SGS INDIA P.LTD, MUMBAI V. DCIT 10(3), MUMBAI

ITA 7436/MUM/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8028 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 12-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AVANEESH TIWARI
• Assessee Lawyers: NIRAV SHAH ARS; PRAYA JAIN
• Keywords: Search and seizure; Double taxation relief; Retrospective amendment; Non-deduction of tax; Revised return; Reassessment proceedings; TDS
• Section: 40(a)(ia); 195; 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I, BENCH MUM BAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBE R ITA NO.7436, 7437 & 7438/MUM/2014 ( ASSESSMENT YEARS: 2005-06 2006-07 & 2007-08 ) SGS INDIA PRIVATE LIMITED SGS HOUSE, 4B ADI SHANKARACHARYA MARG VIKHROLI (WEST) MUMBAI-400 083 VS. DCIT-10(3) MUMBAI PAN/GIR NO. AA ACS5514Q ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI AVANEESH TIWARI , SR.DR ASSESSEE BY SHRI PRAYA JAIN & NIRAV SHAH ARS DATE OF HEARING 1 9 /12 /2019 DATE OF PRONOUNCEMENT 15/01/2020 / O R D E R PER G.MANJUNATHA (A.M) : THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE LD. COMMISSIO NER OF INCOME TAX (APPEALS)22, MUMBAI, ALL DATED 01/09/2014 AND THEY PERTAINS TO AYS 2005-06, 2006-07 AND 2007-08. SINCE, THE FA CTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED-OFF BY THIS CO NSOLIDATED ORDER. ITA.NO.7346/MUM/2014:- 2. THE ASSESSEE HAS, MORE OR LESS RAISED COMMON GROUNDS OF APPEAL FOR ALL THREE AYS. THEREFORE, FOR THE SAKE OF BREVITY, GROUNDS SGS INDIA PVT. LIMITED 2 OF APPEAL FILED FOR AY 2005-06 IN ITA NO.7346/MUM/2 014 IS REPRODUCED AS UNDER:- REASSESSMENT PROCEEDINGS BAD IN LAW 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-22, MU MBAI ['CIT (A)'] HAS ERRED IN REJECTING THE CONTENTION OF THE APPELL ANT THAT THE REASSESSMENT PROCEEDINGS IS BARRED BY LIMITATION. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN REJ ECTING THE VARIOUS CONTENTIONS OF THE APPELLANT THAT THE ENTIRE REASSE SSMENT PROCEEDINGS ARE BAD IN LAW, VOID AB INITO AND OUGHT TO BE QUASH ED. DISALLOWANCE UNDER SECTION 40(A)(I) OF THE INCOME T AX ACT 1961 ON ACCOUNT OF PAYMENTS TOWARDS INSPECTION. VERIFICATIO N. TESTING AND CERTIFICATION SERVICES REIMBURSEMENTS OF EXPENSES. REPRESENTATION / CO-ORDINATION SERVICES AND TRAI NING EXPENSES 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ['CIT ( A)] HAS ERRED IN LAW AND ON FACTS IN DISALLOWING RS. 41,44,624 UNDER SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961 ('ACT'} ON ACCOUNT OF INSPECTION, VERIFICATION, TESTING AND CERTIFICATION SERVICES ('IVTC'). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FEELS IN DIS ALLOWING RS. 1,03,65,755 UNDER SECTION 40(A)(I) OF THE AD ON ACC OUNT OF REIMBURSEMENT OF EXPENSES. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIS ALLOWING RS. 48,17,732 UNDER SECTION 40(A)(I) OF THE ACT ON ACCOUNT OF REP RESENTATION AND CO- ORDINATION SERVICE FEES. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIS ALLOWING RS. 5,49,620 UNDER SECTION 40(A)(I) OF THE ACT ON ACCOUNT OF TRA INING EXPENSES. 7. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT HU MBLY SUBMITS THAT THE DISALLOWANCE IF ANY WITH RESPECT TO PAYMENTS FOR IV TC SERVICES, REIMBURSEMENTS OF EXPENSES AND REPRESENTATION / CO- ORDINATION SERVICES MADE TO NON-RESIDENTS ON WHICH TDS HAS NOT BEEN DEDUCTED SHOULD BE RESTRICTED TO 30% OF THE AMOUNT PAYABLE T O NON-RESIDENTS ON THE BASIS OF THE FOLLOWING: A) THE AMENDMENT TO SECTION 4Q(A)(IA) OF THE ACT, BROUGHT BY THE FINANCE (NO. 2) ACT, 2014, SHOULD BE APPLIED RETROS PECTIVELY FROM 1 APRIL 2005 SGS INDIA PVT. LIMITED 3 B) BY APPLYING ARTICLE 24(3) OF INDIA-SWISS LAX TR EATY, IN THE EVENT OF NON- DEDUCTION OF TAX AT SOURCE WHILE MAKING PAYMENT TO NON-RESIDENT, THE DISALLOWANCE SHOULD BE RESTRICTED TO 30% OF THE AMO UNT PAID FROM 1 APRIL 2005, RELIEF YOUR APPELLANT, THEREFORE, RESPECTFULLY PRAYS TO DI RECT THE LEARNED AO TO: A) MODIFY THE ASSESSMENT ORDER TO THE ABOVE EXTENT AND B) GRANT OTHER RELIEF DEEMED NECESSARY THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL HEREIN AND TO SUBMIT SUCH STA TEMENTS, DOCUMENTS AND PAPERS AS MAY BE CONSIDERED NECESSARY EITHER AT OR BEFORE THE APPEAL HEARING 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.3, 7(A) & 7(B) OF ASSESSEE APPEAL IS DISALLOWANC ES OF IVTC SERVICE CHARGES FOR NON DEDUCTION OF TAX AT SOURCE U/S 195 OF THE I.T.ACT, 1961. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEARING, SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FA VOUR OF THE ASSESSE BY THE DECISION OF ITAT MUMBAI, I BENCH IN ASSESS EE OWN CASE FOR AY 2008-09 TO 2011-12 IN ITA NO. 6974/MUM/2014, VID E ORDER DATED 28/11/2019, WHERE UNDER IDENTICAL SET OF FACTS, THE ADDITIONS MADE BY THE LD. AO HAS BEEN DELETED. 4. THE LD. DR, ON THE OTHER HAND, FAIRLY ACCEPTED T HAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF ITAT, MUMBAI I BENCH IN ASSESSEES OWN CASE FOR AY 2008 -09. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT DISALLOWANCES OF IVTC SERVICE CHARGES U/S 40(A )(I) OF THE I.T.ACT, 1961 FOR NON DEDUCTION OF TAX AT SOURCE U/S 195 OF THE I.T.ACT, 1961 HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH FOR AY 2008-09 IN ITA NO. 6974/MUM/2014, WHERE UNDER IDENTICAL SET OF FAC TS, THE TRIBUNAL SGS INDIA PVT. LIMITED 4 BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH CO URT, IN THE CASE OF CIT VS KPMG IN ITA NO.690/2017, DATED 24/09/2019 DELETED ADDITIONS MADE BY THE LD. AO TOWARDS IVTC CHARGES F OR FAILURE TO DEDUCT TAX AT SOURCE U/S 195 OF THE I.T.ACT, 1961, ON THE GROUND THAT THE LIABILITY ON TDS CANNOT BE FASTENED ON THE ASSE SSEE ON THE BASIS OF RETROSPECTIVE AMENDMENT TO THE PROVISIONS OF SEC TION 9(1)(VII) OF THE I.T.ACT, 1961. THE RELEVANT FINDINGS OF THE TRI BUNAL ARE AS UNDER;- 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES B ELOW. THE FACTS WITH REGARD TO TAXABILITY OF FTS U/S 9(1)(VI) IN THE HAN DS OF NON-RESIDENTS IN INDIA, EVEN THOUGH SERVICES WERE RENDERED BY SUCH N ON-RESIDENTS OUTSIDE INDIA IS NOT DISPUTED, BECAUSE THE LAW HAS BEEN AM ENDED BY THE FINANCE ACT, 2010 WITH RETROSPECTIVE EFFECT FROM 19 76 TO THE PROVISION OF SECTION 9(1)(VII) AND AMENDED THE DEFINITION OF FT S AND ACCORDINGLY, EVEN NON-RESIDENTS ARE LIABLE TO PAY TAX ON FTS IN INDIA, EVEN THOUGH SERVICES WERE RENDERED IN OUTSIDE INDIA. BUT, FACT REMAINS THAT WHETHER, THE ASSESSEE WAS LIABLE TO DEDUCT TDS U/S 195 IN A SITUATION, WHERE THE NON-RESIDENTS SERVICE PROVIDER ARE NOT LIABLE TO TA X IN RESPECT OF FTS U/S 9(1)(VII), AT THE TIME OF REMITTANCE, BUT BECAME LI ABLE TO TAX BY VIRTUE OF A RETROSPECTIVE AMENDMENT MADE IN THE YEAR, 2010 I.E TWO YEARS AFTER THE END OF FINANCIAL YEAR 2007-08 WAS EXAMINED BY THE C OURTS. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS KPMG IN ITA NO. 609 OF 2017 HAD CONSIDERED IDENTICAL ISSUE AND AFTE R CONSIDERING RELEVANT AMENDMENTS TO PROVISION OF SECTION 9(1)(VII) OF THE I.T.ACT, 1961 HELD THAT A RETROSPECTIVE AMENDMENT CANNOT FASTEN OBLIGATION TO DEDUCT TAX WHEN NOT IN FORCE AT THE RELEVANT TIME I.E WHEN PAYMENT WAS MADE. THE HONBLE COURT, FURTHER HELD THAT THE PARTY CANNOT B E CALLED UPON TO PERFORM AN IMPOSSIBLE ACT I.E TO COMPLY WITH THE PR OVISION, WHICH WAS NOT IN FORCE AT THE RELEVANT TIME. THE RELEVANT FINDING S OF THE HONBLE COURT ARE AS UNDER;- 11. SO ALSO, QUESTION (II) AS PROPOSED IS ACADEMIC AS NO OCCASION TO DEDUCT TAX AT SOURCE WOULD ARISE IN THE ABSENCE OF ANY INCOME IN THE HANDS OF THE SERVICE PROVIDERS OUTSID E INDIA IN VIEW OF SECTION 195 OF THE ACT. EVEN OTHERWISE A RETROSP ECTIVE AMENDMENT CANNOT CAST AN OBLIGATION TO DEDUCT TAX W HEN NOT IN FORCE AT THE RELEVANT TIME I.E WHEN PAYMENT WAS MAD E. IN FACT, THIS COURT IN COMMISSIONER OF INCOME TAX V/S. M/S. NGC N ETWORKS (INDIA) PVT.LTD (INCOME TAX APPEAL NO. 397 OF 2005, DECIDED ON 29 TH JANUARY, 2018) HAS HELD THAT A PARTY CANNOT BE CAL LED UPON TO PERFORM AN IMPOSSIBLE ACT I.E. TO COPY WITH THE PRO VISION WHICH WAS NOT IN FORCE AT THE RELEVANT TIME. ADMITTEDLY THE E XPLANATION, IF APPLICABLE IS INTRODUCED LATER BY A RETROSPECTIVE A MENDMENT. THUS, THERE COULD BE NO OBLIGATION NO DEDUCT TAX AT SOURC E WHEN THE PAYMENTS HAVE BEEN MADE TO THE SERVICE PROVIDERS AB ROAD IN THE SGS INDIA PVT. LIMITED 5 ABSENCE OF A SPECIFIC PROVISION AT THE TIME WHEN TH E PAYMENTS WERE MADE. 8. IN THIS VIEW OF THE MATTER AND RESPECTFULLY FOLL OWING THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS KP MG, WE ARE OF THE CONSIDERED VIEW THAT NO DISALLOWANCE COULD BE MADE U/S 40(A)(I), IN RESPECT OF PAYMENTS MADE TOWARDS IVTC CHARGES FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 195 OF THE I.T.ACT, 1961, ON THE BASIS OF RETROSPECTIVE AMENDMENT TO THE PROVISION OF SECTION 9(1)(VII) OF THE I.T.ACT, 1961. HENCE, WE DIRECT THE AO TO DELETE ADDITIONS MADE TO WARDS DISALLOWANCES OF IVTC CHARGES U/S 40(A)(I) OF THE I.T.ACT, 1961. 6. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO DELETE A DDITIONS MADE TOWARDS DISALLOWANCES OF IVTC SERVICES CHARGES U/S 40(A)(I), FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 195 OF THE I.T. ACT, 1961. 7. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM GROUND NO. 4 AND 7(B) OF ASSESSEE APPEAL IS DISALLOWANCES OF REIMBURSEMENT OF EXPENDITURE RELATING TO IVTC SERVI CES RENDERED OUTSIDE INDIA BY NON-RESIDENT U/S 40(A)(I) FOR FAIL URE TO DEDUCT TAX AT SOURCE U/S 195 OF THE I.T.ACT, 1961. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI I BENCH IN ASSESSEE OWN CASE FOR AY 2008-09 IN ITA.NO.6974/MUM/2014, FOR WHICH THE LD. DR FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. WE FIND THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE AS SESEE BY THE DECISION OF ITAT, MUMBAI I BENCH IN ASSESSEES OW N CASE FOR AY 2008-09 IN ITA NO.6974/MUM/2014, WHERE UNDER IDENTI CAL SET OF FACTS, THE TRIBUNAL BY FOLLOWING THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS KPMG (SUPRA) DELETED AD DITIONS MADE BY THE LD. AO. THE RELEVANT FINDINGS OF THE TRIBUNAL A RE AS UNDER;- SGS INDIA PVT. LIMITED 6 9. THE NEXT ISSUE THAT CAME UP OF OUR CONSIDERATION FROM GROUND NO.2 OF ASSESSEE APPEAL IS REIMBURSEMENT OF EXPENSE S INCURRED IN PROVIDING TECHNICAL SERVICES. WE FIND THAT WHEN PAY MENTS MADE FOR FTS IS NOT LIABLE FOR DISALLOWANCES U/S 40(A)(I) OF THE I.T.ACT, 1961 FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 195 OF THE I.T.ACT, 1961, THEN THE CONSEQUENT REIMBURSEMENT OF EXPENSES IN RELATION TO PROVIDING SAID TECHNICAL SERVICES CANNOT BE DISALLOWED U/S 40(A)(I) OF THE I .T.ACT, 1961, FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 195 OF THE I.T.ACT, 196 1. THEREFORE, BY RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF CIT VS KPMG, WE DIRECT THE AO TO DELETE ADD ITIONS MADE TOWARDS REIMBURSEMENT OF EXPENSES U/S 40(A)(I) OF THE I.T.A CT, 1961. 9. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH V IEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO DELETE A DDITIONS MADE TOWARDS DISALLOWANCES OF REIMBURSEMENT OF EXPENDITU RE RELATING TO IVTC SERVICES. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 5 OF ASSESSEE APPEAL IS DISALLOWANCES OF REPRES ENTATION/CO- ORDINATION SERVICES FEES U/S 40(A)(I), FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 195 OF THE I.T.ACT, 1961. THE LD. AR FO R THE ASSESSEE SUBMITTED THAT THIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI K BENCH, IN ASSESSEE S OWN CASE FOR AY 2008-09 IN ITA NO. 6974/MUM/2014, FOR WHICH THE LD. DR FAIRLY ACCEPTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSE. 11. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIALS AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT AN IDENTICAL ISSUE HAS BEEN CON SIDERED BY THE TRIBUNAL FOR AY 2008-09 AND AFTER CONSIDERING RELEV ANT FACTS HELD THAT PAYMENT MADE TOWARDS REPRESENTATION/CO-ORDINA TION SERVICES FEE CANNOT BE SUBJECTED TO TDS PROVISIONS, CONSEQUE NTLY ADDITIONS SGS INDIA PVT. LIMITED 7 CANNOT BE MADE U/S 40(A)(I) OF THE I.T.ACT, 1961. T HE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER;- 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AS COULD BE SEEN, THE ASSESSING OFFICER HAS DISALLOWED VARIOUS PAYMENTS UNDER SECTION 40(A)(I) ON THE REASONING TH AT SUCH PAYMENTS ARE IN THE NATURE OF FTS AS PER THE DEFINITION OF FTS I N THE RELEVANT TAX TREATIES AS WELL AS UNDER SECTION 9(1)(VII) OF THE ACT. HOWEVER, AS FAR AS PAYMENT MADE TOWARDS WAN SERVICES IS CONCERNED AS C OULD BE SEEN FROM THE ORDER OF THE AAR IN CASE OF SGS, GENEVA, I N AAR NO.912 OF 2013, DATED 14TH MAY 2015, IT HAS BEEN HELD THAT SU CH SERVICES ARE NOT IN THE NATURE OF TECHNICAL SERVICES OR ROYALTY. THE AA R HAS HELD THAT SINCE SUCH PAYMENTS ARE NOT IN THE NATURE OF ROYALTY OR F TS THEY ARE NOT CHARGEABLE TO TAX IN INDIA EITHER UNDER THE ACT OR UNDER THE DTAA. SIMILARLY, AS FAR AS THE PAYMENT MADE TOWARDS REPRE SENTATION SERVICE IS CONCERNED, THE AAR IN THE VERY SAME ORDER HAS HELD THAT SUCH PAYMENTS ARE NOT TOWARDS FTS OR ROYALTY. HENCE, NOT TAXABLE UNDER THE ACT OR DTAA. IN VIEW OF SUCH DECISION OF THE AAR AS REFERR ED TO ABOVE, THE PAYMENT MADE TOWARDS WAN SERVICES AND REPRESENTATIO N SERVICES CANNOT BE SUBJECTED TO TDS PROVISIONS. THEREFORE, D ISALLOWANCE MADE OF SUCH EXPENDITURE FOR NON DEDUCTION OF TAX CANNOT B E SUSTAINED AS THERE IS NO REQUIREMENT FOR ASSESSEE TO DEDUCT TAX AT SOU RCE WHILE MAKING SUCH PAYMENTS. AS FAR AS THE PAYMENT MADE TOWARDS IVTC I S CONCERNED, NOTHING HAS BEEN BROUGHT TO OUR NOTICE TO CONCLUSIV ELY PROVE THAT SUCH SERVICES ARE NOT IN THE NATURE OF TECHNICAL SERVICE S. THE ASSESSEE HAS ALSO FAILED TO PROVE THAT SUCH INCOME DOES NOT ACCR UE OR ARISE IN INDIA. THEREFORE, WE ARE NOT INCLINED TO ACCEPT THE ARGUME NTS OF THE ASSESSEE THAT PAYMENT MADE ARE NOT IN THE NATURE OF FTS, HEN CE, NO TDS WAS REQUIRED. HOWEVER, WE AGREE WITH THE CONCLUSION OF THE LEARNED COMMISSIONER (APPEALS) THAT THE DISALLOWANCE UNDER SECTION 40(A)(I) AS PER ARTICLE21(1) OF THE INDIA SWITZERLAND DTAA HAS TO BE RESTRICTED TO THE AMOUNT ACTUALLY PAID DURING THE RELEVANT PREVIOUS Y EAR. AT THIS STAGE, IT NEEDS TO BE MENTIONED, THE ASSESSEE HAS MADE A WITH OUT PREJUDICE SUBMISSION THAT AS PER ARTICLE 24(3) OF THE TREATY DISALLOWANCE ON ACCOUNT OF NONDEDUCTION OF TAX SHOULD BE RESTRICTED TO 30% OF THE AMOUNT PAID, WHICH IS THE QUANTUM OF DISALLOWANCE APPLICABLE TO DOMESTIC TRANSACTIONS AS PER SECTION 40(A)(IA). IT IS SUBMITTED, THE AMEN DMENT TO SECTION 40(A)(IA) RESTRICTING DISALLOWANCE TO 30% OF THE AM OUNT PAID SHOULD BE MADE APPLICABLE RETROSPECTIVELY, SINCE, IT IS CLARI FICATORY IN NATURE. WE ARE AFRAID, THE CONTENTION OF THE ASSESSEE CANNOT BE AC CEPTED. IN OUR CONSIDERED OPINION, THE AMENDMENT TO SECTION 40(A)( IA) BROUGHT BY FINANCE ACT, 2014, RESTRICTING THE DISALLOWANCE TO 30% OF THE AMOUNT PAID IS SUBSTANTIVE AND NOT CLARIFICATORY, HENCE, WILL H AVE NO RETROSPECTIVE OPERATION. GROUNDS NO.1 TO 4 ARE PARTLY ALLOWED. SGS INDIA PVT. LIMITED 8 12. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO DELETE A DDITIONS TOWARDS DISALLOWANCES OF REPRESENTATION/CO-ORDINATION SERVI CES U/S 40(A)(I) OF THE I.T.ACT, 1961 FOR NON DEDUCTION OF TAX AT SOURC E U/S 195 OF THE I.T.ACT 1961. 13. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.6 OF ASSESEE APPEAL IS DISALLOWANCES OF TRAINING CHARGES U/S 40(A)(I) OF THE I.T.ACT, 1961. WE FIND THAT THIS IS SUE IS ALSO COVERED IN FAVOUR OF THE ASSESEE BY THE DECISION OF ITAT, MUMB AI I BENCH IN ASSESSEE OWN CASE FOR AY 2009-10 IN IT(TP)A.NO. 251 2/MUM/2017, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT, IN THE CASE OF CIT VS KPMG (SUPRA) HELD THAT A PARTY CANNOT BE CALLED UPON T O PERFORM AN IMPOSSIBLE ACT, I.E TO COMPLY WITH THE PROVISION, W HICH WAS NOT IN FORCE AT THE RELEVANT TIME. CONSEQUENTLY, THERE COU LD BE NO OBLIGATION TO DEDUCT TAX AT SOURCE, WHEN THE PAYMEN TS HAVE BEEN MADE TO THE SERVICE PROVIDERS OUTSIDE INDIA, IN ABS ENCE OF A SPECIFIC PROVISION AT THE TIME, WHEN THE PAYMENTS WERE MADE AND HENCE, THE SAID PAYMENTS CANNOT BE DISALLOWED U/S 40(A)(I) OF THE ACT, FOR NON DEDUCTION TAX AT SOURCE U/S 195 OF THE I.T.ACT, 19 61. THE RELEVANT FINDINGS OF THE TRIBUNAL ARE AS UNDER;- 14. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.4 OF ASSESSEE APPEAL IS DISALLOWANCES OF TRAINING CHA RGES U/S 40(A)(I), FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT, 961. THE ASSESSEE CLAIMS THAT TRAINING RENDERED OUTSIDE INDIA BY NONR ESIDENTS ARE NOT LIABLE TO TDS IN INDIA, WHEN PAYMENTS WERE MADE ALTHOUGH, THE SAID PROVISIONS HAVE BEEN RETROSPECTIVELY AMENDED BY THE FINANCE AC T, 2010 W.E.F FINANCIAL YEAR 1976. WE FIND THAT AN IDENTICAL ISSU E HAD BEEN CONSIDERED BY US, IN LIGHT OF AMENDED PROVISION OF SECTION 9(1 )(VII) OF THE I.T.ACT, 1961 BY THE FINANCE ACT , 2010 WITH RETROSPECTIVE E FFECT FROM 1976 AND BY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH CO URT, IN THE CASE OF CIT VS KPMG. (SUPRA) HELD THAT A PARTY CANNOT BE CA LLED UPON TO PERFORM AN IMPOSSIBLE ACT I.E TO COMPLY WITH THE PROVISION, WHICH WAS NOT IN FORCE SGS INDIA PVT. LIMITED 9 AT THE RELEVANT TIME. CONSEQUENTLY, THERE COULD BE NO OBLIGATION TO DEDUCT TAX AT SOURCE, WHEN THE PAYMENTS HAVE BEEN MADE TO THE SERVICES PROVIDERS OUTSIDE INDIA, IN THE ABSENCE OF A SPECIF IC PROVISION AT THE TIME, WHEN THE PAYMENTS WERE MADE AND HENCE, THE SAID PAY MENTS CANNOT BE DISALLOWED U/S 40(A)(I) OF THE I.T.ACT, 1961 FOR FA ILURE TO DEDUCT TAX AT SOURCE 195 OF THE I.T.ACT, 1965. THEREFORE, CONSIST ENT WITH VIEW TAKEN BY THE COORDINATE BENCH IN ASSESSEE OWN CASE, WE ARE O F THE CONSIDERED VIEW THAT THERE CANNOT BE ANY DISALLOWANCES OF TRAI NING CHARGES U/S 40(A)(I) OF THE ACT, FOR FAILURE TO DEDUCT TAX AT S OURCE U/S 195 OF THE ACT, AND HENCE, WE DIRECT THE AO TO DELETE ADDITIONS MAD E TOWARDS DISALLOWANCES OF TRAINING CHARGES U/S 40(A)(I) OF T HE I.T.ACT, 1961. 14. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE DIRECT THE LD. AO TO DELETE A DDITIONS MADE TOWARDS DISALLOWANCES OF TRAINING CHARGES U/S 40(A) (I) OF THE I.T.ACT, 1961. 15. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO.7 OF ASSESSEE APPEAL IS RESTRICTION OF DISALLOWA NCES OF IVTC SERVICE, REIMBURSEMENT RELATING TO IVTC SERVICES AN D TRAINING CHARGES TO 30% OF AMOUNTS PAID DURING THE FINANCIAL YEAR AND BALANCE AMOUNT PAYABLE IS NOT LIABLE FOR DISALLOWAN CES. WE FIND THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE D ECISION OF ITAT MUMBAI I BENCH IN ASSESEE OWN CASE FOR AY 2009-10 IN IT(TP) NO. 2512/MUM/2017, WHERE THE ISSUE HAS BEEN DECIDED AGA INST THE ASSESSEE BY OBSERVING AS UNDER:- 16. HAVING CONSIDERED ARGUMENTS OF BOTH THE SIDES, WE FIND THAT THE TRIBUNAL HAD DECIDED ISSUE AGAINST THE ASSESSEE, IN LIGHT OF ARTICLE 24(3) OF THE TREATY AND ALSO, AMENDED PROVISION OF SECTIO N 40(A)(IA) OF THE I.T.ACT, 1961 AND HELD THAT THE AMENDMENT TO SECTIO N 40(A)(IA) BROUGHT BY THE FINANCE ACT,2014, RESTRICTING THE DISALLOWANCES TO 30% OF THE AMOUNT PAID IS SUBSTANTIVE AND NOT CLARIFICATORY, HENCE, W ILL HAVE NO RETROSPECTIVE OPERATION. THEREFORE, CONSISTENT WITH VIEW TAKEN BY THE COORDINATE BENCH IN ASSESSEES OWN CASE, WE REJECT GROUND TAKEN BY T HE ASSESEE. 16. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH VIEW TAKEN BY THE CO-ORDINATE BENCH, WE REJECT GROUND TAKEN BY THE AS SESSEE. SGS INDIA PVT. LIMITED 10 17. IN THE RESULT, APPEAL FILED BY THE ASSESEE FOR AY 2005-06 IS PARTLY ALLOWED. ITA NOS.7437/MUM/2014 & 7438/MUM/2014:- 18. THE FACTS AND ISSUES INVOLVED IN THESE TWO AP PEALS UP TO GROUND NO. 7 ARE IDENTICAL TO THE FACTS AND ISSUES, WHICH WE HAD CONSIDERED IN ITA NO. 7436/MUM/2014 FOR AY 2005-06. THE REASONS GIVEN BY US IN PRECEDING PARAGRAPHS ITA.NO. 7436/MU M/2014 SHALL MUTATIS MUTANDIS APPLY TO THIS APPEAL AS WELL FOR G ROUND NO.1 TO 7. THEREFORE, FOR SIMILAR REASONS RECORDED IN PRECEDIN G PARAGRAPHS IN ITA NO. 7436/MUM/2014, WE DIRECT THE LD. AO TO FOLL OW THE DIRECTIONS GIVEN BY THE TRIBUNAL IN RESPECTIVE GROU ND OF APPEAL FOR ASST. YEAR 2005-06 AND DECIDE THE ISSUE FOR THE YEA R UNDER CONSIDERATION. 19. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM GROUND NO. 8 AND 9 FOR AY 2007-08 IS SHORT CREDIT FOR TDS ON THE BASIS OF REVISED RETURN OF INCOME FILED BY THE ASSESEE. WE F IND THAT CREDIT FOR TDS SHALL BE ALLOWED, AS PER DETAILS OF PROOF OF TA X PAID BY THE ASSESEE INCLUDING TDS CREDIT AVAILABLE IF ANY. THER EFORE, WE DIRECT THE LD. AO TO ALLOW CREDIT FOR TDS AS PER DETAILS F ILED BY THE ASSESSEE ON THE BASIS OF REVISED RETURN OF INCOME F ILED FOR THE YEAR. 20. IN THE RESULT, APPEALS FILED BY THE ASSESSE FOR AY 2006-07 AND 2007-08 ARE PARTLY ALLOWED. SGS INDIA PVT. LIMITED 11 21. AS A RESULT, ALL APPEALS FILED BY THE ASSESE E ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 15 /01/ 2020 SD/- (MAHAVIR SINGH) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 15 /01/2020 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//