CL. (VII) OF S. 9(1), AND SHALL BE INCLUDED IN HIS TOTAL INCOME, WHETHER OR NOT (A) THE NONRESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNEC TION IN INDIA; OR (B) THE NON- RESIDENT HAS RENDERED SERVICES IN INDIA. IT IS THUS NO LONGER NECESSARY THAT, IN ORDER TO ATTRACT TAXABILITY IN INDIA, THE SERVICES MUST A LSO BE RENDERED IN INDIA. AS THE LAW STANDS NOW, UTILIZATION OF THESE SERVICES IN IN DIA IS ENOUGH TO ATTRACT ITS TAXABILITY IN INDIA. TO THAT EFFECT, RECENT AMENDME NT IN THE STATUTE HAS VIRTUALLY NEGATED THE JUDICIAL PRECEDENTS SUPPORTING THE PROP OSITION THAT RENDITION OF SERVICES IN INDIA IS A SINE QUA NON FOR ITS TAXABIL ITY IN INDIA. 8. IT IS THUS CLEAR THAT TILL 8TH MAY 2010, THE PREVAILING LEGAL POSITION WAS THA T UNLESS THE TECHNICAL SERVICES WERE RENDERED IN INDIA, THE FEES FOR SUCH SERVICES COULD NOT BE BROUGHT TO TAX UNDER SECTION 9(1)(VII). THE LAW AMENDED WAS UNDOUB TEDLY RETROSPECTIVE IN NATURE BUT SO FAR AS TAX WITHHOLDING LIABILITY IS C ONCERNED, IT DEPENDS ON THE LAW AS IT EXISTED AT THE POINT OF TIME WHEN PAYMENTS, FROM WHICH TAXES OUGHT TO HAVE BEEN WITHHELD, WERE MADE. THE TAXDEDUCTOR CANNOT 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 R ESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY, WITH RETROSPECTIVE EFFECT. THE TAX WITHHOLDING OBLIGATIO NS FROM PAYMENTS TO NON- RESIDENTS, AS SET OUT IN SECTION 195, REQUIRE THAT THE PERSON MAKING THE PAYMENT AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUN T OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME -TAX THER EON 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 EARLIER, SUCH OBL IGATIONS CAN ONLY BE DISCHARGED IN THE LIGHT OF THE LAW AS IT STANDS THAT POINT OF TIME. SECTION 40(A)(I) PROVIDES THAT, INTER ALIA, NOTWITHSTANDING ANYTHING TO THE CONTRAR Y 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 D EDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED'. THE DISALLOWANCE UNDER SECTION 40(A)(I) IS NOT FOR THE PAYMENTS MADE TO NO N-RESIDENTS, WHICH ARE TAXABLE IN INDIA, BUT FOR THE PAYMENTS ON WHICH TAX WAS DED UCTIBLE AT SOURCE BUT TAX HAS NOT BEEN DEDUCTED, AND SUCH DEDUCTIBILITY OF TAX AT SOURCE, AS WE HAVE DISCUSSED ABOVE, HAS TO BE IN THE LIGHT OF THE LEGA L POSITION AS IT STOOD AT THE POINT OF TIME WHEN PAYMENT WAS MADE OR CREDITED- WHICHEVE R IS EARLIER . CLEARLY, 7 THEREFORE, THE DISALLOWANCE UNDER SECTION 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 SU CH AN OBLIGATION. IN VIEW OF THESE DISCUSSIONS, SO FAR AS PAYMENTS MADE BEFORE 8 TH MAY 2010 ARE CONCERNED, THE ASSESSEE DID NOT HAVE ANY TAX WITHHOLDING LIABI LITIES FROM FOREIGN REMITTANCES FOR FEES FOR TECHNICAL SERVICES UNLESS SUCH SERVICE S WERE RENDERED IN INDIA, AND A FORTIORI NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(I) FOR ASSESSEES FAILURE TO DEDUCT TAX AT SOURCE FROM SUCH PAYMENTS. 9. IN T HE CASE BEFORE US, THERE IS NO MATERIAL WHATSOEVER TO DEMONSTRATE AND ESTABLISH TH AT THE DESIGN AND DEVELOPMENT SERVICES, FOR WHICH IMPUGNED PAYMENTS W ERE 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 AN Y OBLIGATION TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS, IN THE LIGHT OF THE ABO VE DISCUSSIONS AND AS COROLLARY THERETO, NO DISALLOWANCE CAN BE MADE IN RESPECT OF THESE PAYMENTS. AS WE HAVE COME TO THESE CONCLUSIONS IN THE LIGHT OF THE PROVISIONS OF THE DOMESTIC LAW, I.E. INCOME TAX ACT, ITSELF, THERE IS NO NEED TO DE AL WITH THE TAXABILITY OF INCOMES EMBEDDED IN THESE PAYMENTS UNDER THE PROVISIONS OF THE APPLICABLE TAX TREATIES. THAT WOULD BE RELEVANT WITH RESPECT TO TAXABILITY O F THESE PAYMENTS IN THE HANDS OF THE RECIPIENTS, BUT, FOR THE REASONS SET OUT ABO VE AND IN THE LIGHT OF THE LEGAL POSITION DISCUSSED ABOVE, WILL BE ACADEMIC IN THE P RESENT CONTEXT. AS REGARDS LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENT RELIAN CE ON A DECISION OF CHENNAI A BENCH OF THIS TRIBUNAL IN THE CASE OF ACI T VS EVOLV CLOTHING PVT LTD [(2013) 33 TAXMANN.COM 309] WHEREIN ON THE BASIS OF TAXABILITY OF INCOME ALONE, THE COORDINATE BENCH HAS CONFIRMED THE DISALLOWANCE UNDER 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 HA VING 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. 9. THE FACTS IN THE PRESENT CASE ARE IDENTICAL TO T HAT IN ASSESSMENT YEAR 2008- 09. UNDISPUTEDLY DISALLOWANCE HAS BEEN MADE BY HOLD ING THE IMPUGNED PAYMENTS TO BE IN THE NATURE OF FTS. IT IS AN ADMI TTED FACT THAT NO SERVICES HAVE BEEN RENDERED IN INDIA WITH RESPECT TO THE SAME. FU RTHER IT IS ALSO NOT DISPUTED THAT THE ENTIRE PAYMENT HAS BEEN MADE IN THE IMPUGN ED YEAR ITSELF I.E; BEFORE 08/05/2010. THEREFORE WE HOLD THAT THE DECISION OF THE HONBLE TRIBUNAL IN THE CASE OF M/S GUPTA OVERSEAS IN ITA NO. 257/AG/2013 S QUARELY APPLIES TO THE ASSESSEE AND FOLLOWING THE SAME WE UPHOLD THE CONCL USION ARRIVED AT BY THE LD. CIT(A) THAT THE ASSESSEE DID NOT HAVE ANY TAX WITHH OLDING LIABILITIES FROM FOREIGN REMITTANCES FOR FEES FOR TECHNICAL SERVICES AND THU S NO DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT WAS WARRANTED. 8 WE MAY FURTHER STATE THAT SEVERAL OTHER ARGUMENTS W ERE FORWARDED BY LD. DR IN SUPPORT OF ITS CONTENTION THAT THE DISALLOWANCE MAD E UNDER SECTION 40(A)(IA) BE UPHELD, BUT AS STATED ABOVE IN PARA 9 SINCE THE ENT IRE DISALLOWANCE MADE WHICH IS IN DISPUTE BEFORE US HAS BEEN DELETED, THE REMAINING ARGUMENT OF THE REVENUE REMAINS PURELY ACADEMIC IN NATURE, WHICH AR E NOT BEING DEALT WITH BY US. IN VIEW OF THE SAME GROUND NO. 1 & 2 RAISED BY THE REVENUE ARE DISMISSED. 10. 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 :29/04/2016 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR